SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 1, 2001
WORLDWIDE PETROMOLY,INC.
(Exact Name of Registrant as Specified in Its Charter)
COLORADO 000-24682 84-1125214
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
12600 Deerfield Parkway, Suite 100
Alpharetta, Georgia 30004
(Address of Principal Executive Offices, Including Zip Code)
(678) 762-3295
Registrant's Telephone Number, Including Area Code
1300 Post Oak Boulevard, Suite 1985
Houston, Texas 77056
(Former Address, If Changed Since Last Report)
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
A change in control of the Registrant occurred on June 1, 2001 (the
"Effective Time") pursuant to the terms and conditions of an Agreement and Plan
of Merger, dated as of March 26, 2001 and amended on April 30, 2001 (the "Merger
Agreement"), by and among the Registrant, Small Town Radio, Inc., a Georgia
corporation ("STRI"), Petro Merger, Inc., a Georgia corporation and wholly-owned
subsidiary of the Registrant ("Petro Merger"), Gilbert Gertner, a resident of
the State of Texas and former Chairman of the Board of the Registrant
("Gertner") and certain shareholders of STRI. All references to the terms of the
Merger Agreement are qualified in their entirety by reference to the Merger
Agreement, which is attached as Exhibit 2.1 hereto and incorporated herein by
this reference.
The Merger Agreement provided for the merger (the "Merger") of Petro
Merger with and into STRI, with STRI as the surviving corporation. As a result
of the Merger, STRI became a wholly-owned subsidiary of the Registrant and the
former shareholders of STRI received an aggregate of 118,467,860 shares or
approximately 75% of the outstanding shares of the common stock, no par value,
of the Registrant (the "Common Stock"). Because the shares of Common Stock
received by the former shareholders of STRI were not registered under the
Securities Act of 1933, as amended (the "Act"), such shares are "restricted
securities" (as defined in Rule 144 promulgated under the Act) and accordingly,
may not be sold or transferred by the holders thereof unless such shares are
registered under the Act or are sold or transferred pursuant to an exemption
therefrom.
The Merger Agreement contemplated that, as a condition to closing, not
less than $4 million in equity financing be obtained. At the time the Merger
Agreement was executed, it was anticipated that such financing would be obtained
through the sale of preferred stock by STRI, which would be converted as a
result of the Merger into shares of the Registrant's convertible preferred
stock. Such convertible preferred stock would have represented approximately
18.1% of the Registrant's common stock on a fully-diluted basis. The parties
waived the financing condition to the Merger Agreement, and no such convertible
preferred stock was issued or is issuable in connection with or as a result of
the Merger.
Effective as of the Effective Time, the Board of Directors of the
Registrant (the "Board"), which, prior to the Effective Time, was composed of
Gertner, and Messrs. Lance Rosmarin and Norton Cooper, was increased in size
from three to four members. Effective as of the Effective Time, Gertner resigned
from the Board and the following persons were elected to fill the vacancies on
the Board: Robert (Robin) S. Vail and William Ross (the "STRI Designees").
Information with respect to the STRI Designees, including beneficial ownership
of the Common Stock held by such STRI Designees, is included in the Registrant's
Information Statement pursuant to Section 14(f) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and Rule 14f-1 thereunder, filed by the
2
Registrant on April 2, 2001 (the "Information Statement"), which is incorporated
herein by this reference.
Subsequent to the filing of the Information Statement and prior to the
Effective Time, Mr. John McManus, who was identified as an STRI Designee in the
Information Statement, resigned from the Board of Directors of STRI, and STRI
therefore chose not to name him as a STRI Designee to the Registrant's Board.
After the Effective Time, in an action by unanimous written consent, the Board
voted to increase the size of the Board to seven persons and elected William
Fleming, Lauren B. Kahn and John F. McMullan to fill the vacancies created by
such increase. Information concerning Messrs. Fleming and McMullan and Ms. Kahn
is included in Item 5 of this Report. The Board also elected Robert (Robin) S.
Vail as Chairman of the Board and appointed him as Chief Financial Officer; and,
by operation of the Merger Agreement, Messrs. Gertner and Rosmarin are no longer
officers of the Company. In addition, the Board approved the sale of the capital
stock of Worldwide PetroMoly Corporation ("WPC"), a Texas corporation and
wholly-owned subsidiary of the Registrant to Gertner. The sale of the stock to
WPC is described in Item 2 of this Report.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
ACQUISITION OF STRI.
