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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............ to .............
Commission file number 0-15392
REGENT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1492857
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 East RiverCenter Boulevard
Suite 180
Covington, Kentucky 41011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (606) 292-0300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Series C Convertible Preferred Stock None
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 31, 1999, the aggregate market value of registrant's common
equity beneficially held by non-affiliates of registrant is $0.
The number of common shares of registrant outstanding as of March 31,
1999 is 240,000.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement to be filed during
April 1999 in connection with the 1999 Annual Meeting of Stockholders presently
scheduled to be held on April 29, 1999 are incorporated by reference into Part
III of this Form 10-K. Certain exhibits listed in Part IV of this Form 10-K are
incorporated by reference from prior filings made by the Registrant under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934.
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REGENT COMMUNICATIONS, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
Page
Part I
Item 1 Business 1
Item 2 Properties 10
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 11
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 7A Quantitative and Qualitative Disclosures about Market Risk 19
Item 8 Financial Statements and Supplementary Data 19
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 46
Part III
Item 10 Directors and Executive Officers of the Registrant 46
Item 11 Executive Compensation 46
Item 12 Security Ownership of Certain Beneficial Owners
and Management 46
Item 13 Certain Relationships and Related Transactions 46
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 46
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PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Regent Communications, Inc. ("Regent" or the "Company") is a holding
company engaged in the radio broadcasting business. Regent was incorporated in
Delaware in November 1996 by Terry S. Jacobs and William L. Stakelin with the
objective of acquiring radio properties, primarily in medium and smaller radio
markets, that have a history of growing revenues and broadcast cash flow, have
capable operating management and are in communities with good growth prospects
or have attractive competitive environments. Regent acquired its first radio
station in 1997, and with acquisitions of 32 additional stations in 1998, Regent
currently owns and operates 33 radio stations (21 FM and 12 AM) in ten markets
in California, Arizona, Michigan and Ohio. Regent has contracted to sell seven
of these stations which do not conform to Regent's strategic plans. Regent has
also agreed to purchase two FM radio stations and one AM station in the St.
Cloud, Minnesota market (the "St. Cloud Stations").
The following table sets forth certain information regarding radio
stations owned by Regent and which Regent has agreed to acquire:
License
Power Expiration
Market Area Call Letters City of License Frequency (kw) Format Date
----------- ------------ --------------- --------- ---- ------ ----
San Diego, CA KCBQ(AM) San Diego, CA 1170 KHz 50.0/1.5 Talk/Information 12/01/05
Chico, CA KFMF(FM) Chico, CA 93.9 MHz 2.0 Album Oriented Rock 12/01/05
KALF(FM) Red Bluff, CA 95.7 MHz 7.0 Country Lite 12/01/05
KPPL(FM) Colusa, CA 107.5 MHz 28.0 Rock 12/01/05
Redding, CA KQMS(AM) Redding, CA 1400 KHz 1.0 News/Talk/Sports 12/01/05
KSHA(FM) Redding, CA 104.3 MHz 100.0 Soft Adult Contemporary 12/01/05
KNNN(FM) Central Valley, CA 99.3 MHz 4.2 Contemporary Hit Radio 12/01/05
KRDG(FM) Shingletown, CA 105.3 MHz 9.9 Oldies 12/01/05
KRRX(FM) Burney, CA 106.1 MHz 100.0 Album Oriented Rock 12/01/05
KNRO(AM) Redding, CA 600 KHz 1.0 Country 12/01/05
Palmdale, CA KAVC(AM) Mohave, CA 1340 KHz 1.0 Religion 12/01/05
KTPI(FM) Tehachapi, CA 103.1 MHz 6.0 Country 12/01/05
KOSS(FM) Rosamond, CA 105.5 MHz 2.9(6.0) Adult Contemporary 12/01/05
Victorville, CA KIXW(AM) Apple Valley, CA 960 KHz 5.0 Spanish 12/01/05
KZXY(FM) Apple Valley, CA 102.3 MHz 3.0 Adult Contemporary 12/01/05
KATJ(FM) George, CA 100.7 MHz 260w Country 12/01/05
KROY(AM) Victorville, CA 1590 KHz 500w Religion 12/01/05
KIXA(FM) Lucerne Valley, CA 106.5 MHz 550w Classic Rock 12/01/05
So. Lake Tahoe, CA KOWL(AM) So. Lake Tahoe, CA 1490 KHz 1.0 News/Talk/Sports 12/01/05
KRLT(FM) So. Lake Tahoe, CA 93.9 MHz 6.0 Lite Rock 12/01/05
Flagstaff, AZ * KZGL(FM) Cottonwood, AZ 95.9 MHz 9.0 Album Oriented Rock 10/01/05
KVNA(AM) Flagstaff, AZ 600 KHz 5.0 News/Talk/Sports 10/01/05
KVNA(FM) Flagstaff, AZ 97.5 MHz 100.0 Adult Contemporary 10/01/05
Kingman, AZ * KFLG(AM) Bullhead City, AZ 1000 KHz 5.0 American Standards 10/01/05
KFLG(FM) Bullhead City, AZ 102.7 MHz 53.0 Country 10/01/05
KAAA(AM) Kingman, AZ 1230 KHz 1.0 News/Talk 10/01/05
KZZZ(FM) Kingman, AZ 94.7 MHz 100.0 Adult Contemporary 10/01/05
Flint, MI WFNT(AM) Flint, MI 1470 KHz 5.0/1.0 News/Talk/Sports 10/01/04
WCRZ(FM) Flint, MI 107.9 MHz 50.0 Adult Contemporary 10/01/04
WWBN(FM) Tuscola, MI 101.5 MHz 6.0 Album Oriented Rock 10/01/04
Mansfield/Shelby, WMAN(AM) Mansfield, OH 1400 KHz 1.0 News/Talk/Sports 10/01/04
OH WYHT(FM) Mansfield, OH 105.3 MHz 50.0 Hot Adult Contemporary 10/01/04
WSWR(FM) Shelby, OH 100.1 MHz 3.0 Oldies 10/01/04
St. Cloud, MN ** WWJO(FM) St. Cloud, MN 98.1 MHz 101.0 Country 04/01/05
KMXK(FM) Cold Spring, MN 94.9 MHz 50.0 Oldies 04/01/05
WJON(AM) St. Cloud, MN 1240 KHz 1.0 News/Talk 04/01/05
* Regent has entered into contracts to sell these stations.
** Regent has entered into a contract to acquire these stations.
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Acquisition Strategy. Given deregulation and subsequent consolidation
in the radio broadcast industry, Regent believes it is prudent in any
acquisition plan to acquire a sufficient number of stations in each market to
form competitive station clusters. Operating a number of stations in a single
market will allow Regent to reduce overhead and marketing expenses, to create a
strong identity among advertisers, to attract superior operating and on-air
talent, and to build a strong position with demographically attractive
listeners, thereby creating operating leverage that should give Regent the
opportunity to enhance revenue generation.
Initially, Regent has focused on the acquisition of properties
that have existing cash flow in order to provide a base for future growth.
Regent has not purchased, and does not foresee purchasing in the near
future, properties with negative cash flows, or so-called "underperforming"
or "turnaround" properties, unless they complement or can be combined with
the operations of positive cash flow properties in a market or regional
cluster. Regent's strategy is to operate in markets which have minimum
market advertising revenue of approximately $8,000,000 where the Regent
stations have the potential to generate at least $1,000,000 in annual
broadcast cash flow (net broadcasting revenues in excess of operating
expenses before depreciation, amortization and corporate expenses).
Management does not have a specific inflexible acquisition formula,
believing that what may be an attractive cash flow multiple in one situation may
be a very poor investment in other circumstances. Factors which may influence
pricing of station acquisitions include actual and potential revenue growth
rates, competitive factors, the potential to improve or add to existing
in-market operations, the quality of technical facilities, and hidden values
such as high overhead, poor sales conversion, or real estate or other assets
that can be sold.
Regent plans to utilize its management's experience in the industry and
relationships with both independent owners and larger corporate entities to
create opportunities for purchases that may not be available to others. Regent
expects to be flexible in structuring its acquisitions, offering certain sellers
the opportunity to receive stock of Regent in full or partial payment for their
stations. Regent believes the availability of preferred equity as a payment
medium may be useful to Regent in accommodating sellers' financial and tax
objectives.
Operating Strategy. Regent's strategies for operating broadcasting
properties and creating value have been developed from its management's years of
experience in the industry.
Critical elements of Regent's operating strategies include a continual
focus on improving ratings, revenues and operating effectiveness at each
station; an emphasis on developing superior local and corporate management; the
sharing of financial rewards with this management; operating multiple station
clusters for maximum efficiency; the development of strong ratings or format
positions within its markets; establishing the first, second or third revenue
position in each of its markets; improving the performance of developmental
stations; centralization of management information systems and controls; ongoing
programming research; and effective implementation of the results of this
research.
Regent management has experience building and operating profitable
in-market station clusters with strong ratings or format positions and believes
that the opportunities created by deregulation can only be realized by owning
well designed and executed clusters. Maximizing performance of an in-market
cluster requires musical formats that draw attractive demographics and create a
market position less vulnerable to competitive attack. An example of such a
cluster might include ownership of an Album Oriented Rock, Classic Rock and a
Sports/Talk station. Such a grouping would tend to attract an audience with
strength among male demographics. This audience would be of interest to
particular advertisers (e.g., brewers, certain automobile manufacturers or
retailers oriented toward a male clientele) and allow the broadcaster to create
attractive packages for these advertisers.
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Strong station clusters are also critical to establishing a competitive
revenue position. In most markets, holding a top three position generally
provides the ability to compete for advertisers seeking broad visibility in the
market. Moreover, clusters with larger revenue shares are in a position to
spread overhead and other costs over this larger base, thereby increasing
margins.
In running geographically diverse operations and rapidly changing
businesses that are typical of broadcasting companies, management has found that
effective management information systems and controls are an important element
of success. For Regent, in addition to regular oversight of daily operations by
senior management, these include detailed weekly sales and cash management
reports, monthly financial statements by department, station and market and,
where available, monthly tracking of Arbitron ratings by station and monthly
tracking, by market, of market and station revenue data.
Assembling talented and aggressive operating management is critical to
success for radio companies. Regent endeavors to create positive work
environments in order to attract and retain talented personnel. In addition,
Regent provides incentives to key employees by creating financial rewards,
including making equity available to certain key employees based on performance.
In summary, Regent's strategy is to attempt to create solid and growing
cash flows, profitable and well thought out local clusters, reasonable
geographic and formatic diversity and an experienced management team at both the
corporate and station levels. It is believed that the implementation of this
strategy will position Regent as a relatively attractive public or private
acquisition target or as a merger partner.
THE RADIO BROADCASTING INDUSTRY
At December 31, 1998, there were 4,793 commercial AM and 5,662
commercial FM stations authorized and operating in the United States. An
increasing number of persons listen to FM radio because of clearer sound
characteristics and stereo transmission. In the spring of 1998, FM listenership
represented about 78.5% of total radio audience.
Operations. Radio station revenue is derived predominantly from local
and regional advertising and, to a lesser extent, from national advertising.
Network compensation also provides some revenue. Local and regional sales
generally are made by a station's sales staff. National sales generally are made
by "national rep" firms specializing in radio advertising sales on the national
level. These firms are compensated on a commission-only basis. Local and
regional sales are made primarily to businesses in the market covered by a
station's broadcast signal and to some extent to businesses in contiguous or
nearby markets. Such businesses include auto dealers, soft drink, beer and wine
distributors, fast food outlets and financial institutions. National sales are
made to larger, nationwide advertisers, such as soft drink producers, automobile
manufacturers and airlines. Most advertising contracts are short-term, generally
running only for a few weeks. Advertising rates charged by a radio station are
based primarily on the station's ability to attract audiences in the demographic
groups which advertisers wish to reach and on the number of stations competing
in the market area. Rating service surveys quantify the number of listeners
tuned to the station at various times. Rates are generally highest during
morning and evening drive-time hours. Regent's stations' advertising sales are
made by their respective sales staffs under the direction of a general manager
or sales managers. Television, billboard, newspaper and direct mail advertising,
as well as special events and promotions, can be used to supplement direct
contact by the sales staff in developing advertising clients.
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The primary costs incurred in operating a radio station are salaries,
programming, promotion and advertising expenditures, occupancy costs of premises
for studios and offices, transmitting and other equipment expenses and music
license royalty fees.
Radio broadcasting revenues are spread over the calendar year. The
first quarter generally reflects the lowest and the second and third quarters
the highest revenues for the year, due in part to increases in demand from
retail advertising.
The radio industry is continually faced with technological changes and
innovations, the possible rise in popularity of competing entertainment and
communications media, changes in labor conditions, governmental restrictions and
actions of federal regulatory bodies, including the Federal Communications
Commission ("FCC"), any of which could have a material effect on Regent's
business. However, broadcasting stations have generally enjoyed growth in
listeners and value within the past several decades. Population increases and
greater availability of radios, particularly car and portable radios, have
contributed to this growth.
Competition. The radio broadcasting industry is a highly competitive
business. Regent's radio broadcasting stations compete for audience share and
revenue directly with the other AM and FM radio stations in their respective
market areas, as well as with other advertising media such as newspapers, cable
television, magazines, outdoor advertising, transit advertising and mail
marketing. Competition within the radio broadcasting industry occurs primarily
in the individual market areas so that a station in one market does not
generally compete with stations in other market areas. In addition to management
experience, factors which are material to competitive position include the
station's ratings in its market, rates charged for advertising time, broadcast
signal coverage, assigned frequency, audience characteristics, the ability to
create and execute promotional campaigns for clients and for the station, local
program acceptance and the number and characteristics of other stations in the
market area. Regent attempts to improve its competitive position by reviewing
programming and the programming of competitors, upgrading technical facilities
where appropriate, attempting to expand sales to existing advertising clients
and developing new client relationships, and by promotional campaigns aimed at
the demographic groups targeted by their respective stations.
The FCC recently has allocated spectrum to a new technology, digital
audio broadcasting ("DAB"), to deliver satellite-based audio programming to a
national or regional audience and has adopted regulations for a DAB service. DAB
may provide a medium for the delivery by satellite or terrestrial means of
multiple new audio programming formats with compact disc quality sound to local
and national audiences. Another form of DAB, known as In-Band On Channel, could
provide DAB in the present FM radio band. It is not known at this time whether
this technology also may be used in the future by existing radio broadcast
stations either on existing or alternate broadcasting frequencies. In addition,
the FCC has recently authorized spectrum for the use of another new technology,
satellite digital audio radio services ("DARS"), to deliver audio programming.
The FCC has also authorized two companies to provide DARS service. DARS may
provide a medium for the delivery by satellite or terrestrial means of multiple
new audio programming formats to local and national audiences. It is not known
at this time whether this digital technology may also be used in the future by
existing radio broadcast stations either on existing or alternative broadcasting
frequencies.
The FCC has initiated a rule-making proceeding to consider the
licensing of low power radio stations. These low power stations would provide
licensees such as religious organizations or educational institutions the
opportunity to reach limited, local audiences. The rule-making has not
progressed sufficiently for the Company to be able to assess the competitive or
other impacts these low power stations could have in the Company's markets or on
the Company's stations.
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New technology allows radio broadcasters to make their programming
available to listeners over the Internet. Programming made available over the
Internet is exempt from certain government regulations applicable to broadcast
stations, including the multiple ownership limitations discussed below under
"Federal Regulation of Radio Broadcasting." The impact of radio broadcasting
over the Internet has not been fully evaluated and, thus, its effect on the
Company's stations is unknown.
FEDERAL REGULATION OF RADIO BROADCASTING
Introduction. The ownership, operation and sale of broadcast stations,
including those licensed to the Company, are subject to the jurisdiction of the
FCC, which acts under authority derived from the Federal Communications Act of
1934 (the "Communications Act"). The Communications Act was amended in 1996 by
the Telecommunications Act of 1996 (the "Telecom Act"). Among other things, the
FCC grants permits and licenses to construct and operate radio stations; assigns
frequency bands for broadcasting; determines whether to approve changes in
ownership or control of station licenses; regulates equipment used by stations
and the operating power and other technical parameters of stations; adopts and
implements regulations and policies that directly or indirectly affect the
ownership, operation and employment practices of stations; regulates the content
of some forms of radio broadcasting programming; and has the power to impose
penalties for violations of its rules under the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Failure to
observe these or other rules and policies can result in the imposition of
various sanctions, including monetary forfeitures, the grant of "short-term"
(less than the maximum term) license renewal or, for particularly egregious
violations, the denial of a license renewal application, the revocation of a
license or the denial of FCC consent to acquire additional broadcast properties.
