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SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 1)
þ | Preliminary information statement | |
o | Confidential, for use of the Commission only (as permitted by Rule 14c-5(d)(2)) | |
o | Definitive information statement |
o | No fee required. | |
o | Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11. |
(1) | Title of each class of securities to which transaction applies: | ||
(2) | Aggregate number of securities to which transaction applies: | ||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | ||
(4) | Proposed maximum aggregate value of transaction: | ||
(5) | Total fee paid: | ||
þ | Fee paid previously with preliminary materials. | |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
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1166 Avenue of the Americas, 10th Floor
New York, NY 10036
• | The merger of Verge Media Companies, Inc., a Delaware corporation, which we refer to as “Verge,” with and into Radio Network Holdings, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary of the Company, which we refer to as “Merger Sub,” pursuant to the Merger Agreement, dated as of July 30, 2011, a copy of which is attached hereto as Annex A and which we refer to as the “Merger Agreement;” |
• | An Amended and Restated Certificate of Incorporation of the Company, a copy of which is attached hereto as Annex B-1 and two Certificates of Designation, Powers, Preferences and Rights, attached hereto as Annex B-2 and Annex B-3, respectively, which we collectively refer to as the “Restated Charter,” and which, among other things, reclassify the Company’s common stock into Class A Common Stock, par value $0.01 per share, authorize a new class of common stock to be designated as Class B Common Stock, par value $0.01 per share, and designate two new series of preferred stock, Series A Preferred Stock and Series B Preferred Stock; and |
• | The issuance of shares of Class B Common Stock and, if any, Series A Preferred Stock of the Company to Verge’s stockholders pursuant to the Merger Agreement. |
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Annex A | Agreement and Plan of Merger | |
Annex B-1 | Amended and Restated Certificate of Incorporation | |
Annex B-2 | Certificate of Designation, Powers, Preferences and Rights of Series A Preferred Stock of Westwood One, Inc. | |
Annex B-3 | Certificate of Designation, Powers, Preferences and Rights of Series B Preferred Stock of Westwood One, Inc. | |
Annex C | First Amendment to Amended and Restated By-Laws | |
Annex D | Opinion of Financial Advisor to the Company | |
Annex E | Financial Statements of Verge as of December 31, 2010 and 2009 and for the Years Ended December 31, 2010, 2009 and 2008, and as of June 30, 2011 and for the Six Months Ended June 30, 2011 |
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New York, NY 10036
PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14C-2 THEREUNDER
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• | The adoption of the Merger Agreement and the approval of the Merger; |
• | The adoption and approval of the Restated Charter which, among other things, reclassifies the Company’s common stock into Class A Common Stock, par value $0.01 per share, which we refer to as the “Reclassification,” authorizes a new class of common stock to be designated as Class B Common Stock, par value $0.01 per share, which, together with Class A Common Stock, we refer to as the “New Common Stock,” and designates two new series of preferred stock, Series A Preferred Stock and Series B Preferred Stock. We refer to the Reclassification, the other amendments to the Company’s certificate of incorporation pursuant to the Restated Charter, and certain amendments to the By-Laws as described in this Information Statement, as the “Recapitalization;” and |
• | The approval of the issuance to Verge’s stockholders in the Merger of shares of Class B Common Stock representing approximately 59% of the total issued and outstanding shares of common stock of the combined company on a fully diluted basis and shares of Series A Preferred Stock having an aggregate liquidation preference of $8,000,000, subject to adjustment upon the closing of the Merger based on the respective net debt amounts of the Company and Verge on the business day prior to the closing, which issuances we refer to as the “Parent Stock Issuance.” |
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• | Westwood One, Inc., is a provider of network radio programming, providing more than 5,000 radio stations with over 150 news, sports, music, talk and entertainment programs, features, live events and digital content. For more information about Westwood One, Inc., visit www.westwoodone.com. |
• | The Company was incorporated on June 21, 1985, under the laws of the state of Delaware. The Company’s shares of common stock are quoted on the NASDAQ Global Market under the ticker symbol “WWON.” The Company’s principal executive offices are located at 1166 Avenue of the Americas, 10th Floor, New York, NY 10036, and its telephone number is (212) 641-2000. |
• | Radio Network Holdings, LLC is a direct, wholly-owned subsidiary of the Company and was formed solely for purposes of the Merger. |
• | Merger Sub was formed on July 28, 2011, under the laws of the state of Delaware. Merger Sub’s principal executive offices are located at 1166 Avenue of the Americas, 10th Floor, New York, NY 10036, and its telephone number is (212) 641-2000. |
• | Verge Media Companies, Inc. is the ultimate parent company of all of the entities that will be acquired by the Company in the Merger. One of the entities the Company will acquire in the Merger is Dial Communications Global Media, LLC, which we refer to as “Dial Global.” Dial Global is a provider of national advertising sales representation to over 200 radio programs, services and networks on over 6,000 stations. In addition, Dial Global produces the Dial Global 24/7 Formats, as well as Prep Services, Jingles and Imaging as well as long and short form radio programs which it distributes to over 6,000 radio stations nationwide. For more information about Dial Global, visit www.dial-global.com. |
• | Verge, a privately held company, was incorporated on February 24, 2009, under the laws of the state of Delaware. Verge’s principal executive offices are located at 220 West 42nd Street, New York, NY 10036, and its telephone number is (212) 419-2900. |
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• | Pursuant to the Merger Agreement, Verge will merge with and into Merger Sub, a direct, wholly-owned subsidiary of the Company, with Merger Sub surviving as a direct, wholly-owned subsidiary of the Company succeeding to and assuming all of the rights, properties, liabilities and obligations of Verge. |
• | Subject to the terms and conditions of the Merger Agreement, upon consummation of the Merger, Verge’s stockholders will be entitled to receive 6.884183 shares of new Class B Common Stock of the Company for each common share of Verge held by them. This exchange ratio was adjusted from the 6.90453 number included in the Merger Agreement following the execution of the Merger Agreement due to the expiration of certain stock options of the Company related to the sale of Metro Networks, Inc. and its subsidiaries, SmartRoute Systems, Inc. and TLAC, Inc., which we collectively refer to as the “Metro Traffic Business,” and the issuance of certain restricted stock units to our directors as is customary, and is subject to further adjustment as provided in the Merger Agreement. In addition, pursuant to the Merger Agreement, upon consummation of the Merger the Company will issue to stockholders of Verge shares of Series A Preferred Stock of the Company having an aggregate liquidation preference of $8,000,000, subject to adjustment upon the closing of the Merger based on the respective net debt amounts of the Company and Verge on the business day prior to the closing. Assuming the Merger had been consummated on June 30, 2011, on a pro forma basis giving effect to the respective net debt amounts of the Company and Verge as of such date, the Company would have issued to stockholders of Verge 15,060 shares of Series A Preferred Stock having an aggregate liquidation preference of $15,060,000. |
• | Following the closing of the Merger, based on the Company’s and Verge’s respective capitalizations as of July 30, 2011, and the exchange ratio of 6.884183, we estimate that current Company stockholders together with holders of outstanding options exercisable for Company common stock and restricted stock units will own approximately 41%, and current Verge stockholders will own approximately 59%, of the issued and outstanding shares of common stock of the combined company on a fully diluted basis. |
• | Immediately prior to the Merger, the Company will file the Restated Charter, which, among other things, (i) authorizes two classes of common stock, par value $0.01 per share, to be designated as Class A Common Stock and Class B Common Stock, and (ii) designates two new series of preferred stock of the Company, Series A Preferred Stock and Series B Preferred Stock. We are also making certain amendments to our By-Laws which are summarized below. |
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• | Upon the effectiveness of the Restated Charter, each issued and outstanding share of Company common stock shall be reclassified and automatically converted into one share of Class A Common Stock without any further action on the part of the Company’s stockholders. |
• | Each share of Class A Common Stock and Class B Common Stock will be entitled to one vote for all matters submitted to a vote of the Company’s stockholders whether voting separately as a class or together as a single class, and will be identical in all respects except as described below and under “—Automatic Conversion.” |
• | Until the Board Trigger Date (defined below), the members of the board of directors of the combined company shall be determined as follows: |
• | the holders of Class A Common Stock voting as a separate class will be entitled to elect three members to the board of directors of the combined company, which we refer to as the “Class A Directors;” |
• | the Chief Executive Officer of the Company shall have the right to be nominated to the board of directors of the combined company and shall be elected by the holders of Class A Common Stock and Class B Common Stock voting together as a single class; and |
• | the holders of Class B Common Stock voting as a separate class will be entitled to elect all other members of the board of directors of the combined company, which we refer to as the “Class B Directors.” |
• | At least one Class A Director is required to be an “Independent Director” (as defined by NASDAQ Marketplace Rule 5605(a)(2) or any successor provision), and must be reasonably acceptable to a majority of the Class B Directors. At least two Class B Directors are required to be Independent Directors and must be reasonably acceptable to a majority of the Class A Directors. |
• | Certain actions of the Company may not be taken without approval of a majority of the Class A Directors, the Class B Directors or all of the Independent Directors, as described below under “The Recapitalization—Restated Charter.” |
• | After the Board Trigger Date, the holders of the Class A Common Stock and the holders of the Class B Common Stock voting together as a single class will be entitled to elect all members of the board of directors of the combined company. |
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• | The “Board Trigger Date” means the later of (x) the date that is 18 months following the effective date of the Restated Charter and (y) the date on which at least 35% of the outstanding shares of New Common Stock are freely tradable on the NASDAQ Stock Market or other national securities exchange. |
• | Until the third anniversary of the effective date of the Restated Charter, the affirmative vote of the holders of Class A Common Stock shall be required to approve a sale of the Company, unless the price per share of Class A Common Stock in such sale exceeds $7.78 minus the per share amount of all cash dividends to holders of record after July 30, 2011 and prior to the date of such sale (subject, in each case, to adjustment based upon stock splits, stock dividends and transactions having similar effects). |
• | Class B Common Stock may be held only by Verge stockholders and their affiliates. As a result, each share of Class B Common Stock transferred to any other person will automatically convert to one share of Class A Common Stock. |
• | In addition, each share of Class B Common Stock will automatically convert into one share of Class A Common Stock upon the later of (i) the third anniversary of the effective date of the Restated Charter and (ii) the date upon which both of the following conditions are satisfied: (x) at least 35% of the outstanding shares of New Common Stock are freely tradable on the NASDAQ Stock Market or other national securities exchange and (y) Verge’s stockholders and their affiliates cease to own a majority of the outstanding shares of voting securities of the Company. |
• | As to dividends and distributions of assets upon liquidation, dissolution or winding up of the Company, the Series A Preferred Stock will rank senior over the New Common Stock and junior to the Series B Preferred Stock. |
• | Each holder of the Series A Preferred Stock shall be entitled to receive dividends when, as and if declared by the board of directors of the combined company or a duly authorized committee thereof out of funds of the Company legally available therefor at an annual rate equal to (i) 9% per annum from and excluding the issue date through and including the second anniversary of the issue date, (ii) 12% per annum from the day immediately following the second anniversary of the issue date through and including the fourth anniversary of the issue date, and (iii) 15% per annum thereafter. Dividends shall be paid in cash and, to the extent not paid on March 15, June 15, September 15 or December 15 of any given year, shall accumulate and remain accumulated dividends until paid to the holders of the Series A Preferred Stock. No cash dividends shall in any instance be paid in the first year after the Series A Preferred Stock is issued, and the Company may further pay cash dividends to the New Common Stock and not on the Series A Preferred Stock during such first year notwithstanding the priority of the Series A Preferred Stock otherwise set forth in the Restated Charter. |
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• | Following the first anniversary of the issue date, the Company may redeem the Series A Preferred Stock for cash at the Company’s option. The redemption price as of any given date shall be equal to the liquidation preference of $1,000 per share, plus all dividends accumulated thereon and all accrued and unpaid dividends to the payment date. |
• | The holders of the shares of the Series A Preferred Stock shall not have any right to convert such shares into or exchange such shares for any other class or series of stock or obligations of the Company. |
• | Upon the liquidation, bankruptcy, dissolution or winding up of the Company, the holders of the shares of the Series A Preferred Stock shall be entitled to an amount of cash equal to the liquidation preference of $1,000 per share, plus all dividends accumulated thereon and all accrued and unpaid dividends to the payment date. A change of control will be considered a liquidation, dissolution or winding up of the Company. |
• | The Series A Preferred Stock shall not have any voting powers, either general or special, except that the affirmative vote or consent of the holders of a majority of the outstanding shares of the Series A Preferred Stock will be required for any amendment of the Restated Charter if the amendment would specifically alter or change the powers, preferences or rights of the shares of the Series A Preferred Stock so as to affect them adversely. |
• | As to dividends and distributions of assets upon liquidation, dissolution or winding up of the Company, the Series B Preferred Stock will rank senior over the New Common Stock and the Series A Preferred Stock. |
• | Dividends on the Series B Preferred Stock shall accrue at an annual rate equal to (i) 15% per annum from and excluding the issue date through and including the third anniversary of the issue date and (ii) 17% per annum thereafter. |
• | Nominations of persons to serve as directors of the board of directors of the combined company, the number of directors on the board of directors of the combined company (including the minimum number of independent directors), the length of service of each director on the board of directors of the combined company, and the filling of vacancies on the board of directors of the combined company must all be in compliance with the Restated Charter. |
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• | Transfers of stock of the Company must also be in compliance with the Restated Charter. |
• | Special meetings of the board of directors of the combined company may be called by any two directors and require 48 hours’ prior notice to the other directors. |
• | Committees of the board of directors of the combined company must consist of at least one Class A Director and one Class B Director (for so long as there are Class B Directors). |
• | The Company will be the indemnitor of first resort with respect to directors affiliated with Gores or Oaktree. |
• | The board of directors of the combined company must have a minimum of three independent directors or a higher number if required by the SEC or the rules and regulations of the NASDAQ Stock Market or any other securities exchange or quotation system on which the Company’s securities are listed or quoted for trading in the future and, in the case of a higher number so being required, the board of directors of the combined company will be expanded to allow for the appointment of any additional independent directors so required, and each such additional seat will be filled with an independent director appointed by a majority of the board of directors of the combined company and elected annually by the holders of New Common Stock, voting as a single class. |
• | Any salaries paid to a director, or any other fees payable to directors for the attendance of meetings, must be approved by the board of directors of the combined company. |
• | Until the Board Trigger Date: |
• | the By-Laws may not be amended in a manner contrary to the Restated Charter; |
• | without the consent of a majority of the Class A Directors, the By-Laws may not be amended in a manner that materially adversely affects the holders of Class A Common Stock in a disproportionate manner relative to holders of Class B Common Stock, or adversely affects the approval rights of the Class A Directors and holders of Class A Common Stock to approve a sale of the Company; and |
• | without the consent of a majority of the Class B Directors, the By-Laws may not be amended in a manner that materially adversely affects the holders of Class B Common Stock in a disproportionate manner relative to holders of Class A Common Stock, or adversely affects the approval rights of the Class B Directors. |
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• | The Company and Verge have made certain customary representations and warranties to each other in the Merger Agreement. |
• | The parties have agreed to use their respective reasonable best efforts to do all things necessary, proper or advisable to consummate the Merger, including obtaining all necessary approvals and consents, subject to certain limitations. |
• | Completion of the Merger is subject to certain conditions, including, among others: |
• | completion of approximately $265 million of debt financing for the transaction; | ||
• | the expiration or early termination of the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the “HSR Act,” and any required approvals thereunder, which early termination was granted on August 24, 2011; | ||
• | receipt of certain other required regulatory approvals; | ||
• | the absence of legal impediments to the Merger; | ||
• | the absence of certain material adverse changes or events; | ||
• | the accuracy of the other party’s representations and warranties (subject to customary materiality qualifiers and other qualifying disclosures which are not necessarily reflected in the Merger Agreement); | ||
• | there not being holders of more than 3% of the outstanding shares of Verge common stock that have demanded appraisal rights pursuant to the DGCL; | ||
• | the effectiveness of the Recapitalization, including the Reclassification; | ||
• | receipt of tax opinions; and | ||
• | the execution and delivery by the parties and certain of their affiliates of various ancillary documents and agreements described below and more fully in this Information Statement. |
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• | The Merger Agreement may be terminated by: |
• | mutual consent of the Company and Verge; | ||
• | the Company or Verge if the Merger has not been completed by October 28, 2011 (so long as the terminating party’s failure to perform its obligations under the Merger Agreement is not the primary reason for the closing not having occurred by that date); | ||
• | the Company or Verge if the Merger has been permanently enjoined or declared illegal; | ||
• | the Company or Verge upon certain breaches of the Merger Agreement by the other party; | ||
• | the Company if holders of more than 3% of the outstanding shares of Verge common stock have demanded appraisal rights pursuant to the DGCL; | ||
• | the Company if it receives an unsolicited Superior Proposal (as defined in the Merger Agreement) on or before August 26, 2011 and, as a result, the Board believes it is required to terminate the Merger Agreement pursuant to its fiduciary duties, and subject to certain additional limitations; and | ||
• | Verge if the Board takes certain adverse actions, including changing its recommendation regarding approval of the Merger or approving or recommending an alternative transaction. |
• | If the Merger Agreement is terminated pursuant to the circumstances described in the two immediately preceding bullets, which we refer to as the “Fiduciary Termination Provisions,” the Company will be required to pay Verge a termination fee of $5,625,000. |
• | If the Merger is not consummated, the fees and expenses incurred by each party in connection with the Merger and related transactions shall be the sole responsibility of such incurring party, except that (a) the fees and expenses incurred by the parties in respect of such parties’ legal counsel after the date of execution of the Merger Agreement shall be split equally between the Company and Verge, (b) filing fees incurred in respect of filings under the HSR Act shall be split equally between the Company and Verge, and (c) the fees and expenses incurred by the parties in respect of the obtaining of the debt financing at any time (including prior to the date of execution of the Merger Agreement) shall be split equally between the Company and Verge. |
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• | If the Merger is consummated, the combined company shall pay and/or reimburse the Company and Verge for all reasonable documented out-of-pocket fees and expenses incurred by the Company and Verge (including prior to the date of execution of the Merger Agreement), as applicable, in order to consummate the transactions contemplated by the Merger Agreement. |
• | The Company agreed to deliver at the closing a number of shares of Series A Preferred Stock with a liquidation preference equal to $8,000,000 to the holders of Verge common stock, subject to adjustment upon the closing of the Merger based on the respective net debt amounts of the Company and Verge on the business day prior to the closing. If such adjustment results in a negative value, the Company shall not deliver the shares of Series A Preferred Stock and the exchange ratio shall be adjusted as described under “The Merger Agreement—Delivery of Series A Preferred Stock; Net Debt Adjustment.” |
• | On the business day immediately preceding the closing, the Company shall declare a dividend (payable to record holders of Company common stock as of such date) equal to the excess, if any, of (a) $47,901,155, over (b) the aggregate net indebtedness of the Company and its subsidiaries as of the close of business on the business day immediately prior to the closing, as calculated in accordance with the Merger Agreement. |
• | For more information about the terms of the Merger Agreement, see “The Merger Agreement.” |
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Successor Company | Predecessor Company | ||||||||||||||||||||||||||||||||
November 1 | January 1 | Year | |||||||||||||||||||||||||||||||
Six Months Ended | Year Ended | to | to | Ended | |||||||||||||||||||||||||||||
June 30, | December 31, | December 31, | October 31, | December 31, | |||||||||||||||||||||||||||||
(in thousands) | 2011 | 2010 | 2010 | 2009 | 2008 | 2007 | 2007 | 2006 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
Statement of income (loss) data: | |||||||||||||||||||||||||||||||||
Net revenues | $ | 57,957 | $ | 56,099 | $ | 122,746 | $ | 95,143 | $ | 83,132 | $ | 6,891 | $ | 33,860 | $ | 29,948 | |||||||||||||||||
Cost of revenues | 23,544 | 21,307 | 48,114 | 40,838 | 36,255 | 3,078 | 14,707 | 12,231 | |||||||||||||||||||||||||
Operating expenses | 24,402 | 23,454 | 49,202 | 50,175 | 36,089 | 3,540 | 13,729 | 10,598 | |||||||||||||||||||||||||
Depreciation and amortization | 9,925 | 8,665 | 18,639 | 15,622 | 9,080 | 824 | 2,942 | 2,722 | |||||||||||||||||||||||||
Income (loss) from continuing operations | 86 | 2,673 | 6,791 | (11,492 | ) | 1,708 | (551 | ) | 2,482 | 4,397 | |||||||||||||||||||||||
Interest expense, net | (10,771 | ) | (8,202 | ) | (19,533 | ) | (16,376 | ) | (14,173 | ) | (1,185 | ) | (4,460 | ) | (5,159 | ) | |||||||||||||||||
Gain from remeasurement of investment | — | 5,573 | 5,573 | 1,675 | — | — | — | — | |||||||||||||||||||||||||