On June 1, 2001, the Merger was consummated in accordance with the
terms and conditions of the Merger Agreement, including the waiver of certain
closing conditions. Pursuant thereto, Petro Merger, a wholly-owned subsidiary of
Registrant, was merged with and into STRI, with STRI as the surviving
corporation. Following the Merger, STRI became a wholly-owned subsidiary of the
Registrant. In consideration for the Merger, the former shareholders of STRI
received one share of the Registrant's Common Stock for each share of STRI
Common Stock then issued and outstanding (the "Merger Consideration"). As a
result thereof, the former shareholders of STRI now beneficially own an
aggregate of 118,467,860 shares (approximately 75%) of the outstanding Common
Stock. The Merger Consideration was determined in arms' length negotiations
between the parties to the Merger Agreement. The negotiations were based on the
principle that the exchange ratio of Registrant's shares for STRI's shares
should reflect the relative values of the Registrant's existing business, which
had negative net worth, and the proposed business of STRI, including a
commitment that STRI had secured for financing. Prior to the consummation of the
Merger, there were no material relationships between STRI and its former
officers, directors, affiliates, associates or shareholders and the officers,
directors, affiliates, associates or shareholders of the Registrant. The Company
is actively pursuing several financing alternatives in order to fund its
business plan.
3
As described in Item 1 of this Report, upon consummation of the Merger,
the STRI Designees were elected to the Board. The Registrant's response to Item
1 of this Report is incorporated herein by this reference. The foregoing
description of the Merger and the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, which is being filed as an exhibit to this
report. In addition, the Registrant's Information Statement and Report on Form
8-K dated March 27, 2001, which reported the announcement of the execution of
the Merger Agreement, is incorporated herein and made a part hereof by this
reference.
The following is a description of STRI and its proposed plan of
operations. This description includes forward-looking statements. The Registrant
has based these forward-looking statements largely on its current expectations
and projections about future events and financial trends affecting the financial
condition of STRI's business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions, including, among other things:
o General economic and business conditions, both nationally and in STRI's
markets:
The U.S. economy has recently experienced a significant slow
down in its rate of growth, and media providers such as STRI have been
affected. A further slow down in the economy may have a significant
impact on a company such as STRI that plans to operate in small,
non-rated markets, which typically have agricultural or light industry
as their employment base, and are especially susceptible to
fluctuations in the economy. As most of STRI's revenues will be derived
from advertising, as described later in this section, if the economies
of the markets in which STRI operates continue to be adversely
affected, there will be a concomitant impact on STRI's ability to
generate revenues.
o STRI's expectations and estimates concerning future financial
performance, financing plans and the impact of competition:
In addition to the concerns noted above regarding slow down of
the economy, it is also possible that competition pursuing a business
plan similar to STRI's could construct a network similar to STRI's in
the same, or a geographically contiguous, area such as to compete with
STRI's network. It is also possible that a competitor to STRI could
complete acquisitions in the same, or a geographically contiguous, area
prior to STRI, and thus would have the competitive advantage of being
the first into the market, which would adversely impact STRI's business
plan and ability to compete.
Also, although STRI has obtained a commitment for financing,
it requires interim financing until such financing can be finalized.
STRI can make no assurances that it will successfully complete such
4
financing or that it will be able to obtain interim financing prior to
such completion. STRI can also give no assurance that the financing it
may obtain, if any, will be sufficient to implement or expand on its
business plan.
o Anticipated trends in the radio business:
The technology available to the radio industry allowing it to
deliver programming is changing dramatically due to the rapid evolution
in the means of content delivery over the last five years. While STRI
plans to utilize some of the most recently developed technology, it can
give no assurance that its technology will be an effective or
cost-efficient means for the delivery of radio programming, or that
newer technology will not be introduced to the marketplace that will
render STRI's technology obsolete.
o Existing and future regulations affecting the radio business:
Due to recent amendments to the Communications Act of 1934, as
amended, the marketplace is currently characterized by favorable
regulations with respect to companies attempting to acquire radio
broadcast stations in a contiguous geographical area. There is,
however, no guarantee that these regulations will not again be amended
to prevent the aggregation of radio broadcast stations as planned by
STRI. Such a change in regulations could force STRI to divest itself
of stations that it plans to buy in the near term, as well as prevent
STRI from executing on its long term plans of aggregating more stations
into its operations and network.
o Acquisition opportunities:
STRI may not be able to acquire radio stations on the schedule
that it presently anticipates, and there is a risk that STRI will not
be able to successfully integrate new stations into its network as it
purchases them.
