-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IM0g2pOTaV5zPH4MCn6Fbhlcb1Z1wLsOuCRbHY8VaRWvlo21xhTo479hgbWLvw8W cdX00yz9Kb6uBTD8vgezKA== 0000950152-99-002748.txt : 19990331 0000950152-99-002748.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950152-99-002748 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980615 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGENT COMMUNICATIONS INC CENTRAL INDEX KEY: 0000913015 STANDARD INDUSTRIAL CLASSIFICATION: RADIO BROADCASTING STATIONS [4832] IRS NUMBER: 311492857 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 333-46435 FILM NUMBER: 99578684 BUSINESS ADDRESS: STREET 1: 50 EAST RIVERCENTER BOULEVARD STREET 2: SUITE 180 CITY: COVINGTON STATE: KY ZIP: 41011 BUSINESS PHONE: 6062920030 MAIL ADDRESS: STREET 1: 50 EAST RIVERCENTER BLVD STREET 2: SUITE 180 CITY: COVINGTON STATE: KY ZIP: 41011 8-K/A 1 REGENT COMMUNICATIONS INC. 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A AMENDMENT NO. 2 TO CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) -- June 15, 1998 REGENT COMMUNICATIONS, INC. (Exact name of registrant as specified in charter) DELAWARE 0-15392 31-1492857 (State of other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 50 EAST RIVERCENTER BOULEVARD SUITE 180 COVINGTON, KENTUCKY 41011 (Address of principal executive offices) (606) 292-0030 (Registrant's telephone number, including area code) 2 ITEM 1. CHANGES IN CONTROL OF REGISTRANT. On June 15, 1998, Regent Communications, Inc. (the "Company") acquired control of 31 radio stations located in California, Arizona, Michigan and Ohio through acquisitions of assets or stock for cash or by way of merger transactions. The cash needed for these transactions was provided by bank financing from the Company's senior credit facility with Bank of Montreal, Chicago Branch, General Electric Capital Corporation and Bank One, Indianapolis, NA, and by the proceeds from the sale of shares of the Company's convertible preferred stock, most of which having full voting rights. Additional shares of the Company's convertible preferred stock with full voting rights were issued in the merger transactions. Prior to these transactions, approximately 51.5% of the Company's outstanding voting stock was held by Terry S. Jacobs. As a result of these transactions, Mr. Jacobs now holds approximately 5.8% of the outstanding voting stock of the Company. The Company's voting stock is now dispersed among numerous stockholders with no single stockholder holding a majority. The Company's largest single stockholder is Blue Chip Capital Fund II Limited Partnership ("Blue Chip"), which holds 1,702,718 shares of the Series C Convertible Preferred Stock of the Company, representing approximately 23% of the Company's outstanding voting stock. John H. Wyant is a beneficial owner and manager of the general partner of Blue Chip as well as a beneficial owner and manager of the general partner of Miami Valley Venture Fund L.P. ("Miami Valley"), which holds 300,479 shares of the Series C Convertible Preferred Stock of the Company. All of these shares of Series C Convertible Preferred Stock were issued in exchange for shares of common stock of Faircom Inc. in the merger of Faircom Inc. with the Company on June 15, 1998. See Item 2 below. The Faircom Inc. common stock was acquired by Blue Chip and Miami Valley upon conversion prior to the merger of $7,500,000 in principal amount of subordinated notes of Faircom Inc. Together, Blue Chip and Miami Valley hold approximately 27% of the Company's outstanding voting stock. The Company's next largest stockholder is Waller-Sutton Media Partners, L.P. ("Waller-Sutton"), which purchased on June 15, 1998 1,000,000 shares of the Series F Convertible Preferred Stock of the Company for $5,000,000 and acquired an additional 400,640 shares of the Series C Convertible Preferred Stock of the Company by having purchased for $1,500,000 certain subordinated notes of Faircom Inc. which were ultimately converted into the Company's Series C Convertible Preferred Stock in the merger of Faircom with the Company. See Item 2 below. Waller-Sutton is managed by Waller-Sutton Management Group, Inc., of which William H. Ingram is Chairman of the Board of Directors. Mr. Ingram holds personally 50,000 shares of the Series F Convertible Preferred Stock of the Company which he acquired on June 15, 1998 at $5.00 per share. These combined holdings of Waller-Sutton and Mr. Ingram constitute approximately 19.5% of the outstanding voting shares of the Company, not including warrants held by Waller-Sutton and Mr. Ingram to purchase a total of 660,000 shares of the Company's common stock for $5.00 per share. The exercise of these warrants could increase Waller-Sutton's and Mr. Ingram's combined voting interest in the Company to approximately 26%. Waller-Sutton and Mr. Ingram have agreed, subject to certain conditions, to purchase an additional 1,050,000 shares of the Series F Convertible Preferred Stock of the Company at $5.00 per share to finance future acquisitions. Should this purchase occur, Waller-Sutton's and Mr. -2- 3 Ingram's combined voting interest in the Company, assuming exercise of their warrants in full, could increase to approximately 30.7%. In conjunction with these transactions, holders of approximately 82% of the outstanding voting stock of the Company entered into a Second Amended and Restated Stockholders' Agreement (the "Stockholders' Agreement") by which the parties to the Stockholders' Agreement agreed to vote all of their shares for the election of a specific group of seven individuals (to be identified from time to time) as the Board of Directors of the Company. Initially, this group will consist of Terry S. Jacobs, William L. Stakelin, Joel M. Fairman, William H. Ingram, Richard Patterson, R. Glen Mayfield, and John H. Wyant, and the voting agreements contained in the Stockholders' Agreement will assure their election. These voting agreements are to remain in effect until the Company has completed an underwritten public offering of the Company's common stock at not less than $12.00 per share (equitably adjusted for any stock splits, reverse stock splits, or stock dividends) and generating not less than $25,000,000 of gross proceeds to the Company (excluding the effect of any over-allotment option). Under the terms of the Stockholders' Agreement, the Company has agreed that, for so long as Waller-Sutton and the other purchasers of the Series F Convertible Preferred Stock of the Company, and their permitted transferees, own 10% or more of the voting stock of the Company, the Company may not take or permit to occur (and the parties to the Stockholders' Agreement will not consent to, authorize or vote for) any of the following events or actions, unless such has been approved in advance, in writing, by Waller-Sutton: (a) any merger or consolidation of the Company with any other entity, and any merger or consolidation of any subsidiary of the Company with any other entity other than the Company or another wholly-owned subsidiary of the Company; (b) the purchase or lease by the Company or any subsidiary thereof of any business or assets, other than the purchase or lease of assets in the ordinary course of business (not to include the purchase or lease of any radio broadcasting station or Federal Communications Commission ("FCC") license), or the execution of any agreement providing for the purchase, lease, construction or management of or in respect of radio broadcasting stations (including time brokerage agreements and local marketing agreements and the like); (c) the sale of any assets of the Company or any subsidiary thereof, or the execution of any agreement in respect thereof (other than the sale of advertising time and excess or obsolete furniture, fixtures or equipment in the ordinary course of business); (d) the issuance or sale of any equity or debt securities of the Company or any subsidiary thereof or any rights to acquire any of such equity or debt securities (including options and warrants) or the issuance or sale of stock appreciation or other "phantom" stock rights, other than permitted issuances pursuant to existing agreements, or the execution of any agreements in respect thereof; -3- 4 (e) the incurrence or assumption of any indebtedness for borrowed money, secured by a lien, or pursuant to guaranties by the Company or any subsidiary thereof, other than indebtedness permitted under the Company's current senior debt facility; (f) any change of control of the Company; (g) any amendment to the Company's 1998 Management Stock Option Plan or the adoption of any other stock option, stock purchase or restricted stock appreciation right plan; (h) any amendment to the Amended and Restated Certificate of Incorporation or By-Laws of the Company; (i) the execution by the Company or any party to the Stockholders' Agreement of any voting, voting trust, registration rights or stockholders agreements with respect to the Company or any of its shares of capital stock (other than the Stockholders' Agreement and a Registration Rights Agreement of even date therewith); or (j) the execution by the Company of any contract or agreement for the construction or management of radio stations. The Stockholders' Agreement also provides for the obligation of the Company to repurchase shares of the Company's convertible preferred stock held by the parties to the Stockholders' Agreement after five years from date of issuance if Waller-Sutton requests that the Company repurchase the Eligible Put Shares (as defined therein) held by Waller-Sutton. In the event the Company should fail to repurchase such shares within the time requirements set forth in the Stockholders' Agreement (from a minimum of six months to as long as one year, depending on the circumstances), Waller-Sutton would have the right under the Stockholders' Agreement to require the election of such additional designees of Waller-Sutton to the Board of Directors of the Company such that, after giving effect thereto, the designees of Waller-Sutton elected to the Board under the terms of the Stockholders' Agreement would constitute a majority of the members of the Board. The exercise of such "put" rights could likely result in a change of control of the Company. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On June 15, 1998, the Company consummated the following acquisitions: 1. The Company acquired all of the outstanding capital stock of Faircom Inc., a Delaware corporation ("Faircom"), which, through its wholly-owned subsidiaries, owns radio stations WFNT(AM) and WCRZ(FM) in Flint, Michigan; WWBN(FM) in Tuscola, Michigan, a community north of Flint; WMAN(AM) and WYHT(FM) in Mansfield, Ohio and WSWR(FM) in Shelby, Ohio, adjoining Mansfield. The acquisition was accomplished by a merger of Faircom with and into Regent Merger Corp., a wholly-owned subsidiary of the Company. The consideration paid to the Faircom stockholders for the Faircom stock was 3,720,620 shares of the Company's Series C Convertible Preferred Stock (stated value $5.00 per share). Pursuant to Rule 12g-3 promulgated under the Securities Exchange Act of 1934, the Company's Series C Convertible Preferred Stock is deemed registered under Section 12(g) of the Securities Exchange Act of 1934. Options outstanding at the time of the merger for the purchase of shares of Faircom's common stock were -4- 5 converted at the time of the merger into options for the purchase, on equivalent terms, of 274,045 shares of Regent's Series C Convertible Preferred Stock. Upon consummation of the merger, Joel M. Fairman, President of Faircom, became a Vice Chairman and a Director of the Company, and the Company entered into an agreement with Mr. Fairman providing for a two-year employment period and a one-year consulting period, with annual compensation of $190,000, discretionary annual bonuses, discretionary stock option awards, ownership of a term life insurance policy paid for by the Company, an automobile allowance and certain other benefits. John H. Wyant, an affiliate of Faircom's largest stockholder at the time of the merger, became a director of the Company upon consummation of the merger. 2. The Company acquired all of the outstanding capital stock of The Park Lane Group, a California corporation which, through its wholly-owned subsidiaries, owns radio stations KQMS(AM) and KSHA(FM) in Redding, California; KPPL(FM), KFMF(FM) and KALF(FM) in Chico, California; KVOY(AM) and KTPI(FM) in Palmdale, California; KROY(AM) and KATJ(FM) in Victorville, California; KAAA(AM) and KZZZ(FM) in Kingman, Arizona; KOWL(AM) and KRLT(FM) in Lake Tahoe, California; and KVNA(AM), KVNA(FM) and KZGL(FM) in Flagstaff, Arizona. The purchase price for the stock was $17,467,737, paid in cash to the stockholders of The Park Lane Group. In addition, at the time of the acquisition, the Company entered into a one-year Consulting and Non-Competition Agreement with James H. Levy, the President of The Park Lane Group, providing for the payment of a consulting fee of $200,000 to Mr. Levy. 3. The Company acquired all of the outstanding capital stock of Alta California Broadcasting, Inc. ("Alta") by virtue of a merger of Alta with and into Regent Acquisition Corp., a wholly-owned subsidiary of the Company. The purchase price for the stock was $2,000,000, paid in the form of $1,000,000 in cash and 200,000 shares of the Company's Series E Convertible Preferred Stock (stated value $5.00 per share). Of the 200,000 shares of Series E Convertible Preferred Stock, 194,750 shares were issued to the seller, Redwood Broadcasting, Inc.(of which 20,000 shares are currently being held in escrow pursuant to an indemnification agreement between the Company and the seller), and 5,250 shares were issued to Miller Capital Corp. as partial payment of commissions due and payable to it by the seller. Prior to the merger, Alta was the owner, operator and licensee of radio station KDRG(FM) in Shingleton, California and, through its subsidiary, Northern California Broadcasting, Inc., KNNN(FM) in Central Valley, California. Prior to the merger, Alta also acquired from Power Surge, Inc., an affiliate of Alta, all of the assets used in the operation of radio stations KRRX(FM) (formerly KARZ(FM)) in Burney, California and KNRO(AM) in Redding, California. 4. The Company (through Regent Broadcasting of Kingman, Inc., a wholly-owned subsidiary of the Company, and its wholly-owned subsidiary, Regent Licensee of Kingman, Inc.) acquired from Continental Radio Broadcasting, L.L.C. the FCC licenses and related assets used in the operation of radio stations KFLG-AM and KFLG-FM in Bullhead City, Arizona. The purchase price for these assets (other than the accounts receivable) was approximately $3,622,000 in cash. The Company separately acquired the accounts receivable of these stations for an additional cash purchase price of approximately $130,000. -5- 6 5. The Company acquired all of the outstanding capital stock of Topaz Broadcasting, Inc. ("Topaz") by virtue of a merger of Topaz with and into Regent Broadcasting of Victorville, Inc., a wholly-owned subsidiary of the Company ("Regent-Victorville"). Immediately following the merger, Regent-Victorville acquired the assets used in the operation of radio station KIXA(FM) in Lucerne Valley, California pursuant to an Asset Purchase Agreement between Topaz and RASA Communications Corp. The consideration paid for the Topaz stock was 242,592 shares of the Company's Series E Convertible Preferred Stock (stated value $5.00 per share). 6. The Company acquired, through Regent Broadcasting of Victorville, Inc., a wholly-owned subsidiary of the Company, and Regent Licensee of Victorville, Inc., its wholly-owned subsidiary, the FCC licenses and related assets used in the operation of radio stations KIXW(AM) and KZXY(FM) in Apple Valley, California. The purchase price for these stations was $5,995,500 in cash. The terms of each of the foregoing acquisitions were arrived at and agreed upon through arms' length negotiations between the parties. The Company intends to continue to use the assets acquired in the foregoing acquisitions in a manner consistent with their use prior to their acquisition by the Company. The sources for the cash portion of the consideration paid by the Company in the foregoing transactions, aggregating approximately $53,650,000 (including approximately $3,400,000 of transaction costs) were $34,400,000 borrowed under the Company's Credit Agreement with Bank of Montreal, Chicago Branch, General Electric Capital Corporation and Bank One, Indianapolis, NA ("Credit Agreement"), $18,150,000 in additional equity from the sale of the Company's convertible preferred stock, and approximately $1,100,000 of Company funds. See Item 5 below. ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT. Effective with the Company's acquisition by merger on June 15, 1998 of all of the outstanding capital stock of Faircom, the Company disengaged the accounting firm of BDO Seidman, LLP and retained the accounting firm of PricewaterhouseCoopers LLP to perform the annual audit of Faircom's financial statements for 1998. PricewaterhouseCoopers LLP (successor to Coopers & Lybrand L.L.P.) has been the auditor for the Company and its subsidiaries for all fiscal years since the Company's formation in 1996. The change in accountants for Faircom's financial statements from BDO Seidman, LLP to PricewaterhouseCoopers LLP was precipitated by the Company's acquisition of Faircom as its wholly-owned subsidiary and by the desire to have one accounting firm responsible for the consolidated audited financial statements of the Company. This action was approved by the Company's Board of Directors. The reports of BDO Seidman, LLP on the financial statements of Faircom for 1997 and 1996 contained no adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. During the 1997 and 1996 fiscal years and the interim period prior to June 15, 1998, there were no disagreements between Faircom and BDO Seidman, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure or any reportable events which, if not resolved to the satisfaction of BDO Seidman, LLP, would have caused BDO Seidman, LLP to make reference to the subject matter of its disagreement in connection with its report. The Company requested that BDO Seidman, LLP furnish it with a letter addressed to the SEC stating whether it agrees with the above statements. A copy of this letter, dated March 30, 1999, is filed as Exhibit 16 to this Form 8-K/A. ITEM 5. OTHER EVENTS. New Debt In order to finance the foregoing acquisitions and to provide additional working capital, the Company borrowed $34,400,000 under its Credit Agreement on June 15, 1998. Additional Equity Capitalization. On June 15, 1998, the Company issued additional equity as follows, the proceeds of which were used to fund the Company's acquisitions completed on that date: -6- 7 1. The Company issued to the purchasers set forth below a total of 2,050,000 shares of its Series F Convertible Preferred Stock at a purchase price of $5.00 per share, and in conjunction therewith, issued to such purchasers warrants to purchase a total of 860,000 shares of the Company's Common Stock at $5.00 per share.
