Employees at Entercom Communications stations across the U.S. received a fiery three-page internal memo from President/CEO David Field on Monday (8/6).
“We have moved on and are glad to be in control of our own destiny with our valuable traffic inventory,” said Field, “but given the ridiculous allegations by USTN, I wanted to make sure you were fully familiar with the facts and understood that we have acted ethically and responsibly throughout this painful situation.”
Field made his point very clear: Entercom is owed $30 million and did not create the problems that exist between his company and US Traffic Network (USTN), which is suing the broadcast company for abandoning its equity stake plan.
As RBR+TVBR reported July 30, USTN has accused Entercom of Fraudulent Inducement, Breach of Fiduciary Responsibility, and Misappropriation of Trade Secrets. It is core to a $5 million lawsuit filed by Houston-based USTN in Harris County, Tex. against Entercom. The suit alleges that the Philadelphia-based Entercom “walked away” from its acquisition of USTN, ended the business relationship between the two companies, and informed USTN that it was going to develop a direct competitive business based on the information gleaned during the due diligence and discovery process.
Entercom immediately responded to USTN’s announcement regarding the lawsuit by saying its reseller agreement with USTN had ended and that it had taken back the remainder of Entercom’s traffic inventory that USTN had been selling.
Entercom insists it is acting in good faith. As such, “in order to set the record straight and ensure that you have all the facts regarding our relationship with USTN, I have included below a summary of the events over the past 8 ½ months,” Field wrote in the memo, which he encouraged staff to share with clients.
First, Field notes, under the terms of its former agreements with USTN at the time of Entercom’s Nov. 17, 2017 merger with CBS Radio, USTN was obligated to pay Entercom about $47 million per year in exchange for a large portion of Entercom’s traffic and other short duration inventory.
In the 8 1/2 months that have elapsed since Entercom’s merger with CBS Radio, USTN has paid $3 million out of the $33 million Entercom is entitled to under its former agreements obtained through the CBS Radio merger. “As a result of this, and factoring in unpaid accounts receivable due to Entercom as of closing the CBS Radio merger, we have taken a financial hit of greater than $35 million over that time period, significantly impacting our earnings and our cash flow,” Field said.
This led Entercom to engage in “enormous financial concessions, bending over backwards to be supportive of USTN’s efforts to fix their problems,” Field added.
When news of a management-led buyout spearheaded by Ivan Shulman emerged, Field said it worked with USTN to “dramatically reduce” the amount paid to Entercom every month while the broadcaster took a minority equity position in USTN.
“We converted the remainder into a Senior Secured Debt obligation of USTN which provided USTN with additional time to pay what they owed,” Field said.
He explains, “When it appeared to us that, despite our financial concessions, USTN was not making sufficient progress to solve their fundamental problems, we reached an agreement on June 30 to acquire the remainder of the company in exchange for what they owed us plus approximately $1 million, all subject to our due diligence.”
That’s when the wheels came off the wagon for Entercom and USTN to drive forward with their plan.
“What we found during our diligence review was unsatisfactory,” Field revealed. “We were disappointed to find that their financial condition and projected performance fell significantly short of what we had been led to believe. In addition, USTN management had fallen short on a number of other objectives in their turnaround plans and we first learned about a number of contingent liabilities. Based on our diligence, we informed USTN management that we were exercising our contractual rights and would not be completing the merger.”
That’s when USTN turned around and sued Entercom.
Now, it appears USTN is falling further into arrears: According to Entercom on July 24 USTN failed to pay the company $1.3 million, which was then due under a revised agreement for the June broadcast month. On July 31, USTN also failed to pay Entercom $5 million, which was then due under the senior secured note, Entercom said.
This led Field to note, “The facts are clear: Entercom has received only $3 million out of the original $33 million due under the agreements in place at the closing of the CBS Radio merger. Entercom did not create this problem; USTN did. Entercom has bent over backwards to work constructively and patiently with USTN to help them fix their problems. We have made enormous financial concessions to help them. Yet USTN still has not demonstrated that they are able to make ends meet, failing to make their required payments to Entercom for June and failing to make a $5 million required payment on their restructured debt to Entercom. Entercom has acted with great restraint for many months, but we cannot continue to invest our time, resources and capital in a business that has been unable to fix its own problems.”