Reference should be made to the Communications Act, FCC rules and the public
notices and rulings of the FCC for further information concerning the nature and
extent of federal regulation of broadcast stations.
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. The Communications Act requires that the FCC grant the
renewal of a station's license if the FCC finds that, during the preceding term
of the license, the station has served the public interest, convenience and
necessity, that there have been no serious violations by the licensee of the
Communications Act or the rules and regulations of the FCC, and that there have
been no other violations by the licensee of the Communications Act or the rules
and regulations of the FCC that, when taken together, would constitute a pattern
of abuse.
Petitions to deny license renewal applications can be filed by
interested parties, including members of the public. Such petitions may raise
various issues before the FCC. The FCC is required to hold hearings on renewal
applications if the FCC is unable to determine that renewal of a license would
serve the public interest, convenience and necessity, or if a petition to deny
raises a "substantial and material question of fact" as to whether the grant of
the renewal application would be prima facie inconsistent with the public
interest, convenience and necessity. Also, during certain periods when a renewal
application is pending, the transferability of the applicant's license is
restricted. The Company is not currently aware of any facts that would prevent
the timely renewal of its licenses to operate its radio stations.
Regulatory Approvals. The Communications Act prohibits the assignment
of a broadcast license or the transfer of control of a broadcast license without
the prior approval of the FCC. In determining
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whether to assign, transfer, grant or renew a broadcast license, the FCC
considers a number of factors pertaining to the proposed transferee, including
compliance with various rules limiting common ownership of media properties,
financial qualifications of the proposed transferee, the "character" of the
proposed transferee and those persons holding "attributable" interests therein,
and compliance with the Communications Act's limitation on alien ownership, as
well as compliance with other FCC rules and policies.
Ownership Matters. Under the Communications Act, a broadcast license
may not be granted to or held by: (i) a corporation that has more than one-fifth
of its capital stock owned or voted by aliens or their representatives, by
foreign governments or their representatives, or by non-U.S. corporations; or
(ii) a corporation that is controlled, directly or indirectly, by any other
corporation more than one-fourth of whose capital stock is owned or voted by
aliens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations. These restrictions apply in
modified form to other forms of business organizations, including partnerships.
Under these restrictions no more than one-fourth of the Company's stock may be
owned or voted by aliens, foreign governments or non-U.S. corporations. The
Company is required to take appropriate steps to monitor the citizenship of its
shareholders, such as through representative samplings on a periodic basis, to
provide a reasonable basis for certifying compliance with the foreign ownership
restrictions of the Communications Act.
The Communications Act and FCC rules also generally restrict the common
ownership, operation or control of radio broadcast stations serving the same
local market, of a radio broadcast station and a television broadcast station
serving the same local market, and of a radio broadcast station and a daily
newspaper serving the same local market. Under these "cross-ownership" rules,
absent waivers, the Company would not be permitted to acquire any daily
newspaper or television broadcast station (other than low power television) in a
local market where it then owned any radio broadcast station. The FCC's rules
provide for the liberal grant of a waiver of the rule prohibiting common
ownership of radio and television stations in the same geographic market in the
top 25 television markets if certain conditions are satisfied. The Telecom Act
directed the FCC to extend this waiver policy to stations in the top 50
television markets, although the FCC has not yet implemented this change. For
purposes of these rules, a "market" is defined by reference to the signal
coverage(s) of the station(s) involved.
The Telecom Act and the FCC's broadcast multiple ownership rules
restrict the number of radio stations one person or entity may own, operate or
control on a local level. These limits are:
(i) in a market with 45 or more commercial radio signals, an entity may
own up to eight commercial radio stations, not more than five of which are in
the same service (FM or AM);
(ii) in a market with between 30 and 44 (inclusive) commercial radio
signals, an entity may own up to seven commercial radio stations, not more than
four of which are in the same service;
(iii) in a market with between 15 and 29 (inclusive) commercial radio
signals, an entity may own up to six commercial radio stations, not more than
four of which are in the same service; and
(iv) in a market with 14 or fewer commercial radio signals, an entity
may own up to five commercial radio stations, not more than three of which are
in the same service, except that an entity may not own more than 50% of the
stations in such market.
None of these multiple ownership rules requires any change in the
Company's current ownership of radio broadcast stations or precludes
consummation of its pending acquisition in the St. Cloud, Minnesota market;
however, these FCC rules and policies will limit the number of additional
stations which the Company may acquire in the future in certain of its markets.
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Because of these multiple and cross-ownership rules, a purchaser of
voting stock of the Company which acquires an "attributable" interest in the
Company may violate the FCC's rules if it also has an attributable or certain
non-attributable interests in other television or radio stations, or in daily
newspapers, depending on the number and location of those radio or television
stations or daily newspapers. Such a purchaser also may be restricted in the
companies in which it may invest, to the extent that these investments give rise
to an attributable interest. If an attributable shareholder of the Company
violates any of these ownership rules, the Company may be unable to obtain from
the FCC one or more authorizations needed to conduct its radio station business
and may be unable to obtain FCC consents for certain future acquisitions.
The FCC generally applies its television/radio/newspaper
cross-ownership rules and its broadcast multiple ownership rules by considering
the "attributable" or cognizable interests held by a person or entity. A person
or entity can have an interest in a radio station, television station or daily
newspaper by being an officer, director, partner or shareholder of a company
that owns that station or newspaper. Whether that interest is cognizable under
the FCC's ownership rules is determined by the FCC's attribution rules. If an
interest is attributable, the FCC treats the person or entity who holds that
interest as the "owner" of the radio station, television station or daily
newspaper in question, and therefore subject to the FCC's ownership rules.
With respect to a corporation, officers, directors and persons or
entities that directly or indirectly can vote 5% or more of the corporation's
stock (10% or more of such stock in the case of insurance companies, investment
companies, bank trust departments and certain other "passive investors" that
hold such stock for investment purposes only) generally are attributed with
ownership of the radio stations, television stations and daily newspapers the
corporation owns.
With respect to a partnership, the interest of a general partner is
attributable, as is the interest of any limited partner who is "materially
involved" in the media-related activities or the management of the partnership.
Debt instruments, nonvoting stock, options and warrants for voting stock that
have not yet been exercised, limited partnership interests where the limited
partner is not "materially involved" in the media-related activities of the
partnership and where the limited partnership agreement expressly "insulates"
the limited partner from such material involvement, and minority (under 5%)
voting stock, generally do not subject their holders to attribution. However,
the FCC is currently reviewing its rules on attribution of broadcast interests,
and it may adopt stricter criteria. See "Proposed Changes," below.
In addition, the FCC has a "cross-interest" policy which, under certain
circumstances, could prohibit a person or entity with an attributable interest
in a broadcast station or daily newspaper from having a "meaningful"
nonattributable interest in another broadcast station or daily newspaper in the
same local market. Among other things, "meaningful" interests could include
significant equity interests (including non-voting stock, and otherwise
"insulated" limited partnership interests) and significant employment positions.
This policy may limit the permissible investments a purchaser of the Company's
voting stock may make or hold. It also may limit the Company's ability to
acquire stations in the same local market in which any of the Company's
non-attributable investors has an attributable media interest.
Programming and Operation. The Communications Act requires broadcasters
to serve the "public interest." Since 1981, the FCC gradually has relaxed or
eliminated many of the more formalized procedures it developed to promote the
broadcast of certain types of programming responsive to the needs of a station's
community of license. However, licensees continue to be required to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming will be
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considered by the FCC when it evaluates the licensee's renewal application, but
such complaints may be filed and considered at any time.
Stations also must follow various FCC rules that regulate, among other
things, political advertising, the broadcast of obscene or indecent programming,
sponsorship identification and technical operations (including limits on radio
frequency radiation).
In 1985, the FCC adopted rules regarding human exposures to levels of
radio frequency ("RF") radiation. These rules require applicants for new
broadcast stations, renewals of broadcast licenses or modifications of existing
licenses to inform the FCC at the time of filing such applications whether a new
or existing broadcast facility would expose people to RF radiation in excess of
certain guidelines. In August 1996, the FCC adopted more restrictive radiation
limits. These limits became effective on September 1, 1997 and govern
applications filed after that date. The Company anticipates that such
regulations will not have a material effect on its business.
Local Marketing Agreements. Over the past six years, a number of radio
stations, including certain of the Company's stations during 1997 and 1998,
entered into what commonly are referred to as "local marketing agreements"
("LMA") or "time brokerage agreements." In a typical LMA, the licensee of a
station makes available, for a fee, airtime on its station to a party who
supplies programming to be broadcast during that airtime and who collects
revenues from advertising aired during such programming. LMAs are subject to
compliance with the antitrust laws and the FCC's rules and policies, including
the requirement that the licensee of each station maintain independent control
over the programming and other operations of its own station. The FCC has held
that such agreements do not violate the Communications Act as long as the
licensee of the station that is being substantially programmed by another entity
maintains complete responsibility for, and control over, operations of its
broadcast stations and otherwise ensures compliance with applicable FCC rules
and policies.
A station that brokers substantial time on another station in its
market or engages in an LMA with a station in the same market will be considered
to have an attributable ownership interest in the brokered station for purposes
of the FCC's ownership rules, discussed above. As a result, a broadcast station
may not enter into an LMA that allows it to program more than 15% of the
broadcast time, on a weekly basis, of another local station that it could not
own under the FCC's local multiple ownership rules. FCC rules also prohibit a
station from simulcasting more than 25% of its programming on another station in
the same broadcast service (i.e., AM-AM or FM-FM) where the two stations serve
substantially the same geographic area, whether the licensee owns the stations
or owns one and programs the other through an LMA arrangement.
Proposed Changes. From time to time Congress and the FCC have taken
under consideration, and may in the future consider and adopt, new laws,
regulations and policies regarding a wide variety of matters that could,
directly or indirectly, affect the operation, ownership and profitability of the
Company's radio stations, result in the loss of audience share and advertising
revenues for the Company's radio stations, and affect the ability of the Company
to acquire additional radio stations or finance such acquisitions. Such matters
include: proposals to impose spectrum use or other fees on FCC licensees; the
FCC's regulations relating to political broadcasting; technical and frequency
allocation matters; proposals to restrict or prohibit the advertising of beer,
wine and other alcoholic beverages on radio; changes in the FCC's
cross-interest, multiple ownership and cross-ownership policies; changes to
broadcast technical requirements; proposals to allow telephone or cable
television companies to deliver audio and video programming to the home through
existing phone lines; proposals to limit the tax deductibility of advertising
expenses by certain types of advertisers; and proposals to auction the right to
use the radio broadcast spectrum to the highest bidder, instead of granting FCC
licenses and subsequent license renewals without such bidding.
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The Company cannot predict whether any of the foregoing proposed
changes will be adopted or what other matters might be considered in the future,
nor can it judge in advance what impact, if any, the implementation of any of
these proposals or changes might have on its business.
The foregoing is a brief summary of certain provisions of the
Communications Act, the Telecom Act and of specific FCC rules and policies. This
description does not purport to be comprehensive and reference should be made to
the Communications Act, the FCC's rules and the public notices and rulings of
the FCC for further information concerning the nature and extent of federal
regulation of radio broadcast stations.
Antitrust and Market Concentration Considerations. The Company is aware
that the United States Department of Justice (the "DOJ"), which evaluates
transactions to determine whether those transactions should be challenged under
the federal antitrust laws, has been active recently in its review of radio
station acquisitions, particularly where an operator proposes to acquire
additional stations in its existing markets or multiple stations in new markets.
On July 29, 1998, the DOJ issued a Civil Investigative Demand ("CID") to the
Company requesting information relating to the Company's acquisition on June 15,
1998 of six radio stations in and around Redding, California ("Redding
Stations"). In response to the CID, the Company has submitted certain
information requested by the DOJ so that it may evaluate whether the Company's
acquisition of the Redding Stations was in violation of applicable federal
antitrust laws. The Company believes that its acquisition of the Redding
Stations did not involve a violation of antitrust laws; however, it cannot
predict what the DOJ will conclude.
In addition, the FCC staff has stated publicly that it is currently
reevaluating its policies and procedures relating to local radio market
concentration, even where proposed acquisitions would comply with the station
ownership limits in the Telecom Act and the FCC's multiple-ownership rules, and
FCC approval of a number of pending radio station acquisitions by various
parties (including acquisitions by the Company in several markets) has been
delayed while this policy review is taking place. The FCC has issued a Notice of
Inquiry which, among other things, seeks public comment on these issues. There
can be no assurance that the DOJ, the Federal Trade Commission ("FTC") or the
FCC will not prohibit or require the restructuring of future acquisitions.
For an acquisition meeting certain size thresholds, the Hart Scott
Rodino Act ("HSR Act") and the rules promulgated thereunder require the parties
to file Notification and Report Forms with the FTC and the DOJ and to observe
specified waiting period requirements before consummating the transaction. If
the agencies determine that the transaction does not raise significant antitrust
issues, then they will either terminate the waiting period or allow it to expire
after the initial 30 days. On the other hand, if either of the agencies
determines that the transaction requires a more detailed investigation, then at
the conclusion of the initial 30 day period, it will issue a formal request for
additional information ("Second Request"). During the initial 30 day period
after the filing, the agencies decide which of them will investigate the
acquisition, which in the case of radio broadcasting has generally been the DOJ.
The issuance of a Second Request extends the waiting period until the twentieth
calendar day after the date of substantial compliance by all parties to the
acquisition. Thereafter, such waiting period may only be extended by court order
or with the consent of the parties. In practice, complying with a Second Request
can take a significant amount of time. In addition, if the investigating agency
raises substantive issues in connection with a proposed transaction, then the
parties frequently engage in lengthy discussions or negotiations with the
investigating agency concerning possible means of addressing those issues,
including but not limited to persuading the agency that the proposed acquisition
would not violate the antitrust laws, restructuring the proposed acquisition,
divestiture of other assets of one or more parties, or abandonment of the
transaction. Such discussions and negotiations can be time-consuming, and the
parties may agree to delay consummation of the acquisition during their
pendency.
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At any time before or after the consummation of a proposed acquisition,
the DOJ or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
acquisition or seeking divestiture of the business acquired or other assets of
the Company. Acquisitions that are not required to be reported under the HSR Act
also may be investigated by the DOJ or the FTC under the antitrust laws before
or after consummation. In addition, private parties may under certain
circumstances bring legal action to challenge an acquisition under the antitrust
laws.
As part of its increased scrutiny of radio station acquisitions, the
DOJ has stated publicly that it believes that commencement of operations under
LMAs and other similar agreements customarily entered into in connection with
radio station ownership transfers prior to the expiration of the waiting period
under the HSR Act could violate the HSR Act.
EMPLOYEES
At the corporate level, Regent employs 11 full-time employees and one
part-time employee. Each station has its own complement of employees, which may
include a general manager, a sales manager, a business manager, an operations
manager, advertising staff, on-air personalities and secretarial personnel. In
the aggregate, Regent's subsidiaries employ 233 persons on a full-time basis and
145 persons part-time.
Regent has never experienced a strike or work stoppage and believes
that its relations with its employees are good.
ITEM 2. PROPERTIES
The types of properties required to support each of Regent's radio
stations include offices, studios and tower, transmitter and antenna sites.
Regent typically leases its studio and office space with lease terms that expire
in five to ten years, although Regent does own certain of its facilities. A
station's studios are generally housed with its offices in downtown or business
districts. Regent generally considers its facilities to be suitable and of
adequate size for its current and intended purposes. Regent owns a majority of
its main tower, transmitter and antenna sites and leases the remainder of such
sites with lease terms that expire, including renewal options, in periods
ranging up to 20 years. The tower, transmitter and antenna site for each station
is generally located so as to provide maximum market coverage, consistent with
the station's FCC license. In general, Regent does not anticipate difficulties
in renewing facility or tower, transmitter and antenna site leases or in leasing
additional space or sites if required.