Loss on equity investment | — | (778 | ) | (778 | ) | (1,148 | ) | (3,837 | ) | — | — | — | |||||||||||||||||||||
Other expenses | — | — | (1,257 | ) | (464 | ) | — | — | — | — | |||||||||||||||||||||||
Loss from continuing operations before income tax (benefit) | (10,685 | ) | (734 | ) | (9,204 | ) | (27,805 | ) | (16,302 | ) | (1,736 | ) | (1,978 | ) | (762 | ) | |||||||||||||||||
Income tax (benefit) from continuing operations | 1,076 | 1,042 | 2,156 | (10,389 | ) | (5,889 | ) | 0 | 7 | 208 | |||||||||||||||||||||||
Loss from continuing operations | (11,761 | ) | (1,776 | ) | (11,360 | ) | (17,416 | ) | (10,413 | ) | (1,736 | ) | (1,985 | ) | (554 | ) | |||||||||||||||||
Loss from discontinued operations, net of income tax benefit | — | — | (27 | ) | (565 | ) | — | — | — | — | |||||||||||||||||||||||
Net loss | $ | (11,761 | ) | $ | (1,776 | ) | $ | (11,387 | ) | $ | (17,981 | ) | $ | (10,413 | ) | $ | (1,736 | ) | $ | (1,985 | ) | $ | (554 | ) | |||||||||
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• | The spin-off of Verge’s digital business on July 29, 2011. |
• | The reclassification of the Company’s existing common stock into Class A Common Stock. |
• | The issuance of 34.4 million shares of Class B Common Stock and 15,060 shares of Series A Preferred Stock to Verge’s stockholders. |
• | The payment of a special cash dividend of $2,422 to the Company’s existing stockholders. |
• | The refinancing of outstanding debt of the Company and Verge. |
• | The elimination of historical transactions between the Company and Verge. |
• | The re-measurement of the assets and liabilities of the Company (the accounting acquiree in the Merger) to fair value as a result of Verge obtaining a controlling interest in the Company. |
• | Other adjustments necessary to reflect the effects of the Merger. |
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• | the accompanying notes to the preliminary unaudited pro forma condensed consolidated financial information; |
• | the Company’s separate historical audited financial statements as of and for the year ended December 31, 2010, included in the Company’s current report on Form 8-K filed on September 6, 2011), and its unaudited financial statements as of and for the six months ended June 30, 2011, included in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011; and |
• | Verge’s separate historical audited financial statements as of and for the year ended December 31, 2010 and its unaudited financial statements as of and for the six months ended June 30, 2011, included in Annex E hereto. |
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PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2011
(In thousands)
(unaudited)
Historical | Pro Forma Adjustments | |||||||||||||||||||
Purchase | ||||||||||||||||||||
Verge As | Accounting | Pro Forma as | ||||||||||||||||||
Westwood | Adjusted (1) | Refinancing | and Other | Adjusted | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 13,289 | $ | 3,051 | $ | 28,435 | $ | 660 | 3a | $ | 45,435 | |||||||||
Accounts receivable | 37,457 | 45,407 | — | — | 82,864 | |||||||||||||||
Prepaid and other assets | 14,085 | 3,213 | — | (660 | ) 3a | 16,638 | ||||||||||||||
Current assets discontinued operations | 590 | — | — | — | 590 | |||||||||||||||
Total current assets | 65,421 | 51,671 | 28,435 | — | 145,527 | |||||||||||||||
Property and equipment, net | 23,711 | 6,076 | — | — | 29,787 | |||||||||||||||
Intangible assets, net | 24,600 | 82,623 | — | 39,934 | 3b | 147,157 | ||||||||||||||
Goodwill | 25,796 | 59,252 | — | 113,815 | 3c | 198,863 | ||||||||||||||
Other assets | 6,216 | 4,342 | 3,768 | — | 3d | 14,326 | ||||||||||||||
TOTAL ASSETS | $ | 145,744 | $ | 203,964 | $ | 32,203 | $ | 153,749 | $ | 535,660 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 24,794 | $ | 27,420 | $ | — | $ | — | $ | 52,214 | ||||||||||
Amounts payable to related parties | 1,331 | — | — | — | 1,331 | |||||||||||||||
Current portion of long term debt | — | 13,923 | (13,923 | ) | — | 3e | — | |||||||||||||
Accrued expenses and other liabilities | 17,339 | 3,986 | 5,825 | 12,821 | 3d, 3f, 3m | 39,971 | ||||||||||||||
Current liabilities discontinued operations | 11,754 | — | — | — | 11,754 | |||||||||||||||
Total current liabilities | 55,218 | 45,329 | (8,098 | ) | 12,821 | 105,270 | ||||||||||||||
Long-term debt | 35,000 | 178,238 | 52,837 | — | 3e | 266,075 | ||||||||||||||
Deferred tax liability | 14,375 | 7,288 | — | 16,784 | 3g | 38,447 | ||||||||||||||
Due to Gores | 10,479 | — | (10,479 | ) | — | 3e | — | |||||||||||||
Other liabilities | 14,635 | 1,120 | — | 6,209 | 3h | 21,964 | ||||||||||||||
Non-current liabilities discontinued operations | 6,209 | — | — | (6,209 | ) 3h | — | ||||||||||||||
TOTAL LIABILITIES | 135,916 | 231,975 | 34,260 | 29,605 | 431,756 | |||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Preferred Stock — Series A | — | — | — | 15,060 | 3i | 15,060 | ||||||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
Common stock | 226 | 5 | — | (231 | ) 3j | — | ||||||||||||||
Common stock — Class A | — | — | — | 226 | 3j | 226 | ||||||||||||||
Common stock — Class B | — | — | — | 344 | 3j | 344 | ||||||||||||||
Additional paid-in capital | 100,242 | — | — | 18,105 | 3k, 3m | 118,347 | ||||||||||||||
Accumulated deficit | (90,640 | ) | (28,016 | ) | (2,057 | ) | 90,640 | 3d, 3l | (30,073 | ) | ||||||||||
TOTAL STOCKHOLDERS’ EQUITY | 9,828 | (28,011 | ) | (2,057 | ) | 109,084 | 88,844 | |||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 145,744 | $ | 203,964 | $ | 32,203 | $ | 153,749 | $ | 535,660 | ||||||||||
(1) | See Note 2 of the accompanying notes to the preliminary unaudited pro forma condensed consolidated financial information for an explanation of adjustments to Verge historical financial information. |
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FOR THE SIX MONTHS ENDED JUNE 30, 2011
(In thousands, except per share amounts)
(unaudited)
Historical | Pro Forma Adjustments | |||||||||||||||||||
Purchase | ||||||||||||||||||||
Verge As | Accounting | Pro Forma | ||||||||||||||||||
Westwood | Adjusted (1) | Refinancing | and Other | as Adjusted | ||||||||||||||||
Revenue | $ | 92,494 | $ | 39,196 | $ | — | $ | (1,320 | ) 4a | $ | 130,370 | |||||||||
Operating costs | 94,744 | 31,250 | — | (1,745 | ) 4a, 4b | 124,249 | ||||||||||||||
Depreciation and amortization | 3,393 | 6,712 | — | 2,864 | 4c | 12,969 | ||||||||||||||
Corporate general and administrative expenses | 4,673 | — | — | — | 4,673 | |||||||||||||||
Restructuring charges | 1,774 | — | — | — | 1,774 | |||||||||||||||
Special charges | 1,924 | — | — | — | 1,924 | |||||||||||||||
Total Expenses | 106,508 | 37,962 | — | 1,119 | 145,589 | |||||||||||||||
Operating (loss) | (14,014 | ) | 1,234 | — | (2,439 | ) | (15,219 | ) | ||||||||||||
Interest expense | 2,589 | 10,770 | (364 | ) | — | 4d | 12,995 | |||||||||||||
Other (income) expense | (1,096 | ) | — | — | — | (1,096 | ) | |||||||||||||
Loss from continuing operations before income tax | (15,507 | ) | (9,536 | ) | 364 | (2,439 | ) | (27,118 | ) | |||||||||||
Income tax (benefit) expense from continuing operations | (6,968 | ) | 722 | 142 | (4,472 | ) 4e | (10,576 | ) | ||||||||||||
Net Loss from continuing operations | (8,539 | ) | (10,258 | ) | 222 | 2,033 | (16,542 | ) | ||||||||||||
Preferred stock dividends and accretion | — | — | — | (910 | ) 4f | (910 | ) | |||||||||||||
Net loss attributable to common stockholders from continuing operation | $ | (8,539 | ) | $ | (10,258 | ) | $ | 222 | $ | 1,123 | $ | (17,452 | ) | |||||||
(Loss) Per Share of Common Stock | ||||||||||||||||||||
Basic | $ | (0.39 | ) | $ | (0.31 | ) | ||||||||||||||
Diluted | $ | (0.39 | ) | $ | (0.31 | ) | ||||||||||||||
Weighted Average Shares Outstanding: | ||||||||||||||||||||
Common Stock | ||||||||||||||||||||
Basic | 22,173 | 56,640 | ||||||||||||||||||
Diluted | 22,173 | 56,640 | ||||||||||||||||||
(1) | See Note 2 of the accompanying notes to the preliminary unaudited pro forma condensed consolidated financial information for an explanation of adjustments to Verge historical financial information. |
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FOR THE YEAR ENDED DECEMBER 31, 2010
(In thousands, except per share amounts)
Historical | Pro Forma Adjustments | |||||||||||||||||||
Purchase | ||||||||||||||||||||
Verge As | Accounting | Pro Forma | ||||||||||||||||||
Westwood | Adjusted (1) | Refinancing | and Other | as Adjusted | ||||||||||||||||
Revenue | $ | 196,986 | $ | 89,951 | $ | — | $ | (2,530 | ) 4a | $ | 284,407 | |||||||||
Operating costs | 187,053 | 64,704 | — | (3,380 | ) 4a, 4b | 248,377 | ||||||||||||||
Depreciation and amortization | 5,943 | 13,080 | — | 6,785 | 4c | 25,808 | ||||||||||||||
Corporate general and administrative expenses | 11,076 | — | — | — | 11,076 | |||||||||||||||
Restructuring charges | 269 | — | — | — | 269 | |||||||||||||||
Special charges | 5,448 | — | — | — | 5,448 | |||||||||||||||
209,789 | 77,784 | — | 3,405 | 290,978 | ||||||||||||||||
Operating (loss) | (12,803 | ) | 12,167 | — | (5,935 | ) | (6,571 | ) | ||||||||||||
Interest expense | 7,624 | 19,543 | (991 | ) | — | 4d | 26,176 | |||||||||||||
Other (income) expense | 1,688 | 561 | — | — | 2,249 | |||||||||||||||
Loss from continuing operations before income before income tax | (22,115 | ) | (7,937 | ) | 991 | (5,935 | ) | (34,996 | ) | |||||||||||
Income tax (benefit) expense | (7,922 | ) | 1,446 | 387 | (7,559 | ) 4e | (13,648 | ) | ||||||||||||
Net loss from continuing operations | (14,193 | ) | (9,383 | ) | 604 | 1,624 | (21,348 | ) | ||||||||||||
Preferred stock dividends and accretion | — | — | — | (1,869 | ) 4f | (1,869 | ) | |||||||||||||
Net loss attributable to common stockholders from continuing operation | $ | (14,193 | ) | $ | (9,383 | ) | $ | 604 | $ | (245 | ) | $ | (23,217 | ) | ||||||
(Loss) Per Share of Common Stock | ||||||||||||||||||||
Basic | $ | (0.64 | ) | $ | (0.38 | ) | ||||||||||||||
Diluted | $ | (0.64 | ) | $ | (0.38 | ) | ||||||||||||||
Weighted Average Shares Outstanding: | ||||||||||||||||||||
Common Stock | ||||||||||||||||||||
Basic | 22,173 | 56,640 | ||||||||||||||||||
Diluted | 22,173 | 56,640 | ||||||||||||||||||
(1) | See Note 2 of the accompanying notes to the preliminary unaudited pro forma condensed consolidated financial information for an explanation of adjustments to Verge historical financial information. |
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• | Verge spun-off of its digital business on July 29, 2011. |
• | We will reclassify the Company’s existing common stock on a share-for-share basis into a new class of common stock to be designated as Class A Common Stock, par value $0.01 per share. |
• | We will authorize a new class of common stock to be designated as Class B Common Stock, par value $0.01 per share, of which 34.4 million shares are expected to be issued to Verge’s stockholders upon the closing of the Merger. |
• | We will designate two new series of preferred stock of the Company, Series A Preferred Stock and Series B Preferred Stock, which are senior to the common stock. Upon the closing of the Merger, based on the respective net debt amounts of Verge and the Company as of June 30, 2011, we expect to issue shares of Series A Preferred Stock to stockholders of Verge having an aggregate liquidation preference of $15,060, and to declare and pay a special cash dividend of $2,422 to the Company’s existing stockholders. |
• | We anticipate refinancing all of the outstanding debt of Verge and the Company with first and second lien term loans described under “Other Agreements—Debt Commitment Letters” and by issuing new PIK Notes and/or Series B Preferred Stock in exchange for senior debt of the Company held by Gores and debt of a subsidiary of Verge held by Oaktree and Black Canyon, as described under “Interest of Certain Persons in Matters to be Acted Upon—Letter Agreement” and “—PIK Notes.” |
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Consideration Transferred | ||||
Westwood One, Inc. closing price per share on July 29, 2011 | $ | 5.68 | ||
Fair Value of 22,594 shares of Westwood One | $ | 128,334 | ||
Fair Value of Series A Preferred Stock Issued (See Note 3(i) below) | 15,060 | |||
$ | 143,394 | |||
Preliminary Purchase Price Allocation | ||||
Current Assets | $ | 65,421 | ||
Intangible Assets | 64,534 | |||
Property, Plant and Equipment, Net | 23,711 | |||
Other Assets | 6,216 | |||
Current Liabilities | (58,617 | ) | ||
Long-Term Debt | (45,479 | ) | ||
Deferred Income Taxes | (31,159 | ) | ||
Other Liabilities | (20,844 | ) | ||
Fair Value of Net Assets Acquired | 3,783 | |||
Goodwill | 139,611 | |||
Total Estimated Purchase Price | $ | 143,394 | ||
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a) | Represents an increase in cash and cash equivalents (i) of $28,435 to reflect net cash from the refinancing which the Company intends to use to pay transaction costs related to the Merger and for general corporate purposes and (ii) due to reclassification of an advance to the Company of $660 related to Verge’s purchase of our 24/7 formats in July 2011. |
b) | Represents a net increase in intangible assets, net of $39,934 based upon the estimated fair value of the Company’s net assets at July 30, 2011. |
c) | Represents a net increase in goodwill of $113,815 based upon the estimated fair value of the Company’s net assets at July 30, 2011. |
d) | Represents a net increase in other assets of $3,768 consisting of $5,825 of capitalized commitment fees on the first and second lien term loans to be incurred upon closing of the Merger and the undrawn revolver, net of the reversal of $2,057 of capitalized financing costs in respect of Verge’s outstanding debt that is being refinanced with the proceeds of the first and second lien term loans. |
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e) | Represents a net increase in long-term debt of $52,837, a reduction in the current portion of long-term debt of $13,923, and a reduction of debt due to Gores of $10,479, in each case related to the refinancing of the outstanding debt of Verge and the Company with the proceeds of first and second lien term loans that are subject to commitment letters described under “Other Agreements— Debt Commitments Letters” and through the exchange of existing debt of Verge and the Company held by certain of their affiliates for subordinated PIK Notes and/or Series B Preferred Stock of the Company, as described under “Interests of Certain Persons in matters to be Acted Upon—Letter Agreement.” Upon the closing of the Merger, the outstanding debt of the combined company (net of original issue discount) will be approximately $266,075 consisting of a $175,000 first lien term loan, a $65,000 second lien term loan and $30,000 of PIK Notes. |
f) | Represents a net increase in accrued expenses and other liabilities of $18,646 consisting of (i) an increase of $13,500 for an accrual for costs related to the Merger, (ii) an increase of $5,825 of capitalized commitment fees as described in Note 3(d) above, (iii) an increase of $2,422 for an accrual of the special cash dividend to the Company’s existing stockholders and (iv) a decrease of $3,101 to deferred revenue. The decrease in deferred revenue primarily relates to a fair value adjustment due to our anticipation of settling contractual commitments for less than historical book value. |
g) | Represents an increase in deferred tax liabilities of $16,784 related to the net step-up in fair value of the Company’s intangible assets and deferred revenue based on the estimated fair values of the Company’s net assets at July 30, 2011, and applying an assumed tax rate of 39%. |
h) | Represents an increase in other liabilities due to a reclassification of liabilities related to the disposition of our Metro Traffic Business. This reclassification is necessary because Verge, as the accounting acquirer, would not reflect these liabilities as discontinued operations in its historical financial statements. |
i) | Represents the Company’s estimate of the fair value of the 15,060 shares of Series A Preferred Stock that would have been issued to Verge’s stockholders had the Merger been consummated on June 30, 2011, based on a liquidation preference of $1,000 per share. The Company estimated the fair value of the preferred stock to be equal to liquidation value of $15,100 as such consideration was negotiated between the Company and Verge in compensation of net operating losses of Verge that will not expire upon the Merger in the amount of 8,000 shares of Series A preferred stock and an adjustment of 7,100 shares of Series A preferred stock estimated as of June 30, 2011. The adjustment for the 7,100 shares reflects an adjustment to the 8,000 shares of Series A Preferred Stock provided in the Merger Agreement based upon the respective amounts of net indebtedness of the Company and Verge as of June 30, 2011 as compared to target net indebtedness amounts in the Merger Agreement of $47,901 and $199,933 for the Company and Verge, respectively. Such number of shares is subject to further adjustment at the closing of the Merger based upon the respective amounts of net indebtedness of the Company and Verge on the business day immediately prior to closing as compared to such targets. If such adjustment results in a negative value, the Company shall not deliver the shares of Series A Preferred Stock and the exchange ratio shall be adjusted such that Verge stockholders shall receive a reduced number of shares of Class B Common Stock in the Merger based upon the amount of such additional net indebtedness, divided by the greater of (i) the average trading price of the Company’s common stock for the 60 consecutive trading days immediately preceding the closing of the Merger, and (ii) $5.50. |
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j) | Represents the reclassification of the Company’s existing common stock on a share-for-share basis into Class A Common Stock, par value of $0.01 per share, the issuance of 34.4 million shares of Class B Common Stock, par value of $0.01 per share, to Verge’s stockholders, and the cancellation of Verge’s outstanding common stock upon closing of the Merger. |
k) | Represents a net increase in additional paid-in capital of $18,105 consisting of (i) an elimination of our historical additional paid in capital of $100,242 consistent with the acquisition method of accounting to reflect Verge as the accounting acquirer, (ii) an increase of $127,764 to reflect the issuance of the Class B Common Stock to Verge’s stockholders upon closing of the Merger, which is calculated by multiplying the number of shares of Class B Common Stock to be issued to Verge’s stockholders (i.e., 34.4 million) by $5.68, the closing price of the Company’s common stock on July 29, 2011, the last trading day before announcement of the Merger, and subtracting therefrom the par value of Class A Common Stock and Class B Common Stock of $570, (iii) a decrease of $2,422 related to the payment of a special cash dividend to the Company’s existing stockholders as described in Note 3(m) below, and (iv) a decrease of $6,995 related to the portion of the $13,500 accrual for deal costs related to Verge. |
l) | Represents the elimination of the Company’s historical accumulated deficit consistent with the acquisition method of accounting to reflect Verge as the accounting acquirer. |
m) | Represents the special cash dividend to the Company’s existing stockholders required to be declared per the Merger Agreement equal to the excess, if any, of (a) $47,901, over (b) the aggregate net indebtedness of the Company on the business day preceding the close of the Merger. As of June 30, 2011, the Company’s net indebtedness totaled $45,479; accordingly, a dividend of $2,422 would be declared payable. Such dividend has not been included in the pro forma statement of operations as it is non-recurring and attributable to the transaction. |
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a) | Historically, our transactions with Verge have consisted primarily of royalties paid to us by Verge for the use of our 24/7 formats. We have recorded an adjustment in the pro forma statement of operations to reflect the elimination of the following items as intercompany transactions: |
Six Months Ended | ||||
June 30, 2011 | ||||
Revenue | $ | 1,320 | ||
Operating costs | $ | 1,320 |
Year Ended | ||||
December 31, 2010 | ||||
Revenue | $ | 2,530 | ||
Operating costs | $ | 2,530 |
b) | Represents the elimination of management fees that Excelsior paid to Triton Media of $425 and $850 for the six months ended June 30, 2011 and the year ended December 31, 2010, respectively, which were recorded in the historical financial statements of Verge and per the Merger Agreement will no longer be payable to Triton Media upon closing of the Merger. |
c) | Represents an increase in depreciation and amortization of $2,864 and $6,785 for the six months ended June 30, 2011 and the year ended December 31, 2010, respectively, related to an increase in intangible assets based upon the estimated fair values of the Company’s net assets at July 30, 2011. |
d) | Represents a net decrease in interest expense of $364 and $991 for the six months ended June 30, 2011 and the year ended December 31, 2010, respectively, giving effect to the elimination of historical interest on outstanding debt of Verge and the Company and the increase in interest expense as a result of incurrence of the first and second lien term loans upon the closing of the Merger. Pursuant to the commitment letters described under “Other Agreements—Debt Commitments Letters” and the anticipated interest rates therein, the interest rates used were 6.75% and 10.50% for the first and second lien term loans, respectively. |
e) | Represents a net increase in income tax expense from continuing operations of $4,330 and $7,172 for the six months ended June 30, 2011 and the year ended December 31, 2010, respectively, consisting of (i) the income tax effect on the pro forma adjustments and (ii) an increase in income tax benefits as a result of additional loss from continuing operations attributable to Verge using an assumed tax rate of 39%, which is subject to change. Valuation allowances were not considered. |
f) | Represents dividends on Series A Preferred Stock of $910 and $1,869 for the six months ended June 30, 2011 and the year ended December 31, 2010, respectively, assuming we issue 15,060 shares of Series A Preferred Stock in the Merger having an aggregate liquidation preference of $15,060 and no shares of Series B Preferred Stock. |
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a) | We have not reflected any additional interest expense for potential borrowings of up to $25,000 available under the revolving credit facility as it is anticipated that it will be undrawn at the closing of the Merger. For each $1,000 increase in borrowings, we would incur an additional $68 of interest expense assuming an interest rate of 6.75%. |
b) | We have not reflected any additional purchase consideration for outstanding options of the Company in the pro forma information as Verge is not obligated to issue replacement awards to the Company’s option holders, Verge does not anticipate issuing replacement options and the Company’s options are not expected to otherwise expire. For presentation in this pro forma information, the Company has not included any additional purchase consideration; however, the Company continues to evaluate alternative accounting options pursuant to GAAP for the determination of the final purchase price upon the close of the Merger. Any additional purchase price would likely result in additional goodwill which would not impact the pro forma statement of operations. |
c) | We have not reflected any adjustment to the pro forma balance sheet as of June 30, 2011 for any additional compensation that may result from existing agreements with executive officers, including termination payments, of the Company or Verge as the conditions for such additional compensation have not been met. |
d) | We continue to evaluate the impact, if any, that the Digital Reseller Agreement will have on the purchase accounting for the Merger and have not made any adjustment for the Digital Reseller Agreement. In such agreement, among other things, Dial Global agreed to provide, at its sole expense and on an exclusive basis (subject to certain exceptions), services to Triton customarily rendered by terrestrial network radio sales representatives in the United States in exchange for a commission. |
e) | We continue to evaluate the impact, if any, that the Indemnity and Contribution Agreement will have on the purchase accounting for the Merger and have not made any adjustment for the Indemnity and Contribution Agreement as no indemnity payments thereunder are probable based on current circumstances. In such agreement, Triton agreed, among other things, to indemnify the Company under certain circumstances in the event that the Company suffers any losses to the extent arising from or directly related to the Triton Digital Business. In addition, Gores agreed, among other things, to indemnify Triton under certain circumstances in the event that the Company makes any payment pursuant to the Metro Agreement or otherwise suffers any losses to the extent arising from or directly related to the Metro Traffic Business. |
f) | We continue to evaluate the impact, if any, that Verge’s purchase from the Company of the 24/7 music formats that Verge had licensed from the Company since 2006 will have on the purchase accounting for the Merger and have not made any adjustment for this transaction. |
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High | Low | |||||||
2011 | ||||||||
First Quarter | $ | 9.85 | $ | 6.25 | ||||
Second Quarter | 6.99 | 4.59 | ||||||
2010 | ||||||||
First Quarter | $ | 14.82 | $ | 3.63 | ||||
Second Quarter | 17.99 | 7.06 | ||||||
Third Quarter | 9.92 | 5.81 | ||||||
Fourth Quarter | 11.60 | 7.90 | ||||||
2009(1) | ||||||||
First Quarter | $ | 0.12 | $ | 0.02 | ||||
Second Quarter | 0.12 | 0.05 | ||||||
Third Quarter (through August 4, 2009) | 0.06 | 0.04 | ||||||
