Thomas K. and Billie J. Scallen - Page 14




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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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