Regent owns substantially all of its other equipment, consisting
principally of towers, transmitters, antennae, studio equipment and general
office equipment. The towers, transmitters, antennae and other transmission
equipment used by Regent's stations are generally in good condition, although
opportunities to upgrade facilities are continuously reviewed. Substantially all
of the property owned by Regent secures Regent's borrowings under its bank
credit facility. See Notes 4 and 14 to the Company's 1998 Consolidated Financial
Statements for a description of encumbrances against Regent's properties and
Regent's rental obligations.
Regent leases approximately 4,700 square feet of office space in
Covington, Kentucky for its corporate offices under a lease which expires on
March 31, 2004. Regent has the option to renew that lease for two additional
five-year terms at market rates. Current annual rental is $69,943. Additional
corporate office space of approximately 780 square feet is leased at Old
Brookville, New York. The lease expires in February 2001. Annual rental is
currently $22,200.
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ITEM 3. LEGAL PROCEEDINGS.
The Company becomes involved from time to time in various claims and
lawsuits that are incidental to its business. In the opinion of the Company's
management, there are no legal proceedings pending against the Company or
any of its subsidiaries, or to which any of their properties are subject, that
would have a material adverse effect on the financial condition, results of
operations or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There was no matter submitted to the security holders of the Company
during the fourth quarter of its fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of March 31, 1999, all of the Company's outstanding common stock
(240,000 shares) was held by two of the Company's executive officers and
directors. There is no public trading market for the Company's common stock.
The Company has never declared or paid cash dividends on its common
stock and does not intend to do so in the foreseeable future. The Company's
existing credit agreement with its lenders prohibits the payment of cash
dividends on its common stock.
As part of the additional purchase and sale of shares of the Company's
Series F Convertible Preferred Stock pursuant to the terms of the Company's
existing Stock Purchase Agreement dated June 15, 1998 with Waller-Sutton Media
Partners, L.P. and the other purchasers listed therein (collectively, the
"Series F Purchasers"), on November 30, 1998, the Company issued 400,000
additional shares of its Series F Convertible Preferred Stock to the Series F
Purchasers for an aggregate cash purchase price of $2,000,000 ($5.00 per share).
The Series F Convertible Preferred Stock is convertible at any time into shares
of the Company's common stock on a one-for-one basis at a conversion price of
$5.00 per share. The Company relied upon an exemption from the registration
requirements of the Securities Act of 1933, as amended, provided under Section
4(2) thereof and Rule 506 of Regulation D promulgated thereunder with respect to
the offer and sale of such Series F Convertible Preferred Stock.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
-----------------------
1998(1) 1997 1996 1995 1994
------- ---- ---- ---- ----
Operating results:
Net broadcasting revenues $ 14,771,523 $ 5,993,291 $ 4,873,954 $ 5,113,582 $ 4,983,513
Income (loss) from operations (433,321) 1,015,144 1,222,829 1,511,481 1,470,355
Income (loss)
before extraordinary items (3,289,924) (362,537) 278,840 244,816 992,079
Extraordinary items, net (1,170,080) (4,333,310) -- -- 787,201
Net income (loss) (4,460,004) (4,695,847) 278,840 244,816 1,779,280
Basic net income (loss)
per common share:
Income (loss)
before extraordinary items $ (42.67) $ (1.51) $ 1.16 $ 1.02 $ 4.13
Extraordinary items (4.88) (18.06) -- -- 3.28
------------ ------------ ----------- ----------- -----------
Basic net income (loss)
per common share $ (47.55) $ (19.57) $ 1.16 $ 1.02 $ 7.41
Diluted net income (loss)
per common share:
Income (loss)
before extraordinary items $ (42.67) $ (1.51) $ 1.16 $ 1.02 $ 4.13
Extraordinary items (4.88) (18.06) -- -- 3.28
------------ ------------ ----------- ----------- -----------
Diluted net income (loss)
per common share $ (47.55) $ (19.57) $ 1.16 $ 1.02 $ 7.41
Balance sheet data at year end:
Current assets $ 11,618,745 $ 1,919,232 $ 1,305,585 $ 1,311,916 $ 1,246,104
Total assets 67,617,870 13,010,554 4,326,453 4,546,508 4,488,913
Current liabilities 13,027,306 859,631 1,068,021 1,037,239 1,150,537
Long-term debt 34,617,500 21,911,661 7,276,884 7,828,883 8,347,547
Redeemable preferred stock 26,876,058 -- -- -- --
Total shareholders' deficit (9,546,573) (10,181,788) (5,485,941) (5,764,781) (6,009,597)
(1) See Notes 1 and 2 to the Company's Consolidated Financial Statements for a
discussion of comparability between years. The Company has not declared or paid
cash dividends on its Common Stock since its inception.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
1998 Compared to 1997.
On June 15, 1998, Regent consummated a number of mergers,
acquisitions, borrowings and issuances of additional equity (the "June 1998
Transactions"). See Notes 1, 2, 4 and 5 to the Company's Consolidated
Financial Statements included as part of this Form 10-K. The historical
financial statements of Faircom Inc. ("Faircom"), which was deemed the
"accounting acquirer" in the merger between Faircom and
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Regent completed June 15, 1998, became the historical financial statements
of the Company, and accordingly, the results of operations of Regent and of
the other entities which merged with or were acquired by Regent as part of
the June 1998 Transactions have been included in the Company's consolidated
financial statements only from June 15, 1998.
On the closing date of the June 1998 Transactions, the Company expanded
from a small broadcaster (represented, from an accounting standpoint, by
Faircom's six stations in two markets, of which only three stations in one
market were owned prior to June 30, 1997) to a group broadcaster operating 33
stations in ten different markets. This significant change in size of the
Company's operations led directly to substantial increases in revenue, operating
expenses, depreciation and amortization, corporate general and administrative
expenses, and interest expense in 1998 as compared to 1997. Because of the June
1998 Transactions, the results of the Company's operations in 1998 are not
comparable to those of 1997, nor are they necessarily indicative of results in
the future.
The key focus in 1998 was developing the platform from which the
Company could carry out its operating strategies as a much larger radio company.
Development of the platform required significant expenditures. These costs are
viewed by the Company as investment costs which will provide returns to the
Company in future years. Operationally, the Company replaced general managers in
eight of its markets and added or replaced general sales managers in six markets
in order to implement aggressive sales programs. The Company invested
significantly in the hiring and training of sales personnel and in increased
promotional spending in all markets. Finally, the Company developed a corporate
staff which it believes is capable of supporting a much larger operation. In
1997, the Faircom corporate office was a very small operation. While that
facility and expense have been maintained, the Company's primary administrative
offices are now located in Covington, Kentucky. The cost of additional executive
personnel and administrative expense amounted to approximately $940,000 from
June 16, 1998 through December 31, 1998 as a result of the merger. Additionally,
the issuance of stock options granted as of June 15, 1998 to two officers of
Faircom pursuant to the terms of the merger agreement between the Company and
Faircom resulted in the recognition, as of such date of grant, of approximately
$530,000 in additional compensation expense which is included in corporate
general and administrative expense for 1998. Consequently, 1998 operating loss
of $433,000 compared unfavorably with operating income of $1,015,000 in 1997.
Interest expense was $2,883,000 in 1998 as compared with $1,331,000 in
1997 principally due to debt incurred in connection with the June 1998
Transactions and to a lesser extent to debt incurred in connection with the
acquisition of the Mansfield Stations and the Shelby Station (defined below).
There were no federal, state or local income taxes in 1998 as a result
of a taxable loss.
In 1998, net loss declined to $4,460,000 from $4,696,000 in 1997 as a
result of the increase in operating losses and the increase in interest expense
offset by lower net extraordinary losses from debt extinguishment.
In addition to developing the infrastructure to support a large radio
group, the Company refined its definition of markets which it targets for
operation. The Company has decided to concentrate on markets which have a
minimum of approximately $8,000,000 in market advertising revenue and where the
Regent stations have the potential to generate at least $1,000,000 in annual
broadcast cash flow. The St. Cloud Stations, which are expected to be acquired
during the second quarter of 1999, meet these criteria. In addition, the Company
has entered into agreements for the sales of its Flagstaff and Kingman/Bullhead
City, Arizona radio stations (the "Arizona Stations"), which also do not meet
this strategic objective. Applications for FCC approval of these sales are
pending.
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1997 Compared to 1996.
The results of Faircom's operations for the year ended December 31,
1997 compared to the year ended December 31, 1996 are not comparable or
necessarily indicative of results in the future due to the significance of
acquisitions.
As of June 30, 1997, Faircom, through a wholly-owned subsidiary,
Faircom Mansfield Inc. ("Faircom Mansfield"), acquired the assets and
operations of two radio stations, WMAN-AM and WYHT-FM, both located in
Mansfield, Ohio (the "Mansfield Stations") for aggregate cash consideration of
$7,650,000. The acquisition has been accounted for as a purchase, and
accordingly the operating results of the Mansfield Stations have been included
in the Consolidated Statements of Operations from the acquisition date.
The increase in Faircom's net broadcasting revenues in 1997 as
compared with 1996 resulted principally from the ownership and operation of the
Mansfield Stations during 1997. Net broadcasting revenues increased to
$5,993,000 from $4,874,000, or 23.0%, in 1997 as compared with 1996.
Station operating expenses increased in 1997 as compared with 1996,
primarily as a result of the acquisition of the Mansfield Stations. Such
increase was to $3,860,000 from $2,993,000, or 29.0%, in 1997 as compared with
1996.
Depreciation and amortization and interest expense increased in 1997
as compared with 1996 as a result of the addition of assets and debt incurred
in connection with the acquisition of the Mansfield Stations.
Taxes on income for both 1997 and 1996 related principally to state
income taxes. There were no current federal income taxes in 1997, as a result
of a taxable loss. Current federal income taxes in 1996 were offset in full by
the utilization of net operating loss carryforwards. Faircom has provided
valuation allowances equal to its deferred tax assets because of uncertainty as
to their future utilization. The deferred tax assets relate principally to net
operating loss carryforwards. Although Faircom was marginally profitable in
1994 through 1996, the loss in 1997 along with substantial historical losses
caused management to conclude that it was still premature to reduce the
valuation allowance.
As a result principally of an extraordinary loss from debt
extinguishment of $4,703,000, offset in part by an extraordinary gain from debt
extinguishment of $370,000, net loss was $4,696,000 for 1997 compared to net
income of $279,000 in 1996.
Seasonality.
The financial results of the Company's business are seasonal.
Revenues are generally higher in the second, third and fourth calendar quarters
than in the first quarter.
LIQUIDITY AND CAPITAL RESOURCES
In 1998, net cash used in operating activities was $385,000 compared
with net cash provided by operating activities of $418,000 for 1997. In 1998,
proceeds from the issuance of long-term debt and preferred stock provided
substantially all of the funds used in operating activities, as well as funds
used for the acquisition of radio stations, capital expenditures, principal
payments on long-term debt and other investing and financing
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17
activity cash requirements. As a result, there was a net decrease in cash of
$57,000 in 1998 compared with a net increase of $412,000 in 1997.
The Company's borrowings are made under an agreement with a group of
lenders (as amended through the latest amendment dated February 24, 1999, the
"Credit Agreement") which provides for a senior reducing revolving credit
facility with a commitment of up to $55,000,000 expiring March 31, 2005 (the
"Revolver"). The Credit Agreement permits the borrowing of available credit for
working capital and acquisitions, including related acquisition expenses. In
addition, the Company may request from time to time that the lenders issue
letters of credit in accordance with the same provisions as the Revolver. At
December 31, 1998, the Company had borrowed $34,900,000 under the Credit
Agreement and had approximately $479,000 in cash balances. The remaining unused
portion of the Revolver of $20,100,000 was available to finance other
acquisitions, subject to restrictions contained in the Credit Agreement.
The Credit Agreement provides for the quarterly reduction of the
commitment under the Revolver for each of the four quarters during 1999 in the
amount of $687,500 per quarter, and by increasing quarterly amounts thereafter
to $2,750,000 during 2004, with a final payment of $6,875,000 due March 31,
2005, and, under certain circumstances, requires mandatory prepayments of any
outstanding loans and further commitment reductions. Mandatory prepayments and
commitment reductions are required to the extent that, from time to time,
outstanding loans exceed the commitment then in effect, and from certain asset
sales, surplus assets of any pension plans, sales of equity securities and
receipts of insurance proceeds. The indebtedness of the Company under the Credit
Agreement is collateralized by liens on substantially all of the assets of the
Company and its operating and license subsidiaries and by a pledge of the
operating and license subsidiaries' stock, and is guaranteed by those
subsidiaries. The Credit Agreement contains restrictions pertaining to the
maintenance of financial ratios, capital expenditures, payment of dividends or
distributions of capital stock and incurrence of additional indebtedness.
Beginning January 1, 1999, the Company is required to maintain an
interest rate coverage ratio (EBITDA, defined as earnings before interest,
taxes, depreciation and amortization, to annual interest rate cost); a fixed
charge coverage ratio (EBITDA to annual fixed charges); and a financial leverage
ratio (total debt to Adjusted EBITDA, as defined in the Credit Agreement).
Schedules of these covenants follow:
-----------------------------------------------------------------------------------------------------
Minimum Interest Coverage Ratio
-----------------------------------------------------------------------------------------------------
Time Period Minimum Interest Coverage Ratio
-----------------------------------------------------------------------------------------------------
January 1, 1999 - March 31, 1999 0.95:1.00
-----------------------------------------------------------------------------------------------------
April 1, 1999 - June 30, 1999 1.30:1.00
-----------------------------------------------------------------------------------------------------
July 1, 1999 - September 30, 1999 1.40:1.00
-----------------------------------------------------------------------------------------------------
October 1, 1999 - December 31, 1999 1.60:1.00
-----------------------------------------------------------------------------------------------------
January 1, 2000 - March 31, 2000 1.75:1.00
-----------------------------------------------------------------------------------------------------
April 1, 2000 - and thereafter 2.00:1.00
-----------------------------------------------------------------------------------------------------
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-----------------------------------------------------------------------------------------------------
MINIMUM FIXED COVERAGE RATIO
-----------------------------------------------------------------------------------------------------
Time Period Minimum Fixed Coverage Ratio
-----------------------------------------------------------------------------------------------------
January 1, 1999 - March 31, 1999 0.60:1.00
-----------------------------------------------------------------------------------------------------
April 1, 1999 - June 30, 1999 0.80:1.00
-----------------------------------------------------------------------------------------------------
July 1, 1999 - September 30, 1999 0.90:1.00
-----------------------------------------------------------------------------------------------------
October 1, 1999 - December 31, 1999 1.05:1.00
-----------------------------------------------------------------------------------------------------
January 1, 2000 - and thereafter 1.10:1.00
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
MAXIMUM LEVERAGE RATIO
-----------------------------------------------------------------------------------------------------
Time Period Maximum Leverage Ratio
-----------------------------------------------------------------------------------------------------
January 1, 1999 - December 30, 1999 6.75:1.00
-----------------------------------------------------------------------------------------------------
December 31, 1999 - March 30, 2000 6.25:1.00
-----------------------------------------------------------------------------------------------------
March 31, 2000 - June 29, 2000 6.00:1.00
-----------------------------------------------------------------------------------------------------
June 30, 2000 - September 29, 2000 5.75:1.00
-----------------------------------------------------------------------------------------------------
September 30, 2000 - December 30, 2000 5.25:1.00
-----------------------------------------------------------------------------------------------------
December 31, 2000 - March 30, 2001 4.75:1.00
-----------------------------------------------------------------------------------------------------
March 31, 2001 - June 29, 2001 4.25:1.00
-----------------------------------------------------------------------------------------------------
June 30, 2001 - September 29, 2001 3.75:1.00
-----------------------------------------------------------------------------------------------------
September 30, 2001 - and thereafter 3:50:1.00
-----------------------------------------------------------------------------------------------------
To maintain compliance with these covenants, the Company must
reduce its outstanding borrowings during the second and third quarters of
1999. It intends to do this through proceeds from the sales of the Arizona
Stations as well as the sale of the Company's operations in another
non-strategic market. Sales of the Arizona Stations are expected to close
during the second quarter of 1999, pending receipt of FCC consent. The
Company is currently seeking a buyer for such other non-strategic market
and expects to be able to consummate such sale during the third quarter of
1999. If these sales were to be delayed, the Company would request waivers
from its lenders to allow more time for the sales to close or to raise
additional equity to reduce its debt.