Number of Shares Number of Warrants Name of Purchaser Purchased Received Waller-Sutton Media Partners, L.P. 1,000,000 650,000 WPG Corporate Development Associates V, L.P. 562,900 112,580 WPG Corporate Development Associates (Overseas) V, L.P. 87,100 17,420 General Electric Capital Corporation 250,000 50,000 River Cities Capital Fund Limited Partnership 100,000 20,000 William H. Ingram 50,000 10,000
These purchasers also have committed to purchase, on a pro rata basis, an additional 2,050,000 shares of the Company's Series F Convertible Preferred Stock at $5.00 per share to fund future acquisitions by the Company. In addition, Waller-Sutton purchased $1,500,000 of certain Class A and Class B Faircom Subordinated Notes from Blue Chip and Miami Valley, which were converted into shares of Faircom's common stock and then exchanged in the merger of Faircom and Regent Merger Corp. for 400,640 shares of the Company's Series C Convertible Preferred Stock. 2. General Electric Capital Corporation ("GE Capital") paid $3,900,000 cash to complete its purchase of shares of the Company's Series B Senior Convertible Preferred Stock, pursuant to the terms of its Stock Purchase Agreement and Promissory Note dated December 8, 1997. In addition, the Company issued to GE Capital a warrant to purchase 50,000 shares of the Company's Common Stock at $5.00 per share. 3. BMO Financial, Inc. paid $3,900,000 cash for 780,000 shares of the Company's Series D Convertible Preferred Stock. 4. William L. Stakelin, a member of the Company's Board of Directors, as well as its President, Chief Operating Officer and Secretary, purchased 20,000 shares of the Company's Series A Convertible Preferred Stock at a purchase price of $5.00 per share. In addition to the preferred stock and warrants issued as described in paragraphs numbered 1 through 4 above and the Series E Convertible Preferred Stock issued in the Alta and Topaz mergers as described in Item 2 above, the Company (a) granted options effective June 15, 1998 under the Company's 1998 Management Stock Option Plan to each of Terry S. Jacobs (the Chairman of the Board, Chief Executive Officer, Treasurer and a director of the Company) and William L. Stakelin (the President, Chief Operating Officer, Secretary and a director of the Company) for the purchase of 608,244 shares of the Company's Common Stock at a purchase price of $5.00 per share, and (b) issued to River Cities Capital Fund Limited Partnership ("River Cities") on June 15, 1998 a five-year warrant to purchase 80,000 shares of the Company's Common Stock at an exercise price of $5.00 per share, as an inducement for River Cities, as an existing holder of the Company's Series A Convertible Preferred Stock, to approve the Company's merger with Faircom and the issuance of the Company's Series C Convertible Preferred Stock in connection therewith. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. Pursuant to generally accepted accounting principles, Faircom Inc. was deemed the "accounting acquirer" in the merger that was consummated on June 15, 1998 between Faircom Inc. and the Company and, thus, the historical -7- 8 financial statements of Faircom Inc. have become the historical financial statements of the Company. The Form 10-K of Faircom Inc. for the year ended December 31, 1997 and the Form 10-Q of Faircom Inc. for the quarter ended March 31, 1998, including all exhibits thereto, as filed with the Securities and Exchange Commission on March 30, 1998 and May 14, 1998, respectively, are incorporated herein by this reference. In addition, the following financial statements and notes thereto are included in this report or, where indicated, are incorporated by reference herein:
Page ---- REGENT COMMUNICATIONS, INC. Consolidated Condensed Balance Sheets at March 31, 1998 (unaudited) and December 31, 1997.......................................................F-4 Consolidated Condensed Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited)...............................F-5 Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited)...............................F-6 Notes to Consolidated Condensed Financial Statements......................F-7 THE PARK LANE GROUP AND SUBSIDIARIES Consolidated Balance Sheets at March 31, 1998 and December 31, 1997.......F-9 Consolidated Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited).....................................F-10 Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited).....................................F-11 Notes to Consolidated Financial Statements................................F-12 ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY Report of Independent Auditors Report.....................................F-13 Consolidated Balance Sheets at March 31, 1998 and 1997....................F-14 Consolidated Statements of Operations for the years ended March 31, 1998 and 1997................................................................F-15 Consolidated Statements of Stockholder's Deficit..........................F-16 Consolidated Statements of Cash Flows for the years ended March 31, 1998 and 1997................................................................F-17 Notes to Consolidated Financial Statements................................F-19 POWER SURGE, INC. Balance Sheets at March 31, 1998 (unaudited) and December 31, 1997........F-26 Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited)....................................................F-27 Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited)....................................................F-28 Notes to Financial Statements.............................................F-29 CONTINENTAL RADIO BROADCASTING L.L.C. Balance Sheets at March 31, 1998 (unaudited) and December 31, 1997........F-30 Statements of Operations for the three months ended March 31, 1998 and 1997 (unaudited)....................................................F-31 Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited)....................................................F-32 Notes to Financial Statements.............................................F-33 RADIO STATION KZXY (FM) Report of Independent Accountants.........................................F-34 Statement of Net Assets Acquired at June 15, 1998.........................F-35 Notes to Financial Statement .............................................F-36 Statement of Revenues and Direct Expenses for the three months ended March 31, 1998 and 1997 (unaudited).....................................F-37 Note to Statement of Revenues and Direct Expenses.........................F-38
F-1 9 TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP (WYHT (FM) AND WMAN (AM)) Report of Independent Accountants......................... * Balance Sheets at November 30, 1996 and 1995.............. * Statement of Partners' Deficit for the years ended November 30, 1996 and 1995............................. * Statement of Income for the years ended November 30, 1996 and 1995............................................... * Statement of Cash Flows for the years ended November 30, 1996 and 1995.......................................... * Notes to Financial Statements............................. * Condensed Balance Sheets at May 31, 1997 and 1996 (unaudited)............................................ * Condensed Statements of Operations for the six months ended May 31, 1997 and 1996 (unaudited)................ * Condensed Statements of Cash Flows for the six months ended May 31, 1997 and 1996 (unaudited)................ * Note to Interim Financial Statements...................... * REGENT COMMUNICATIONS, INC. Report of Independent Accountants......................... ** Consolidated Balance Sheets at December 31, 1997 and 1996................................................... ** Consolidated Statements of Operations for the year ended December 31, 1997 and the period from November 5, 1996 (inception) through December 31, 1996.................. ** Consolidated Statements of Shareholders' Equity for the year ended December 31, 1997 and the period from November 5, 1996 (inception) through December 31, 1996................................................... ** Consolidated Statements of Cash Flows for the year ended December 31, 1997 and the period from November 5, 1996 (inception) through December 31, 1996.................. ** Notes to Consolidated Financial Statements................ ** THE PARK LANE GROUP AND SUBSIDIARIES Report of Independent Accountants......................... ** Consolidated Balance Sheets at December 31, 1997 and 1996................................................... ** Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995....................... ** Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1997, 1996 and 1995... ** Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995....................... ** Notes to Consolidated Financial Statements................ ** ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY Independent Auditors' Report.............................. ** Consolidated Balance Sheet at March 31, 1997.............. ** Consolidated Statement of Operations for the year ended March 31, 1997......................................... ** Consolidated Statement of Stockholders' Equity (Deficiency) for the year ended March 31, 1997......... ** Consolidated Statement of Cash Flows for the year ended March 31, 1997......................................... ** Notes to Consolidated Financial Statements................ **
F-2 10 Consolidated Balance Sheet at December 31, 1997 (unaudited) ** Consolidated Statements of Operations for the nine months ended December 31, 1996 and 1997 (unaudited)........... ** Consolidated Statement of Stockholder's Equity (Deficiency) for the nine months ended December 31, 1997 (unaudited)....................................... ** Consolidated Statements of Cash Flows for the nine months ended December 31, 1996 and 1997 (unaudited)........... ** Notes to Consolidated Financial Statements................ ** POWER SURGE, INC. Independent Auditors' Report.............................. ** Balance Sheet at December 31, 1997........................ ** Statement of Operations for the year ended December 31, 1997................................................... ** Statement of Stockholders' Equity for the year ended December 31, 1997...................................... ** Statement of Cash Flows for the year ended December 31, 1997................................................... ** Notes to Financial Statements............................. ** CONTINENTAL RADIO BROADCASTING L.L.C. Report of Independent Accountants......................... ** Balance Sheet at December 31, 1997........................ ** Statement of Operations for the year ended December 31, 1997................................................... ** Statement of Changes in Partners' Deficit for the year ended December 31, 1997................................ ** Statement of Cash Flows for the year ended December 31, 1997................................................... ** Notes to Financial Statements............................. ** RADIO STATION KZXY(FM) Report of Independent Accountants......................... ** Statement of Revenues and Direct Expenses for the years ended December 31, 1997 and 1996....................... ** Notes to Statement of Revenues and Direct Expenses........ **
* These financial statements, notes thereto and report thereon have been previously filed, appearing under Item 7A on pages 4 through and including 23 of the Form 8-K/A, Amendment No. 2 to Current Report dated June 30, 1997 (filing date September 12, 1997), of Faircom Inc., and are incorporated herein by this reference. ** These financial statements, notes thereto and reports thereon have been previously filed, appearing on pages F-50 through and including F-102 and F-109 through and including F-130 of the Company's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998, and are incorporated herein by this reference. F-3 11 REGENT COMMUNICATIONS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS AT MARCH 31, 1998 AND DECEMBER 31, 1997
March 31, December 31, 1998 1997 ------------ ------------ (Unaudited) ASSETS Current assets: Cash $ 223,868 $ 1,013,547 Accounts receivable, net 1,375,251 1,507,623 Deposits held in escrow for station acquisitions 1,975,000 1,975,000 Assets Held for Sale 7,500,000 7,500,000 Other current assets 358,978 226,419 ----------- ----------- Total current assets 11,433,097 12,222,589 Property and equipment, net 101,383 53,792 Other assets, net 2,072,180 1,089,462 ----------- ----------- Total assets $13,606,660 $13,365,843 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 587,018 $ 526,004 Accrued expenses 1,463,805 655,078 Notes payable 7,500,000 7,500,000 ----------- ----------- Total current liabilities 9,550,823 8,681,082 Redeemable preferred stock: Series B Senior convertible preferred stock, 1,000,000 shares authorized, 1,000,000 issued and outstanding, $5.00 stated value (liquidation value: $1,208,356 and $1,122,055), net of subscription for 780,000 shares for $3,900,000 1,208,356 1,122,055 Series D convertible preferred stock, 1,000,000 shares authorized, 220,000 issued and outstanding, $5,00 stated value (liquidation value: $1,123,838 and $1,104,852) 1,123,838 1,104,852 ----------- ----------- Total redeemable preferred stock 2,332,194 2,226,907 Shareholders' equity: Preferred stock, $.01 par value; 20,000,000 shares authorized: Series A convertible preferred stock, 620,000 shares authorized, 600,000 issued and outstanding, $5.00 stated value (liquidation value $3,153,214 and $3,119,268) 3,000,000 3,000,000 Series C convertible preferred stock, 4,000,000 shares authorized, none issued or outstanding, $5.00 stated value Series E convertible preferred stock, 5,000,000 shares authorized, none issued or outstanding, $5.00 stated value Common stock, $.01 par value; 30,000,000 shares authorized; 240,000 shares issued and outstanding 2,400 2,400 Additional paid-in capital 465,997 571,285 Deficit (1,744,754) (1,115,831) ------------ ----------- Total shareholders' equity 1,723,643 2,457,854 ------------ ----------- Total liabilities and shareholders' equity $ 13,606,660 $13,365,843 ============ ===========
See notes to financial statements. F-4 12 REGENT COMMUNICATIONS, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited)
March 31, March 31, 1998 1997 ---------- ----------- Broadcast revenue $2,564,175 $ 12,536 Less agency commissions 148,417 0 ----------- ---------- Net revenue 2,415,758 12,536 Broadcast operating expenses 2,374,202 12,536 Time brokerage agreement fees, net 235,000 0 Depreciation and amortization 2,364 0 Corporate general and administrative expenses 231,095 16,838 ----------- ---------- Operating loss (426,903) (16,838) Interest expense, net 203,928 0 Other income, net 1,908 4,105 ----------- ---------- Net loss $ (628,923) $ (12,733) =========== ========== Loss applicable to common shares: Net loss $ (628,923) $ (12,733) Preferred stock dividend requirements (159,250) 0 ----------- ---------- Loss applicable to common shares $ (788,173) $ (12,733) =========== ========== Basic and diluted net loss per common share $ (3.28) $ (.05) =========== ========== Shares used in basic and diluted per share calculation 240,000 240,000 =========== ==========
See notes to financial statements. F-5 13 REGENT COMMUNICATIONS, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited)
March 31, March 31, 1998 1997 ----------- ---------- Cash flows from operating activities: Net loss $ (628,923) $ (12,733) Adjustments to reconcile net loss to net cash used in operating activities Barter, net 4,331 0 Depreciation 2,364 0 Changes in operating assets and liabilities: Accounts receivable 132,373 (16,536) Prepaid expenses and other current assets (132,559) 500 Accounts payable 61,014 3,596 Accrued expenses 385,727 1,509 ----------- ---------- Net cash used in operating activities (175,673) (23,664) ----------- ---------- Cash flows from investing activities: Cash paid for acquisition costs (559,718) (2,106) Capital expenditures (54,288) 0 ----------- ---------- Net cash used in financing activities (614,006) (2,106) ----------- ---------- Cash flows from financing activities: Proceeds from the issuance of common stock 0 50,000 ----------- ---------- Net cash provided by financing activities 0 50,000 ----------- ---------- Net (decrease) increase in cash and cash equivalents (789,679) 24,230 Cash beginning of period 1,013,547 0 ----------- ---------- Cash end of period $ 223,868 $ 24,230 =========== ========== Noncash investing and financing activities: Accrued acquisition costs $ 423,000 $ 0 =========== ==========
