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2/4/2011 Status Update


Although we had hoped to provide an update including final and definitive information on the matters discussed below, we fully understand the frustration of investors who would like to be updated sooner rather than later. Although we fully expect to provide another update within the next week or 10 days, we believe that the matters described below are, subject to unforeseen developments, likely to proceed along the lines discussed.

Since our Sept 29, 2010 investor teleconference, the Receiver has focused upon the disposition of Receivership assets, most notably the sale of radio station KTEK which is still broadcasting under the Receivership’s control. Although the receiver had hoped to present definitive word on the sale of KTEK prior to this date, the negotiations, documentation, FCC requirements and settlement of collateral litigation have taken longer than expected. We appreciate your patience in awaiting this update and although documents have not been executed for presentation to Judge Atlas for approval, the finalization of the transactions described below is eminent. I thought it would be useful to give you the broad outlines of the KTEK transaction now, even though more definitive word will follow shortly.

Before BizRadio and related entities were added to the Receivership, BizRadio's management, entered into an Asset Purchase Agreement with South Texas Broadcasting, Inc., as Buyer ("STB") for the sale of the Station (the "Original Sale Agreement").  In conjunction with the Original Sale Agreement, STB sought and received FCC approval for the transfer of the license which approval remains ineffect. In broad terms, the consideration for the Station under the Original Sale Agreement provided for (A) the cancellation of secured indebtedness owed by BizRadio to STB in the amount of approximately $1,500,000 arising from BizRadio's acquisition of the Station from STB in 2008; (B) a cash payment in the amount of $800,000; and (C) program airtime credits for BizRadio to purchase airtime from STB and/or its parent company Salem Communications Corporation; (4) the assumption of certain other expenses by STB.  The Original Sale Agreement also imposed duties of indemnification upon BizRadio with respect to certain pending litigation concerning the Station.[1]

The consideration components under the Original Sale Agreement are unacceptable in present circumstances since the allocation of the air time credit (originally intended for future broadcasts by Daniel Frishberg) would be of no benefit to the Receivership Estate which, as a practical matter, cannot and should not conduct the business of a radio station going forward involving the activities of Mr. Frishberg.  Accordingly, the Receiver considered various approaches to selling the estate’s interest in the Station.  The Receiver determined that the best approach would be to renegotiate the Original Sale Agreement.  In that regard, the Receiver entered into negotiations with STB to modify the Original Sale Agreement to conform to present circumstances and provide a means to dispose of the Station in a manner calculated to generate the maximum value for the Receivership Estate.  Based upon those negotiations -- and subject to the Court's approval -- the Receiver hopes to entered into a First Amendment to the Asset Purchase Agreement (the "Modified Sale Agreement"), with STB as a base line for auction procedures to follow. Absent higher bidders, the Modified Sale Agreement would be fully executed and a sale to STB closed..

Under the proposed Modified Sale Agreement, the consideration for the sale of the Station would be adjusted to provide the following components: (A) cancellation of BizRadio's secured indebtedness owing to STB in the amount of approximately $1,500,000; (B) a cash payment to the Receivership Estate of $1,000,000; (C) payment of certain accrued costs associated with the ownership of the Station since the inception of the Receivership; and (D) bidding procedures and related protections for the sale of the Station, to enable the Receiver to seek better offers from third parties.

In connection with the sale of the station, the Receiver is seeking to conclude a compromise and settlement and of the Asia Vision Litigation. Unfortunately, at this juncture the Receiver has not been able to finalize such a settlement on satisfactory terms.

The Receiver would present the Modified Sale Agreement to the Court as a "stalking horse" contract and proposes to solicit additional -- and potentially more favorable -- offers pursuant to auction procedures.  In this regard, the Receiver has been contacted by several media brokers and other parties who have expressed an interest in acquiring the Station through an auction process which would have to be approved by the Court.

            In addition to attention to the sale of assets, the receiver has maintained communication with the staff of the Securities and Exchange Commission regarding its enforcement activities related to KCM, BizRadio, Daniel Frishberg Financial Services, and other entities and individuals involved in these extraordinarily complex factual circumstances. It is our expectation that investors will be apprised of significant developments in this area in the near future.

            As discussed in previous reports and in our telephonic meeting, the Receiver is in ongoing negotiations with respect to KCM notes receivable from borrowers including, most notably, entities related to David Wallace and Costa Bajjali. These negotiations have evolved and taken on greater complexity with expansion of the Receivership to include BizRadio. Thus, our negotiations have expanded in scope to include not only liability for amounts owed to KCM but also liability for losses of individuals who invested directly in debt and equity instruments of BizRadio. Many of you have sustained losses as members of overlapping groups. That is to say, many of you have lost money not only on investments in KCM notes but also on direct investments with BizRadio. It is incumbent upon us to seek redress for all of the foregoing. Although we have sought to pursue our negotiations in parallel with the efforts of regulators, it is our intention either to conclude an overall settlement of these matters in the very near future or to initiate litigation against all entities and individuals who bear legal responsibility. I believe all of the investors involved are painfully aware of the dismal financial condition of KCM and BizRadio when the Receivership was initiated. Accordingly, we believe it will be in your best interest to achieve the maximum amount of recoveries without the institution of costly protracted litigation. Nonetheless, if we conclude that responsible parties have not contributed to the absolute maximum of their financial resources, we will not hesitate to proceed with such litigation.

            Please monitor the Court filings and expect a supplemental update within the next week to 10 days.


[1] In early February 2010, Asia Vision, Inc. and its principal Rehan Siddiqi (collectively, the "Asia Vision Plaintiffs"), commenced an action styled:  AsiaVision, Inc. et al. v. Business Radio Network, LP et al., Cause No. 2010-07095, in the 152nd Judicial District Court of Harris County (the "Asia Vision Litigation"), against BizRadio and its related entities and principals seeking, among other relief, injunctive relief, a temporary injunction and damages relating to the Asia Vision Plaintiff’s continued right to broadcast on the Station.  On or about July 12, 2010, the Asia Vision Plaintiffs filed their Second Amended Petition and Application for Injunctive Relief, adding Salem, STB and other individuals and entities, contending that the Asia Vision Plaintiffs had entered into a binding agreement for purchase of the Station prior to the execution of the Original Sale Agreement and claiming that the Salem/STB parties had tortiously interfered with such agreement by entering into the Original Sale Agreement.  At the request of the Receiver, the Asia Vision Plaintiffs entered into a stipulation staying the action in light of the pendency of the present action.