Interest under the Credit Agreement is payable, at the option of the
Company, at alternative rates equal to the LIBOR rate (established October 1,
1998 at 5.31% and effective at that same rate at December 31, 1998) plus 1.50%
to 3.50% or the base rate announced by the Bank of Montreal (7.75% at December
31, 1998) plus .25% to 2.25%. The spreads over the LIBOR rate and such base rate
vary from time to time, depending upon the Company's financial leverage. The
Company will pay quarterly commitment fees equal to 3/8% to 1/2% per annum,
depending upon the Company's financial leverage, on the unused portion of the
commitment under the Credit Agreement. The Company also is required to pay
certain other fees to the agent and the lenders for the administration and use
of the credit facility.
In connection with the 1997 acquisitions of KCBQ(AM) in San Diego,
California and an option to acquire WSSP(FM) in Charleston, South Carolina, the
Company issued notes in the maximum principal amounts of $6,000,000 and
$1,500,000, respectively. The San Diego note, which is collateralized by the
assets of the San Diego station, matures on the earlier of June 4, 2002 or the
sale of the San Diego station, and bears interest at 10% on any unpaid principal
after maturity. The Company is currently seeking a buyer for the San Diego
station. During 1998, the Company agreed to sell the Charleston station and
consummated the sale of that station in March 1999. At that time, the Charleston
note, which was collateralized by the assets of the Charleston station, was paid
in full. Based upon the Company's expectation that these stations would be sold
during 1999, $7,500,000, representing the principal amount of both notes, was
classified as a current liability at December 31, 1998 with an offsetting
current asset in that amount, designated as "assets held for sale."
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19
In the first quarter of 1999, the Company received approximately
$5,030,000 in gross proceeds from the issuance of shares of its Series F and G
Convertible Preferred Stock at $5.00 per share. In addition, the purchasers of
the Series F Convertible Preferred Stock have committed an additional $5,082,000
to the purchase of an additional 1,016,000 shares of the Company's Series F
Convertible Preferred Stock at $5.00 per share, to fund acquisitions by the
Company. The Company intends to draw on the balance of the committed funds to
help finance the pending acquisition of the St. Cloud Stations.
Based on current interest rates and accrued interest expense as of
December 31, 1998, the Company believes its interest payments for 1999 will be
approximately $3,240,000. Debt principal payments are expected to be $980,000
for 1999. Corporate general and administrative expense and capital expenditures
for 1999 are estimated to be approximately $2,065,000 and $1,070,000,
respectively. Of the $1,070,000 in capital expenditures, approximately $770,000
is required to be made in 1999 under the terms of the Credit Agreement. In
addition, during the first quarter of 1999, the Company paid approximately
$1,200,000 of deferred professional fees which were mostly incurred in
connection with the June 1998 Transactions. The Company intends to pay the
remaining balance of approximately $286,000 in deferred professional fees in
1999. For these payments, aggregating $8,841,000, the Company has used or will
utilize net cash provided by operations, current cash balances, and proceeds
from the issuance of Series F and G Convertible Preferred Stock received in the
first quarter of 1999.
The Company believes net cash from operations, cash balances, and the
proceeds from the sales of the Arizona Stations and the Company's other
non-strategic property will be sufficient to reduce borrowings under the Credit
Agreement to allow the Company to maintain compliance with all covenants and to
meet the Company's interest expense, and any required principal payments,
corporate expenses and capital expenditures in the foreseeable future, based on
its projected operations and indebtedness.
In addition to the Company's pending acquisition of the St. Cloud
Stations, which the Company intends to finance through borrowings against the
unused portion of its Credit Agreement and the $5,082,000 additional commitment
from the holders of its Series F Convertible Preferred Stock, the Company is
actively pursuing a number of acquisitions of radio stations in a number of
markets. Any such acquisitions would be financed from borrowings against the
unused portion of its Credit Agreement (less any utilization of such portion for
working capital needs) and through additional equity offerings, which the
Company intends to pursue in the second quarter of 1999. There can be no
assurance, however, that any of such acquisitions will be consummated or that
all or any portion of such financing will be available.
MARKET RISK
The Company is exposed to the impact of interest rate changes because
of borrowings under its Credit Agreement. It is the Company's policy to enter
into interest rate transactions only to the extent considered necessary to meet
its objectives and to comply with the requirements of its Credit Agreement. The
Company has not entered into interest rate transactions for trading purposes. At
December 31, 1998, the Company had $34,900,000 outstanding under its Credit
Agreement. The Company's future commitments under its Credit Agreement is
contingent upon the quarterly reduction requirements of the Credit Agreement
("Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources") and the outstanding borrowings
that the Company has at a particular time.
To satisfy the requirements of its Credit Agreement, the Company
entered into a two-year collar agreement with the Bank of Montreal effective
August 17, 1998 for a notional amount of $34,400,000 to mitigate the risk of
increasing interest rates created by the borrowing under its Credit Agreement.
This
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20
agreement is based on the three-month LIBOR or bank rate, has a Cap Rate, as
defined, of 6.50% and a Floor Rate, as defined, of 5.28%. These rates are
exclusive of additional spreads over the LIBOR or bank rate depending upon the
Company's financial leverage. Based on the $34,900,000 principal amount
outstanding under the Company's credit facility at December 31, 1998, the annual
interest expense would fluctuate by a maximum of $420,000 on $34,400,000,
exclusive of leverage spreads over the LIBOR or bank rate. Any fluctuation on
the remaining $500,000 would not have a material effect on the Company.
Each series of the Company's redeemable preferred stock is carried at
its fair market value, which, at December 31, 1998, equaled its liquidation
value. Holders of the redeemable preferred stock may require the Company,
subject to certain conditions, to repurchase their shares at any time after five
years from issuance.
YEAR 2000 COMPUTER SYSTEM COMPLIANCE
The "Year 2000" ("Y2K") issue results from the fact that many computer
programs were written with date-sensitive codes that utilize only the last two
digits (rather than all four digits) to refer to a particular year. As the year
2000 approaches, these computer programs may be unable to process accurately
certain date-based information, as the program may interpret the year 2000 as
1900.
The Company utilizes various information technology (IT) systems in the
operation of its business, including accounting and financial reporting systems
and local and wide area networking infrastructure. In addition to IT systems,
the Company is also reliant on several non-information technology (non-IT)
systems, which could potentially pose Y2K issues, including traffic scheduling
and billing systems and digital audio systems providing automated broadcasting.
Finally, in addition to the risks posed by Y2K issues involving its own IT and
non-IT systems, the Company could also be affected by any Y2K problems
experienced by its key business partners, which include local and national
advertisers, suppliers of communications services, financial institutions and
suppliers of utilities. The Company's plans to address the Y2K issue involve
four phases: (a) assessment of the existence, nature and risk of Y2K problems
affecting the Company's systems; (b) remediation of the Company's systems,
whether through repair, replacement or upgrade, based on the findings of the
assessment phase; (c) testing of the enhanced or upgraded systems; and (d)
contingency planning.
In the fourth quarter of 1998, the Company engaged the services of an
independent Y2K consultant in order to analyze the scope of the Company's Y2K
compliance issues and to initiate formal communications with its advertisers,
suppliers, lenders and other key business partners to determine their exposure
to the Y2K issue.
During the first quarter of 1999, the assessment phase was completed
with respect to the IT-systems and non-IT systems. Based on the findings of the
assessment phase, a detailed plan was developed for the remaining phases
(remediation, testing and contingency planning).
A summary of the status of the Company's Y2K plans in the IT and non-IT
areas follows.
IT Systems
During the assessment phase, the Company evaluated the level of Y2K
compliance of IT systems and hardware in its executive offices and all
markets. All financial and networking systems which have been
determined to be non-compliant will be upgraded in the second quarter
of 1999 and tested by the end of the third quarter of 1999. Costs
associated with the upgrades are expected to be immaterial. The Company
has assessed several of its personal computers ("PCs") to be
non-compliant. Several of the non-compliant PCs are either upgradable
at a minimal cost or are used for tasks where non-compliance will not
impact their functionality. There are PCs which will need to be
replaced in 1999 and the cost of replacement is included in the
Company's capital plan. All necessary upgrades will occur by the
-17-
21
end of the third quarter of 1999. Most of the replacements will take
place by the end of the third quarter; however, a portion will occur in
the fourth quarter.
Non-IT Systems
The Company acquired all but one of its radio stations on or after June
15, 1998 from several independent operators. As part of the Company's
ongoing plan to provide its stations with a standardized digital audio
broadcast system and, thus, to realize certain of the efficiencies of
operating as a larger broadcast group, the Company has been
systematically upgrading the broadcast systems and other technical
equipment at its stations. Although this upgrading plan has had a
business purpose independent of the Y2K compliance issue, the Company
has required, as a matter of course, written assurance from its
suppliers that the new broadcast systems are Y2K compliant. With
respect to those properties which the Company expects to own on January
1, 2000, the upgrading project is 70% complete, with the installation
of new Y2K compliant broadcast systems having been completed for the
Company's stations in all of its markets except the Chico, California,
Mansfield, Ohio and Redding, California markets. The costs of the
upgrade project have been included in capital expenditures. Upgrades in
the Chico, California and the Mansfield, Ohio markets commenced during
the first quarter of 1999 and are expected to be completed by the end
of the second quarter of 1999. The upgrade in Redding will occur in the
third quarter in conjunction with an expansion of the Company's
facility in the market. The Company plans to conduct and complete its
own testing of the broadcast systems at all of its stations by the end
of the third quarter of 1999. The cost associated with this testing is
expected to be immaterial.
The traffic scheduling and billing systems currently utilized at the
Company's stations are provided by two suppliers on a Y2K compliant
basis, with the exception of the Company's stations located in the
Victorville, California market. To confirm Y2K compliance of its
traffic and billing systems, the Company intends to conduct and
complete tests of these systems during the second quarter of 1999. By
the third quarter of 1999, the Company intends to have replaced its
traffic and billing systems at the Victorville stations with a system
provided by suppliers utilized by the Company's other stations.
During the first quarter of 1999, the Company compiled a detailed
inventory of key business partners and prioritized the list based on potential
impact to the Company in the event that the business partners experienced severe
operational or financial hardship as a result of Y2K non-compliance. Each
business partner was contacted and asked to fill out a detailed questionnaire
regarding its own Y2K assessment. Follow-up on responses will occur in the
second quarter of 1999 and action steps will be developed based on the
responses.
The Company has budgeted $100,000 in 1999 for capital expenditures and
$50,000 for expenses involved in Y2K remediation. The Company does not expect
total expenditures to exceed the total budgeted amount.
Although the Company has not received any information to date that
would lead it to believe its internal Y2K compliance issues will not be able to
be resolved on a timely basis or that the related costs will have a material
adverse effect on the Company's operations, cash flows or financial condition,
the assessment phase of the Company's plans relative to its business partner
interfaces will continue through the second quarter of 1999. The remediation
phase is also not complete with respect to the broadcast systems at the
Company's Chico, Redding and Mansfield stations, and no actual testing of the
Company's enhanced or upgraded systems has been conducted. Accordingly,
unexpected costs associated with the remediation of the Company's systems or
with interruption of operation of the Company's stations could occur and, if
significant, could have a material adverse effect on the Company's operations,
cash flows
-18-
22
and financial condition. The most reasonably likely worst-case scenarios include
loss of power and communications links. The impact of these uncertainties on the
Company's results of operations, liquidity and financial condition, is not
determinable. Based on the assessment of external and non-IT system risks and
the testing to be undertaken by the Company, contingency plans will be developed
for all critical systems by the end of the third quarter of 1999. Testing of
contingency plans will occur in the third and fourth quarters of 1999.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-K includes certain forward-looking statements with respect
to the Company that involve risks and uncertainties. Such statements are
influenced by the Company's financial position, business strategy, budgets,
projected costs, and plans and objectives of management for future operations,
and are expressed with words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend," "project" and other similar expressions.
Although the Company believes its expectations reflected in such forward-looking
statements are based on reasonable assumptions, readers are cautioned that no
assurance can be given that such expectations will prove correct and that actual
results and developments may differ materially from those conveyed in such
forward-looking statements. For these statements, the Company claims the
protections of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
Important factors that could cause actual results to differ materially
from the expectations reflected in the forward-looking statements herein include
changes in general economic, business and market conditions, as well as changes
in such conditions that may affect the radio broadcast industry or the markets
in which the Company operates, including, in particular, increased competition
for attractive radio properties and advertising dollars, fluctuations in the
cost of operating radio properties, and changes in the regulatory climate
affecting radio broadcast companies. Such forward-looking statements speak only
as of the date on which they are made, and the Company undertakes no obligation
to update any forward-looking statement to reflect events or circumstances after
the date of this Form 10-K. If the Company does update or correct one or more
forward-looking statements, readers should not conclude that the Company will
make additional updates or corrections with respect thereto or with respect to
other forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item 7A is set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Market Risk" and is incorporated under this Item 7A by this
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Pages
Financial Statements:
Reports of Independent Accountants 19
Consolidated Statements of Operations for
the three years ended December 31, 1998, 1997 and 1996 20
Consolidated Balance Sheets for the years ended
December 31, 1998 and 1997 21
Consolidated Statements of Cash Flows for the
three years ended December 31, 1998, 1997 and 1996 22
Statement of Changes in Shareholders' Deficit 23
Notes to Consolidated Financial Statements 24
Financial Statement Schedule:
Report of Independent Accountants on Financial
Statement Schedule 45
II -- Valuation and Qualifying Accounts 45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Regent Communications, Inc.
In our opinion, the accompanying consolidated balance sheet as of December
31, 1998 and the related consolidated statements of operations, of cash
flows, and of changes in shareholders' deficit present fairly, in all
material respects, the financial position of Regent Communications, Inc.
(the "Company") at December 31, 1998, and the results of its operations and
its cash flows for the year then ended, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above. The consolidated financial
statements of the Company, prior to the retroactive adjustments referred to
below, as of December 31, 1997 and for each of the two years in the period
then ended were audited by other independent accountants whose report dated
January 21, 1998 expressed an unqualified opinion on those statements.
We also audited the adjustments described in Note 1 to the consolidated
financial statements that were applied to retroactively adjust the 1997 and 1996
financial statements. In our opinion, such adjustments are appropriate and have
been properly applied.
PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 30, 1999
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Faircom Inc.
We have audited the consolidated balance sheet of Faircom Inc. as of December
31, 1997 and the related consolidated statements of operations, shareholders'
deficit, and cash flows for the years ended December 31, 1997 and 1996 (see
Note 1). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Faircom Inc. at
December 31, 1997 and the consolidated results of its operations and its cash
flows for the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
Melville, New York
January 21, 1998
-19-
23
REGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
1998 1997 1996
------------ ----------- -----------
Gross broadcast revenues $ 16,046,968 $ 6,696,564 $ 5,517,586
Less agency commissions (1,275,445) (703,273) (643,632)
------------ ----------- -----------
Net broadcast revenues 14,771,523 5,993,291 4,873,954
Station operating expenses 11,051,165 3,860,331 2,993,219
Depreciation and amortization 2,281,497 726,564 321,263
Corporate general and administrative expenses 1,872,182 391,252 336,643
------------ ----------- -----------
Operating income (loss) (433,321) 1,015,144 1,222,829
Interest expense 2,883,251 1,330,676 913,643
Other income, net 26,648 24,537 7,346
------------ ----------- -----------
Income (loss) before income taxes and
extraordinary items (3,289,924) (290,995) 316,532
Income tax expense -- 71,542 37,692
------------ ----------- -----------
Income (loss) before extraordinary items (3,289,924) (362,537) 278,840
Extraordinary gain from debt
extinguishment, net of taxes -- 370,060 --
Extraordinary loss from debt
extinguishment, net of taxes (1,170,080) (4,703,370) --
------------ ----------- -----------
Net income (loss) $ (4,460,004) $(4,695,847) $ 278,840
============ =========== ===========
Income (loss) applicable to common shares:
Net income (loss) $ (4,460,004) $(4,695,847) $ 278,840
Preferred stock dividend requirements (2,165,471) -- --
Preferred stock accretion (4,787,311) -- --
------------ ----------- -----------
Income (loss) applicable to common shares $(11,412,786) $(4,695,847) $ 278,840
============ =========== ===========
Basic net income (loss) per common share:
Before extraordinary items $ (42.67) $ (1.51) $ 1.16
Extraordinary items (4.88) (18.06) --
------------ ----------- -----------
Net income (loss) per common share $ (47.55) $ (19.57) $ 1.16
============ =========== ===========
Weighted average number of common shares
used in basic calculation 240,000 240,000 240,000
Diluted net income (loss) per common share:
Before extraordinary items $ (42.67) $ (1.51) $ 1.16
Extraordinary items (4.88) (18.06) --
------------ ----------- -----------
Net income (loss) per common share $ (47.55) $ (19.57) $ 1.16
============ =========== ===========
Weighted average number of common shares
used in diluted calculation 240,000 240,000 240,000
The accompanying notes are an integral part of these financial statements.