In addition, in this description, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to the Registrant and STRI, their business or their
management, are intended to identify forward-looking statements.
The Registrant undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, the
forward-looking events and circumstances discussed in this description may not
occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements.
Small Town Radio, Inc. ("STRI") was incorporated in the State of
Georgia in March, 2000. From the date of its incorporation, STRI's founding
5
shareholders have investigated and developed a plan of operation pursuant to
which STRI will acquire and operate radio stations in geographically contiguous
small, non-rated markets, initially located in rural areas of South Georgia. On
March 26, 2001, STRI and the Registrant entered into the Merger Agreement, and
on April 30, 2001 the Merger Agreement was amended, and it became effective on
June 1, 2001. On June 7, 2001 the Registrant completed the sale of WPC to
Gertner as contemplated by the Merger Agreement pursuant to an arms length
negotiation of a stock purchase agreement between the Registrant and Gertner.
WPC conducts the Registrant's former lubricants products business. A description
of the disposition of WPC is contained under the heading "Disposition of WPC" in
this section of this Report.
STRI's business strategy is to secure through acquisition a significant
number of radio stations in its target markets, generally smaller, less
populated areas near, but not in, mid-sized and larger markets. STRI intends
initially to acquire radio stations in rural sections of South Georgia, and then
expand into additional, geographically contiguous markets in the Southeast. STRI
believes that a network of stations in contiguous broadcast areas with two or
three common programming formats will provide an advertising and listener base
of significant size.
STRI believes that acquiring radio stations in small, less populated
markets represent attractive opportunities, because they are generally
characterized by:
o A small number of stations, few of which have professional sales staff
which solicit advertising from the business community;
o A greater need for radio advertising compared to the national average,
especially by those businesses that need to recruit consumer
transactions from nearby cities and towns;
o A population increasing, in many cases, at a percentage rate greater
than the national average, as people relocate to smaller towns to
improve their quality of life;
o Opportunities for substantial growth in advertising revenues as
national and regional retailers expand into smaller, less populated
areas;
o A weaker competitive environment, as compared to major metropolitan
areas, comprised of small independent operators, many of whom lack the
capital to produce locally-originated programming and/or to employ more
sophisticated research, marketing, management and sales techniques; and
o Less direct format competition due to a smaller number of stations in
any given market, and relative consistent listener interests such that
two or three programming formats may reach a dominant share of the
market.
These market characteristics, coupled with the opportunity to establish
contiguous coverage across multiple radio station markets, create the potential
for revenue growth and cost efficiencies.
6
STRI is currently pursuing negotiations for the purchase of several
radio stations in South Georgia. Assuming successful completion of its planned
initial acquisitions, STRI will own seven radio stations utilizing "frequency
modulation" ("FM") and four radio stations utilizing "amplitude modulation"
("AM"), as well as a television station, in South Georgia, however no assurance
can be given that STRI will be successful in completing any or all of these
proposed acquisitions. Assuming successful completion of its initial acquisition
plan, STRI plans to acquire additional geographically contiguous stations in
small non-rated markets in order to build a group of stations that can be
operated as a network, and thus, STRI believes, achieve operating efficiencies
and marketing leverage derived from a larger advertising customer and listener
base.
Operating Strategy. STRI's operating strategy is to maximize the
geographical coverage of its network of radio stations, thereby increasing the
number of available listeners and advertisers and, STRI believes consequently,
increasing broadcast revenue and cash flow. To achieve these goals, STRI intends
to:
o Secure and maintain a leadership position by owning a network of
stations with contiguous broadcast coverage to increase the overall
size of the markets served;
o Coordinate programming, promotional and sales strategies among each
group of local stations to enhance revenue opportunities and maximize
cost efficiencies within each market;
o Implement a regional sales staff and marketing initiatives to maximize
its share of local advertising revenue in each market, as well as
across the broadcast network;
o Combine market research with an assessment of its competitors'
vulnerabilities in order to identify significant and sustainable target
audiences;
o Acquire up to two FM and one AM station in each market, so that the
broadcast signal reaches the nearest adjacent market;
o Achieve a significant penetration of the listener market with the use
of two or three programming formats within the network; and
o Centralize operating activities across the region, with programming
that appeals to the collective market, while customizing local
programming.
