<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
CAPSTAR BROADCASTING PARTNERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 4832 75-2672663
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
600 CONGRESS AVENUE
SUITE 1400
AUSTIN, TEXAS 78701
(512) 404-6840
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
R. STEVEN HICKS
CAPSTAR BROADCASTING PARTNERS, INC.
600 CONGRESS AVENUE
SUITE 1400
AUSTIN, TEXAS 78701
(512) 404-6840
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
COPIES TO:
WILLIAM S. BANOWSKY, JR. JEFFREY A. CHAPMAN
CAPSTAR BROADCASTING PARTNERS, INC. P. GREGORY HIDALGO
600 CONGRESS AVENUE HAROLD J. HERMAN II
SUITE 1400 VINSON & ELKINS L.L.P.
AUSTIN, TEXAS 78701 3700 TRAMMELL CROW CENTER
(512) 404-6840 2001 ROSS AVENUE
DALLAS, TEXAS 75201-2975
(214) 220-7700
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement
--------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE (1) OFFERING PRICE (1) FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 3/4% Senior Discount
Notes due 2009 .............. $277,000,000 54.254% $150,283,580 $45,541
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
The Prospectus included herein assumes that the Benchmark Acquisition, the
Osborn Add-on Acquisitions and the Osborn Ft. Myers Disposition (all as defined
in such Prospectus) have been consummated. It is anticipated that such
acquisitions will be consummated prior to the time that this registration
statement becomes effective.
<PAGE> 3
PROSPECTUS
OFFER FOR ALL OUTSTANDING
12 3/4% SENIOR DISCOUNT NOTES DUE 2009
IN EXCHANGE FOR
12 3/4% SENIOR DISCOUNT NOTES DUE 2009
CAPSTAR BROADCASTING PARTNERS, INC.
--------------------
Capstar Broadcasting Partners, Inc. (the "Company") is offering upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal") (which
together constitute the "Exchange Offer") to exchange $1,000 principal amount
at maturity of its registered 12 3/4% Senior Discount Notes due 2009 (the "New
Notes") for each $1,000 principal amount at maturity of its unregistered 12
3/4% Senior Discount Notes due 2009 (the "Old Notes") of which an aggregate
principal amount at maturity of $277,000,000 is outstanding. The form and
terms of the New Notes are identical to the form and terms of the Old Notes
except that the offer and sale of the New Notes has been registered under the
Securities Act of 1933 (the "Securities Act") and the New Notes will not bear
any legends restricting their transfer. The New Notes will evidence the same
debt as the Old Notes and will be issued pursuant to, and entitled to the
benefits of, the Indenture (as herein defined) governing the Old Notes. The
Exchange Offer is being made in order to satisfy certain contractual
obligations of the Company. See "The Exchange Offer" and "Description of New
Notes." The New Notes and the Old Notes are sometimes collectively referred to
herein as the "Notes."
The yield to maturity of the Notes is 12 3/4% (computed on a semi-annual
bond equivalent basis), calculated from February 20, 1997. No interest on the
Notes will accrue until February 1, 2002. Thereafter, interest will accrue on
the Notes at an annual rate of 12 3/4% and will be payable semi-annually in
cash on February 1 and August 1 of each year, commencing August 1, 2002. The
Notes are redeemable, in whole or in part, at the option of the Company, on or
after February 1, 2002, at the redemption prices set forth herein, plus accrued
and unpaid interest to the date of redemption. In addition, at any time before
February 1, 2001, the Company may, at its option, redeem up to 25% of the
aggregate principal amount at maturity of the Notes with the net proceeds of
one or more Public Equity Offerings (as defined) or Major Asset Sales (as
defined), at the redemption prices set forth herein; provided, however, that
after any such redemption there is outstanding at least 75% of the aggregate
principal amount at maturity of the Notes. The Company does not intend to
redeem any Notes with the proceeds of the Offering (as defined).
Upon the occurrence of a Change of Control (as defined), the Company
will, subject to certain conditions, offer to purchase all of the then
outstanding Notes at a price equal to (i) 101% of the Accreted Value (as
defined) on the Change of Control Payment Date (as defined) if the Change of
Control Payment Date is on or before February 1, 2002 and (ii) 101% of the
aggregate principal at maturity, plus accrued and unpaid interest, if any,
thereon to the Change of Control Payment Date if the Change of Control Payment
Date is after February 1, 2002. In addition, prior to February 1, 2002, upon
the occurrence of a Change of Control, the Company will have the option to
redeem the Notes in whole but not in part (a "Change of Control Redemption") at
a redemption price equal to 100% of the Accreted Value thereof plus the
Applicable Premium (as defined).
The Company is a holding company which conducts substantially all of its
operations through its subsidiaries, including Commodore Media, Inc.
("Commodore"). The Notes are general unsecured obligations of the Company and
rank pari passu in right of payment with all Senior Debt (as defined) of the
Company and senior in right of payment to all existing and future subordinated
Indebtedness (as defined) of the Company. The Notes are effectively
subordinated to all existing and future Indebtedness of the Company's
subsidiaries. As of December 31, 1996, on a pro forma basis after giving effect
to the following acquisitions and their related financing, including the
Offering (as defined), and the application of the net proceeds therefrom (i)
the Transactions (as defined) and (ii) all acquisitions and dispositions
completed by Commodore, Osborn (as defined), Benchmark (as defined), and the
entities to be acquired by the Company in the Other Acquisitions (as defined)
from January 1, 1996 through the date of their acquisition by the Company,
there would have been no Indebtedness of the Company other than the Notes, the
guarantee of Commodore's New Credit Facility (as defined) and approximately
$ million of Indebtedness of the Company's subsidiaries outstanding. As of
, 1997, there was $ million of indebtedness outstanding under
Commodore's New Credit Facility. The Company's guarantee of such Indebtedness
would constitute Indebtedness that is pari passu with the Notes.
The Exchange Offer will expire at 5:00 p.m., New York City time,
_______________, 1997, or such later date and time to which it is extended (the
"Expiration Date").
<PAGE> 4
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer in exchange for Old Notes must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 90 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"The Exchange Offer" and "Plan of Distribution."
The Old Notes are designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, holders of Old Notes who were eligible to participate in the Exchange
Offer but who did not tender their Old Notes will not be entitled to certain
rights under the Registration Rights Agreement (as defined) and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity in the market for the Old Notes could be adversely affected. No
assurance can be given as to the liquidity of the trading market for either the
Old Notes or the New Notes.
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE NEW NOTES, SEE "RISK FACTORS" ON PAGE 14 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1997
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto,
appearing in this Prospectus. Unless otherwise specified, this Prospectus
assumes the consummation of the Pending Acquisitions (as defined). As used in
this Prospectus, unless otherwise specified, the "Company" and "Capstar" each
means Capstar Broadcasting Partners, Inc. and its subsidiaries after giving
effect to the consummation of the Pending Acquisitions. Commodore Media, Inc.
("Commodore") is a subsidiary of Capstar and conducts its business through its
subsidiaries, Atlantic Star Communications, Inc. (formerly named Commodore
Holdings, Inc.), Southern Star Communications, Inc. (formerly named Osborn
Communications Corporation ("Osborn")) and Pacific Star Communications, Inc.
("Pacific Star"). Certain capitalized terms used in this Prospectus are
defined herein under the caption "Glossary of Certain Terms and Market and
Industry Data."
THE COMPANY
The Company is the largest radio broadcaster in the United States
operating exclusively in mid-sized markets. The Company currently owns and
operates or provides services to 99 radio broadcasting stations in 28 mid-sized
markets located primarily in the northeastern, southeastern and western United
States. The Company has entered into seven agreements to acquire 32 additional
stations in seven new markets (including ten stations in four new markets for
which the Company currently provides services pursuant to an LMA (as defined))
and three existing markets, which acquisitions (the "Pending Acquisitions") are
expected to occur subsequent to the Offering. Upon completion of the Pending
Acquisitions, the Company will own and operate or provide services to 121 radio
broadcasting stations in 31 mid-sized markets located throughout the country.
These stations comprise the leading radio group, in terms of revenue share
and/or audience share, in 20 of these markets.
In February 1996, as a result of the passage of the Telecommunications
Act of 1996 (the "Telecom Act"), radio broadcasting companies were permitted to
increase their ownership of stations within a single market from a maximum of
four to a maximum of between five and eight stations, depending on market size.
More importantly, the Telecom Act also eliminated the national ownership
restriction that generally had limited companies to the ownership of no more
than 40 stations (20 AM and 20 FM) throughout the United States. In order to
capitalize on the opportunities created by the Telecom Act, R. Steven Hicks, an
executive with over 30 years of experience in the radio broadcasting industry,
and Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") formed Capstar to
acquire and operate radio station clusters in mid-sized markets. The Company
generally defines mid-sized markets as those Metropolitan Statistical Areas
("MSAs") ranked between 50 and 200, each of which has approximately $10.0
million to $35.0 million in radio advertising revenue.
The Company believes that mid-sized markets represent attractive
operating environments because, as compared to the 50 largest markets in the
United States, they are generally characterized by (i) lower radio station
purchase prices as a multiple of broadcast cash flow, (ii) less sophisticated
and undercapitalized competitors, including both radio and competing
advertising media such as newspaper and television, and (iii) less direct
format competition resulting from fewer stations in any given market. The
Company believes that the attractive operating characteristics of mid-sized
markets coupled with the opportunity provided by the Telecom Act to create in-
market radio station cluster groups will enable the Company to achieve
substantial revenue growth and cost efficiencies. As a result, management
believes that the Company can generate broadcast cash flow margins that are
comparable to the higher margins that heretofore were generally achievable only
in the top 50 markets.
To effectively and efficiently manage its stations, the Company has
developed a flexible management structure designed to manage a large and
growing portfolio of radio stations throughout the United States. Initially,
the station portfolio has been organized into three regions, the Northeast, the
Southeast and the West, each of which is managed by regional executives in
conjunction with general managers in each of the Company's markets.
STATION PORTFOLIO
In October 1996, the Company consummated its first acquisition when it
purchased Commodore (the "Commodore Acquisition"). Since such time, the
Company has consummated the purchase of (i) Osborn in February 1997 (the
"Osborn Acquisition"), (ii) substantially all of the assets of EZY Com, Inc.
("EZY"), City Broadcasting Co.,
3
<PAGE> 6
Inc. ("City") and Roper Broadcasting, Inc. ("Roper" and, collectively, with EZY
and City, "Space Coast") in April 1997 (collectively, the "Space Coast
Acquisitions") and (iii) Benchmark Communications Radio Limited Partnership,
L.P. and certain of its subsidiary partnerships (collectively, "Benchmark") in
June 1997 (the "Benchmark Acquisition"). On a pro forma basis after giving
effect to such acquisitions as if they had occurred on January 1, 1996, the
Company would have had net revenue and broadcast cash flow of $ million and
$ million, respectively, for the year ended December 31, 1996.
The Company has agreed, subject to various conditions, to acquire 32
additional radio stations ( 22 FM and 10 AM) in seven separate transactions.
Upon completion of the Pending Acquisitions, the Company's portfolio will
include a total of 121 stations located in 31 mid-sized markets in the United
States. On a pro forma basis after giving effect to the Pending Acquisitions
as if they had occurred on January 1, 1996, the Company would have had net
revenue and broadcast cash flow of $ million and $ million,
respectively, for the year ended December 31, 1996.
<TABLE>
<CAPTION>
COMPANY COMPANY COMPANY
STATIONS REVENUE AUDIENCE
MSA ---------- SHARE SHARE
MARKET(1) RANK FM AM RANK RANK SOURCE COMPANY
--------- ---- -- -- ------- -------- --------------
<S> <C> <C> <C> <C> <C>
NORTHEAST REGION
Allentown-Bethlehem, PA ............ 64 2 2 1 1 Commodore
Melbourne-Titusville-Cocoa, FL ..... 96 3 2 1 1 Space Coast
Fairfield County, CT ............... 112 3 3 2 2 Commodore
Ft. Pierce-Stuart-Vero Beach, FL ... 121 5 1 1 1 Commodore
Huntington, WV-Ashland, KY ......... 139 5 5 1 1 Commodore
Salisbury-Ocean City, MD ........... 153 2 -- 3 4 Benchmark
Dover, DE .......................... NA 2 1 1 1 Benchmark
Wilmington, DE ..................... NA 1 1 2 2 Commodore
Westchester-Putnam Counties, NY .... NA 3 2 NA 1 Commodore
-- --
SUBTOTAL ..................... 26 17
SOUTHEAST REGION
Greenville, SC ..................... 59 3 1 2 2 Benchmark
Columbia, SC ....................... 88 4 2 1 1 Benchmark/Emerald City
Huntsville, AL ..................... 114 1 2 1 1 Osborn
Jackson, MS ........................ 118 2 2 2 2 Benchmark
Shreveport, LA ..................... 126 1 1 2 3 Benchmark
Montgomery, AL ..................... 142 3 -- 2 2 Benchmark
Asheville, NC ...................... 179 1 1 1 1 Osborn
Tuscaloosa, AL ..................... 212 2 1 1 1 Osborn
Wheeling, WV ....................... 213 5 2 1 1 Osborn
Winchester, VA ..................... 219 2 1 2 1 Benchmark
Jackson, TN ........................ 257 2 1 1 1 Osborn
Roanoke, VA ........................ NA 4 1 2 1 Benchmark/Cavalier/WRIS
Lynchburg, VA ...................... NA 3 1 1 1 Benchmark/Cavalier
Statesville, NC .................... NA 1 1 NA NA Benchmark
Gadsden, AL ........................ NA 1 1 NA 1 Osborn
-- --
SUBTOTAL ..................... 35 18
WEST REGION
Stockton, CA ....................... 85 1 1 3 3 Community Pacific
Des Moines, IA ..................... 89 2 1 4 4 Community Pacific
Madison, WI ........................ 120 4 2 1 1 Madison
Modesto, CA ........................ 121 1 1 2 2 Community Pacific
Anchorage, AK ...................... 165 4 2 2 1 Community Pacific/COMCO
Fairbanks, AK ...................... NA 2 1 NA 1 COMCO
Yuma, AZ ........................... NA 2 1 NA 1 Commonwealth
-- --
SUBTOTAL ..................... 16 9
-- --
TOTAL ........................ 77 44
== ==
</TABLE>
- ---------------
NA Information not available.
(1) See explanatory notes to this table beginning on page 44 of this
Prospectus.
4
<PAGE> 7
ACQUISITION STRATEGY
The Company is the leading consolidator of radio stations in mid-sized
markets throughout the United States. Management has achieved this position
through the application of an acquisition strategy that it believes allows the
Company to develop radio station clusters at attractive prices. First, the
Company enters attractive new mid-sized markets by acquiring a leading station
(or a group that owns a leading station) in such market. The Company then
utilizes the initial acquisition as a platform to acquire additional stations
which further enhance the Company's position in a given market. Management
believes that once it has established operations in a market with an initial
acquisition, it can acquire additional stations at reasonable prices and, by
leveraging its existing infrastructure, knowledge of and relationships with
advertisers and substantial management experience, improve the operating
performance and financial results of those stations.
OPERATING STRATEGY
The Company's objective is to maximize the broadcast cash flow of each
of its radio station clusters through the application of the following
strategies:
Enhance Revenue Growth through Multiple Station Ownership. Management
believes that the ownership of multiple stations in a market allows the Company
to coordinate its programming to appeal to a broad spectrum of listeners. Once
the station cluster has been created, the Company can provide one-stop shopping
to advertisers attempting to reach a wide range of demographic groups.
Simplifying the buying of advertising time for customers encourages increased
advertiser usage thereby enhancing the Company's revenue generating potential.
Broad demographic coverage also allows the Company to compete more effectively
against alternative media, such as newspaper and television, thus potentially
increasing radio's share of the total advertising dollars spent in a given
market.
Create Low Cost Operating Structure. Management believes that it is
less expensive to operate radio stations in mid-sized markets than in large
markets for several reasons. First, because stations in mid-sized markets
typically have less direct format competition, the Company is less reliant on
expensive on-air talent and costly advertising and promotional campaigns to
capture listeners. Second, the ownership of multiple stations within a market
allows the Company to achieve substantial cost savings through the
consolidation of facilities, management, sales and administrative personnel,
operating resources (such as on-air talent, programming and music research) and
through the reduction of redundant corporate expenses. Furthermore, management
expects that the Company, as a result of the large size of its portfolio,
combined with the consolidated purchasing power of the Hicks Muse portfolio
companies, will be able to realize substantial economies of scale in such areas
as national representation commissions, employee benefits, casualty insurance
premiums, long distance telephone rates and other operating expenses. Finally,
the incorporation of digital automation in certain markets allows the Company
to operate radio stations at off-peak hours with minimal human involvement
while improving the quality of programming.
Utilize Sophisticated Operating Techniques. Following the acquisition
of a station or station group, the Company seeks to capitalize on management's
extensive large market operating experience by implementing sophisticated
techniques such as advertising inventory management systems, sales training
programs and in-depth music research studies which improve both the efficiency
and profitability of its stations. Prior to the passage of the Telecom Act,
management believes that many operators in mid-sized markets did not generate
sufficient revenue to justify the incurrence of expenditures to develop these
techniques.
Provide Superior Customer Service. The Company believes that
advertising customers in mid-sized markets typically do not have extensive
resources to create and implement advertising campaigns. The Company provides
many of its advertising customers with extensive advertising support which may
include (i) assistance in structuring advertising and promotional campaigns,
(ii) creating and producing customer advertisements and (iii) analyzing the
effectiveness of the customer's media programs. Management believes that this
type of superior customer service attracts new customers to the Company and
increases the loyalty of the Company's existing customers, thereby providing
stability to the Company's revenue, often despite fluctuations in station
ratings.
Develop Decentralized Management Structure. The Company has developed
experienced and highly motivated regional and local management teams, derived
primarily from station groups acquired by the Company, and has
5
<PAGE> 8
decentralized decision-making so that these regional and local managers have
the flexibility to develop operating cultures that capitalize on the unique
qualities of each region and market. The Company also relies on local managers
to source additional acquisition opportunities. In addition, in order to
motivate regional management, the Company intends to link compensation to
regional operating performance as well as the combined results of the Company.
OWNERSHIP AND MANAGEMENT
In April 1996, Hicks Muse combined its financial expertise with the
operating experience of R. Steven Hicks to form the Company. Mr. Hicks is a 30-
year veteran of the radio broadcasting industry (including 18 years as a
station owner) who has owned and operated or managed in excess of 150 radio
stations in large and mid-sized markets throughout the United States. In
addition, in 1993, Mr. Hicks co-founded SFX Broadcasting, Inc., a publicly
traded company ("SFX"), for which he served as Chief Executive Officer for
three years until his resignation in 1996.
Hicks Muse is a private investment firm based in Dallas, New York, St.
Louis and Mexico City that specializes in acquisitions, recapitalizations and
other principal investing activities. Since the firm's inception in 1989,
affiliates of Hicks Muse have completed more than 70 transactions having a
combined transaction value exceeding $19.0 billion. In 1994, an affiliate of
Hicks Muse made its first major investment in the radio broadcasting industry
when Hicks, Muse, Tate & Furst Equity Fund II, L.P. founded Chancellor
Broadcasting Company ("Chancellor"), a company which owns and operates radio
stations exclusively within the 40 largest MSAs in the United States and which,
in the three years since its inception, has become one of the largest radio
broadcasting companies in the United States.
The Company has designed an organizational structure to effectively
manage its existing station portfolio as well as to accommodate future in-
market or group acquisitions. Each of the Company's existing and future
operating regions is, or will be, headquartered within the region and staffed
with a team of regional executives which manage, or will manage, the operations
of that region's station portfolio. A chief executive officer and/or a chief
operating officer of each region oversees the regional and general managers of
the stations within a particular region. In addition, a controller in each
region directly oversees the business managers of the stations within a region.
Each regional operating executive reports directly to R. Steven Hicks, while
each regional controller reports to the Company's chief financial officer. In
assembling each of the existing regional management teams, the Company has
sought to retain the senior management of some of the station groups that it
has acquired so as to (i) retain and capitalize on the local market experience
and knowledge of these experienced executives and (ii) foster a culture that is
consistent with the unique attributes of each of the local markets acquired.
Furthermore, the Company believes that each of its regional executives
possesses considerable knowledge of its region's competitors and is therefore
well situated to identify strategic acquisition candidates.
R. Steven Hicks, the President and Chief Executive Officer of the
Company, has invested $3.1 million in Class C Common Stock (as defined).
Certain other members of the Company's management, including certain of the
Company's regional executives, have invested an additional $6.1 million in
Class A Common Stock (as defined). The Company's regional executive management
teams will be compensated based upon the financial performance of their
respective regions and the Company as a whole with such compensation to be
awarded in the form of cash bonuses and stock options. Management believes that
the ownership interests of management and this compensation structure foster
teamwork and the sharing of the best practices across regions to maximize the
overall financial performance of the Company.
Each of the Company's regional executives has extensive experience
operating radio stations in mid-sized markets, as described below.
Northeast Region. The chief executive officer of the Northeast Region
is James T. Shea, Jr., the President (and former Chief Operating Officer) of
Commodore. Mr. Shea has more than 20 years of experience in the radio
broadcasting industry. Mr. Shea's operating knowledge and strong advertiser
relationships helped Commodore become a leading radio group in each of its
markets. Pro forma for the Pending Acquisitions, Mr. Shea will manage 43
stations in nine markets in the Northeast Region.
Southeast Region. Frank D. Osborn, President and Chief Executive
Officer of Osborn since its inception in 1984, is the chief executive officer
of the Southeast Region. Mr. Osborn brings more than 19 years of radio industry
experience to the Company, including prior positions as Senior Vice President
of Price Communications, Vice President
6
<PAGE> 9
of Finance and Administration at NBC Radio and General Manager of WYNY-FM in
New York City. Mr. Osborn has been successful in developing leading station
clusters in each of Osborn's markets. The Company intends to hire a chief
operating officer for the Southeast Region, who will assist Mr. Osborn in
overseeing the operations of the radio stations in the region. Pro forma for
the Pending Acquisitions, the Southeast Region will include 53 stations in 15
markets.
West Region. The West Region will be managed by two radio executives,
David J. Benjamin III and Claude C. Turner (also known as Dex Allen), with an
aggregate of 52 years of experience in the radio broadcasting industry. Mr.
Benjamin, the current President and Chief Executive Officer of Community
Pacific Broadcasting Company L.P. ("Community Pacific"), will serve as the
chief executive officer of the West Region upon consummation of the Community
Pacific Acquisition. Mr. Allen has served as the managing member of
Commonwealth Broadcasting of Arizona, L.L.C. ("Commonwealth") since 1984 and is
expected to continue to serve in such position until the consummation of the
Commonwealth Acquisition (as defined). Mr. Allen became the president and chief
operating officer of the West Region effective January 1, 1997. Pro forma for
the Pending Acquisitions, the West Region will include 25 stations in seven
markets.
THE PENDING ACQUISITIONS
The Company has agreed, subject to various conditions, to acquire (i)
in the Southeast Region, substantially all of the assets of Emerald City Radio
Partners, L.P. ("Emerald City"), WRIS, Inc. ("WRIS"), and Cavalier
Communications, L.P. ("Cavalier"), and (ii) in the West Region, substantially
all of the assets of COMCO Broadcasting, Inc. ("COMCO"), Commonwealth, The
Madison Radio Group ("Madison") and Community Pacific. After consummation of
the Pending Acquisitions, the Company will own and operate or provide services
to a total of 121 radio stations.