Third Quarter (from August 5, 2009 through September 30, 2009)(2) | 11.00 | 3.25 | ||||||
Fourth Quarter | 6.50 | 3.21 |
(1) | Through March 16, 2009, our common stock traded on the New York Stock Exchange under the symbol “WWON.” On November 20, 2009, we listed our common stock on the NASDAQ Global Market under the symbol “WWON.” In the intervening period, our common stock was traded on the Over the Counter Bulletin Board under the ticker “WWOZ.” | |
(2) | Reflects the 200 for 1 reverse stock split that occurred on August 3, 2009 and was reflected in stock prices on August 5, 2009. |
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RESULTS OF OPERATIONS
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• | for the six months ended June 30, 2011, the digital service business accounted for approximately 34.8% of operating expenses, 32.4% of depreciation and amortization expense, 0.0% of interest expense, 32.9% of the income tax benefit and 12.8% of the net loss in Verge; |
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• | for the year ended December 31, 2010, the digital service business accounted for approximately 33.5% of operating expenses, 29.8% of depreciation and amortization expense, 0.0% of interest expense, 32.9% of the income tax expense and 17.4% of the net loss in Verge; |
• | for the year ended December 31, 2009, it accounted for approximately 30.7% of operating expenses, 22.5% of depreciation and amortization expense, 0.2% of interest expense, 31.4% of the income tax expense and 86.2% of the net loss in Verge; |
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As of June 30, 2011
(in thousands)
Verge as | ||||||||||||||||
Verge | Digital Spin-off | Reclassifications | Adjusted | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 8,766 | $ | (5,715 | ) | $ | — | $ | 3,051 | |||||||
Accounts receivable | 53,548 | (8,141 | ) | — | 45,407 | |||||||||||
Prepaid and other assets | 4,764 | (1,551 | ) | — | 3,213 | |||||||||||
Total current assets | 67,078 | (15,407 | ) | — | 51,671 | |||||||||||
Property and equipment, net | 8,171 | (2,095 | ) | — | 6,076 | |||||||||||
Investment | 561 | 0 | (561 | ) | — | |||||||||||
Intangible assets, net | 111,293 | (28,670 | ) | — | 82,623 | |||||||||||
Goodwill | 150,990 | (91,738 | ) | — | 59,252 | |||||||||||
Restricted investment | 538 | — | (538 | ) | — | |||||||||||
Other assets | 4,317 | (3,131 | ) | 3,156 | 4,342 | |||||||||||
Deferred financing costs | 2,057 | — | (2,057 | ) | — | |||||||||||
TOTAL ASSETS | $ | 345,005 | $ | (141,041 | ) | $ | — | $ | 203,964 | |||||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 7,463 | $ | (998 | ) | $ | 20,955 | $ | 27,420 | |||||||
Producer payable | 18,525 | 2,430 | (20,955 | ) | — | |||||||||||
Accrued expenses and other liabilities | 7,360 | (3,713 | ) | 339 | 3,986 | |||||||||||
Long-term debt, current portion | 13,961 | (38 | ) | — | 13,923 | |||||||||||
Capital lease obligations, current | 400 | (383 | ) | (17 | ) | — | ||||||||||
Deferred revenue | 531 | (209 | ) | (322 | ) | — | ||||||||||
Total current liabilities | 48,240 | (2,911 | ) | — | 45,329 | |||||||||||
Long-term debt | 178,240 | (2 | ) | — | 178,238 | |||||||||||
Capital lease obligations, long-term | 26 | (26 | ) | — | — | |||||||||||
Deferred tax liabilities | 11,429 | (4,141 | ) | — | 7,288 | |||||||||||
Other liabilities | 1,127 | (7 | ) | — | 1,120 | |||||||||||
TOTAL LIABILITIES | 239,062 | (7,087 | ) | — | 231,975 | |||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||||||
Common stock | 5 | — | — | 5 | ||||||||||||
Additional paid-in capital | 163,285 | (163,285 | ) | — | — | |||||||||||
Accumulated deficit | (57,347 | ) | 29,331 | — | (28,016 | ) | ||||||||||
TOTAL STOCKHOLDERS’ EQUITY | 105,943 | (133,954 | ) | — | (28,011 | ) | ||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 345,005 | $ | (141,041 | ) | $ | — | $ | 203,964 | |||||||
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Six Months Ended June 30, 2011
(in thousands)
Verge as | ||||||||||||||||
Verge | Digital Spin-off | Reclassifications | Adjusted | |||||||||||||
Revenue | $ | 57,957 | $ | (18,761 | ) | $ | — | $ | 39,196 | |||||||
Cost of revenues | 23,544 | (6,822 | ) | (16,722 | ) | — | ||||||||||
Operating expenses | 24,402 | (9,874 | ) | 16,722 | 31,250 | |||||||||||
Depreciation and amortization | 9,925 | (3,213 | ) | — | 6,712 | |||||||||||
Income from continuing operations | 86 | 1,148 | — | 1,234 | ||||||||||||
Interest expense | 10,771 | (1 | ) | — | 10,770 | |||||||||||
Gain from remeasurement of investment | — | — | — | — | ||||||||||||
Loss on equity investment | — | — | — | — | ||||||||||||
Other expense | — | — | — | — | ||||||||||||
Loss from continuing operations before income tax | (10,685 | ) | 1,149 | — | (9,536 | ) | ||||||||||
Income tax (benefit) expense | 1,076 | (354 | ) | — | 722 | |||||||||||
Loss from continuing operations | $ | (11,761 | ) | $ | 1,503 | $ | — | $ | (10,258 | ) | ||||||
Year Ended December 31, 2010
(in thousands)
Verge as | ||||||||||||||||
Verge | Digital Spin-off | Reclassifications | Adjusted | |||||||||||||
Revenue | $ | 122,746 | $ | (32,795 | ) | $ | — | $ | 89,951 | |||||||
Cost of revenues | 48,114 | (12,396 | ) | (35,718 | ) | — | ||||||||||
Operating expenses | 49,202 | (20,216 | ) | 35,718 | 64,704 | |||||||||||
Depreciation and amortization | 18,639 | (5,559 | ) | — | 13,080 | |||||||||||
Income (loss) from continuing operations | 6,791 | 5,376 | — | 12,167 | ||||||||||||
Interest expense | 19,533 | 10 | — | 19,543 | ||||||||||||
Gain from remeasurement of investment | 5,573 | (5,573 | ) | — | — | |||||||||||
Loss on equity investment | (778 | ) | 778 | — | — | |||||||||||
Other (income) expense | (1,257 | ) | 696 | — | (561 | ) | ||||||||||
Loss from continuing operations before income tax | (9,204 | ) | 1,267 | — | (7,937 | ) | ||||||||||
Income tax (benefit) expense | 2,156 | (710 | ) | — | 1,446 | |||||||||||
Loss from continuing operations | $ | (11,360 | ) | $ | 1,977 | $ | — | $ | (9,383 | ) | ||||||
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Year Ended December 31, 2009
(in thousands)
Verge as | ||||||||||||||||
Verge | Digital Spinoff | Reclassifications | Adjusted | |||||||||||||
Revenue | $ | 95,142 | $ | (12,709 | ) | $ | — | $ | 82,433 | |||||||
Cost of revenues | 40,838 | (8,856 | ) | (31,982 | ) | — | ||||||||||
Operating expenses | 50,175 | (19,099 | ) | 31,982 | 63,058 | |||||||||||
Depreciation and amortization | 15,621 | (3,516 | ) | — | 12,105 | |||||||||||
Income (loss) from continuing operations | (11,492 | ) | 18,762 | — | 7,270 | |||||||||||
Interest expense | 16,376 | (33 | ) | — | 16,343 | |||||||||||
Gain from remeasurement of investment | 1,675 | (1,675 | ) | — | — | |||||||||||
Loss on equity investment | 1,148 | (1,148 | ) | — | — | |||||||||||
Other (income) expense | 464 | — | — | 464 | ||||||||||||
Loss from continuing operations before income tax | (27,805 | ) | 18,268 | — | (9,537 | ) | ||||||||||
Income tax (benefit) expense | 10,389 | (3,262 | ) | — | 7,127 | |||||||||||
Loss from continuing operations | $ | (17,416 | ) | $ | 15,006 | $ | — | $ | (2,410 | ) | ||||||
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Cash Flow | ||||||||||||||||
Six Months | Six Months | Twelve Months | Twelve Months | |||||||||||||
Ended June 30, | Ended June 30, | Ended December 31, | Ended December 31, | |||||||||||||
2011 | 2010 | 2010 | 2009 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net cash provided by (used in) operating activities | $ | 4,376 | $ | 4,659 | $ | 18,160 | $ | (5,810 | ) | |||||||
Net cash used in investing activities | 3,815 | 33,289 | 36,070 | 22,988 | ||||||||||||
Net cash provided by (used in) financing activities | (5,743 | ) | 35,454 | 27,949 | 24,847 | |||||||||||
Net increase (decrease) in cash and cash equivalents | (5,182 | ) | 6,824 | 10,039 | (3,951 | ) | ||||||||||
Cash and cash equivalents, beginning of period | 13,948 | 3,909 | 3,909 | 7,860 | ||||||||||||
Cash and cash equivalents, end of period | $ | 8,766 | $ | 10,733 | $ | 13,948 | $ | 3,909 | ||||||||
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Payments Due by Period | ||||||||||||||||||||
Less Than 1 | More Than | |||||||||||||||||||
Year | 1-3 Years | 3-5 Years | 5 Years | Total | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Long-term debt obligations | ||||||||||||||||||||
PIK notes | $ | — | $ | 102,997 | — | — | $ | 102,997 | ||||||||||||
Excelsior term loan | 13,923 | 75,240 | — | — | 89,163 | |||||||||||||||
Total long-term debt obligations | $ | 13,923 | 178,237 | — | — | 192,160 | ||||||||||||||
Capital lease obligations | 400 | 26 | — | — | 426 | |||||||||||||||
Other long-term liabilities(1) | 1,163 | 3 | — | — | 1,166 | |||||||||||||||
Total | $ | 15,486 | $ | 178,266 | — | — | $ | 193,752 | ||||||||||||
(1) | Primarily includes remaining payments on Voodoovox, Inc. acquisition of $516 and the RBC term loan of $352. |
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Advertiser and producer relationships | 15 years | |
Trade names | 3-7 years | |
Customer relationships | 1-9 years | |
Technology | 2-8 years | |
IPR&D | 8-9 years | |
Beneficial lease interest | 7 years | |
Non-compete agreements | 4 years |
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• | improved financial strength and flexibility, with pro forma stockholders’ equity of approximately $88.8 million and a pro forma ratio of long-term debt to total capitalization of approximately 0.5, each as of June 30, 2011; |
• | a broader product/service offering, including a more diverse sports lineup and news offerings, and additional 24/7 formats, long- and short-form music programs, syndicated talk programs, prep services, imaging, music libraries, interactive tools and content; |
• | greater affiliate coverage, more contractual relationships, additional production capability, and a larger distribution infrastructure; |
• | improved position in RADAR rankings; |
• | increased focus, economies of scale and a premier programming line-up which are expected to improve cost structure and enhance product capabilities; |
• | substantial synergy potential achievable in the near term in RADAR, IT broadcast operations, distribution, programming and station compensation through elimination of redundant coverage (in markets and programs) and by taking advantage of shared infrastructure and eliminating duplicative costs; |
• | a strong and seasoned management team that will be able to help the combined company realize potential synergies; |
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• | the fact that the fixed exchange ratio of 6.884183 Company common shares for each Verge common share and the issuance of Series A Preferred Stock having an aggregate liquidation preference of $8,000,000 to Verge stockholders, subject to adjustment upon the closing of the Merger based on the respective net debt amounts of the Company and Verge on the business day prior to the closing, and the other terms and conditions of the Merger Agreement, including the termination provisions, resulted from extensive arm’s-length negotiations between the Company and its advisors, on the one hand, and Verge and its advisors, on the other hand; |
• | the fact that the Audit Committee and the Board received an opinion from Berenson to the effect that, as of the date of its opinion and subject to the various limitations, qualifications and assumptions set forth therein, the exchange ratio is fair, from a financial point of view, to the Company’s stockholders (other than the Excluded Gores Entities), as further described under “The Merger—Opinion of Financial Advisor to the Company;” |
• | the fact that because the Company’s stockholders will own common shares of the combined company, they will have a meaningful opportunity to participate in any appreciation in the combined company’s stock price; |
• | the fact that Verge has received executed debt financing commitment letters from major financial institutions with significant experience in similar lending transactions and a strong reputation for honoring the terms of their commitment letters, which, in the reasonable judgment of the Board, increases the likelihood of such financing being completed; and that the limited number and nature of conditions to funding set forth in such debt commitment letters further mitigates the risk that the financing condition will not be satisfied; |
• | the Board’s belief that the other conditions to closing as described in “The Merger Agreement—Conditions to the Merger” are capable of being satisfied; |
• | the fact that Gores, the Company’s majority stockholder, has delivered its written consent approving the Merger, the Recapitalization, the Parent Stock Issuance and related transactions and that no further vote of our stockholders is required; |
• | the fact that, to facilitate the transactions, Gores, Oaktree and Black Canyon, who currently hold senior debt of the Company and Verge, have agreed to exchange $30 million in aggregate of such debt for an equivalent principal amount of subordinated PIK Notes of the combined company, as further described under “Interest Of Certain Persons In Matters To Be Acted Upon—Letter Agreement;” |
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• | the fact that the Merger Agreement may be terminated by the Company if the total number of dissenting Verge common shares for which appraisal rights have been properly exercised in accordance with Delaware law exceeds 3% of the issued and outstanding Verge common shares; |
• | the fact that the Merger Agreement provides for a special cash dividend to the Company’s pre-Merger stockholders in an amount equal to the excess of the Company’s target amount of net debt specified in the Merger Agreement over the Company’s actual amount of net debt on the business day preceding the closing of the Merger; |
• | the fact that there will be ongoing representation on the combined company’s board of directors by individuals to be elected to the board by the Company’s existing stockholders; |
• | the fact that, for the first three years following the closing, the Company’s existing stockholders, as holders of Class A Common Stock, will have a class vote to approve a sale of the company unless the price per share in the transaction exceeds $7.78 less any cash dividends received by holders of Class A Common Stock during such three year period; and |
• | the fact that the Company is being indemnified by Triton under certain circumstances for losses it might incur defending against potential third party claims related to the Triton Digital Business that Verge recently spun-off to Triton. |
• | the current and historical financial condition, results of operations, competitive position, business, prospects, liquidity, and strategic objectives of the Company, including potential risks involved in achieving such prospects and objectives, and the current and expected conditions in the general economy and the Company’s industry; |
• | the fact that, in the future, opportunities for a business combination could become available that might permit the Company to increase its competitive positioning and enhance stockholder value on more favorable terms than at present; |
• | the costs involved in connection with entering into and completing the Merger, the Recapitalization and related transactions and the time and effort of management required to complete such transactions and related disruptions to the operation of the Company’s business; |
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• | the risk that the proposed transactions might not be completed and the risks and costs to the Company if the Merger is not completed, including the potential effect of the resulting public announcement of the termination of the Merger Agreement on, among other things, the market price for the Company’s common shares, its operating results, its ability to attract and retain key personnel, its relationships with its affiliates, customers, partners and others that do business with the Company and its ability to complete an alternative transaction. The Merger might not be completed or unduly delayed due to, among other factors: |
• | difficulties in obtaining the requisite financing, which is a condition to the consummation of the Merger, including as a result of failure to satisfy the conditions in the debt commitment letters; |
• | difficulties in obtaining requisite regulatory approvals, including with respect to required antitrust approvals, or regulatory authorities’ withholding consent or seeking to enjoin the Merger; |
• | the occurrence of a material adverse effect on either company’s business; |
• | the fact that the non-solicitation provisions in the Merger Agreement restrict the Company from soliciting third party acquisition proposals and, subject to certain exceptions, responding to unsolicited third party acquisition proposals; |
• | the fact that the Company may not terminate the Merger Agreement and enter into a Superior Proposal if a Superior Proposal is presented to the Company after August 26, 2011; |
• | the fact that the Company may be required to pay Verge a termination fee of $5.625 million if the Board modifies or withdraws its recommendation or, in certain instances, the Company enters into or consummates a transaction with a third party, as described in “The Merger Agreement—Termination of the Merger Agreement” adversely affecting the Company’s ability to complete an alternative transaction; |
• | the possibility that the Company’s minority stockholders or Verge’s stockholders may not react favorably to the Merger, and the execution risk and costs that would be required to complete the Merger as a result of any legal actions brought by the Company’s minority stockholders or appraisal actions brought by Verge’s stockholders; |
• | the fact that certain directors and officers of, and entities affiliated with, the Company have interests in the Merger that are different from, or in addition to, those of the Company’s stockholder’s generally, as described in “Interest of Certain Persons in Matters to be Acted Upon;” |
• | the possibility that the benefits of the transaction to the Company may be significantly less than anticipated given the challenges of combining the businesses, including the risk of diverting management resources for an extended period of time to accomplish this combination, and that the value the Company has ascribed to Verge’s business, which is tied to the continued effectiveness of a number of Verge’s contractual arrangements, will be decreased if the benefits from these arrangements are less than expected; and |
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• | the fact that operational restrictions imposed on the Company under the Merger Agreement between signing and closing, requiring the Company to conduct its business in the ordinary course, subject to additional specific limitations, which may delay or prevent the Company from undertaking business opportunities that may arise pending completion of the Merger. |
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Fiscal Year Ending December 31, | ||||||||||||||||||||||||
2011E | 2012E | 2013E | 2014E | 2015E | 2016E | |||||||||||||||||||
Revenue | $ | 197.3 | $ | 207.2 | $ | 213.9 | $ | 220.8 | $ | 228.0 | $ | 235.4 | ||||||||||||
Adjusted EBITDA (1) | 8.7 | 8.2 | 8.5 | 9.2 | 10.1 | 11.6 | ||||||||||||||||||
Unlevered Free cash flow (2) | 5.4 | 3.0 | 3.7 | 4.9 | 1.7 |
(1) | Adjusted EBITDA is a non-GAAP financial measure. For purposes of the 2011 budget forecasts, the Company defined this measure to mean net loss before depreciation and amortization, interest expense, provision for income taxes, stock-based compensation, acquisition, integration and separation costs and discontinued operations. In addition, the Company excluded certain corporate costs that would be eliminated as part of the disposition of its Metro Traffic Business, non-cash broadcasting rights and timing differences between barter revenue and barter expenses, certain station compensation and revenue sharing arrangements related to contracts that were terminated and royalty payments received from Verge related to the Company’s 24/7 formats and a reduction of station compensation expenses due to current rating changes from Adjusted EBITDA as presented above. | |
(2) | Unlevered free cash flow is a non-GAAP financial measure. For purposes of the 2011 budget forecasts, the Company defined this measure to mean Adjusted EBITDA minus capital expenditures, payments on leases, non-recurring expenditures, payments to related parties and changes in working capital. |
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Fiscal Year Ending December 31, | ||||||||||||||||||||||||
2011E | 2012E | 2013E | 2014E | 2015E | 2016E | |||||||||||||||||||
Revenue | $ | 92.9 | $ | 98.7 | $ | 101.7 | $ | 104.7 | $ | 107.9 | $ | 111.1 | ||||||||||||
EBITDA | 29.2 | 32.3 | 33.0 | 33.6 | 34.3 | 34.9 | ||||||||||||||||||
Free cash flow | 29.0 | 27.0 | 22.3 | 22.8 | 23.3 |
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• | reviewed certain publicly available business and financial information relating to the Company and Verge that Berenson deemed relevant; |
• | reviewed certain internal information relating to the business, including financial forecasts, earnings, cash flow, assets, liabilities and prospects, of the Company, furnished to Berenson by the Company; |
• | reviewed certain internal information relating to the business, including financial forecasts, earnings, cash flow, assets, liabilities and prospects, of Verge, furnished to Berenson by Verge; |
• | conducted discussions with members of senior management, representatives and advisors of the Company and Verge concerning the matters described above; |
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• | compared the proposed financial terms of the Merger with publicly available financial and stock market data, including valuation multiples and cost of capital, of certain other companies in lines of business that Berenson deemed relevant; |
• | compared the proposed financial terms of the Merger with the financial terms of certain other transactions that Berenson deemed relevant; |
• | reviewed a draft of the Merger Agreement, dated July 30, 2011; |
• | participated in certain discussions among representatives of the Company and Verge and their respective financial and legal advisors; and |
• | conducted such other financial studies and analyses and took into account such other information as Berenson deemed appropriate. |
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• | Beasley Broadcast Group Inc.; |
• | CBS Corp.; |
• | Entercom Communications Corp.; |
• | Global Traffic Network Inc.; |
• | Radio One, Inc.; |
• | Saga Communications, Inc.; |
• | Salem Communications Corp.; and |
• | SIRIUS XM Radio Inc. |
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Total Enterprise Value / EBITDA | ||||||||
LTM | 2011E | |||||||
MEAN | 10.1 | x | 9.1 | x | ||||
MEDIAN | 9.0 | x | 8.2 | x | ||||
HIGH | 17.3 | x | 15.4 | x | ||||
LOW | 6.1 | x | 6.6 | x |
• | Cumulus Media Inc.’s acquisition of Citadel Broadcasting Corporation, which was originally announced on December 17, 2010, with a revised offer announced on February 17, 2011; |
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• | Cumulus Media Inc.’s acquisition of the remaining 75.0% stake in Cumulus Media Partners, which was announced on January 31, 2011; |
• | The acquisition by an investor group led by ZelnickMedia LLC of Alloy Inc., which was announced on June 23, 2010; |
• | Cox Media Group, Inc.’s acquisition of the remaining 21.6% stake in Cox Radio, Inc., which was announced on April 29, 2009; and |
• | Astral Media Inc.’s acquisition of Standard Broadcasting Corporation, which was announced on February 24, 2007. |
TEV / LTM EBITDA | ||||||||
MEAN | 10.6 | x | ||||||
MEDIAN | 10.8 | x | ||||||
HIGH | 14.6 | x | ||||||
LOW | 6.7 | x |
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• | LTM gross revenue and gross revenue for projected fiscal years 2011 through 2014 as provided by Company management and Verge management, respectively, for the applicable company on a stand-alone basis; and |
• | LTM EBITDA and EBITDA for projected fiscal years 2011 through 2014 as provided by Company management and Verge management, respectively, for the applicable company on a stand-alone basis. |
Contribution (%) | ||||||||
Metric | The Company | Verge | ||||||
Gross Revenue | ||||||||
LTM | 47.9 | % | 52.1 | % | ||||
2011E Revenue | 48.2 | % | 51.8 | % | ||||
2012E Revenue | 48.1 | % | 51.9 | % | ||||
2013E Revenue | 48.1 | % | 51.9 | % | ||||
2014E Revenue | 48.1 | % | 51.9 | % | ||||
EBITDA | ||||||||
LTM | 21.6 | % | 78.4 | % | ||||
2011E EBITDA | 22.9 | % | 77.1 | % | ||||
2012E EBITDA | 20.2 | % | 79.8 | % | ||||
2013E EBITDA | 20.5 | % | 79.5 | % | ||||
2014E EBITDA | 21.5 | % | 78.5 | % |
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• | organization and qualification; |
• | capitalization; |
• | authorization; binding agreement; |
• | no conflict; |
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• | information statement; |
• | absence of undisclosed liabilities; |
• | the required consents and approvals of governmental entities and under material contracts in connection with the transactions contemplated by the merger; |
• | the sufficiency of the delivery of a written consent as stockholder approval of the adoption of the Merger Agreement; |
• | the Company’s filings with the SEC since January 1, 2009; |
• | the Company and Verge’s subsidiaries’ consolidated financial statements and internal accounting controls; |
• | litigation matters; |
• | compliance with laws; |
• | environmental matters; |
• | intellectual property matters; |
• | real property matters; |
• | employee benefits matters; |
• | tax matters; |
• | labor relations matters; |
• | transactions with affiliates; |
• | letters of credit, surety bonds and guaranties; |
• | absence of certain changes or events; |
• | material contracts; |
• | advertisers, broadcast affiliates, programming partners and format customers; |
• | insurance matters; |
• | sufficiency of assets; |
• | excluded assets; |
• | bank accounts; |