Ownership of Geographically Contiguous Stations. STRI will attempt to
secure and maintain a leadership position in the markets it serves by creating
geographical signal coverage, not only in those markets in which STRI will own
stations, but also in adjacent markets by owning two or three stations, each
with programming appealing to a different segment of the population. By
coordinating programming, promotional and sales strategies within each local
station at the regional level, STRI will attempt to capture a wide demographic
range of listeners, thus providing a broader appeal to advertisers.
7
STRI will provide a mix of local inventory of available advertising
time and spots on its network of stations. By offering both local advertising
and access to adjacent markets through its network of stations, STRI believes
that it will strengthen relationships with advertisers, and maximize the value
of its advertising inventory.
STRI also intends to develop regional programming and sales resources
of its radio station network to enhance the growth potential of under performing
stations. Through consolidation into a common studio broadcasting facility, STRI
believes that it can reduce the risks associated with the implementation of
station performance improvements, such as new format launches and technical
upgrades. This strategy will permit combined programming with regional appeal,
while maintaining a level of localized input. STRI intends to achieve cost
savings within a market by consolidating facilities, sales and administrative
personnel, management and operating resources, such as on-air talent,
programming and music research, and reducing other redundant expenses.
Sales and Marketing Initiatives. STRI intends to maximize its share of
local advertising revenue in each of its markets through sales and marketing
initiatives. Because many of the radio stations that STRI may acquire have no
dedicated, or trained, sales staff, STRI believes that it can derive significant
benefits from creating or expanding the sales forces of acquired stations. STRI
intends to maximize revenue by utilizing sophisticated inventory management
techniques to provide sales personnel with frequent price adjustments based on
regional and local market conditions. STRI expects to strengthen relationships
with some advertisers by offering on-site events staged at, and broadcast from,
the advertiser's business location.
Targeted Programming and Promotion. To maintain or improve STRI's
position in each market, it will combine market research with an assessment of
competitors' vulnerabilities in order to identify significant and sustainable
target audiences. STRI will then tailor the programming, marketing and promotion
of each radio station to maximize its appeal to the targeted audience. STRI will
attempt to build strong markets by:
o Creating distinct, highly visible profiles with regional appeal for its
on-air personalities, particularly those broadcasting during morning
drive time, which traditionally airs between 6:00 a.m. and 10:00 a.m.;
o Utilizing multiple formats, which can reach a dominant portion of the
population in these smaller markets;
o Formulating recognition for the STRI network, in addition to the
individual stations, to promote listenership and advertising leverage
across the entire geographical area; and
o Actively participating in community events and charities.
Combination of Centralized Operations and Local Presence. STRI believes
that radio requires a local presence, both in its programming and by being
active in the community. Accordingly, although much of its operations will be
centralized it will maintain a "Community Coordinator" within each market.
8
Further, the sales staff will actively participate in the community and maintain
valuable relationships within the area. From a broadcast standpoint, STRI will
incorporate local news and information into its regional programming format, so
that programming content will both appeal to the population within the entire
region as well as provide localized content that is supportive of the station
community.
Source of Revenues
- ------------------
It is anticipated that virtually all of STRI's revenue will be
generated from the sale of local, regional and national advertising for
broadcast on its radio stations. Based on industry trends, approximately 83.0%
of net broadcast revenue will be generated from the sale of local and regional
advertising. Additional broadcast revenue is expected as a result of the sale of
national advertising, network compensation payments and other miscellaneous
transactions. The major categories of advertisers include telephone companies,
restaurants, fast food chains, automotive companies and grocery stores.
Each station's local sales staff will solicit advertising either
directly from the local advertiser or indirectly through an advertising agency.
Through direct advertiser relationships, STRI believes it can better understand
the advertiser's business needs and more effectively design advertising
campaigns to sell the advertiser's products. STRI will employ personnel in each
market to produce commercials for the advertiser. In-house production, combined
with effectively designed advertising, STRI believes will establish a stronger
relationship between the advertiser and the station cluster. National sales will
be made by a firm specializing in radio advertising sales on the national level
in exchange for a commission based on gross revenue. Regional sales, which STRI
defines as sales in regions surrounding its markets to companies that advertise
in its markets, will be made by STRI's local sales staff.