20
24
REGENT COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
1998 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 478,545 $ 535,312
Accounts receivable, less allowance for doubtful accounts
of $268,000 in 1998 and $32,000 in 1997 3,439,372 1,358,002
Other current assets 200,828 25,918
Assets held for sale 7,500,000 --
------------ ------------
Total current assets 11,618,745 1,919,232
Property and equipment, net 9,303,975 2,156,244
Intangible assets, net 45,023,940 7,701,341
Other assets, net 1,671,210 1,233,737
------------ ------------
Total assets $ 67,617,870 $ 13,010,554
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,005,327 $ 87,280
Accrued expenses 2,772,612 233,955
Interest payable 769,367 108,391
Current portion of long-term debt 980,000 430,005
Notes payable 7,500,000 --
------------ ------------
Total current liabilities 13,027,306 859,631
------------ ------------
Long-term debt, less current portion 34,617,500 21,911,611
Warrants and other long-term liabilities 2,643,579 421,050
------------ ------------
Total liabilities 50,288,385 23,192,342
Commitments and contingencies
Redeemable preferred stock:
Series A convertible preferred stock, $5.00 stated value, 620,000 shares authorized;
620,000 shares issued and outstanding-liquidation value: $3,433,109 3,433,109 --
Series B senior convertible preferred stock, $5.00 stated value, 1,000,000 shares
authorized; 1,000,000 shares issued and outstanding-liquidation value: $5,372,054 5,372,054 --
Series D convertible preferred stock, $5.00 stated value, 1,000,000 shares authorized;
1,000,000 shares issued and outstanding-liquidation value: $5,231,441 5,231,441 --
Series F convertible preferred stock, $5.00 stated value, 4,100,000 shares authorized;
2,450,000 shares issued and outstanding-liquidation value: $12,839,454 12,839,454 --
------------ ------------
Total redeemable preferred stock 26,876,058 --
Shareholders' deficit:
Preferred stock:
Series C convertible preferred stock, $5.00 stated value, 4,000,000 shares authorized;
3,720,620 shares issued and outstanding-liquidation value: $19,311,291 1,584,820 --
Series E convertible preferred stock, $5.00 stated value, 5,000,000 shares authorized;
447,842 shares issued and outstanding-liquidation value: $2,324,453 2,239,210 --
Common stock, $.01 par value, 30,000,000 shares authorized;
240,000 shares issued and outstanding (Note 1) 2,400 2,400
Additional paid-in capital 3,948,384 2,677,195
Retained deficit (17,321,387) (12,861,383)
------------ ------------
Total shareholders' deficit (9,546,573) (10,181,788)
------------ ------------
Total liabilities and shareholders' deficit $ 67,617,870 $ 13,010,554
============ ============
The accompanying notes are an integral part of these financial statements.
21
25
\REGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
1998 1997 1996
------------ ------------ ---------
Cash flows from operating activities:
Net income (loss) $ (4,460,004) $ (4,695,847) $ 278,840
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 2,281,497 726,564 321,263
Amortization of deferred rental income (34,008) (34,008) (34,005)
Provision for doubtful accounts 174,051 46,308 25,660
Provision for appraisal rights -- -- 215,000
Noncash charge for debt extinguishments 804,580 4,333,310 --
Noncash charge for corporate option compensation 530,264 -- --
Amortization of deferred financing costs 234,897 -- --
Increase (decrease) in cash flows from changes in operating assets
and liabilities:
Accounts receivable (344,209) (234,538) (250,620)
Prepaid expenses 335,644 (13,326) (6,809)
Other assets -- -- (1,325)
Accounts payable (401,283) 10,427 17,907
Accrued expenses (167,344) (24,751) (19,581)
Interest payable 660,976 254,603 (167,714)
------------ ------------ -------
Net cash (used in) provided by operating activities (384,939) 418,244 378,616
Cash flows from investing activities:
Acquisitions of radio stations, net of cash acquired (31,440,795) (7,831,180) --
Capital expenditures (818,919) (131,701) (63,440)
------------ ------------ -------
Net cash used in investing activities (32,259,714) (7,962,881) (63,440)
Cash flows from financing activities:
Proceeds from issuance of Series A, B, D and F Convertible
Preferred Stock 20,150,000 -- --
Proceeds from long-term
debt 36,000,000 23,000,000 --
Principal payments on and purchase of long-term
debt (20,749,410) (13,194,135) (510,502)
Payments for deferred financing costs (1,292,042) (834,137) (44,985)
Payment of issuance costs (1,520,662) -- --
Payment of appraisal right liability -- (1,015,000) --
------------ ------------ -------
Net cash (used in) provided by financing activities 32,587,886 7,956,728 (555,487)
------------ ------------ -------
Net increase (decrease) in cash and cash equivalents (56,767) 412,091 (240,311)
Cash and cash equivalents at beginning of period 535,312 123,221 363,532
------------ ------------ -------
Cash and cash equivalents at end of period $ 478,545 $ 535,312 $ 123,221
============ ============ =========
Supplemental schedule of non-cash investing and financing activities:
Conversion of Faircom Inc.'s convertible subordinated
promissory notes to Faircom Inc. common stock $ 10,000,000
Liabilities assumed in acquisitions $ 11,680,322
Series E convertible preferred stock issued in conjunction with
the acquisition of Alta California Broadcasting, Inc. and Topaz
Broadcasting, Inc. $ 2,239,210
Series C convertible preferred stock issued in conjunction with
the merger between Faircom Inc. and the Company $ 1,618,681
Series A and B convertible preferred stock warrants $ 310,000
The accompanying notes are an integral part of these financial statements.
22
26
REGENT COMMUNICATIONS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
- --------------------------------------------------------------------------------
SERIES C SERIES E
CONVERTIBLE CONVERTIBLE ADDITIONAL TOTAL
PREFERRED PREFERRED COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK STOCK STOCK CAPITAL DEFICIT DEFICIT
----------- ------------- ------ ----------- ------------ -----------
Balance, December 31, 1995
(retroactively restated) $2,400 $ 2,677,195 $ (8,444,376) $ (5,764,781)
Net income 278,840 278,840
----------- ----------- ------ ----------- ------------ ------------
Balance, December 31, 1996 2,400 2,677,195 (8,165,536) (5,485,941)
Net loss (4,695,847) (4,695,847)
----------- ----------- ------ ----------- ------------ ------------
Balance, December 31, 1997 2,400 2,677,195 (12,861,383) (10,181,788)
Conversion of Faircom Inc.'s
Class A and Class B convertible
subordinated promissory notes 10,000,000 10,000,000
Issuance of 3,720,620 shares of
Series C convertible preferred
stock and retirement of 26,390,199
shares of Faircom Inc. common stock
and recordation of the effect of
recapitalization due to the reverse
merger with Faircom Inc. $ 1,584,820 (3,000,000) (1,415,180)
Issuance of Faircom Inc. employee
stock options immediately converted
into options to purchase 157,727
shares of Series C convertible preferred
stock in conjunction with the merger 530,264 530,264
Issuance of Series A redeemable
preferred stock warrants exercisable
for 80,000 shares of common stock 160,000 160,000
Issuance of 205,250 shares of Series E
convertible preferred stock in
connection with the acquisition of Alta
California Broadcasting, Inc. $ 1,026,250 1,026,250
Issuance of 242,592 shares of Series E
convertible preferred stock in
connection with the acquisition of Topaz
Broadcasting, Inc. 1,212,960 1,212,960
Dividends and accretion on Series A, B, D,
and F redeemable convertible preferred stock (6,419,075) (6,419,075)
Net loss (4,460,004) (4,460,004)
----------- ----------- ------ ----------- ------------ -----------
Balance, December 31, 1998 $ 1,584,820 $ 2,239,210 $2,400 $ 3,948,384 $(17,321,387) $(9,546,573)
=========== =========== ====== =========== ============ ===========
23
27
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Regent Communications, Inc. (including its wholly-owned subsidiaries,
the "Company") was formed to acquire, own and operate radio stations in
small and medium-sized markets in the United States. The Company
acquired, pursuant to an agreement of merger, all of the outstanding
common stock of Faircom Inc. ("Faircom") for 3,720,620 shares of the
Company's Series C Convertible Preferred Stock. The acquisition has
been treated for accounting purposes as the acquisition of the Company
by Faircom under the purchase method of accounting, with Faircom as the
accounting acquirer. Consequently, the historical financial statements
prior to June 15, 1998, the date of merger, are those of Faircom.
Faircom operated radio stations through its wholly-owned subsidiaries
in Flint, Michigan and, effective June 30, 1997, in Mansfield, Ohio
(see Note 2). As a result of the Faircom merger, Faircom's historical
shareholder deficit and earnings per share information have been
retroactively restated to reflect the number of common shares
outstanding subsequent to the merger, with the difference between the
par value of the Company's and Faircom's common stock recorded as an
offset to additional paid-in capital.
2. CONSUMMATED ACQUISITIONS
On June 30, 1997, Faircom acquired the assets and operations of two
commercial radio stations located in Mansfield, Ohio (the "Mansfield
Stations"), pursuant to the terms of an asset purchase agreement dated
May 20, 1997 for $7,350,000 in cash. In addition, Faircom paid $300,000
in cash to one of the sellers in consideration of a five year
non-compete agreement. The acquisition was accounted for under the
purchase method of accounting and was financed with borrowings under
Faircom's senior secured term notes (see Note 4). Faircom allocated
approximately $1,089,000 of the purchase price to property and
equipment and approximately $6,261,000 to the related Federal
Communications Commission (FCC) licenses. The fair values of the
acquired assets were determined by an independent valuation. The excess
cost over the fair market value of the net assets acquired and the FCC
licenses related to this acquisition are being amortized over three
to 15-year periods.
On January 21, 1998, Faircom acquired substantially all of the assets
and operations of radio station WSWR-FM in Shelby, Ohio (the "Shelby
Station") for $1,125,000 in cash. The acquisition was accounted for
under the purchase method of accounting and was principally financed
through the borrowing of $1,100,000 represented by a subordinated
promissory note. The fair values of the acquired assets were determined
by an independent valuation. Faircom allocated substantially all of the
purchase price to the related FCC licenses. The excess cost over the
fair market value of net assets acquired and the FCC licenses related
to this acquisition are being amortized over a 15-year period.
On June 15, 1998, concurrent with the Faircom merger, the following
acquisitions (the "June 15 Acquisitions") were consummated. The
acquisitions were accounted for under the purchase method of accounting
and the fair value of the acquired assets were determined by
independent valuations.
24
28
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The Company acquired all of the outstanding capital stock of The Park
Lane Group ("Park Lane") for approximately $24,038,000 in cash and
assumed liabilities. Park Lane owned 16 radio stations in California
and Arizona. At the time of the acquisition, the Company entered into a
one-year consulting and non-competition agreement with the President of
Park Lane, providing for the payment of a fee of $200,000.
The Company acquired the FCC licenses and related assets used in the
operation of radio stations KIXW (AM) and KZWY (FM) in Apple Valley,
California from Ruby Broadcasting, Inc. (the "Ruby Stations"), an
affiliate of Topaz Broadcasting, Inc. ("Topaz"), for $5,985,000 in
cash.
The Company acquired the FCC licenses and related assets used in the
operation of radio stations KFLG (AM) and KFLG (FM) in Bullhead City,
Arizona from Continental Radio Broadcasting, L.L.C. (the "Continental
Stations") for approximately $3,747,000 in cash. The Company separately
acquired the accounts receivables of these stations for an additional
purchase price of approximately $130,000.
The Company acquired all of the outstanding capital stock of Alta
California Broadcasting, Inc. ("Alta") for $2,635,000 in cash and
assumed liabilities and 205,250 shares of the Company's Series E
Convertible Preferred Stock. Alta owned four radio stations in
California.
The Company acquired all of the outstanding capital stock of Topaz for
242,592 shares of the Company's Series E Convertible Preferred Stock.
Immediately following the acquisition of Topaz, the Company acquired
the FCC licenses and operating assets of radio station KIXA (FM) in
Lucerne Valley, California for $215,000 in cash and assumed
liabilities, pursuant to an Asset Purchase Agreement between Topaz and
RASA Communications Corp.
The Company allocated the aggregate purchase price for the June 15
Acquisitions as follows:
Accounts receivable $ 143,000
Broadcasting equipment and
furniture and fixtures 6,503,000
FCC licenses 30,328,000
Goodwill 1,853,000
Other 360,000
------------
$ 39,187,000
============
Goodwill and FCC licenses related to the June 15 Acquisitions are being
amortized over a 40-year period.
25
29
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The sources for the cash portion of the consideration paid by the
Company for the June 15 Acquisitions and the Faircom merger,
aggregating approximately $52,900,000 (including approximately
$21,100,000 of debt assumed and refinanced with borrowings under the
Company's senior reducing revolving credit facility and $3,700,000 of
transaction costs) were $34,400,000 borrowed under the Company's senior
reducing revolving credit Facility (see Note 4), $18,150,000 in
additional equity from the sale of the Company's convertible preferred
stock (see Note 5) and approximately $350,000 of the Company's funds.
On November 30, 1998, the Company purchased substantially all of the
assets of radio station KOSS (FM) (formerly KAVC (FM)) located in
Lancaster, California from Oasis Radio, Inc. for $1,600,000 in cash.
The acquisition was financed through the issuance of additional shares
of Series F convertible preferred stock (see Note 5). The acquisition
was accounted for under the purchase method of accounting. The excess
cost over the fair market value of net assets acquired and FCC licenses
related to this acquisition are being amortized over a 40-year period.
The results of operations of the acquired businesses are included in
the Company's financial statements since the respective dates of
acquisition.
The following unaudited pro forma data summarizes the combined results
of operations of the Company, Faircom, the Mansfield Stations, the June
15 Acquisitions and KOSS (FM) as though the acquisitions had occurred
at the beginning of each year ended December 31:
1998 1997
------------ ------------
Net broadcast revenues $ 20,018,379 $ 20,675,214
Loss before extraordinary items (8,026,665) (6,794,745)
Net loss (9,196,745) (11,128,055)
Net loss per common share before extraordinary items:
Basic and diluted $ (62.41) $ (28.31)
Net loss per common share:
Basic and diluted $ (67.29) $ (46.37)
These unaudited pro forma amounts do not purport to be indicative of
the results that might have occurred if the foregoing transactions had
been consummated on the indicated dates. The acquisition of the Shelby
Station has not been included in the above pro forma information, due
to it not having a material effect on the operating results of the
Company.
26
30
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. SUMMARY OF ACCOUNTING POLICIES
a. Consolidation:
The consolidated financial statements include the accounts of all of the
Company's wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. Certain
prior year amounts and balances have been reclassified to conform to the
current classifications with no effect on financial results.
b. Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
c. Cash and Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid financial instruments purchased with an original maturity of
three months or less to be cash equivalents. The carrying amount reported
in the consolidated balance sheets for cash and cash equivalents
approximates its fair value.
d. Property and Equipment:
Property and equipment are stated at cost and depreciated on the
straight-line basis over the estimated useful life of the assets.
Buildings are depreciated over forty-years, broadcasting equipment over a
six-to-thirteen year life and furniture and fixtures generally over a
five-year life. Leasehold improvements are amortized over the shorter of
their useful lives or the terms of the related leases. For property and
equipment retired or sold, the gain or loss is recognized in other income.
e. Intangible Assets:
Intangible assets consist principally of the value of FCC licenses and the
excess of the purchase price (including related acquisition costs) over
the fair value of net assets of acquired radio stations. These assets are
amortized on a straight-line basis over lives ranging from 15- to
40-years. Intangible assets are evaluated periodically if events or
circumstances indicate a possible inability to recover their carrying
amount. Such evaluation is based on various analyses, including cash flows
and profitability projections. If future expected undiscounted cash flows
are insufficient to recover the carrying amounts of the asset, then an
impairment loss is recognized based upon the excess of the carrying value
of the asset over the anticipated cash flows on a discounted basis.
f. Deferred Financing Costs and Other Assets:
Deferred financing costs are amortized on a straight-line basis over the
term of the related debt. Non-compete agreements are amortized over the
terms of the related agreements.