<TABLE>
<CAPTION>
COMPANY
STATIONS
------------ EXPECTED
COMPANY FM AM REGION CLOSING DATE
- ------- -- -- ------ ------------
<S> <C> <C> <C> <C>
Emerald City ........ 1 -- Southeast July 1997
WRIS ................ 1 -- Southeast August 1997
Cavalier ............ 4 1 Southeast October 1997
COMCO ............... 4 2 West October 1997
Commonwealth ........ 2 1 West October 1997
Madison ............. 4 2 West October 1997
Community Pacific ... 6 4 West November 1997
--- ---
Total ............ 22 10
=== ===
</TABLE>
Consummation of each of the Pending Acquisitions is subject to
numerous conditions, including approval of the FCC and, where applicable,
satisfaction of any requirements and any applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Accordingly, the actual date of consummation of each of the Pending
Acquisitions may vary from the anticipated closing dates. For further
information concerning the Pending Acquisitions, see "Risk Factors -- Risks of
Acquisition Strategy," "Business" and "The Pending Acquisitions."
7
<PAGE> 10
THE EXCHANGE OFFER
The Exchange Offer applies to the $277.0 million aggregate principal
amount at maturity of the Old Notes. The form and terms of the New Notes are
the same as the form and terms of the Old Notes except that the offer and sale
of the New Notes has been registered under the Securities Act and, therefore,
the New Notes will not bear legends restricting their transfer. The New Notes
will evidence the same debt as the Old Notes and will be entitled to the
benefits of the indenture pursuant to which the Old Notes were issued (the
"Indenture"). See "Description of New Notes."
The Exchange Offer .................... $1,000 principal amount at maturity
of New Notes in exchange for each
$1,000 principal amount at maturity
of Old Notes. As of the date hereof,
Old Notes representing $277.0 million
aggregate principal amount at
maturity were outstanding. The terms
of the New Notes and the Old Notes
are substantially identical.
Based on an interpretation by the
staff of the Securities and Exchange
Commission (the "Commission") set
forth in no-action letters issued to
third parties unrelated to the
Company, the Company believes that,
with the exceptions discussed herein,
New Notes issued pursuant to the
Exchange Offer in exchange for Old
Notes may be offered for resale,
resold and otherwise transferred by
any person receiving the New Notes,
whether or not that person is the
holder (other than any such holder or
such other person that is an
"affiliate" of the Company within the
meaning of Rule 405 under the
Securities Act), without compliance
with the registration and prospectus
delivery provisions of the Securities
Act, provided that (i) the New Notes
are acquired in the ordinary course
of business of that holder or such
other person, (ii) neither the holder
nor such other person is engaging in
or intends to engage in a
distribution of the New Notes, and
(iii) neither the holder nor such
other person has an arrangement or
understanding with any person to
participate in the distribution of
the New Notes. However, the Company
has not sought, and does not intend
to seek, its own no-action letter,
and there can be no assurance that
the Commission's staff would make a
similar determination with respect to
the Exchange Offer. See "The
Exchange Offer -- Purpose and
Effect." Each broker-dealer that
receives New Notes for its own
account in exchange for Old Notes,
where those Old Notes were acquired
by the broker-dealer as a result of
its market-making activities or other
trading activities, must acknowledge
that it will deliver a prospectus in
connection with any resale of those
New Notes. See "Plan of
Distribution."
Registration Rights Agreement ......... The Old Notes were sold by the
Company on February 20, 1997 in a
private placement. In connection
with the sale, the Company entered
into a Registration Rights Agreement
(the "Registration Rights Agreement")
with BT Securities Corporation, the
initial purchaser of the Old Notes
(the "Initial Purchaser"), providing
for the Exchange Offer. See "The
Exchange Offer -- Purpose and
Effect."
Expiration Date ....................... The Exchange Offer will expire at
5:00 P.M., New York City time,
_____________, 1997, or such later
date and time to which it is
extended.
Withdrawal Rights ..................... The tender of Old Notes pursuant to
the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m., New
York City time, on the Expiration
Date. Any Old Notes not accepted for
exchange for any reason will be
returned without expense to the
tendering holder thereof as promptly
as practicable after the expiration
or termination of the Exchange Offer.
Conditions to the Exchange Offer ...... The Exchange Offer is subject to
certain customary conditions, certain
of
8
<PAGE> 11
which may be waived by the Company.
See "The Exchange Offer --
Conditions.
Procedures for Tendering Old Notes ... Each holder of Old Notes wishing to
accept the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a copy thereof, in
accordance with the instructions
contained herein and therein, and
mail or otherwise deliver the Letter
of Transmittal, or the copy, together
with the Old Notes and any other
required documentation, to the
Exchange Agent at the address set
forth herein. Persons holding Old
Notes through the Depository Trust
Company (the "DTC") and wishing to
accept the Exchange Offer must do so
pursuant to the DTC's Automated
Tender Offer Program, by which each
tendering Participant (as defined)
will agree to be bound by the Letter
of Transmittal. By executing or
agreeing to be bound by the Letter of
Transmittal, each holder will
represent to the Company that, among
other things, (i) any Exchange Notes
to be received by it will be acquired
in the ordinary course of its
business, (ii) it has no arrangement
with any person to participate in the
distribution of the Exchange Notes
and (iii) it is not an "affiliate,"
as defined in Rule 405 of the
Securities Act, of the Company, or if
it is an affiliate, it will comply
with the registration and prospectus
delivery requirements of the
Securities Act to the extent
applicable. If the holder is not a
broker-dealer, it will be required to
represent that it is not engaged in,
and does not intend to engage in, the
distribution of the Exchange Notes.
If the holder is a broker-dealer that
will receive Exchange Notes for its
own account in exchange for Notes
that were acquired as a result of
market-making activities or other
trading activities, it will be
required to acknowledge that it will
deliver a prospectus in connection
with any resale of such Exchange
Notes.
Pursuant to the Registration Rights
Agreement, the Company is required to
file a registration statement for a
continuous offering pursuant to Rule
415 under the Securities Act in
respect of the Old Notes if existing
Commission interpretations are
changed such that the New Notes
received by holders in the Exchange
Offer are not or would not be, upon
receipt, transferable by each such
holder (other than an affiliate of
the Company) without restriction
under the Securities Act. See "The
Exchange Offer -- Purpose and Effect.
Acceptance of Old Notes and
Delivery of New Notes ............... The Company will accept for exchange
any and all Old Notes which are
properly tendered in the Exchange
Offer prior to 5:00 p.m., New York
City time, on the Expiration Date.
The New Notes issued pursuant to the
Exchange Offer will be delivered
promptly following the Expiration
Date. See "The Exchange Offer --
Terms on the Exchange Offer."
Exchange Agent......................... U.S. Trust Company of Texas, N.A., is
serving as Exchange Agent in
connection with the Exchange Offer.
Federal Income Tax Considerations ..... The exchange pursuant to the Exchange
Offer will not be a taxable event for
federal income tax purposes. See
"Certain United States Federal Income
Tax Considerations."
Effect of Not Tendering ............... Old Notes that are not tendered or
that are tendered but not accepted
will, following the completion of the
Exchange Offer, continue to be
subject to the existing restrictions
upon transfer thereof. The Company
will have no further obligation to
provide for the registration under
the Securities Act of such Old Notes.
9
<PAGE> 12
TERMS OF THE NEW NOTES
Securities Offered .................... $277.0 million aggregate principal
amount at maturity of 12 3/4% Senior
Discount Notes due 2009.
Maturity Date ......................... February 1, 2009.
Interest Rate and Payment Dates ....... Interest will not accrue or be
payable on the New Notes prior to
February 1, 2002. Thereafter interest
will accrue at a rate of 12 3/4% per
annum and will be payable
semiannually on each February 1 and
August 1, commencing August 1, 2002.
Optional Redemption ................... The New Notes will be redeemable at
the option of the Company, in whole
or in part, at any time and from time
to time on or after February 1, 2002
at the redemption prices set forth
herein, plus, without duplication,
accrued and unpaid interest to the
redemption date. In addition, prior
to February 1, 2001, the Company, at
its option, may use the net cash
proceeds of one or more Public Equity
Offerings or Major Asset Sales to
redeem up to 25% of the aggregate
principal amount at maturity of the
New Notes at a redemption price of
112.75%; provided, however, that
after any such redemption, there is
outstanding at least 75% of the
original aggregate principal amount
at maturity of the New Notes. See
"Description of New Notes -- Optional
Redemption."
Ranking ............................... The New Notes will be general
unsecured senior obligations of the
Company ranking senior in right of
payment to all existing and future
subordinated Indebtedness of the
Company and pari passu in right of
payment with all other senior
indebtedness of the Company. The New
Notes will be effectively
subordinated to all Indebtedness of
the Company's subsidiaries. As of
December 31, 1996, on a pro forma
basis after giving effect to the
following acquisitions and their
related financing, including the
Offering, and the application of the
net proceeds therefrom (i) the
Transactions and (ii) all
acquisitions and dispositions
completed by Commodore, Osborn,
Benchmark, and the entities to be
acquired by the Company in the Other
Acquisitions from January 1, 1996
through the date of their acquisition
by the Company, there would have been
no Indebtedness of the Company other
than the Notes, the guarantee of
Commodore's New Credit Facility and
approximately $ million of
Indebtedness of the Company's
subsidiaries outstanding. As of
, 1997, there was
$ million of indebtedness
outstanding under Commodore's New
Credit Facility. The Company's
guarantee of such Indebtedness would
constitute Indebtedness that is pari
passu with the New Notes.
Change of Control ..................... Prior to February 1, 2002, upon the
occurrence of a Change of Control,
the Company will have the option to
redeem the New Notes in whole but not
in part at a redemption price equal
to 100% of the Accreted Value thereof
plus the Applicable Premium. If a
Change of Control occurs after
February 1, 2002 or if the Company
does not redeem the New Notes as
provided in the immediately preceding
sentence, each holder of the New
Notes will have the option to require
the Company to redeem all or a
portion of such holder's New Notes at
a purchase price equal to (i) 101% of
the Accreted Value thereof on the
Change of Control Payment Date if the
Change of Control Payment Date is on
or before February 1, 2002 and (ii)
101% of the principal amount at
maturity, plus accrued and unpaid
interest, if any, thereon to the
purchase date if the Change of
Control
10
<PAGE> 13
Payment Date is after February 1,
2002. There can be no assurance that
the Company will have the financial
resources necessary to repurchase the
Notes upon a Change of Control or
that the Company would be able to
obtain financing for such purpose on
favorable terms, if at all. A Change
of Control would result in a default
under the New Credit Facility. In
addition, the Commodore Indenture (as
defined) has provisions relating to a
change of control of Commodore that
would require the repurchase of the
Commodore Notes (as defined). See
"Risk Factors -- Change of Control,"
"Description of Other Indebtedness"
and "Description of New Notes --
Change of Control."
Original Issue Discount ............... For federal income tax purposes, the
New Notes will be treated as having
been issued with "original issue
discount" equal to the difference
between the issue price of the New
Notes and the stated redemption price
at maturity. Each holder of a New
Note will be required to include in
gross income for federal income tax
purposes a portion of such original
issue discount in advance of receipt
of cash payments on the New Notes to
which the income is attributable,
even though no cash payments will be
received until February 1, 2002. See
"Risk Factors -- Original Issue
Discount" and "Certain Federal Income
Tax Considerations."
Certain Restrictive Provisions ........ The Indenture contains restrictive
provisions that, among other things,
limits the ability of the Company and
its subsidiaries to incur additional
Indebtedness, pay dividends or make
certain other restricted payments,
sell or swap assets, enter into
certain transactions with affiliates
or merge or consolidate with or sell
all or substantially all of their
assets to any other person.
THE OFFERING
On April 16, 1997, Capstar filed with the Commission a registration
statement on Form S-1 with respect to Capstar's proposed initial public
offering of $100 million of Capstar's Class A Common Stock (the "Offering").
The net proceeds from the proposed sale will be used by Capstar to repay an
estimated $90.0 million (including accrued and unpaid interest) in bank
indebtedness under the New Credit Facility incurred in connection with the
Benchmark Acquisition.
THE RECAPITALIZATION
The information provided in this Prospectus gives effect to a 1 for 10
reverse stock split of Capstar's Class A Common Stock and Class B Common Stock
(as defined) and the exchange by R. Steven Hicks and Capstar L.P. of their
respective shares of Class A Common Stock for an equal number of shares of
Class C Common Stock (collectively, the "Recapitalization"), all of which will
occur prior to the Offering.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Notes.
11
<PAGE> 14
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents summary historical financial data of the
Company and its predecessor, Commodore, for financial reporting purposes, for
the periods indicated. The following financial information should be read in
conjunction with the Financial Statements of the Company and Commodore and the
related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
COMMODORE THE COMPANY
----------------------------------------------------------------- ||--------------------
YEARS ENDED DECEMBER 31, ||
---------------------------------------------- JANUARY 1, 1996 - || OCTOBER 17, 1996 -
1992 1993 1994 1995 OCTOBER 16, 1996(1)||DECEMBER 31, 1996(2)
-------- -------- -------- -------- -------------------||--------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ||
<S> <C> <C> <C> <C> <C> || <C>
OPERATING DATA: ||
Net revenue .......................... $ 17,961 $ 19,798 $ 26,225 $ 30,795 $ 31,957 || $ 10,303
Station operating expenses ........... 12,713 13,509 16,483 19,033 21,291 || 6,283
Depreciation and amortization ........ 1,676 1,129 2,145 1,926 2,158 || 1,331
Corporate expenses ................... 1,602 2,531 2,110 2,051 1,757 || 601
Other operating expenses(3) .......... -- 1,496 2,180 2,007 13,834 || 744
Operating income (loss) .............. 1,970 1,133 3,307 5,778 (7,083) || 1,344
Interest expense ..................... 4,614 4,366 3,152 7,806 8,861 || 5,035
Net loss ............................. (2,580) (3,782) (527) (2,240) (17,836) || (3,756)
||
OTHER DATA: ||
Broadcast cash flow(4) ............... $ 5,248 $ 6,289 $ 9,742 $ 11,762 $ 10,666 || $ 4,020
Broadcast cash flow margin(4) ........ 29.2% 31.8% 37.1% 38.2% 33.4% || 39.0%
EBITDA(5) ............................ $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 8,909 || $ 3,419
Cash flows related to: ||
Operating activities ............... (406) 477 4,061 1,245 1,990 || (49)
Investing activities ............... (458) (10,013) (50) (4,408) (34,358) || (127,372)
Financing activities ............... 951 9,377 (2,855) 12,013 26,724 || 132,449
Capital expenditures ................. 371 333 623 321 449 || 808
Deficiency of earnings to fixed ||
charges(6) ......................... 2,998 3,743 918 1,908 18,063 || 3,756
Pro forma loss per common share(7) ... || $ (0.40)
Weighted average number of shares ||
outstanding(7) ..................... || 9,369,184
||
BALANCE SHEET DATA (END OF PERIOD): ||
Working capital, excluding current ||
portion of long-term debt ........................................................................... || $ 8,553
Intangible and other assets, net ...................................................................... || 208,555
Total assets .......................................................................................... || 238,568
Long-term debt, including current portion ............................................................. || 139,512
Total stockholders' equity ............................................................................ || 91,143
</TABLE>
- ---------------------
(1) The historical financial data set forth includes the results of
operations of Commodore through October 16, 1996, the date of the
Commodore Acquisition.
(2) The historical financial data set forth for the Company includes the
balance sheet data and results of operations of Commodore from its
date of acquisition on October 16, 1996.
(3) Other operating expenses consist of separation compensation in 1993
and long-term incentive compensation under restructured employment
agreements with Commodore's former President and Chief Executive
Officer and its former Chief Operating Officer in 1994 and 1995. In
the period ended October 16, 1996, it consists of merger related
compensation charges in connection with the Company's acquisition of
Commodore and in the period ended December 31, 1996, it includes
compensation charges in connection with certain warrants issued to the
President and Chief Executive Officer of the Company. Such expenses
are non-cash and/or are not expected to recur.
(4) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses and other operating expenses. See
"Glossary of Certain Terms and Market and Industry Data."
(5) EBITDA consists of operating income before depreciation, amortization
and other operating expenses. See "Glossary of Certain Terms and
Market and Industry Data."
(6) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component
of rental expense believed by management to be representative of the
interest factor thereon. Preferred stock dividends and accretion are
included in fixed charges where appropriate.
(7) Reflects the effect of the Recapitalization on the number of shares
outstanding.
12
<PAGE> 15
SUMMARY PRO FORMA FINANCIAL DATA
The following table presents summary pro forma financial data of the
Company as of and for the year ended December 31, 1996. The pro forma summary
operating data reflects adjustments to the summary historical financial data of
the Company and its predecessor, Commodore, to illustrate the effects of the
following acquisitions and their related financing, including the Offering and
the Exchange Offer, as if each had occurred on January 1, 1996: (i) the
Commodore Acquisition; (ii) the Osborn Transactions; (iii) the Benchmark
Acquisition; (iv) the Other Acquisitions; and (v) all acquisitions and
dispositions completed by Commodore, Osborn, Benchmark, and the entities to be
acquired by the Company in the Other Acquisitions, from January 1, 1996 through
the date of acquisition of such entities by the Company. The pro forma balance
sheet data at December 31, 1996 have been prepared as if any such transaction
not completed by December 31, 1996 occurred on that date. The summary pro
forma financial data are not necessarily indicative of either future results of
operations or the results that would have occurred if those transactions had
been consummated on the indicated date. The following financial information
should be read in conjunction with the Financial Statements of the Company,
Commodore, Osborn, Benchmark and the Other Acquisitions and the Pro Forma
Financial Information and, in each case, the related notes included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
--------------------
YEAR ENDED
DECEMBER 31, 1996
--------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
OPERATING DATA:
Net revenue ................................................. $145,863
Station operating expenses .................................. 103,255
Depreciation and amortization ............................... 22,492
Corporate expenses .......................................... 7,361
Other operating expenses .................................... 987
Operating income ............................................ 11,768
Interest expense ............................................ 53,130
Net loss .................................................... (18,583)
OTHER DATA:
Broadcast cash flow(1) ...................................... $ 42,608(2)
Broadcast cash flow margin(1) ............................... 29.2%
EBITDA(3) ................................................... $ 35,247(2)
Deficiency of earnings to fixed charges(4)................... 18,583
Capital expenditures ........................................ 3,000
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital, excluding current portion of long-term debt $ 29,427
Intangible and other assets, net ............................ 555,593
Total assets ................................................ 684,576
Long-term debt, including current portion ................... 403,681
Total stockholders' equity .................................. 239,329
</TABLE>
- --------------------
(1) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expense and other operating expenses. See "Glossary
of Certain Terms and Market and Industry Data."
(2) The pro forma financial results exclude the effects of cost savings
resulting from (i) the Commodore Acquisition, (ii) the Osborn Transactions,
(iii) the Benchmark Acquisition, and (iv) the Other Acquisitions
(collectively, the "Transactions"). On a pro forma basis, assuming the
consummation of the Transactions, including related cost savings as if they
had occurred on January 1, 1996, broadcast cash flow and EBITDA would have
been $____ million and $____ million, respectively, for the year ended
December 31, 1996. The Company expects to realize approximately $____
million of cost savings resulting from the elimination of redundant
operating expenses arising from the Transactions, including elimination of
certain management positions, the consolidation of facilities and new rates
associated with revised vendor contracts. In addition, the Company expects
to realize approximately $_______ of cost savings, on a pro forma basis,
resulting from the elimination of certain corporate overhead functions, net
of increased costs associated with the implementation of the Company's
corporate management structure. Corporate cost savings reflect the expected
level of annual corporate expenditures arising from the Transactions. The
Company anticipates that corporate expenses will increase upon consummation
of additional acquisitions. There can be no assurances that any operating
or corporate cost savings will be achieved.
(3) EBITDA consists of operating income before depreciation, amortization and
other operating expenses. See "Glossary of Certain Terms and Market and
Industry Data."
(4) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by management to be representative of the interest
factor thereon. Preferred stock dividends and accretion are included in
fixed charges where appropriate.
13
<PAGE> 16
RISK FACTORS
This Prospectus contains forward-looking statements. The words
"anticipate," "believe," "expect," "plan," "intend," "estimate," "project,"
"will," "could," "may" and similar expressions are intended to identify
forward-looking statements. Such statements reflect the Company's current views
with respect to future events and financial performance and involve risks and
uncertainties, including without limitation the risks described in "Risk
Factors." Should one or more of these risks or uncertainties occur, or should
underlying assumptions prove incorrect, actual results may vary materially and
adversely from those anticipated, believed, expected, planned, intended,
estimated, projected or otherwise indicated. Investors should carefully consider
the following risk factors, in addition to the other information contained in
this Prospectus, before exchanging the Old Notes for New Notes.
RISKS OF ACQUISITION STRATEGY
The Company intends to pursue growth through the acquisition of radio
broadcasting companies, radio station groups and individual radio stations in
mid-sized markets. The Company cannot predict whether it will be successful in
pursuing such acquisition opportunities or what the consequences of any such
acquisitions would be. The Company is currently evaluating certain acquisitions;
however, other than as described in "The Pending Acquisitions," the Company
currently has no binding commitments to acquire any specific business or other
material assets. The Company must obtain additional financing to consummate the
Pending Acquisitions and there can be no assurance that such financing will be
available to the Company on terms acceptable to its management or at all.
Consummation of the Pending Acquisitions is subject to various conditions,
including FCC and other regulatory approval. No assurances can be given that
such transactions will be consummated or that, if completed, they will be
successful. The Company's acquisition strategy involves numerous risks,
including difficulties in the integration of operations and systems and the
management of a large and geographically diverse group of stations, the
diversion of management's attention from other business concerns and the
potential loss of key employees of acquired stations. There can be no assurance
that the Company's management will be able to manage effectively the resulting
business or that such acquisitions will benefit the Company. Depending upon the
nature, size and timing of future acquisitions, the Company may be required to
raise additional financing in addition to the financing necessary to consummate
the Pending Acquisitions. There can be no assurance that the Indenture, the
credit facility under which Commodore will be the borrower (the "New Credit
Facility"), the indenture to which Commodore is a party (the "Commodore
Indenture") or any other loan agreements to which the Company may become a party
will permit such additional financing or that such additional financing will be
available to the Company on terms acceptable to its management or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
R. Steven Hicks is a party to a noncompetition agreement with SFX,
which, among other things, prohibits Mr. Hicks, the Company and any affiliate of
Hicks Muse in which Mr. Hicks has an ownership interest or to which Mr. Hicks
acts as an advisor from competing with, owning any direct or indirect interest
in or providing any services to any person which is in the business of owning or
operating one or more radio stations licensed or having a transmitter site
within any county in the MSA of certain specified SFX markets in various states.
Until its termination on October 31, 1997, Mr. Hicks' noncompetition agreement
with SFX will limit the Company's ability to enter the markets identified in the
noncompetition agreement. [Benchmark, prior to the Benchmark Acquisition, owned
and operated eight radio stations in the Greenville, South Carolina and Jackson,
Mississippi markets, which are located in prohibited markets under the
noncompetition agreement. Prior to the Benchmark Acquisition, the Company
assigned its right to acquire such radio stations to another company in which
neither Mr. Hicks nor the Company has an ownership interest or acts as an
advisor. Management expects that such other company will transfer the radio
stations to the Company after the noncompetition agreement has terminated,
although no assurances can be given that the Company will ever own and operate
such radio stations.] [Explanatory Note: Resolution of the bracketed disclosure
is pending.]
LIMITED OPERATING HISTORY; HISTORY OF NET LOSSES; MANAGEMENT OF GROWTH
The Company began operations in October 1996 and, consequently, has a
limited operating history upon which investors may base their evaluation of the
Company's performance. The Company has grown very rapidly, through
acquisitions, which will place significant demands on its administrative,
operational and financial resources. The Company had a net loss of $3.8 million
for period October 17, 1996 through December 31, 1996 and Commodore, the
Company's predecessor, had a net loss for the period January 1, 1996 through
October 16, 1996, and for each of the four years ended December 31, 1995, 1994,
1993 and 1992. There can be no assurance that the Company will become
14
<PAGE> 17
profitable. The Company's future performance and profitability will depend in
part on its ability to make additional radio station acquisitions in mid-sized
markets, to integrate successfully the operations and systems of acquired radio
stations and radio groups, to hire additional personnel, and to implement
necessary enhancements to its management systems to respond to changes in its
business. The inability of the Company to do any of the foregoing could have a
material adverse effect on the Company. See "Business."
