Michael F. Thomson (#9707) Peggy Hunt (#6060) Megan K
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Case 16-28578 Doc 222 Filed 11/15/19 Entered 11/15/19 14:52:38 Desc Main Document Page 1 of 116 Michael F. Thomson (#9707) Peggy Hunt (#6060) Megan K. Baker (# 15086) DORSEY & WHITNEY LLP 111 South Main Street, 21st Floor Salt Lake City, UT 84111-2176 Telephone: (801) 933-7360 Facsimile: (801) 933-7373 Email: [email protected] [email protected] [email protected] Attorneys for Mark Hashimoto, Chapter 11 Trustee IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF UTAH In re: Bankr. Case No. 16-28578 RP BROADCASTING IDAHO, LLC, Chapter 11 Debtor. The Honorable William T. Thurman MOTION FOR APPROVAL OF SALE TRANSACTION AND FOR AUTHORITY TO ENTER INTO ASSET PURCHASE AGREEMENT AND ANCILLARY AGREEMENT Pursuant to section 363 of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”), Rules 2002, 6004 and 9014 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and the Local Rules of this Court, Mark Hashimoto, trustee of the above-captioned Chapter 11 bankruptcy estate (the “Trustee”), by and through his counsel, hereby moves this Court for entry of an Order approving the sale transaction (the “Transaction”) between RP Broadcasting Idaho, LLC, a Utah limited liability company (the “Debtor”), as seller, and Jackson Hole Radio, LLC, a Wyoming limited liability company (“Buyer”), as purchaser, in accordance with and pursuant to the Asset Purchase Agreement (the “APA”) attached hereto as 4817-9650-1928\3 Case 16-28578 Doc 222 Filed 11/15/19 Entered 11/15/19 14:52:38 Desc Main Document Page 2 of 116 Exhibit A and the ancillary Local Programming and Marketing Agreement, as amended by the First Amendment to Local Programming and Marketing Agreement, attached hereto as Exhibit B (the “LPMA”), free and clear of all interests, with valid interests in such property attaching to the net sale proceeds. In support hereof, the Trustee states as follows: JURISDICTION AND VENUE 1. The Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and 1334. 2. This is a core proceeding pursuant to 28 U.S.C. § 157(b). 3. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. STATEMENT OF FACTS A. Procedural Background 4. On November 10, 2016, the Court entered its Final Order on Debtor’s Motion for Authority to Use Collateral [Docket No. 39] (the “Cash Collateral Order”), which provides that the Debtor’s pre-petition lender Chaparral Broadcasting, Inc. (“Chaparral”) “… holds a valid, enforceable and allowed claim as defined in section 101 of the Bankruptcy Code as of the Petition Date [September 28, 2016] in the amount of $1,910,000.” [Cash Collateral Order ¶ 1.a.]. 5. During the Bankruptcy Case, Chaparral, unsecured creditor and radio tower lessor American Towers, LLC, unsecured creditor and real property lessor Hailey Hotel, LLC, and unsecured creditor and real property lessor Great Western Lodging, Inc. (collectively, the “Moving Creditors”) jointly filed the Joint Motion to Appoint Trustee [Docket No. 73] (the “Motion to Appoint Trustee”) and subsequently, the Debtor and the Moving Creditors jointly filed the Stipulation to Appointment of a Chapter 11 Trustee [Docket No. 87] (the “Stipulation”). 6. After consideration of the Motion to Appoint Trustee and the Stipulation, the Court entered its Order Directing the Appointment of a Chapter 11 Trustee, and on March 29, 2 4817-9650-1928\3 Case 16-28578 Doc 222 Filed 11/15/19 Entered 11/15/19 14:52:38 Desc Main Document Page 3 of 116 2017, the Trustee was appointed the trustee for the Debtor’s bankruptcy estate in this Chapter 11 Case and is currently serving in such capacity. See Docket Nos. 90 – 92. B. The Debtor’s Operations 7. The Debtor operates and/or operated certain radio broadcast stations located in Wyoming and Idaho, consisting of (a) the following stations: KMTN-FM, KZJH-FM, KJAX- FM, and KSGT-AM, located in Jackson Hole, Wyoming; KECH-FM; KSKI-FM, and KYZK- FM, located in Sun Valley, Idaho; and KOUW-FM, located in Island Park, Idaho; and (b) the following translator facilities affiliated with the foregoing: K242BU, located in Jackson, Wyoming, K265DA, located in Teton Village, Wyoming, K239AU and K281BH, located in Driggs, Idaho; and K276DW, located in Ketchum, Idaho (collectively the “Stations”), pursuant to authorizations issued by the Federal Communications Commission (the “FCC”). 8. The broadcast licenses, permits and other authorizations issued by the FCC (collectively, the “Licenses”) for or in connection with the operation of the Stations were held by RP Broadcasting Idaho LS, LLC, a Utah limited liability company (“Idaho LS”) as licensee. Idaho LS is a “sister” affiliate of the Debtor by virtue of their common 100% owner Rich Broadcasting, LLC. 9. On June 21, 2019, the Court entered the Order Granting Motion for Approval of Sale Transactions and for Authority to Enter Into Asset Purchase Agreements and Ancillary Agreements [Dkt. 215], thereby authorizing the transfer of the Licenses from Idaho LS to the Debtor, and authorizing the sale and transfer of certain stations in Idaho to Magic Valley Media, LLC (together, the “Transactions”). 