See notes to financial statements. F-6 14 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION These unaudited interim financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly, in all material respects, the financial position of Regent Communications, Inc. and its subsidiaries (the "Company") as of March 31, 1998 and December 31, 1997 and the results of operations and cash flows for the three months ended March 31, 1998 and 1997. Because all of the disclosures required by generally accepted accounting principles are not included, these interim statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. The year-end balance sheet data was derived from the audited financial statements and does not include all of the disclosures required by generally accepted accounting principles. The statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, nor for the entire year. The Company has adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS 128 requires the presentation of basic and diluted earnings per share. Basic earnings per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. The Company's convertible preferred stock was anti-dilutive and, therefore, was not included in the diluted earnings per share computation. 2. SIGNIFICANT EVENTS In January 1998, the Board of Directors of the Company adopted the Regent Communications, Inc. 1998 Management Stock Option Plan (the "1998 Plan"). The 1998 Plan provides for the issuance of up to 2,000,000 common shares in connection with the issuance of nonqualified and incentive stock options. The Company's Board of Directors determines eligibility. The exercise price of the options is to be not less than the fair market value at the grant date, except for any 10% owner (as defined), for whom the option share price must be at least 110% of fair market value at the grant date. The options expire no later than ten years from the date of grant, or earlier in the event a participant ceases to be an employee of the Company. The Company intends to apply the provisions of APB Opinion 25, "Accounting for Stock Issued to Employee," in accounting for the 1998 Plan. Under APB 25, no compensation expense is recognized for options granted to employees at exercise prices that are equal to the fair market value of the underlying common stock at the grant date. The Company had not issued options as of March 31, 1998. In February 1998 and effective with the consummation of the merger with Faircom Inc., the Board of Directors authorized a grant of incentive stock options to the Chief Executive Officer and Chief Operating Officer of the Company. The options will provide each of the holders with the right to acquire approximately 608,244 shares of the Company's common stock at an expected price per share of $5.00. Of these options, 200,000 shares will be exercisable by each holder 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 be exercisable in equal one-third increments at the end of each of the first three years following the grant. All options expire on February 28, 2008. 3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997 the Financial Accounting Standard Board issued Statement No. 130 (SFAS 130), Reporting Comprehensive Income. SFAS 130 establishes standards of disclosure and financial statement display for reporting total comprehensive income and its individual components. Company management has determined that comprehensive income equals Net Income as of March 31, 1998. In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS No. 133 establishes accounting and reporting standards 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 a small number of financial instruments to manage its exposure to fluctuations in interest rates. The Company does not hold or issue such financial instruments for trading purposes. The Company will adopt SFAS No. 133, as required in the year 2000, and does not expect the impact of adoption to be material. 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. Company management believe that the prospective implementation of SOP 98-1 in 1999 is likely to result in some additional capitalization of software expenditures in the future. However, the amount of such additional capitalized software expenditures can not be determined at this time. 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 will not have a material impact on its financial reporting. 4. SUBSEQUENT EVENTS On June 15, 1998 the following acquisitions were consummated. The Company acquired all of the outstanding common stock of Faircom Inc. ("Faircom") for 3,720,620 shares of the Company's Series C Preferred Stock. The acquisition has been treated for accounting purposes as the acquisition of the Company by Faircom with Faircom as the accounting acquirer (reverse acquisition). F-7 15 Upon consummation of the Faircom Merger, the Board of Directors of the Company adopted the Regent Communications, Inc. Faircom Conversion Stock Option Plan which applies to those individuals previously participating in the Faircom, Inc. Stock Option Plan (the "Faircom Plan"). In exchange for relinquishing their options under the Faircom Plan, five former officers and/or members of Faircom's Board of Directors were given, in total, the right to acquire 274,045 shares of the Company's Series C Preferred Stock at exercise prices per share of $0.8865 to $3.7305. The Company acquired all of the outstanding capital stock of The Park Lane Group ("Park Lane") for approximately $17,468,000 in cash. The acquisition was accounting for under the purchase method of accounting and was financed through borrowing under the Company's credit facility. The excess cost over the fair market value of net assets acquired and FCC licenses related to this acquisition will be amortized over a 40-year period. Park Lane owns 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 consulting fee of $200,000. The Company acquired the FCC licenses and related assets used in the operation of radio stations KIXW (AM) and KZXY (FM) in Apple Valley, California from Ruby Broadcasting, Inc. ("Ruby"), an affiliate of Topaz Broadcasting, Inc. ("Topaz"), for $5,995,500 in cash. The acquisition was financed through borrowings under the Company's credit facility. The FCC licenses acquired will be amortized over a 40-year period. 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. ("Continental") for approximately $3,622,000 in cash. The Company separately acquired the accounts receivable of these stations for an additional cash purchase price of approximately $130,000. The acquisitions were financed through borrowings under the Company's credit facility. The FCC licenses acquired will be amortized over a 40-year period. The Company acquired all of the outstanding capital stock of Alta California Broadcasting, Inc. ("Alta") for $1 million in cash and 200,000 shares of the Company's Series E Convertible Preferred Stock at a stated value of $5.00 per share. The acquisition was accounted for under the purchase method of accounting and was financed through borrowings under the Company's credit facility. The excess cost over the fair market value of net assets acquired and FCC licenses related to this acquisition will be amortized over a 40-year period. Alta owns 4 radio stations in California. The Company acquired all of the outstanding capital stock of Topaz and the FCC license and operating assets of radio station KIXA (FM) in Lucerne Valley, California for 242,592 shares of the Company's Series E Convertible Preferred Stock at a stated value of $5.00 per share. The Topaz 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 will be amortized over a 40-year period. Topaz operated 1 radio station in California and owned the right to purchase the station from RASA Communications. The Company, immediately following the acquisition of Topaz, exercised this purchase option for $275,000 cash, adjusted as defined in the agreement. On July 10, 1998, the Company entered into an asset purchase agreement with Oasis Radio, Inc. to acquire substantially all of the assets of radio station KAVC (FM) located in Lancaster, California for $1.6 million in cash, subject to adjustment as defined in the agreement. The closing is conditioned on, among other things, receipt of FCC and other regulatory approvals. The Company has placed a $160,000 deposit held in escrow pending the closing of the transaction. In order to finance the foregoing acquisitions and to provide additional working capital, the Company borrowed $34,400,000 under its Credit Agreement on June 15, 1998. Also on June 15, 1998, the Company issued additional equity as follows, the proceeds of which were used to fund the aforementioned acquisitions: The Company issued 2,050,000 shares of its Series F Convertible Preferred Stock at a purchase price of $5.00 per share, and in conjunction therewith, issued warrants to purchase a total of 860,000 shares of the Company's Common Stock at $5.00 per share. The purchasers of the Company's Series F Convertible Preferred Stock have committed to purchase, on a pro rata basis, an additional 2,050,000 shares of the Company's Series F Convertible Preferred Stock at $5.00 per share to fund future acquisitions by the Company. General Electric Capital Corporation ("GE Capital") paid $3,900,000 cash to complete its purchase of shares of the Company's Series B Senior Convertible Preferred Stock, pursuant to the terms of its Stock Purchase Agreement and Promissory Note dated December 8, 1997. In addition, the Company issued to GE Capital a warrant to purchase 50,000 shares of the Company's Common Stock at $5.00 per share. BMO Financial, Inc. paid $3,900,000 cash for 780,000 shares of the Company's Series D Convertible Preferred Stock. The Company's President, Chief Operating Officer and Secretary, purchased 20,000 shares of the Company's Series A Convertible Preferred Stock at a purchase price of $5.00 per share. The Company issued to River Cities Capital Fund Limited Partnership ("River Cities") on June 15, 1998 a five-year warrant to purchase 80,000 shares of the Company's Common Stock at an exercise price of $5.00 per share, as an inducement for River Cities, as an existing holder of the Company's Series A Convertible Preferred Stock, to approve the Company's merger with Faircom and the issuance of the Company's Series C Convertible Preferred Stock in connection therewith. Total costs associated with the above transactions were approximately $6.0 million. F-8 16 THE PARK LANE GROUP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ------ at December 31, 1997 and March 31, 1998
December 31, March 31, ASSETS 1997 1998 ---------------- ------------- (Unaudited) Current assets: Cash and cash equivalents $ 431,466 $ 334,647 Accounts receivable - trade, less allowance for doubtful accounts of $45,414 in 1997 and $15,245 in 1998 53,009 18,490 Prepaid expenses and other current assets 83,474 109,089 ------------ ------------ Total current assets 567,949 462,226 Property and equipment, net 2,502,766 2,354,199 Intangible assets, net 5,937,566 5,786,155 ------------ ------------ Total assets $ 9,008,281 $ 8,602,580 ============ ============ LIABILITIES, REDEEMABLE PREFERRED STOCK, CONVERTIBLE PREFERRED STOCK, COMMON STOCK AND SHAREHOLDERS' DEFICIT Current liabilities: $ 94,513 $ 112,919 Accounts payable Accrued expenses: Compensation and related expenses 86,432 21,555 Interest 45,508 49,360 Other 119,725 162,810 Notes payable to bank 70,526 --- Notes payable to shareholders 120,000 120,000 Current portion, long-term debt 760,964 755,837 ------------ ------------ Total current liabilities 1,297,668 1,222,481 Long-term debt 5,607,199 5,537,896 ------------ ------------ Total liabilities 6,904,867 6,760,377 ------------ ------------ Commitments Mandatorily redeemable Series B preferred stock, $0.01 par value: Authorized: 43,000 shares; Issued and outstanding: 42,805 shares in 1997 and 1998 5,231,150 5,391,650 (Liquidation value: $6,344,000 in 1997 and $6,504,000 in 1998) Mandatorily redeemable convertible Series C preferred stock, $0.01 par value: Authorized: 13,500 shares; Issued and outstanding: 12,021 in 1997 and 1998 1,327,101 1,357,101 (Liquidation value: $1,436,000 in 1997 and $1,466,000 in 1998) Convertible Series A preferred stock, $0.01 par value: Authorized: 6,117,945 shares; Issued and outstanding: 5,595,875 shares in 1997 and 1998 5,595,875 5,595,875 (Liquidation value: $5,596,000 in 1997 and 1998) Class B common stock, $0.01 par value: Authorized: 3,238,828 shares; Issued and outstanding: 3,238,821 shares in 1997 and 1998 1,163,612 1,163,612 Class C common stock, $0.01 par value: Authorized: 1,350,000 shares; Issued and outstanding: 1,202,100 in 1997 and 1998 80,915 80,915 Class A common stock, $0.01 par value: Authorized: 15,000,000 shares; Issued and outstanding: 797,225 shares in 1997 and 811,600 in 1998 389,202 386,522 Note Receivable from Shareholders (2,680) Accumulated deficit (11,681,761) (12,133,472) ------------ ------------ Total liabilities redeemable preferred stock, convertible preferred stock, common stock and shareholders' deficit $ 9,008,281 $ 8,602,580 ============ ============
The accompanying notes are an integral part of these financial statements. F-9 17 THE PARK LANE GROUP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the three month periods ended March 31, 1997 and 1998 (unaudited)
1997 1998 ---- ---- Revenues from broadcast operations $ 1,818,792 $ 0 Less agency commissions (139,551) 0 ------------ ------------ Net revenues 1,679,241 0 Time Brokerage Agreement Fees 0 252,600 ------------ ------------ Total revenues 1,679,241 252,600 ------------ ------------ Broadcast operating expenses (1,412,023) 7,402 Depreciation and amortization (349,283) (299,489) Corporate administrative expenses (202,238) (92,473) ------------ ------------ Operating loss (284,303) (131,960) Interest expense (166,016) (148,626) Other income, net 1,908 19,372 ------------ ------------ Net loss (448,411) (261,214) ------------ ------------
The accompanying notes are an integral part of these financial statements. F-10 18 THE PARK LANE GROUP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the three month periods ended March 31, 1997 and 1998 (unaudited)
1997 1998 ---- ---- Cash flows from operating activities: Net loss $ (448,411) $ (261,214) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 174,370 146,802 Amortization 174,913 152,686 Accounts receivable 122,141 34,519 Prepaid expenses and other assets 32,608 (25,615) Accounts payable 11,787 18,406 Accrued expenses (25,636) (60,532) Accrued interest (2,100) 43,085 ------------ ------------ Net cash provided by operating activities 39,672 48,137 ------------ ------------ Cash flows from investing activities: Purchases of property and equipment (2,643) 0 ------------ ------------ Net cash used in investing activities (2,643) 0 ------------ ------------ Cash flows from financing activities: (Payments on) borrowings under note payable to bank (92,116) (70,526) Borrowing under lease line of credit 112,131 0 Principal payments on long-term debt (47,919) (74,430) ------------ ------------ Net cash provided (used) by financing activities (27,904) (144,956) ------------ ------------ Net increase (decrease) in cash and cash equivalents 9,127 (96,819) Cash and cash equivalents, beginning of period 223,292 431,466 ------------ ------------ Cash and cash equivalents, end of period 232,419 $ 334,647 ============ ============ SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITY Conversion of convertible notes to Series B stock $ 310,000 ============
The accompanying notes are an integral part of these financial statements. F-11 19 THE PARK LANE GROUP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation and Accounting Policies: ---------------------------------------------- These unaudited interim financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly, in all material respects, the financial position of The Park Lane Group and its subsidiaries as of December 31, 1997 and the results of operations and cash flows for the three month period ended March 31, 1998 and 1997. Because all of the disclosures required by generally accepted accounting principles are not included, these interim statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. The year-end balance sheet data was derived from the audited financial statements and does not include all of the disclosures required by generally accepted accounting principles. The statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, nor for the entire year. 2. STOCK SALE AGREEMENT -------------------- In August 1997, the Company entered into an arrangement with Regent Communications, Inc. ("Regent") for the acquisition of all the outstanding capital stock of the Company (the "acquisition"). The transaction closed on June 15, 1998. Effective August 17, 1997, the Company also entered into an operating agreement with Regent under which most of the operations of the Company's radio stations are managed by Regent and the Company receives a monthly fee based on their performance subject to a guaranteed minimum. F-12 20 INDEPENDENT AUDITORS' REPORT Alta California Broadcasting, Inc. We have audited the accompanying consolidated balance sheets of Alta California Broadcasting, Inc. (a wholly-owned subsidiary of Redwood Broadcasting, Inc.) and subsidiary as of March 31, 1998 and 1997 and the related consolidated statements of operations, stockholder's deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Alta California Broadcasting, Inc. and subsidiary as of March 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ STOCKMAN KAST RYAN & SCRUGGS, P.C. - -------------------------------------- Colorado Springs, Colorado July 10, 1998 F-13 21 ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY (A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.) CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 AND 1997 - --------------------------------------------------------------------------------