Depending on the programming format of a particular station, STRI will
estimate the optimum number of advertising spots available. The number of
advertisements that can be broadcast without jeopardizing listening levels is
limited in part by the format of a particular station. STRI will strive to
maximize station revenue by managing advertising inventory. Stations will adjust
pricing based on local market conditions and the ability to provide advertisers
with an effective means of reaching a targeted demographic group. Each station
has a general target level of on-air inventory. This target level of inventory
may be different at different times of the day, but tends to remain stable over
time. Selling activity is based on demand for the radio stations' on-air
inventory and, in general, STRI will respond to this demand by varying prices
rather than its target inventory level for a particular station.
A station's listenership is reflected in ratings surveys that estimate
the number of listeners tuned to the station and the time they spend listening.
Each station's ratings are used by its advertisers and advertising
representatives to consider advertising with the station and are used by us to
chart audience levels, set advertising rates and adjust programming. The radio
broadcast industry's principal ratings service is The Arbitron Company, which
publishes periodic ratings surveys for significant domestic radio markets. While
these provide comparative data for larger markets, it generally does not cover
9
the smaller, "unrated" markets in which STRI will have a presence. As such, STRI
will rely more heavily on information provided by local and state officials in
estimating available population and market size. These surveys will be its
primary source of audience ratings data.
Competition
- -----------
The radio broadcasting industry is highly competitive. The success of
each station depends largely upon audience ratings and its share of the overall
advertising revenue within its market. Stations compete for listeners and
advertising revenue directly with other radio stations within their respective
markets. Radio stations compete for listeners primarily on the basis of program
content that appeals to a particular demographic group. Building a strong
listener base consisting of a specific demographic group in a market enables an
operator to attract advertisers seeking to reach those listeners. Companies that
operate radio stations must be alert to the possibility of another station
changing format to compete directly for listeners and advertisers. A station's
decision to convert to a format similar to that of another radio station in the
same geographic area may result in lower ratings and advertising revenue,
increased promotion and other expenses and, consequently, lower broadcast cash
flow.
Factors that are material to a radio station's competitive position
include management experience, the station's local audience rank in its market,
transmitter power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other radio stations in the
market area. Recent changes in FCC policies and rules permit increased ownership
and operation of multiple local radio stations. Management believes that radio
stations that elect to take advantage of joint arrangements such as local
marketing agreements or joint sales agreements may in certain circumstances have
lower operating costs and may be able to offer advertisers more attractive rates
and services.
Although the radio broadcasting industry is highly competitive, some
barriers to entry exist. The operation of a radio broadcast station requires a
license from the FCC, and the number of radio stations that can operate in a
given market is limited by the availability of FM and AM radio frequencies
allotted by the FCC to communities in that market, as well as by the FCC's
multiple ownership rules regulating the number of stations that may be owned and
controlled by a single entity. The FCC's multiple ownership rules have changed
significantly as a result of the Telecommunications Act of 1996 (the
"Telecommunications Act").
Stations compete for advertising revenue with other media, including
newspapers, broadcast television, cable television, magazines, direct mail,
coupons and outdoor advertising. In addition, the radio broadcasting industry is
subject to competition from new media technologies that are being developed or
introduced, such as the delivery of audio programming by cable television
systems, by satellite and by digital audio broadcasting. Digital audio
broadcasting may deliver by satellite to nationwide and regional audiences,
multi-channel, multi-format, digital radio services with sound quality
equivalent to compact discs. The delivery of information through the Internet
also could create a new form of competition.
10
Properties and Facilities
- -------------------------
The types of properties required to support radio stations include
offices, studios, transmitter sites and antenna sites. The transmitter and
antenna sites are generally located to provide maximum market coverage. Most
acquisitions will include substantial land at the transmitter site, as well as
facilities that have historically been used for local studio space and offices.
While STRI expects to maintain a small office in each market for Community
Coordinators and sales staff, these are expected to be modest facilities that
can be maintained at nominal expense. STRI will likely sell, or utilize in
another manner, the studio space that it acquires. With regard to the
transmitter facilities, which are generally located at the tower location for
each station, STRI intends to install the minimum studio equipment necessary to
perform broadcasting, locally, on an emergency basis. This will allow STRI
significant flexibility while gaining the operational cost advantages of
consolidating studios at a centralized location in the Atlanta metropolitan
area. STRI will own or lease substantially all of its operating equipment,
consisting principally of transmitting antennae, transmitters, studio equipment
and general office equipment.
