Case 17-10530-led Doc 15 Entered 02/08/17 18:06:42 Page 1 of 54 1 Matthew L. Johnson (6004) E-filed on February 8, 2017 Russell G. Gubler (10889) 2 JOHNSON & GUBLER, P.C. 3 Lakes Business Park 8831 West Sahara Avenue 4 Las Vegas, Nevada 89117 Phone: (702) 471-0065 5 Fax: (702) 471-0075 e-mail: [email protected] 6 [Proposed] Attorneys for Debtor 7 UNITED STATES BANKRUPTCY COURT 8 DISTRICT OF NEVADA 9 In re: Case No: BK-S-17- 10 KHWY, INC., Chapter 11 11 Debtor. 12 Hearing Date: OST REQUEST PENDING 13 Hearing Time: OST REQUEST PENDING 14 15 MOTION TO SELL ASSETS FREE AND CLEAR OF LIENS AND ENCUMBRANCES PURSUANT TO 11 U.S.C. §363(f) 16 17 The Debtor, KHWY, INC., (“Debtor”), through its attorney, Matthew L. Johnson, Esq., of 18 the law firm of JOHNSON & GUBLER, P.C., respectfully moves this Court for an Order (1) 19 approving the sale of Radio Stations KHYZ, Channel 259B, Mountain Pass, CA (along with 20 Booster Station KHYZ-FM2, Las Vegas, NV), and KRXV, Channel 251B, Yermo, California, 21 and related assets to Educational Media Foundation (“EMF”) for $525,000, free and clear of all 22 liens pursuant to 11 U.S.C. §363(f), claims and encumbrances, with liens, claims and 23 encumbrances attaching to the sale proceeds, subject to higher and better bids, and certain other 24 conditions set forth in this motion, and (2) approving the sale of the Debtor’s remaining assets, 25 including all assets used by the Debtor to operate other radio stations located throughout the 26 Southwestern United States, free and clear of all liens, claims and encumbrances pursuant to 11 Case 17-10530-led Doc 15 Entered 02/08/17 18:06:42 Page 2 of 54 1 U.S.C. §363(f), with proceeds of the sale being distributed to secured creditors at closing, or as 2 otherwise agreed by the Debtor and applicable secured creditor, and otherwise held by the Debtor 3 to be distributed to pay administrative expenses, and if any funds remain, to distribute the balance 4 of any funds remaining to unsecured creditors through a Plan of Reorganization or as otherwise 5 directed by the court. The Debtor has brought this motion early in the case is to maximize the 6 value of the assets as the Debtor believes that the value of the assets will be best preserved if the 7 stations continue to operate and are sold, rather than cease operations. For these reasons, the 8 Debtor respectfully requests that the Court enter an Order granting this Motion. 9 This Motion is made and based on the attached Points and Authorities, the papers and 10 pleadings on file herein, the Declaration on file herein in support of the Motion, and any oral 11 argument and additional evidence that the Court may entertain at the time of any hearing on this 12 Motion. 13 A. FACTS 14 The Debtor, KHWY, Inc. (“Debtor” or “KHWY”), owns and operates several radio 15 stations under various call signs. These stations include “Highway Vibe”, (1) KHWY-FM, (2) 16 KRXV- FM, (3) KHYZ-FM, “Highway Country” (4) KIXW- FM, (5) KIXF-FM. Furthermore, 17 the Debtor owns the majority interests in The Drive, LLC (“Drive”), a California Limited 18 Liability Company, which owns and operates two additional stations, (6) KHDR-FM, and (7) 19 KHRQ-FM. Although the last two stations are owned by Drive, all of Drive’s operational income 20 and expense have always been directed through the Debtor. John Hearne with Point Broadcasting 21 owns a minority interest in Drive. The FCC has allocated licenses to each of the above stations, 22 and KWHY intends to sell and transfer its interests in those licenses and in the physical assets of 23 the radio stations. On January 31, 2017, the Debtor received an offer from EMF to purchase 24 stations KHYZ and KRXV, together with their related equipment, licenses, and other assets 25 required to operate those stations. The remaining assets that the Debtor desires to sell include, 26 among other assets, the remaining broadcasting equipment and licenses of the various stations -2- Case 17-10530-led Doc 15 Entered 02/08/17 18:06:42 Page 3 of 54 1 that are required to operate the stations, as well as the long standing agreements with the tower 2 owners for use of the various towers required to broadcast. The sale will be subject to approval of 3 the Court and as to the licenses, approval of the FCC. KHWY is the only radio station 4 serving the drive market between Los Angeles, Las Vegas and Kingman, Arizona. It has been 5 broadcasting for more than 30 years, and provides the only contiguous live media between those 6 markets. It provides traffic, weather, entertainment and emergency road information to 7 approximately 63 million motorists who travel those highways each year. It is the designated 8 Emergency Alert System interface between the Southwestern United States and the Central 9 United States as designated and licensed by the FCC and Homeland Security. It is unique as the 10 only broadcast entity licensed to approach a 100% mobile, automotive audience. 