SUBSTANTIAL LEVERAGE
The Company has, and after giving effect to the Offering, the Pending
Acquisitions and the financing thereof and the application of the net proceeds
therefrom, will continue to have, consolidated indebtedness that is substantial
in relation to its stockholders' equity. As of December 31, 1996, on a pro forma
basis after giving effect to the following acquisitions and their related
financing, including the Offering, and the application of the net proceeds
therefrom, (i) the Transactions and (ii) all acquisitions and dispositions
completed by Commodore, Osborn, Benchmark, and the entities to be acquired by
the Company in the Other Acquisitions from January 1, 1996, through the date of
their acquisition by the Company, the Company would have had outstanding, on a
consolidated basis, long-term indebtedness (including current portions) of
approximately $403.7 million and stockholders' equity of approximately $239.3
million. See "Capitalization." The Indenture limits the incurrence of
additional indebtedness by the Company and its subsidiaries, and both the New
Credit Facility and the Commodore Indenture limit the incurrence of additional
indebtedness by the Company's subsidiaries, in each case subject to certain
significant exceptions. See "Description of Other Indebtedness" and "Description
of New Notes."
The level of the Company's indebtedness could have several important
consequences to the holders of the New Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be dedicated to debt service and will not be available for other purposes;
(ii) the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions and general corporate or other purposes may
be impaired in the future; (iii) certain of the Company's borrowings will be at
variable rates of interest (including any borrowings under the New Credit
Facility), which will expose the Company to the risk of increased interest
rates; (iv) the Company's leveraged position and the covenants contained in the
New Credit Facility, the Commodore Indenture and the Indenture could limit the
Company's ability to compete, expand and make capital improvements; (v) the
Company's level of indebtedness could make it more vulnerable to economic
downturns, limit its ability to withstand competitive pressures and reduce its
flexibility in responding to changing business and economic conditions; and (vi)
certain restrictive covenants contained in the Indenture, the Commodore
Indenture and the New Credit Facility limit the ability of Capstar to pay
dividends and make other distributions to its stockholders. See "Description of
Other Indebtedness" and "Description of New Notes."
The Company's ability to satisfy its debt obligations will depend upon
its future financial and operating performance, which, in turn, is subject to
prevailing economic conditions and financial, business and other factors,
certain of which are beyond its control. If the Company's cash flow and capital
resources are insufficient to fund its debt service obligations, the Company may
be forced to reduce or delay planned expansion and capital expenditures, sell
assets, obtain additional equity capital or restructure its debt. There can be
no assurance that the Company's operating results, cash flow and capital
resources will be sufficient for payment of its debt service and other
obligations in the future. In the absence of such operating results and
resources, the Company could face substantial liquidity problems and might be
required to sell material assets or operations to meet its debt service and
other obligations, and there can be no assurance as to the timing of such sales
or the proceeds that the Company could realize therefrom or that such sales can
be effected on terms satisfactory to the Company or at all. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Liquidity and Capital Resources" and "Description of Other Indebtedness."
HOLDING COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW OF THE COMPANY'S
SUBSIDIARIES
The Company conducts its business through its subsidiaries and has no
operations of its own. The sole operating assets of the Company are all of the
shares of capital stock of Commodore, which in turn, directly or indirectly,
owns the capital stock of the Company's other subsidiaries. Consequently, the
Company's sole source of cash from which to make payments of interest on the
Notes will be dividends distributed or other payments made to it by Commodore,
and Commodore's sole source of cash will be dividends distributed or payments
made to it by such other subsidiaries. The Commodore Indenture restricts
Commodore's ability to pay dividends or make other restricted payments to the
Company. Except as permitted under the Commodore Indenture, the Company's
subsidiaries may not incur additional indebtedness.
15
<PAGE> 18
Furthermore, Commodore and such other subsidiaries are legally distinct from
the Company and have no obligation, contingent or otherwise, to pay amounts due
pursuant to the Notes or to make any funds available for such payments. The
ability of the Company's subsidiaries to make such funds available, whether
through dividends or other distributions, will be subject to applicable
corporate and other laws and regulations and to the terms of agreements to
which such subsidiaries are or become subject. All of the Company's
subsidiaries (other than Commodore) are guarantors of the 13 1/4% Senior
Subordinated Notes due 2003 (the "Commodore Notes") issued under the Commodore
Indenture and are guarantors under the New Credit Facility. Such subsidiaries
also granted security interests in substantially all of their assets in which a
security interest may lawfully be granted to secure their indebtedness under
the New Credit Facility. As a result of these factors, the Notes are
effectively subordinated to all liabilities of the Company's subsidiaries. As
of December 31, 1996, after giving pro forma effect to the following
acquisitions and their related financing, including the Offering, and the
application of the net proceeds therefrom, (i) the Transactions and (ii) all
acquisitions and dispositions completed by Commodore, Osborn, Benchmark, and
the entities to be acquired by the Company in the Other Acquisitions from
January 1, 1996, through the date of their acquisition by the Company, the
total liabilities of the Company's subsidiaries would have been approximately $
million.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture, the Commodore Indenture and the New Credit Facility
contain certain covenants that restrict, among other things, the ability of
Commodore and its subsidiaries to incur additional indebtedness, incur liens,
pay dividends or make certain other restricted payments, consummate certain
asset sales, enter into certain transactions with affiliates, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of Commodore. The
New Credit Facility also requires the Company to maintain specified financial
ratios and to satisfy certain financial condition tests. The Company's ability
to meet those financial ratios and financial condition tests can be affected by
events beyond its control, and there can be no assurance that the Company will
meet those tests. A breach of any of these covenants could result in a default
under the New Credit Facility, the Indenture and/or the Commodore Indenture. In
the event of an event of default under the New Credit Facility or the Commodore
Indenture, the lenders thereunder could elect to declare all amounts outstanding
thereunder, together with accrued interest, to be immediately due and payable.
In the case of the New Credit Facility, if Commodore were unable to repay those
amounts, the lenders thereunder could proceed against the collateral granted to
them to secure that indebtedness. If the New Credit Facility indebtedness were
to be accelerated, there can be no assurance that the assets of Commodore would
be sufficient to repay in full such indebtedness and the other indebtedness of
Commodore and the indebtedness of the Company. See "Description of Other
Indebtedness."
COMPETITION; BUSINESS RISKS
Radio broadcasting is a highly competitive business. The Company's radio
stations, now owned or to be acquired upon completion of the Pending
Acquisitions, compete for audiences and advertising revenues within their
respective markets directly with other radio stations, as well as with other
media, such as newspapers, magazines, cable television, outdoor advertising and
direct mail. In addition, certain of the Company's stations compete, and in the
future other of the Company's stations may compete, with groups of two or more
stations operated by a single operator. Audience ratings and market shares are
subject to change and any adverse change in a particular market could have a
material adverse effect on the revenue of stations located in that market. While
the Company already competes with other stations with comparable programming
formats in many of its markets, if another radio station in the market were to
convert its programming format to a format similar to one of the Company's
stations, if a new station were to adopt a competitive format, or if an existing
competitor were to strengthen its operations, the Company's stations could
suffer a reduction in ratings and/or advertising revenue and could require
increased promotional and other expenses. The Telecom Act facilitates the entry
of other radio broadcasting companies into the markets in which the Company
operates or may operate in the future. Some of such companies may be larger and
have more financial resources than the Company. Future operations are further
subject to many variables which could have a material adverse effect upon the
Company's financial performance. These variables include economic conditions,
both generally and relative to the radio broadcasting industry; shifts in
population and other demographics; the level of competition for advertising
dollars with other radio stations, television stations and other entertainment
and communications media; fluctuations in operating costs; technological changes
and innovations; changes in labor conditions; and changes in governmental
regulations and policies and actions of federal regulatory bodies, including the
United States Department of Justice ("DOJ"), the Federal Trade Commission (the
"FTC") and the FCC. Although the Company believes that substantially all of its
radio stations, now owned or to be acquired upon completion of the Pending
Acquisitions, are positioned to compete effectively in their
16
<PAGE> 19
respective markets, there can be no assurance that any such station will be
able to maintain or increase its current audience ratings and advertising
revenues. See "Business -- Competition; Changes in the Broadcasting Industry."
Radio broadcasting is also subject to competition from new media
technologies that are being developed or introduced, such as the delivery of
audio programming by cable television systems and the introduction of digital
audio broadcasting ("DAB"). DAB may deliver by satellite to nationwide and
regional audiences multi-channel, multi-format digital radio services with sound
quality equivalent to compact discs. The Company cannot predict the effect, if
any, that any such new technologies may have on the radio broadcasting industry
or the Company. See "Business -- Competition; Changes in the Broadcasting
Industry."
CONTROL OF THE COMPANY; RESTRICTIONS ON CHANGE OF CONTROL
Upon the consummation of the Offering, the purchasers of the Class A
Common Stock offered in the Offering will own approximately ______% of the
outstanding Class A Common Stock, representing approximately ______% of the
total voting power of the outstanding Common Stock. R. Steven Hicks, Capstar's
President, Chief Executive Officer and Chairman of the Board, and Capstar L.P.
will hold all the outstanding Class C Common Stock, representing approximately
______% of the total voting power of the outstanding Common Stock. Affiliates of
Hicks Muse will own 100% of the Class B Common Stock. See "Security Ownership
of Certain Beneficial Owners" and "Description of Capital Stock."
The outstanding Class C Common Stock is subject to a voting agreement as
described in "Certain Transactions -- Stockholders Agreements -- Affiliate
Stockholders Agreement." Hicks Muse is a party to the Affiliate Stockholders
Agreement (as defined) that requires the parties to such agreement to vote their
shares (i) in favor of election to the Company's Board of Directors of such
individuals as may be designated by Hicks Muse and its affiliates to fill the
seats of the Classified Directors (as defined) and (ii) on other matters as the
holders of a majority of the voting power of the outstanding shares of Common
Stock vote on such matters. Thomas O. Hicks is the controlling stockholder of
Hicks Muse and serves as its Chairman of the Board, President and Chief
Executive Officer. Accordingly, immediately after the consummation of the
Offering, Thomas O. Hicks will be able to control the vote on all matters
submitted to the vote of stockholders, and, therefore, will be able to direct
the management and policies of the Company, except with respect to those matters
requiring a class vote by applicable law and except that the holders of Class A
Common Stock, voting as a separate class, will be entitled to elect two members
of the Board of Directors of Capstar. Control by Thomas O. Hicks may have the
effect of discouraging certain types of transactions involving an actual or
potential change of control of Capstar, including transactions in which the
holders of Class A Common Stock might otherwise receive a premium for their
shares over then-current market prices. See "Security Ownership of Certain
Beneficial Owners" and "Description of Capital Stock."
The Communications Act and certain regulations of the FCC require the
prior consent of the FCC to any change of control of the Company. See "--
Governmental Regulation of Broadcasting Industry" and "Business -- Federal
Regulation of Radio Broadcasting."
CONFLICT OF INTEREST
After the Offering, Thomas O. Hicks will control ___% of the voting
power of the outstanding Common Stock. Thomas O. Hicks also controls
approximately 90.1% of the voting power of GulfStar Communications, Inc.
("GulfStar"), a radio broadcasting company that owns and operates stations in
mid-sized markets in Texas, Louisiana, Arkansas and New Mexico and is seeking to
acquire additional radio stations in Texas and Louisiana. In addition, two of
Capstar's four directors are also two of the four directors of GulfStar, and R.
Steven Hicks, Capstar's Chairman of the Board and Chief Executive Officer, and
Eric C. Neuman, an Executive Vice President of Capstar, also serve in the same
positions with GulfStar. Accordingly, R. Steven Hicks and Eric C. Neuman will
not expend all of their professional time on behalf of the Company. See
"Management" and "Security Ownership of Certain Beneficial Owners."
Directors and executive officers of Capstar who are also directors and
executive officers of GulfStar may have conflicts of interest with respect to
matters potentially or actually involving or affecting the Company and GulfStar,
such as acquisitions, operations, financings and other corporate opportunities
that may be suitable for both the Company and GulfStar. To the extent that such
opportunities arise, such directors and executive officers may consult with
their legal advisors and make determinations with respect to such opportunities
after consideration of a number of factors, including
17
<PAGE> 20
whether such opportunities are presented to any such director or executive
officer in his capacity as a director or executive officer of Capstar, whether
such opportunities are consistent with the Company's strategic objectives and
whether the Company will be able to undertake or benefit from such
opportunities. In addition, determinations may be made by Capstar's Board of
Directors, when appropriate, by a vote of the disinterested directors only. No
assurances can be given that such disinterested director approval will be
sought or that any such conflicts will be resolved in favor of the Company.
In November 1996, Capstar and GulfStar entered into a letter of intent
to merge the two companies. Subsequent to execution of the letter of intent, the
parties received early termination of the applicable waiting period with respect
to the merger under the HSR Act. Thereafter, the parties terminated the letter
of intent and ceased negotiations to consummate the merger. The Company is
again considering a business combination with GulfStar, although no letter of
intent or definitive agreement has been entered into. Such a business
combination would be subject to, among other things, the Company and GulfStar
reaching agreement on material terms and conditions, obtaining the FCC's
approval of the transfer of control of broadcast licenses, and obtaining the
approval of the advisory committee or limited partners of Hicks, Muse, Tate &
Furst Equity Fund III, L.P. ("HM Fund III"). See "Security Ownership of Certain
Beneficial Owners." No assurances can be given that the Company and GulfStar
will negotiate or enter into such an agreement, that such an agreement would
contain terms and conditions favorable to the Company, that the advisory
committee or limited partners of HM Fund III would approve a combination of the
Company and GulfStar, that the FCC would approve the transfer of control of the
broadcast licenses, or that such a combination would strengthen the Company's
business, operations or financial position.
GOVERNMENTAL REGULATION OF BROADCASTING INDUSTRY
The broadcasting industry is subject to extensive federal regulation
that, among other things, requires approval by the FCC for the issuance,
renewal, transfer of control and assignment of broadcasting station operating
licenses and limits the number of broadcasting properties that the Company may
acquire in any market. Additionally, the Communications Act and FCC rules impose
limitations on alien ownership and voting of the capital stock of the Company.
The Telecom Act creates significant new opportunities for broadcasting companies
but also creates uncertainties as to how the FCC and the courts will enforce and
interpret the Telecom Act.
In addition, the number of radio stations the Company may acquire in any
market is limited by FCC rules and may vary depending upon whether the interests
in other radio stations or certain other media properties of certain individuals
affiliated with the Company are attributable to those individuals under FCC
rules. Moreover, under the FCC's cross-interest policy, the FCC in certain
instances may prohibit one party from acquiring an attributable interest in one
media outlet and a substantial non-attributable economic interest in another
media outlet in the same market, thereby prohibiting a particular acquisition by
the Company.
The FCC generally applies its ownership limits to "attributable"
interests held by an individual, corporation, partnership or other association.
The interests of the Company's officers, directors and majority stockholder are
generally attributable to the Company. Certain of the Company's officers and
directors have attributable broadcast interests, which will limit the number of
radio stations that the Company may acquire or own in any market in which such
officers or directors hold or acquire attributable broadcast interests.
The Company's Restated Certificate of Incorporation restricts the
ownership, voting and transfer of the Company's capital stock in accordance with
the Communications Act and the rules of the FCC to prohibit ownership of more
than 25.0% of the Company's outstanding capital stock, or more than 25.0% of the
voting rights it represents, by or for the account of Aliens (as defined) or
corporations otherwise subject to domination or control by Aliens. The Restated
Certificate of Incorporation provides that shares of capital stock of the
Company determined by the Company's Board of Directors to be owned beneficially
by an Alien or an entity directly or indirectly owned by Aliens in whole or in
part shall always be subject to redemption by the Company by action of the Board
of Directors to the extent necessary, in the judgment of the Board of Directors,
to comply with the Alien ownership restrictions of the Communications Act and
the FCC rules and regulations.
The consummation of radio broadcasting acquisitions requires prior
approval of the FCC with respect to the transfer of control or assignment of the
broadcast licenses of the acquired stations. Certain of the Pending Acquisitions
have not yet received FCC approval. There can be no assurance that the FCC will
approve future acquisitions by the
18
<PAGE> 21
Company (including the Pending Acquisitions). The consummation of certain
acquisitions, including certain of the Pending Acquisitions, is also subject to
applicable waiting periods and possible review by the DOJ or the FTC under the
HSR Act. Since the passage of the Telecom Act, several radio broadcasting
acquisitions, including the Benchmark Acquisition, have been the subject of
"second requests" for additional information by federal authorities under the
HSR Act. The second request with respect to the Benchmark Acquisition was
resolved favorably to the Company. The Company understands that the DOJ is
currently reviewing its internal guidelines for antitrust review of radio
broadcasting acquisitions. See "Business -- Federal Regulation of Radio
Broadcasting."
The Company's business will be dependent upon maintaining its
broadcasting licenses issued by the FCC, which are ordinarily issued for a
maximum term of eight years. Although it is rare for the FCC to deny a license
renewal application, there can be no assurance that the future renewal
applications of the Company will be approved or that such renewals will not
include conditions or qualifications that could adversely affect the Company.
Moreover, governmental regulations and policies may change over time and there
can be no assurance that such changes would not have a material adverse impact
upon the Company. See "Business -- Federal Regulation of Radio Broadcasting."
DEPENDENCE ON KEY PERSONNEL
The Company's business depends upon the continued efforts, abilities and
expertise of its executive officers and other key employees, including R. Steven
Hicks, Capstar's President, Chief Executive Officer and Chairman of the Board.
The Company has employment agreements with several of its key employees,
including R. Steven Hicks, Paul D. Stone, the Company's Executive Vice President
and Chief Financial Officer, William S. Banowsky, Jr., the Company's Executive
Vice President and General Counsel, James T. Shea, Jr., the chief executive
officer of the Northeast Region, Frank D. Osborn, the chief executive officer of
the Southeast Region and Dex Allen, the president and chief operating officer of
the West Region. The Company will enter into an employment agreement with David
J. Benjamin, III who will serve as the chief executive officer of the West
Region upon consummation of the Community Pacific Acquisition. The Company
believes that the loss of any of these individuals could have a material adverse
effect on the Company. See "Management."
ORIGINAL ISSUE DISCOUNT CONSEQUENCES OF NOTES
The Notes were issued at a substantial discount from their principal
amount at maturity. Although cash interest will not accrue on the Notes prior to
February 1, 2002, original issue discount (the difference between the stated
redemption price at maturity and the issue price of the Notes) will accrue from
the issue date of the Notes. Consequently, purchasers of Notes generally will be
required to include amounts in gross income for United States federal income tax
purposes in advance of their receipt of the cash payments to which the income is
attributable. Such amounts in the aggregate will be equal to the difference
between the stated redemption price at maturity (inclusive of stated interest on
the Notes) and the issue price of the Notes.
In the event a bankruptcy case is commenced by or against the Company
under the United States Bankruptcy Code after the issuance of the Notes, the
claim of a holder of Notes may be limited to an amount equal to the sum of (i)
the initial offering price and (ii) that portion of the original issue discount
that is not deemed to constitute "unmatured interest" for purposes of the
Bankruptcy Code. Any original issue discount that was not amortized as of the
date of any such bankruptcy filing would constitute "unmatured interest." To the
extent that the Bankruptcy Code differs from the Internal Revenue Code in
determining the method of amortization of original issue discount, a holder of
Notes may realize taxable gain or loss on payment of such holder's claim in
bankruptcy.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required
to offer to purchase all outstanding Notes at a purchase price equal to (i)
101.0% of the Accreted Value thereof on the Change of Control Payment Date if
the Change of Control Payment Date is on or before February 1, 2002 and (ii)
101.0% of the principal amount at maturity thereof, plus accrued and unpaid
interest, if any, to the Change of Control Payment Date if the Change of Control
Payment Date is after February 1, 2002. If a Change of Control were to occur,
there can be no assurance that the Company would have sufficient funds to pay
the purchase price for all of the Notes that the Company might be required to
purchase. The Commodore Indenture provides that, upon a change of control (as
therein defined) of Commodore, Commodore will be required to purchase all of the
Commodore Notes then outstanding at a purchase price equal to
19
<PAGE> 22
101.0% of their accreted value (as therein defined), plus accrued interest to
the date of repurchase, in the case of such a purchase prior to May 1, 1998,
and thereafter at a purchase price equal to 101.0% of the principal amount
thereof, plus accrued interest to the date of repurchase. A Change of Control
under the Indenture would in all likelihood also constitute a change of control
under the Commodore Indenture and will constitute an event of default under the
New Credit Facility. Commodore would be required to consummate such a purchase
of the Commodore Notes and repay borrowings under the New Credit Facility prior
to paying dividends or making other distributions to the Company to permit the
Company to consummate such a purchase of the Notes. Moreover, as of the date of
this Prospectus, after giving effect to the issuance of the Notes and the
consummation of the Osborn Transactions and the Pending Acquisitions, the
Company would not have sufficient funds available to purchase all of the
outstanding Notes pursuant to a Change of Control Offer. In the event that the
Company were required to purchase the Notes pursuant to a Change of Control
Offer, the Company expects that it would need to seek third-party financing to
the extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain
such financing on favorable terms, if at all. See "Description of Other
Indebtedness" and "Description of New Notes." In such event, the Company may be
unable to repurchase Notes tendered in response to a Change of Control Offer.
ABSENCE OF PUBLIC MARKET
The Old Notes are designated for trading in the PORTAL market. There is
no established trading market for the New Notes. The Company does not currently
intend to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. There can be no assurance as
to the development of any market or the liquidity of any market that may develop
for the New Notes. If such a market were to exist, no assurance can be given as
to the trading prices of the New Notes. Future trading prices of the New Notes
will depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results and the market for similar securities.
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
20
<PAGE> 23
CAPITALIZATION
The following table sets forth the historical capitalization of the
Company at December 31, 1996 ("Actual") and the unaudited pro forma
capitalization of the Company, after giving effect to (i) the Osborn
Transactions, the Benchmark Acquisition and the Exchange Offer ("Pro Forma
Completed Transactions"), (ii) in addition to the foregoing, the Offering ("Pro
Forma for the Offering"), (iii) in addition to the foregoing, the Other
Acquisitions ("Pro Forma"), and (iv) in each case, the financing of each of the
foregoing transactions, and the application of the net proceeds therefrom. This
table should be read in conjunction with the Consolidated Financial Statements
of the Company, and its predecessor, Commodore, Osborn, Benchmark, Community
Pacific, Madison, the Pro Forma Financial Information and, in each case, the
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
PRO FORMA PRO FORMA
COMPLETED FOR THE
ACTUAL TRANSACTIONS OFFERING PRO FORMA
------ ------------ -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term debt (including current maturities):
Commodore:
Old Credit Facilities(1) ................................. $ 24,700 $ -- $ -- $ --
New Credit Facility(2) ................................... -- 184,250 94,250 173,585
13 1/4% Senior Subordinated Notes due 2003(3) ............ 79,812 79,812 79,812 79,812
-------- -------- -------- --------
Total Commodore Long-term Debt ........................ 104,512 264,062 174,062 253,397
Capstar Broadcasting Partners, Inc.:
Former Term Loan Facility(4) ............................. 35,000 -- -- --
The New Notes(5) ......................................... -- 150,284 150,284 150,284
-------- -------- -------- --------
Total Long-term Debt ..................................... 139,512 414,346 324,346 403,681
-------- -------- -------- --------
Stockholders' Equity:
Class A Common Stock (150,000,000 shares authorized;
94,155,000 shares issued and outstanding Actual; and
______ shares issued and outstanding Pro Forma) ........ 942 5 5 5
Class B Common Stock (50,000,000 shares authorized;
no shares issued and outstanding Actual; and
1,818,181 issued and outstanding shares Pro Forma) ..... -- 18 18 18
Class C Common Stock (50,000,000 shares authorized;
no shares issued and outstanding Actual; and
12,531,145 shares issued and outstanding Pro Forma) .... -- 125 125 125
Paid-in Capital .......................................... 93,957 154,701 244,701 244,701
Accumulated Deficit(6) ................................... (3,756) (5,520) (5,520) (5,520)
-------- -------- -------- --------
Total Stockholders' Equity(7) ............................ 91,143 149,329 239,329 239,329
-------- -------- -------- --------
Total Capitalization ..................................... $230,655 $563,675 $563,675 $643,010
======== ======== ======== ========
</TABLE>
- -------------
(1) Refers to (i) Commodore's former credit facility (the "Former Credit
Facility") with the AT&T Commercial Finance Corporation, the
indebtedness under which was repaid in connection with the
consummation of the Osborn Acquisition and the financing thereof, and
(ii) Commodore's former credit facility with Bankers Trust Company, as
administrative agent, dated as of February 20, 1997 (the "Refinanced
Credit Facility"), which was refinanced with the New Credit Facility
in connection with the consummation of the Benchmark Acquisition.