10. In order to assign the Licenses to any entity, the FCC must provide its consent to such assignment. 11. On July 22, 2019, the FCC consented to the Transactions, and the Transactions were consummated two weeks after the FCC consent orders became final, on September 17, 3 4817-9650-1928\3 Case 16-28578 Doc 222 Filed 11/15/19 Entered 11/15/19 14:52:38 Desc Main Document Page 4 of 116 2019. As a result of the closing of the Transactions, the Debtor is the licensee of the Jackson Hole Stations (as defined below) and owner of the Jackson Hole Stations Assets (as defined below). C. Marketing of the Debtor’s Assets 12. Since his appointment, the Trustee has investigated and evaluated the Debtor’s operations, industry, and assets, including the Stations, and has marketed and solicited bids for the Debtor’s assets. 13. Specifically, the Trustee compiled a financial history of the Jackson Hole Stations for the years 2016, 2017, and 2018 which showed the monthly revenues and expenses of the combined stations during this three year period. In addition, a detailed listing of all of the equipment owned by the Jackson Hole Stations was also compiled into the financial package. 14. The Trustee communicated with three separate other potential buyers in the radio station industry inquiring about the potential sale of the stations. Each potential buyer was sent the financial information compiled, and the only other offer received for the Jackson Hole Stations was in the amount of $750,000; however, the terms of that offer were found to be unfavorable by the secured creditor, Chaparral, and therefore that offer was not accepted. 15. As for the fair value for the assets, since the stations have had negative cash flow during 2017 and 2018, an alternative method to value the Jackson Hole Stations is based solely on revenue generated. According to Greg Merrill of Media Services Group, a regional media broker, he suggested that an alternative method for valuing radio stations if there was not positive cash flow was 1 x annual revenue. During 2017, the annual revenue for the Jackson Hole Stations was $555,229 and for 2018 was $595,596. Thus, the current offer is fair and reasonable for the Jackson Hole Stations. 4 4817-9650-1928\3 Case 16-28578 Doc 222 Filed 11/15/19 Entered 11/15/19 14:52:38 Desc Main Document Page 5 of 116 16. As a result his extensive diligence and marketing efforts, the Trustee concluded that, in order to derive maximum value from the Debtor’s assets, the Stations, or subsets thereof, must be marketed and sold as a going concern. D. The Proposed Transaction The Transaction 17. The Trustee and Buyer engaged in good faith, arms’ length negotiations resulting in the terms of the APA, through which Buyer will purchase the Debtor’s assets related to its stations in or near Jackson, Wyoming (the “Jackson Hole Stations Assets”). The Trustee believes that the transaction for the Jackson Hole Stations Assets represents the best available opportunity to maximize value as to such assets for the estate and all stakeholders. 18. Some key provisions of the APA1 include the following: (a) Buyer will purchase all of the Debtor’s right, title and interest in and to all of the stations2 based in or near Jackson, Wyoming (collectively, the “Jackson Hole Stations”) and all related assets including the licenses, permits and other authorizations issued by the FCC pertaining to the Jackson Hole Stations, free and clear of liens, claims, encumbrances and other interests, with the exception of certain excluded assets. “Excluded Assets” include cash, rights to refunds and claims against third parties arising before the closing date, books and records, insurance policies and other identified assets. (b) Purchase Price; Other Consideration. Buyer and its members shall pay and deliver the following purchase price and consideration, at Closing, in exchange for the assignment of the Jackson Hole Stations Assets from Seller (collectively, the “Purchase Price” or the “Closing Deliveries”): (i) Five Hundred Fifty Thousand and No 00/100 Dollars ($550,000.00) to be paid (i) at Closing, or (ii) pursuant to the terms of a written promissory note (the “Promissory Note”) in form and substance acceptable to 1 Any summary of or reference to the APA in this Motion is qualified in its entirety by the APA itself. To the extent there are any conflicts between any summary or reference and the APA, the terms of the APA shall govern.