27
31
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
g. Barter Transactions:
Barter transactions (advertising provided in exchange for goods and
services) are reported at the estimated fair value of the products or
services received. Revenue from barter transactions is recognized when
advertisements are broadcast, and merchandise or services received are
charged to expense when received or used. If merchandise or services are
received prior to the broadcast of the advertising, a liability (deferred
barter revenue) is recorded. If advertising is broadcast before the
receipt of the goods or services, a receivable is recorded. For the year
ended December 31, 1998, barter revenue was approximately $731,000, and
barter expense was approximately $800,000.
h. Concentrations of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable.
The credit risk is limited due to the large number of customers comprising
the Company's customer base and their dispersion across several different
geographic areas of the Company.
i. Broadcast Revenue:
Broadcast revenue for commercial broadcasting advertisements is recognized
when the commercial is broadcast.
j. Fair Value of Financial Instruments:
Long-term debt
The fair value of the Company's long-term debt is estimated based on
the current rates offered to the Company for debt of the same
remaining maturities. Based on borrowing rates currently available,
the fair value of long-term debt approximates its carrying value at
December 31, 1998.
Redeemable preferred stock
The fair value of the Company's redeemable preferred stock is
estimated based on the market price of a similar financial
instrument that has a more readily determinable market value,
adjusted as appropriate for any differences in rights. Based
on transactions consummated recently, the fair value of the
redeemable preferred stock approximates its carrying value
at December 31, 1998.
4. LONG-TERM DEBT
Long-term debt consists of the following as of December 31:
1998 1997
------------ ------------
Senior Secured Term Notes (a) $ -- $ 12,341,666
Convertible Subordinated Promissory Notes (b) -- 10,000,000
Senior Reducing Revolving Credit Facility (c) 34,900,000 --
Subordinated Promissory Note (d) 600,000 --
Non-compete Agreements (e) 97,500 --
------------ ------------
35,597,500 22,341,666
Less: Current Portion of Long-Term Debt (980,000) (430,005)
------------ ------------
$ 34,617,500 $ 21,911,661
============ ============
28
32
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Repayment of long-term debt required over each of the years following
December 31, 1998 consists of:
1999 $ 980,000
2000 62,500
2001 60,000
2002 6,545,000
2003 9,685,000
Thereafter 18,265,000
------------
$ 35,597,500
============
a. Senior Secured Term Notes:
During 1997, Faircom borrowed $12,500,000 under an amended and restated
loan agreement (the "1997 Loan Agreement"). The term notes under the
1997 Loan Agreement would have matured on July 1, 2002. Interest on the
term notes was at the rate of 4.5% over 30 day commercial paper rates.
As of the date that Faircom entered into the 1997 Loan Agreement,
certain accrued interest was extinguished, resulting in an
extraordinary gain, net of income taxes, of $370,060. On June 15, 1998,
the Company terminated the 1997 Loan Agreement using funds obtained
from the Company's senior reducing revolving credit facility. As a
result of the extinguishment of debt, the Company recognized an
extraordinary loss of $1,170,080, net of income taxes, in 1998
consisting of a $366,000 prepayment penalty and the write-off of
$804,080 of related deferred financing costs. The effective tax rate
applied to the extraordinary gain and loss was zero due to the
Company's cumulative loss carryfoward position.
b. Convertible Subordinated Promissory Notes:
During 1997, Faircom completed the sale of $10,000,000 aggregate
principal amount of its convertible subordinated promissory notes due
July 1, 2002 (the "Faircom Notes"). The Faircom Notes consisted of
Class A and Class B convertible subordinated promissory notes, each in
the aggregate principal amount of $5,000,000, with interest payable at
the rate of 7% per annum, compounded quarterly. The proceeds from the
sale of the Faircom Notes were used to extinguish existing debt
obligations and to pay a portion of the purchase price for the
Mansfield Stations. The debt extinguishments resulted in an
extraordinary loss of $4,703,370, net of income taxes. The effective
tax rate applied to the extraordinary loss was zero due to the
Company's cumulative loss carryforward position. The Faircom Notes were
converted into a total of 19,012,000 shares of Faircom common stock
immediately preceding the merger between the Company and Faircom (see
Note 1).
29
33
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
c. Senior Reducing Revolving Credit Facility:
The Company has an agreement with a group of lenders (as amended, the
"Credit Agreement") which provides for a senior reducing revolving
credit facility with a commitment of up to $55,000,000 expiring in
March 2005 (the "Revolver"). In addition, the Company may request from
time to time that the lenders issue letters of credit in accordance
with the same provisions as the Revolver. During 1998, in conjunction
with financing the June 15 Acquisitions, refinancing certain existing
debt and providing for additional working capital, the Company borrowed
$34,900,000 under the Credit Agreement.
The Credit Agreement provides for the reduction of the commitment under
the Revolver for each of the four quarters ending December 31, 1999 and
by increasing quarterly amounts thereafter, and, under certain
circumstances, requires mandatory prepayments of any outstanding loans
and further commitment reductions. The indebtedness of the Company
under the Credit Agreement is collateralized by liens on substantially
all of the assets of the Company and its operating and license
subsidiaries and by a pledge of the operating and license subsidiaries'
stock, and is guaranteed by these subsidiaries. The Credit Agreement
contains restrictions pertaining to the maintenance of financial
ratios, capital expenditures, payment of dividends or distributions of
capital stock and incurrence of additional indebtedness.
Interest under the Credit Agreement is payable, at the option of the
Company, at alternative rates equal to the LIBOR rate (established
October 1, 1998 at 5.31% and effective at that same rate at December
31, 1998) plus 1.25% to 2.75% or the base rate announced by the Bank of
Montreal (7.75% at December 31, 1998) plus 0% to 1.50%. The spreads
over the LIBOR rate and such base rate vary from time to time,
depending upon the Company's financial leverage. The Company must pay
quarterly commitment fees equal to 3/8% to 1/2% per annum, depending
upon the Company's financial leverage, on the unused portion of the
commitment under the Credit Agreement. The Company is also required to
pay certain other fees to the agent and the lenders for the
administration of the facilities and the use of the credit facility. At
December 31, 1998, the Company had paid non-refundable fees totaling
approximately $1,671,000 which are classified as other assets in the
accompanying Consolidated Balance Sheet and are being amortized over
the initial seven-year term of the Revolver.
As a condition of the Credit Agreement, the Company entered into a
two-year collar agreement (the "Collar Agreement") with the Bank of
Montreal on August 17, 1998 for a notional amount of $34,400,000. The
Collar Agreement is based on the three month LIBOR rate, provides for a
CAP Rate, as defined, of 6.5% and a Floor Rate, as defined of 5.28%
plus, in each case, the additional spread stipulated under the Credit
Agreement.
Effective January 1, 1999, the Company amended the Credit Agreement in
order to cure violations of certain restrictive covenants that existed
as of December 31, 1998. The amended Credit Agreement stipulates that
the Company must reduce the outstanding amount under the Credit
Agreement by $915,000 during the first quarter of 1999; consequently,
such amount has been classified as current portion of long-term debt at
December 31, 1998. The Company also must consummate the sale of its
properties
30
34
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
located in Flagstaff and Kingman, Arizona within a specified period of
time (see Note 13), divest one other non-strategic market in 1999 and
make certain capital expenditures according to an agreed-upon
timetable. In addition, the amended Credit Agreement increases the
spread applied to the LIBOR rate from 1.25% to 2.75% to 1.50% to 3.50%
and the spread applied to the base rate announced by the Bank of
Montreal from 0% to 1.50% to .25% to 2.25%.
d. Subordinated Promissory Note:
In conjunction with the June 15 Acquisitions, the Company assumed a
subordinated promissory note (the "McNulty Note") to McNulty
Broadcasting, Inc. ("McNulty") for $600,000. The McNulty Note provides
for quarterly principal payments of $15,000 beginning on August 1,
2000. The remaining principal is due May 1, 2005. Interest on the
McNulty Note is payable quarterly at a rate of 8.0%
e. Non-Compete Agreements:
In conjunction with the June 15 Acquisitions, the Company assumed five
year non-compete agreements with McNulty and Island Broadcasting
Associates, L.P. in the amounts of $125,000 and $200,000, respectively
(the "Non-Compete Agreements"). The Non-Compete Agreements bear no
interest and require quarterly payments of $16,250 through May 2000.
5. CAPITAL STOCK AND REDEEMABLE PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation
authorizes 30,000,000 shares of common stock and 20,000,000 shares of
preferred stock and designates 620,000 shares as Series A Convertible
Preferred Stock ("Series A"), 1,000,000 shares as Series B Senior
Convertible Preferred Stock ("Series B"), 4,000,000 shares as Series C
Convertible Preferred Stock ("Series C"), 1,000,000 shares as Series D
Convertible Preferred Stock ("Series D"), 5,000,000 shares as Series E
Convertible Preferred Stock ("Series E"), 4,100,000 shares as Series F
Convertible Preferred Stock ("Series F") and, effective January 11,
1999, 4,000,000 shares as Series G Convertible Preferred Stock ("Series
G"). The stated value of all series of preferred stock is $5.00 per
share.
Series A, Series C, Series E, Series F and Series G generally have the
same voting rights as common stock and each share may be converted at
the option of the holder into one share of common stock, subject to
adjustment. Series B has no voting power except for specific events and
ranks senior to all other series of preferred stock. Each Series B
share may be converted at the option of the holder into one-half share
of common stock, subject to adjustment. Series D has limited voting
power and, each share may be converted at the option of the holder into
one share of common stock, which would also have the same limited
voting power in certain circumstances. The Company's Board of Directors
also has the right to require conversion of all shares of Series A, B,
C, D, E, F and G upon the occurrence of certain events. Series A,
Series C, Series D, Series E, Series F and Series G have equal rights
for the payment of dividends and the distribution of assets and rights
upon liquidation, dissolution or winding up of the Company.
31
35
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Upon liquidation of the Company, no distribution shall be made (a) to
holders of stock ranking junior to the Series B unless the holder of
the Series B has received the stated value per share, plus an amount
equal to all unpaid dividends or (b) to the holders of stock ranking on
a parity with the Series B, except distributions made rateably on the
Series B and all other such parity stock. Dividends accrue cumulatively
on all series of preferred stock, except Series F and Series G, at an
annual rate of $0.35 per share. Dividends accrue cumulatively on Series
F and Series G at an annual rate of $0.50 per share and, to the extent
not paid in cash, are compounded quarterly at a rate of 10% per annum.
The Company may redeem Series A, B and D at the stated value, plus an
amount equal to all unpaid dividends to the date of redemption, whether
or not declared. Undeclared dividends in arrears on all outstanding
series of preferred stock amounted to approximately $2,327,000 or $.54,
$.37, $.19, $.23, $.19 and $.24 per share of Series A, Series B, Series
C, Series D, Series E and Series F, respectively, at December 31, 1998.
In conjunction with the closing of the Faircom merger and the June 15
Acquisitions, BMO Financial, Inc., an existing shareholder of the
Company, purchased 780,000 shares of Series D for $3,900,000, General
Electric Capital Corporation ("GE Capital") paid $3,900,000 to complete
its purchase of 1,000,000 shares of Series B and the Chief Operating
Officer of the Company purchased 20,000 shares of Series A for
$100,000.
On June 15, 1998, pursuant to a stock purchase agreement with the
Company (the "Series F Stock Purchase Agreement"), Waller-Sutton Media
Partners, L.P. ("Waller-Sutton") purchased 1,000,000 shares of Series F
for $5,000,000. Also on that date, WPB Corporate Development Associates
V, L.L.C. and WPG Corporate Development Associates V (Overseas), L.P.,
purchased a total of 650,000 shares of Series F for $3,250,000; the
Chairman of Waller-Sutton Management Group, which manages
Waller-Sutton, purchased 50,000 shares of Series F for $250,000; GE
Capital purchased 250,000 shares of Series F for $1,250,000; and River
Cities Capital Fund Limited Partnership ("River Cities") purchased
100,000 shares of Series F for $500,000. In connection with these
purchases, the purchasers acquired 10-year warrants to purchase an
aggregate of 860,000 shares of the Company's common stock for $5.00 per
share. Such warrants can be "put" back to the Company after five years.
The 860,000 warrants issued in conjunction with the Series F have been
assigned a fair value of $2,459,000 and have been classified under
other long-term liability due to the associated "put" rights.
The Series F Stock Purchase Agreement provides that the terms of
the Series F include the right of the holders to require the
Company to repurchase the Series F at any time after five years at
a price equal to the greater of its fair market value, as defined,
or the sum of its stated value of $5.00 per share and all accrued
but unpaid dividends thereon, as well as any warrants held by such
holders at a price equal to the fair market value of the Company's
common stock less the exercise price of such warrants. Holders of
the Series A, Series B, Series D and Series G would have similar
"put" rights only if the holders of the Series F were to exercise
their "put" rights. As of December 31, 1998, Series A, Series B,
Series D and Series F (but not Series C and Series E) have been
reclassified and excluded from the equity to reflect such
anticipated "put" rights. Issuance costs of approximately
$2,070,000 for these reclassified shares have been netted against
the proceeds.
32
36
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
In order to induce River Cities, as a holder of Series A, to approve
the merger with Faircom, the Company issued to River Cities, upon
consummation of the merger, five year warrants to purchase 80,000
shares of the Company's common stock at an exercise price of $5.00 per
share. R. Glen Mayfield, a member of the Company's Board of Directors,
serves as the general partner of River Cities Management Limited
Partnership, which is the general partner of River Cities. The warrants
issued to the holders of Series A have been assigned a value of
$160,000 and have been classified as additional paid-in capital.
In order to induce GE Capital, the holder of the Company's Series B, to
approve the addition of mandatory conversion rights to the terms of the
Series B in conjunction with the issuance of the Series F, the Company
issued to GE Capital, upon issuance of the Series F, five year warrants
to purchase 50,000 shares of the Company's common stock at an exercise
price of $5.00 per share. The warrants issued to the holder of Series B
has been assigned a fair value of $150,000 and has been classified as a
long-term liability due to associated "put" rights. These "put" rights
are subject to the prior exercise of the warrants and exercise of the
"put" rights associated with warrants issued to the Series F holders.
In November 1998, the Company issued 400,000 shares of Series F for
$5.00 per share to existing Series F holders on a pro rata basis. The
proceeds were used to complete the purchase of KOSS (FM) (see Note 2),
finance capital expenditures and meet initial working capital
requirements of KOSS (FM).
In January 1999, the Company issued 372,406 shares of Series G for
$5.00 per share to certain executive officers of the Company and Blue
Chip Capital Fund II Limited Partnership, an existing holder of Series
C. The proceeds were used to pay down existing debt under the Credit
Agreement and fund working capital needs of the Company.
In February 1999, the Company issued 633,652 shares of Series F for
$5.00 per share to existing Series F holders. The proceeds were used to
finance certain capital improvements, fund deferred transaction costs
related to the June 15 Acquisitions and the Faircom merger and fund
working capital needs of the Company. In addition, the holders of
Series F committed an additional $5,082,000 through the purchase of an
additional 1,016,000 shares of Series F at $5.00 to fund acquisitions
by the Company.
6. STOCK-BASED COMPENSATION PLAN
The Regent Communications, Inc. 1998 Management Stock Option Plan (the
"1998 Stock Option Plan") provides for the issuance of up to an
aggregate of 2,000,000 common shares in connection with the issuance of
incentive stock options ("ISO's") and non-qualified stock options
("NQSO's"). The Compensation Committee of the Company's Board of
Directors determines eligibility. The exercise price of the options is
to be not less than the fair market value of the underlying common
stock at the grant date, except in the case of ISO's granted to a 10%
owner (as defined), for which the option share price must be at least
110% of the fair market value of the underlying common stock at the
grant date. Under the terms of the 1998 Stock Option Plan, the options
expire no later than ten years from the date of grant in
33
37
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
the case of ISO's (five years in the case of ISOs granted to a 10%
owner), no later than ten years and one day in the case of NQSOs, or
earlier in either case in the event a participant ceases to be an
employee of the Company.