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• | opinions of financial advisors; |
• | books and records; and |
• | liabilities relating to pre-closing restructuring transactions. |
• | Each party agrees to make any required filing pursuant to the HSR Act and the Communications Act of 1934 with respect to transactions contemplated by the Merger Agreement as promptly as practicable and to use reasonable best efforts to take all other actions consistent with the Merger Agreement necessary and reasonably agreed upon by the parties to cause the expiration or termination of the applicable waiting periods under the HSR Act. Early termination of the waiting period applicable to the Merger under the HSR Act was granted on August 24, 2011. |
• | Neither the Company, Verge, nor any of their respective affiliates or principal stockholders or any portfolio company of any principal stockholder, will be required (i) to divest or hold separate any assets or agree to limit its future activities, method or place of doing business, (ii) to commence any litigation against any person in order to facilitate the consummation of the transactions contemplated by the Merger Agreement, or (iii) to defend against any litigation brought by any governmental entity seeking to prevent the consummation of, or impose limitations on, any of the transactions contemplated by the Merger Agreement. |
• | Each of the Company and Verge’s benefit plans (with the exception of the Company’s 401(k) plan) will continue their separate existence after the Merger and the parties will decide at year-end upon the appropriate surviving benefit plans. |
• | As of the closing of the Merger, the Company or one of its subsidiaries agrees to continue to employ (including through a professional employer organization) each person employed by the Company and Verge or any of their respective subsidiaries as of the closing. |
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• | From and after the effective time of the Merger, the Company shall, to the fullest extent permitted by applicable law (and, in the case of former directors and officers, to the extent permitted by the Company’s or Verge’s organizational documents, as applicable, in effect as of immediately prior to the closing), indemnify, defend and hold harmless, and provide advancement of expenses to, each past, present or future director or officer of the Company, Verge, or their respective subsidiaries, which we refer to as the “Indemnified Parties,” against all losses, claims, damages, costs, expenses, liabilities, penalties or judgments or amounts that are paid in settlement of or in connection with any claim, action, suit, proceeding or investigation based in whole or in part on or arising in whole or in part out of the fact that such person is or was a director or officer of the Company, Verge or any of their respective subsidiaries, and pertaining to any matter existing or occurring, or any acts or omissions occurring, at or prior to the effective time of the Merger, whether asserted or claimed prior to, at or following, the effective time of the Merger, including matters, acts or omissions occurring in connection with the approval of the Merger Agreement and the consummation of the Merger, the Recapitalization, the Parent Stock Issuance and related transactions. |
• | From and after the closing, the Company shall not amend, repeal or otherwise modify the indemnification provisions of the certificate of incorporation or formation, by-laws, operating agreements or other similar governing documents of Verge, as in effect at the closing, in any manner that would adversely affect the rights thereunder of individuals who at the closing or as of immediately prior to the closing were directors, officers, managers, employees or holders of equity interests of such person. |
• | The Company shall (i) maintain in effect, for six years after the closing, directors’ and officers’ liability insurance and fiduciary liability insurance having terms and conditions at least as favorable to the Indemnified Parties as the Company’s or Verge’s current directors’ and officers’ liability insurance and fiduciary liability insurance, as applicable, or (ii) purchase a six year extended reporting period endorsement with respect to the Company’s or Verge’s current directors’ and officers’ liability insurance and fiduciary liability insurance, as applicable. The Company shall not be required to expend for any such policies an annual premium amount in excess of 300% of the annual premiums currently paid by the Company or Verge, as applicable, for such insurance; provided that if the annual premiums of such insurance coverage exceed such amount, the Company shall obtain a policy with the greatest coverage available for a cost not exceeding such amount. |
• | On the business day immediately preceding the closing of the Merger, the Company shall declare a dividend (payable to record holders of Company’s outstanding common stock as of such date) equal to the excess, if any, of (a) $47,901,155, over (b) the aggregate net indebtedness of the Company and its subsidiaries as of the close of business on the business day immediately prior to the closing, as calculated in accordance with the Merger Agreement, which we refer to as the “Cash Distribution.” If the Company does not have sufficient cash or cash equivalents in excess of $3,000,000 legally available to pay such dividend, the Company may incur an amount of indebtedness under its existing revolving credit facility equal to any shortfall and distribute those borrowings in full or partial payment of such dividend. |
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• | There shall be no order, statute, rule, regulation, executive order, stay, decree, judgment or injunction that shall have been enacted, entered, promulgated or enforced by any court or governmental authority which restrains, prohibits or prevents the consummation of the transactions contemplated by the Merger Agreement; |
• | Any waiting period applicable to the Merger under the HSR Act shall have expired or early termination thereof shall have been granted (which early termination was granted on August 24, 2011); |
• | The Company shall have sent or given this Information Statement to the holders of Company Stock at least 20 business days before the closing of the Merger in accordance with Rule 14c-2 under the Exchange Act; |
• | The Company shall have obtained the requisite financing necessary for the contemplated transactions; |
• | The Recapitalization, including the Reclassification, shall have become effective upon the effectiveness of the Restated Charter; |
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• | The Company, Merger Sub and Verge shall have performed in all material respects its obligations under the Merger Agreement required to be performed on or prior to the closing; |
• | Verge shall have received or made, as applicable, and provided the Company evidence of, certain consents and the filings with respect to Verge, and the Company and Merger Sub shall have received or made, as applicable, and provided Verge evidence of, certain consents and the filings with respect to the Company and Merger Sub, and in each case such consents and filings shall not have expired or been withdrawn as of the closing; |
• | Subject to certain exceptions, the representations and warranties of each of the Company and Verge shall be true and correct (disregarding all materiality qualifications or limitations) at and as of the closing as if made at the closing, except where the failure of any such representation or warranty to be true has not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect; |
• | There shall not have occurred, since the execution of the Merger Agreement, a material adverse effect with respect to the Company or Verge; |
• | Each of the Company and Verge shall have received the written opinion of its respective counsel to the effect that, on the basis of facts, representations and assumptions set forth in such opinion, the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code; |
• | Holders of Verge stock holding no more than 3% of the outstanding shares of Verge Stock shall have demanded appraisal for their shares pursuant to applicable law; and |
• | The execution and delivery by the parties and certain of their affiliates of various ancillary documents and agreements described below under “Interest of Certain Persons in Matters to be Acted Upon.” |
• | Take any action to enter into any agreement with respect to a Takeover Proposal; or |
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• | Solicit, negotiate, furnish information to, accept, encourage, consider, participate in negotiations or discussions relating to, or otherwise pursue, any Takeover Proposal. |
• | Approve or allow the Company or a subsidiary to enter into a Takeover Proposal; and |
• | Allow the Company to negotiate with Verge in good faith to make such adjustments to the terms and conditions of the Merger Agreement to be able to proceed with its recommendation. |
• | upon the mutual consent of the Company and Verge to so terminate; |
• | if the Merger has been permanently enjoined or declared illegal; |
• | upon the occurrence of a material breach of any representation, warranty, covenant, or agreement, subject to notice and opportunity to cure, if which uncured would cause any closing conditions not be satisfied; or |
• | if the closing has not occurred by or on October 28, 2011 (so long as the terminating party’s failure to perform its obligations under the Merger Agreement is not the primary reason for the closing not having occurred by that date). |
• | the Board or any committee thereof shall withdraw (or modify in a manner adverse to Verge), or publicly propose to withdraw (or modify in a manner adverse to Verge), the Board’s recommendation that the holders of Company’s outstanding common stock adopt the Merger Agreement and approve the Merger, the Recapitalization, the Parent Stock Issuance and related transactions; |
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• | the Board or any committee there shall recommend, adopt or approve, or allow any of certain restricted parties to execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other agreement constituting or related to, or that is intended to or would be reasonably expected to lead to, any Takeover Proposal; |
• | a tender or exchange offer relating to any Company stock shall have been commenced and the Company shall not have sent to its security holders, within 10 business days after the commencement of such tender or exchange offer, a statement disclosing that the Company recommends rejection of such tender or exchange offer; or |
• | the Board or any committee thereof approves or recommends a Takeover Proposal to the holders of Company stock or approves or recommends that the holders of Company stock tender their Company stock in any tender offer or exchange offer. |
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• | entering into any acquisition or disposition that would require the approval of the stockholders of the Company under applicable law or stock exchange rules (other than a Sale of the Company over which the holders of the Class A Common Stock do not have a separate class vote); or |
• | taking any action to liquidate, dissolve or wind up the Company. |
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• | materially changing the scope of the Company’s business operations in the media industry; |
• | filing for bankruptcy, insolvency, receivership or similar proceedings by or against the Company; or |
• | amending the By-Laws of the Company or the organization documents of any of its material subsidiaries in a manner that (x) is contrary to the terms of the Restated Charter, or (y) that materially adversely affects the rights of holders of Class A Common Stock or Class B Common Stock in a disproportionate manner relative to each other or to other stockholders. |
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• | Senior over the New Common Stock, and any other series or class of the Company’s capital stock issued after the Series A Preferred Stock that by its terms ranks junior to the Series A Preferred Stock; |
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• | Junior to any other series or class of the Company’s capital stock issued after the Series A Preferred Stock, including the Series B Preferred Stock, that by its terms ranks senior to the Series A Preferred; and |
• | Pari passu with any other series or class of the Company’s capital stock issued after the Series A Preferred Stock that by its terms ranks pari passu with the Series A Preferred Stock. |
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• | Senior over the New Common Stock, the Series A Preferred Stock, and any other series or class of the Company’s capital stock issued after the Series B Preferred Stock that by its terms ranks junior to the Series B Preferred Stock; |
• | Junior to any other series or class of the Company’s capital stock issued after the Series B Preferred Stock that by its terms ranks senior to the Series B Preferred Stock; and |
• | Pari passu with any other series or class of the Company’s capital stock issued after the Series B Preferred Stock that by its terms ranks pari passu with the Series B Preferred Stock. |
• | Nominations of persons to serve as directors of the board of directors of the combined company must comply with the terms of the Restated Charter and may only be made by a stockholder who has the right to vote for the election of the seat being nominated under the terms of the class of stock held of record by such stockholder. |
• | Any transfer of stock of the Company must be in compliance with the Restated Charter. |
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• | Special meetings of the board of directors of the combined company may be called by any two directors and require 48 hours’ prior notice to the other directors. |
• | Committees of the board of directors of the combined company must consist of at least one Class A Director and one Class B Director (for so long as there are Class B Directors). |
• | The Company will be the indemnitor of first resort with respect to directors affiliated with Gores or Oaktree (i.e., the Company’s obligations to the Gores and Oaktree directors are primary and any obligation of Gores or Oaktree to advance expenses or provide indemnification for the same expenses or liability incurred by such directors are secondary). |
• | The board of directors of the combined company will initially consist of nine directors, who will be elected in accordance with the Restated Charter. |
• | The board of directors of the combined company must have a minimum of three independent directors or a higher number if required by the SEC or the rules and regulations of the NASDAQ Stock Market or any other securities exchange or quotation system on which the Company’s securities are listed or quoted for trading in the future and, in the case of a higher number so being required, the board of directors of the combined company will be expanded to allow for the appointment of any additional independent directors so required, and each such additional seat will be filled with an independent director appointed by a majority of the board of directors of the combined company and elected annually by the holders of New Common Stock, voting as a single class. |
• | Any salaries paid to a director, or any other fees payable to directors for the attendance of meetings, must be approved by the board of directors of the combined company. |
• | Until the Board Trigger Date: |
• | the By-Laws may not be amended in a manner contrary to the Restated Charter; |
• | without the consent of a majority of the Class A Directors, the By-Laws may not be amended in a manner that materially adversely affects the holders of a Class A Common Stock in a disproportionate manner relative to holders of Class B Common Stock, or adversely affects the approval rights of the Class A Directors and holders of Class A Common Stock to approve a Sale of the Company; and |
• | without the consent of a majority of the Class B Directors, the By-Laws may not be amended in a manner that materially adversely affects the holders of a Class B Common Stock in a disproportionate manner relative to holders of Class A Common Stock, or adversely affects the approval rights of the Class B Directors. |
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• | Vacancies on the board of directors of the combined company will be filed in accordance with the Restated Charter. |
• | Directors will hold office until their successors are duly appointed in accordance with the Restated Charter, or until their earlier death, resignation or removal. |
Current Certificate of Incorporation | Restated Charter and Amended By- | |||
Provision | and By-Laws | Laws | ||
Authorized Capital Stock | The authorized capital stock of the Company consists of 5,000,000,000 shares of common stock, $.01 par value per share, 3,000,000 shares of Class B stock, $.01 par value per share, and 10,000,000 shares of preferred stock, $.01 par value per share. | The authorized capital stock of the Company will consist of 5,000,000,000 shares of Class A Common Stock, $.01 par value per share, 35,000,000 shares of Class B Common Stock, $.01 par value per share, and 200,000 shares of preferred stock, $.01 par value per share. | ||
As of July 30, 2011, no shares of Class B stock or preferred stock were outstanding. | The Company shall reserve a sufficient number of shares of Class A Common Stock for the purposes of issuance upon the conversion of all outstanding shares of Class B Common Stock. |
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Current Certificate of Incorporation | Restated Charter and Amended By- | |||
Provision | and By-Laws | Laws | ||
Special Meetings of Stockholders | Under the DGCL, a special meeting of stockholders may be called by the board of directors or by any other person authorized to do so in the certificate of incorporation or bylaws. | |||
A special meeting of stockholders may be called by a majority of the Board, the Chairman of the Board or the president. | A special meeting of stockholders may be called by the Chairman of the Board, a majority of the board of directors of the combined company, the president, any vice president, if there be one, the secretary or any assistant secretary, if there be one. | |||
Stockholder Proposals | Stockholders may propose business to be brought before an annual meeting. Such proposals may only be brought by a stockholder who has given timely notice in proper written form to the Company’s secretary prior to the meeting. | No change. | ||
In connection with an annual meeting, to be timely, notice of such proposal must be received by the Company’s corporate secretary not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding year’s annual meeting of stockholders; provided, however, that if the date of the annual meeting is not within 30 days before or after the anniversary of the preceding year’s annual meeting, notice by the stockholder must be received not later than the close of business on the 10th day following the day on which notice of such meeting was mailed or public disclosure of the date of the annual meeting was made by the Company, whichever first occurs. | ||||
Nominations of Candidates for Election to the Board of Directors | Stockholders may nominate candidates for election to the Board at an annual meeting. Such nominations may only be brought by a stockholder who has given timely notice in proper written form to the Company’s secretary prior to the meeting. In connection with an annual meeting, to be timely, notice of such nomination must be received by the Company’s corporate secretary not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding year’s annual meeting of stockholders; provided, however, that if the date of the annual meeting is not within 30 days before or after the anniversary of the preceding year’s annual meeting, notice by the stockholder must be received not later than the close of business on the 10th day following the day on which notice of such meeting was mailed or public disclosure of the date of the annual meeting was made by the Company, whichever first occurs. | In addition to the previously existing requirements, nominations of candidates for election to the board of directors of the combined company are subject to the provisions of the Restated Charter and may be made only by a stockholder who has the right to vote for the election of the seat being nominated under the terms of the class of stock held of record by such stockholder. |
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Current Certificate of Incorporation | Restated Charter and Amended By- | |||
Provision | and By-Laws | Laws | ||
Stockholder Action by Written Consent | The DGCL allows action by written consent to be made by the holders of the minimum number of votes that would be needed to approve such a matter at an annual or special meeting of stockholders, unless this right to act by written consent is denied in the certificate of incorporation. | |||
Only when an action is approved by a majority of the continuing directors, may stockholders of the Company take such action by written consent of the holders of outstanding shares of voting stock having not less than the minimum voting power that would be necessary to authorize or take such action at a meeting of stockholders at which all shares entitled to vote thereon were present and voted. | Stockholders of the Company may take action by written consent of the holders of outstanding shares of voting stock having not less than the minimum voting power that would be necessary to authorize or take such action at a meeting of stockholders at which all shares entitled to vote thereon were present and voted. There is no longer a requirement that such action also be approved by a majority of the Company’s continuing directors. | |||
Voting Rights | With respect to all matters upon which stockholders are entitled to vote, the holders of common stock and class B stock shall vote together without regard to class. Each holder of common stock shall be entitled to cast one vote for each share of common stock held and each holder of class B stock shall be entitled to cast 50 votes for each share of class B stock held. There are no special class voting rights. | Each holder of Class A Common Stock and Class B Common Stock shall be entitled to one vote per share of common stock held, whether voting separately as a class, together as a single class or otherwise. Until the Board Trigger Date, holders of Class A Common Stock and Class B Common Stock vote separately for directors as described under “Number and Election of Directors.” | ||
In addition, until the third anniversary of the effective date of the Restated Charter, an affirmative vote of two-thirds of the outstanding shares of Class A Common Stock shall be required to approve a sale of the Company, unless the price per share of Class A Common Stock in such transaction exceeds $7.78, minus the per share amount of all cash dividends to holders of record after July 30, 2011 (subject, in each case, to adjustment based on stock splits, stock dividends and transactions having similar effects). |
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Current Certificate of Incorporation | Restated Charter and Amended By- | |||
Provision | and By-Laws | Laws | ||
Cumulative Voting | Except as otherwise required by applicable law, there shall be no cumulative voting on any matter brought to a vote of stockholders of Company. | No change. | ||
Number and Election of Directors | The Board may consist of not less than 3 nor more than 13 directors. There are currently 11 positions authorized and 10 directors serving on the Board. Directors are elected by the holders of a plurality of the votes cast at an annual meeting of stockholders. | The board of directors of the combined company will consist of 9 directors. Prior to the Board Trigger Date: (i) the holders of Class A Common Stock shall be entitled to elect 3 directors, at least one of whom is required to be an independent director; (ii) the Company’s Chief Executive Officer shall be nominated for election to the board of directors of the combined company and elected by the holders of Class A Common Stock and Class B Common Stock voting together as a single class; and (iii) the holders of Class B Common Stock shall be entitled to elect the remaining directors, at least 2 of whom are required to be independent directors. | ||
After the Board Trigger Date, the holders of the Class A Common Stock and Class B Common Stock voting together as a single class will be entitled to elect all members of the board of directors of the combined company. | ||||
Classes of Directors | The directors of the Company are divided into three classes and serve three year terms. | The directors are not divided into classes and serve one year terms. | ||
Removal of Directors | A director may be removed from office only for cause and only with the affirmative vote of the holders of not less than 75% of the voting power of all outstanding shares of stock entitled to vote in connection with the election of such director; provided, however, that where such removal is approved by a majority of the continuing directors, the affirmative vote of a majority of the voting power of all outstanding shares of stock entitled to vote in connection with the election of such director is required for such removal. | Any director elected either by the holders of Class A Common Stock voting separately as a class or by the holders of Class B Common Stock voting separately as a class, may be removed from office at any time, with or without cause, solely by the affirmative vote of a majority of the voting power of the outstanding class of common stock that elected such director. |
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Current Certificate of Incorporation | Restated Charter and Amended By- | |||
Provision | and By-Laws | Laws | ||