(2) [Explanatory note: The terms of the New Credit Facility will be
provided by amendment to this Registration Statement.]
(3) The actual amount at December 31, 1996 of approximately $79.8 million
includes an unamortized premium of $3.0 million. Commodore's 13 1/4%
Senior Subordinated Notes due 2003 (the "Commodore Notes") are limited
in aggregate principal amount to $76.8 million and bear interest at a
rate of 13 1/4% per annum, of which only 7 1/2% is payable in cash up
to May 1, 1998. On May 1, 1998 and thereafter, the Commodore Notes
will bear cash interest at a rate of 13 1/4% per annum until maturity.
The carrying value will increase through accretion until May 1998.
Subsequently, the premium will amortize until the Commodore Notes are
reduced to their face value of $76.8 million at maturity in 2003.
(4) Capstar's credit facility with Bankers Trust Company, as
administrative agent, dated as of October 16, 1996 (the "Former Term
Loan Facility"), was repaid in full in connection with the
consummation of the Osborn Acquisition and the financing thereof.
(5) The New Notes will be issued for each $1,000 principal amount at
maturity of the Old Notes of which an aggregate principal amount at
maturity of $277.0 million is outstanding. The form and terms of the
New Notes are identical to the form and terms of the Old Notes except
that the offer and sale of the New Notes has been registered under the
Securities Act and the New Notes will not bear any legends restricting
their transfer. The Old Notes were issued by Capstar at a substantial
discount from their aggregate principal amount at maturity of $277.0
million in aggregate and generated gross proceeds to the Company of
approximately $150.3 million. The Notes pay no cash interest until
August 1, 2002. Accordingly, the carrying value will increase through
accretion until August 1, 2002. Thereafter, interest will be payable
semi-annually, in cash, on February 1 and August 1 of each year.
(6) In connection with the Benchmark Acquisition, Capstar issued $750,000
of Class C Common Stock to an affiliate of Hicks Muse in consideration
for its agreement to purchase Fund III Acquisition Sub's indebtedness
from the lender upon the occurrence of certain events, including,
among other events, a default by the borrower. The issuance of Class
C Common Stock in connection with such agreement to purchase was
recorded as an extraordinary item in the period in which the Company
consummated the Benchmark Acquisition. Had the Benchmark Acquisition
been consummated at December 31, 1996, the Company would have recorded
an extraordinary charge of approximately $750,000.
(7) The pro forma capitalization of the Company excludes certain equity
investments made subsequent to December 31, 1996 which were not made
in connection with the transactions given effect in the pro forma
financial statements. These equity investments totaled $3.8 million.
21
<PAGE> 24
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Pro
Forma Financial Information") is based on the audited historical financial
statements of the Company and Commodore (the Company's predecessor), Osborn,
Benchmark, Community Pacific and Madison, and, in each case, the related notes
included elsewhere in this Prospectus.
The pro forma statement of operations for the year ended December 31,
1996 has been prepared to illustrate the effects of the following acquisitions
and their related financing, including the Offering and the Exchange Offer, as
if each had occurred on January 1, 1996: (i) the Commodore Acquisition, (ii)
the Osborn Transactions, (iii) the Benchmark Acquisition, (iv) the Other
Acquisitions, and (v) all acquisitions and dispositions completed by Commodore,
Osborn, Benchmark, and the entities to be acquired by the Company in the Other
Acquisitions, from January 1, 1996 through the date of their acquisition by the
Company. The pro forma balance sheet as of December 31, 1996 has been prepared
as if any such transaction not yet consummated on that date had occurred on
that date. The Pro Forma Financial Information and accompanying notes should
be read in conjunction with the financial statements and other financial
information included elsewhere herein pertaining to the Company, Commodore,
Osborn, Benchmark, Community Pacific and Madison, including "Capitalization"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The unaudited pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable.
The Pro Forma Financial Information is not necessarily indicative of either
future results of operations or the results that might have been achieved if
such transactions had been consummated on the indicated date.
All acquisitions given effect in the Pro Forma Financial Information
are accounted for using the purchase method of accounting. The aggregate
purchase price of each such transaction is allocated to the tangible and
intangible assets and liabilities acquired based upon their respective fair
values. The allocation of the aggregate purchase price reflected in the Pro
Forma Financial Information is preliminary for transactions to be closed after
January 1, 1997. The final allocation of the purchase price is contingent upon
the receipt of final appraisals of the acquired assets and the revision of
other estimates; however, the allocation is not expected to differ materially
from the preliminary allocation.
For the purpose of the Pro Forma Financial Information, (i) "Commodore
Combination" means the Commodore Acquisition and all acquisitions or
dispositions completed by Commodore since January 1, 1996 through the date of
the Commodore Acquisition, (ii) "Osborn Combination" means the Osborn
Transactions and all acquisitions or dispositions completed by Osborn since
January 1, 1996 through the date of the Osborn Acquisition, (iii) "Benchmark
Combination" means the Benchmark Acquisition and all acquisitions or
dispositions completed by Benchmark since January 1, 1996 through the date of
the Benchmark Acquisition, and (iv) "Other Acquisitions" collectively refers to
the Madison Acquisition and the Community Pacific Acquisition.
22
<PAGE> 25
As used in the Pro Forma Financial Information, (i) "The Company
Combined" presents unaudited pro forma financial data for the Company,
including its predecessor, Commodore, (ii) "Pro Forma Completed Transactions"
gives effect to the Osborn Transactions, the Benchmark Acquisition and the
acquisitions and dispositions of Osborn and Benchmark completed prior to the
consummation of the Osborn Acquisition and the Benchmark Acquisition,
respectively, and the financings thereof, and the Exchange Offer (iii) "Pro
Forma for the Offering" gives effect to the foregoing transactions and the
Offering, and (iv) "Pro Forma" gives effect to each of the foregoing
transactions, the Other Acquisitions and the anticipated financing thereof.
The following table presents a summary of the Pro Forma Financial
Information included on the following pages.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------
PRO FORMA PRO FORMA
THE COMPANY COMPLETED FOR THE
COMBINED TRANSACTIONS OFFERING PRO FORMA
-------- ------------ --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net revenue ................................................. $ 44,615 $ 125,617 $ 125,617 $ 145,863
Station operating expenses .................................. 29,858 88,355 88,355 103,255
Depreciation and amortization ............................... 3,489 20,121 20,121 22,492
Corporate expenses .......................................... 2,358 6,422 6,422 7,361
Other operating expenses .................................... 14,578 987 987 987
Operating income (loss) ..................................... (5,668) 9,732 9,732 11,768
Interest expense ............................................ 13,896 53,302 42,502 53,130
Net loss .................................................... (21,521) (20,849) (10,049) (18,583)
OTHER DATA:
Broadcast cash flow (1) ..................................... $ 14,757 $ 37,262 $ 37,262 $ 42,608
Broadcast cash flow margin (1) .............................. 33.1% 29.7% 29.7% 29.2%
EBITDA (2) .................................................. $ 12,399 $ 30,840 $ 30,840 $ 35,247
Deficiency or earnings to fixed
charges (3) .............................................. $ 20,849 $ 10,049 $ 18,583
</TABLE>
(1) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses and other operating expenses. See
"Glossary of Certain Terms and Market and Industry Data."
(2) EBITDA consists of operating income before depreciation, amortization
and other operating expenses. See "Glossary of Certain Terms and
Market and Industry Data."
(3) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component
of rental expense believed by management to be representative of the
interest factor thereon. Preferred stock dividends and accretion are
included in fixed charges where appropriate.
23
<PAGE> 26
CAPSTAR BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
FOR THE FOR THE FOR THE
COMMODORE OSBORN BENCHMARK
COMBINATION COMBINATION COMBINATION
THE AND THE AND THE AND THE PRO FORMA
COMPANY RELATED OSBORN RELATED BENCHMARK RELATED COMPLETED
COMBINED(A) FINANCING COMBINED(A) FINANCING COMBINED(A) FINANCING TRANSACTIONS
----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue ............... $ 44,615 $ -- $41,001 $ -- $40,001 $ -- $ 125,617
Station operating expenses 29,858 -- 30,466 -- 28,031 -- 88,355
Depreciation and
amortization .............. 3,489 3,657 (B) 4,626 1,928 (B) 5,559 862 (B) 20,121
Corporate expenses ........ 2,358 -- 2,238 -- 1,826 -- 6,422
Other operating expenses . 14,578 (13,834)(C) 243 -- -- -- 987
-------- -------- ------- -------- ------- -------- ---------
Operating income (loss) . (5,668) 10,177 3,428 (1,928) 4,585 (862) 9,732
Interest expense .......... 13,896 3,943 (D) 1,928 8,842 (F) 3,446 21,247 (G) 53,302
Gain (loss) on sale of
assets .................... -- -- 12,324 -- 9,612 -- 21,936
Other (income) expense .... 1,824 (1,981)(C) 248 -- (876) -- (785)
-------- -------- ------- -------- ------- -------- ---------
Income (loss) before
provision for income
taxes ...... (21,388) 8,215 13,576 (10,770) 11,627 (22,109) (20,849)
Provision (benefit) for
income taxes ............. 133 (133)(E) 2,408 (2,408)(E) -- -- --
-------- -------- ------- -------- ------- -------- ---------
Net income (loss) ......... $(21,521) $ 8,348 $11,168 $ (8,362) $11,627 $(22,109) $ (20,849)
======== ======== ======= ======== ======= ======== =========
Deficiency of earnings to
fixed charges(CC) ......... $ 20,849
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
24
<PAGE> 27
CAPSTAR BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
OTHER
ACQUISITIONS
PRO FORMA ADJUSTMENTS PRO FORMA OTHER AND THE
COMPLETED FOR THE FOR THE ACQUISITIONS RELATED
TRANSACTIONS OFFERING OFFERING COMBINED (I) FINANCING PRO FORMA
------------ ----------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenue ............................... $ 125,617 $ -- $ 125,617 $ 20,246 $ -- $ 145,863
Station operating expenses ................ 88,355 -- 88,355 14,900 -- 103,255
Depreciation and amortization ............. 20,121 -- 20,121 3,359 (988)(B) 22,492
Corporate expenses ........................ 6,422 -- 6,422 939 -- 7,361
Other operating expenses .................. 987 -- 987 -- -- 987
--------- --------- --------- --------- --------- ---------
Operating income (loss) ............... 9,732 -- 9,732 1,048 988 11,768
Interest expense .......................... 53,302 (10,800)(H) 42,502 2,004 8,624 (J) 53,130
Gain (loss) on sale of assets ............. 21,936 -- 21,936 (11) -- 21,925
Other (income) expense .................... (785) -- (785) (69) -- (854)
--------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes ........................ (20,849) 10,800 (10,049) (898) (7,636) (18,583)
Provision (benefit) for income taxes ...... -- -- -- 189 (189)(E) --
--------- --------- --------- --------- --------- ---------
Net income (loss) ......................... $ (20,849) $ 10,800 $ (10,049) $ (1,087) $ (7,447) $ (18,583)
========= ========= ========= ========= ========= =========
Deficiency of earnings to fixed
charges(CC) ........................... $ 20,849 $ 10,049 $ 18,583
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
25
<PAGE> 28
CAPSTAR BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE OSBORN
ACQUISITION
AND THE
THE OSBORN RELATED BENCHMARK
COMPANY COMBINED(K) FINANCING COMBINED(K)
-------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................ $ 5,028 $ 3,757 $ 5,040 (L) $11,983
(596)(M)
Accounts receivable, net ............................. 8,913 6,613 (160)(M) 6,422
Prepaid expenses and other ........................... 444 2,404 (157)(M) 671
-------- ------- -------- -------
Total current assets ............................... 14,385 12,774 4,127 19,076
Property and equipment, net .......................... 15,628 12,313 19,332 (M) 15,509
Intangible and other assets, net ..................... 208,555 29,990 94,429 (M) 46,560
2,472 (M)
(1,014)(N)
-------- ------- -------- -------
Total assets ...................................... $238,568 $55,077 $119,346 $81,145
======== ======= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued expenses .......... $ 5,832 $ 7,849 $ (100)(M) $ 6,081
(849)(O)
Current portion of long-term debt .................... 3,750 478 (478)(P) 14,259
(3,750)(O)
-------- ------- -------- -------
Total current liabilities ......................... 9,582 8,327 (5,177) 20,340
Long-term debt, less current portion .................... 135,762 16,074 (55,950)(O) 30,783
(16,074)(P)
150,284 (Q)
(150,284)(Q)
150,284 (Q)
Other long-term liabilities ............................. 2,081 4,562 3,200 (M) 193
12,991 (M)
-------- ------- -------- -------
Total liabilities ................................. 147,425 28,963 89,274 51,316
Stockholders' equity (deficit) .......................... 91,143 26,114 31,086 (R) 29,829
(1,014)(N)
-------- ------- -------- -------
Total liabilities and stockholders' equity ........... $238,568 $55,077 $119,346 $81,145
======== ======= ======== =======
<CAPTION>
ADJUSTMENTS
FOR THE
BENCHMARK
ACQUISITION
AND THE PRO FORMA
RELATED COMPLETED
FINANCING TRANSACTIONS
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................ $ (770)(S) $ 24,292
(150)(T)
Accounts receivable, net ............................. (1,414)(S) 20,374
Prepaid expenses and other ........................... (5)(S) 3,357
-------- --------
Total current assets ............................... (2,339) 48,023
Property and equipment, net .......................... 7,799 (S) 70,581
Intangible and other assets, net ..................... 93,186 (S) 486,637
12,459 (S)
-------- --------
Total assets ...................................... $111,105 $605,241
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued expenses .......... $ (217)(S) $ 18,596
Current portion of long-term debt .................... (14,259)(U) --
-------- --------
Total current liabilities ......................... (14,476) 18,596
Long-term debt, less current portion .................... 184,250 (U) 414,346
60,000 (W)
(60,000)(W)
(30,783)(U)
Other long-term liabilities ............................. (57)(S) 22,970
-------- --------
Total liabilities ................................. 138,934 455,912
Stockholders' equity (deficit) .......................... (29,829)(V) 149,329
750 (W)
(750)(W)
2,000 (V)
-------- --------
Total liabilities and stockholders' equity ........... $111,105 $605,241
======== ========
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
26
<PAGE> 29
CAPSTAR BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA BALANCE SHEET (CONTINUED)
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE OTHER
ACQUISITIONS
PRO FORMA ADJUSTMENTS PRO FORMA OTHER AND THE
COMPLETED FOR THE FOR THE ACQUISITIONS RELATED
TRANSACTIONS OFFERING OFFERING COMBINED(I) FINANCING PRO FORMA
------------ ---------- ---------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......... $ 24,292 $ -- $ 24,292 $ 379 $ (379)(Y) $ 24,292
Accounts receivable, net ........... 20,374 -- 20,374 3,794 (3,794)(Y) 20,374
Prepaid expenses and other ......... 3,357 -- 3,357 251 (251)(Y) 3,357
-------- -------- -------- -------- --------- --------
Total current assets ............. 48,023 -- 48,023 4,424 (4,424) 48,023
Property and equipment, net ........ 70,581 -- 70,581 6,870 3,509 (Y) 80,960
Intangible and other assets, net ... 486,637 -- 486,637 26,238 37,540 (Y) 555,593
5,178 (Y)
-------- -------- -------- -------- --------- --------
Total assets ..................... $605,241 $ -- $605,241 $ 37,532 $ 41,803 $684,576
======== ======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses ......................... $ 18,596 $ -- $ 18,596 $ 1,253 $ (1,253)(Y) $ 18,596
Current portion of long-term debt .. -- -- -- 2,088 (2,088)(Z) --
-------- -------- -------- -------- --------- --------
Total current liabilities ........ 18,596 -- 18,596 3,341 (3,341) 18,596
Long-term debt, less current portion ... 414,346 (90,000)(X) 324,346 17,322 79,335 (AA) 403,681
(17,322)(Z)
Other long-term liabilities ............ 22,970 -- 22,970 1,369 (1,369)(Y) 22,970
-------- -------- -------- -------- --------- --------
Total liabilities ................ 455,912 (90,000) 365,912 22,032 57,303 445,247
Stockholders' equity (deficit) ......... 149,329 90,000 (X) 239,329 15,500 (15,500)(BB) 239,329
--
-------- -------- -------- -------- --------- --------
Total liabilities and stockholders'
equity ........................... $605,241 $ -- $605,241 $ 37,532 $ 41,803 $684,576
======== ======== ======== ======== ========= ========
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
27
<PAGE> 30
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(A) The schedules below give effect to (i) the historical acquisitions and
dispositions of the indicated entities consummated prior to December
31, 1996, and (ii) the acquisitions and dispositions of the indicated
entities which were pending at December 31, 1996, and were consummated
prior to the date of the Offering and the Exchange Offer.
THE COMPANY
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
HISTORICAL
ACQUISITIONS
AND
THE HISTORICAL DISPOSITIONS THE COMPANY
COMPANY (1) COMMODORE BY COMMODORE COMBINED
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net revenue ...................................... $ 10,303 $ 31,957 $ 2,355 $ 44,615
Station operating expenses ....................... 6,283 21,291 2,284 29,858
Depreciation and amortization .................... 1,331 2,158 -- 3,489
Corporate expenses ............................... 601 1,757 -- 2,358
Other operating expenses ......................... 744 13,834 -- 14,578
----------- ------------ ------------ ------------
Operating income (loss) ...................... 1,344 (7,083) 71 (5,668)
Interest expense ................................. 5,035 8,861 -- 13,896
Gain on sale of assets ........................... -- -- -- --
Other (income) expense ........................... 65 1,759 -- 1,824
----------- ------------ ------------ ------------
Income (loss) before provision for income tax. (3,756) (17,703) 71 (21,388)
Provision (benefit) for income taxes ............. -- 133 -- 133
----------- ------------ ------------ ------------
Net income (loss) ............................ $ (3,756) $ (17,836) $ 71 $ (21,521)
=========== ============ ============ ============
Deficiency of earnings to fixed charges(3) ... $ 3,756 $ 18,063
Loss per common share ........................ $ (0.04)
===========
Weighted average number of shares
outstanding ................................ 93,691,842
===========
</TABLE>
- -------------
(1) The column represents the consolidated results of operations of the
Company and its subsidiary, Commodore, from October 16, 1996, the date
of the consummation of the Commodore Acquisition.
(2) The column represents the consolidated results of operations of
Commodore from January 1, 1996 through October 16, 1996, the date of the
Commodore Acquisition.
(3) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by management to be representative of the
interest factor thereon. Preferred stock dividends and accretion are
included in fixed charges where appropriate.
OSBORN
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
HISTORICAL
ACQUISITIONS
AND PENDING PENDING
DISPOSITIONS ACQUISITIONS DISPOSITIONS
HISTORICAL BY BY BY OSBORN
OSBORN OSBORN OSBORN OSBORN COMBINED
--------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Net revenue ............................... $ 37,215 $ (773) $ 6,249 $ (1,690) $ 41,001
Station operating expenses ................ 28,824 (413) 4,125 (2,070) 30,466
Depreciation and amortization ............. 4,756 -- 244 (374) 4,626
Corporate expenses ........................ 1,850 -- 388 -- 2,238
Other operating expenses .................. -- -- 243 -- 243
-------- -------- -------- -------- --------
Operating income (loss) ............... 1,785 (360) 1,249 754 3,428
Interest expense .......................... 2,202 -- 61 (335) 1,928
Gain on sale of assets .................... 12,322 -- 2 -- 12,324
Other (income) expense .................... 291 -- 16 (59) 248
-------- -------- -------- -------- --------
Income (loss) before provision for
income taxes ........................ 11,614 (360) 1,174 1,148 13,576
Provision (benefit) for income taxes ...... 2,379 -- 29 -- 2,408
-------- -------- -------- -------- --------
Net income (loss)...................... $ 9,235 $ (360) $ 1,145 $ 1,148 $ 11,168
======== ======== ======== ======== ========
</TABLE>
28
<PAGE> 31
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(A) (Continued)
BENCHMARK
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
HISTORICAL
ACQUISITIONS PENDING
AND ACQUISITIONS
HISTORICAL DISPOSITIONS BY BENCHMARK
BENCHMARK BY BENCHMARK BENCHMARK COMBINED
--------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Net revenue .......................... $ 27,255 $ 4,941 $ 7,805 $ 40,001
Station operating expenses ........... 21,253 2,107 4,671 28,031
Depreciation and amortization ........ 5,320 -- 239 5,559
Corporate expenses ................... 1,513 -- 313 1,826
Other operating expenses ............. -- -- -- --
-------- -------- -------- --------
Operating income (loss) .......... (831) 2,834 2,582 4,585
Interest expense ..................... 3,384 -- 62 3,446
Gain on sale of assets ............... 9,612 -- -- 9,612
Other (income) expense ............... (679) -- (197) (876)
-------- -------- -------- --------
Income (loss) before provision for
income taxes ................... 6,076 2,834 2,717 11,627
Provision (benefit) for income taxes.. -- -- -- --
-------- -------- -------- --------
Net income (loss) ................ $ 6,076 $ 2,834 $ 2,717 $ 11,627
======== ======== ======== ========
</TABLE>
(B) The adjustment reflects (i) a change in depreciation and amortization
resulting from conforming the estimated useful lives of the acquired
stations and (ii) the additional depreciation and amortization expense
resulting from the allocation of the purchase price of the acquired
stations including an increase in property and equipment and intangible
assets to their estimated fair market value and the recording of
goodwill associated with the acquisitions. Goodwill is being amortized
over 40 years.
(C) The adjustment reflects the elimination of (i) merger related
compensation expenses and (ii) other expenses related to the Commodore
Acquisition, including costs related to the abandoned initial public
offering of Commodore. These expenses were recognized by Commodore in
connection with the Commodore Acquisition.