STRI has office space located at 12600 Deerfield Parkway, Suite 100,
Alpharetta, Georgia 30004, which has become the principal executive offices of
the Registrant. Additionally, STRI plans to obtain studio space in the Atlanta,
Georgia metropolitan area.
Legal Proceedings
- -----------------
STRI is not currently involved in any legal proceeding associated with
the conduct of its business.
Federal Regulation of Radio Broadcasting
- ----------------------------------------
Introduction. The ownership, operation and sale of broadcast stations
are subject to the jurisdiction of the FCC, which acts under authority derived
from the Communications Act of 1934, as amended (the "Communications Act"). The
Telecommunications Act made changes in several broadcast laws. Among other
things, the FCC:
o assigns frequency bands for broadcasting;
o determines whether to approve changes in ownership or control of
station licenses;
o regulates equipment used by stations;
o adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation and employment practices of
stations; and
o has the power to impose penalties for violations of its rules under the
Communications Act.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Failure to
11
observe these or other rules and policies can result in the imposition of
various sanctions, including fines, the grant of abbreviated license renewal
terms or, for particularly egregious violations, the denial of a license renewal
application, the revocation of a license or the denial of FCC consent to acquire
additional broadcast properties.
License Grant and Renewal. Radio stations operate under renewable
broadcasting licenses that are ordinarily granted by the FCC for maximum terms
of eight years. Licenses are renewed through an application to the FCC.
Petitions to deny license renewals can be filed by interested parties, including
members of the public. These petitions may raise various issues before the FCC.
The FCC is required to hold hearings on renewal applications if the FCC is
unable to determine that renewal of a license would serve the public interest,
convenience and necessity, or if a petition to deny raises a substantial and
material question of fact as to whether the grant of the renewal application
would be inconsistent with the public interest, convenience and necessity. If,
as a result of an evidentiary hearing, the FCC determines that the licensee has
failed to meet certain requirements and that no mitigating factors justify the
imposition of a lesser sanction, then the FCC may deny a license renewal
application.
STRI is not currently aware of any facts that would prevent the timely
renewal of the licenses to operate the broadcast stations that it intends to
acquire, although there can be no assurance that all of its licenses will be
renewed.
Transfers or Assignment of Licenses. The Communications Act prohibits
the assignment or transfer of a broadcast license without the prior approval of
the FCC. In determining whether to grant approval, the FCC considers a number of
factors pertaining to the licensee (and proposed licensee), including:
o Compliance with the various rules limiting common ownership of media
properties in a given market;
o The "character" of the licensee and those persons holding
"attributable" interests in the licensee; and
o Compliance with the Communications Act's limitations on alien ownership
as well as compliance with other FCC regulations and policies.
To obtain FCC consent to assign or transfer control of a broadcast
license, appropriate applications must be filed with the FCC. If the application
involves a "substantial change" in ownership or control, the application must be
placed on public notice for not less than 30 days during which time period
petitions to deny or other objections against the application may be filed by
interested parties, including members of the public. If the application does not
involve a "substantial change" in ownership or control, it is a "pro forma"
application. The "pro forma" application is nevertheless subject to having
informal objections filed against it. When passing on an assignment or transfer
application, the FCC is prohibited from considering whether the public interest
might be served by an assignment or transfer of the broadcast license to any
party other than the assignee or transferee specified in the application.
12
STRI is not currently aware of any facts that would prevent the timely
transfer to us of the licenses held by the current owners of the radio stations
it will purchase.
Multiple Ownership Rules. The Communications Act and FCC rules impose
specific limits on the number of commercial radio stations an entity can own, or
in which it can hold an attributable interest, in a single local market. These
rules preclude STRI from acquiring certain stations it might otherwise seek to
acquire. The rules also effectively prevent STRI from selling stations in a
market to a buyer that has reached its ownership limit in the market. The local
radio ownership rules are as follows:
o In markets with 45 or more commercial radio stations, ownership is
limited to eight commercial stations, no more than five of which can be
either AM or FM;
o In markets with 30 to 44 commercial radio stations, ownership is
limited to seven commercial stations, no more than four of which can be
either AM or FM;
o In markets with 15 to 29 commercial radio stations, ownership is
limited to six commercial stations, no more than four of which can be
either AM or FM; and
o In markets with 14 or fewer commercial radio stations, ownership is
limited to five commercial stations or no more than 50.0% of the
market's total, whichever is lower, and no more than three of which can
be either AM or FM.