Director Vacancies | A vacancy on the Board shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, regardless of their class. | Any vacancy on the board of directors of the combined company of a position for a Class A Director or a Class B Director, shall be filled by majority vote of the remaining Class A Directors or Class B Directors, as the case may be. | ||
Limitation on Liability of Directors | No directors will be personally liable to the Company or any of its stockholders for monetary damages for breach of fiduciary duty as a director of the Company; provided, however, that liability will not be eliminated or limited (i) for any breach of the director’s duty of loyalty to the Company or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from which such directors derived an improper personal benefit. | To the fullest extent permitted by the DGCL, as it now exists or may hereafter be amended, no director of the Company will be liable to the Company or its stockholders for monetary damages arising from a breach of fiduciary duty owed to the Company or its stockholders. | ||
Indemnification of Directors and Officers | Under the DGCL, a Delaware corporation must indemnify its present or former directors and officers against expenses (including attorneys’ fees) actually and reasonably incurred to the extent that the officer or director has been successful on the merits or otherwise in defense of any action, suit or proceeding brought against him or her by reason of the fact that he or she is or was a director or officer of the corporation. | |||
The DGCL generally permits a Delaware corporation to indemnify directors and officers against expenses, judgments, fines and amounts paid in settlement of any action or suit for actions taken in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action, which they had no reasonable cause to believe was unlawful. | ||||
The Company will indemnify its directors and officers to the fullest extent permitted by law; provided, however, that, except for proceedings to enforce rights to indemnification, the Company shall not be obligated to indemnify any director or officer in connection with a proceeding initiated by such person unless such proceeding was authorized or consented to by the Board. | In addition to the previous indemnification provisions, the Company recognizes that certain directors may have rights to indemnification by certain institutional indemnitors. The Company agrees that it will: (i) be the indemnitor of first resort; (ii) be required to advance the full amount of expenses incurred by the indemnitee without regard for the indemnitee’s rights against any institutional indemnitor; and (iii) waive any claims against any institutional indemnitor for contribution or subrogation. |
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Current Certificate of Incorporation | Restated Charter and Amended By- | |||
Provision | and By-Laws | Laws | ||
Corporate Opportunities | Under the DGCL, a corporation may renounce any interest or expectancy of the corporation in, or in being offered an opportunity to participate in, specified business opportunities or specified classes or categories of business opportunities that are presented to the corporation its officers, directors or stockholders. | |||
The Company’s certificate of incorporation does not renounce any corporate opportunities. | To the fullest extent permitted by law: (i) the Company shall have no interest or expectancy in any corporate opportunity that certain principal investors have acquired knowledge of; (ii) each principal investor shall have the right to engage or invest in businesses competing with the Company or do business with customers of the Company; (iii) no member of a principal investor shall be liable to the Company for breach of any duty by reason of such activities; and (iv) no principal investor shall have a duty to present or offer the Company any potential corporate opportunity and shall not be liable to the Company for failing to do so. | |||
Amendments to Certificate of Incorporation | Under the DGCL, an amendment to the certificate of incorporation requires (i) the approval of the board of directors, (ii) the approval of a majority of the outstanding stock entitled to vote upon the proposed amendment and (iii) the approval of the holders of a majority of the outstanding stock of each class entitled to vote thereon as a class. | |||
The Company’s certificate of incorporation may be amended in accordance with the DGCL. | An amendment (i) to modify or repeal certain designated provisions (regarding capital stock, removal of directors and amending the Restated Charter) that materially adversely affects the rights of holders of either Class A Common Stock or Class B Common Stock in a disproportionate manner relative to the holders of the other class of common stock; (ii) that, prior to the Board Trigger Date, adversely affects the right of holders of a class of common stock to elect directors allocated to such class of common stock; or (iii) that, prior to the third anniversary of the effective date of the Restated Charter, adversely affects the rights of holders of Class A Common Stock to approve a sale of the Company, requires the affirmative vote of the holders of at least a majority of the voting power of the adversely affected class of common stock. |
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Current Certificate of Incorporation | Restated Charter and Amended By- | |||
Provision | and By-Laws | Laws | ||
Amendments to By-Laws | The Board is authorized to adopt, repeal, rescind, alter or amend the Company’s By-Laws by affirmative vote of a majority of the total number of directors then in office. Furthermore, the Company’s stockholders may adopt, repeal, rescind, alter or amend the By-Laws by an affirmative vote of 75% of voting power of the then outstanding shares of the Company. Where such action is proposed by certain interested stockholders, approval requires the affirmative vote of the holders of a majority of the voting power of the then outstanding shares, other than shares held by such interested stockholder. | The board of directors of the combined company may adopt, make, amend, supplement or repeal the amended By-Laws, except as provided in the Restated Charter and the amended By-Laws. The Restated Charter provides that, until the later of the Board Trigger Date and the Special Right Trigger Date, the board of directors of the combined company may not (i) amend the By-Laws in a manner contrary to the terms of the Restated Charter without the consent of a majority of the Class A Directors and a majority of the Class B Directors or (ii) amend the By-Laws in a manner that (a) materially adversely affects the rights of the holders of a class of common stock in a disproportionate manner relative to the other class of common stock; (b) prior to the Board Trigger Date, adversely affects the rights of a class of common stock to elect directors; or (c) adversely affects the right of holders of Class A Common Stock to approve a sale of the Company, without the consent of a majority of the directors elected by the affected class of common stock. | ||
Certain Business Combinations | Section 203 of the DGCL prohibits a Delaware corporation from engaging in a business combination with a stockholder acquiring more than 15% but less than 85% of the corporation’s outstanding voting stock for three years following the time that person becomes an “interested stockholder,” unless prior to such date the board of directors approves either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder or the business combination is approved by the board of directors and by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. The restrictions of Section 203 shall not apply if the corporation’s certificate of incorporation contains or is amended to contain a provision expressly electing not to be governed by this section. | |||
The Company has not affirmatively opted out of Section 203 of the DGCL. | No change. |
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• | If Mr. Sherwood is terminated upon or within 24 months following a change in control, all of Mr. Sherwood’s outstanding equity awards will become fully vested and immediately exercisable and shall remain exercisable in accordance with the applicable equity plan and award agreement. |
• | Subject to Mr. Sherwood’s timely election and continued payment of premiums, the Company will provide COBRA continuation coverage for Mr. Sherwood until the earliest of: (i) 12 months from the date of termination, (ii) Mr. Sherwood’s ceasing to be eligible under COBRA, and (iii) Mr. Sherwood becoming eligible for coverage under the health insurance plan of a subsequent employer. |
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Named Executive | Equity | Perquisites/Benefits | Total | |||||||||
Officer(1) | ($)(2) | ($)(3) | ($)(4) | |||||||||
Roderick M. Sherwood, III | 665,000 | 16,322 | 681,322 | |||||||||
David Hillman | 19,500 | — | 19,500 | |||||||||
Steve Chessare | 0 | — | 0 |
(1) | Steven Kalin, who was one of the Company’s named executive officers as of December 31, 2010, terminated his employment for good reason on May 27, 2011. | |
(2) | Equity. | |
Represents the aggregate payments to be made in respect of unvested options and restricted stock units upon a termination of employment without cause (or for Mr. Sherwood, with or without cause) upon or within 24 months following a change in control of the Company, as follows: | ||
For Mr. Sherwood, the in-the-money value of 400,000 unvested Company stock options granted February 12, 2010 with an exercise price of $6.00 (for a total stock option value of $52,000) and the value of 100,000 unvested shares of Company restricted stock units granted October 2010 (for a total value of restricted stock units equal to $613,000). For Mr. Hillman, the in-the-money value of 150,000 unvested Company stock options granted February 12, 2010 with an exercise price of $6.00 (for a total stock option value of $19,500). Mr. Chessare’s in-the-money Company stock options do not vest upon a termination following a change in control. For these purposes, we assumed a transaction date of October 28, 2011 and also assumed a Company share price equal to $6.13, which is the average closing market price of the Company’s common stock for the first five business days following the first public announcement of the Merger. | ||
(3) | Represents the cost associated with 12 months of COBRA coverage. |
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• | to vote against any alternative Takeover Proposal until the earlier to occur of (1) the consummation of the transactions contemplated by the Merger Agreement, (2) 18 months from the date of the Merger Agreement, (3) 12 months from any termination of the Merger Agreement pursuant to the Fiduciary Termination Provisions, and (4) termination of the Merger Agreement for any reason other than pursuant to the Fiduciary Termination Provisions; |
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• | not to, directly or indirectly, transfer or enter into any agreement, option or other arrangement (including any profit sharing agreement) with respect to the transfer of, any shares of Company’s outstanding common stock to any person, other than (x) in accordance with the Merger Agreement, or (y) following the termination of the Merger Agreement, a transfer of Company’s outstanding common stock representing up to 15% of outstanding common stock of the Company in a transfer made as a registered sale through a nationally recognized underwriter or that is executed over the principal stock exchange over which the Company’s securities are listed (and so long as such transfer is not made to a single person or group with the intent or purpose of evading the restrictions contained in the Voting Agreement); and |
• | to cause each of its members, officers, stockholders, affiliates, employees, directors, managers, representatives and agents to immediately cease and cause to be terminated any discussions or negotiations with any parties (other than the parties to the Voting Agreement and their affiliates, representatives and advisors) that may be ongoing with respect to, or that would be reasonably expected to lead to, a Takeover Proposal. |
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• | Interest. Accrues daily at the rate of 15% per annum and is compounded quarterly for the first 5 years and annually thereafter. |
• | Maturity Date. 6th year anniversary of the issue date. |
• | Mandatory Prepayment. The Company must pay the outstanding principal amount of the PIK Notes, together with all accrued and unpaid interest, upon the first to occur of (a) a Sale of the Company to a person who, alone or together with its affiliates, acquires capital stock possessing the voting power to elect a majority of the board of directors of the combined company or acquires all or substantially all of our assets and (b) a complete liquidation of the Company. |
• | Subordination. The PIK Notes will be subordinated in right of payment to the debt financing for the Merger, the Recapitalization, the Parent Stock Issuance and related transactions. |
• | Security. None. |
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• | except with respect to certain items disclosed in the disclosure letter delivered simultaneously with the execution of the Merger Agreement, since December 31, 2010, there having not been a “Material Adverse Effect” (as defined in the Merger Agreement); |
• | the preparation, execution and delivery of definitive loan documents (including a customary lien subordination intercreditor agreement) for the Credit Facilities; |
• | a consolidated total leverage multiple of the Company and its subsidiaries on the date of closing of the Merger after giving effect to the initial funding of the Credit Facilities, the application of the proceeds thereof, any equity contributions made, and other transactions contemplated by the Debt Commitment Papers, shall not exceed 4.45:1.00; |
• | the investors of the Company providing up to $30,000,000 in PIK Notes or preferred equity to be issued by the Company on the date of the closing of the Merger; |
• | the absence of any amendments, modifications or waivers of the Merger Agreement that would be materially adverse to the lenders under the Debt Commitment Letters; |
• | completion of a marketing period for syndicating the Credit Facilities of the earlier to occur of (y) 30 calendar days from a lender meeting and (z) 65 calendar days from the date of the execution of the Merger Agreement; provided that such period shall not include any day from and including August 19, 2011 through and including September 6, 2011, November 24, 2011, November 25, 2011, or any day from and including December 21, 2011 through and including December 31, 2011; |
• | the accuracy of specified representations, including with respect to solvency; |
• | the receipt of certain closing documents, opinions, certificates and other deliverables; and |
• | the delivery of specified financial statements of the Company and Dial Global, including pro forma financial information. |
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THE MERGER AND THE RECLASSIFICATION
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• | each person known by us to be the beneficial owner of more than 5% of the outstanding shares of our common stock either on August 31, 2011 (pre-Merger) or of shares of our common stock outstanding after the consummation of the Merger (post-Merger); |
• | each of our current executive officers and directors; and |
• | all current executive officers and directors of the Company as a group. |
• | the reclassification of all of our existing outstanding common stock on a share-for-share basis into shares of Series A Common Stock pursuant to the Reclassification; and |
• | 34,466,442 shares of our common stock are issued to Verge stockholders in connection with the Merger and in accordance with the exchange ratio, subject to adjustment pursuant to the Merger Agreement. |
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Pre-Merger (1) | Post-Merger (1) | |||||||||||||||||
Amount and | Percentage of | Amount and | Percentage of | |||||||||||||||
Nature of | Outstanding | Nature of | Outstanding | |||||||||||||||
Beneficial | Common | Beneficial | Common | |||||||||||||||
Name of Beneficial Owner | Address | Ownership | Stock | Ownership | Stock | |||||||||||||
Triton Media Group, LLC (2) | 220 West 42nd Street, New York, NY 10036 | — | — | 34,466,442 | 59 | % | ||||||||||||
Gores Radio Holdings, LLC (3) | 10877 Wilshire Boulevard, 18th Floor, Los Angeles, California 90024 | 17,212,977 | 76.1 | % | 17,212,977 | 29.5 | % | |||||||||||
Named Executive Officers: | ||||||||||||||||||
Roderick Sherwood (4)(5) | 209,999 | * | 209,999 | * | ||||||||||||||
Steven Kalin (5)(6) | 1,250 | * | 1,250 | * | ||||||||||||||
David Hillman (5) | 51,634 | * | 51,634 | * | ||||||||||||||
Steve Chessare (5) | 13,666 | * | 13,666 | * | ||||||||||||||
Directors and Nominees: | * | * | ||||||||||||||||
Gregory Bestick | — | * | — | * | ||||||||||||||
Andrew P. Bronstein (4) | — | * | — | * | ||||||||||||||
Jonathan I. Gimbel (4) | — | * | — | * | ||||||||||||||
Scott Honour (4) | — | * | — | * | ||||||||||||||
H. Melvin Ming | 3,504 | * | 3,504 | * | ||||||||||||||
Michael F. Nold (4) | — | * | — | * | ||||||||||||||
Emanuel Nunez | 3,867 | * | 3,867 | * | ||||||||||||||
Joseph P. Page (4) | — | * | — | * | ||||||||||||||
Mark Stone (4) | — | * | — | * | ||||||||||||||
Ronald W. Wuensch | 2,500 | * | 2,500 | * | ||||||||||||||
All Current Directors and Executive Officers as a Group (15 persons) | 296,481 | 1.3 | % | 296,481 | * |
* | Represents less than 1% of our outstanding shares of common stock. | |
(1) | The person in the table has sole voting and investment power with respects to all shares of stock indicated above, unless otherwise indicated. Tabular information listed above is based on information contained in the most recent Schedule 13D/13G filings and other filings made by such person with the SEC as well as other information made available to the Company. The numbers presented above do not include unvested and/or deferred restricted stock units which have no voting rights until shares are distributed in accordance with their terms. All dividend equivalents on vested restricted stock units and shares of restricted stock (both vested and unvested) are included in the numbers reported above. As described elsewhere in this Information Statement, a holder of restricted stock only (i.e., not restricted stock units) is entitled to vote the restricted shares once it has been awarded such shares. Accordingly, all restricted shares that have been awarded, whether or not vested, are reported in this table of beneficial ownership, even though a holder will not receive such shares until vesting. This is not the case with restricted stock units or stock options that are not deemed beneficially owned until 60 days prior to vesting. | |
(2) | Triton Media Group, LLC is controlled by OCM Principal Opportunities Fund III, L.P., OCM Principal Opportunities Fund IIIA, L.P., and OCM Principal Opportunities Fund IV, L.P., each of which is a fund ultimately managed by Oaktree Capital Management, L.P. |
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(3) | Gores is managed by The Gores Group, LLC. Gores Capital Partners II, L.P. and Gores Co-Invest Partnership II, L.P., which we refer to collectively as the “Gores Funds,” are members of Gores. Each of the members of Gores has the right to receive dividends from, or proceeds from, the sale of investments by Gores, including the shares of common stock, in accordance with their membership interests in Gores. Gores Capital Advisors II, LLC, which we refer to as “Gores Advisors,” is the general partner of the Gores Funds. Alec E. Gores is the manager of The Gores Group, LLC. Each of the members of Gores Advisors (including The Gores Group, LLC and its members) has the right to receive dividends from, or proceeds from, the sale of investments by the Gores entities, including the shares of common stock, in accordance with their membership interests in Gores Advisors. Under applicable law, certain of these individuals and their respective spouses may be deemed to be beneficial owners having indirect ownership of the securities owned of record by Gores by virtue of such status. Each of the foregoing entities and the partners, managers and members thereof disclaim ownership of all shares reported herein in excess of their pecuniary interests, if any. | |
(4) | Each of Messrs. Bronstein, Gimbel, Honour, Nold, Page, Sherwood and Stone disclaims beneficial ownership of securities of the Company owned by Gores, except to the extent of any pecuniary interest therein. | |
(5) | In the case of Mr. Sherwood includes 6,250 shares of common stock; 170,416 vested and unexercised options granted under the 1999 Plan and 2010 Plan, which was an amendment and restatement of the 2005 Plan; and 33,333 restricted stock units granted under the 2010 Plan. In the case of Mr. Kalin includes 1,250 shares of common stock. In the case of Mr. Hillman, includes 242 shares of common stock and 51,392 vested and unexercised options granted under the 1999 Plan, 2005 Plan and 2010 Plan. In the case of Mr. Chessare includes 13,666 vested and unexercised options granted under the 1999 Plan and 2010 Plan. | |
(6) | Mr. Kalin terminated his employment for “good reason” effective May 27, 2011. |
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[•], 2011
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Article I | |||
DEFINED TERMS | |||
Section 1.1 Certain Defined Terms | 2 | ||
Section 1.2 Other Definitions | 15 | ||
Article II | |||
Reclassification AND THE MERGER | |||
Section 2.1 Amendment and Restatement of Parent’s Certificate of Incorporation and Adoption of Amended and Restated By-Laws | 19 | ||
Section 2.2 Reclassification of Shares | 19 | ||
Section 2.3 The Merger | 19 | ||
Section 2.4 Closing | 20 | ||
Section 2.5 Effects of the Merger | 20 | ||
Section 2.6 Directors of Parent | 20 | ||
Section 2.7 Alternative Directors | 21 | ||
Section 2.8 Effect on Capital Stock | 21 | ||
Section 2.9 Payment of Indebtedness | 22 | ||
Section 2.10 Delivery of Series A Preferred Stock; Adjustment | 22 | ||
Section 2.11 Dissenting Shares | 22 | ||
Section 2.12 Exchange of Shares | 23 | ||
Section 2.13 Lost, Stolen or Destroyed Certificates | 25 | ||
Section 2.14 Withholding Rights | 25 | ||
Section 2.15 Further Assurances | 25 | ||
Section 2.16 No Fractional Shares | 25 | ||
Article III | |||
REPRESENTATIONS AND WARRANTIES | |||
Section 3.1 Organization and Qualification | 26 | ||
Section 3.2 Capitalization; Ownership of Common Stock | 27 | ||
Section 3.3 Authorization; Binding Agreement | 29 | ||
Section 3.4 No Conflict | 30 | ||
Section 3.5 Consents and Approvals | 30 | ||
Section 3.6 Financial Information | 31 | ||
Section 3.7 Information Statement | 34 | ||
Section 3.8 Litigation | 34 |
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Section 3.9 Compliance with Laws | 35 | ||
Section 3.10 Environmental Matters | 35 | ||
Section 3.11 Intellectual Property | 36 | ||
Section 3.12 Real Property | 36 | ||
Section 3.13 Employee Benefit Matters | 37 | ||
Section 3.14 Taxes | 39 | ||
Section 3.15 Labor Matters | 40 | ||
Section 3.16 Transactions with Affiliates | 42 | ||
Section 3.17 Letters of Credit, Surety Bonds and Guaranties | 42 | ||
Section 3.18 Brokers | 42 | ||
Section 3.19 Absence of Certain Changes or Events | 42 | ||
Section 3.20 Material Contracts | 43 | ||
Section 3.21 Advertisers, Broadcast Affiliates, Programming Partners and Format Customers | 43 | ||
Section 3.22 Insurance | 43 | ||
Section 3.23 Sufficiency of Assets | 44 | ||
Section 3.24 Excluded Assets | 44 | ||
Section 3.25 Bank Accounts | 44 | ||
Section 3.26 Opinion of Financial Advisor | 44 | ||
Section 3.27 Books and Records | 44 | ||
Section 3.28 Liabilities Relating to Restructuring Agreements and Excluded Entities | 44 | ||
Article IV | |||
COVENANTS RELATING TO CONDUCT OF BUSINESS | |||
Section 4.1 Conduct of Business Prior to the Closing | 45 | ||
Article V | |||
ADDITIONAL AGREEMENTS | |||
Section 5.1 Written Consent; Information Statement | 48 | ||
Section 5.2 Access to Information | 49 | ||
Section 5.3 Non-Solicitation | 49 | ||
Section 5.4 Confidentiality; Public Disclosure; Non-Disparagement | 51 | ||
Section 5.5 Regulatory and Other Authorizations; Notices and Consents | 52 | ||
Section 5.6 Intellectual Property | 54 | ||
Section 5.7 Further Action | 54 | ||
Section 5.8 Employee Benefits | 54 | ||
Section 5.9 Termination of Affiliate Transactions | 55 | ||
Section 5.10 Disclosure Letters | 56 | ||
Section 5.11 Directors’ and Officers’ Indemnification and Insurance | 56 | ||
Section 5.12 Financing | 58 | ||
Section 5.13 Notice to Stockholders | 59 | ||
Section 5.14 Representation of the Company and its Retained Subsidiaries | 59 | ||
Section 5.15 Use of Excluded Marks | 60 |
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Section 5.16 Post-Closing Record Retention and Access | 60 | ||
Section 5.17 Listing of Shares of Parent Stock | 61 | ||
Section 5.18 State Takeover Laws | 61 | ||
Section 5.19 Stockholder Litigation | 61 | ||
Section 5.20 Tax Treatment | 62 | ||
Section 5.21 FIRPTA Certificate | 62 | ||
Section 5.22 Registration Rights Agreement | 62 | ||
Section 5.23 Distributions to Stockholders of Parent | 62 | ||
Article VI | |||
CONDITIONS PRECEDENT | |||
Section 6.1 Condition Precedent to Each Party’s Obligations | 62 | ||
Section 6.2 Conditions Precedent to Parent’s and Merger Sub’s Obligations | 63 | ||
Section 6.3 Conditions Precedent to the Company’s Obligations | 64 | ||
Article VII | |||
TERMINATION | |||
Section 7.1 Termination | 66 | ||
Section 7.2 Fees and Expenses | 67 | ||
Section 7.3 Procedures and Effect of Termination | 68 | ||
Section 7.4 Termination Fee | 68 | ||
Article VIII | |||
GENERAL PROVISIONS | |||
Section 8.1 Non-Survival of Representations and Warranties and Covenants | 68 | ||
Section 8.2 Amendment and Modification | 68 | ||
Section 8.3 Waiver of Compliance; Consents | 69 | ||
Section 8.4 Notices | 69 | ||
Section 8.5 Assignment; No Third-Party Beneficiaries | 70 | ||