Effective with the consummation of the Faircom merger, the Board of
Directors authorized a grant of incentive stock options to the Chief
Executive Officer and Chief Operating Officer of the Company, providing
each of the holders the right to acquire 608,244 shares of the
Company's common stock at an exercise price per share of $5.00. Of the
options granted, the maximum allowable will be treated as ISO's which
vest in equal 10% increments beginning on the grant date and on each of
the following nine anniversary dates of the grants.
The balance of the options will become exercisable in equal one-third
increments at the end of each of the first three years following the
grant. All options expire on June 15, 2008.
Upon consummation of the Faircom merger, the Board of Directors of the
Company adopted the Regent Communications, Inc. Faircom Conversion
Stock Option Plan ("Conversion Stock Option Plan") which applies to
those individuals previously participating in the Faircom Inc. Stock
Option Plan ("Faircom Plan"). In exchange for relinquishing their
options under the Faircom Plan, five former officers and members of
Faircom's Board of Directors were given, in total, the right to acquire
274,045 shares of the Company's Series C Convertible Preferred stock at
exercise prices ranging from $0.89 to $3.73 per share and expiring from
May 11, 1999 to July 1, 2002 (the "Converted Options"). Additional
expenses were incurred as a consequence of stock options being
granted as of June 15, 1998 to two officers of Faircom pursuant to the
terms of the merger agreement between the Company and Faircom,
resulting in the recognition, as of such date of grant, of
approximately $530,000 in additional compensation expense.
Subsequent to the consummation of the Faircom merger, the Company
issued 105,000 stock options under the 1998 Stock Option Plan to
certain key employees. Each of the options has an exercise price per
share of $5.00 and expires 10 years from the date of grant. The options
become exercisable in equal one-fifth increments over the first five
years following the grant. As of December 31, 1998, none of the options
issued under the 1998 Stock Option Plan or Conversion Stock Option
Plan had been exercised or forfeited.
The Company intends to apply the provisions of APB Opinion 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), in
accounting for the 1998 Stock Option Plan. Under APB No. 25, no
compensation expense is recognized for options granted to employees at
exercise prices that are equal to or greater than the fair market value
of the underlying common stock at the grant date. Statement of
Financial Accounting Standards No. 123,
34
38
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
"Accounting for Stock-Based Compensation" ("SFAS No. 123") requires the
Company to provide, beginning with 1995 grants, pro forma information
regarding net income and net income per common share as if compensation
costs for the Company's stock option plans had been determined in
accordance with the fair value based method prescribed in SFAS No. 123.
Such pro forma information is as follows for the year ended December
31:
Net income (loss): 1998 1997 1996
---- ---- ----
As reported $ (4,460,004) $ (4,695,847) $ 278,840
Pro forma compensation expense, net of tax benefit (599,736) (169,841) (21,585)
------------- ------------- -----------
Pro forma $ (5,059,740) $ (4,865,688) $ 257,255
============= ============= ===========
Basic and diluted net income (loss) per common share:
As reported:
Basic $ (47.55) $ (19.57) $ 1.16
Diluted $ (47.55) $ (19.57) $ 1.16
Pro forma:
Basic $ (50.05) $ (20.27) $ 1.07
Diluted $ (50.05) $ (20.27) $ 1.07
The weighted-average fair value per share for options granted under the
1998 Stock Option Plan was $2.88 for ISOs and $2.00 for NQSOs. The
weighted-average fair value for options granted under the Conversion
Stock Option Plan was approximately $230,000, and such amount was
recognized at the time of conversion since the Converted Options are
fully vested. The weighted average fair value per share for options
granted in 1997 and 1996 were $.08 and $.09, respectively. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
1998 1997 1996
---------------------------------------- ------- -------
Converted
ISOs NQSOs Options
---- ----- -------
Dividends None None None None None
Volatility 35.0% 35.0% 35.0% 46.5% 46.5%
Risk-free interest rate 5.55% 5.43% 5.38% 6.28% 6.28%
Expected term 10 years 5 years 2 years 5 years 5 years
35
39
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The following table summarizes the status of Company options
outstanding and exercisable at December 31, 1998, under the 1998 Stock
Option Plan and the Conversion Stock Option Plan:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------- ----------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICE SHARES(1) LIFE (YEARS) PRICE SHARES PRICE
----- --------- ------------ ----- ------ -----
$5.00 1,321,488 9.5 $5.00 40,000 $5.00
$0.89-$3.73 274,045 3.5 $2.73 274,045 $2.73
--------- -------
1,595,533 314,045
========= =======
Of the options outstanding at December 31, 1998, it is anticipated that
no more than 1,195,533 will be treated as NQSOs and at least 400,000
will be treated as ISOs.
(1) As of December 31, 1998, the stock options granted under the 1998 Stock
Option Plan entitle the holders to purchase 1,321,488 shares of the
Company's common stock. Stock options granted under the Conversion
Stock Option Plan entitle the holders to purchase 274,045 shares of the
Company's Series C Convertible Preferred Stock.
36
40
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
7. EARNINGS PER SHARE
The Company has adopted the provisions of SFAS 128, "Earnings Per
Share." SFAS 128 calls for the dual presentation of basic and diluted
earnings per share ("EPS"). Basic EPS is based upon the weighted
average common shares outstanding during the period. Diluted EPS
reflects the potential dilution that would occur if common stock
equivalents were exercised. Basic EPS and diluted EPS are the same for
all periods presented, since the effect of the Company's common stock
equivalents would be antidilutive.
Basic and diluted EPS for all periods presented have been calculated
using the 240,000 common shares that were outstanding subsequent to the
merger with Faircom (see Note 1).
8. INCOME TAXES
The Company's provision for income taxes consists of the following for
the year ended December 31:
1998 1997 1996
---- ---- ----
Current federal $ -- $ -- $ --
Current state -- 71,542 37,692
------- ------- -------
Total $ -- $71,542 $37,692
======= ======= =======
37
41
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The components of the Company's deferred tax assets and liabilities are
as follows as of December 31:
1998 1997
---- ----
Deferred tax assets:
Net operating loss carryforward $ 4,528,000 $ 2,448,000
Miscellaneous accruals and credits 79,000 35,000
Accounts receivable reserve 107,000 --
----------- -----------
Total deferred tax assets 4,714,000 2,483,000
Deferred tax liabilities:
Property and equipment (296,000) --
Intangible assets (170,000) --
----------- -----------
Total deferred tax liabilities $ (466,000) $ --
=========== ===========
Valuation allowance (4,248,000) (2,483,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
The Company has cumulative federal and state tax loss carryforwards of
approximately $11,320,000 at December 31, 1998. These loss
carryforwards will expire in years 2011 through 2019. The utilization
of the aforementioned operating losses for federal income tax purposes
is limited pursuant to the annual utilization limitations provided
under the provisions of Internal Revenue Code Section 382.
38
42
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The difference between the Company's effective tax rate on income
before taxes on income and the federal statutory tax rate arise from
the following:
1998 1997 1996
---- ---- ----
Federal tax expense at statutory rate 34.0% 34.0% 34.0%
Loss from debt extinguishment - non-deductible -- (34.6) --
Amortization of intangibles and other
non-deductible expenses (12.0) (1.0) 31.9
Benefit of net operating losses -- -- (48.0)
Establishment of valuation allowance (28.0) 1.1 (13.9)
State tax, net of federal tax benefit 6.0 (1.0) 7.9
==== ==== ====
Effective tax rate 0% (1.5)% 11.9%
9. SAVINGS PLANS
The Company sponsors defined contribution plans covering substantially
all employees. The Company did not make contributions to the defined
contribution plan during the years ended December 31, 1998 and 1997.
Faircom made a contribution in the amount of $6,800 during the year
ended December 31, 1996.
39
43
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
10. NOTES PAYABLE
Notes payable at December 31, 1998 consist of the following:
Promissory note $6,000,000
Promissory note 1,500,000
----------
$7,500,000
In connection with the acquisition of radio station KCBQ (AM), the
Company issued to the seller a promissory note for $6,000,000, which is
collateralized by the assets of the station. The terms of the
promissory note obligate the Company to pay the lesser of $6,000,000 or
the net proceeds from a commercially reasonable sale of the KCBQ (AM)
assets (with any such net sale proceeds in excess of $6,000,000 to be
split between the Company and the holder of the note in accordance with
the terms of the asset purchase agreement) on the earlier of June 4,
2002 or upon the sale of the KCBQ (AM) assets to an unrelated third
party. The note does not bear interest prior to the maturity date, as
defined. Interest on the unpaid principal of the note after maturity is
at the rate of 10% per annum. The Company is currently seeking a buyer
for this station and anticipates the sale of the station will occur
during 1999. As a result, the unpaid principal balance of $6,000,000
has been classified as a current liability at December 31, 1998 in the
accompanying Consolidated Balance Sheet.
In connection with the acquisition of an option to acquire radio
station WSSP (FM), the Company issued a five-year term promissory note
for $1,500,000 to a third party. The terms of the promissory note
obligate the Company to pay the lesser of $1,500,000 or the net
proceeds from a commercially reasonable sale of the option or the
station's assets (with any such net sale proceeds in excess of
$1,500,000 to be retained by the Company). The note is collateralized
by a security interest in the proceeds of a $1,500,000 note payable to
the Company by the owner of WSSP (FM) and matures on the earlier of
December 3, 2002 or upon the sale of the WSSP (FM) assets to an
unrelated third party. The note does not bear interest prior to the
maturity date, as defined. Interest on the unpaid principal of the note
after maturity is at the rate of 10% per annum. In March 1999, the
Company sold WSSP (FM) for $1,600,000 and repaid the promissory note.
Because the Company intended to sell this property during 1999, the
unpaid principal balance of $1,500,000 has been classified as a current
liability at December 31, 1998 in the accompanying Consolidated Balance
Sheet.
40
44
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
11. OTHER FINANCIAL INFORMATION
Property and equipment consists of the following as of December 31:
1998 1997
---- ----
Equipment $ 11,926,277 $ 5,277,474
Furniture and fixtures 1,659,136 1,043,648
Building and improvements 1,442,799 958,583
Land 761,342 285,000
------------ -----------
15,789,554 7,564,705
Less accumulated depreciation (6,185,579) (5,408,461)
------------ -----------
Net property and equipment $ 9,303,975 $ 2,156,244
============ ===========
Intangible assets consists of the following as of December 31:
1998 1997
---- ----
FCC broadcast licenses $ 40,768,013 $6,672,749
Goodwill 6,545,097 1,813,383
------------ ----------
47,313,110 8,486,132
Less accumulated amortization (2,289,170) (784,791)
------------ ----------
Net intangible assets $ 45,023,940 $7,701,341
============ ==========
Supplemental cash flow information for the year ended December 31:
1998 1997 1996
---- ---- ----
Cash paid for interest $2,974,000 $1,076,073 866,357
Income taxes paid, net of refunds -- 71,542 43,592
41
45
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
12. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standard Board issued SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards of
disclosure and financial statement display for reporting total
comprehensive income and its individual components. SFAS 130 became
effective in 1998. Company management has determined that comprehensive
income equals the Company's net loss as of December 31, 1998.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS
133 prescribes the accounting treatment for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The
Company may employ financial instruments to manage its exposure to
fluctuations in interest rates (see Note 4(c)). The Company does not
hold or issue such financial instruments for trading purposes. The
Company will adopt SFAS 133, as required in the year 2000, and does not
expect that the impact of adoption will have a material impact on the
Company's results of operations and statement of position.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which is
effective for fiscal years beginning after December 15, 1998. SOP 98-1
requires the capitalization of certain expenditures for software that
is purchased or internally developed for use in the business. The
Company elected to adopt SOP 98-1 in 1998. The impact of its adoption
was immaterial to the Company's results of operations and statement of
position.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." The SOP provides guidance on financial reporting
of costs of start-up activities. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. The Company believes the
implementation of SOP 98-5 in 1999 will not have a material impact on
its financial reporting.
13. PENDING TRANSACTIONS
On January 6, 1999, the Company entered into an asset purchase
agreement to acquire the FCC licenses and related assets used in the
operations of radio stations WJON (AM), WWJO (FM) and KMXK (FM) in the
St. Cloud, Minnesota market from WJON Broadcasting Company, for
approximately $12,700,000 in cash. The transaction is subject to FCC
consent.
On March 5, 1999, the Company entered into an asset purchase agreement
to sell the FCC licenses and related assets used in the operations of
radio stations KAAA (AM), and KZZZ (FM) in Kingman, Arizona and KFLG
(AM) and KFLG (FM) in Bullhead, Arizona for approximately $5,400,000 in
cash to an unrelated third party. The transaction is subject to FCC
consent. In addition, the Company entered into a local programming and
marketing agreement with the purchaser effective April 1, 1999, which
will end upon consummation of the sale or termination of the asset
purchase agreement.
42
46
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
On March 30, 1999, the Company entered into an asset purchase agreement
to sell the FCC licenses and related assets used in the operation of
radio stations KZGL (FM), KVNA (AM) and KVNA (FM) in Flagstaff, Arizona
for approximately $2,425,000 in cash to an unrelated third party. The
transaction is subject to FCC consent.
14. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to various
regulatory proceedings, lawsuits, claims and other matters. Such
matters are subject to many uncertainties, and outcomes are not
predictable with assurance. However, the Company believes that the
resolution of such matters for amounts above those reflected in the
consolidated financial statements would not likely have a materially
adverse effect on the Company's results of operations or statement of
position.
Lease Commitments
The Company leases certain facilities and equipment used in its
operations. Total rental expenses were approximately $502,000, $56,000
and $46,000 in 1998, 1997 and 1996, respectively.
At December 31, 1998, the total minimum annual rental commitments under
noncancelable leases are as follows:
1999 $ 730,000
2000 596,000
2001 503,000
2002 334,000
2003 260,000
Thereafter 1,476,000
-----------
Total $ 3,899,000
===========
43
47
REGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
15. RELATED PARTY TRANSACTIONS:
The Company obtains all of its property and casualty insurance and
director and officer liability insurance coverages through an insurance
brokerage firm 90% owned by the Company's Chief Executive Officer and
members of his immediate family. In 1998, the Company paid
approximately $221,500 in insurance premiums.
44
48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Regent Communications, Inc.
Our report on the consolidated financial statements of Regent Communications,
Inc. which is contained in Item 8 of this Form 10-K also includes the audit of
the financial statement schedule on page 45 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Cincinnati, Ohio
March 30, 1999
49
REGENT COMMUNICATIONS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER THE END
OF PERIOD EXPENSES ACCOUNTS(*) DEDUCTIONS (**) OF PERIOD
---------- -------- ----------- --------------- ---------
Allowance for doubtful accounts:
Years ended December 31,
1998 $ 32,000 174,051 173,960 112,011 $ 268,000
1997 $ 20,000 46,308 34,308 $ 32,000
1996 $ 20,000 42,449 42,449 $ 20,000
* Recorded in conjunction with acquisitions consummated on June 15, 1998.
** Represents accounts written off to the reserve.
45
50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item 10 is hereby incorporated by
reference from the Registrant's definitive Proxy Statement, and specifically
from the portions thereof captioned "Election of Directors" and "Executive
Officers," to be filed in April 1999 in connection with the 1999 Annual Meeting
of Stockholders presently scheduled to be held on April 29, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is hereby incorporated by
reference from the Registrant's definitive Proxy Statement, and specifically
from the portion thereof captioned "Executive Compensation," to be filed in
April 1999 in connection with the 1999 Annual Meeting of Stockholders presently
scheduled to be held on April 29, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 12 is hereby incorporated by
reference from the Registrant's definitive Proxy Statement, and specifically
from the portion thereof captioned "Security Ownership of Certain Beneficial
Owners and Management," to be filed in April 1999 in connection with the 1999
Annual Meeting of Stockholders presently scheduled to be held on April 29, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is hereby incorporated by
reference from the Registrant's definitive Proxy Statement, and specifically
from the portion thereof captioned "Certain Relationships and Related
Transactions," to be filed in April 1999 in connection with the 1999 Annual
Meeting of Stockholders presently scheduled to be held on April 29, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS.
The consolidated financial statements of Regent
Communications, Inc. and subsidiaries filed as part of this Annual Report on
Form 10-K are set forth under Item 8.