(D) The adjustment reflects interest expense associated with (i) the
Commodore Notes, (ii) Commodore's Former Credit Facility, (iii) the
Company's Former Term Loan Facility and (iv) the amortization of
deferred financing fees associated with the Former Term Loan Facility,
all net of interest expense related to the existing indebtedness of the
Company. Deferred financing fees are amortized over the term of the
related debt.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Commodore Notes..................................................................... $ 8,878
Former Credit Facility (Commodore).................................................. 4,047
Former Term Loan Facility (Capstar)................................................. 2,209
---------
Interest expense before amortization of deferred financing fees..................... 15,134
Amortization of deferred financing fees............................................. 2,705
---------
Pro forma interest expense...................................................... 17,839
Historical interest expense of the Company.......................................... (5,035)
Historical interest expense of Commodore............................................ (8,861)
--------
Net adjustment.................................................................. $ 3,943
========
</TABLE>
29
<PAGE> 32
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(E) The adjustment reflects the elimination of historical income tax
expense as the Company would have generated a taxable loss during the
pro forma period.
(F) The adjustment reflects interest expense associated with (i) the
Commodore Notes, (ii) the Notes, and (iii) amortization of deferred
financing fees associated with the Notes, all net of interest expense
related to the existing indebtedness of Osborn and the Company.
Deferred financing fees are amortized over the term of the related
debt.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Commodore Notes ................................................................ $ 8,878
12 3/4% Senior Discount Notes .................................................. 19,567
--------
Interest expense before amortization of deferred financing fees ................ 28,445
Amortization of deferred financing fees ........................................ 164
--------
Pro forma interest expense ................................................. 28,609
Pro forma interest expense for the Commodore Acquisition ....................... (17,839)
Historical interest expense of Osborn including adjustments for acquisitions
pending and completed at December 31, 1996 ................................... (1,928)
--------
Net adjustment ............................................................. $ 8,842
========
</TABLE>
(G) The adjustment reflects interest expense associated with (i) the
Commodore Notes, (ii) the Notes, and (iii) the New Credit Facility,
and (iv) amortization of deferred financing fees associated with the
Notes and the New Credit Facility, all net of interest expense on the
existing indebtedness of Benchmark and the Company. Deferred financing
fees are amortized over the term of the related debt.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Commodore Notes ........................................................................... $ 8,878
12 3/4% Senior Discount Notes ............................................................. 19,567
New Credit Facility ....................................................................... 22,110
--------
Interest expense before amortization of deferred financing fees ........................... 50,555
Amortization of deferred financing fees ................................................... 2,747
--------
Pro forma interest expense ............................................................ 53,302
Pro forma interest expense for the Commodore Acquisition
and the Osborn Transactions ............................................................. (28,609)
Historical interest expense of Benchmark including adjustments for acquisitions
pending and completed at December 31, 1996 .............................................. (3,446)
--------
Net adjustment ........................................................................ $ 21,247
========
</TABLE>
(H) Adjustment reflects the reduction of interest expense as a result of the
Offering.
<TABLE>
<S> <C>
Pro forma interest expense of the New Credit Facility for the Offering before
amortization of deferred financing fees .................................. $ 11,310
Pro forma interest expense under New Credit Facility for the Completed
Transactions, before amortization of deferred financing fees ............. (22,110)
--------
Adjustment to interest expense .......................................... $(10,800)
========
</TABLE>
30
<PAGE> 33
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(I) The column represents the combined financial statements of Madison's
predecessors, Midcontinent Broadcasting Co. of Wisconsin and Point
Communications Limited Partnership, and Community Pacific.
OTHER ACQUISITIONS
Statements of Operations
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL OTHER
HISTORICAL POINT COMMUNITY ACQUISITIONS
MIDCONTINENT COMMUNICATIONS PACIFIC COMBINED
------------ -------------- ------- --------
<S> <C> <C> <C> <C>
Net revenue ....................................... $ 3,446 $ 5,601 $11,199 $20,246
Station operating expenses ........................ 2,555 3,429 8,916 14,900
Depreciation and amortization ..................... 405 1,538 1,416 3,359
Corporate expenses ................................ -- 179 760 939
Other expense ..................................... -- -- -- --
-------- -------- ------- --------
Operating income (loss) ....................... 486 455 107 1,048
Interest expense .................................. -- 1,071 933 2,004
Loss on sale of assets ............................ -- -- (11) (11)
Other (income) expense ............................ (69) (8) 8 (69)
-------- -------- ------- --------
Income (loss) before provision for
income tax .................................. 555 (608) (845) (898)
Provision (benefit) for income taxes .............. 189 -- -- 189
-------- -------- ------- --------
Income (loss) before extraordinary loss ....... 366 (608) (845) (1,087)
Extraordinary loss on early extinguishment
of debt ......................................... -- -- -- --
-------- -------- ------- --------
Net income (loss) ............................. $ 366 $ (608) $ (845) $ (1,087)
======== ======== ======= ========
</TABLE>
Balance Sheets
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL OTHER
HISTORICAL POINT COMMUNITY ACQUISITIONS
MIDCONTINENT COMMUNICATIONS PACIFIC COMBINED
------------ -------------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................... $ 79 $ 261 $ 39 $ 379
Accounts receivable, net ...................... 718 1,368 1,708 3,794
Prepaid expenses and other .................... 17 137 97 251
------- ------ ------- -------
Total current assets ....................... 814 1,766 1,844 4,424
Property and equipment, net ....................... 686 2,340 3,844 6,870
Intangible and other assets, net .................. 3,133 10,163 12,942 26,238
------- ------- ------- -------
Total assets ............................... $ 4,633 $14,269 $18,630 $37,532
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses ................................... $ 152 $ 380 $ 721 $ 1,253
Current portion of long-term debt ............. -- 913 1,175 2,088
------- ------- ------- -------
Total current liabilities .................. 152 1,293 1,896 3,341
Long-term debt, less current portion .............. -- 8,625 8,697 17,322
Other long-term liabilities ....................... 1,369 -- -- 1,369
------- ------- ------- -------
Total liabilities .......................... 1,521 9,918 10,593 22,032
Stockholders' equity (deficit) .................... 3,112 4,351 8,037 15,500
------- ------- ------- -------
Total liabilities and stockholders'
equity .................................. $ 4,633 $14,269 $18,630 $37,532
======= ======= ======= =======
</TABLE>
31
<PAGE> 34
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(J) Adjustment reflects interest expense associated with (i) the Commodore
Notes, (ii) the Notes, (iii) the New Credit Facility, and (iv)
amortization of deferred financing costs associated with the Notes and
the New Credit Facility, all net of interest expense related to the
existing indebtedness of Madison, Community Pacific and the Company.
Deferred financing fees are amortized over the term of the related
debt.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Commodore Notes ........................................................................... $ 8,878
12 3/4% Senior Discount Notes ............................................................. 19,567
New Credit Facility ....................................................................... 31,632
--------
Interest expense before amortization of deferred financing fees ........................... 60,077
Amortization of deferred financing fees ................................................... 3,853
--------
Pro forma interest expense ............................................................ 63,930
Pro forma interest expense for the Commodore Acquisition
and the Osborn Transactions and Benchmark Acquisition ................................. (53,302)
Historical interest expense of Madison and Community Pacific .............................. (2,004)
--------
Net adjustment ........................................................................ $ 8,624
========
</TABLE>
(K) The schedules below give effect to the acquisitions and dispositions
of the indicated entities which were pending at December 31, 1996, and
were consummated prior to the date of the Offering.
OSBORN
<TABLE>
<CAPTION>
HISTORICAL TUSCALOOSA- TUSCALOOSA- OSBORN
OSBORN WTXT WACT HUNTSVILLE JACKSON FT. MYERS COMBINED
---------- ----------- ----------- ---------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............. $ 2,944 $ 425 $ 10 $ 217 $ 161 $ -- $ 3,757
Accounts receivable, net .............. 5,505 295 50 948 287 (472) 6,613
Prepaid expenses and other ............ 2,114 -- -- 133 223 (66) 2,404
------- ------- ------- ------ ------ ------- -------
Total current assets ............... 10,563 720 60 1,298 671 (538) 12,774
Property and equipment, net ............... 13,712 42 328 214 52 (2,035) 12,313
Intangible and other assets, net .......... 33,180 146 540 497 658 (5,031) 29,990
------- ------- ------- ------ ------ ------- ------
Total assets ....................... $57,455 $ 908 $ 928 $2,009 $1,381 $(7,604) $55,077
======= ======= ======= ====== ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses ........................... $ 6,783 $ 17 $ 13 $ 966 $ 70 $ -- $ 7,849
Current portion of long-term debt ..... 320 158 -- -- -- -- 478
------- ------- ------- ------ ------- ------- -------
Total current liabilities .......... 7,103 175 13 966 70 -- 8,327
Long-term debt, less current portion ...... 13,880 866 -- 261 1,067 -- 16,074
Other long-term liabilities ............... 4,562 -- -- -- -- -- 4,562
------- ------- ------- ------ ------ ------- -------
Total liabilities .................. 25,545 1,041 13 1,227 1,137 -- 28,963
Stockholders' equity (deficit) ............ 31,910 (133) 915 782 244 (7,604) 26,114
------- ------- ------- ------ ------ ------- -------
Total liabilities and
stockholders' equity ............ $57,455 $ 908 $ 928 $2,009 $1,381 $(7,604) $55,077
======= ======= ======= ====== ====== ======= =======
</TABLE>
32
<PAGE> 35
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(K) Continued
BENCHMARK
<TABLE>
<CAPTION>
HISTORICAL BENCHMARK
BENCHMARK COLUMBIA STATESVILLE MONTGOMERY COMBINED
--------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .............. $11,179 $ 34 $ 184 $ 586 $11,983
Accounts receivable, net ............... 4,731 277 305 1,109 6,422
Prepaid expenses and other ............. 645 21 4 1 671
------- ---- ------ ------ -------
Total current assets ................. 16,555 332 493 1,696 19,076
Property and equipment, net ................ 13,722 28 1,459 300 15,509
Intangible and other assets, net ........... 43,854 3 201 2,502 46,560
------- ---- ------ ------ -------
Total assets ......................... $74,131 $363 $2,153 $4,498 $81,145
======= ==== ====== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses ............................. $ 5,845 $ 19 $ 82 $ 135 $ 6,081
Current portion of long-term debt ...... 14,219 40 -- -- 14,259
------- ---- ------ ------ -------
Total current liabilities ............ 20,064 59 82 135 20,340
Long-term debt, less current portion ....... 29,841 569 -- 373 30,783
Other long-term liabilities ................ 79 57 -- 57 193
------- ---- ------ ------ -------
Total liabilities .................... 49,984 685 82 565 51,316
Stockholders' equity (deficit) ............. 24,147 (322) 2,071 3,933 29,829
------- ---- ------ ------ -------
Total liabilities and stockholders'
equity ............................ $74,131 $363 $2,153 $4,498 $81,145
======= ==== ====== ====== =======
</TABLE>
(L) The adjustment reflects the excess cash generated in connection with
the Osborn Acquisition and the financing thereof which will be used
for working capital requirements and to consummate certain pending
transactions.
(M) The adjustment reflects (i) the assumption of $3,200 in liabilities in
connection with the Osborn Acquisition and (ii) the allocation of the
purchase price of Osborn, the Osborn Add-on Acquisitions, the WTXT-FM
station located in Tuscaloosa, Alabama, and the WYNU-FM station
located in Jackson, Tennessee, net of the proceeds from the Osborn Ft.
Myers Disposition, to the assets acquired and liabilities assumed
resulting in adjustments to property and equipment to their estimated
fair values and the recording of goodwill associated with the
acquisitions as follows:
<TABLE>
<CAPTION>
ALLOCATION OF CARRYING
PURCHASE PRICE VALUE ADJUSTMENTS
-------------- ----- -----------
<S> <C> <C> <C>
Cash and cash equivalents ........... $ 3,161 $ 3,757 $ (596)
Accounts receivable, net ............ 6,453 6,613 (160)
Prepaid expenses and other .......... 2,247 2,404 (157)
Property and equipment, net ......... 31,645 12,313 19,332
Intangible and other assets, net .... 123,420 28,991 94,429
Deferred financing .................. 3,471 999 2,472
Accounts payable and other accrued
expenses ........................ (7,749) (7,849) (100)
Other long-term liabilities ......... (1,501) (1,501) --
Deferred tax liability .............. (16,052) (3,061) 12,991
---------
Total purchase price and deferred
financing charges ............. $ 145,095
=========
</TABLE>
(N) The adjustment reflects the amortization of the deferred financing
costs associated with the Company's Former Term Loan Facility, which
was recognized as a component of interest expense in the period the
refinancing occurred.
33
<PAGE> 36
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(O) The adjustment reflects the repayment in connection with the financing
of (i) the Company's Former Term Loan Facility, (ii) the accrued
interest of $849 related to the Company's Former Term Loan Facility
and (iii) Commodore's Former Credit Facility.
(P) The adjustment reflects the elimination of (i) the historical debt of
Osborn of $14,200 and (ii) the combined historical debt of the
acquisitions and dispositions by Osborn of $2,352.
(Q) The adjustment reflects (i) the issuance of the Notes for proceeds of
$150,284 with an aggregate principal amount at maturity of $277,000
and (ii) the Exchange Offer.
(R) The adjustment reflects the net effect of (i) the elimination of the
historical stockholders' equity of Osborn of $31,910, (ii) the
elimination of the combined stockholders' deficit of the acquisitions
and dispositions by Osborn of $5,796, (iii) the Equity Investment (as
defined) of $54,800, (iv) the equity investment of $600 by certain
members of the Company's management team in January 1997 (the
"Management Equity Investment"), and (v) in connection with the Osborn
Acquisition, the contribution by Frank D. Osborn, the President and
Chief Executive Officer of Osborn, of certain shares of common stock
of Osborn to the Company in exchange for shares of Class A Common
Stock having a deemed value of $1,800 (the "Osborn Contribution"). See
"Certain Transactions--Management and Affiliates Equity Investments."
The pro forma equity adjustments exclude certain equity investments
made subsequent to December 31, 1996, which were not made in
connection with the transactions given effect in the pro forma
financial statements. These equity investments totaled $3,750.
(S) The adjustment reflects the allocation of the purchase price of
Benchmark, including Benchmark's acquisitions which were pending at
December 31, 1996, to the assets acquired and liabilities assumed
resulting in an adjustment to property and equipment to their
estimated fair values and the recording of goodwill associated with
the acquisitions as follows:
<TABLE>
<CAPTION>
ALLOCATION OF CARRYING
PURCHASE PRICE VALUE ADJUSTMENTS
-------------- ----- -----------
<S> <C> <C> <C>
Cash and cash equivalents ........... $ 11,213 $ 11,983 $ (770)
Accounts receivable, net ............ 5,008 6,422 (1,414)
Prepaid expenses and other .......... 666 671 (5)
Property and equipment, net ......... 23,308 15,509 7,799
Intangible and other assets, net .... 139,295 46,109 93,186
Deferred financing .................. 12,910 451 12,459
Accounts payable and other accrued
expenses ........................ (5,864) (6,081) (217)
Other long-term liabilities ......... (136) (193) (57)
---------
Total purchase price and deferred
financing charges ............. $ 186,400
=========
</TABLE>
(T) Benchmark deposited $150 in escrow as security for Benchmark's
obligation to consummate the acquisition of WFMX-FM and WSIC-AM
located in Statesville, North Carolina. The adjustment reflects the
use of the $150 deposit to pay a portion of the purchase price in
connection with the acquisition.
(U) The adjustment reflects (i) borrowings of $184,250 under the New
Credit Facility with an annual interest rate of 12.0% and (ii)
repayment of the existing debt of Benchmark and the pending
acquisitions of Benchmark of $45,042, including the current portion of
$14,259, in connection with the Benchmark Acquisition and the related
financing.
34
<PAGE> 37
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(V) The adjustment reflects (i) the net effect of the elimination of the
historical partnership capital of Benchmark and the pending
acquisitions of Benchmark, based on the purchase method of accounting,
of $29,829 and (ii) the common equity investment of $2,000 by a former
partner of Benchmark. See "Certain Transactions -- Management and
Affiliates Equity Investments."
(W) As part of the Benchmark Acquisition, a subsidiary of HM Fund III (the
"Fund III Acquisition Sub") entered into a senior credit agreement
(the "Acquisition Sub Credit Agreement") with Bankers Trust Company to
borrow up to $62,000, the proceeds of approximately $60,000 of which
were loaned to Benchmark to enable Benchmark to consummate four
separate acquisitions of radio stations properties and for certain
other corporate purposes of Benchmark. The Company has unconditionally
guaranteed all of the Fund III Acquisition Sub's indebtedness under
the Acquisition Sub Credit Agreement. HM Fund III has agreed, and is
required, to purchase the outstanding obligations owing to Bankers
Trust Company under the Acquisition Sub Credit Agreement from Bankers
Trust Company upon the occurrence of certain events, including a
default in the payment of principal or interest when due under the
terms of the Acquisition Sub Credit Agreement. Simultaneously with the
Benchmark Acquisition, the Fund III Acquisition Sub was merged with
the Company and the Acquisition Sub Credit Agreement was repaid (the
"Repayment") with proceeds of the New Credit Facility. In connection
with the Repayment, the Company issued $750 of Class C Common Stock to
HM Fund III in consideration of its agreement to purchase the
obligations owing to Bankers Trust Company under the Acquisition Sub
Credit Agreement and recorded an extraordinary charge of $750.
The related pro forma adjustments are as follows:
<TABLE>
<S> <C>
Loans to Benchmark under the Acquisition Sub Credit Agreement ......... $ 60,000
Repayment of the Acquisition Sub Credit Agreement in connection
with the Benchmark Acquisition with proceeds from the New Credit
Facility ........................................................... $(60,000)
Issuance of Common Stock in connection with the Company's guarantee ... $ 750
Extraordinary charge .................................................. $ (750)
</TABLE>
(X) The adjustment reflects the proceeds of the Offering of $100,000, net
of fees and expenses of $10,000.
(Y) The adjustment reflects the allocation of the purchase prices of the
Other Acquisitions to the assets acquired and liabilities assumed
resulting in an adjustment to property and equipment to their
estimated fair values and the recording of goodwill associated with
the acquisitions as follows:
<TABLE>
<CAPTION>
ALLOCATION CARRYING
OF PURCHASE VALUE OF OTHER
PRICES ACQUISITIONS ADJUSTMENTS
------ ------------ -----------
<S> <C> <C> <C>
Cash and cash equivalents ................................. $ -- $ 379 $ (379)
Account receivable, net ................................... -- 3,794 (3,794)
Prepaid expenses and other ................................ -- 251 (251)
Property and equipment, net ............................... 10,379 6,870 3,509
Intangibles and other assets, net ......................... 63,421 25,881 37,540
Deferred financing ........................................ 5,535 357 5,178
Accounts payable and other accrued expenses ............... -- (1,253) (1,253)
Other long-term liabilities ............................... -- (1,369) (1,369)
--------
Total purchase prices and deferred financing charges $ 79,335
========
</TABLE>
(Z) The adjustment reflects the elimination of the historical debt of the
Other Acquisitions of $19,410, including the current portion of
$2,088.
(AA) The adjustment reflects borrowings of $79,335 under the New Credit
Facility with an annual interest rate of 12.0%.
35
<PAGE> 38
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(BB) The adjustment reflects the net effect of the elimination of the
historical equity of the Other Acquisitions based on the purchase
method of accounting of $15,500.
(CC) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component
of rental expense believed by management to be representative of the
interest factor thereon. Preferred stock dividends and accretion are
included in fixed charges where appropriate.
36
<PAGE> 39
SELECTED HISTORICAL FINANCIAL DATA
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition," "Business," the Consolidated Financial Statements of the Company
and its predecessor, Commodore, and the related notes thereto, included
elsewhere in this Prospectus.
THE COMPANY (AND ITS PREDECESSOR, COMMODORE)
The operating and other data in the following table have been derived
from audited financial statements of the Company for the period October 17,
1996 through December 31, 1996, the audited financial statements of Commodore
for the period January 1, 1996 through October 16, 1996 and for the years ended
December 31, 1995 and 1994, all of which are included elsewhere in this
Prospectus, and from audited financial statements for the years ended December
31, 1993 and 1992. The selected balance sheet data in the following table have
been derived from the audited financial statements of the Company as of
December 31, 1996 and from the audited financial statements of Commodore as of
December 31, 1995 which are included elsewhere in this Prospectus, and from the
audited financial statements of Commodore as of December 31, 1994, 1993 and
1992.
<TABLE>
<CAPTION>
COMMODORE THE COMPANY
----------------------------------------------------------------- ----------------
YEARS ENDED DECEMBER 31, JANUARY 1, 1996- || OCTOBER 17, 1996
------------------------------------------------ OCTOBER 16, || DECEMBER 31,
1992 1993 1994 1995 1996(1) || 1996(2)
-------- --------- ------- -------- --------------- || ----------------
||
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ||
<S> <C> <C> <C> <C> <C> || <C>
OPERATING DATA: ||
Net revenue ............................ $ 17,961 $ 19,798 $ 26,225 $ 30,795 $ 31,957 || $ 10,303
Station operating expenses ............. 12,713 13,509 16,483 19,033 21,291 || 6,283
Depreciation and amortization .......... 1,676 1,129 2,145 1,926 2,158 || 1,331
Corporate expenses ..................... 1,602 2,531 2,110 2,051 1,757 || 601
Other operating expense(3) ............. -- 1,496 2,180 2,007 13,834 || 744
Operating income (loss) ................ 1,970 1,133 3,307 5,778 (7,083) || 1,344
Interest expense ....................... 4,614 4,366 3,152 7,806 8,861 || 5,035
Extraordinary gain (loss) on ||
extinguishment of debt ............... 430 -- -- (444) -- || --
Net loss ............................... (2,580) (3,782) (527) (2,240) (17,836) || (3,756)
OTHER DATA: ||
Broadcast cash flow(4) ................. $ 5,248 $ 6,289 $ 9,742 $ 11,762 $ 10,666 || $ 4,020
Broadcast cash flow margin(4) .......... 29.2% 31.8% 37.1% 38.2% 33.4% || 39.0%
EBITDA(5) .............................. $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 8,909 || $ 3,419
Cash flows related to: ||
Operating activities ................ (406) 477 4,061 1,245 1,990 || (49)
Investing activities ................ (458) (10,013) (50) (4,408) (34,358) || (127,372)
Financing activities ................ 951 9,377 (2,855) 12,013 26,724 || 132,449
Capital expenditures ................... 371 333 623 321 449 || 808
Deficiency of earnings to fixed ||
charges(6) ........................... 2,998 3,743 918 1,908 18,063 || 3,756
Pro forma loss per common share(7) ..... || (0.40)
Weighted average number of ||
Shares outstanding(7) ............... || 9,369,184
BALANCE SHEET DATA (END OF PERIOD): ||
Cash and cash equivalents .............. $ 1,045 $ 887 $ 2,042 $ 10,891 || $ 5,028
Working capital, excluding current ||
portion of long-term debt ........... 1,094 3,393 3,012 13,729 || 8,553
Intangible and other assets, net ....... 13,819 22,419 21,096 27,422 || 208,555
Total assets ........................... 27,508 36,192 36,283 52,811 || 238,568
Long-term debt, including current ||
portion ............................. 51,934 41,773 36,962 66,261 || 139,512
Redeemable preferred stock ............. 5,800 10 8,414 -- || --
Total stockholders' equity (deficit) ... (28,766) (8,097) (18,038) (18,555) || 91,143
</TABLE>
- ----------------------
(1) The historical financial data set forth includes the results of operations
of Commodore through October 16, 1996, the date of the Commodore
Acquisition.
(2) The historical financial data set forth for the Company includes the
balance sheet data and results of operations of Commodore from its date of
acquisition on October 16, 1996.
(3) Other operating expenses consist of separation compensation in 1993 and
long-term incentive compensation under restructured employment agreements
with Commodore's former President and Chief Executive Officer and its
former Chief Operating Officer in 1995 and 1994. In the period ended
October 16, 1996, it consists of merger related compensation charges in
connection with the Company's acquisition of Commodore and in the period
ended December 31, 1996, it includes compensation charges in connection
with certain warrants issued to the President and Chief Executive Officer
of the Company. Such expenses are non-cash and/or are not expected to
recur.