Section 8.6 Governing Law; Jurisdiction; Waiver of Jury Trial | 70 | ||
Section 8.7 Claims | 71 | ||
Section 8.8 Specific Performance | 71 | ||
Section 8.9 Counterparts; Effectiveness | 71 | ||
Section 8.10 Severability | 72 | ||
Section 8.11 Headings; Interpretation | 72 | ||
Section 8.12 No Strict Construction | 72 | ||
Section 8.13 Time of Essence | 72 | ||
Section 8.14 Entire Agreement | 73 | ||
Section 8.15 Public Announcements | 73 | ||
Section 8.16 Dispute Costs | 73 |
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Exhibit A | Form of Registration Rights Agreement | |
Exhibit B | Form of Certificate of Designation for Series A Preferred Stock | |
Exhibit C | Voting Agreement | |
Exhibit D | Form of Restated Certificate of Incorporation | |
Exhibit E | Form of Restated By-Laws | |
Exhibit F | Indemnity and Contribution Agreement |
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Defined Term | Section Definition Reference | |
401(k) Plan | Section 5.8(e) | |
Acquisition Agreement | Section 5.3(b) | |
Action | Section 1.1 | |
Affiliate | Section 1.1 | |
Affiliate Transactions | Section 3.16 | |
Agreement | Preamble | |
Assets | Section 1.1 | |
Benefit Plans | Section 3.13(a) | |
Board of Directors | Section 1.1 | |
Business Day | Section 1.1 | |
Business Guaranties | Section 3.17 | |
Bylaws | Section 1.1 | |
Cash Equivalents | Section 1.1 | |
Certificate | Section 2.8(b) | |
Certificate of Merger | Section 2.3 | |
Charter | Section 1.1 | |
Class A Stock | Section 2.1 | |
Class B Stock | Section 2.1 | |
Closing | Section 2.4 | |
Closing Date | Section 2.4 | |
Code | Recitals | |
Commitment Letters | Section 1.1 | |
Company | Preamble | |
Company Audited Financial Statements | Section 3.6(a)(i) | |
Company Bylaws | Section 3.3(d) | |
Company Charter | Section 3.3(d) | |
Company Current Insurance | Section 5.11(c) | |
Company Disclosure Letter | Article III | |
Company Equity Right | Section 3.2(b) | |
Company Excluded Entities | Section 1.1 | |
Company Financial Statements | Section 3.6(a)(i) |
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Defined Term | Section Definition Reference | |
Company Indemnified Parties | Section 5.11(a) | |
Company Interim Financial Statements | Section 3.6(a)(i) | |
Company Licensed Intellectual Property | Section 1.1 | |
Company Owned Intellectual Property | Section 1.1 | |
Company Preliminary Transactions | Section 1.1 | |
Company Principal Stockholders | Section 1.1 | |
Company Reporting Tail Endorsement | Section 5.11(c) | |
Company Restructuring Agreement | Section 1.1 | |
Company Stock | Section 2.8(a) | |
Company Stockholder Consent | Section 6.1(c) | |
Company Target Net Debt Amount | Section 1.1 | |
Company Transition Services Agreement | Section 1.1 | |
Confidentiality Agreement | Section 5.4(a) | |
Consent | Section 3.5 | |
Continuing Employees | Section 5.8(a) | |
Contract | Section 1.1 | |
Copyrights | Section 1.1 | |
Delivered | Section 1.1 | |
DGCL | Section 2.1 | |
Digital Reseller Agreement | Section 1.1 | |
Disclosure Letter | Article III | |
Dissenting Shares | Section 2.11 | |
Effective Time | Section 2.3 | |
Encumbrance | Section 1.1 | |
Environmental Claim | Section 1.1 | |
Environmental Law | Section 1.1 | |
Environmental Permits | Section 1.1 | |
Equity Right | Section 3.2(b) | |
ERISA | Section 3.13(a) | |
ERISA Affiliate | Section 1.1 | |
ERISA Plans | Section 3.13(a) | |
Exchange Act | Section 1.1 | |
Exchange Agent | Section 2.12(a) | |
Exchange Fund | Section 2.12(a) | |
Exchange Ratio | Section 2.8(a) | |
Excluded Entities | Section 1.1 | |
Excluded Marks | Section 1.1 | |
Excluded Shares | Section 2.8(d) | |
Exploit | Section 1.1 | |
FCC | Section 5.3(c) | |
FCC Applications | Section 5.3(c) | |
FCC Consent | Section 5.3(c) | |
Filing | Section 3.5 | |
Financial Statements | Section 1.1 | |
Financing | Section 1.1 | |
Financing Source | Section 5.12 1.1 |
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Defined Term | Section Definition Reference | |
FIRPTA Certificate | Section 5.20 | |
GAAP | Section 1.1 | |
Gores Written Consent | Section 5.1(a) | |
Governmental Authority | Section 1.1 | |
Governmental Order | Section 1.1 | |
Hazardous Material | Section 1.1 | |
HSR Act | Section 5.5(b) | |
Indebtedness | Section 1.1 | |
Indemnified Parties | Section 5.11(a) | |
Indemnity and Contribution Agreement | Section 6.2(h) | |
Information Statement | Section 5.1(a) | |
Intellectual Property | Section 1.1 | |
Interim Financial Statements | Section 1.1 | |
IRS | Section 1.1 | |
Knowledge | Section 1.1 | |
Law | Section 1.1 | |
Leased Real Property | Section 1.1 | |
Leases | Section 3.12(b) | |
Liabilities | Section 1.1 | |
Licensed Intellectual Property | Section 1.1 | |
Material Adverse Effect | Section 1.1 | |
Material Contract | Section 1.1 | |
Merger | Recitals | |
Merger Consideration | Section 2.8(a) | |
Merger Sub | Preamble | |
Metro Marks | Section 1.1 | |
Most Recent Company Audit | Section 1.1 | |
Net Debt Adjustment Amount | Section 1.1 | |
Net Indebtedness | Section 1.1 | |
Notice of Adverse Recommendation Change | Section 5.3(b) | |
Owned Intellectual Property | Section 1.1 | |
Owned Real Property | Section 1.1 | |
Parent | Preamble | |
Parent Adverse Action | Section 5.3(b) | |
Parent Audited Financial Statements | Section 3.6(b)(iii) | |
Parent Bylaws | Section 3.3(b) | |
Parent Charter | Section 3.3(b) | |
Parent Current Insurance | Section 5.11(d) | |
Parent Disclosure Letter | Article III | |
Parent Equity Right | Section 3.2(b) | |
Parent Excluded Entities | Section 1.1 | |
Parent Financial Statements | Section 3.6(b)(iii) | |
Parent Indemnified Parties | Section 5.11(a) | |
Parent Interim Financial Statements | Section 3.6(b)(iii) | |
Parent Licensed Intellectual Property | Section 1.1 | |
Parent Owned Intellectual Property | Section 1.1 |
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Defined Term | Section Definition Reference | |
Parent Preliminary Transactions | Section 1.1 | |
Parent Principal Stockholders | Section 1.1 | |
Parent Recommendation | Section 5.3(b) | |
Parent Reporting Tail Endorsement | Section 5.11(d) | |
Parent Restructuring Agreement | Section 1.1 | |
Parent SEC Reports | Section 3.6(b)(i) | |
Parent Stock | Section 1.1 | |
Parent Stock Issuance | Section 3.3(b) | |
Parent Target Net Debt Amount | Section 1.1 | |
Patents | Section 1.1 | |
Permit | Section 1.1 | |
Permitted Encumbrances | Section 1.1 | |
Person | Section 1.1 | |
Post-Closing Parent Directors | Section 2.6 | |
Preliminary Transactions | Section 1.1 | |
Principal Stockholders | Section 1.1 | |
Programs | Section 1.1 | |
Radio Network Business | Section 1.1 | |
Real Property | Section 1.1 | |
Reclassification | Recitals | |
Registration Rights Agreement | Section 1.1 | |
Requested Party | Section 5.2 | |
Requesting Party | Section 5.2 | |
Restated By-Laws | Section 2.1 | |
Restated Charter | Section 2.1 | |
Restricted Parties | Section 5.3(a) | |
Restructuring Agreement | Section 1.1 | |
Retained Subsidiaries | Section 1.1 | |
SEC | Section 1.1 | |
Securities | Section 1.1 | |
Securities Act | Section 1.1 | |
Series A Preferred Certificates | Section 2.10 | |
Series A Preferred Share Number | Section 1.1 | |
Series A Preferred Stock | Section 1.1 | |
Software | Section 1.1 | |
Stock | Section 1.1 | |
Subsidiary | Section 1.1 | |
Superior Proposal | Section 1.1 | |
Surviving Entity | Section 2.3 | |
Takeover Proposal | Section 1.1 | |
Tax | Section 1.1 | |
Tax Return | Section 1.1 | |
Taxes | Section 1.1 | |
Termination Date | Section 7.1 | |
Termination Fee | Section 7.4(a) | |
Trade Secrets | Section 1.1 | |
Trademarks | Section 1.1 | |
Triton Marks | Section 1.1 | |
Voting Agreement | Section 1.1 | |
WARN Act | Section 3.15(d) |
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1166 Avenue of the Americas, 10th Floor
New York, NY 10036
Attention: General Counsel
Fax: (212) 641-2198
10877 Wilshire Blvd, 18th Floor
Los Angeles, CA 90024
Attention: General Counsel
Fax: (310) 443-2149
300 South Grand Avenue, Suite 3400
Los Angeles, CA 90071-3144
Attention: Rick C. Madden, Esq.
Fax: (213) 621-5379
15303 Ventura Boulevard, Suite 1500
Sherman Oaks, CA 91403
Attention: Chief Executive Officer
Fax: (818) 990-0930
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333 S. Grand Ave., 28th Floor
Los Angeles, CA 90071
Attention: Andrew Salter
Fax: (213) 830-6394
300 North LaSalle
Chicago, IL 60654
Attention: Christopher J. Greeno, P.C.
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COMPANY: | ||||||||
VERGE MEDIA COMPANIES, INC. | ||||||||
By: | /s/ Neal Schore | |||||||
Name: | Neal Schore | |||||||
Title: | President and Chief Executive Officer |
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PARENT: | ||||||||
WESTWOOD ONE, INC. | ||||||||
By: | /s/ David Hillman | |||||||
Name: | David Hillman | |||||||
Title: | GC and CAO |
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MERGER SUB: | ||||||||
RADIO NETWORK HOLDINGS, LLC | ||||||||
By: Westwood One, Inc. | ||||||||
Its: | Sole Member | |||||||
By: | /s/ David Hillman | |||||||
Name: | David Hillman | |||||||
Title: | GC and CAO |
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CERTIFICATE OF INCORPORATION
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WESTWOOD ONE, INC. | ||||
By: | ||||
Name: | ||||
Title: | ||||
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GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
1 | Number of shares to be equal to the Net Debt Adjustment Amount + sufficient shares to pay accrued dividends through the date 91 days after the maturity date of the 1st Lien/2nd lien debt. | |
2 | The Closing Date of the Merger. |
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3 | Threshold from 2d lien documents. |
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WESTWOOD ONE, INC. | ||||
By: | ||||
Name: | [ ] | |||
Title: | [ ] | |||
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GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
1 | Number of shares provided for in the rollover letter agreement + sufficient shares to pay accrued dividends through the date 91 days after the maturity date of the 1st Lien/2nd lien debt. | |
2 | The Closing Date of the Merger. |
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3 | Threshold from 2d lien documents. |
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WESTWOOD ONE, INC. | ||||
By: | ||||
Name: | [ ] | |||
Title: | [ ] |
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1. | The last sentence of Section 2.3 of Article II of the By-Laws is hereby amended by deleting the phrase “, as set forth in the Certificate of Incorporation” set forth therein. |
2. | The first paragraph of section 2.16 of Article II of the By-Laws is hereby amended and restated to read in its entirety as follows: |
3. | The first sentence of the second paragraph of Section 2.16 of Article II of the By-Laws is hereby amended by adding “and,” after “In addition to any other applicable requirements”. |
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4. | Section 3.1 of Article III of the By-Laws is hereby amended and restated to read in its entirety as follows: |
5. | Section 3.3 of Article III of the By-Laws is hereby amended and restated to read in its entirety as follows: |
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6. | Section 3.5 of Article III of the By-Laws is hereby amended and restated to read in its entirety as follows: |
7. | The first sentence of Section 3.11 of Article III of the By-Laws is hereby amended by deleting such sentence in its entirety and replacing it with the following: |
8. | The first sentence of Section 3.12 of Article III of the By-Laws is hereby amended by deleting such sentence in its entirety and replacing it with the following: |
9. | The first sentence of Section 5.4 of Article V of the By-Laws is hereby amended by deleting such sentence in its entirety and replacing it with the following: |
10. | A new Section 7.5 of Article VII of the By-Laws is added to read in its entirety as follows: |
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11. | The following paragraph is hereby inserted after the first paragraph of Section 8.1 of Article VIII of the By-Laws: |
12. | Section 9.1 of Article IX of the By-Laws is hereby amended and restated to read in its entirety as follows: |
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13. | Except as set forth herein, the By-Laws shall remain in full force and effect. |
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The Audit Committee of the Board of Directors
Westwood One, Inc.
1166 Avenue of the Americas, 10th Floor
New York, New York 10036
(i) | at or prior to the consummation of the Merger (as defined below), a recapitalization of Parent (the “Recapitalization”) shall be effected pursuant to which (a) Parent will have authorized two new classes of capital stock, Class A Common Stock and Class B Common Stock, and (b) each outstanding share of common stock, par value $0.01 per share, of Parent (“Parent Common Stock”) shall be reclassified and automatically converted into one share of Class A Common Stock; |
(ii) | the Company shall be merged with and into Merger Sub, with Merger Sub as the surviving entity (the “Merger”); |
(iii) | each share of common stock, par value $0.001 per share, of the Company (“Company Common Stock”) outstanding immediately prior to the Merger (other than Excluded Shares and Dissenting Shares (each, as defined in the Agreement)) shall be converted into 6.90453 shares of Class B Common Stock (the “Exchange Ratio”), subject to adjustment in accordance with Section 2.8(c) and Section 2.10 of the Agreement; and |
(iv) | upon consummation of the Merger, pursuant to Section 2.10 of the Agreement, Parent will deliver to holders of Company Common Stock shares of Series A Preferred Stock (as defined in the Agreement) equal in amount to the Series A Preferred Share Number (as defined in the Agreement), provided that, if the Net Debt Adjustment Amount is a negative number, the Exchange Ratio shall be adjusted to reduce the number of shares of Class B Common Stock issued to the stockholders of the Company as contemplated by Section 2.10 of the Agreement. |
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(i) | reviewed certain publicly available business and financial information relating to Parent and the Company that we deemed relevant; |
(ii) | reviewed certain internal information relating to the business, including financial forecasts, earnings, cash flow, assets, liabilities and prospects, of Parent, furnished to us by Parent; |
(iii) | reviewed certain internal information relating to the business, including financial forecasts, earnings, cash flow, assets, liabilities and prospects, of the Company, furnished to us by the Company; |
(iv) | conducted discussions with members of senior management, representatives and advisors of Parent and the Company concerning the matters described in clauses (i)—(iii) of this paragraph; |
(v) | compared the proposed financial terms of the Merger with publicly available financial and stock market data, including valuation multiples and cost of capital, of certain other companies in lines of business that we deemed relevant; |
(vi) | compared the proposed financial terms of the Merger with the financial terms of certain other transactions that we deemed relevant; | |
(vii) | reviewed a draft of the Agreement, dated July 30, 2011; |
(viii) | participated in certain discussions among representatives of Parent and the Company and their respective financial and legal advisors; and |
(ix) | conducted such other financial studies and analyses and took into account such other information as we deemed appropriate. |
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Very truly yours, | ||||
Berenson & Company, LLC | ||||
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Year Ended December 31, 2008
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Assets | ||||
Current assets: | ||||
Cash and cash equivalents | $ | 7,860,000 | ||
Accounts receivable, net | 49,193,000 | |||
Prepaid expenses and other current assets | 6,099,000 | |||
Total current assets | 63,152,000 | |||
Property and equipment, net | 9,955,000 | |||
Investment | 8,091,000 | |||
Intangible assets, net | 111,317,000 | |||
Goodwill | 100,616,000 | |||
Restricted investment | 538,000 | |||
Other assets | 3,046,000 | |||
Deferred financing costs, net | 3,266,000 | |||
Total assets | $ | 299,981,000 | ||
Liabilities and shareholders’ equity | ||||
Current liabilities: | ||||
Accounts payable | $ | 4,312,000 | ||
Producer payable | 21,674,000 | |||
Accrued expenses and other current liabilities | 14,461,000 | |||
Long-term debt, current portion | 5,892,000 | |||
Current portion of capital lease | 145,000 | |||
Deferred revenue | 592,000 | |||
Total current liabilities | 47,076,000 | |||
Non-current portion of long-term debt | 143,880,000 | |||
Capital lease obligation, long term | 164,000 | |||
Deferred tax liabilities | 11,521,000 | |||
Other long-term liabilities | 1,074,000 | |||
Total liabilities | 203,715,000 | |||
Commitments and contingencies (Note 12) | ||||
Shareholders’ equity: | ||||
Preferred stock, $.001 par value, 1,000,000 shares authorized and none issued | — | |||
Common stock, $.001 par value, 5,000,000 authorized, 3,595,320 shares issued | 4,000 | |||
Additional paid-in capital | 112,480,000 | |||
Accumulated deficit | (16,218,000 | ) | ||
Total shareholders’ equity | 96,266,000 | |||
Total liabilities and shareholders’ equity | $ | 299,981,000 | ||
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Net revenues | $ | 83,132,000 | ||
Cost of revenues | 36,255,000 | |||
Gross profit | 46,877,000 | |||
Operating expenses | 36,089,000 | |||
Depreciation and amortization | 9,080,000 | |||
Loss from operations | 1,708,000 | |||
Interest expense, net | (14,173,000 | ) | ||
Loss on investment | (3,837,000 | ) | ||
Net loss before income taxes | (16,302,000 | ) | ||
Income tax benefit | (5,889,000 | ) | ||
Net loss | $ | (10,413,000 | ) | |
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Common Stock | Additional | |||||||||||||||||||
Number of | Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance at December 31, 2007 | 1,761,000 | $ | 2,000 | $ | 46,432,000 | $ | (5,805,000 | ) | $ | 40,629,000 | ||||||||||
Issuance of common stock | 1,834,000 | 2,000 | 66,048,000 | — | 66,050,000 | |||||||||||||||
Net loss | — | — | — | (10,413,000 | ) | (10,413,000 | ) | |||||||||||||
Balance at December 31, 2008 | 3,595,000 | $ | 4,000 | $ | 112,480,000 | $ | (16,218,000 | ) | $ | 96,266,000 | ||||||||||
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Operating activities | ||||
Net loss | $ | (10,413,000 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities, net of acquisitions: | ||||
Depreciation and amortization | 9,080,000 | |||
Noncash interest expense | 6,995,000 | |||
Bad debt expense | 816,000 | |||
Change in fair value of interest rate swap | 1,625,000 | |||
Increase in deferred rent | 144,000 | |||
Loss in investment | 3,137,000 | |||
Write-off of loan receivable | 700,000 | |||
Deferred taxes | (5,889,000 | ) | ||
Changes in assets and liabilities, net of acquisition: | ||||
Accounts receivable | (5,472,000 | ) | ||
Prepaid expenses and other current assets | (3,649,000 | ) | ||
Other assets | (2,192,000 | ) | ||
Accounts payable | 3,987,000 | |||
Producer payable | 232,000 | |||
Accrued expenses and other current liabilities | (687,000 | ) | ||
Deferred revenue | 393,000 | |||
Other liabilities | 2,000 | |||
Total adjustments | 9,222,000 | |||
Net cash used in operating activities | (1,191,000 | ) | ||
Cash flows from investing activities | ||||
Acquisition of property and equipment | (2,395,000 | ) | ||
Acquisition of capitalized software | (412,000 | ) | ||
Acquisitions of business, net of cash acquired | (26,788,000 | ) | ||
Net cash used in investing activities | (29,595,000 | ) | ||
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Cash flows from financing activities | ||||
Increase in restricted investment | $ | (538,000 | ) | |
Net payments on line of credit | (920,000 | ) | ||
Principal payments of capital lease obligation | (78,000 | ) | ||
Proceeds from issuance of note | 150,000 | |||
Repayment of notes | (66,000 | ) | ||
Proceeds from issuance of PIK notes | 19,694,000 | |||
Repayment of long term debt | (2,875,000 | ) | ||
Issuance of common stock | 20,064,000 | |||
Net cash provided by financing activities | 35,431,000 | |||
Net increase in cash and cash equivalents | 4,645,000 | |||
Cash and cash equivalents: | ||||
Beginning of year | 3,215,000 | |||
End of year | $ | 7,860,000 | ||
Supplemental disclosures | ||||
Interest expense paid | $ | 4,724,000 | ||
Noncash investing and financing activities | ||||
Common stock issued relating to acquisitions | $ | 45,986,000 | ||
Payments of line of credit financed by issuance of common stock | $ | 4,139,000 | ||
Payments of deferred financing costs financed by issuance of common stock | $ | 2,463,000 | ||
Accrual of contingent payment on purchase of business | $ | 5,000,000 | ||
Acquisitions under capital lease | $ | 278,000 | ||
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6
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7
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Radio, network and communication equipment | 3 to 7 years | |
Office computer and equipment | 3 to 5 years | |
Furniture and fixtures | 5 to 7 years | |
Leasehold improvements | Shorter of useful life or lease term |
8
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9
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Advertiser and producer relationships | 15 years | |||
Trade names | 3-7 years | |||
Customer relationships | 1-9 years | |||
Technology | 2-8 years | |||
IPR&D | 8-9 years | |||
Beneficial lease interest | 7 years | |||
Non-compete agreements | 4 years |
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11
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Level 1 — Quoted prices in active markets for identical assets or liabilities |
Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities |
Level 3 — No observable pricing inputs in the market |
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• | On January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements (“SFAS 157”), which clarifies fair value as an exit price, establishes a hierarchal disclosure framework for measuring fair value, and requires extended disclosures about fair value measurements. The provisions of SFAS 157 apply to all financial assets and liabilities measured at fair value. In February 2008, the Financial Accounting Standards Board (“FASB”) issued a FASB Staff Position (“FSP”) FAS 157-2. Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for all nonfinancial assets and liabilities, except those that are disclosed or recognized at fair value on a recurring basis. |
• | On March 1, 2008 the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS 161”). The objective of SFAS 161 is to require enhanced disclosures about an entity’s derivative and hedging activities and to improve the transparency of financial reporting. SFAS 161 changed the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. |
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Radio and communications equipment | $ | 4,706,000 | ||
Office computer and equipment | 3,395,000 | |||
Furniture and fixtures | 513,000 | |||
Leasehold improvements | 1,622,000 | |||
Capitalized lease assets | 354,000 | |||
Assets to be placed in service | 1,524,000 | |||
Property and equipment | 12,114,000 | |||
Less accumulated depreciation and amortization | (2,159,000 | ) | ||
Net property and equipment | $ | 9,955,000 | ||
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15
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2008 | ||||
Ex-Band Syndication LLC | $ | 1,122,000 | ||
Music To Go | 752,000 | |||
StreamTheWorld | 2,991,000 | |||
Mass2OneMedia, LLC | 3,226,000 | |||
Total investments | $ | 8,091,000 | ||
Cash | $ | 4,260,000 | ||
Accounts receivable | 22,569,000 | |||
Prepaids and other current assets | 1,043,000 | |||
Property and equipment | 6,985,000 | |||
Other assets | 359,000 | |||
Goodwill | 29,946,000 | |||
Intangibles | 50,560,000 | |||
Accounts payable and accrued liabilities | (16,373,000 | ) | ||
Other current liabilities | (555,000 | ) | ||
Long-term liabilities | (272,000 | ) | ||
Capital lease obligation | (54,000 | ) | ||
$ | 98,468,000 | |||
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Prepaids and other current assets | $ | 28,000 | ||
Property and equipment | 1,232,000 | |||
Goodwill | 2,001,000 | |||
Intangibles | 1,187,000 | |||
$ | 4,448,000 | |||
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Accounts receivable | $ | 276,000 | ||
Property and equipment | 204,000 | |||
Goodwill | 20,265,000 | |||
Intangibles | 10,500,000 | |||
Accounts payable and accrued liabilities | (50,000 | ) | ||
$ | 31,195,000 | |||
Cash | $ | (20,000 | ) | |
Accounts receivable | 41,000 | |||
Property and equipment | 111,000 | |||
Goodwill | 1,386,000 | |||
$ | 1,518,000 | |||
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Gross | ||||||||||||
Carrying | Useful | Accumulated | ||||||||||
Amount | Life | Amortization | ||||||||||
Advertiser and producer relationships | $ | 103,901,000 | 15 years | $ | 5,872,000 | |||||||
Trade names | 5,330,000 | 5 years | 380,000 | |||||||||
Customer relationships | 1,600,000 | 8 years | 164,000 | |||||||||
Technology | 2,600,000 | 8 years | 266,000 | |||||||||
IPR&D | 2,600,000 | 9 years | 237,000 | |||||||||
Beneficial lease interests | 1,200,000 | 7 years | 199,000 | |||||||||
Non-compete agreements | 1,700,000 | 4 years | 496,000 | |||||||||
Total December 31, 2008 | $ | 118,931,000 | $ | 7,614,000 | ||||||||
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Year Ending December 31, | ||||
2009 | $ | 7,852,000 | ||
2010 | 7,852,000 | |||
2011 | 7,782,000 | |||
2012 | 7,373,000 | |||
2013 | 7,101,000 | |||
Thereafter | 69,657,000 | |||
Total amortization expense | $ | 107,617,000 | ||
20
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$20.9 million, with interest at 14.5%, and approximately $36 million, with interest of 15.5%,
respectively.