In addition, FCC rules restrict an entity's ability to own, or hold on
attributable interest in, radio stations and television stations or newspapers
in a single local market. An officer or director of, of the holder of 5% or more
of the voting stock in, a broadcast license, generally are included among those
deemed to hold an attributable interest in that license.
Programming and Operation. The Communications Act requires broadcasters
to serve the public interest. Since 1981, the FCC gradually has relaxed or
eliminated many of the more formalized procedures it developed to promote the
broadcast of types of programming responsive to the needs of a station's
community of license. However, licensees continue to be required to present
programming that is responsive to community problems, needs and interests and to
maintain records demonstrating such responsiveness. Complaints from listeners
concerning a station's programming will be considered by the FCC when it
evaluates the licensee's renewal application, but such complaints may be filed
and considered at any time.
Stations also must pay regulatory and application fees and follow
various FCC rules that regulate, among other things, political advertising, and
the broadcast of obscene or indecent programming, sponsorship identification and
technical operations, including limits on radio frequency radiation. In
addition, the FCC formerly required that licensees develop and implement
programs designed to promote equal employment opportunities.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary fines, the grant of short
13
(less than the maximum) renewal terms or, for particularly egregious violations,
the denial of a license renewal application or the revocation of a license.
In 1985, the FCC adopted rules regarding human exposures to levels of
radio frequency radiation. These rules require applicants for new broadcast
stations, renewals of broadcast licenses or modifications of existing licenses
to inform the FCC at the time of filing such applications whether a new or
existing broadcast facility would expose people to radio frequency radiation in
excess of FCC guidelines. In August 1996, the FCC adopted more restrictive
radiation limits. These limits became effective on September 1, 1997 and govern
applications filed after that date.
DISPOSITION OF WPC
Since 1996, the Registrant has been engaged in the business of
manufacturing, marketing and distributing a line of molybdenum fortified
lubricant products called PetroMoly(TM) , which used the Registrant's
proprietary technology called Molytech(TM) to blend an extended drain, high
performance engine oil designed to enhance and maintain all types of engines at
their peak levels. The Registrant's lubricant business was operated out of its
wholly owned subsidiary, WPC. To date, the Registrant has been unsuccessful in
creating a sustained commercial market for its lubricant products, and WPC has a
negative net worth in excess of approximately $1,200,000 and is incurring
on-going operating losses in excess of approximately $100,000 per month.
As previously disclosed in the Registrant's Report on Form 8-K dated
March 27, 2001, in the Information Statement, and in the Registrant's Report on
Form 8-K dated May 7, 2001, all of which are incorporated herein and made a part
hereof by this reference, the Registrant negotiated an agreement with Gertner,
the former Chairman of the Board of the Registrant, for the assumption by him of
the assets and liabilities of WPC and the purchase of all of WPC's issued and
outstanding shares held by the Registrant (the "Stock Purchase Agreement"). The
Registrant has determined that WPC's negative net worth, limited assets, ongoing
losses and lack of reasonable prospects to improve its business, the assumption
by Gertner of WPC's assets and liabilities, and the potential to receive profit
(as discussed below), should there be any, from Gertner's continuing operations
of WPC as a separate business entity, render the consideration for the Stock
Purchase Agreement appropriate for this arms-length negotiated transaction. In
addition, and in consideration of the cancellation of approximately $1.5 million
in indebtedness owed by the Registrant to Gertner, the Registrant issued 13
million shares of its common stock to Gertner. The shares issued to Gertner are
"restricted securities" (as defined in Rule 144 promulgated under the Act) and
accordingly may not be sold or transferred by the holder thereof unless
registered under the Act or transferred pursuant to an exemption therefrom.
On June 7, 2001, as contemplated by the terms and conditions of the
Stock Purchase Agreement, the Registrant completed the sale of its automotive
14
lubricant business conducted by WPC to Gertner. All references to the terms of
the Stock Purchase Agreement are qualified in their entirety by reference to the
Stock Purchase Agreement, which is attached as Exhibit 2.2. hereto, and
incorporated herein by this reference.