1998 1997 ASSETS CURRENT ASSETS Cash and cash equivalents (Note 6) $ 31,143 $ 37,754 Accounts receivable, net (Note 1) 48,024 121,560 Receivable from related parties (Note 5) 6,139 38,286 Receivable from bid settlement (Note 9) 45,000 Receivable from sale of stations (Note 2) 633,000 Other current assets 11,059 10,807 ----------- ----------- Total current assets 141,365 841,407 PROPERTY AND EQUIPMENT, net (Notes 3 and 6) 227,249 213,472 INTANGIBLE ASSETS, net (Notes 4 and 6) 915,716 996,584 DEPOSIT ON PURCHASE OF STATIONS (Notes 2 and 10) 973,000 NOTE RECEIVABLE (Note 2) 200,000 OTHER ASSETS 37,666 37,963 ----------- ----------- TOTAL $ 2,294,996 $ 2,289,426 =========== =========== LIABILITIES AND STOCKHOLDER'S DEFICIT CURRENT LIABILITIES Payable to Redwood Broadcasting, Inc. (Note 5) $ 1,613,493 $ 1,292,025 Accounts payable 81,233 143,500 Accrued liabilities 74,258 194,365 Payables to related parties (Note 5) 43,848 14,500 Current portion of notes payable (Note 6) 97,940 34,517 Current portion of notes payable to related parties (Note 5) 165,064 25,000 Capital lease obligations 11,994 ----------- ----------- Total current liabilities 2,075,836 1,715,901 NOTES PAYABLE (Note 6) 428,371 605,208 NOTES PAYABLE TO RELATED PARTIES (Note 5) 130,949 ----------- ----------- TOTAL LIABILITIES 2,504,207 2,452,058 ----------- ----------- STOCKHOLDER'S DEFICIT Common stock, no par value; 1,000,000 shares authorized; 30,000 shares issued and outstanding 225,000 225,000 Accumulated deficit (434,211) (387,632) ----------- ----------- Total stockholder's deficit (209,211) (162,632) ----------- ----------- TOTAL $ 2,294,996 $ 2,289,426 =========== ===========
See notes to consolidated financial statements. - ------------------------------------------------------------------------------- F-14 22 ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY (A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1998 AND 1997 - --------------------------------------------------------------------------------
1998 1997 REVENUE Broadcast revenue $ 830,724 $ 545,185 Less agency commissions 73,638 37,268 --------- --------- NET REVENUE 757,086 507,917 --------- --------- OPERATING EXPENSE Selling, general and administrative 453,175 408,859 Broadcasting 333,110 339,499 Depreciation and amortization 133,877 151,544 --------- --------- Total 920,162 899,902 --------- --------- LOSS FROM OPERATIONS (163,076) (391,985) --------- --------- OTHER INCOME (EXPENSE) Gain on sale of stations (Note 2) 678,206 Loss on sale of land (Note 2) (80,000) Interest expense (Note 5) (37,960) (104,731) Other income - net (Notes 2 and 9) 154,457 59,664 --------- --------- Other income, net 116,497 553,139 --------- --------- NET INCOME (LOSS) $ (46,579) $ 161,154 ========= ========= NET INCOME (LOSS) PER COMMON SHARE $ (1.55) $ 5.37 ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 30,000 30,000 ========= =========
See notes to consolidated financial statements - -------------------------------------------------------------------------------- F-15 23 ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY (A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT - --------------------------------------------------------------------------------
COMMON STOCK TOTAL --------------------- ACCUMULATED STOCKHOLDER'S SHARES AMOUNT DEFICIT DEFICIT BALANCES, APRIL 1, 1996 30,000 $ 225,000 $(548,786) $(323,786) Net income 161,154 161,154 --------- --------- --------- --------- BALANCES, MARCH 31, 1997 30,000 225,000 (387,632) (162,632) Net loss (46,579) (46,579) --------- --------- --------- --------- BALANCES, MARCH 31, 1998 30,000 $ 225,000 $(434,211) $(209,211) ========= ========= ========= =========
See notes to consolidated financial statements. - -------------------------------------------------------------------------------- F-16 24 ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY (A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 1998 AND 1997 - --------------------------------------------------------------------------------
1998 1997 OPERATING ACTIVITIES Net income (loss) $ (46,579) $ 161,154 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 133,877 151,544 Gain on bid settlement (36,205) Gain on sale of stations (678,206) Loss on sale of land 80,000 Changes in operating assets and liabilities: Accounts receivable 73,536 (46,998) Other current assets (252) (3,961) Accounts payable and accrued expenses (182,374) (40,658) Other assets (8,498) 14,854 --------- --------- Net cash used in operating activities (66,495) (362,271) --------- --------- INVESTING ACTIVITIES Purchases of station assets (66,786) (448,920) Collection of receivable from sale of stations 833,000 Proceeds from sale of stations, net of commissions paid 588,333 Proceeds from sale of land 370,000 --------- --------- Net cash provided by investing activities 766,214 509,413 --------- --------- FINANCING ACTIVITIES Proceeds from borrowings under related party notes 155,000 273,675 Proceeds from borrowings under notes 82,403 170,000 Borrowings from (repayments to) Redwood Broadcasting, Inc. (751,532) 651,257 Principal payments on notes to related parties (45,885) (529,900) Principal payments on notes (195,817) (445,275) Decrease (increase) in net payable to related parties 61,495 (215,481) Payments on capital lease obligations (11,994) (13,664) --------- --------- Net cash used in financing activities (706,330) (109,388) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,611) 37,754 CASH AND CASH EQUIVALENTS, Beginning of period 37,754 -- --------- --------- CASH AND CASH EQUIVALENTS, End of period $ 31,143 $ 37,754 ========= ========= (continued)
See notes to consolidated financial statements. - -------------------------------------------------------------------------------- F-17 25 ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY (A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 1998 AND 1997 - --------------------------------------------------------------------------------
1998 1997 SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES Increase in payable to Redwood Broadcasting, Inc. for deposit on purchase of stations $ 973,000 Assumption of note payable to related party by Redwood Broadcasting, Inc. (Note 5) 100,000 Promissory note received for sale of stations $ 200,000 Receivable for sale of stations 633,000 SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest 80,556 103,577
(concluded) See notes to consolidated financial statements. - -------------------------------------------------------------------------------- F-18 26 ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY (A WHOLLY-OWNED SUBSIDIARY OF REDWOOD BROADCASTING, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - Alta California Broadcasting, Inc. (Alta) and its subsidiary, Northern California Broadcasting, Inc. (Northern) (collectively, the Company), operate in the radio broadcasting industry. Alta is a wholly-owned subsidiary of Redwood Broadcasting, Inc. (Redwood) which, in turn, is a majority-owned subsidiary of Redwood MicroCap Fund, Inc. (MicroCap). Organized for the purpose of acquiring and/or developing undervalued radio broadcasting properties located in small to medium sized markets, the Company has embarked upon an aggressive acquisition and development program and currently operates radio stations in Northern California. The accompanying financial statements for the year ended March 31, 1997 only include the operations of radio stations KRDG-FM and KNNN-FM. The accompanying financial statements for the year ended March 31, 1998 include the operations of radio stations KRDG-FM, KNNN-FM, KNRO-AM and KRRX-FM through October 10, 1997, at which time, Alta entered into an agreement to sell such stations and a Local Management Agreement (LMA) with the acquiror. See Notes 2 and 10. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Alta and its wholly-owned subsidiary, Northern. All significant intercompany accounts and transactions have been eliminated in consolidation. ACCOUNTS RECEIVABLE - The Company maintains an allowance for doubtful accounts based upon the expected collectibility of all accounts receivable. At March 31, 1998 and 1997, the allowance was $8,250 and $3,200, respectively. PROPERTY AND EQUIPMENT - Property and equipment are recorded at fair value as of the date of acquisition of the related station or cost if purchased subsequently. Depreciation is provided on a straight line basis over the estimated useful lives of the assets as follows: buildings and improvements - 10 years; transmitter - 20 years; computer equipment - 3 years; and technical equipment and furniture and fixtures - 5 to 7 years. The recoverability of the carrying value of property and equipment is evaluated periodically in relation to the estimated value of the radio stations based on their operating performance and cash flows. INTANGIBLE ASSETS - Intangible assets include the radio station purchase price allocations to license costs and the noncompete agreement. License costs are amortized on a straight line basis over a period of 20 years and the noncompete agreement is amortized on a straight line basis over the three-year period of the agreement. The recoverability of the carrying value of intangible assets is evaluated periodically in relation to the estimated value of the radio stations based on their operating performance and cash flows. REVENUE RECOGNITION - The Company's primary source of revenue is the sale of air time to advertisers. Revenue from the sale of air time is recorded when the advertisements are broadcast. F-19 27 BARTER TRANSACTIONS - Revenue from barter transactions (advertising provided in exchange for goods and services) is recognized based on the fair value of the goods or services received when the advertisements are broadcast. Goods and services received are recognized when used. INCOME TAXES - The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rate is recognized in the period that includes the enactment date. PER SHARE AMOUNTS - Per share amounts are based upon the net income or loss applicable to common shares and upon the weighted average of common shares outstanding during the period. USE OF ESTIMATES - The preparation of the Company's 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 income and expenses during the reporting period. Actual results could differ from those estimates. STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows, highly liquid investments, maturing within three months of acquisition, are considered to be cash equivalents. CONCENTRATIONS OF RISK - Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and receivables. Also, the Company's radio stations broadcast in Northern California, which results in a risk to the Company due to the concentration in one geographic area. 2. RADIO STATION ACQUISITIONS AND DISPOSITIONS The following radio station acquisitions and sales have been completed by Alta: KHSL AM/FM - In 1994, Alta acquired radio stations KHSL-AM/FM licensed to Chico and Paradise, California, respectively. Subsequent to its acquisition by Alta, KHSL-AM changed its call letters to KNSN-AM. In March 1996, Alta entered into separate Asset Sale Agreements to sell the assets of both KNSN-AM and KHSL-FM, excluding a parcel of land, for $1,466,333. Concurrently with signing the Asset Sale Agreements, Alta entered into a LMA with the prospective purchaser until the sale closed on March 31, 1997, at which time the LMA terminated. Included in other income for the year ended March 31, 1997 is $46,033 resulting from LMA fees from the prospective purchaser. Alta received $633,333 cash and a $200,000 promissory note, bearing interest at a rate of 7%. Alta was also to receive $633,000 in cash no later than April 30, 1997 for KNSN-AM; however, pursuant to the Asset Purchase Agreement, the buyer of KNSN-AM had the option to defer payment of such amount for monthly option fees of $10,000 or $15,000. Included in other income for the year ended March 31, 1998 is $70,000 resulting from monthly option fees collected. As of March 31, 1998, all amounts receivable from the sale of KHSL-AM/FM had been collected. F-20 28 A gain on the sale of $678,206 has been recorded in the accompanying statement of operations for the year ended March 31, 1997. In April 1996, the parcel of land was sold to an unrelated party for $370,000. A loss on the sale of $80,000 has been recorded in the accompanying statement of operations for the year ended March 31, 1997. KRDG-FM (F/K/A KHZL AND KCFM) - In March 1995, Alta entered into a LMA with an option to purchase radio station KCFM-FM licensed to Shingletown, California, which began commercial broadcasting in August 1995. KCFM-FM primarily serves the Redding, California market. In September 1995, KCFM-FM changed its call letters to KHZL-FM. In July 1996, Alta completed the acquisition of KHZL-FM, thereby terminating the LMA. Alta paid $65,000 cash and issued a $155,000 promissory note as consideration for KHZL-FM (see Note 6). The acquisition was recorded using the purchase method and the $220,000 purchase price was recorded as license costs as no other assets of KHZL-FM were acquired. Effective September 27, 1996, Alta changed KHZL-FM's call letters to KRDG-FM. KNNN-FM - In May 1996, Alta entered into an Asset Purchase Agreement to acquire KNNN-FM licensed to Central Valley, California. The Asset Purchase Agreement was subsequently assigned to Northern. KNNN-FM primarily serves the Redding, California market. In August 1996, Alta began operating KNNN-FM under a LMA pending approval of the transfer of ownership by the FCC. The purchase price for KNNN-FM was $825,000, $325,000 of which was paid in cash at closing, and the balance of which was in the form of a promissory note (see Note 6). Pursuant to the Asset Purchase Agreement, the seller of KNNN-FM agreed to not compete in the Redding, California market for a period of three years. The acquisition was recorded using the purchase method and the purchase price was allocated to property and equipment, the noncompete agreement and license costs, based on estimated fair values. KLXR-FM - In May 1996, Alta entered into an Asset Purchase Agreement to acquire KLXR-AM, licensed to Redding, California, for a total purchase price of $100,000. In February 1997, Alta entered into a LMA with the seller and, in April 1998, Alta completed the purchase of KLXR for $100,000 cash. KNRO-AM AND KRRX-FM (F/K/A KARZ-FM) - Effective April 1, 1997, the Company acquired an option to purchase radio stations KNRO-AM and KARZ-FM (KNRO/KARZ) licensed in Redding, California from Power Surge, Inc. (Power Surge), a wholly-owned subsidiary of Power Curve, Inc. (Power Curve). Power Surge and Power Curve are both controlled by the Company's President. Power Curve acquired KNRO/KARZ on January 31, 1997 for $480,000 in cash and a $720,000 promissory note. Power Surge operated the stations form February 1, 1997 through March 31, 1997 and received the licenses from Power Curve on March 31, 1997. Under the terms of the option agreement, the Company can either (1) purchase KNRO/KARZ for $1,200,000 in cash or (2) issue 1,000,000 shares of Redwood's common stock in exchange for all of the issued and outstanding shares of common stock of Power Surge. Also effective April 1, 1997, Alta entered into a LMA with Power Surge for a period of one year. Alta operated KNRO/KARZ through October 10, 1997 and was obligated to pay Power Surge a monthly LMA fee of $5,000. Effective May 16, 1997, KARZ-FM changed its call letters to KRRX-FM. As of March 31, 1998, Redwood made cash payments of $733,000 and issued 200,000 shares of its common stock, with an agreed-upon value of $240,000, to Power Curve on behalf of Alta as deposits on the purchases. Alta has reflected such amounts as a deposit on purchase the purchase F-21 29 of the stations with a corresponding increase in its payable to Redwood in the accompanying March 31, 1998 balance sheet. Subsequent to year-end the option agreement and LMA were extended, the option price was increased to $1,235,000, and Alta exercised its option on June 15, 1998. Immediately thereafter, the stations, along with KRDG-FM and KNNN-FM were sold to Regent Communications, Inc. (Regent) (see Note 10). 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following at March 31, 1998 and 1997:
1998 1997 Buildings and improvements $ 54,098 $ 29,437 Equipment 220,107 181,360 Furniture and fixtures 43,719 40,341 ------------ ------------- Total property and equipment 317,924 251,138 Less accumulated depreciation 90,675 37,666 ------------ ------------- Property and equipment - net $ 227,249 $ 213,472 ============ =============
4. INTANGIBLE ASSETS Intangible assets consist of the following at March 31, 1998 and 1997:
1998 1997 License costs $ 950,489 $ 950,489 Noncompete agreement 100,000 100,000 ------------- -------------- Total intangible assets 1,050,489 1,050,489 Less accumulated amortization 134,773 53,905 ------------- -------------- Intangible assets - net $ 915,716 $ 996,584 ============= ==============
F-22 30 5. RELATED PARTY TRANSACTIONS Notes payable to related parties consist of the following at March 31, 1998 and 1997:
1998 1997 Unsecured notes payable to related entities with interest at 8.25% and principal and interest due on June 30, 1998 $ 155,000 Unsecured notes payable to stockholders of Redwood with interest at 8% and principal and interest due on March 31, 1999 10,064 $ 30,949 Unsecured note payable to a related entity controlled by an officer and stockholder of Redwood (see below) 100,000 Unsecured note payable to a related entity with interest at 12% and principal and interest due on demand 25,000 ------------ ------------- Total 165,064 155,949 Less current portion 165,064 25,000 ------------ ------------- Total $ - $ 130,949 ============ =============
