Case 16-28578 Doc 175 Filed 03/26/19 Entered 03/26/19 13:36:16 Desc Main Document Page 1 of 297 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 TRANSACTIONS AND FOR AUTHORITY TO ENTER INTO ASSET PURCHASE AGREEMENTS AND ANCILLARY AGREEMENTS 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 (1) the transaction (the “Idaho LS Transaction”) between RP Broadcasting Idaho, LLC, a Utah limited liability company (the “Debtor”), as assignee, and RP Broadcasting Idaho LS, LLC, a Utah limited liability company, as assignor, in accordance with and pursuant to the Asset Purchase Agreement (the “Idaho LS 4830-5521-0383\1 Case 16-28578 Doc 175 Filed 03/26/19 Entered 03/26/19 13:36:16 Desc Main Document Page 2 of 297 APA”) attached hereto as Exhibit A and the ancillary Local Programming and Marketing Agreement attached hereto as Exhibit B (the “LPMA”), and (2) the concurrent sale transaction (the “MVM Transaction” and, together with the Idaho LS Transaction, the “Transactions”) between the Debtor, as seller, and Magic Valley Media, LLC, a Utah limited liability company (“MVM”), as purchaser, including the assignment of certain executory contracts and unexpired leases, in accordance with and pursuant to the Asset Purchase Agreement (the “MVM APA”) attached hereto as Exhibit C and the ancillary Escrow Agreement attached hereto as Exhibit D (the “Escrow Agreement”), free and clear of all interests, with valid interests (if any) 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 2 4830-5521-0383\1 Case 16-28578 Doc 175 Filed 03/26/19 Entered 03/26/19 13:36:16 Desc Main Document Page 3 of 297 “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, 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 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”)1 for or in connection with the operation of the Stations are 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. In addition, Richard Mecham, the principal behind the Debtor, Rich Broadcasting, LLC, and Idaho LS, is also a principal of MVM, the proposed purchaser herein. 9. In order to assign the Licenses to any entity, the FCC must provide its consent to such assignment. 1 Copies of the Licenses are attached as Schedule 1.1a to both the Idaho LS APA and the MVM APA. 3 4830-5521-0383\1 Case 16-28578 Doc 175 Filed 03/26/19 Entered 03/26/19 13:36:16 Desc Main Document Page 4 of 297 10. Under the Idaho LS APA, Idaho LS is conveying all of its interests, if any, in (a) certain tangible property comprised of parts, equipment, fixtures, supplies and other parts (the “Idaho LS Tangible Property”) used in connection with the operation of the Stations, (b) certain intangible property comprised of station call signs and uniform resource locators (i.e., URLs) (the “Idaho LS Intangible Property”), and (c) certain contracts and agreements relating to the operation of the Stations (collectively with the Licenses, the Idaho LS Tangible Property and the Idaho LS Intangible Property, the “Idaho LS Assets”). C. Marketing of the Debtor’s Assets 11. 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. 12. Specifically, the Trustee compiled a financial history of the Sun Valley 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 Sun Valley stations was also compiled into the financial package. 13. The Trustee communicated with four (4) separate other potential buyers (other than MVM) 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 Sun Valley stations was for only one of the stations in the amount of $200,000. While the offer for a single station was reasonable, it was determined by the Trustee that breaking up the group would be financially detrimental overall, and discussions with Jerry Lundquist of Chapparal Broadcasting, secured creditor, found that he concurred with the Trustee’s assessment. 14. As for the fair value for the assets, since the stations have had negative cash flow during the years 2017 and 2018, an alternative method to value the Sun Valley stations is based solely on revenue generated. According to Greg Merrill of Media Services Group, a regional 4 4830-5521-0383\1 Case 16-28578 Doc 175 Filed 03/26/19 Entered 03/26/19 13:36:16 Desc Main Document Page 5 of 297 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 Sun Valley stations was $390,000 and for 2018 was $373,000. Thus, the current offer is fair and reasonable for the Sun Valley cluster of stations. 15. 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. Accordingly, the consolidation of the Stations together with the Idaho LS Assets and all other related assets is imperative to coalesce the business operations of the Stations, including program broadcasting, under the umbrella of the Debtor and the management of the Trustee. D. The Proposed Transactions The Idaho LS Transaction 16. The Trustee engaged Idaho LS to negotiate a transaction whereby the Debtor could obtain the Idaho LS Assets and also broadcast programming on the Stations, informing Idaho LS of the proposed MVM Transaction and the need for the consolidation of all assets and operations under the Stations. 17. The Trustee and Idaho LS reached agreement on the terms by which Idaho LS will transfer, sell and assign the Idaho LS Assets to the Debtor, free and clear of all claims, charges, security interests and encumbrances, except encumbrances (including easements) of record and liens for taxes not yet due and payable (collectively, the “Interests”), subject to Court and, with respect to the transfer of the Licenses, FCC approval. 18. Pursuant to the Idaho LS Transaction, the Trustee will not assume any liabilities related to the Idaho LS Assets because they will be concurrently be transferred to MVM under the MVM Transaction as discussed below.