2. FINANCIAL STATEMENT SCHEDULES.
The financial statement schedule filed as part of this Annual
Report on Form 10-K is set forth under Item 8.
46
51
3. EXHIBITS.
A list of the exhibits filed or incorporated by reference as
part of this Annual Report on Form 10-K is set forth in the Index to Exhibits
which immediately precedes such exhibits and is incorporated herein by this
reference.
(b) REPORTS ON FORM 8-K.
The Registrant filed no reports on Form 8-K during the fourth
quarter of the fiscal year ended December 31, 1998.
47
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REGENT COMMUNICATIONS, INC.
Date: March 31, 1999 By: /s/ Terry S. Jacobs
----------------------------------------------
Terry S. Jacobs, Chairman of the Board, Chief
Executive Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Terry S. Jacobs Chairman of the Board, Chief March 31, 1999
- ------------------------------------ Executive Officer, Treasurer and
Terry S. Jacobs Director (Principal Executive Officer)
/s/ William L. Stakelin President, Chief Operating Officer,
- ------------------------------------ Secretary and Director March 31, 1999
William L. Stakelin
/s/ Anthony A. Vasconcellos Vice President and Chief Financial March 31, 1999
- ------------------------------------ Officer (Principal Financial and
Anthony A. Vasconcellos Principal Accounting Officer)
/s/ Joel M. Fairman Vice-Chairman of the Board and March 31, 1999
- ------------------------------------ Director
Joel M. Fairman
Director March 31, 1999
- ------------------------------------
R. Glen Mayfield
/s/ John H. Wyant Director March 31, 1999
- -------------------------------------
John H. Wyant
Director March 31, 1999
- ------------------------------------
William H. Ingram
/s/ Richard H. Patterson Director March 31, 1999
- ------------------------------------
Richard H. Patterson
S-1
53
EXHIBIT INDEX
The following exhibits are filed, or incorporated by reference where
indicated, as part of Part IV of this Annual Report on Form 10-K:
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2(a) Asset Purchase Agreement dated January 5, 1999 by and among
WJON Broadcasting Company, Regent Broadcasting of St. Cloud,
Inc., Regent Licensee of St. Cloud, Inc. and Regent
Communications, Inc.
The following exhibits and schedules to the foregoing Asset
Purchase Agreement are omitted as not material; however,
copies will be provided to the Securities and Exchange
Commission upon request:
Schedules:
1.2 Miscellaneous Excluded Assets
3.4 Allocation of Purchase Price
6.4 Third Party Consents
7.4 Stations Licenses, Etc.
7.7 Tangible Personal Property
7.8 Real Property
7.9 Contracts (including identification of Material
Contracts)
7.11 Environmental Matters
7.12 Intellectual Property
7.13 Financial Statements
7.14 Personnel Information
7.15 Litigation
7.16 Compliance With Laws
7.17 Employee Benefit Plans
Exhibits:
A Form of Indemnification Escrow Agreement
B Form of Deposit Escrow Agreement
C Form of Assignment and Assumption Agreement
D Form of Non-Competition Agreement
E Form of Lease Agreement
F Form of FCC Counsel Opinion
G Form of Buyers' Counsel Opinion
H Form of Seller's Counsel Opinion
2(b) Asset Purchase Agreement dated March 4, 1999 by and among Mag
Mile Media, L.L.C., Regent Broadcasting of Kingman, Inc. and
Regent Licensee of Kingman, Inc.
The following exhibits and schedules to the foregoing Asset
Purchase Agreement are omitted as not material; however,
copies will be provided to the Securities and Exchange
Commission upon request:
Schedules:
A Licenses
B Contracts
C Tangible Property
C-1 Leased Personal Property
D Copyrights, Logos, Jingles, Service Marks,
Trademarks and Other Intangible Rights
E Real Property
F Allocation of Purchase Price
G Evidence of Sources of Funds
H Excluded Employees
Exhibits:
A Form of Deposit Escrow Agreement
B Form of Time Brokerage Agreement
C Form of Assignment and Assumption Agreement
D Form of Opinion - Sellers' Counsel
E Form of Opinion - Sellers' Commission Counsel
F Form of Opinion - Buyer's Counsel
2(c) Asset Purchase Agreement dated March 30, 1999 by and among The
Guyann Corporation, Regent Broadcasting of Flagstaff, Inc. and
Regent Licensee of Flagstaff, Inc.
The following exhibits and schedules to the foregoing Asset
Purchase Agreement are omitted as not material; however,
copies will be provided to the Securities and Exchange
Commission upon request:
Schedules:
1.2.9 Miscellaneous Excluded Assets
6.3 Buyer Qualifications
7.4 Stations Licenses, Etc.
7.7 Tangible Personal Property
7.8 Leased Real Estate
7.9 Contracts (including identification of
Material Contracts)
7.11 Environmental Matters
7.12 Intellectual Property
7.13 Financial Statements
7.14 Employees
7.17 Employee Benefit Plans
Exhibits:
A Form of Indemnity Escrow Agreement
B Form of Deposit Escrow Agreement
C Form of Allocation of Purchase Price
D Form of Agreement Not to Compete
E Form of General Conveyance, Bill of Sale,
Assignment and Assumption Agreement
F Form of Seller's Counsel Opinion
G Form of Seller's FCC Counsel Opinion
H Form of Buyer's Counsel Opinion
3(a) Amended and Restated Certificate of Incorporation of Regent
Communications, Inc., as amended by a Certificate of
Designation, Number, Powers, Preferences and Relative,
Participating, Optional and Other Special Rights and the
Qualifications, Limitations, Restrictions, and Other
Distinguishing Characteristics of Series G Preferred Stock of
Regent Communications, Inc., filed January 21, 1999.
3(b)* Amended and Restated By-Laws of Regent Communications, Inc.
(previously filed as Exhibit 3(b) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998 and
incorporated herein by this reference).
4(a)* Second Amended and Restated Stockholders' Agreement dated as
of June 15, 1998 among Regent Communications, Inc., Terry S.
Jacobs, William L. Stakelin, Waller-Sutton Media Partners,
L.P., William H. Ingram, WGP Corporate Development Associates
V, L.L.C., WGP Corporate Development Associates (Overseas) V,
L.P., River Cities Capital Fund Limited Partnership, BMO
Financial, Inc., General Electric Capital Corporation, Joel M.
Fairman, Miami Valley Venture Fund II Limited Partnership, and
Blue Chip Capital Fund II Limited Partnership (excluding
exhibits not deemed material or filed separately in executed
form) (previously filed as Exhibit 4(c) to the Registrant's
Form 8-K filed June 30, 1998 and incorporated herein by this
reference).
4(b)* Stock Purchase Agreement dated June 15, 1998 among Regent
Communications, Inc., Waller-Sutton Media Partners, L.P., WPG
Corporate Development Associates V, L.C.C., WPG Corporate
Development Associates (Overseas) V, L.P., General Electric
Capital Corporation, River Cites Capital Fund Limited
Partnership and William H. Ingram (excluding exhibits not
deemed material or filed separately in executed form)
(previously filed as Exhibit 4(d) to the Registrant's Form 8-K
filed June 30, 1998 and incorporated herein by this
reference).
4(c)* Registration Rights Agreement dated June 15, 1998 among Regent
Communications, Inc., PNC Bank, N.A., Trustee, Waller-Sutton
Media Partners, L.P., WPG Corporate Development Associates V,
L.C.C., WPG Corporate Development Associates (Overseas) V,
L.P., BMO Financial, Inc., General Electric Capital
Corporation, River Cites Capital Fund Limited Partnership,
Terry S. Jacobs, William L. Stakelin, William H. Ingram, Blue
Chip Capital Fund II Limited Partnership, Miami Valley Venture
Fund L.P. and Thomas Gammon (excluding exhibits not deemed
material or filed separately in executed form) (previously
filed as Exhibit 4(e) to the Registrant's Form 8-K filed June
30, 1998 and incorporated herein by this reference).
E-1
54
4(d)* Warrant for the Purchase of 650,000 Shares of Common Stock
issued by Regent Communications, Inc. to Waller-Sutton Media
Partners, L.P. dated June 15, 1998 (See Note 1 below)
(previously filed as Exhibit 4(f) to the Registrant's Form 8-K
filed June 30, 1998 and incorporated herein by this
reference).
4(e)* Warrant for the Purchase of 50,000 Shares of Common Stock
issued by Regent Communications, Inc. to General Electric
Capital Corporation dated June 15, 1998 (previously filed as
Exhibit 4(g) to the Registrant's Form 8-K filed June 30, 1998
and incorporated herein by this reference).
4(f)* Agreement to Issue Warrant dated as of June 15, 1998 between
Regent Communications, Inc. and General Electric Capital
Corporation (excluding exhibits not deemed material or filed
separately in executed form) (previously filed as Exhibit 4(h)
to the Registrant's Form 8-K filed June 30, 1998 and
incorporated herein by this reference).
4(g)* Warrant for the Purchase of 80,000 Shares of Common Stock
issued by Regent Communications, Inc. to River Cities Capital
Fund Limited Partnership dated June 15, 1998 (previously filed
as Exhibit 4(k) to the Form 10-Q for the Quarter Ended June
30, 1998, as amended, and incorporated herein by this
reference).
4(h)* Stock Purchase Agreement dated as of May 20, 1997 between
Terry S. Jacobs and Regent Communications, Inc. (previously
filed as Exhibit 4(b) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998 and
incorporated herein by this reference).
4(i)* Stock Purchase Agreement dated as of May 20, 1997 between
River Cities Capital Fund Limited Partnership and Regent
Communications, Inc. (previously filed as Exhibit 4(c) to the
Registrant's Form S-4 Registration Statement No. 333-46435
effective May 7, 1998 and incorporated herein by this
reference).
4(j)* Stock Purchase Agreement dated as of November 26, 1997 and
Terry S. Jacobs and Regent Communications, Inc. (previously
filed as Exhibit 4(d) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998 and
incorporated herein by this reference).
4(k)* Stock Purchase Agreement dated as of December 1, 1997 between
William L. Stakelin and Regent Communications, Inc.
(previously filed as Exhibit 4(e) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998 and
incorporated herein by this reference).
4(l)* Stock Purchase Agreement dated as of December 8, 1997 between
Regent Communications, Inc. and General Electric Capital
Corporation (previously filed
E-2
55
as Exhibit 4(f) to the Registrant's Form S-4 Registration
Statement No. 333-46435 effective May 7, 1998 and incorporated
herein by this reference).
4(m)* Stock Purchase Agreement dated as of December 8, 1997 between
Regent Communications, Inc. and BMO Financial, Inc.
(previously filed as Exhibit 4(g) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998 and
incorporated herein by this reference).
4(n)* Credit Agreement dated as of November 14, 1997 among Regent
Communications, Inc., the lenders listed therein, as Lenders,
General Electric Capital Corporation, as Documentation Agent
and Bank of Montreal, Chicago Branch, as Agent (excluding
exhibits not deemed material or filed separately in executed
form) (previously filed as Exhibit 4(j) to the Registrant's
Form S-4 Registration Statement No. 333-46435 effective May 7,
1998 and incorporated herein by this reference).
4(o)* Revolving Note issued by Regent Communications, Inc. to Bank
of Montreal, Chicago Branch dated November 14, 1997 in the
principal amount of $20,000,000 (See Note 2 below) (previously
filed as Exhibit 4(k) to the Registrant's Form S-4
Registration Statement No. 333-46435 effective May 7, 1998 and
incorporated herein by this reference).
4(p)* Agreement to Issue Warrant dated as of March 25, 1998 between
Regent Communications, Inc. and River Cities Capital Fund
Limited Partnership (previously filed as Exhibit 4(1) to the
Registrant's Form S-4 Registration Statement No. 333-46435
effective May 7, 1998 and incorporated herein by this
reference).
4(q)* First Amendment to Credit Agreement dated as of February 16,
1998 among Regent Communications, Inc., the financial
institutions listed therein, as lenders, General Electric
Capital Corporation, as Documentation Agent, and Bank of
Montreal, Chicago Branch as Agent (previously filed as Exhibit
4(w) to the Registrant's Form 8-K/A (date of report June 15,
1998) filed September 3, 1998 and incorporated herein by
reference).
4(r)* Second Amendment and Limited Waiver to Credit Agreement dated
as of June 10, 1998 among Regent Communications, Inc., the
financial institutions listed therein, as lenders, General
Electric Capital corporation, as Documentation Agent, and Bank
of Montreal, Chicago Branch, as Agent (previously filed as
E-3
56
Exhibit 4(x) to the Registrant's Form 8-K/A (date of report
June 15, 1998) filed September 3, 1998 and incorporated herein
by reference).
4(s)* Third Amendment to Credit Agreement dated as of August 14,
1998 among Regent Communications, Inc., the financial
institutions listed therein, as lenders, General Electric
Capital Corporation, as Documentation Agent, and Bank of
Montreal, Chicago Branch, as Agent (previously filed as
Exhibit 4(y) to the Registrant's Form 10-Q for the Quarter
Ended September 30, 1998, as amended, and incorporated herein
by this reference).
4(t) Amendment to Second Amended and Restated Stockholders'
Agreement, dated as of January 11, 1999, among Regent
Communications, Inc., Terry S. Jacobs, William L. Stakelin,
Waller-Sutton Media Partners, L.P., William H. Ingram, WGP
Corporate Development Associates V, L.L.C., WGP Corporate
Development Associates (Overseas) V, L.P., River Cities
Capital Fund Limited Partnership, BMO Financial, Inc., General
Electric Capital Corporation, Joel M. Fairman, Miami Valley
Venture Fund II Limited Partnership, and Blue Chip Capital
Fund II Limited Partnership (excluding exhibits not deemed
material or filed separately in executed form)
4(u) Stock Purchase Agreement dated January 11, 1999 between Regent
Communications, Inc. and Blue Chip Capital II Limited
Partnership relating to the purchase of 315,887 shares of
Regent Communications, Inc. Series G Convertible Preferred
Stock (excluding exhibits not deemed material or filed
separately in executed form)
4(v) Stock Purchase Agreement dated January 11, 1999 between
Regent Communications, Inc. and Terry S. Jacobs relating to
the purchase of 50,000 shares of Regent Communications, Inc.
Series G Convertible Preferred Stock (See Note 3) (excluding
exhibits not deemed material or filed separately in executed
form)
4(w) Fourth Amendment, Limited Consent and Limited Waiver to Credit
Agreement, First Amendment to Subsidiary Guaranty and First
Amendment to Pledge and Security Agreement, dated as of
October 16, 1998 among Regent Communications, Inc., the
financial institutions listed therein, as lenders, General
Electric Capital Corporation, as Documentation Agent, and Bank
of Montreal, Chicago Branch, as Agent.
4(x) Fifth Amendment to Credit Agreement, dated as of November 23,
1998, among Regent Communications, Inc., the financial
institutions listed therein, as lenders, General Electric
Capital Corporation, as Documentation Agent, and Bank of
Montreal, Chicago Branch, as Agent.
4(y) Sixth Amendment and Limited Consent to Credit Agreement, dated
as of February 24, 1999, among Regent Communications, Inc.,
the financial institutions listed therein, as lenders, General
Electric Capital Corporation, as Documentation Agent, and Bank
of Montreal, Chicago Branch, as Agent.
10(a) Time Brokerage Agreement dated as of March 4, 1999 among Mag
Mile Media, L.L.C., Regent Broadcasting of Kingman, Inc. and
Regent Licensee of Kingman, Inc. (excluding exhibits not
deemed material or filed separately in executed form)
21 Subsidiaries of the Registrant
27 Financial Data Schedule
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* Incorporated by reference.
1. Six substantially identical Warrants for the purchase of shares of
Registrant's common stock were issued as follows:
Waller-Sutton Media Partners, L.P. 650,000
WPG Corporate Development Associates V, L.P. 112,580
WPG Corporate Development Associates (Overseas) V, L.P. 17,420
General Electric Capital Corporation 50,000
River Cities Capital Fund Limited Partnership 20,000
William H. Ingram 10,000
2. Two substantially identical notes were issued to Bank of Montreal, Chicago
Branch, in the principal amounts of $15,000,000 and $20,000,000.
3. Two substantially identical Stock Purchase Agreements were entered into for
the purchase of Series G Convertible Preferred Stock as follows:
Joel M. Fairman 3,319 shares
William L. Stakelin 3,200 shares
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