21
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2009 | $ | 5,892,000 | ||
2010 | 7,125,000 | |||
2011 | 9,500,000 | |||
2012 | 14,250,000 | |||
2013 | 113,005,000 | |||
$ | 149,772,000 | |||
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2008 | ||||
Current tax provision: | ||||
Federal | $ | — | ||
State | — | |||
Foreign | — | |||
Total current tax provision | — | |||
Deferred tax provision (benefit): | ||||
Federal | (4,726,000 | ) | ||
State | (1,163,000 | ) | ||
Total deferred tax provision (benefit) | (5,889,000 | ) | ||
Total income tax provision (benefit) | $ | (5,889,000 | ) | |
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2008 | ||||
Statutory rate | 34.0 | % | ||
State taxes, net of federal benefits | 4.7 | |||
ASC 740-10 (FIN-48) | (7.9 | ) | ||
Other | 5.3 | |||
36.1 | % | |||
2008 | ||||
Deferred tax assets | ||||
Depreciation | $ | 36,000 | ||
Allowance for bad debt | 295,000 | |||
Interest rate swap | 336,000 | |||
Net operating losses | 5,940,000 | |||
State tax deferred | 778,000 | |||
Other | 1,664,000 | |||
Total deferred tax assets | 9,049,000 | |||
Amortization | (20,531,000 | ) | ||
State tax — deferred | (39,000 | ) | ||
Total deferred tax liabilities | (20,570,000 | ) | ||
Net deferred tax | $ | (11,521,000 | ) | |
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Future | ||||
Minimum | ||||
Rent | ||||
Year Ending December 31, | ||||
2009 | $ | 5,481,000 | ||
2010 | 5,354,000 | |||
2011 | 4,613,000 | |||
2012 | 3,573,000 | |||
2013 | 3,205,000 | |||
Thereafter | 14,224,000 | |||
Total | $ | 36,450,000 | ||
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Year Ending December 31, | ||||
2009 | $ | 161,000 | ||
2010 | 139,000 | |||
2011 | 47,000 | |||
347,000 | ||||
Less amount representing interest | (38,000 | ) | ||
$ | 309,000 | |||
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Year Ending December 31, | ||||
2009 | $ | 4,828,000 | ||
2010 | 3,811,000 | |||
2011 | 3,256,000 | |||
2012 | 1,201,000 | |||
$ | 13,096,000 | |||
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28
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Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | $ | 7,860,000 | $ | — | $ | — | ||||||
Restricted investment | 538,000 | — | — | |||||||||
Total assets | $ | 8,398,000 | $ | — | $ | — | ||||||
Liabilities | ||||||||||||
Interest rate swap | $ | — | $ | — | $ | 2,100,000 | ||||||
$ | — | $ | — | $ | 2,100,000 | |||||||
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and Other Financial Information
Years Ended December 31, 2010 and 2009
With Report of Independent Auditors
Table of Contents
and Other Financial Information
3 | ||||
Consolidated Financial Statements | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
9 |
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Verge Media Companies, Inc.
3
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December 31 | ||||||||
2010 | 2009 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 13,948,000 | $ | 3,909,000 | ||||
Accounts receivable, net | 52,379,000 | 51,355,000 | ||||||
Prepaid expenses and other current assets | 3,081,000 | 2,936,000 | ||||||
Current asset of discontinued operations | — | 477,000 | ||||||
Total current assets | 69,408,000 | 58,677,000 | ||||||
Property and equipment, net | 8,385,000 | 9,870,000 | ||||||
Investment | 561,000 | 3,717,000 | ||||||
Intangible assets, net | 117,650,000 | 117,828,000 | ||||||
Goodwill | 150,952,000 | 122,226,000 | ||||||
Restricted investment | 538,000 | 538,000 | ||||||
Other assets | 3,937,000 | 2,574,000 | ||||||
Deferred financing costs, net | 2,683,000 | 2,595,000 | ||||||
Total assets | $ | 354,114,000 | $ | 318,025,000 | ||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 7,192,000 | $ | 4,496,000 | ||||
Producer payable | 15,981,000 | 19,221,000 | ||||||
Accrued expenses and other current liabilities | 9,734,000 | 9,238,000 | ||||||
Long-term debt, current portion | 11,225,000 | 7,125,000 | ||||||
Capital lease obligations, current | 431,000 | 106,000 | ||||||
Deferred revenue | 1,046,000 | 246,000 | ||||||
Current liabilities of discontinued operations | — | 23,000 | ||||||
Total current liabilities | 45,609,000 | 40,455,000 | ||||||
Non-current portion of long-term debt | 179,310,000 | 147,231,000 | ||||||
Capital lease obligations, long term | 10,000 | 134,000 | ||||||
Deferred tax liabilities | 10,353,000 | 6,339,000 | ||||||
Other long-term liabilities | 1,128,000 | 850,000 | ||||||
Total liabilities | 236,410,000 | 195,009,000 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity: | ||||||||
Preferred stock, $.001 par value, 1,000,000 shares authorized, and none issued | ||||||||
Common stock, $.001 par value, 6,000,000 and 5,000,000 shares authorized, respectively, 5,006,609 and 4,837,836 shares issued and outstanding, respectively | 5,000 | 5,000 | ||||||
Additional paid-in capital | 163,285,000 | 157,210,000 | ||||||
Accumulated deficit | (45,586,000 | ) | (34,199,000 | ) | ||||
Total shareholders’ equity | 117,704,000 | 123,016,000 | ||||||
Total liabilities and shareholders’ equity | $ | 354,114,000 | $ | 318,025,000 | ||||
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Year Ended December 31 | ||||||||
2010 | 2009 | |||||||
Net revenues | $ | 122,746,000 | $ | 95,142,000 | ||||
Cost of revenues | 48,114,000 | 40,838,000 | ||||||
Gross profit | 74,632,000 | 54,304,000 | ||||||
Operating expenses | 49,202,000 | 50,175,000 | ||||||
Depreciation and amortization | 18,639,000 | 15,621,000 | ||||||
Income (loss) from continuing operations | 6,791,000 | (11,492,000 | ) | |||||
Interest expense, net | (19,533,000 | ) | (16,376,000 | ) | ||||
Gain from remeasurement of investment | 5,573,000 | 1,675,000 | ||||||
Loss on equity investment | (778,000 | ) | (1,148,000 | ) | ||||
Other expenses | (1,257,000 | ) | (464,000 | ) | ||||
Loss from continuing operations before income tax (benefit) income tax benefit | (9,204,000 | ) | (27,805,000 | ) | ||||
Income tax (benefit) from continuing operations | 2,156,000 | (10,389,000 | ) | |||||
Loss from continuing operations | (11,360,000 | ) | (17,416,000 | ) | ||||
Loss from discontinued operations, net of income tax benefit of $0 in 2010 and $342,000 in 2009 | (27,000 | ) | (565,000 | ) | ||||
Net loss | $ | (11,387,000 | ) | $ | (17,981,000 | ) | ||
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Common Stock | Additional | |||||||||||||||||||
Number of | Paid-In | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance at December 31, 2008 | 3,595,320 | $ | 3,595 | $ | 112,480,405 | $ | (16,218,000 | ) | $ | 96,266,000 | ||||||||||
Acquisition of Mass 2 One Media LLC | 223,771 | 224 | 8,055,776 | — | 8,056,000 | |||||||||||||||
Acquisition of Spacial Audio Solutions, LLC | 106,667 | 107 | 3,839,893 | — | 3,840,000 | |||||||||||||||
Acquisition of Enticent, Inc. | 66,667 | 66 | 2,399,934 | — | 2,400,000 | |||||||||||||||
Sale of common stock | 727,748 | 728 | 26,198,272 | — | 26,199,000 | |||||||||||||||
Contingent consideration from prior acquisitions | 17,072 | 17 | 614,983 | — | 615,000 | |||||||||||||||
Bridge loan conversion | 91,002 | 91 | 3,275,909 | — | 3,276,000 | |||||||||||||||
Exercise of management subscription rights | 9,589 | 10 | 344,990 | — | 345,000 | |||||||||||||||
Net loss | — | — | — | (17,981,000 | ) | (17,981,000 | ) | |||||||||||||
Balance at December 31, 2009 | 4,837,836 | 4,838 | 157,210,162 | (34,199,000 | ) | 123,016,000 | ||||||||||||||
Issuance of common stock | 168,773 | 162 | 6,074,838 | — | 6,075,000 | |||||||||||||||
Net loss | — | — | — | (11,387,000 | ) | (11,387,000 | ) | |||||||||||||
Balance at December 31, 2010 | 5,006,609 | $ | 5,000 | $ | 163,285,000 | $ | (45,586,000 | ) | $ | 117,704,000 | ||||||||||
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Year Ended December 31 | ||||||||
2010 | 2009 | |||||||
Operating activities | ||||||||
Net loss | $ | (11,387,000 | ) | $ | (17,981,000 | ) | ||
Loss from discontinued operations, net of tax | (27,000 | ) | (564,000 | ) | ||||
Loss from continuing operations | (11,360,000 | ) | (17,417,000 | ) | ||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activity, net of acquisitions: | ||||||||
Depreciation and amortization | 18,639,000 | 15,261,000 | ||||||
Non-cash interest expense | 13,764,000 | 10,255,000 | ||||||
Bad debt expense | 408,000 | 69,000 | ||||||
Change in fair value of interest rate swap | (1,147,000 | ) | (962,000 | ) | ||||
Increase in deferred rent | 306,000 | 451,000 | ||||||
Gain from remeasurement of investment | (5,573,000 | ) | (1,675,000 | ) | ||||
Loss in equity investment | 778,000 | 1,148,000 | ||||||
Loss in investment | 561,000 | — | ||||||
Indefinite-lived intangible asset impairment | — | 360,000 | ||||||
Write-off of loan receivable | 695,000 | — | ||||||
Deferred taxes | 2,115,000 | (10,812,000 | ) | |||||
Non-cash marketing expense | — | 2,800,000 | ||||||
Foreign currency transaction loss | 13,000 | — | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (79,000 | ) | (1,608,000 | ) | ||||
Prepaid expenses and other current assets | 894,000 | 397,000 | ||||||
Net current assets of discontinued operations | 426,000 | — | ||||||
Other assets | (104,000 | ) | (55,000 | ) | ||||
Accounts payable | 1,099,000 | 34,000 | ||||||
Producer payable | (3,240,000 | ) | (2,659,000 | ) | ||||
Accrued expenses and other current liabilities | (752,000 | ) | 289,000 | |||||
Deferred revenue | 745,000 | (286,000 | ) | |||||
Other liabilities | (28,000 | ) | (835,000 | ) | ||||
Total adjustments | 29,520,000 | 12,172,000 | ||||||
Net cash provided by (used in) operating activities of continued operations | 18,160,000 | (5,245,000 | ) | |||||
Net cash used in operating activities of discontinued operations | — | (565,000 | ) | |||||
Net cash provided by (used in) operating activities | 18,160,000 | (5,810,000 | ) | |||||
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Consolidated Cash Flows (continued)
Year Ended December 31 | ||||||||
2010 | 2009 | |||||||
Cash flows from investing activities | ||||||||
Acquisition of property and equipment | $ | (3,107,000 | ) | $ | (2,934,000 | ) | ||
Acquisition of capitalized software | (1,473,000 | ) | (919,000 | ) | ||||
Acquisitions of business, net of cash acquired | (31,490,000 | ) | (19,135,000 | ) | ||||
Net cash used in investing activities | (36,070,000 | ) | (22,988,000 | ) | ||||
Cash flows from financing activities | ||||||||
Principal payments of capital lease obligation | (243,000 | ) | (124,000 | ) | ||||
Proceeds from bridge loan | — | 3,000,000 | ||||||
Proceeds from issuance of PIK notes | 15,000,000 | 2,221,000 | ||||||
Proceeds from long term debt | 20,000,000 | — | ||||||
Repayment of long term debt | (11,368,000 | ) | (6,794,000 | ) | ||||
Deferred financing costs | (1,515,000 | ) | — | |||||
Issuance of common stock | 6,075,000 | 26,544,000 | ||||||
Net cash provided by financing activities | 27,949,000 | 24,847,000 | ||||||
Net increase (decrease) in cash and cash equivalents | 10,039,000 | (3,951,000 | ) | |||||
Cash and cash equivalents: | ||||||||
Beginning of year | 3,909,000 | 7,860,000 | ||||||
End of year | $ | 13,948,000 | $ | 3,909,000 | ||||
Supplemental disclosures | ||||||||
Interest expense paid | $ | 6,741,000 | $ | 7,716,000 | ||||
Noncash investing and financing activities | ||||||||
Accrual of contingent payment on purchase of business | $ | 1,000,000 | $ | — | ||||
Acquisition under capital lease | $ | 41,000 | $ | — | ||||
Property and equipment under capital lease | $ | — | $ | — | ||||
Common stock issued relating to acquisitions | $ | — | $ | 14,910,000 | ||||
Conversion of bridge loan to common stock | $ | — | $ | 3,276,000 | ||||
Elimination in consolidation of Mass2One Notes receivable | $ | — | $ | 3,000,000 | ||||
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9
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10
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Radio, network and communications equipment | 3 to 7 years | |
Office computer and equipment | 3 to 5 years | |
Furniture and fixtures | 5 to 7 years | |
Leasehold improvements | Shorter of useful life or lease term |
11
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12
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Advertiser and producer relationships | 15 years | |
Trade names | 3-7 years | |
Customer relationships | 1-9 years | |
Technology | 2-8 years | |
IPR&D | 8-9 years | |
Beneficial lease interest | 7 years | |
Non-compete agreements | 4 years |
13
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14
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15
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16
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Level 1 — Quoted prices in active markets for identical assets or liabilities |
Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities |
Level 3 — No observable pricing inputs in the market |
17
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• | On January 1, 2010, the Company adopted the accounting standard that; requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a variable interest entity (“VIE”); requires ongoing reassessments of whether an enterprise is a primary beneficiary of a VIE; enhances disclosures about an enterprise’s involvement with a VIE; and amends certain guidance for determining whether an entity is a VIE. |
• | On January 1, 2010, the Company adopted the update to the accounting standard that requires new disclosures, and clarifies existing disclosures on fair value measurements. This standard also requires new disclosures including (i) separate disclosure of the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements, and a description of the reasons for the transfers, and (ii) separate presentation of information about purchases, sales, issuances, and settlements in the reconciliation of Level 3 fair value measurements. This update also clarifies existing disclosures requiring the Company to (i) determine each class of assets and liabilities based on the nature and risks of the investments, rather than by major security type, and (ii) for each class of assets and liabilities, disclose the valuation techniques and inputs used to measure fair value for both Level 2 and Level 3 fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. |
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December 31 | ||||||||
2010 | 2009 | |||||||
Radio and communications equipment | $ | 9,597,000 | $ | 7,549,000 | ||||
Office computer and equipment | 7,802,000 | 5,827,000 | ||||||
Furniture and fixtures | 837,000 | 774,000 | ||||||
Leasehold improvements | 2,957,000 | 2,866,000 | ||||||
Capitalized lease assets | 683,000 | 477,000 | ||||||
Property and equipment | 21,876,000 | 17,493,000 | ||||||
Accumulated depreciation | (13,491,000 | ) | (7,623,000 | ) | ||||
Property and equipment, net | $ | 8,385,000 | $ | 9,870,000 | ||||
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December 31 | ||||||||
2010 | 2009 | |||||||
Ex-Band | $ | 561,000 | $ | 1,122,000 | ||||
StreamTheWorld | — | 2,595,000 | ||||||
Total investments | $ | 561,000 | $ | 3,717,000 | ||||
20
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21
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5. | Acquisitions (continued) |
Cash | $ | 568,000 | ||
Accounts receivable | 1,353,000 | |||
Other current assets | 1,039,000 | |||
Property and equipment | 1,238,000 | |||
Goodwill | 26,217,000 | |||
Technology | 8,900,000 | |||
Customer relations | 2,700,000 | |||
Trade name | 270,000 | |||
Accounts payable | (571,000 | ) | ||
Accrued expenses | (1,396,000 | ) | ||
Deferred revenue | (54,000 | ) | ||
Deferred tax liability | (1,900,000 | ) | ||
Capital lease obligation | (404,000 | ) | ||
Debt | (211,000 | ) | ||
$ | 37,749,000 | |||
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Property and equipment | $ | 16,000 | ||
Customer relationships | 400,000 | |||
Technology | 410,000 | |||
Trade name | 150,000 | |||
Goodwill | 1,524,000 | |||
$ | 2,500,000 | |||
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Cash | $ | 31,000 | ||
Accounts receivable | 299,000 | |||
Other current assets | 2,809,000 | |||
Property and equipment | 37,000 | |||
Goodwill | 7,325,000 | |||
Customer relations | 5,300,000 | |||
Technology | 2,000,000 | |||
Trade name | 1,200,000 | |||
Accounts payable | (77,000 | ) | ||
Accrued expenses | (69,000 | ) | ||
Deferred tax liabilities | (2,890,000 | ) | ||
Capital lease obligation | (9,000 | ) | ||
$ | 15,956,000 | |||
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Cash | $ | 17,000 | ||
Accounts receivable | 181,000 | |||
Other current assets | 3,000 | |||
Property and equipment | 1,000 | |||
Goodwill | 5,005,000 | |||
Technology | 2,200,000 | |||
Trade name | 800,000 | |||
Customer relations | 40,000 | |||
Other current liabilities | (111,000 | ) | ||
Deferred tax liabilities | (700,000 | ) | ||
$ | 7,436,000 | |||
Cash | $ | 134,000 | ||
Accounts receivable | 522,000 | |||
Other current assets | 171,000 | |||
Property and equipment | 92,000 | |||
Goodwill | 9,044,000 | |||
Technology | 3,000,000 | |||
Trade name | 2,000,000 | |||
Customer relations | 1,000,000 | |||
Accounts payable | (52,000 | ) | ||
Accrued expenses | (105,000 | ) | ||
Deferred revenue | (221,000 | ) | ||
Deferred tax liabilities | (2,040,000 | ) | ||
Capital lease obligation | (45,000 | ) | ||
$ | 13,500,000 | |||
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Balance — January 1, 2009 | $ | 95,616,000 | ||