Management believes that the fair values of its notes payable to related parties are not materially different from their carrying values based on the terms and varying characteristics of the notes. The $100,000 note payable to a related entity as of March 31, 1997 was assumed by Redwood during the year ended March 31, 1998, resulting in a corresponding increase in the Company's payable to Redwood in the accompanying balance sheet as of such date. The Company has noninterest bearing payables to Redwood of $1,613,493 and $1,292,025 as of March 31, 1998 and 1997, respectively, which have no set repayment terms. The Company recorded interest expense on the related party notes of approximately $13,000 and $62,000 for the years ended March 31, 1998 and 1997, respectively. The Company has receivables from and payables to entities controlled by an officer and stockholder of Redwood. The receivables and payables total $6,139 and $43,848, respectively, as of March 31, 1998 and $38,286 and $14,500, respectively, as of March 31, 1997. F-23 31 6. NOTES PAYABLE Notes payable consist of the following as of March 31, 1998 and 1997:
1998 1997 Note payable to seller of KNNN-FM with interest at 8.5%, collateralized by the common stock of Northern, payable in monthly principal and interest installments of $6,199 through October 2001 with the remaining balance due at that date $ 450,208 $ 484,725 Note payable to bank with interest rates ranging from 8% to 11%, partially collateralized by cash equivalents and equipment, interest payable monthly and principal due in varying amounts from April 1, 1998 through September 2, 2000 76,103 Note payable to seller of KRDG-FM with interest at 8.25% and payable semi-annually, principal payable on July 21, 2004, collateralized by property and equipment, guaranteed by MicroCap 155,000 ------------ ------------- Total 526,311 639,725 Less current portion 97,940 34,517 ------------ ------------- Total $ 428,371 $ 605,208 ============ =============
Under the terms of the promissory note agreements, future minimum annual principal payments during the fiscal years ending March 31 are as follows: 1999 - $97,940; 2000 - $53,621; 2001 - $47,502; and 2002 - $327,248. Management believes that the fair values of its notes payable are not materially different from their carrying values based on the terms and varying characteristics of the notes. 7. LEASE AGREEMENTS The Company leases land and equipment under operating lease agreements expiring in various years through 2002. Lease expense under the operating lease agreements totalled $30,263 and $74,039 for the years ended March 31, 1998 and 1997, respectively. Pursuant to the LMA between Alta and Regent (see Note 2), the Company was reimbursed for all operating lease payments subsequent to October 10, 1997. The lease agreements were assumed by Regent upon the closing of the sales agreement with Regent on June 15, 1998. F-24 32 8. INCOME TAXES The Company's operations are included in the consolidated federal and state income tax returns of Redwood. Under Redwood's tax allocation method, a tax provision is allocated to the Company based upon a calculation of income taxes as if the Company filed separate income tax returns. As of March 31, 1998, Redwood has approximately $540,000 of consolidated net operating loss carryovers of which approximately $240,000 were attributable to the Company. The carryovers expire in various years through 2013 and result in deferred income tax assets of approximately $80,000. However, because of the uncertainty regarding future realization of the deferred income tax assets, the Company has established a valuation allowance of $80,000 as of March 31, 1998. The valuation allowance increased (decreased) by $12,000 and $(52,000) during the years ended March 31, 1998 and 1997, respectively. 9. OTHER INCOME Included in other income for the year ended March 31, 1998 is a $36,205 gain resulting from a FCC license auction and settlement agreement. 10. SUBSEQUENT EVENT On June 15, 1998, Alta exercised its option to acquire KNRO-FM and KRRX-FM (see Note 2). Alta was simultaneously sold to Regent with Redwood receiving as consideration approximately $950,000 cash and 200,000 shares of Regent's Series E preferred stock. Regent also assumed approximately $1,500,000 of the Company's liabilities. Regent operated such stations through June 15, 1998 under a LMA which was effective on October 10, 1997. - -------------------------------------------------------------------------------- F-25 33 POWER SURGE, INC. (A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.) BALANCE SHEETS AT MARCH 31, 1998 AND DECEMBER 31, 1997 - --------------------------------------------------------------------------------
ASSETS March 31, December 31, 1998 1997 ----------- ----------- (UNAUDITED) CURRENT ASSETS Cash $ (45) $ 82 Accounts receivable, net 18,735 0 Income taxes receivable 4,000 4,000 Receivable from related party 61,537 65,137 ----------- ----------- Total current assets 84,227 69,219 PROPERTY AND EQUIPMENT, net 148,202 152,273 INTANGIBLE ASSETS, net 929,726 953,477 ----------- ----------- TOTAL $ 1,162,155 $ 1,174,969 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Payable to Power Curve, Inc. $ 2,883 $ 2,133 Accounts payable 117 117 ----------- ----------- Total current liabilities 3,000 2,250 ----------- ----------- STOCKHOLDER'S EQUITY Common stock, no par value; 1,500 shares authorized; 1,250 shares issued and outstanding 1,202,500 1,202,500 Accumulated deficit (43,345) (29,781) ----------- ----------- Total stockholder's equity 1,159,155 1,172,719 ----------- ----------- TOTAL $ 1,162,155 $ 1,174,969 =========== ===========
See notes to financial statements. - -------------------------------------------------------------------------------- F-26 34
POWER SURGE, INC. (A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.) STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997 - ------------------------------------------------------------------------------- 1998 1997 --------- --------- (UNAUDITED) (UNAUDITED) REVENUE Broadcast revenue $ 0 $ 74,704 Less agency commissions 0 5,893 -------- --------- Net revenue 0 68,811 -------- --------- OPERATING EXPENSE Selling, general and administrative 744 24,203 Broadcasting 0 32,438 Depreciation and amortization 27,822 19,094 -------- --------- Total 28,566 75,735 -------- --------- LOSS FROM OPERATIONS (28,566) (6,924) -------- --------- Other income, net 15,003 0 -------- --------- LOSS BEFORE INCOME TAXES (13,563) (6,924) INCOME TAXES 0 0 -------- --------- NET LOSS $(13,563) $ (6,924) ======== =========
See notes to financial statements - ------------------------------------------------------------------------------- F-27 35
POWER SURGE, INC. (A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.) STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997 - ------------------------------------------------------------------------------- OPERATING ACTIVITIES 1998 1997 ---- ---- (UNAUDITED) (UNAUDITED) Net loss $ (13,563) $ (6,924) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 27,822 19,094 Changes in operating assets and liabilities: Accounts receivable (18,736) (50,679) Receivable from related party 3,600 0 Accounts payable and accrued expenses 750 41,596 ----------- ----------- Net cash provided by (used in) operating activities (127) 3,087 ----------- ----------- FINANCING ACTIVITIES Borrowings from Power Curve, Inc. 0 11,000 ----------- ----------- Net cash provided by financing activities 0 11,000 ----------- ----------- NET INCREASE IN CASH (127) 14,087 CASH, Beginning of period 82 0 ----------- ----------- CASH, End of period $ (45) $ 14,087 =========== ===========
See notes to financial statements. - -------------------------------------------------------------------------------- F-28 36 POWER SURGE, INC. (A WHOLLY-OWNED SUBSIDIARY OF POWER CURVE, INC.) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES -- These unaudited interim financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly, in all material respects, the financial position of its subsidiaries as of December 31, 1997 and the results of operations and cash flows for the three month period ended March 31, 1998 and 1997. Because all of the disclosures required by generally accepted accounting principles are not included, these interim statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. The year end balance sheet data was derived from the audited financial statements. The statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period or for the entire year. 2. RADIO STATION ACQUISITIONS On January 31, 1997, Power Curve acquired radio stations KNRO-AM (KNRO) and KARZ-FM (KARZ), licensed in Redding, California, for $480,000 in cash and a $720,000 promissory note. Power Surge operated the stations from February 1, 1997 through March 31, 1997 under a Local Marketing Agreement (LMA) with Power Curve. On March 31, 1997, the stations were contributed to Power Surge by Power Curve. This contribution was recorded as contributed capital of $1,200,000 and was allocated to accounts receivable, property and equipment, noncompete agreement and license costs based on their respective estimated fair estimated values. Since Power Curve is the parent company of Power Surge and it was the intention to have Power Surge own and operate the stations upon acquisition, the accompanying financial statements have been prepared as if Power Surge owned the stations during the period from February 1, 1997 through March 31, 1997 (the date of the contribution). Effective April 1, 1997, Alta California Broadcasting, Inc. (Alta), an affiliated entity under common control, acquired an option to purchase KNRO and KARZ from Power Surge. Under the terms of the option agreement, Alta can either (1) purchase the stations for $1,200,000 in cash or (2) issue 1,000,000 shares of its common stock in exchange for all of the issued and outstanding shares of common stock of Power Surge. The option terminates on March 31, 1998. Concurrently, Alta entered into a LMA with Power Surge for a period of one year. Under the terms of the LMA, Alta is operating KNRO and KARZ and is obligated to pay Power Surge a monthly fee of $5,000. Accordingly, the operating activities of the radio stations from April 1, 1997 through September 30, 1997 are not reflected in the accompanying financial statements. Effective May 16, 1997, KARZ changed its call letters to KRRX-FM. 3. STOCK SALE AGREEMENT Effective October 10, 1997, Alta entered into an agreement to merge with Regent Acquisition Corp., a subsidiary of Regent Communications, Inc. (Regent). In conjunction with this agreement and effective October 10, 1997, Redwood Broadcasting Inc. entered into an operating agreement with Regent under which the operations of KNRO and KRRX are managed by Regent and Power Surge receives a monthly fee. Alta is required to exercise its option and complete its acquisition of KNRO and KRRX from Power Surge prior to the closing of the merger. F-29 37 CONTINENTAL RADIO BROADCASTING, L.L.C. BALANCE SHEET at March 31, 1998 and December 31, 1997
ASSETS March 31, December 31, 1998 1997 -------------- -------------- (UNAUDITED) Current assets: Cash $ 0 $ 373 Trade accounts receivable, less allowance for doubtful accounts of $14,144 in 1998 and $26,000 in 1997 162,350 172,345 Other receivables 13,428 7,544 Prepaid expenses 3,319 4,125 ------------- -------------- Total current assets 179,097 184,507 Property, plant and equipment, net 280,226 303,560 Intangible assets, net 1,056,895 948,647 Other assets, net 4,143 127,527 ------------- -------------- Total assets $ 1,520,361 $ 1,564,241 ============= ============== LIABILITIES AND PARTNER'S DEFICIT Current liabilities: Accounts payable $ 53,290 $ 46,683 Book overdraft 18,589 8,950 Accrued expenses 73,729 69,066 Current portion of long-term debt 1,725,000 1,670,000 ------------- -------------- Total current liabilities 1,870,608 1,794,699 Long-term debt 0 90,000 ------------- -------------- Total liabilities 1,870,608 1,884,699 ------------- -------------- Commitments and contingencies Partner's Deficit: Capital contributions $ 10,000 $ 10,000 Deficit (360,247) (330,458) ------------- -------------- Total partner's deficit (350,247) (320,458) ------------- -------------- Total liabilities and partner's deficit $ 1,520,361 $ 1,564,241 ============= =============
The accompanying notes are an integral part of the financial statements. F-30 38 CONTINENTAL RADIO BROADCASTING, L.L.C. STATEMENT OF OPERATIONS for the three months ended March 31, 1998 and March 31, 1997
1998 1997 ---- ---- (UNAUDITED) (UNAUDITED) Broadcast revenue $ 253,054 $ 220,233 Less agency commissions 14,407 14,048 ------------- ----------- Net revenue 238,647 206,185 Broadcast operating expenses 173,484 128,056 Depreciation and amortization 50,999 67,911 ------------- ----------- Operating income 14,164 10,218 Interest expense 43,954 46,424 ------------- ----------- Net loss $ (29,032) $ (36,206) ============= ===========
The accompanying notes are an integral part of the financial statements. F-31 39 CONTINENTAL RADIO BROADCASTING, L.L.C. STATEMENT OF CASH FLOWS for the three months ended March 31, 1998 and March 31, 1997
1998 1997 ---- ---- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net loss $ (29,032) $ (36,206) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 26,081 40,686 Amortization 24,918 27,225 Changes in operating assets and liabilities: Accounts receivable 10,115 7,272 Other receivables, prepaid expenses and other assets (14,860) (14,398) Accounts payable 16,688 (20,999) Accrued expenses 4,663 729 Other (1,199) 0 ------------- ------------- Net cash provided by operating activities 37,374 4,309 ------------- ------------- Cash flows from investing activities: Capital expenditures (2,747) (28,405) ------------- ------------- Net cash used in investing activities (2,747) (28,405) Cash flows from financing activities: Borrowings of long term debt 0 10,500 Payments of long term debt (35,000) (35,000) ------------- ------------- Net cash used in financing activities (35,000) (24,500) ------------- ------------- Net decrease in cash (373) (48,592) ------------- ------------- Cash, beginning of period 373 74,927 ------------- ------------- Cash, end of period $ 0 $ 26,331 ============= =============
The accompanying notes are integral part of the financial statements. F-32 40 CONTINENTAL RADIO BROADCASTING, L.L.C. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES: ---------------------------------------------- These unaudited interim financial statements reflect all norma recurring adjustments which are, in the opinion of management, necessary to present fairly, in all material respects, the financial position of The Park Lane Group and its subsidiaries as of December 31, 1997 and the results of operations and cash flows for the three month period ended March 31, 1998 and 1997. Because all of the disclosures required by generally accepted accounting principles are not included, these interim statements should be read in conjunction with the audited financial statements and does not include all of the disclosures required by generally accepted accounting principles. The statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, not for the entire year. 2. ASSET SALE AGREEMENT: --------------------- On December 9, 1997, the Company entered into an agreement to sell substantially all of the assets of radio stations KFLG (FM) and KFLG (AM) to Regent Communications, Inc. for approximately $3,600,000 in cash, subject to adjustment. The closing is conditioned on, among other things, receipt of FCC and other regulatory approvals. F-33 41 REPORT OF INDEPENDENT ACCOUNTANTS To Ruby Broadcasting, Inc. In our opinion, the accompanying Statement of Net Assets Acquired of radio station KZXY (FM) ("KZXY") presents fairly, in all material respects, the net assets acquired of KZXY at June 15, 1998 in conformity with generally accepted accounting principles. This financial statement is the responsibility of the Company's management, our responsibility is to express an opinion on this financial statement based on our audits. We conducted our audit of this statement in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/PricewaterhouseCoopers LLP Cincinnati, Ohio June 15, 1998 F-34 42 RADIO STATION KZXY (FM) STATEMENT OF NET ASSETS ACQUIRED June 15, 1998 Assets Acquired: Property and equipment $ 289,000 Intangible assets 5,129,000 ---------- Total assets acquired $5,418,000 ========== The accompanying notes are an integral part of this financial statement. F-35 43 RADIO STATION KZXY (FM) NOTES TO FINANCIAL STATEMENT 1. BASIS OF PRESENTATION, ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS: a. ORGANIZATION AND BUSINESS: KZXY (FM), a radio station located in Apple Valley, California, is owned and operated by Ruby Broadcasting, Inc., a Delaware corporation. In December 1997, Ruby entered into an agreement to sell the FCC license and related operating assets of this station to Regent Communications, Inc. ("Regent") for $5,000,000 in cash, subject to adjustment. The transaction was consummated on June 15, 1998. b. BASIS OF PRESENTATION: The transaction has been accounted for under the purchase method of accounting and the purchase price allocated to the assets acquired on the basis of their fair market value. A statement of net assets acquired for radio station KZXY (FM) has not been presented on a historical cost basis because not all of the required financial information is available. c. 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 to revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. PROPERTY EQUIPMENT: Property equipment acquired consist of the following: Leasehold improvements $ 5,457 Office equipment 14,030 Broadcast equipment 229,305 Furniture and fixtures 26,563 Vehicles 13,645 ---------- $ 289,000 ========== 3. INTANGIBLE ASSETS: Intangible assets acquired consists of the following: Acquisition cost allocated to FCC license $5,129,000 ========== F-36 44 RADIO STATION KZXY (FM) STATEMENT OF REVENUES AND DIRECT EXPENSES for the three months ended March 31, 1998 and 1997 (Unaudited)