(4) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expense and other expense. See "Glossary of
Certain Terms and Market and Industry Data."
(5) EBITDA consists of operating income before depreciation, amortization and
other expense. See "Glossary of Certain Terms and Market and
Industry Data."
(6) For purposes of this calculation, "earnings" consist of income (loss)
before income taxes and fixed charges, and "fixed charges" consist of
interest, amortization of deferred financing costs and the component of
rental expense believed by management to be representative of the
interest factor thereon. Preferred stock dividends and accretion are
included in fixed charges where appropriate.
(7) Reflects the effect of the Recapitalization on the number of shares
outstanding.
37
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of financial condition and
results of operations of the Company and its predecessor, Commodore, should be
read in conjunction with the consolidated financial statements and related
notes thereto of the Company and Commodore included elsewhere in this
Prospectus. Periodically, the Company may make statements about trends, future
plans and the Company's prospects. Actual results may differ materially from
those described in such forward looking statements based on the risks and
uncertainties facing the Company, including but not limited to, the following:
business conditions and growth in the radio broadcasting industry and the
general economy; competitive factors; changes in interest rates; the failure or
inability to renew one or more of the Company's broadcasting licenses; and the
factors described in "Risk Factors."
A radio broadcast company's revenues are derived primarily from the sale
of time to local and national advertisers. Those revenues are affected by the
advertising rates that a radio station is able to charge and the number of
advertisements that can be broadcast without jeopardizing listener levels (and
resulting ratings). Advertising rates tend to be based upon demand for a
station's advertising inventory and its ability to attract audiences in targeted
demographic groups, as measured principally by Arbitron. Radio stations attempt
to maximize revenues by adjusting advertising rates based upon local market
conditions, controlling advertising inventory and creating demand and audience
ratings.
Seasonal revenue fluctuations are common in the radio broadcasting
industry and are due primarily to fluctuations in advertising expenditures by
local and national advertisers, with revenues typically being lowest in the
first quarter and highest in the second and fourth quarters of each year. A
radio station's operating results in any period also may be affected by the
occurrence of advertising and promotional expenditures that do not produce
commensurate revenues in the period in which the expenditures are made. Because
Arbitron reports audience ratings on a quarterly basis, a radio station's
ability to realize revenues as a result of increased advertising and promotional
expenses and any resulting audience ratings improvements may be delayed for
several months.
In October 1996, the Company commenced operations upon consummation of
the Commodore Acquisition. Upon completion of the Pending Acquisitions, the
Company will own and operate or provide services to 121 radio stations serving
31 mid-sized markets. The Company anticipates that it will consummate the
Pending Acquisitions; however, the closing of each such acquisition is subject
to various conditions, including FCC and other governmental approvals, which are
beyond the Company's control, and the availability of financing to the Company
on acceptable terms. No assurances can be given that regulatory approval will be
received, that the New Credit Facility, the Commodore Indenture, the Indenture
or any other loan agreements to which the Company will be a party will permit
additional financing for the Pending Acquisitions or that such financing will be
available to the Company on acceptable terms. See "Risk Factors -- Risks of
Acquisition Strategy."
The Company incurred, and will incur, substantial indebtedness to
finance the Commodore Acquisition, the Osborn Transactions, the Benchmark
Acquisition and the Pending Acquisitions for which it has, and will continue to
have, significant debt service requirements. In addition, the Company has, and
will continue to have, significant charges for depreciation and amortization
expense related to the fixed assets and intangibles acquired, or to be acquired,
in its acquisitions. Consequently, the Company expects that it will report net
losses for the foreseeable future.
In the following analysis, management discusses broadcast cash flow and
EBITDA. Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses and other expense. EBITDA consists of operating
income before depreciation, amortization and other expense. Although broadcast
cash flow and EBITDA are not measures of performance calculated in accordance
with generally accepted accounting principles ("GAAP"), management believes that
they are useful to an investor in evaluating the Company because they are
measures widely used in the broadcast industry to evaluate a radio company's
operating performance. However, broadcast cash flow and EBITDA should not be
considered in isolation or as substitutes for net income, cash flows from
operating activities and other income or cash flow statement data prepared in
accordance with GAAP or as a measure of liquidity or profitability.
38
<PAGE> 41
THE COMPANY (AND ITS PREDECESSOR, COMMODORE)
Commodore was acquired by and became a wholly-owned subsidiary of the
Company on October 16, 1996 upon consummation of the Commodore Acquisition. The
Company is a holding company and has no significant operations or operating
assets of its own. The historical results of operations for the year ended
December 31, 1996 reflect the combined results of the Company since the date of
its acquisition of Commodore with the results of operations of Commodore from
January 1, 1996 through October 16, 1996. The results of operations for the
years ended December 31, 1995, 1994 and 1993 reflect the results of operations
of Commodore. As of December 31, 1996, Commodore owned, operated or provided
services to 33 radio stations in six mid-sized markets. The following table
presents stations acquired by Commodore or to which Commodore began providing
services from January 1, 1993 through December 31, 1996.
<TABLE>
<CAPTION>
MONTH
YEAR MARKET STATION ACQUIRED
---- ------ ------- --------
<S> <C> <C> <C>
1996 Acquisitions Coal Grove, Ohio ......................... WBVB-FM October
Ironton, Ohio ............................ WIRO-AM October
WMLV-FM October
Huntington, West Virginia ................ WKEE-FM October
WKEE-AM October
Milton, West Virginia .................... WFXN-FM October
WZZW-AM October
Fairfield, Connecticut ................... WSTC-AM May
WKHL-FM May
WINE-AM March
WRKI-FM March
Ft. Pierce-Stuart-Vero Beach, Florida .... WBBE-FM May
WAVW-FM May
WAXE-AM May
Westchester-Putnam Counties, New York .... WPUT-AM March
WZZN-FM March
WAXB-FM March
1995 Acquisitions Ft. Pierce-Stuart-Vero Beach, Florida .... WPAW-FM August
WQOL-FM June
Allentown-Bethlehem, Pennsylvania ........ WKAP-AM March
1993 Acquisitions Allentown-Bethlehem,
Pennsylvania ............................. WZZO-FM December
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Revenue. Net revenue increased approximately $11.5 million or 37.3%
to $42.3 million in the year ended December 31, 1996 from $30.8 million in the
year ended December 31, 1995. The inclusion of revenue from the acquisitions of
radio stations and revenue generated from JSAs and LMAs entered into during the
year ended December 31, 1996 provided approximately $10.8 million of the
increase. For stations owned and operated for a comparable period in 1996 and
1995, net revenue improved $700,000 or 2.4% to $30.0 million in 1996 from $29.3
million in 1995 primarily due to increased ratings and improved selling efforts.
Station Operating Expenses. Station operating expenses increased
approximately $8.6 million or 45.3% to $27.6 million in the year ended December
31, 1996 from $19.0 million during the year ended December 31, 1995. The
increase was primarily attributable to the station operating expenses of the
radio station acquisitions and the JSAs and LMAs entered into during the year
ended December 31, 1996, which contributed $9.0 million to the increase. For
stations
39
<PAGE> 42
owned and operated for a comparable period in 1996 and 1995, station operating
expenses declined approximately $400,000, or 2.2% to $17.6 million in 1996 from
$18.0 million in 1995 which reflected more efficient operations.
Broadcast Cash Flow. As a result of the factors described above,
broadcast cash flow increased approximately $2.9 million or 24.6% to $14.7
million in the year ended December 31, 1996 from $11.8 million in the year ended
December 31, 1995. The broadcast cash flow margin was 34.8% for the period in
1996 as compared to 38.2% during the same period in 1995. The inclusion of
broadcast cash flow from acquisitions and LMAs accounted for $1.7 million of the
increase. Excluding the effects of the acquisitions and LMAs, broadcast cash
flow increased $1.1 million or 9.7% to $12.4 million in 1996 from $11.3 million
in 1995 and the broadcast cash flow margin increased to 41.3% from 38.6%.
Corporate Expenses. Corporate expenses increased approximately $400,000
or 20.0% during the 1996 period to $2.4 million from $2.0 million in the 1995
period as a result of higher salary expense for additional staffing.
EBITDA. As a result of the factors described above, EBITDA increased
approximately $2.6 million or 26.8% to $12.3 million in the year ended December
31, 1996 from $9.7 million in the year ended December 31, 1995. The EBITDA
margin decreased to 29.2% in 1996 period from 31.5% in 1995 period.
Other Operating Expenses. Depreciation and amortization increased
approximately $1.6 million or 84.2% to $3.5 million in 1996 from $1.9 million in
1995 primarily due to certain radio station acquisitions consummated in 1996. In
1996, Commodore recognized approximately $13.8 million in merger related
compensation charges in connection with the Commodore Acquisition. Merger
related long-term incentive compensation expense incurred by Commodore pursuant
to the prior employment agreements of Bruce A. Friedman and James T. Shea was
$2.0 million in 1995.
Other (Income) Expenses. Interest expense increased approximately $6.1
million or 78.2% to $13.9 million in the year ended December 31, 1996 from $7.8
million during the same period in 1995 primarily due to the interest expense
associated with (i) the Commodore Notes (ii) $24.7 million in acquisition and
working capital funding from Commodore's Former Credit Facility, and (iii) $35.0
million in acquisition funding from the Company's Former Term Loan Facility.
Other (income) expenses, net, decreased approximately $2.2 million to $1.8
million in expenses for the year ended December 31, 1996 from $400,000 in income
for the period ended December 31, 1995. The increase in expense was primarily
due to approximately $500,000 in expenses associated with the filing of
Commodore's Registration Statement on Form S-1 with the Commission on May 17,
1996, which was subsequently withdrawn, and approximately $1.4 million of merger
related costs and expenses in connection with the Commodore Acquisition.
Commodore earned $300,000 in interest income on its temporary cash investments
in 1996. Additionally, there was a $400,000 decrease in the loss on
extraordinary items in 1996 as there was no early extinguishment of debt during
the period.
Net Loss. As a result of the factors described above, net loss
increased approximately $19.4 million or 881.8% to $21.6 million for the year
ended December 31, 1996 from $2.2 million for the year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Revenue. Net revenue increased approximately $4.6 million or 17.6%
to $30.8 million in 1995 from $26.2 million in 1994. The inclusion of revenue
from the acquisition and revenue generated from JSAs and LMAs entered into
during 1995 provided approximately $1.5 million of the increase. For stations
owned and operated for a comparable period in 1995 and 1994, net revenue
improved approximately $3.1 million or 11.8% to $29.3 million in 1995 from $26.2
million in 1994, primarily due to higher ratings and improved selling efforts.
Station Operating Expenses. Station operating expenses increased
approximately $2.5 million or 15.2% to $19.0 million in 1995 from $16.5 million
in 1994 partially due to the inclusion of station operating expenses from the
newly acquired radio station and from the JSA and LMA activity in 1995, which
contributed approximately $1.0 million to the increase. For stations owned and
operated for a comparable period in 1995 and 1994, station operating expenses
increased approximately $1.5 million or 9.1% to $18.0 million in 1995 from $16.5
million in 1994 due to increased selling expenses.
Broadcast Cash Flow. As a result of the factors described above,
broadcast cash flow increased approximately $2.1 million or 21.6% to $11.8
million in 1995 from $9.7 million in 1994. The broadcast cash flow margin was
38.2% in 1995 as compared to 37.0% in 1994. The inclusion of broadcast cash flow
from acquisitions, JSAs and LMAs accounted for $500,000 of the increase.
Excluding the effects of the acquisitions, broadcast cash flow increased $1.6
40
<PAGE> 43
million or 16.5% to $11.3 million in 1995 from $9.7 million in 1994 and the
broadcast cash flow margin increased to 38.6% from 37.0%.
Corporate Operating Expenses. Corporate expenses decreased
approximately $100,000 or 4.8% to $2.0 million in 1995 from $2.1 million in 1994
as a result of reduced travel and entertainment expenses.
EBITDA. As a result of the factors described above, EBITDA increased
approximately $2.1 million or 27.6% to $9.7 million in the year ended December
31, 1995 from $7.6 million in the year ended December 31, 1994. The EBITDA
margin increased to 31.5% in 1995 from 29.0% in 1995.
Other Operating Expenses. Depreciation and amortization decreased
approximately $200,000 or 9.5% to $1.9 million in 1995 from $2.1 million in 1994
primarily as a result of Commodore fully amortizing certain costs associated
with the acquisition in December 1993. Long-term incentive compensation
decreased approximately $200,000 or 9.1% to $2.0 million in 1995 from $2.2
million in 1994. The 1995 expense reflects the balance of the long-term
incentive compensation obligations due Mr. Friedman and Mr. Shea pursuant to
their prior employment agreements.
Other (Income) Expenses. Interest expense increased approximately $4.6
million or 143.8% to $7.8 million in 1995 from $3.2 million in 1994. The
increase was due primarily to higher floating rates on Commodore's prior senior
credit facilities and the cash and noncash interest on the Commodore Notes
issued in the Recapitalization Transactions (as defined) which was partially
offset by an increase in the amortization of the deferred financing charges
associated with the Recapitalization Transactions and Commodore's prior credit
facilities. "Recapitalization Transactions" means the completed offering of the
Commodore Notes, the net proceeds of which were used to repay indebtedness of
Commodore and redeem certain outstanding shares of preferred stock of Commodore.
Other income, net, increased approximately $800,000 or 200.0% to $400,000 in
income in 1995 from $400,000 in expenses in 1994 primarily due to a decrease in
the loss on sale of assets. Additionally, there was a decrease of approximately
$200,000 or 66.7% in provision for income taxes and an approximate $400,000 loss
on the early extinguishment of debt in 1995.
Net Loss. As a result of the factors described above, net loss increased
approximately $1.7 million or 340.0% to $2.2 million in 1995 from $500,000 in
1994.
LIQUIDITY AND CAPITAL RESOURCES
The pursuit by the Company of its acquisition strategy has required a
significant portion of the Company's capital resources. In October 1996, the
Company funded the $213.6 million purchase price (including assumed debt of
$93.7 million) for its first acquisition, the Commodore Acquisition, from the
proceeds of the sale of $94.0 million of Class A Common Stock to affiliates of
Hicks Muse, R. Steven Hicks and certain other investors and with $34.8 million
of borrowings under the Company's Former Term Loan Facility. The Company funded
the $143.7 million purchase price (including transaction costs) for the Osborn
Transactions from the proceeds of the issuance of the Notes, the Equity
Investment, the Management Equity Investment and the Osborn Contribution. The
Company funded the $12.1 million purchase price (including transaction costs)
for the Space Coast Acquisitions with $12.1 million of borrowings under the
Refinanced Credit Facility. The Company funded the $186.4 million purchase price
(including transactions costs) for the Benchmark Acquisition through a
combination of borrowings under the New Credit Facility and the issuance of
capital stock.
As a result of the financing of its acquisitions, the Company has a
substantial amount of long-term indebtedness, and for the foreseeable future,
payments under the Company's credit agreement, payments under the Company's
outstanding subordinated notes and future acquisitions will be the Company's
principal uses of cash.
In October 1996, the Company assumed the Commodore Notes in connection
with the Commodore Acquisition. The Commodore Notes accrue interest at a stated
rate of 13 1/4% per annum of their face value of $76.8 million. The Commodore
Notes require semi-annual cash interest payments on each May 1 and November 1 of
$2.9 million through May 1, 1998 and $5.2 million from May 1, 1998 until
maturity. On February 20, 1997, the Company issued the Notes at a substantial
discount from their principal amount at maturity of $277.0 million in aggregate.
The Notes generated gross proceeds of approximately $150.3 million and pay no
cash interest until August 1, 2002. Accordingly, the carrying value will
increase through accretion until August 1, 2002. Thereafter, interest will be
payable semi-annually, in cash, on February 1 and August 1 of each year. In
connection with the Benchmark Acquisition, the Company entered into the New
Credit Facility. Borrowings under the New Credit Facility bear interest at
floating rates and require interest payments on varying dates depending on the
interest rate option selected by the Company. The New Credit Facility
41
<PAGE> 44
consists of [to be completed]. All loans outstanding under the New Credit
Facility will mature in . See "Description of Other Indebtedness."
In addition to debt service, the Company's principal liquidity
requirements will be for working capital and general corporate purposes,
including capital expenditures, which are not expected to be material in
amount, and to consummate the Pending Acquisitions and, as appropriate
opportunities arise, to acquire additional radio stations. The Company used the
$10.0 million in net proceeds of the Osborn Ft. Myers Disposition to repay
indebtedness under the Refinanced Credit Facility. The Company intends to fund
the $106.7 million aggregate purchase price for the Pending Acquisitions
through a combination of borrowings under the New Credit Facility and a
combination of indebtedness of Commodore and/or the Company and/or capital
stock of the Company or its subsidiaries. See "Pro Forma Financial
Information." The Company anticipates that it will fund the Pending
Acquisitions with indebtedness, rather than capital stock, to the fullest
extent then permitted under the debt incurrence covenants contained in the New
Credit Facility, as it may be amended, the Commodore Indenture and the
Indenture. See "Description of Other Indebtedness" and "Description of New
Notes." The Company has not determined the terms of any such indebtedness or
capital stock. The Company's ability to make such borrowings and issue such
indebtedness and capital stock will depend upon many factors, including, but
not limited to, the Company's success in operating and integrating its radio
stations and the condition of the capital markets at the times of consummation
of the Pending Acquisitions. No assurances can be given that such financings
can be consummated on terms considered to be favorable by management or at all.
Management believes that cash from operating activities, together with
available revolving credit borrowings under the New Credit Facility, should be
sufficient to permit the Company to fund its operations and meet its obligations
under the agreements governing its existing indebtedness. The Company may
require financing for additional future acquisitions, if any, and there can be
no assurance that it would be able to obtain such financing on terms considered
to be favorable by management. Management evaluates potential acquisition
opportunities on an on-going basis and has had, and continues to have,
preliminary discussions concerning the purchase of additional stations. The
Company expects that in connection with the financing of future acquisitions, it
may consider disposing of stations in its markets. The Company has no current
plans or arrangements to dispose of any of its stations other than the
disposition of station KASH-AM in Anchorage, Alaska after consummation of the
Community Pacific Acquisition.
Net cash provided by operating activities was $1.9 million, $1.2
million and $4.1 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Changes in the Company's net cash provided by operating
activities are primarily the result of the Company's completed acquisitions and
station operating agreements entered into during the periods and their effects
on income from operations and working capital requirements.
Net cash used in investing activities was $161.7 million, $4.4 million
and $50,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Net cash provided by financing activities was $159.2 million and $12.0 million
for the years ended December 31, 1996 and 1995, respectively, and net cash used
by financing activities was $2.9 million in 1994. These cash flows primarily
reflect the borrowings, capital contributions and expenditures for station
acquisitions and dispositions and includes the effects of the Commodore
Acquisition in 1996.
RECENT PRONOUNCEMENTS
In February 1997, the FASB issued FASB Statement No. 128 "Earnings Per
Share ("SFAS No. 128")" which establishes standards for computing and presenting
earnings per share. SFAS No. 128 is effective for fiscal years beginning after
December 15, 1997. Management does not believe the implementation of SFAS No.
128 will have a material effect on its financial statements.
In February 1997, the FASB issued FASB Statement No. 129 "Disclosure of
Information About Capital Structure" ("SFAS No. 129") which establishes
disclosure requirements for an entity's capital structure. SFAS No. 129 is
effective for fiscal years beginning after December 15, 1997. Management does
not believe the implementation of SFAS No. 129 will have a material effect on
its financial statements.
EXTRAORDINARY ITEM
In connection with the Benchmark Acquisition, Capstar issued $750,000 of
Class C Common Stock to an affiliate of Hicks Muse in consideration for its
agreement to purchase the outstanding obligations of Bankers Trust Company under
the Acquisition Sub Credit Agreement upon the occurrence of certain events. The
issuance of Class C Common Stock in connection with the agreement to purchase
the outstanding obligations of Bankers Trust Company under the Acquisition Sub
Credit Agreement will be reported as an extraordinary item in the period in
which the Company consummated the Benchmark Acquisition. Had the Benchmark
Acquisition been consummated at December 31, 1996, the Company would have
recorded an extraordinary charge of approximately $750,000.
42
<PAGE> 45
BUSINESS
THE COMPANY
The Company is the largest radio broadcaster in the United States
operating exclusively in mid-sized markets. The Company currently owns and
operates or provides services to 99 radio broadcasting stations in 28 mid-sized
markets located primarily in the northeastern, southeastern and western United
States. The Company has entered into seven agreements to acquire 32 additional
stations in seven new markets (including ten stations in four new markets for
which the Company currently provides services pursuant to an LMA) and three
existing markets, which acquisitions are expected to occur subsequent to the
Offering. Upon completion of the Pending Acquisitions, the Company will own and
operate or provide services to 121 radio broadcasting stations in 31 mid-sized
markets located throughout the country. These stations comprise the leading
radio group, in terms of revenue share and/or audience share, in 20 of these
markets.
In February 1996, as a result of the passage of the Telecom Act, radio
broadcasting companies were permitted to increase their ownership of stations
within a single market from a maximum of four to a maximum of between five and
eight stations, depending on market size. More importantly, the Telecom Act
also eliminated the national ownership restriction that generally had limited
companies to the ownership of no more than 40 stations (20 AM and 20 FM)
throughout the United States. In order to capitalize on the opportunities
created by the Telecom Act, R. Steven Hicks, an executive with over 30 years of
experience in the radio broadcasting industry, and Hicks Muse formed Capstar to
acquire and operate radio station clusters in mid-sized markets. The Company
generally defines mid-sized markets as those MSAs ranked between 50 and 200,
each of which has approximately $10.0 million to $35.0 million in radio
advertising revenue.
The Company believes that mid-sized markets represent attractive
operating environments because, as compared to the 50 largest markets in the
United States, they are generally characterized by (i) lower radio station
purchase prices as a multiple of broadcast cash flow, (ii) less sophisticated
and undercapitalized competitors, including both radio and competing
advertising media such as newspaper and television, and (iii) less direct
format competition resulting from fewer stations in any given market. The
Company believes that the attractive operating characteristics of mid-sized
markets coupled with the opportunity provided by the Telecom Act to create
in-market radio station cluster groups will enable the Company to achieve
substantial revenue growth and cost efficiencies. As a result, management
believes that the Company can generate broadcast cash flow margins that are
comparable to the higher margins that heretofore were generally achievable only
in the top 50 markets.
To effectively and efficiently manage its stations, the Company has
developed a flexible management structure designed to manage a large and
growing portfolio of radio stations throughout the United States. Initially,
the station portfolio will be organized into three regions, the Northeast, the
Southeast and the West, each of which will be managed by regional executives in
conjunction with general managers in each of the Company's markets.
STATION PORTFOLIO
In October 1996, the Company consummated its first acquisition when it
purchased Commodore. Since such time, the Company has consummated the Osborn
Acquisition in February 1997, the Space Coast Acquisitions in April 1997 and
the Benchmark Acquisition in June 1997. On a pro forma basis after giving
effect to such acquisitions as if they had occurred on January 1, 1996, the
Company would have had net revenue and broadcast cash flow of $ million and $
million, respectively, for the year ended December 31, 1996.
The Company has agreed, subject to various conditions, to acquire 32
additional radio stations (22 FM and 10 AM) in seven separate transactions. The
Company's portfolio is comprised of three geographical regions -- the Northeast
Region, the Southeast Region and the West Region -- which will include a total
of 121 stations located in 31 mid-sized markets in the United States upon
completion of the Pending Acquisitions. On a pro forma basis after giving effect
to the Pending Acquisitions as if they had occurred on January 1, 1996, the
Company would have had net revenue and broadcast cash flow of $ million and
$ million, respectively, for the year ended December 31, 1996.