Acquisitions in 2009 | 21,410,000 | |||
Contingent payout of prior year acquisitions | 5,200,000 | |||
Balance — December 31, 2009 | $ | 122,226,000 | ||
StreamTheWorld acquisition | 26,217,000 | |||
Voodoo acquisition | 1,524,000 | |||
Backtrax additional consideration | 185,000 | |||
Enticent reclassification of intangibles to goodwill | 800,000 | |||
Balance — December 31, 2010 | $ | 150,952,000 | ||
December 31, 2010 | December 31, 2009 | |||||||||||||||
Gross Carrying | Accumulated | Gross Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Advertiser and producer relationships | $ | 103,901,000 | $ | 19,726,000 | $ | 103,901,000 | $ | 12,800,000 | ||||||||
Trade names | 9,190,000 | 1,805,000 | 8,970,000 | 967,000 | ||||||||||||
Customer relationships | 11,040,000 | 2,884,000 | 7,940,000 | 1,474,000 | ||||||||||||
Technology | 16,710,000 | 3,029,000 | 8,000,000 | 1,109,000 | ||||||||||||
IPR&D | 4,400,000 | 1,152,000 | 4,400,000 | 638,000 | ||||||||||||
Beneficial lease interests | 1,200,000 | 549,000 | 1,200,000 | 374,000 | ||||||||||||
Non-compete agreements | 1,700,000 | 1,346,000 | 1,700,000 | 921,000 | ||||||||||||
Total at December 31, 2010 | $ | 148,141,000 | $ | 30,491,000 | $ | 136,111,000 | $ | 18,283,000 | ||||||||
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Year Ending December 31: | ||||
2011 | $ | 12,642,000 | ||
2012 | 12,003,000 | |||
2013 | 11,632,000 | |||
2014 | 11,508,000 | |||
2015 | 11,328,000 | |||
Thereafter | 54,437,000 | |||
Total amortization expense | $ | 113,550,000 | ||
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2010 | 2009 | |||||||
Senior Notes | $ | 95,707,000 | $ | 68,370,000 | ||||
Note Payable | 94,733,000 | 85,986,000 | ||||||
Other Loans | 95,000 | — | ||||||
Total long-term debt | $ | 190,535,000 | $ | 154,356,000 | ||||
Less current portion | 11,225,000 | 7,125,000 | ||||||
Long-term debt, non-current portion | $ | 179,310,000 | $ | 147,231,000 | ||||
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2011 | $ | 11,234,000 | ||
2012 | 16,708,000 | |||
2013 | 162,593,000 | |||
Total | $ | 190,535,000 | ||
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2010 | 2009 | |||||||
Current tax provision: | ||||||||
Federal | $ | — | $ | — | ||||
State | 32,000 | 81,000 | ||||||
Foreign | 9,000 | — | ||||||
Total current tax provision | 41,000 | 81,000 | ||||||
Deferred tax provision/(benefit): | ||||||||
Federal | 1,781,000 | (8,358,000 | ) | |||||
State | 334,000 | (2,112,000 | ) | |||||
Foreign | — | — | ||||||
Total deferred tax provision (benefit) | 2,115,000 | (10,470,000 | ) | |||||
Total income tax provision (benefit) | $ | 2,156,000 | $ | (10,389,000 | ) | |||
2010 | 2009 | |||||||
Statutory rate | 34.0 | % | 34.0 | % | ||||
Re-measurement of investment | (1.2 | ) | 2.2 | |||||
Change in statutory rate | 1.1 | |||||||
State taxes, net of federal benefits | 6.8 | 4.9 | ||||||
Foreign investment | (0.1 | ) | (0.5 | ) | ||||
Uncertain tax position (ASC 740-10) | — | (2.8 | ) | |||||
Other | (1.2 | ) | (.1 | ) | ||||
Change in valuation allowance — state | (11.4 | ) | — | |||||
Change in valuation allowance — federal | (52.3 | ) | — | |||||
(24.3 | )% | 37.7 | % | |||||
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2010 | 2009 | |||||||
Deferred tax assets | ||||||||
Depreciation | $ | 1,705,000 | $ | 1,527,000 | ||||
Non-cash interest | — | 2,380,000 | ||||||
Transaction fees | 2,317,000 | 1,027,000 | ||||||
Deferred rent | 370,000 | 246,000 | ||||||
Allowance for bad debt | 247,000 | 293,000 | ||||||
Interest rate swap | — | 474,000 | ||||||
Investment impairment | 230,000 | 959,000 | ||||||
Net operating losses | 18,762,000 | 12,796,000 | ||||||
State tax deferred | 163,000 | 460,000 | ||||||
Other | 704,000 | 127,000 | ||||||
Total deferred tax assets | 24,498,000 | 20,289,000 | ||||||
Amortization | (28,369,000 | ) | (25,750,000 | ) | ||||
State tax — deferred | (36,000 | ) | (102,000 | ) | ||||
Total deferred tax liabilities | (28,405,000 | ) | (25,852,000 | ) | ||||
Valuation allowance | (6,446,000 | ) | (776,000 | ) | ||||
Net deferred tax | $ | (10,353,000 | ) | $ | (6,339,000 | ) | ||
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Future | ||||||||
Future | Minimum | |||||||
Minimum | Sublease | |||||||
Rent | Income | |||||||
Year Ending December 31: | ||||||||
2011 | $ | 5,963,000 | $ | (1,081,000 | ) | |||
2012 | 4,807,000 | (1,138,000 | ) | |||||
2013 | 4,329,000 | (1,311,000 | ) | |||||
2014 | 3,734,000 | (1,311,000 | ) | |||||
2015 | 4,140,000 | (1,311,000 | ) | |||||
2016 and thereafter | 11,861,000 | (218,000 | ) | |||||
Total | $ | 34,834,000 | $ | (6,370,000 | ) | |||
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Year Ending December 31: | ||||
2011 | $ | 432,000 | ||
2012 | 17,000 | |||
2013 | 2,000 | |||
451,000 | ||||
Less amount representing interest | (10,000 | ) | ||
$ | 441,000 | |||
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Year Ending December 31: | ||||
2011 | $ | 3,100,000 | ||
2012 | 3,200,000 | |||
2013 | 3,300,000 | |||
2014 | 3,400,000 | |||
$ | 13,000,000 | |||
Year Ending December 31: | ||||
2011 | $ | 4,614,000 | ||
2012 | 2,125,000 | |||
2013 | 380,000 | |||
$ | 7,119,000 | |||
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Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | $ | 13,949,000 | $ | — | $ | — | ||||||
Restricted investment | 538,000 | — | — | |||||||||
Total assets | $ | 14,487,000 | $ | — | $ | — | ||||||
Liabilities | ||||||||||||
Liability for contingent consideration | $ | — | $ | — | $ | 1,000,000 | ||||||
$ | — | $ | — | $ | 1,000,000 | |||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | $ | 3,909,000 | $ | — | $ | — | ||||||
Restricted investment | 538,000 | — | — | |||||||||
Total assets | $ | 4,447,000 | $ | — | $ | — | ||||||
Liabilities | ||||||||||||
Interest rate swaps | $ | — | $ | 1,147,000 | $ | — | ||||||
$ | — | $ | 1,147,000 | $ | — | |||||||
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December 31 | ||||||||
Description | 2010 | 2009 | ||||||
Balance at the beginning of the year | $ | — | $ | — | ||||
Transfer to Level 3 | — | — | ||||||
Business acquired | 1,000,000 | — | ||||||
Balance at the end of the year | $ | 1,000,000 | $ | — | ||||
Fair Value at | ||||||||||||
December 31, | Impairment | |||||||||||
Description | 2010 | Level 3 | Charge | |||||||||
Assets | ||||||||||||
Investment in Ex-Band | $ | 561,000 | $ | 561,000 | $ | 561,000 | ||||||
Total | $ | 561,000 | $ | 561,000 | $ | 561,000 | ||||||
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Fair Value at | ||||||||||||
December 31, | Impairment | |||||||||||
Description | 2009 | Level 3 | Charge | |||||||||
Asset | ||||||||||||
Impairment of trade name | $ | 360,000 | $ | 360,000 | $ | 360,000 | ||||||
Total | $ | 360,000 | $ | 360,000 | $ | 360,000 | ||||||
Accounts receivable | $ | 473,000 | ||
Prepaid expenses and other current assets | 4,000 | |||
Current assets of discontinued operations | $ | 477,000 | ||
Accounts payable and accrued expenses | $ | 24,000 | ||
Current liabilities of discontinued operations | $ | 24,000 | ||
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Six-months ended June 30, 2011 and 2010 (Unaudited)
Table of Contents
1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
Table of Contents
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 8,766,000 | $ | 13,948,000 | ||||
Accounts receivable, net | 53,548,000 | 52,379,000 | ||||||
Prepaid expenses and other current assets | 4,764,000 | 3,081,000 | ||||||
Total current assets | 67,078,000 | 69,408,000 | ||||||
Property and equipment, net | 8,171,000 | 8,385,000 | ||||||
Investment | 561,000 | 561,000 | ||||||
Intangible assets, net | 111,293,000 | 117,650,000 | ||||||
Goodwill | 150,990,000 | 150,952,000 | ||||||
Restricted investment | 538,000 | 538,000 | ||||||
Other assets | 4,317,000 | 3,937,000 | ||||||
Deferred financing costs, net | 2,057,000 | 2,683,000 | ||||||
Total assets | $ | 345,005,000 | $ | 354,114,000 | ||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | 7,463,000 | 7,192,000 | ||||||
Producer payable | 18,525,000 | 15,981,000 | ||||||
Accrued expenses and other current liabilities | 7,360,000 | 9,734,000 | ||||||
Long-term debt, current portion | 13,961,000 | 11,225,000 | ||||||
Capital lease obligations, current | 400,000 | 431,000 | ||||||
Deferred revenue | 531,000 | 1,046,000 | ||||||
Total current liabilities | 48,240,000 | 45,609,000 | ||||||
Non-current portion of long-term debt | 178,240,000 | 179,310,000 | ||||||
Capital lease obligations, long term | 26,000 | 10,000 | ||||||
Deferred tax liabilities | 11,429,000 | 10,353,000 | ||||||
Other long-term liabilities | 1,127,000 | 1,128,000 | ||||||
Total liabilities | 239,062,000 | 236,410,000 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity: | ||||||||
Preferred stock, $.001 par value, 1,000,000 shares authorized and none issued | — | — | ||||||
Common stock, $.001 par value, 6,000,000 and 5,000,000 shares authorized, respectively, 5,006,609 and 4,837,836 shares issued and outstanding, respectively | 5,000 | 5,000 | ||||||
Additional paid-in capital | 163,285,000 | 163,285,000 | ||||||
Accumulated deficit | (57,347,000 | ) | (45,586,000 | ) | ||||
Total shareholders’ equity | 105,943,000 | 117,704,000 | ||||||
Total liabilities and shareholders’ equity | $ | 345,005,000 | $ | 354,114,000 | ||||
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Six-months ended June 30 | ||||||||
2011 | 2010 | |||||||
Net revenues | $ | 57,957,000 | $ | 56,099,000 | ||||
Cost of revenues | 23,544,000 | 21,307,000 | ||||||
Gross profit | 34,413,000 | 34,792,000 | ||||||
Operating expenses | 24,402,000 | 23,454,000 | ||||||
Depreciation and amortization | 9,925,000 | 8,665,000 | ||||||
Income (loss) from continuing operations | 86,000 | 2,673,000 | ||||||
Interest expense, net | (10,771,000 | ) | (8,202,000 | ) | ||||
Gain from re-measurement of investment | — | 5,573,000 | ||||||
Loss on equity investment | — | (778,000 | ) | |||||
Loss before income taxes | (10,685,000 | ) | (734,000 | ) | ||||
Income taxes | 1,076,000 | 1,042,000 | ||||||
Net loss | $ | (11,761,000 | ) | $ | (1,776,000 | ) | ||
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Six-months ended June 30 | ||||||||
2011 | 2010 | |||||||
Operating activities | ||||||||
Net loss | $ | (11,761,000 | ) | $ | (1,776,000 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activity, net of acquisitions: | ||||||||
Depreciation and amortization | 9,925,000 | 8,665,000 | ||||||
Non-cash interest expense | 8,019,000 | 6,288,000 | ||||||
Bad debt expense | 90,000 | 145,000 | ||||||
Change in fair value of interest rate swap | — | (675,000 | ) | |||||
Increase in deferred rent | 22,000 | 173,000 | ||||||
Gain on remeasurement | — | (5,573,000 | ) | |||||
Loss on equity investment | — | 778,000 | ||||||
Deferred taxes | 1,076,000 | 1,042,000 | ||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable | (1,259,000 | ) | (1,302,000 | ) | ||||
Prepaid expenses and other current assets | (1,683,000 | ) | (1,004,000 | ) | ||||
Net current assets of discontinued operations | — | 453,000 | ||||||
Other assets | 81,000 | (18,000 | ) | |||||
Accounts payable | 272,000 | (704,000 | ) | |||||
Producer payable | 2,544,000 | 1,030,000 | ||||||
Accrued expenses and other current liabilities | (2,411,000 | ) | (2,889,000 | ) | ||||
Deferred revenue | (515,000 | ) | 50,000 | |||||
Other liabilities | (24,000 | ) | (24,000 | ) | ||||
Total adjustments | 16,137,000 | 6,435,000 | ||||||
Net cash provided by operating activities | 4,376,000 | 4,659,000 | ||||||
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Six-months ended June 30 | ||||||||
2011 | 2010 | |||||||
Cash flows from investing activities | ||||||||
Acquisition of property and equipment | $ | (1,872,000 | ) | $ | (933,000 | ) | ||
Internally developed software | (1,943,000 | ) | (969,000 | ) | ||||
Acquisitions of business, net of cash acquired | — | (31,387,000 | ) | |||||
Net cash used in investing activities | (3,815,000 | ) | (33,289,000 | ) | ||||
Cash flows from financing activities | ||||||||
Principal payments of capital lease obligation | (16,000 | ) | (77,000 | ) | ||||
Proceeds from issuance PIK Notes | — | 15,000,000 | ||||||
Proceeds from long term debt | — | 20,000,000 | ||||||
Repayment of long term debt | (5,727,000 | ) | (4,030,000 | ) | ||||
Deferred financing costs | — | (1,515,000 | ) | |||||
Issuance of common stock | — | 6,076,000 | ||||||
Net cash (used in) provided by financing activities | (5,743,000 | ) | 35,454,000 | |||||
Net (decrease) increase in cash and cash equivalents | ||||||||
Cash and cash equivalents: | (5,182,000 | ) | 6,824,000 | |||||
Beginning of year | 13,948,000 | 3,909,000 | ||||||
End of year | $ | 8,766,000 | $ | 10,733,000 | ||||
Supplemental disclosures | ||||||||
Interest expense paid | $ | 2,901,000 | $ | 3,174,000 | ||||
Noncash investing and financing activities | ||||||||
Accrual of contingent payment on purchase of business | — | $ | 1,000,000 | |||||
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5
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6
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Balance as of December 31, 2010 | $ | 150,952,000 | ||
Backtrax additional consideration | 38,000 | |||
Balance as of June 30, 2011 | $ | 150,990,000 | ||
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June 30, 2011 | December 31, 2010 | |||||||||||||||
Gross | Gross | |||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
Amount | Amortization | Amount | Amortization | |||||||||||||
Advertiser and producer relationships | $ | 103,901,000 | $ | 23,190,000 | $ | 103,901,000 | $ | 19,726,000 | ||||||||
Trade names | 9,190,000 | 2,243,000 | 9,190,000 | 1,805,000 | ||||||||||||
Customer relationships | 11,040,000 | 3,629,000 | 11,040,000 | 2,884,000 | ||||||||||||
Technology | 16,710,000 | 4,183,000 | 16,710,000 | 3,029,000 | ||||||||||||
IPR&D | 4,400,000 | 1,409,000 | 4,400,000 | 1,152,000 | ||||||||||||
Beneficial lease interests | 1,200,000 | 636,000 | 1,200,000 | 549,000 | ||||||||||||
Non-compete agreements | 1,700,000 | 1,558,000 | 1,700,000 | 1,346,000 | ||||||||||||
Total | $ | 148,141,000 | $ | 36,848,000 | $ | 148,141,000 | $ | 30,491,000 | ||||||||
Six-months ending December 31, 2011 | $ | 6,286,000 | ||
Year ending December 31, 2012 | 12,003,000 | |||
Year ending December 31, 2013 | 11,632,000 | |||
Year ending December 31, 2014 | 11,509,000 | |||
Year ending December 31, 2015 | 11,329,000 | |||
Thereafter | 54,434,000 | |||
Total amortization expense | $ | 107,193,000 | ||
8
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9
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10
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2011 | $ | 13,961,000 | ||
2012 | 16,710,000 | |||
2013 | 161,530,000 | |||
Total | $ | 192,201,000 | ||
Level 1 — Quoted prices in active markets for identical assets or liabilities |
Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities |
Level 3 — No observable pricing inputs in the market |
11
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Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | $ | 8,766,000 | — | — | ||||||||
Restricted investments | 538,000 | — | — | |||||||||
Total assets | $ | 9,304,000 | $ | — | $ | — | ||||||
Liabilities | ||||||||||||
Liability for contingent consideration | $ | — | $ | — | $ | 516,000 | ||||||
$ | — | $ | — | $ | 516,000 | |||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | $ | 13,949,000 | — | — | ||||||||
Restricted investments | 538,000 | — | — | |||||||||
Total assets | $ | 14,487,000 | $ | — | $ | — | ||||||
Liabilities | ||||||||||||
Liability for contingent consideration | $ | — | $ | — | $ | 1,000,000 | ||||||
$ | — | $ | — | $ | 1,000,000 | |||||||
13
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June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Balance at the beginning of the year | $ | 1,000,000 | $ | — | ||||
Payments made | (484,000 | ) | — | |||||
Business acquired | — | 1,000,000 | ||||||
Balance at the end of the year | $ | 516,000 | $ | 1,000,000 | ||||
14
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Future | ||||||||
Future | Minimum | |||||||
Minimum | Sublease | |||||||
Rents | Income | |||||||
Period ending June 30, 2011 | ||||||||
July 1, 2011 to December 31, 2011 | $ | 3,115,000 | $ | (540,000 | ) | |||
2012 | 6,326,000 | (1,138,000 | ) | |||||
2013 | 5,823,000 | (1,311,000 | ) | |||||
2014 | 4,621,000 | (1,311,000 | ) | |||||
2015 | 4,601,000 | (1,311,000 | ) | |||||
2016 | 3,427,000 | (218,000 | ) | |||||
2017 Thereafter | 9,056,000 | — | ||||||
Balance at the end of the year | $ | 36,969,000 | $ | 5,829,000 | ||||
15
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Period ending June 30, 2011 | ||||
July 1, 2011 to December 31, 2011 | $ | 354,000 | ||
2012 | 46,000 | |||
2013 | 33,000 | |||
2014 | 7,000 | |||
440,000 | ||||
Less amount representing interest | 14,000 | |||
$ | 426,000 | |||
Period ending June 30 | ||||
July 1, 2011 to December 31, 2011 | $ | 1,550,000 | ||
2012 | 3,200,000 | |||
2013 | 3,300,000 | |||
2014 | 3,400,000 | |||
$ | 11,450,000 | |||
16
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Period ending June 30 | ||||
July 1, 2011 to December 31, 2011 | $ | 2,844,000 | ||
2012 | 3,225,000 | |||
2013 | 2,918,000 | |||
$ | 8,987,000 | |||
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19