1998 1997 ----------- ----------- Broadcast revenue $ 0 $ 276,321 Time Brokerage Fees 56,500 0 Less agency commissions 0 (9,379) ----------- ----------- Net revenue 56,500 266,942 Broadcast operating expenses 5,078 115,406 Depreciation and amortization 7,621 6,617 General and administrative expenses 0 97,895 ----------- ----------- Total direct expenses 12,699 219,918 Excess of revenues over direct expenses $ 43,801 $ 47,024 =========== ===========
The accompanying note is an integral part of this financial statement. F-37 45 RADIO STATION KZXY (FM) NOTE TO STATEMENT OF REVENUES AND DIRECT EXPENSES 1. BASIS OF PRESENTATION, ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS: ORGANIZATION AND BUSINESS: KZXY (FM), a radio station located in Apple Valley, California, is owned and operated by Ruby Broadcasting, Inc. ("Ruby"), a Delaware corporation. The Statement of Revenues and Direct Expenses includes certain costs shared with other stations under common ownership. These amounts primarily cover administrative and production support, facility costs, repairs and supplies. These costs have generally been allocated among the affiliated stations based on estimated time spent, space or volume of use. Management believes that these allocation methods are reasonable. As a result of the allocations, however, the financial statements presented may not be indicative of the results achieved had the Company operated as a nonaffiliated entity. In December 1997, Ruby entered into an agreement to sell the FCC license and related operating assets of this station and radio station KIXW (AM) to Regent Communications, Inc. ("Regent") for $6,000,000 in cash, subject to adjustment. The closing is conditioned on, among other things, receipt of FCC and other regulatory approvals. Additionally, on January 1, 1998, Ruby entered into a time brokerage agreement with Regent Communications, Inc. related to radio stations KZXY (FM) and KIXW (AM). F-38 46 (b) PROFORMA FINANCIAL INFORMATION The following unaudited pro forma condensed combined financial statements are included in this report or, where indicated, are incorporated by reference herein: Page ---- Pro Forma Condensed Combined Financial Statements Introduction........ P-2 Pro Forma Condensed Combined Balance Sheet at March 31, 1998.......... P-3 Pro Forma Condensed Combining Statement of operations for the Three Months Ended March 31, 1998................................... P-4 Notes to Unaudited Pro Forma Condensed Combined Financial Statements.......................................................... P-5 Pro Forma Condensed Combined Financial Statements Introduction........ * Pro Forma Condensed Combined Balance Sheet at December 31, 1997....... * Condensed Combining Statement of Operations for the Year Ended December 31, 1997........................................ * Notes to Pro Forma Condensed Combined Financial Statements............ * * This pro forma financial information, appearing under the heading "Unaudited Pro Forma Condensed Combined Financial Statements of Regent Communications, Inc." on pages 56 through and including 63 of the Company's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998, are incorporated herein by this reference. P-1 47 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF REGENT COMMUNICATIONS, INC. INTRODUCTION The following unaudited pro forma condensed combined financial statements reflect the effect of the Merger between Regent and Faircom consummated on June 15, 1998 and the effects of Regent's significant acquisitions of radio stations owned by The Park Lane Group ("Park Lane"), Alta California Broadcasting, Inc. ("Alta"), Power Surge, Inc. ("Power Surge"), Continental Radio Broadcasting L.L.C. ("Continental") and Ruby Broadcasting, Inc. ("Ruby" or "KZXY(FM)") (the "Included Transactions"), and the related financing transactions also consummated on June 15, 1998. Regent acquired all of the outstanding common stock of Faircom in the Merger. For accounting purposes, the Merger is being accounted for under the purchase method of accounting as a reverse merger since the shareholders of Faircom are receiving the larger shareholding in the merged company. The Included Transactions are also being accounted for under the purchase method of accounting with Regent being identified as the acquiror. The unaudited pro forma condensed combined balance sheet gives effect to the Merger and the Included Transactions as if they had occurred on March 31, 1998. The unaudited pro forma condensed combined statements of operations gives effect to these transactions as if they had occurred on January 1, 1997. The purchase price of each acquisition has been allocated to the acquirees' historical assets and liabilities based on their respective fair market values. The fair value of assets acquired was determined based on a detailed analysis prepared by an independent appraisal for each consummated transaction. The unaudited pro forma condensed combined financial statements do not purport to present the actual financial position or results of operations of Regent had the transactions and events assumed therein in fact occurred on the dates specified, nor are they necessarily indicative of the results of operations that may be achieved in the future. The unaudited pro forma financial information is based on certain assumptions and adjustments described in the notes to the unaudited pro forma condensed combined financial statements and should be read in conjunction therewith. No pro forma adjustments have been made to reflect Regent's acquisitions of radio stations KIXA(FM) in Lucerne Valley, California and KIXW(AM) in Apple Valley, California because Regent has determined that the impact of such transactions was not material to Regent's results of operations or financial condition. In addition, historical balance sheet data has not been included in the Condensed Combined Balance Sheet to reflect Regent's acquisition of radio station KZXY(FM) in Apple Valley, California because the required financial information cannot be obtained. However, the Pro Forma Condensed Combined Balance Sheet does reflect the fair value of assets acquired for KZXY(FM). P-2 48 REGENT COMMUNICATIONS, INC. PRO FORMA CONDENSED COMBINED BALANCE SHEET MARCH 31, 1998 (UNAUDITED)
PRO FORMA INCLUDED TRANSACTIONS ADJUSTMENTS REGENT ------------------------- FOR THE AS ADJUSTED HISTORICAL HISTORICAL MERGER FOR THE HISTORICAL HISTORICAL REGENT FAIRCOM (NOTE 3) MERGER PARK LANE ALTA ----------- ------------ ------------ ------------ ------------ ---------- ASSETS Current assets: Cash........................ $ 223,868 $ 524,181 $ 748,049 $ 334,647 $ 31,143 Accounts receivable......... 1,375,251 1,086,206 2,461,457 18,490 99,163 Prepaid expenses and other..................... 9,833,978 59,048 9,893,026 109,089 11,059 ----------- ----------- ----------- ----------- ----------- ----------- Total current assets.............. 11,433,097 1,669,435 13,102,532 462,226 141,365 Property and equipment, net... 101,383 2,299,151 2,400,534 2,354,199 227,249 Intangible assets, net........ 8,605,826 $ 650,668 9,256,494 5,786,155 915,716 Deferred charges and other.... 2,072,180 1,311,147 ($ 1,470,668) 1,912,659 0 1,010,666 ----------- ----------- ----------- ----------- ----------- ----------- Total assets.......... $13,606,660 $13,885,559 ($ 820,000) $26,672,219 $ 8,602,580 $ 2,294,996 =========== =========== =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Account payable, accrued liabilities and other..... $2,050,823 $ 650,392 $2,701,215 $ 346,644 $ 1,812,832 Notes payable............... 7,500,000 7,500,000 120,000 263,004 Current portion of long-term debt...................... 460,012 ($ 460,012) 755,837 ----------- ----------- ----------- ----------- ----------- ----------- Total current liabilities......... 9,550,823 1,110,404 (460,012) 10,201,215 1,222,481 2,075,836 Long-term debt, net of current maturities.................. 22,886,652 (9,539,988) 13,346,664 5,537,896 428,371 Other......................... 611,919 611,919 ----------- ----------- ----------- ----------- ----------- ----------- Total liabilities..... 9,550,823 24,608,975 (10,000,000) 24,159,798 6,760,377 2,504,207 Redeemable preferred stock.... 2,332,194 2,332,194 6,748,751 Shareholders' equity: Preferred stock............. 3,000,000 1,723,643 4,723,643 5,595,875 Common stock................ 2,400 73,782 (73,782) 2,400 1,631,049 225,000 Additional paid-in capital................... 465,997 2,605,813 6,982,385 10,054,195 Retained earnings (deficit)................. (1,744,754) (13,403,011) 547,754 (14,600,011) (12,133,472) (434,211) ----------- ----------- ----------- ----------- ----------- ----------- Total shareholders' equity (deficit).... 1,723,643 (10,723,416) 9,180,000 180,227 (4,906,548) (209,211) ----------- ----------- ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity.............. $13,606,660 $13,885,559 ($ 820,000) $26,672,219 $ 8,602,580 $ 2,294,996 =========== =========== =========== =========== =========== =========== PRO FORMA PRO FORMA INCLUDED TRANSACTIONS ADJUSTMENTS ADJUSTMENTS ------------------------ FOR THE FOR HISTORICAL INCLUDED FINANCING POWER HISTORICAL TRANSACTIONS TRANSACTIONS COMBINED SURGE CONTINENTAL (NOTE 3) (NOTE 3) PRO FORMA ---------- ----------- ------------ ------------ ------------ ASSETS Current assets: Cash........................ ($ 45) ($ 1,000,000) $ 113,794 Accounts receivable......... 80,272 $ 175,778 (175,778) 2,659,782 Prepaid expenses and other..................... 4,000 3,319 (1,928,319) 8,092,174 ----------- ----------- ------------ ------------ ----------- Total current assets.............. 84,227 179,097 (3,104,097) 10,865,350 Property and equipment, net... 148,202 280,226 3,412,637 8,823,047 Intangible assets, net........ 929,726 1,056,895 25,416,508 43,361,494 Deferred charges and other.... 4,143 (42,143) 2,885,325 ----------- ----------- ------------ ------------ ----------- Total assets.......... $ 1,162,155 $ 1,520,361 25,682,905 $ 0 $65,935,216 =========== =========== ============ ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Account payable, accrued liabilities and other..... $ 3,000 $ 145,608 ($ 1,168,608) $ 3,840,691 Notes payable............... (383,004) 7,500,000 Current portion of long-term debt...................... 1,725,000 (2,480,837) 0 ----------- ----------- ------------ ------------ ----------- Total current liabilities......... 3,000 1,870,608 (4,032,449) 11,340,691 Long-term debt, net of current maturities.................. 31,229,254 $(15,900,000) 34,642,185 Other......................... 2,580,000 3,191,919 ----------- ----------- ------------ ------------ ----------- Total liabilities..... 3,000 1,870,608 27,196,805 (13,320,000) 49,174,795 Redeemable preferred stock.... (6,748,751) 16,360,000 18,692,194 Shareholders' equity: Preferred stock............. (4,595,875) (3,000,000) 2,723,643 Common stock................ 1,202,500 (3,058,549) 2,400 Additional paid-in capital................... 10,000 (10,000) (40,000) 10,014,195 Retained earnings (deficit)................. (43,345) (360,247) 12,899,275 (14,672,011) ----------- ----------- ------------ ------------ ----------- Total shareholders' equity (deficit).... 1,159,155 (350,247) 5,234,851 (3,040,000) (1,931,773) ----------- ----------- ------------ ------------ ----------- Total liabilities and shareholders' equity.............. $ 1,162,155 $ 1,520,361 $ 25,682,905 $ 0 $65,935,216 =========== =========== ============ ============ ===========
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements. P-3 49 REGENT COMMUNICATIONS, INC. CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
PRO FORMA ADJUSTMENTS REGENT INCLUDED TRANSACTIONS FOR THE MERGER AS ADJUSTED ------------------------ AND HISTORICAL FOR THE MERGER HISTORICAL HISTORICAL ACQUISITION AND HISTORICAL HISTORICAL HISTORICAL REGENT FAIRCOM (NOTE 4) ACQUISITION PARK LANE ALTA ----------- ----------- -------------- -------------- ----------- ---------- Net revenue............................. $ 2,415,758 $ 1,465,077 $ 3,880,835 $ 12,787 Broadcast operating expenses............ 2,374,202 1,098,911 3,473,113 $ (7,402) 34,752 Time brokerage agreement fees, net...... 235,000 235,000 (252,600) Depreciation and amortization........... 2,364 290,548 $ 3,250 296,162 299,489 34,230 Corporate general and administrative expenses.............................. 231,095 113,528 130,000 474,623 92,473 ----------- ----------- ----------- ----------- ----------- --------- Operating income (loss)............. (426,903) (37,910) (133,250) (598,063) (131,960) (56,195) Interest expense........................ 203,928 503,770 707,698 148,626 9,747 Other income (expense), net............. 1,908 12,152 14,060 19,372 (1,570) ----------- ----------- ----------- ----------- ----------- --------- Income (loss) from continuing operations before income taxes................... (628,923) (529,528) (133,250) (1,291,701) (261,214) (67,512) Provision (benefit) for income taxes.... 12,000 (12,000) ----------- ----------- ----------- ----------- ----------- --------- Income (loss) from continuing operations............................ $ (628,923) $ (541,528) $ (121,250) $(1,291,701) $ (261,214) $ (67,512) =========== =========== =========== =========== =========== ========= Earnings per share data: Loss from continuing operations..... (628,923) (1,291,701) =========== =========== Preferred stock dividend requirements...................... (159,250) (484,804) Preferred stock accretion........... 0 0 ----------- ----------- Loss applicable to common shares.......................... (788,173) (1,776,505) =========== =========== Basic and diluted loss per common share............................. $ (3.28) $ (7.40) =========== =========== Weighted average shares outstanding....................... 240,000 240,000 =========== =========== PRO FORMA INCLUDED TRANSACTIONS ADJUSTMENTS ------------------------------------- FOR THE HISTORICAL INCLUDED POWER HISTORICAL HISTORICAL TRANSACTIONS COMBINED SURGE CONTINENTAL KZXY(FM) (NOTE 4) PRO FORMA ---------- ----------- ---------- ------------ ------------ Net revenue............................. $ 238,647 $ 4,132,269 Broadcast operating expenses............ $ 745 173,484 $ 5,078 3,679,770 Time brokerage agreement fees, net...... (15,000) (56,500) $ 89,100 0 Depreciation and amortization........... 27,822 50,999 7,621 14,000 730,323 Corporate general and administrative expenses.............................. (181,573) 385,523 --------- ---------- ---------- ----------- ------------ Operating income (loss)............. (13,567) 14,164 43,801 78,473 (663,347) Interest expense........................ 954 (92,000) 818,025 Other income (expense), net............. 3 31,865 --------- ---------- ---------- ----------- ------------ Income (loss) from continuing operations before income taxes................... (13,564) (29,032) 43,801 170,473 (1,449,507) Provision (benefit) for income taxes.... 0 --------- ---------- ---------- ----------- ------------ Income (loss) from continuing operations............................ $ (13,564) $ (29,032) $ 43,801 $ 170,473 $ (1,449,507) ========= ========== ========== =========== ============ Earnings per share data: Loss from continuing operations..... (1,449,507) ============ Preferred stock dividend requirements...................... (828,555) Preferred stock accretion........... (232,845) ------------ Loss applicable to common shares.......................... (2,510,907) ============ Basic and diluted loss per common share............................. $ (10.46) ============ Weighted average shares outstanding....................... 240,000 ============
- --------------- See Notes to Unaudited Pro Forma Condensed Combined Financial Statements. P-4 50 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF REGENT COMMUNICATIONS, INC. 1. GENERAL The Merger will be accounted for under the purchase method of accounting as a reverse merger since the shareholders of Faircom are receiving the larger portion of voting rights in the merged company. The Included Transactions will also be accounted for under the purchase method of accounting with Regent being identified as the acquiror. The historical financial statements reflect the financial position and results of operations of Regent, Faircom, and the other Included Transactions (the "Pro Forma Companies") and were derived from the respective entities financial statements. 2. THE MERGER AND INCLUDED TRANSACTIONS: The following table sets forth the consideration to be paid in cash and shares of Regent's Preferred Stock to the common stockholders of Faircom and the owners of each of the Included Transactions, the allocation of the consideration to net assets acquired, station licenses and the resulting goodwill. For purposes of computing the estimated purchase price for accounting purposes, the value of shares issued is determined using the estimated fair value of net assets received. The purchase price of each acquisition has been allocated to the acquirees' assets and liabilities based on their respective fair market values. The fair value of assets acquired was determined based on an independent appraisal for each consummated transaction.