43
<PAGE> 46
<TABLE>
<CAPTION>
COMPANY COMPANY COMPANY
STATIONS REVENUE AUDIENCE
MSA -------- SHARE SHARE
MARKET(1) RANK(2) FM AM RANK(3) RANK(4) SOURCE COMPANY
--------- ------- -- -- ------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION
Allentown-Bethlehem, PA(5) ............. 64 2 2 1 1 Commodore
Melbourne-Titusville-Cocoa, FL ......... 96 3 2 1 1 Space Coast
Fairfield County, CT(6) ................ 112 3 3 2 2 Commodore
Ft. Pierce-Stuart-Vero Beach, FL(5) .... 121 5 1 1 1 Commodore
Huntington, WV-Ashland, KY(5) .......... 139 5 5 1 1 Commodore
Salisbury-Ocean City, MD ............... 153 2 -- 3 4 Benchmark
Dover, DE .............................. NA 2 1 1 1 Benchmark
Wilmington, DE ......................... NA 1 1 2 2 Commodore
Westchester-Putnam Counties, NY(7) ..... NA 3 2 NA 1 Commodore
-- --
SUBTOTAL ........................ 26 17
SOUTHEAST REGION
Greenville, SC ......................... 59 3 1 2 2 Benchmark
Columbia, SC ........................... 88 4 2 1 1 Benchmark/Emerald City
Huntsville, AL ......................... 114 1 2 1 1 Osborn
Jackson, MS ............................ 118 2 2 2 2 Benchmark
Shreveport, LA ......................... 126 1 1 2 3 Benchmark
Montgomery, AL ......................... 142 3 -- 2 2 Benchmark
Asheville, NC .......................... 179 1 1 1 1 Osborn
Tuscaloosa, AL ......................... 212 2 1 1 1 Osborn
Wheeling, WV(5) ........................ 213 5 2 1 1 Osborn
Winchester, VA ......................... 219 2 1 2 1 Benchmark
Jackson, TN ............................ 257 2 1 1 1 Osborn
Roanoke, VA ............................ NA 4 1 2 1 Benchmark/Cavalier/WRIS
Lynchburg, VA .......................... NA 3 1 1 1 Benchmark/Cavalier
Statesville, NC ........................ NA 1 1 NA NA Benchmark
Gadsden, AL(8) ......................... NA 1 1 NA 1 Osborn
-- --
SUBTOTAL ........................ 35 18
WEST REGION
Stockton, CA(5) ........................ 85 1 1 3 3 Community Pacific
Des Moines, IA(5) ...................... 89 2 1 4 4 Community Pacific
Madison, WI ............................ 120 4 2 1 1 Madison
Modesto, CA(5) ......................... 121 1 1 2 2 Community Pacific
Anchorage, AK(5) ....................... 165 4 2 2 1 Community Pacific/COMCO
Fairbanks, AK(6) ....................... NA 2 1 NA 1 COMCO
Yuma, AZ ............................... NA 2 1 NA 1 Commonwealth
-- --
SUBTOTAL ........................ 16 9
-- --
TOTAL(9) ........................ 77 44
== ==
</TABLE>
- ---------------
NA Information not available.
(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey
Schedule.
(3) Company revenue share rank compiled from data in BIA Publications Radio
Analyzer-BIA's Master Access, Version 1.7 (copyright 1996) ( current as of
February 27, 1997), based upon 1996 gross revenue for the indicated
markets.
(4) Company audience share rank obtained from Arbitron's Radio Market Reports,
based on average quarter hour estimates for the last available reporting
period ending either Spring, Summer or Fall 1996 for the demographic of
persons ages 25-54, listening Monday through Sunday, 6 a.m. to midnight,
except for the Yuma, Arizona market which was obtained from
AccuRatings(TM). To account for listeners lost to other nearby markets, a
radio station's "local" audience share is derived by comparing the radio
station's average quarter hour share to the total average quarter hour
share for all stations whose signals are heard within the MSA, excluding
audience share for listeners who listen to stations whose signals
originate outside the MSA.
(5) The Company provides certain sales and marketing services to stations
WKAP-AM in Allentown, Pennsylvania, WPAW-FM in Ft. Pierce-Stuart-Vero
Beach, Florida and WEEL-FM in Wheeling, West Virginia, pursuant to JSAs.
The Company provides certain sales, programming and marketing services to
station WHRD-AM in Huntington, West Virginia, and, pending consummation of
the Community Pacific Acquisition, to stations KFIV-AM and KJSN-FM in
Modesto, California, KVFX-FM and KJAX-FM in Stockton, California, KASH-FM,
KENI-AM and KBFX-FM in Anchorage, Alaska, and KDMI-AM, KHKI-FM and
KGGO-FM in Des Moines, Iowa, pursuant to LMAs. The chart includes these
stations.
(6) Fairfield County is a CSA as defined by Arbitron. The CSA includes the
Arbitron markets of Bridgeport, Stamford-Norwalk and Danbury, Connecticut
with market rankings of 112, 132 and 191, respectively. MSA rank is listed
for the Bridgeport market only. The combined rank for
44
<PAGE> 47
the CSA has not been estimated. Fairbanks, Alaska is a CSA as defined by
Arbitron, for which audience share rank was obtained from Arbitron's Fall
1996 CSA Market Report.
(7) Westchester-Putnam Counties, New York are a sub-set of the greater New
York City Metropolitan Area, which is ranked as the largest MSA by
Arbitron.
(8) Company audience share rank obtained from Arbitron's June 1996 County
Report (for field work performed in 1995) survey, from the County of
Etowah, Alabama which is Gadsden's home county.
(9) The chart does not include (i) station WING-FM in Dayton, Ohio, which is
owned by the Company and for which an unrelated third party, who has an
option to purchase such station, currently provides certain sales,
programming and marketing services pursuant to an LMA, (ii) station
WDRR-FM in Ft. Myers, Florida, in which the Company owns a 50% nonvoting
interest and which the Company intends to sell or (iii) station KASH-AM in
Anchorage, Alaska, which the Company will own upon consummation of the
acquisition of Community Pacific, but expects to sell subsequent thereto
to remain in compliance with the station ownership limitations under the
Communications Act. See "The Pending Acquisitions."
ACQUISITION STRATEGY
The Company is the leading consolidator of radio stations in mid-sized
markets throughout the United States. Management has achieved this position
through the application of an acquisition strategy that it believes allows the
Company to develop radio station clusters at attractive prices. First, the
Company enters attractive new mid-sized markets by acquiring a leading station
(or a group that owns a leading station) in such market. The Company then
utilizes the initial acquisition as a platform to acquire additional stations
which further enhance the Company's position in a given market. Management
believes that once it has established operations in a market with an initial
acquisition, it can acquire additional stations at reasonable prices and, by
leveraging its existing infrastructure, knowledge of and relationships with
advertisers and substantial management experience, improve the operating
performance and financial results of those stations.
OPERATING STRATEGY
The Company's objective is to maximize the broadcast cash flow of each
of its radio station clusters through the application of the following
strategies:
Enhance Revenue Growth through Multiple Station Ownership. Management
believes that the ownership of multiple stations in a market allows the Company
to coordinate its programming to appeal to a broad spectrum of listeners. Once
the station cluster has been created, the Company can provide one-stop shopping
to advertisers attempting to reach a wide range of demographic groups.
Simplifying the buying of advertising time for customers encourages increased
advertiser usage thereby enhancing the Company's revenue generating potential.
Broad demographic coverage also allows the Company to compete more effectively
against alternative media, such as newspaper and television, thus potentially
increasing radio's share of the total advertising dollars spent in a given
market.
Create Low Cost Operating Structure. Management believes that it is
less expensive to operate radio stations in mid-sized markets than in large
markets for several reasons. First, because stations in mid-sized markets
typically have less direct format competition, the Company is less reliant on
expensive on-air talent and costly advertising and promotional campaigns to
capture listeners. Second, the ownership of multiple stations within a market
allows the Company to achieve substantial cost savings through the
consolidation of facilities, management, sales and administrative personnel,
operating resources (such as on-air talent, programming and music research) and
through the reduction of redundant corporate expenses. Furthermore, management
expects that the Company, as a result of the large size of its portfolio,
combined with the consolidated purchasing power of the Hicks Muse portfolio
companies, will be able to realize substantial economies of scale in such areas
as national representation commissions, employee benefits, casualty insurance
premiums, long distance telephone rates and other operating expenses. Finally,
the incorporation of digital automation in certain markets allows the Company
to operate radio stations at off-peak hours with minimal human involvement
while improving the quality of programming.
Utilize Sophisticated Operating Techniques. Following the acquisition
of a station or station group, the Company seeks to capitalize on management's
extensive large market operating experience by implementing sophisticated
techniques such as advertising inventory management systems, sales training
programs and in-depth music research studies which improve both the efficiency
and profitability of its stations. Prior to the passage of the Telecom Act,
management believes that many operators in mid-sized markets did not generate
sufficient revenue to justify the incurrence of expenditures to develop these
techniques.
45
<PAGE> 48
Provide Superior Customer Service. The Company believes that
advertising customers in mid-sized markets typically do not have extensive
resources to create and implement advertising campaigns. The Company provides
many of its advertising customers with extensive advertising support which may
include (i) assistance in structuring advertising and promotional campaigns,
(ii) creating and producing customer advertisements and (iii) analyzing the
effectiveness of the customer's media programs. Management believes that this
type of superior customer service attracts new customers to the Company and
increases the loyalty of the Company's existing customers, thereby providing
stability to the Company's revenue, often despite fluctuations in station
ratings.
Develop Decentralized Management Structure. The Company has developed
experienced, highly motivated, regional and local management teams, derived
primarily from station groups acquired by the Company, and has decentralized
decision-making so that these regional and local managers have the flexibility
to develop operating cultures that capitalize on the unique qualities of each
region and market. The Company also relies on local managers to source
additional acquisition opportunities. In addition, in order to incentivize
regional management, the Company intends to link compensation to regional
operating performance as well as the combined results of the Company.
OWNERSHIP AND MANAGEMENT
In April 1996, Hicks Muse combined its financial expertise with the
operating experience of R. Steven Hicks to form the Company. Mr. Hicks is a
30-year veteran of the radio broadcasting industry (including 18 years as a
station owner) who has owned and operated or managed in excess of 150 radio
stations in large and mid-sized markets throughout the United States. In
addition, in 1993, Mr. Hicks co-founded SFX for which he served as Chief
Executive Officer for three years until his resignation in 1996.
Hicks Muse is a private investment firm based in Dallas, New York, St.
Louis and Mexico City that specializes in acquisitions, recapitalizations and
other principal investing activities. Since the firm's inception in 1989,
affiliates of Hicks Muse have completed more than 70 transactions having a
combined transaction value exceeding $19.0 billion. In 1994, an affiliate of
Hicks Muse made its first major investment in the radio broadcasting industry
when Hicks, Muse, Tate & Furst Equity Fund II, L.P. founded Chancellor, which,
in the three years since its inception, has become one of the largest radio
broadcasting companies in the United States. HM Fund III and its affiliates
have invested $148.5 million in the Class A Common Stock of Capstar.
The Company has designed an organizational structure to effectively
manage its existing station portfolio as well as to accommodate future
in-market or group acquisitions. Each of the Company's existing and future
operating regions is or, will be, headquartered within the region and staffed
with a team of regional executives which manage, or will manage, the operations
of that region's station portfolio. A chief executive officer and/or a chief
operating officer of each region oversees the regional and general managers of
the stations within a particular region. In addition, a controller in each
region directly oversees the business managers of the stations within a region.
Each regional operating executive reports directly to R. Steven Hicks while
each regional controller reports to the Company's chief financial officer. In
assembling each of the existing regional management teams, the Company has
sought to retain the senior management of some of the station groups that it
has acquired so as to (i) retain and capitalize on the local market experience
and knowledge of these experienced executives and (ii) foster a culture that is
consistent with the unique attributes of each of the local markets acquired.
Furthermore, the Company believes that each of its regional executives
possesses considerable knowledge of its region's competitors and is therefore
well situated to identify strategic acquisition candidates.
R. Steven Hicks, the President and Chief Executive Officer of the
Company, has invested $3.1 million in Class A Common Stock. Certain other
members of the Company's management, including certain of the Company's
regional executives, have invested an additional $6.1 million in Class A Common
Stock. The Company's regional executive management teams are compensated based
upon the financial performance of their respective regions and the Company as a
whole with such compensation awarded in the form of cash bonuses and stock
options. Management believes that the ownership interests of management and
this compensation structure fosters teamwork and the sharing of the best
practices across regions to maximize the overall financial performance of the
Company.
Each of the Company's regional executives has extensive experience
operating radio stations in mid-sized markets, as described below.
Northeast Region. The chief executive officer of the Northeast Region
is James T. Shea, Jr., the President (and former Chief Operating Officer) of
Commodore. Mr. Shea has more than 20 years of experience in the radio
broadcasting industry. Mr. Shea's operating knowledge and strong advertiser
relationships helped Commodore become
46
<PAGE> 49
a leading radio group in each of its markets. Pro forma for the Pending
Acquisitions, Mr. Shea will manage 43 stations in nine markets in the Northeast
Region.
Southeast Region. Frank D. Osborn, President and Chief Executive
Officer of Osborn since its inception in 1984, is the chief executive officer
of the Southeast Region. Mr. Osborn brings more than 19 years of radio industry
experience to the Company, including prior positions as Senior Vice President
of Price Communications, Vice President of Finance and Administration at NBC
Radio and General Manager of WYNY-FM in New York City. Mr. Osborn has been
successful in developing leading station clusters in each of Osborn's markets.
The Company intends to hire a chief operating officer for the Southeast Region,
who will assist Mr. Osborn in overseeing the operations of the radio stations
in the region. Pro forma for the Pending Acquisitions, the Southeast Region
will include 53 stations in 15 markets.
West Region. The West Region will be managed by two radio executives,
David J. Benjamin III and Dex Allen, with an aggregate of 52 years of
experience in the radio broadcasting industry. Mr. Benjamin, the current
President and Chief Executive Officer of Community Pacific, will serve as the
chief executive officer of the West Region upon consummation of the Community
Pacific Acquisition. Mr. Allen has served as the managing member of
Commonwealth since 1984 and is expected to continue to serve in such position
until the consummation of the Commonwealth Acquisition. Mr. Allen became the
president and chief operating officer of the West Region effective January 1,
1997. Pro forma for the Pending Acquisitions, the West Region will include 25
stations in seven markets.
REGIONAL OPERATING GROUPS
Northeast Region
The Company's portfolio of radio stations in the Northeast Region
includes 43 radio stations (26 FM and 17 AM) located in nine markets in
Connecticut, Delaware, Florida, Kentucky, Maryland, New York, Ohio,
Pennsylvania and West Virginia. The Company will have the leading radio station
cluster based on revenue share rank in five of its nine markets.
History. The Commodore Acquisition, which initially formed the basis
for the Northeast Region, provided the Company with 33 stations located in the
following six markets: Allentown-Bethlehem, Pennsylvania (four stations);
Fairfield County, Connecticut (six stations); Ft. Pierce-Stuart-Vero Beach,
Florida (six stations); Huntington, West Virginia-Ashland, Kentucky (10
stations); Westchester-Putnam Counties, New York (five stations); and
Wilmington, Delaware (two stations). Commodore entered each of these six
markets with an initial acquisition of one or two stations during the 1980's.
The portfolio of Commodore stations has undergone significant growth during the
past two years, as the management team completed acquisitions of 22 stations in
the six original markets in 1995 and 1996, especially after the passage of the
Telecom Act in February 1996. As a result of the recent acquisition of many of
the Commodore stations, management believes that the station clusters in the
original Commodore markets have not yet realized the full potential of their
recent consolidations.
Recently completed acquisitions will enhance the Company's Northeast
Region station portfolio through the addition of 10 stations in three new
markets. The Benchmark Acquisition provided the Company with three stations in
Dover, Delaware and two stations in Salisbury-Ocean City, Maryland, and the
Space Coast Acquisitions provided the Company with five new stations in the
Melbourne-Titusville-Cocoa, Florida market. The Company expects to realize
substantial revenue growth and economies of scale from these acquisitions in
the Northeast Region because each of the three new markets is adjacent to one
of the original Commodore markets, as both the Dover and Salisbury-Ocean City
markets are near Wilmington, and Melbourne-Titusville-Cocoa is adjacent to Ft.
Pierce-Stuart-Vero Beach.
Management. The chief executive officer of the Northeast Region is
James T. Shea, Jr., the President (and former Chief Operating Officer) of
Commodore, who has more than 20 years of experience in the radio broadcasting
industry. Under the guidance of Mr. Shea, Commodore grew from 11 stations in
1992 to its current size. In addition, Commodore realized compound annual
growth in estimated net revenue and broadcast cash flow of 28.7% and 32.6%,
respectively, for the three years ending December 31, 1996. Reporting to Mr.
Shea will be regional managers, each of whom will oversee the operations of
several markets. In addition, each of the markets in the Northeast Region will
be managed by a general manager who will manage the day-to-day operations of
the radio stations in each market.
Markets. Management believes that the station portfolio in the
Northeast Region has significant growth potential resulting from the recent
formation of station clusters in most of the Company's markets. The Company's
Allentown-Bethlehem, Pennsylvania market is the most developed of Commodore's
radio station clusters and has been operating as a cluster for approximately
two years. In this market, the Company owns four stations, including two of the
47
<PAGE> 50
five viable stations in the market. The two FM and two AM stations target a
broad demographic spectrum with four different formats: News/Talk; Contemporary
Hit Radio; Album Rock; and Middle of the Road. The potential of radio station
clustering is highlighted by this group's results. The stations comprise the
leading radio station group in the market based on local audience share and
maintain the number one revenue rank. Furthermore, the cluster has increased
net revenue from $7.4 million in 1993 to an estimated $10.2 million in 1996,
representing compound annual growth of 11.8%, and has increased its broadcast
cash flow margins from 33.8% to 48.1% during the same period. These financial
results exclude station WKAP-AM, with which Commodore entered into a JSA in
March 1995.
The Company seeks to replicate the success it has enjoyed in
Allentown-Bethlehem with station clusters in each of the other markets in the
Northeast Region. Management believes that the recently formed clusters in most
of the other markets in the region should be able to generate substantial cash
flow improvements given the Company's strong station positions. For example, in
Huntington, West Virginia-Ashland, Kentucky, the Company owns or provides
services to ten stations, including six of the ten viable stations in the
market. Commodore acquired two of the stations in 1982, entered into LMAs with
eight additional stations in April 1996 and subsequently acquired seven of
these stations in October 1996. On a combined basis, this newly formed cluster
has the number one revenue and audience share ranks in the market. In markets
such as Salisbury-Ocean City, Maryland where the Company has only two stations,
the Company will seek to enhance its station cluster through future
acquisitions of additional stations, or, if that proves not to be feasible,
consider exiting the market.
48
<PAGE> 51
The following table summarizes certain information relating to the
Company's radio stations in the Northeast Region.
<TABLE>
<CAPTION>
TARGET COMPANY STATION
DEMO- REVENUE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) FORMAT
- ----------------------- -------- ------- ------- ----- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLENTOWN-BETHLEHEM, PA ............... 64 1
WAEB-AM ............................. 1982 Commodore 35+ 6 News/Talk
WAEB-FM ............................. 1982 Commodore W18-49 3 Contemporary Hits
WZZO-FM ............................. 1993 Commodore M18-49 4 Album Rock
WKAP-AM(5) .......................... 1995 Commodore 35+ 8 Middle-of-the-Road
MELBOURNE-TITUSVILLE-COCOA, FL ........ 96 1
WMMB-AM ............................. 1986 Space Coast 50+ 5t Middle-of-the-Road
WGGD-FM ............................. 1986 Space Coast 35-64 4 Oldies
WMYM-AM ............................. 1982 Space Coast 35-64 7t Adult Contemporary
WLRQ-FM ............................. 1982 Space Coast 25-54 1 Adult Contemporary
WHKR-FM ............................. 1989 Space Coast 25-54 3 Classical
FAIRFIELD COUNTY, CT(6) ............... 112 2
WNLK-AM ............................. 1989 Commodore 35+ 9t Talk
WEFX-FM ............................. 1989 Commodore M18-49 6 Classic Rock
WSTC-AM ............................. 1996 Commodore 25-54 9t News/Talk
WKHL-FM ............................. 1996 Commodore 25-54 4 Oldies
WINE-AM ............................. 1996 Commodore 25-54 14 News
WRKI-FM ............................. 1996 Commodore M18-49 7 Album Rock
FT. PIERCE-STUART-VERO BEACH, FL ...... 121 1
WZZR-FM ............................. 1987 Commodore M18-49 2 Album Rock
WQOL-FM ............................. 1995 Commodore 25-54 3t Oldies
WPAW-FM(5) .......................... 1995 Commodore 25-54 7 Country
WBBE-FM ............................. 1996 Commodore 25-54 1 Classic Country
WAVW-FM ............................. 1996 Commodore 25-54 5t Country
WAXE-AM ............................. 1996 Commodore 35+ 14t Nostalgia
HUNTINGTON, WV-ASHLAND, KY ............ 139 1
WTCR-AM ............................. 1982 Commodore 25-54 10 Classic Country
WTCR-FM ............................. 1982 Commodore 25-54 1 Country
WIRO-AM ............................. 1996 Commodore M25-54 14t Sports
WHRD-AM(5) .......................... 1996 Commodore M25-54 NA Sports
WZZW-AM ............................. 1996 Commodore M25-54 NA Sports
WKEE-AM ............................. 1996 Commodore 35t 12t Middle-of-the-Road
WKEE-FM ............................. 1996 Commodore 25-54 2 Country
WAMX-FM ............................. 1996 Commodore M25-54 5t Classic Rock
WFXN-FM ............................. 1996 Commodore M25-54 7 Classical
WBVB-FM ............................. 1996 Commodore M18-49 8 Adult Contemporary
SALISBURY-OCEAN CITY, MD .............. 153 3
WWFG-FM ............................. 1993 Benchmark 25-54 4 Country
WOSC-FM ............................. 1994 Benchmark 18-34 12 Contemporary Hits
DOVER, DE ............................. NA 1
WDSD-FM ............................. 1990 Benchmark 25-54 1 Country
WSRV-FM ............................. 1994 Benchmark 25-54 2 Adult Contemporary
WDOV-AM ............................. 1990 Benchmark 25-54 NA News/Talk
WILMINGTON, DE ........................ NA 2
WJBR-AM ............................. 1985 Commodore W25-54 5t Middle-of-the-Road
WJBR-FM ............................. 1985 Commodore 35+ 2 Adult Contemporary
WESTCHESTER-PUTNAM COUNTIES, NY(6)(7).. NA NA
WFAS-AM ............................. 1986 Commodore 35+ NA Middle-of-the-Road
WPUT-AM ............................. 1996 Commodore 35+ NA Country
WFAS-FM ............................. 1986 Commodore W25-54 1 Adult Contemporary
WZZN-FM ............................. 1996 Commodore W25-54 NA Album Rock
WAXB-FM ............................. 1996 Commodore 25-54 NA Oldies
</TABLE>
- ---------------
NA Information not available.
t Tied with another radio station.
(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey
Schedule. Fairfield County is a CSA as defined by Arbitron. The CSA
includes the Arbitron markets of Bridgeport, Stamford-Norwalk, and
Danbury, Connecticut with market rankings of 112, 132, and 191,
respectively. MSA Rank is listed for the Bridgeport market only. The
combined rank for the CSA has not been estimated.
(3) Company revenue share rank obtained from data in BIA Publications -- Radio
Analyzer, BIA's Master Access, Version 1.7 (copyright 1996) (current as of
February 27, 1997), based upon 1996 gross revenue for the indicated
markets. Rankings for Wilmington, Delaware and Dover, Delaware markets
were determined separately, using the City of License to determine the
split of the market.
