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Following the purchase of KXDC, the business started going
downhill. The sales people whom Mr. Retzlaff brought to the
station were trading station time for personal items, and the
station manager fell in love with a Greek fisherman and moved to
Greece without telling WMG. Further, Mr. Retzlaff had
represented that there was an underwriter who was going to sell
WMG’s stock in the public offering; however, this representation
was false. WMG incurred a loss from continuing operations of
$933,378 in 1989, and it had a negative net worth of $951,552.
WMG incurred an additional loss of $1,054,792 in 1990. In or
about this time, petitioner repaid the $3 million loan from
Natwest with proceeds from the sale of another business in which
he had an interest.
In early 1990, petitioner determined that WMG would not be
able to repay the loan proceeds received from petitioner and that
it was necessary to sell WMG’s radio stations to realize their
remaining value. In March 1990, petitioner and WMG agreed to
rescind WMG’s obligation to petitioner for the 10-percent
commitment fee. The letter from petitioner to the board of
directors of WMG rescinding the commitment fee agreement states:
This confirms my offer and your acceptance to rescind,
effective October 13, 1989, the agreement to pay a
commitment fee of $300,000 to me in consideration of my
obtaining a bridge loan and operating loan to Western
Media Group Corporation at the time of acquisition of
KXDC-AM & FM. I no longer am obligated to National
Westminster Bank, USA (the “Bank”) as change of
circumstance subrogates me to the Bank’s position.
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