Pursuant to the terms of the Stock Purchase Agreement Gertner has
agreed to pay the Registrant a percentage of any profits generated by the sale
of WPC's assets, in the event of a sale, or a percentage of the net profits from
its continuing business operations, should there be any, for a period of
eighteen months following the closing of the Stock Purchase Agreement.
Specifically, pursuant to the terms of the Stock Purchase Agreement, if, within
540 days after the closing of the Stock Purchase Agreement (the "Sales Period"),
Gertner sells, in the aggregate, more than 50% of the capital stock of WPC, or
if WPC sells, in the aggregate, more than 50% of the then existing assets of WPC
(collectively, the "Sales Transaction"), then Gertner shall deliver, or cause to
be delivered, a portion of the Net Proceeds (as hereinafter defined) of the
Sales Transaction to the Registrant. As used in the Stock Purchase Agreement,
"Net Proceeds" means proceeds of the Sales Transaction after the payment of all
expenses, costs and taxes (the "Net Proceeds"). The Stock Purchase Agreement
provides that the amount of the Net Proceeds to be paid to Registrant shall be
as follows:
a) If a Sales Transaction is consummated during the period beginning on
day one and ending on day 180 of the Sales Period, then the amount to be paid to
the Registrant shall be ten percent (10%) of the Net Proceeds;
b) If a Sales Transaction is consummated during the period beginning on
day 181 and ending on day 360 of the Sales Period, then the amount to be paid to
the Registrant shall be seven percent (7%) of the Net Proceeds; and
c) If a Sales Transaction is consummated during the period beginning on
day 361 and ending on day 540 of the Sales Period, then the amount to be paid to
the Registrant shall be five percent (5%) of the Net Proceeds.
The Stock Purchase Agreement also provides that, if, within the Sales
Period, WPC achieves a net operating profit, as that term is defined by
generally accepted accounting principals applicable to WPC, (the "Net Operating
Profit") then Gertner shall cause to be delivered to the Registrant a percentage
(the "Percentage") of the Net Operating Profit of WPC. The Percentage of the Net
Operating Profit, if any is achieved, to be paid to Registrant shall be as
follows:
a) If there is a Net Operating Profit during the period beginning on
day one and ending on day 180 of the Sales Period, then the Percentage to be
paid to Registrant shall be ten percent (10%) of the Net Operating Profit;
15
b) If there is a Net Operating Profit during the period beginning on
day 181 and ending on day 360 of the Sales Period, then the Percentage to be
paid to Registrant shall be seven percent (7%) of the Net Operating Profit; and
c) If there is a Net Operating Profit during the period beginning on
day 361 and ending on day 540 of the Sales Period, then the Percentage to be
paid to Registrant shall be five percent (5%) of the Net Operating Profit.
ITEM 5. OTHER INFORMATION
On June 8, 2001 the Registrant issued a press release announcing the
election of William Fleming, Lauren B. Kahn and John F. McMullan to the
Registrant's Board of Directors. The Registrant also announced the completion of
the sale of its automotive lubricant business, as discussed in Item 2. A copy of
the press release announcing these matters in filed herewith as Exhibit 99.2 to
this Report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) - (b). Financial Statements and Pro Forma Financial Information.
---------------------------------------------------------
All required financial statements and pro forma financial information will be
filed by amendment to this Report not later than 60 days from June 15, 2001, the
date that this report was filed.
(c) Exhibits.
--------
2.1 Agreement and Plan of Merger dated March 26, 2001 (filed with the
Commission on March 27, 2001 as Exhibit 2.1 to the Registrant's
Report on Form 8-K dated March 27, 2001 and incorporated herein
by reference).
2.2 Stock Purchase Agreement (filed herewith).
20.1 Registrant's Information Statement pursuant to Section 14(f) of
the Exchange Act and Rule 14f-1 thereunder, filed by the
Registrant on April 2, 2001 (filed with the Commission on April
2, 2001 and incorporated herein by reference).
99.1 Press Release issued June 4, 2001 relating to the completion of
the Merger (filed herewith).
99.2 Press Release issued June 8, 2001 relating to the election of
certain officers and directors and announcing the completion of
the sale of the capital stock of WPC (filed herewith).
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLDWIDE PETROMOLY, INC.
By: /s/ Robert S. Vail
--------------------------
Robert S. Vail
Chairman of the Board & Chief
Financial Officer
Dated as of June 15, 2001
17