11 This motion seeks to sell to EMF (if the successful bidder) Radio Stations KHYZ and 12 KRXY and its related equipment, contracts, and assets, and sell to the highest bidder at an auction 13 to be scheduled by the Court all of the remaining assets of the Debtor, including its majority 14 interest in Drive. The Motion does not seek to sell the minority interest of John Hearne or Point 15 Broadcasting. A list of the assets the Debtor seeks to sell is attached as Exhibit 1. In addition to 16 this list, the Debtor seeks to sell its interest in The Drive, LLC. 17 Currently, no less than three entities/individuals have expressed an interest in purchasing 18 all or part of KHWY’s assets. On January 31, 2017, the Debtor received an offer from EMF to 19 purchase Radio Stations KHYZ and KRXV from the Debtor for $525,000.00. Although EMF has 20 signed a letter of intent, A definitive asset purchase agreement has not been signed at the time of 21 the filing of this motion. No offers have been finalized regarding the Debtor’s remaining assets, 22 but the Debtor believes that those assets have value, there are interested buyers, and definitive 23 offers will be received in advance of the contemplated auction. 24 The Debtor has had several financial challenges and has been unable to operate at a profit. 25 Initially, in December 2016, the Debtor filed a Chapter 7 petition to allow a Trustee to sell the 26 assets at, what the Debtor believed, would be a lower administrative cost than if a sale were -3- Case 17-10530-led Doc 15 Entered 02/08/17 18:06:42 Page 4 of 54 1 conducted under Chapter 11. However, for the stations to maintain their value, they must remain 2 on the air. The Trustee assigned to the Chapter 7 case determined that the risk in operations was 3 too great to continue operations, and that the assets may be encumbered, and agreed to dismissal 4 of the case so that the Debtor could continue to operate the stations and maintain their value while 5 attempting to negotiate one or more sales of the assets. Furthermore, the Debtor’s only secured 6 creditor, What’s On Las Vegas (“WOLV”),1, has no objection to the sale efforts occurring as part 7 of a chapter 11 case and the Debtor’s use of its cash collateral, subject to court approval of the 8 terms of the proposed cash collateral stipulation filed by the Debtor with the court on February 8, 9 2017.2ARGUMENT 10 1. This Court Should Authorize The Debtor To Sell The Debtor’s Assets Free And Clear Of All Liens And Encumbrances. 11 12 The Debtor cannot continue to operate the stations at a profit under its current revenue 13 stream. However, the Debtor’s assets are significantly more valuable if the stations are operating 14 than if the stations “go dark.” The recent offer received from EMF to purchase the assets relating 15 to just two stations for $525,000 are evidence of this fact. The Debtor has been negotiating the 16 sale of its assets for several months, and has at least three interested parties. The Debtor has filed, 17 1 Error! Main Document Only. Balboa Capital, entered into a “lease” agreement with the 18 Debtor for certain broadcasting equipment required for operation of the radio stations. This included a transmitter, broadcast processing systems, and studio broadcasting equipment. The 19 term of the “lease” has been satisfied and the Debtor is no longer required to make payments under the agreement. However, under the agreement, the Debtor may either (1) continue to make 20 payments until a certain amount has been paid to Balboa Capital, (2) return the equipment to Balboa Capital, which has shown no interest in receiving it, or (3) refinance the amount required 21 to satisfy Balboa Capital in full. The Debtor believes that this is not a bona fide lease, but instead a quasi purchase agreement since the Debtor has the ability to own the equipment once the 22 diminishing balance is paid in full either through monthly payments or depreciation. To date, the balance required to satisfy Balboa Capital is approximately $42,000.00. Thus, Balboa Capital 23 may also be a secured creditor and not simply a lessor under this agreement.