Total Consideration(a) -------------------------------------------- FAIR CASH EXCLUDING MARKET VALUE LIABILITIES ADJUSTED STATION ACQUISITION SHARES OF STOCK ASSUMED(b) TOTAL NET ASSETS(c) LICENSES GOODWILL ----------- --------- ------------ -------------- ----------- ------------- ----------- ---------- Merger: Regent................ 3,720,620 $ 1,723,643(d) $ 1,723,643 $ 1,072,975 $ 650,668 Included Transactions: Park Lane............. $18,228,000 18,228,000 (1,725,000) $18,131,000 1,822,000 Alta/Power Surge...... 200,000 1,000,000 1,387,000 2,387,000 (388,000) 3,369,000 406,000 Continental........... 3,995,000 3,995,000 562,000 3,140,000 293,000 KZXY(FM).............. 5,418,000 5,418,000 289,000 4,662,000 464,000 --------- ----------- ----------- ----------- ----------- ----------- ---------- 3,920,620 $ 2,723,643 $29,028,000 $31,751,643 $ (189,025) $28,302,000 $3,635,668 ========= =========== =========== =========== =========== =========== ==========
- --------------- (a) Amounts include estimated acquisition costs and closing adjustments. (b) Does not include $6,880,000 of liabilities assumed in the Park Lane stock purchase transaction and $1,500,000 of liabilities assumed in the Alta/Power Surge stock purchase transaction. (c) Net of certain assets which will not be acquired and certain liabilities which will not be assumed, including pre-existing intangible assets. See Note 3. (d) Represents the assigned value under reverse merger purchase accounting based on the fair value of Regent's net assets as of March 31, 1998. P-5 51 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF REGENT COMMUNICATIONS, INC. -- (CONTINUED) 3. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENTS The following table summarizes unaudited pro forma condensed combined balance sheet adjustments:
PRO FORMA INCLUDED TRANSACTIONS ADJUSTMENTS MERGER ADJUSTMENTS ADJUSTMENTS --------------------------------- (A) (B) MERGER (C) (D) ------------ ------------ ------------ ------------ ----------- ASSETS Current assets: Cash............................... ($1,000,000) Accounts receivable................ (175,778) Prepaid expenses and other......... (1,928,319) ------------ ------------ ------------ ------------ ----------- Total current assets............. (3,104,097) Property and equipment, net........ 3,123,637 $ 289,000 Intangible assets, net............. $ 650,668 $ 650,668 20,287,508 5,129,000 Deferred charges and other assets........................... (1,470,668) (1,470,668) 95,857 (138,000) ------------ ------------ ------------ ------------ ----------- Total assets..................... $ 0 ($820,000) ($820,000) $20,402,905 $5,280,000 ============ ============ ============ ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable, accrued liabilities and other current liabilities...................... ($1,168,608) Notes payable...................... (383,004) Current portion of long term debt............................. ($460,012) ($460,012) (2,480,837) ------------ ------------ ------------ ------------ ----------- Total current liabilities........ (460,012) (460,012) (4,032,449) Long-term debt, net of current maturities......................... ($10,000,000) 460,012 (9,539,988) 25,949,254 $5,280,000 Other............................... ------------ ------------ ------------ ------------ ----------- Total liabilities................ (10,000,000) (10,000,000) 21,916,805 5,280,000 Redeemable preferred stock.......... (6,748,751) Shareholders' equity: Preferred stock.................... 1,723,643 1,723,643 (4,595,875) Common stock....................... 190,120 (263,902) (73,782) (3,058,549) Additional paid-in capital......... 10,234,880 (3,252,495) 6,982,385 (10,000) Retained earnings (deficit)........ (425,000) 972,754 547,754 12,899,275 ------------ ------------ ------------ ------------ ----------- Total shareholders' equity (deficit)...................... 10,000,000 (820,000) 9,180,000 5,234,851 ------------ ------------ ------------ ------------ ----------- Total liabilities and shareholders' equity (deficit)...................... $0 ($820,000) ($820,000) $20,402,905 $5,280,000 ============ ============ ============ ============ =========== PRO FORMA PRO FORMA ADJUSTMENTS ADJUSTMENTS FOR THE FINANCING TRANSACTIONS FOR INCLUDED ------------------------- FINANCING TRANSACTIONS (E) (F) TRANSACTIONS ------------ ----------- ----------- ------------ ASSETS Current assets: Cash............................... ($1,000,000) Accounts receivable................ (175,778) Prepaid expenses and other......... (1,928,319) ----------- ------------ ----------- ----------- Total current assets............. (3,104,097) Property and equipment, net........ 3,412,637 Intangible assets, net............. 25,416,508 Deferred charges and other assets........................... (42,143) ----------- ------------ ----------- ----------- Total assets..................... $25,682,905 $ 0 $ 0 $ 0 =========== ============ =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable, accrued liabilities and other current liabilities...................... $(1,168,608) Notes payable...................... (383,004) Current portion of long term debt............................. (2,480,837) ----------- ------------ ----------- ----------- Total current liabilities........ (4,032,449) Long-term debt, net of current maturities......................... 31,229,254 $ (7,800,000) $ (8,100,000) $(15,900,000) Other............................... 0 2,580,000 2,580,000 ----------- ------------ ----------- ----------- Total liabilities................ 27,196,805 (7,800,000) (5,520,000) (13,320,000) Redeemable preferred stock.......... (6,748,751) 7,800,000 8,560,000 16,360,000 Shareholders' equity: Preferred stock.................... (4,595,875) (3,000,000) (3,000,000) Common stock....................... (3,058,549) (40,000) (40,000) Additional paid-in capital......... (10,000) Retained earnings (deficit)........ 12,899,275 ----------- ------------ ----------- ----------- Total shareholders' equity (deficit)...................... 5,234,851 (3,040,000) (3,040,000) ----------- ------------ ----------- ----------- Total liabilities and shareholders' equity (deficit)...................... $25,682,905 $ 0 $ 0 $ 0 =========== ============ =========== ===========
P-6 52 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF REGENT COMMUNICATIONS, INC. -- CONTINUED - --------------- (A) Records the conversion of Class A and Class B Faircom Subordinated Notes into Faircom Common Stock immediately precedent to the Merger in the aggregate amount of $10,000,000. Also records a non-recurring charge to reflect the issuance of additional stock options to certain Faircom executives to purchase 1,118,700 shares of Faircom common stock conditional on the conversion of Class A and Class B Faircom Subordinated Notes into Faircom Common Stock in conjunction with the Merger. The total estimated non-recurring charge is approximately $425,000. (B) Records the reverse merger transaction, consisting of 3,720,796 shares of preferred stock valued based on Regent's fair value of approximately $1,723,643 at March 31, 1998, including acquisition costs. The excess purchase price over the fair value of the net assets acquired is approximately $651,000. Also records non-recurring charges related to the write-off of Faircom's deferred financing costs and recognize fees associated with the early extinguishment of Faircom's debt. (C) Records the purchase of the Included Transactions, except for KZXY (FM) (See Note D), consisting of approximately $23,610,000 in cash and 200,000 shares of preferred stock valued at $1,000,000, for a total estimated purchase price of $24,610,000. Adjustment reflects $164,651 of certain assets which will not be acquired and $352,019 of certain liabilities which will not be assumed in the Included Transactions. Adjustment also reflects the elimination of existing goodwill and other intangible assets. The excess purchase price over the fair value of the net assets acquired is $26,161,000. The cash portion of the purchase price was funded through the use of existing cash, that is in excess of operating needs, a bank credit facility and the issuance of additional equity securities. See Notes E and F. Adjustment also includes a credit facility fee of $1.2 million, which is reflected in Deferred Charges and Other in the Pro Forma Condensed Combined Balance Sheet. (D) Records the purchase transaction of KZXY(FM) from Ruby for a total estimated purchase price of $5,418,000. Adjustment reflects the appraised values of assets acquired. A historical balance sheet does not appear in the Form 8-K because the required financial information cannot be obtained. (E) Records final proceeds of $3,900,000 related to the original issuance of 1,000,000 shares of Series B Preferred Stock and the issuance of 780,000 shares of Series D Preferred Stock in the amount of $3,900,000 in conjunction with the Included Transactions. Proceeds from the issuances were used to reduce bank credit facility borrowings. (F) Records the issuance of Series F Preferred Stock in the aggregate amount of $10,250,000, the issuance of Series A in the aggregate amount of $100,000 and the issuance of 860,000, 80,000, and 50,000 warrants to the holders of Series F Preferred Stock, Series A Preferred Stock, and Series B Preferred Stock, respectively, in conjunction with the Included Transactions. Holders of Series F Preferred Stock (and warrants related thereto) may put their respective shares of Series F Preferred Stock to Regent; therefore, the Series F Preferred Stock has been classified outside of equity. Shares of the Series A, B and D Preferred Stock (but not the Series C and E Preferred Stock) will be entitled to put to Regent for mandatory redemption on the same basis if the put rights related to the Series F Preferred Stock are exercised. Consequently, the Series A Preferred Stock has been reclassified to be excluded from equity to reflect such anticipated "put rights." The 860,000 Put Warrants issued to holders of Series F Preferred Stock have been assigned a fair value of $2,580,000 and have been classified as a long-term liability. The 80,000 and 50,000 Warrants issued to holders of Series A and Series B Preferred Stock have been assigned a fair value of $160,000 and $100,000, respectively. Both amounts have been classified as additional paid-in capital. Issuance fees of approximately $1,950,000 related to the Series A, B, D, and F Preferred Stock have been deducted from the proceeds. Issuance fees of approximately $300,000 related to Series C Preferred Stock have been presented as a reduction of Shareholders' Equity. P-7 53 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- CONTINUED OF REGENT COMMUNICATIONS, INC. 4. UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS ADJUSTMENTS The following table summarizes unaudited pro forma condensed combining statement of operations adjustments: FOR THE THREE MONTHS ENDED MARCH 31, 1998
PRO FORMA ADJUSTMENTS MERGER ADJUSTMENTS FOR THE MERGER INCLUDED TRANSACTIONS ------------------------------------- AND HISTORICAL ----------------------- (A) (B) (C) ACQUISITION (D) (E) -------- -------- --------- -------------- ------- --------- Net revenue............................... Broadcast operating expenses.............. Time brokerage agreement fees, net........ Depreciation and amortization............. $ 3,250 $ 3,250 $ 14,000 Corporate general and administrative expenses................................ $ 130,000 130,000 -------- -------- --------- ----------- ------- --------- Operating income (loss)............... (3,250) (130,000) (133,250) (14,000) Interest expense.......................... $ (92,000) Other income (expense), net............... -------- -------- --------- ----------- ------- --------- Loss from continuing operations before income taxes............................ (3,250) (130,000) (133,250) (14,000) 92,000 Provision (benefit) for income taxes...... $(12,000) (12,000) -------- -------- --------- ----------- ------- --------- Income (loss) from continuing operations.............................. $ (3,250) $ 12,000 $(130,000) $ (121,250) $(14,000) $ 92,000 ======== ======== ========= =========== ======= ========= PRO FORMA ADJUSTMENTS INCLUDED TRANSACTIONS FOR THE --------------------------------- INCLUDED (F) (G) TRANSACTIONS ------- --------- ------------ Net revenue............................... $ 0 Broadcast operating expenses.............. 0 Time brokerage agreement fees, net........ $ 89,100 89,100 Depreciation and amortization............. 14,000 Corporate general and administrative expenses................................ $(92,473) (89,100) (181,573) -------- --------- ------------ Operating income (loss)............... 92,473 0 78,473 Interest expense.......................... (92,000) Other income (expense), net............... 0 -------- --------- ------------ Loss from continuing operations before income taxes............................ 92,473 170,473 Provision (benefit) for income taxes...... 0 -------- --------- ------------ Income (loss) from continuing operations.............................. $ 92,473 $ 0 $ 170,473 ======== ========= ============
- --------------- (A) Reflects the amortization of intangible assets to be recorded as a result of the Merger over 40 year estimated lives. (B) Reflects the reduction in federal and state income taxes assuming a consolidated return basis of reporting. No deferred income tax assets have been recorded due to the uncertainty of the ultimate realization of future benefits from such assets. (C) Reflects the incremental compensation expense related to certain employment agreements effective upon the Merger. A nonrecurring charge to reflect the issuance of additional stock options to certain Faircom executives to purchase 1,118,700 shares of Faircom Common Stock conditional on the conversion of Class A and Class B Faircom Subordinated Notes into Faircom Common Stock in conjunction with the Merger has not been reflected in the Unaudited Pro Forma Condensed Combining Statement of Operations. The total estimated nonrecurring charge is approximately $425,000. (D) Reflects the amortization of intangible assets to be recorded as a result of the Included Transactions over 40-year estimated lives less historical amortization of goodwill and other intangible assets. (E) Reflects a $196,000 reduction in interest expense associated with the borrowings under a bank credit facility necessary to complete the Included Transactions using an assumed rate of 8.25%. A 1/8% change in the interest rate under the Credit Agreement would result in a further reduction in interest expense of approximately $110,000 for the three months ended March 31, 1998. Adjustment also reflects amortization of estimated deferred financing costs over the seven year loan period of approximately $54,000 for the three months ended March 31, 1998. In conjunction with refinancing existing debt obligations related to the Merger, Regent will incur a prepayment penalty of approximately $370,000, and will write-off approximately $800,000 of deferred financing costs. These items will be accounted for as extraordinary items in the debt extinguishment period. The Unaudited Pro forma Condensed Combined Balance Sheet as of March 31, 1998 reflects the issuance of 820,000 Put Warrants to the holders of Series F Preferred Stock. Interest expense has been adjusted by $50,000 to reflect an estimated change in fair value for such warrants during the three month period ended March 31, 1998 using an assumed change in market value for Regent's Common Stock of 10%. A 0% and 20% change in Regent's Common Stock would result in a $80,000 decrease and $67,500 increase in interest expense, respectively, for the three months ended March 31, 1998. Once such Warrants have been issued, a valuation will be obtained on a quarterly basis and any resulting change in value will be properly treated as an adjustment to interest expense. P-8 54 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF REGENT COMMUNICATIONS, INC. -- CONTINUED 5. UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENTS OF OPERATIONS ADJUSTMENTS The pro forma earnings per share calculation is based on the weighted- average number of shares of common stock of Regent outstanding as of March 31, 1998. The preferred shares to be issued in conjunction with the Merger and the Included Transactions have not been considered since their effect would be antidilutive. The preferred stock dividend used in computing loss applicable to common shares is based on the following Regent preferred shares being issued in conjunction with the Merger and the Included Transactions as of January 1, 1997: (i) 3,720,796 shares of Series C Preferred Stock and 20,000 shares of Series A Preferred Stock in conjunction with the Merger; and (ii) 780,000 shares each of Series B and D Preferred Stock, 200,000 shares of Series E Preferred Stock and 2,050,000 shares of Series F Preferred Stock in conjunction with the Included Transactions. Loss applicable to common shares has been adjusted to reflect the accretion of Series A, B, D and F Preferred Stock to their redemption value based on the earliest redemption date for each respective Series of Preferred Stock. P-9 55 (c) EXHIBITS. The Exhibit Index following the signature page hereof constitutes a list of all Exhibits filed with or incorporated by reference in this Form 8-K/A. 56 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. REGENT COMMUNICATIONS, INC. Date: March 30, 1999 By: /s/ TERRY S. JACOBS ------------------------------------ Terry S. Jacobs, Chairman of the Board and Chief Executive Officer 57 EXHIBIT INDEX The following exhibits are filed, or incorporated by reference where indicated, as part of this Current Report on Form 8-K/A: EXHIBIT NUMBER EXHIBIT DESCRIPTION 2(a)* Agreement of Merger among Faircom Inc., Regent Merger Corp., Regent Communications, Inc., Blue Chip Capital Fund II Limited Partnership and Miami Valley Venture Fund L.P. dated as of December 5, 1997, as amended (previously filed as Exhibit 2(a) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). The following exhibits to the foregoing Agreement of Merger are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request:
Exhibit Description ------- ----------- 1(j) Faircom Licenses 1(k) Faircom Senior Debt 1(x) Form of Amended and Restated Certificate of Incorporation of Regent Communications, Inc. 1(bb) Regent Licenses 1(ff) Regent Subsidiaries 4(a) Certificate of Incorporation of Subsidiary 4(b) By-Laws of Subsidiary 10(a) Form of Regent Option Agreement 12B Rule 145 Letter 13(b)(3) Form of Redemption and Warrant Agreement 21(a) Capital Stock of Faircom Subsidiaries 21(b) Faircom Options 21(f) Faircom Affiliates 21(g) Rights to Acquire Securities (Faircom) 21(i) Title to Faircom Broadcast Assets 21(k-1) Faircom Contracts 21(m-1) Faircom Key Employees 21(m-2) Faircom Accounts and Safe Deposit Boxes 21(o) Faircom Related Transactions 21(p) Faircom Taxes 21(q) Faircom Employee Benefit Plans 21(r) Faircom Compliance with Commission Regulations 21(s) Faircom Tangible Personal Property 21(t) Faircom Real Property 21(u) Faircom Environmental
E-1 58
Exhibit Description ------- ----------- 21(v) Faircom Insurance 21(bb) Faircom Litigation 21(ee) Faircom Intellectual Property 21(hh) Certain Changes (Faircom) 21(ii) Faircom Personnel 21(kk) Faircom Outstanding Debt 22(a) Information Regarding Regent Subsidiaries 22(f) Regent Affiliates 22(g) Rights to Acquire Securities (Regent) 22(i) Title to Regent Assets 22(k-1) Regent Contracts 22(m-1) Regent Key Employees 22(o) Regent Related Transactions 22(p) Regent Taxes 22(q) Regent Employee Benefit Plans 22(r) Regent Compliance with Commission Regulations 22(s) Regent Tangible Personal Property 22(t) Regent Real Property 22(u) Regent Environmental 22(v) Regent Insurance 22(bb) Regent Litigation 22(dd) Regent Required Consents 22(ee) Regent Intellectual Property 22(hh) Certain Changes (Regent) 22(ii) Regent Personnel 22(kk) Regent Outstanding Debt 22(ll) Exceptions to Negative Covenants 27c) Form of Opinion of Fulbright & Jaworski L.L.P. 28(b) Form of Opinion of Strauss & Troy 34 Form of Employment Agreement
EXHIBIT NUMBER EXHIBIT DESCRIPTION 2(b)* Agreement of Merger dated as of December 17, 1997 among Regent Communications, Inc., Regent Broadcasting of Victorville, Inc. and Topaz Broadcasting, Inc. (previously filed as Exhibit 2(b) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). E-2 59 The following schedules to the foregoing Agreement of Merger are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request: Schedule Description 1(c)(ix) Excluded Assets 1(f) Attributes of Series E Preferred Stock 20(f) Interests in Other Businesses 20(g) Rights to Acquire Securities 20(j) Financials 20(k-1) Contracts 20(k-2) Trade Agreements 20(m-1) Employees with Annual Compensation over $20,000 20(m-2) Topaz Bank Accounts 20(o) Debts and Obligations to Stockholder 20(p) Tax Exceptions 20(q) Employee Benefit Plans and Other Arrangement 20(s) Tangible Personal Property 20(t) Environmental 20(u) Insurance 20(v) Compliance with Law 20(z) Litigation 20(cc) Intellectual Property 20(ff) Employees 20(gg) Debt of Topaz EXHIBIT NUMBER EXHIBIT DESCRIPTION 2(c)* Asset Purchase Agreement dated December 17, 1997 between Regent Broadcasting of Victorville, Inc. and Ruby Broadcasting, Inc. (previously filed as Exhibit 2(c) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). The following schedules to the foregoing Asset Purchase Agreement are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request: Schedule Description 1.2.9 Miscellaneous Excluded Assets 7.4 FCC Licenses and Exceptions 7.7 Personal Property E-3 60 Schedule Description 7.8 Leases and Real Property Exceptions 7.9 Assumed Contracts 7.11 Environmental Matters 7.12 Intellectual Property 7.13 Financial Statements 7.14 Employees 7.15 Litigation 7.16 Compliance with Law 7.17 Employee Benefit Plans and Other Arrangements 7.19 Changes Not in the Ordinary Course A Deposit Escrow Agreement B Time Brokerage Agreement C Assignment and Assumption Agreement EXHIBIT NUMBER EXHIBIT DESCRIPTION 2(d)* Asset Purchase Agreement dated December 9, 1997 between Regent Broadcasting of Kingman, Inc. and Continental Radio Broadcasting, L.L.C. (previously filed as Exhibit 2(d) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). The following schedules and exhibits to the foregoing Asset Purchase Agreement are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request: Schedule Description 1.2.9 Miscellaneous Excluded Assets 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 E-4 61 Exhibit Description A Indemnification Escrow Agreement B Deposit Escrow Agreement C Agreement re Allocation of Purchase Price D Assignment and Assumption Agreement E Opinion of Seller's Corporate Counsel F Opinion of Seller's FCC Counsel G Opinion of Buyer's Counsel EXHIBIT NUMBER EXHIBIT DESCRIPTION 2(e)* Stock Purchase Agreement dated as of June 16, 1997 among Regent Communications, Inc. and the shareholders of The Park Lane Group, as amended (previously filed as Exhibit 2(e) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). The following exhibits to the foregoing Stock Purchase Agreement are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request: Exhibit Description A Deposit Escrow Agreement C Opinion of Counsel for Sellers D Form of FCC Opinion E Opinion of Counsel for Buyer F Consulting and Non-Competition Agreement G Time Brokerage Agreement H Required Consents 2(f)* Agreement of Merger among Alta California Broadcasting, Inc., Regent Acquisition Corp. and Regent Communications, Inc. dated October 10, 1997 (previously filed as Exhibit 2(f) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). The following exhibits to the foregoing Agreement of Merger are omitted as not material; the Company will furnish supplementally a copy of any omitted schedule to the Commission upon request: E-5 62 Exhibit Description 1(c)(x) Exceptions to Broadcast Assets 1(d) Consolidated 1997 Budget Projections 1(k) Licenses 20(f) Affiliates of Alta 20(g) Exceptions to Rights to Acquire Securities 20(i) Exceptions to Title to Broadcast Assets 20(k-1) List of Contracts Relative to the Stations 20(k-2) List of Balances of Trade Accounts 20(k-3) Percentages 20(m-1) Employees exceeding $20,000 20(m-2) Bank Accounts of Alta 20(o) Related Transactions 20(p) Taxes 20(q) Employee Benefit Plans 20(x) Compliance with FCC Regulations 20(s) Personal Property 20(t) Real Property 20(u) Environmental Matters 20(v) Insurance 20(bb) Litigation 20(ee) Intellectual Property 20(ii) Personnel Information 20(jj) Outstanding Debt 20(kk) Certain Negative Covenants EXHIBIT NUMBER EXHIBIT DESCRIPTION 4(a)# Amended and Restated Certificate of Incorporation of Regent Communications, Inc. 4(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(c)# 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.P., 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). E-6 63 EXHIBIT NUMBER EXHIBIT DESCRIPTION 4(d)# Stock Purchase Agreement dated June 15, 1998 among Regent Communications, Inc., Waller-Sutton Media Partners, L.P., WPG Corporate Development Associates V, L.P., 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). 4(e)# 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.P., 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). 4(f)# 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). 4(g)# 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. 4(h)# 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). 4(i)* Grant of Incentive Stock Option effective June 15, 1998 in favor of Terry S. Jacobs (previously filed as Exhibit 4(i) to the Registrant's Form 10-Q filed on August 19, 1998 and incorporated herein by this reference). 4(j)* Grant of Incentive Stock Option effective June 15, 1998 in favor of William L. Stakelin (previously filed as Exhibit 4(j) to the Registrant's Form 10-Q filed on August 19, 1998 and incorporated herein by this reference). 4(k)* 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 Registrant's Form 10-Q filed on August 19, 1998 and incorporated herein by this reference). 4(l)* 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(m)* 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(n)* 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(o)* 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(p)* Stock Purchase Agreement dated as of December 8, 1997 between Regent Communications, Inc. and General Electric Capital Corporation (previously filed 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(q)* 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(r)* Amended and Restated Redemption and Warrant Agreement dated as of March 31, 1998 among Regent Communications, Inc., Blue Chip Capital Fund II Limited Partnership, Miami Valley Venture Fund L.P. and Faircom Inc. (previously filed as Exhibit 4(i) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). E-7 64 4(s)* 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(t)* 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(u)* 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(l) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). 4(v)* Regent Communications, Inc. Faircom Conversion Stock Option Plan (previously filed as Exhibit 4(m) to the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998 and incorporated herein by this reference). 4(w)# 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. 4(x)# 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. 16 Letter dated March 30, 1999 from BDO Seidman, LLP to Regent Communications, Inc. 20(a)# Form 10-K of Faircom Inc. for the year ended December 31, 1997, including all exhibits thereto, as filed with the Securities and Exchange Commission on March 30, 1998. 20(b)# Form 10-Q of Faircom Inc. for the quarter ended March 31, 1998, including all exhibits thereto, as filed with the Securities and Exchange Commission on May 14, 1998. 20(c)# Executive Employment Agreement dated June 15, 1998 between Regent Communications, Inc. and Joel M. Fairman (excluding exhibits not deemed material or filed separately in executed form). 20(d)# Consulting and Non-Competition Agreement between Regent Communications, Inc. and James H. Levy. 23(a) Consent of PricewaterhouseCoopers LLP 23(b) Consent of PricewaterhouseCoopers LLP 23(c) Consent of PricewaterhouseCoopers LLP 23(d) Consent of PricewaterhouseCoopers LLP 23(e) Consent of Stockman Kast Ryan & Company, P.C. E-8 65 99(a)# The following financial statements appearing on pages F-50 through and including F-102 and pages F-109 through and including F-130 of the Registrant's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998, have been incorporated by reference in this Form 8-K/A and copies of which are filed as this Exhibit 99(a): REGENT COMMUNICATIONS, INC. Report of Independent Accountants. Consolidated Balance Sheets at December 31, 1997 and 1996. Consolidated Statements of Operations for the year ended December 31, 1997 and the period from November 5, 1996 (inception) through December 31, 1996 Consolidated Statements of Shareholders' Equity for the year ended December 31, 1997 and the period from November 5, 1996 (inception) through December 31, 1996. Consolidated Statements of Cash Flows for the year ended December 31, 1997 and the period from November 5, 1996 (inception) through December 31, 1996 Notes to Consolidated Financial Statements THE PARK LANE GROUP AND SUBSIDIARIES Report of Independent Accountants. Consolidated Balance Sheets at December 31, 1997 and 1996. Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements ALTA CALIFORNIA BROADCASTING, INC. AND SUBSIDIARY Independent Auditors' Report Consolidated Balance Sheet at March 31, 1997 Consolidated Statement of Operations for the year ended March 31, 1997 Consolidated Statement of Stockholder's Equity (Deficiency) for the year ended March 31, 1997 Consolidated Statement of Cash Flows for the year ended March 31, 1997 Notes to Consolidated Financial Statements Consolidated Balance Sheet at December 31, 1997. Consolidated Statements of Operations for the nine months ended December 31, 1996 and 1997. Consolidated Statement of Stockholder's Equity (Deficiency) for the nine months ended December 31, 1997. Consolidated Statements of Cash Flows for the nine months ended December 31, 1996 and 1997. Notes to Consolidated Financial Statements POWER SURGE, INC. Independent Auditors' Report Balance Sheet at December 31, 1997 Statement of Operations for the year ended December 31, 1997. Statement of Stockholders' Equity for the year ended December 31, 1997 Statement of Cash Flows for the year ended December 31, 1997. Notes to Financial Statements. CONTINENTAL RADIO BROADCASTING L.L.C. Report of Independent Accountants. Balance Sheet at December 31, 1997 Statement of Operations for the year ended December 31, 1997. Statement of Changes in Partners' Deficit for the year ended December 31, 1997 Statement of Cash Flows for the year ended December 31, 1997. Notes to Financial Statements. RADIO STATION KZXY(FM) Report of Independent Accountants. Statement of Revenues and Direct Expenses for the years ended December 31, 1997 and 1996. Notes to Statement of Revenues and Direct Expenses 99(b)# The following financial statements appearing under Item 7A on pages 4 through and including 23 of the Form 8-K/A, Amendment No. 2 to Current Report dated June 30, 1997 (filing date September 12, 1997) of Faircom Inc. have been incorporated by reference in this Form 8-K/A and copies of which are filed as this Exhibit 99(b): TREASURE RADIO ASSOCIATES LIMITED PARTNERSHIP (WYHT (FM) AND WMAN (AM)) Report of Independent Accountants Balance Sheets at November 30, 1996 and 1995 Statement of Partners' Deficit for the years ended November 30, 1996 and 1995. Statement of Income for the years ended November 30, 1996 and 1995. Statement of Cash Flows for the years ended November 30, 1996 and 1995 Notes to Financial Statements. Condensed Balance Sheets at May 31, 1997 and 1996. Condensed Statements of Operations for the six months ended May 31, 1997 and 1996 Condensed Statements of Cash Flows for the six months ended May 31, 1997 and 1996 Note to Interim Financial Statements 99(c)# The following pro forma financial information, appearing under the heading "Unaudited Pro Forma Condensed Combined Financial Statements of Regent Communications, Inc." on pages 56 through and including 63 of the Company's Form S-4 Registration Statement No. 333-46435 effective May 7, 1998, has been incorporated by reference in this Form 8-K/A and copies of which are filed as this Exhibit 99(c): Pro Forma Condensed Combined Financial Statements Introduction Pro Forma Condensed Combined Balance Sheet at December 31, 1997 Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1997 Notes to Pro Forma Condensed Combined Financial Statements E-9 66 *Incorporated by reference as indicated. #Previously filed as an exhibit to the initial Form 8-K or Amendment No. 1 thereto which this Amendment No 2 to Form 8-K/A amends and incorporated herein by this reference. Notes: 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 Cites 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. E-10 EX-16 2 EXHIBIT 16 1 Exhibit 16 March 30, 1999 Securities and Exchange Commission 450 5th Street N.W. Washington, D.C. 20549 Gentlemen: We have been furnished with a copy of the response to Item 4 of Form 8-K/A, Amendment No. 2 for the event that occurred on June 15, 1998, to be filed by Regent Communications, Inc., which acquired by merger our former client, Faircom Inc., on that date. We agree with the statements made in response to that Item insofar as they relate to our firm. Very truly yours, BDO Seidman, LLP EX-23.A 3 EXHIBIT 23A 1 Exhibit 23(a) We consent to the incorporation by reference in this Form 8-K/A, Amendment No. 2, of our report dated January 30, 1998, on our audit of the consolidated financial statements of Regent Communications, Inc. as of December 31, 1997 and 1996, and for the three years in the period ending December 31, 1997, appearing in the registration statement on Form S-4 (SEC File No. 333-46435) of Regent Communications, Inc. filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933. PricewaterhouseCoopers LLP Cincinnati, Ohio January 30, 1998 EX-23.B 4 EXHIBIT 23B 1 Exhibit 23(b) We consent to the incorporation by reference in this Form 8-K/A, Amendment No. 2, of our report dated February 16, 1998, on our audit of the consolidated financial statements The Park Lane Group and Subsidiaries as of December 31, 1997 and 1996, and for the three years in the period ending December 31, 1997, appearing in the registration statement on Form S-4 (SEC File No. 333-46435) of Regent Communications, Inc. filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933. PricewaterhouseCoopers LLP Menlo Park, California February 16, 1998 EX-23.C 5 EXHIBIT 23C 1 Exhibit 23(c) We consent to the incorporation by reference in this Form 8-K/A, Amendment No. 2, of our report dated February 10, 1998, on our audit of the consolidated financial statements of Continental Radio Broadcasting, L.L.C. as of December 31, 1997 and for the year then ended, appearing in the registration statement on Form S-4 (SEC File No. 333-46435) of Regent Communications, Inc. filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933. PricewaterhouseCoopers LLP Cincinnati, Ohio February 10, 1998 EX-23.D 6 EXHIBIT 23D 1 Exhibit 23(d) We consent to the incorporation by reference in this Form 8-K/A, Amendment No. 2, of our report dated January 9, 1998, on our audit of the Statement of Revenues and Direct Expenses of Radio Station KZXY (FM) for the years ended December 31, 1997 and 1996, appearing in the registration statement on Form S-4 (SEC File No. 333-46435) of Regent Communications, Inc. filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933. PricewaterhouseCoopers LLP Cincinnati, Ohio January 9, 1998 EX-23.E 7 EXHIBIT 23E 1 INDEPENDENT AUDITORS' CONSENT Exhibit 23(e) We consent to the incorporation by reference in this Form 8-K/A under the Securities Act of 1934 of Regent Communications, Inc. of our report dated March 13, 1998 relating to the financial statements of Power Surge, Inc. for the year ended December 31, 1997, and of our report dated June 25, 1997 and October 10, 1997 relating to the financial statements of Alta California Broadcasting, Inc. and Subsidiary for the year ended March 31, 1997, contained in Registration Statement No. 333-46435 of Regent Communications, Inc. on Form S-4 under the Securities Act of 1933. STOCKMAN KAST RYAN & COMPANY, P.C. Colorado Springs, Colorado March 30, 1999 -----END PRIVACY-ENHANCED MESSAGE-----