(4) Station audience share rank obtained from Arbitron's Radio Market Reports,
based on average quarter hour estimates for the reporting period ending
Fall 1996, for the demographic of persons ages 25-54, listening Monday
through Sunday, 6 a.m. to midnight. To account for listeners lost to other
nearby markets, a radio station's "local" audience share is derived by
comparing the radio station's average quarter hour share to the total
average quarter hour share for all stations whose signals are heard within
the MSA, excluding audience share for listeners who listen to stations
whose signals originate outside the MSA.
49
<PAGE> 52
(5) The Company provides certain sales and marketing services to stations
WKAP-AM in Allentown, Pennsylvania and WPAW-FM in Ft. Pierce-Stuart-Vero
Beach, Florida, pursuant to JSAs. The Company provides certain sales,
programming and marketing services to station WHRD-AM in Huntington, West
Virginia pursuant to an LMA.
(6) Fairfield County, Connecticut and Westchester-Putnam Counties, New York,
CSA audience share and revenues obtained from Arbitron's Custom Survey
Area Report for the Fall 1996 period.
(7) Westchester-Putnam Counties, New York are sub-sets of the greater New York
City Metropolitan Area, which is ranked as the largest MSA by Arbitron.
Southeast Region
Upon consummation of the Pending Acquisitions, the Company's portfolio
of radio stations in the Southeast Region will include 53 radio stations (35 FM
and 18 AM) located in 15 markets in Alabama, Louisiana, Mississippi, North
Carolina, South Carolina, Tennessee, Virginia and West Virginia. The Company's
stations will comprise the leading radio station group based on revenue share
rank in eight of these markets.
History. Osborn is the core of the Southeast Region with 20 stations
located in the following six markets: Huntsville, Alabama (three stations);
Asheville, North Carolina (two stations); Tuscaloosa, Alabama (three stations);
Wheeling, West Virginia (seven stations); Jackson, Tennessee (three stations);
and Gadsden, Alabama (two stations). Osborn's portfolio of stations and markets
has undergone significant growth during the past two years, during which time
Osborn has completed acquisitions of 12 stations in seven markets. Management
believes that the station clusters in the six markets have not yet reached the
full potential of their recent consolidations.
The recently-completed Benchmark Acquisition will enhance the
Company's Southeast Region station portfolio by providing the Company with 26
stations in the following new markets: Greenville, South Carolina (four
stations); Columbia, South Carolina (five stations); Roanoke, Virginia (two
stations); Lynchburg, Virginia (one station); Jackson, Mississippi (four
stations); Shreveport, Louisiana (two stations); Montgomery, Alabama (three
stations); Winchester, Virginia (three stations); and Statesville, North
Carolina (two stations). The Pending Acquisitions will enhance the Company's
Southeast Region station portfolio through the acquisition of seven additional
stations in three existing markets. The Cavalier Acquisition will contribute
five stations in the Roanoke and Lynchburg, Virginia markets; the Emerald City
Acquisition will contribute an additional station in the Columbia, South
Carolina market; and the WRIS Acquisition will contribute an additional station
in the Roanoke, Virginia market, further enhancing the Company's market
clusters. The Company's management believes that the addition of the southeast
Benchmark, Cavalier, Emerald City and WRIS radio stations will enhance the
Southeast Region's operations by creating a greater critical mass in the
region, and by entering new markets which offer additional consolidation
opportunities.
Management. The chief executive officer of the Southeast Region is
Frank D. Osborn, the former Chief Executive Officer of Osborn, who brings to
the Company over 19 years of experience in the radio industry, including prior
positions as Senior Vice President of Price Communications, Vice President of
Finance and Administration at NBC Radio and General Manager of WYNY-FM in New
York City. The Company believes that Mr. Osborn's significant contacts and
station owner relationships in the radio industry, particularly in the
southeast, will facilitate the Company's efforts to acquire additional radio
stations in the region. The Company intends to hire a chief operating officer
for the Southeast Region, who will assist Mr. Osborn in overseeing the
operations of the radio stations in the Southeast Region. In addition, each of
the markets in the Southeast Region will be run by a general manager who will
manage the day-to-day operations of the radio stations in each market.
Markets. Management believes that the portfolio of markets in the
Southeast Region has significant consolidation and future add-on acquisition
potential. Management hopes to replicate its success in Wheeling, West
Virginia, where the Company has the number one radio franchise. Osborn
purchased four stations and entered into a JSA with a fifth station in the past
year in order to add to its two existing radio stations. The stations target a
broad demographic spectrum with five different formats: Country; Adult
Contemporary; Adult; Classic Rock; and Oldies. Osborn also operates the Country
Music Hall and Jamboree in the Hills, a country music festival, which
complement the strong radio station cluster in Wheeling. The Company's stations
comprise the leading radio station group in the Wheeling market based on local
audience share and maintain the number one revenue rank. The Company believes
that Osborn has not yet fully realized the benefits of the economies of scale
or revenue enhancements associated with the recent acquisitions in Wheeling.
The Company seeks to duplicate this strategy in each of its other
southeast markets. For example, upon consummation of the Cavalier Acquisition
and the WRIS Acquisition, the Southeast Region will combine Benchmark's
50
<PAGE> 53
three radio stations in the Roanoke and Lynchburg, Virginia markets with five
Cavalier radio stations and one WRIS station located in those markets.
Management believes that the Company's strong position in these markets will
enable its radio clusters to generate substantial revenue and broadcast cash
flow growth.
The following table summarizes certain information relating to the
Company's radio stations in the Southeast Region, assuming consummation of the
Pending Acquisitions.
<TABLE>
<CAPTION>
TARGET COMPANY STATION
DEMO- REVENUE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) FORMAT
- ----------------------- -------- ------- ------- ----- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
GREENVILLE, SC .............. 59 2
WJMZ-FM ................... 1990 Benchmark 25-54 2 Urban
WESC-FM ................... 1995 Benchmark 25-54 4 Country
WESC-AM ................... 1995 Benchmark 25-54 16t Sports
WFNQ-FM ................... 1995 Benchmark 25-54 7 Country
COLUMBIA, SC ................ 88 1
WCOS-FM ................... 1993 Benchmark 25-54 2 Country
WHKZ-FM ................... 1993 Benchmark 25-54 10 Country
WVOC-AM ................... 1994 Benchmark 25-54 8t News/Talk
WSCQ-FM ................... 1997 Benchmark 25-54 11t Adult
WCOS-AM ................... 1993 Benchmark 25-54 13t Country
WNOK-FM ................... 1994 Emerald City 25-54 3t Contemporary Hits
HUNTSVILLE, AL .............. 114 1
WDRM-FM ................... 1997 Osborn 25-54 1 Country
WHOS-AM ................... 1997 Osborn 25-54 NA Country
WBHP-AM ................... 1997 Osborn 25-54 21t Country
JACKSON, MS ................. 118 2
WJMI-FM ................... 1996 Benchmark 25-54 4 Urban
WOAD-AM ................... 1996 Benchmark 25-54 10t Gospel
WKXI-AM ................... 1996 Benchmark 25-54 20 Urban
WKXI-FM ................... 1996 Benchmark 25-54 2 Urban
SHREVEPORT, LA .............. 126 2
KRMD-FM ................... 1996 Benchmark 25-54 1 Country
KRMD-AM ................... 1996 Benchmark 25-54 14 Country
MONTGOMERY, AL .............. 142 2
WZHT-FM ................... 1997 Benchmark 25-54 1 Urban
WMCZ-FM ................... 1997 Benchmark 25-54 4 Urban/Adult
Contemporary
WDHT-FM ................... 1997 Benchmark 25-54 NA Urban
ASHEVILLE, NC ............... 179 1
WWNC-AM ................... 1994 Osborn 25-54 3 Country
WKSF-FM ................... 1994 Osborn 25-54 1 Hot Country
TUSCALOOSA, AL .............. 212 1
WACT-AM ................... 1997 Osborn 25-54 10t Gospel
WACT-FM ................... 1997 Osborn 25-54 9 Country
WTXT-FM ................... 1997 Osborn 25-54 1 Country
Radio/Urban
WHEELING, WV ................ 213 1
WWVA-AM ................... 1987 Osborn 25-54 8t Country
WOVK-FM ................... 1987 Osborn 25-54 1 Hot Country
WKWK-FM ................... 1996 Osborn 25-54 2 Adult Contemporary
WBBD-AM ................... 1996 Osborn 25-54 8t Adult
WRIR-FM ................... 1996 Osborn 25-54 5 Classic Rock
WEGW-FM ................... 1996 Osborn 25-54 4 Classic Rock
WEEL-FM(5) ................ 1996 Osborn 25-54 6t Oldies
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
TARGET COMPANY STATION
DEMO- REVENUE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) FORMAT
- ----------------------- -------- ------- ------- ----- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
WINCHESTER, VA .............. 219 2
WUSQ-FM ................... 1991 Benchmark 25-54 1 Country
WFQX-FM ................... 1994 Benchmark 18-49 4 Contemporary Hits
WNTW-AM ................... 1994 Benchmark 25-54 NA News/Talk
JACKSON, TN ................. 257 1
WTJS-AM ................... 1986 Osborn 25-54 8t News/Talk
WTNV-FM ................... 1986 Osborn 25-54 3 Country
WYNU-FM ................... 1997 Osborn 25-54 1 Classic Rock
ROANOKE, VA ................. NA 1
WROV-AM ................... 1996 Benchmark 25-54 NA Oldies
WROV-FM ................... 1996 Benchmark 18-49 1 Album Rock
WRDJ-FM ................... 1996 Cavalier 35-64 8t Oldies
WJJS-FM ................... 1996 Cavalier 18-34 3 Contemporary Hits
WJLM-FM ................... 1969 WRIS 25-54 5 Country
LYNCHBURG, VA ............... NA 1
WLDJ-FM ................... 1996 Cavalier 35-64 2 Oldies
WJJX-FM ................... 1996 Cavalier 18-34 4t Contemporary Hits
WJJS-AM ................... 1996 Cavalier 18-34 8t Contemporary Hits
WYYD-FM ................... 1995 Benchmark 25-54 1 Country
STATESVILLE, NC ............. NA NA
WFMX-FM ................... 1996 Benchmark 25-54 NA Country
WSIC-AM ................... 1996 Benchmark 25-54 NA News/Talk
GADSDEN, AL(6) .............. NA NA
WAAX-AM ................... 1994 Osborn 25-54 5 News/Talk
WQEN-FM ................... 1994 Osborn 25-54 2 Adult Contemporary
</TABLE>
- ---------------
NA Information not available.
t Tied with another radio station.
(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey
Schedule. The table does not include (i) station WING-FM in Dayton, Ohio,
which station is owned by the Company and for which an unrelated third
party, who has an option to purchase such station, currently provides
certain sales, programming and marketing services pursuant to an LMA or
(ii) station WDRR-FM in Ft. Myers, Florida, in which the Company owns a
50% nonvoting interest and which the Company intends to sell.
(3) Company revenue share rank obtained from data in BIA Publications-Radio
Analyzer, BIA's MasterAccess, version 1.7 (copyright 1996) (current of
February 27, 1997), based upon 1996 gross revenue for the indicated
markets. Rankings for the Roanoke, Virginia and Lynchburg, Virginia
markets were determined separately, using the City of License to determine
the split of the market.
(4) Station audience share rank obtained from Arbitron's Radio Market Reports,
based on average quarter hour estimates for the reporting period ending
Fall 1996, except for Winchester, Virginia, Asheville, North Carolina,
Tuscaloosa, Alabama, Wheeling, West Virginia and, Jackson, Tennessee,
which are reported as of Spring or Summer 1996 because the markets were
not ranked for the Fall 1996 period, for the demographic of persons ages
25-54, listening Monday through Sunday, 6 a.m. to midnight. To account for
listeners lost to other nearby markets, a radio station's "local" audience
share is derived by comparing the radio station's average quarter hour
share to the total average quarter hour share for all stations whose
signals are heard within the MSA, excluding audience share for listeners
who listen to stations whose signals originate outside the MSA.
(5) The Company provides certain sales and marketing services to station
WEEL-FM in Wheeling, West Virginia, pursuant to a JSA.
(6) Audience share rank obtained from Arbitron's June 1996 County Report (for
field work performed in 1995) survey, from the County of Etowah, Alabama
which is Gadsden's home county.
52
<PAGE> 55
West Region
Upon consummation of the Pending Acquisitions, the Company will own
and operate or provide services to 25 radio stations (16 FM and nine AM) in the
West Region. These stations are located in seven markets in Alaska, Arizona,
California, Iowa and Wisconsin. The Company's stations will comprise the
leading radio station cluster based on revenue share in one of these markets.
History. The West Region will be formed through the completion of four
pending acquisitions: COMCO (six stations); Commonwealth (three stations);
Community Pacific (10 stations); and Madison (six stations). Each of these
acquisitions provides the Company with a leading station cluster in at least
one of the markets in the West Region. The acquisition of COMCO provides the
Company with three stations in the Fairbanks, Alaska market. All of the
stations acquired as part of the Commonwealth Acquisition are located in Yuma,
Arizona. In Madison, Wisconsin, the Company is ranked number one in revenue and
audience share. In Anchorage, Alaska, the Company will create a newly formed
station cluster with the number one revenue and audience share ranks through
the acquisitions of COMCO and Community Pacific.
Management. The West Region will be managed by two radio executives,
David J. Benjamin and Dex Allen, with an aggregate of 52 years of experience in
the radio broadcasting industry. Mr. Benjamin, the current President and Chief
Executive Officer of Community Pacific, will serve as the chief executive
officer of the West Region upon consummation of the Community Pacific
Acquisition. Mr. Allen has served as the managing member of Commonwealth since
1984 and is expected to continue to serve in such position until the
consummation of the Commonwealth Acquisition. Mr. Allen became the president
and chief operating officer of the West Region effective January 1, 1997. Mr.
Allen has extensive experience operating radio stations in large markets,
having served as both general manager and sales manager at various stations in
San Diego prior to his employment by Commonwealth. Most recently, Mr. Allen has
been a successful owner and operator of radio stations located in mid-sized
markets. The Company expects that the significant operating experience of Mr.
Benjamin and Mr. Allen will serve to improve the results of the stations in the
West Region and also benefit the Company in the pursuit of additional
acquisitions throughout the West Region.
Markets. Although the Company's station clusters in the West Region
have leading positions based on audience share in four of the seven markets,
management believes that substantial opportunity exists to improve the
profitability of these clusters by acquiring additional stations in each of
these markets. For example, in the Des Moines, Iowa market, the Company
operates two FM stations and one AM station. Both FM stations serve the Adult
25-54 demographic, one of which is programmed as an album oriented rock station
and the other as a country station. The Company intends to pursue acquisitions
of additional stations in the Des Moines, Iowa market in order to capitalize on
its existing infrastructure and market presence and to enhance the financial
performance of the station cluster. Management intends to pursue such add-on
acquisitions in each of the markets in the West Region.
Management expects to divide the current West Region into additional
geographic regions as more stations are acquired in the midwest and western
United States and as more experienced management personnel are added to the
Company.
53
<PAGE> 56
The following table summarizes certain information relating to the
Company's radio stations in the West Region, assuming the consummation of the
Pending Acquisitions.
<TABLE>
<CAPTION>
TARGET COMPANY STATION
DEMO- REVENUE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) FORMAT
- ----------------------- -------- ------- ------- ----- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
STOCKTON, CA ................ 85 3
KVFX-FM(5) ................ 1994 Community Pacific 18-49 4 Classic Rock
KJAX-AM(5) ................ 1996 Community Pacific 35-64 6 Talk
DES MOINES, IA .............. 89 4
KHKI-FM(5) ................ 1995 Community Pacific 25-54 7 Country
KGGO-FM(5) ................ 1995 Community Pacific 25-54 5 Album Rock
KDMI-AM(5) ................ 1995 Community Pacific NA NA Religion
MADISON, WI ................. 120 1
WIBA-AM ................... 1995 Madison 35-64 8t News/Talk
WIBA-FM ................... 1995 Madison 25-54 4 Classic Rock
WMAD-FM ................... 1995 Madison 18-34 5 Modern Rock
WTSO-AM ................... 1997 Madison 35-64 14 News/Talk
WZEE-FM ................... 1997 Madison 18-49 2 Hot Adult Contemporary
WMLI-FM ................... 1997 Madison 35-64 13 Soft Hits
MODESTO, CA ................. 121 2
KJSN-FM(5) ................ 1982 Community Pacific 25-54 3 Soft Adult Contemporary
KFIV-AM(5) ................ 1982 Community Pacific 35-64 7t Talk
ANCHORAGE, AK(6) ............ 165 2
KBFX-FM(5) ................ 1993 Community Pacific 18-49 7 Classic Rock
KASH-FM(5) ................ 1985 Community Pacific 25-54 1t Country
KENI-AM(5) ................ 1995 Community Pacific 25-54 3t News/Talk
KYAK-AM ................... 1993 COMCO 25-54 13t Adult Contemporary
KGOT-FM ................... 1993 COMCO 25-54 4 Contemporary Hits
KYMG-FM ................... 1984 COMCO 25-54 5 Adult Contemporary
FAIRBANKS, AK(7) ............ NA NA
KIAK-FM ................... 1993 COMCO 25-54 1 Country
KIAK-AM ................... 1993 COMCO 25-54 7 News/Talk
KAKQ-FM ................... 1994 COMCO 25-54 2t Adult Contemporary
YUMA, AZ .................... NA NA
KYJT-FM ................... 1986 Commonwealth 25-49 1 Classic Hits
KTTI-FM ................... 1995 Commonwealth 25-54 2 Country
KBLU-AM ................... 1995 Commonwealth 35-64 8t Oldies
</TABLE>
- ---------------
NA Information not available.
t Tied with another radio station.
(1) Actual city of license may be different from metropolitan market served.
Market may be different from market definition used under FCC multiple
ownership rules.
(2) MSA rank obtained from Arbitron's Summer 1996 Radio Market Survey Schedule.
(3) Company revenue share rank obtained from data in BIA Publications-Radio
Analyzer, BIA's MasterAccess, version 1.7, 1996 (current as of February
27, 1997), based upon 1996 gross revenue for the indicated markets.
(4) Company audience share rank obtained from Arbitron's Radio Market Reports,
based on average quarter hour estimates for the reporting period ending
Fall 1996, for the demographic of persons ages 25-54, listening Monday
through Sunday, 6 a.m. to midnight, except for the Yuma, Arizona market
which was obtained from AccuRatings(TM). To account for listeners lost to
other nearby markets, a radio station's "local" audience share is derived
by comparing the radio station's average quarter hour share to the total
average quarter hour share for all stations whose signals are heard within
the MSA, excluding audience share for listeners who listen to stations
whose signals originate outside the MSA.
(5) The Company provides certain sales, programming and marketing services,
pending the consummation of the Community Pacific Acquisition, to stations
KVFX-FM and KJAX-AM in Stockton, California; KHKI-FM, KGGO-FM and KDMI-AM
in Des Moines, Iowa; KJSN-FM and KFIV-AM in Modesto, California; and
KBFX-FM, KASH-FM and KENI-AM in Anchorage, Alaska.
(6) The table does not include station KASH-AM in Anchorage, Alaska. The
Company expects to sell station KASH-AM subsequent to consummation of the
Community Pacific Acquisition in order to remain in compliance with the
station ownership limitations under the Communications Act.
(7) Fairbanks, Alaska is a CSA as defined by Arbitron. Audience share and
audience share rank obtained from Arbitron's Fall 1996 CSA Market Report.
54
<PAGE> 57
OTHER BUSINESSES
The Company operates several country music-related entertainment
businesses in Wheeling, West Virginia. The Company enhances and capitalizes on
its strong ratings in country music by integrating its radio stations with its
Capitol Music Hall, a 2,500-seat theater that hosts approximately 100 music,
comedy and dramatic performances each year, and Jamboree in the Hills, an
annual outdoor festival featuring 20 or more country music stars held on a
200-acre site owned by the Company outside of Wheeling. The Company also
distributes programmed music, primarily Muzak, in the Atlanta, Macon and
Albany, Georgia and Ft. Myers, Florida markets. As the exclusive Muzak
franchisee in these markets, the Company provides subscribers with
commercial-free Muzak programming ranging from traditional background music to
newer formats including country and soft rock. The Company also sells, leases
and installs the equipment required to receive the programming via satellite
and other media and also designs, sells and installs sound, closed-circuit
video and security systems and equipment in locations such as offices, schools,
hospitals, shopping malls and stadiums. In addition, the Company is an
authorized distributor of the Rauland-Borg line of communications equipment for
schools and hospitals in various markets.
INDUSTRY OVERVIEW
Radio stations generate the majority of their revenue from the sale of
advertising time to local and national spot advertisers and national network
advertisers. Radio serves primarily as a medium for local advertising. During
the past decade, local advertising revenue as a percentage of total radio
advertising revenue in a given market has ranged from approximately 74% to 78%.
The growth in total radio advertising revenue tends to be fairly stable and has
generally grown at a rate faster than the Gross National Product (the "GNP").
With the exception of 1991, when total radio advertising revenue fell by
approximately 3.1% compared to the prior year, advertising revenue has risen in
each of the past 15 years more rapidly than either inflation or the GNP. Total
advertising revenue in 1995 of $11.5 billion, which represents a 7.6% increase
over 1994, as reported by the Radio Advertising Bureau ("RAB"), was its highest
level in the industry's history.
Radio is considered an efficient means of reaching specifically
identified demographic groups. Stations are typically classified by their
on-air format, such as country, adult contemporary, oldies or news/talk. A
station's format and style of presentation enable it to target certain
demographic and psychographic groups. By capturing a specific listening
audience share of a market's radio audience, with particular concentration in a
targeted demographic group, a station is able to market its broadcasting time
to advertisers seeking to reach a specific audience. Advertisers and stations
utilize data published by audience measuring services, such as Arbitron, to
estimate how many people within particular geographical markets and demographic
groups listen to specific stations.
Stations determine the number of advertisements broadcast hourly that
will maximize available revenue dollars without jeopardizing listening levels.
Although the number of advertisements broadcast during a given time period may
vary, the total number of advertisements broadcast on a particular station
generally does not vary significantly from year to year.
A station's local sales staff generates the majority of its local and
regional advertising sales through direct solicitations of local advertising
agencies and businesses. To generate national advertising sales, a station will
engage a firm that specializes in soliciting radio advertising sales on a
national level. National sales representatives obtain advertising principally
from advertising agencies located outside the station's market and receive
commissions based on the revenue from the advertising obtained. The Company has
entered into a national advertising agreement with Katz Communications, Inc., a
national advertising firm.
According to the RAB's Radio Marketing Guide and Fact Book for
Advertisers, 1993-1994, radio reaches approximately 96% of all Americans over
the age of 12 each week. More than one-half of all radio listening is done
outside the home, in contrast to other advertising mediums, and three out of
four adults are reached by car radio each week. The average listener spends
approximately three hours and 20 minutes per day listening to radio. The
highest portion of radio listenership occurs during the morning, particularly
between the time a listener wakes up and the time the listener reaches work.
This "morning drive time" period reaches more than 85% of people over 12 years
of age and, as a result, radio advertising sold during this period achieves
premium advertising rates. Radio listeners have gradually shifted over the
years from AM (amplitude modulation) to FM (frequency modulation) stations. FM
reception, as compared to AM, is generally clearer and provides greater tonal
range and higher fidelity. FM's listener share is now
55
<PAGE> 58
in excess of 75%, despite the fact that the number of AM and FM commercial
stations in the United States is approximately equal.
COMPETITION; CHANGES IN BROADCASTING INDUSTRY
The radio broadcasting industry is highly competitive. The success of
each of the Company's stations depends largely upon its audience ratings and
its share of the overall advertising revenue within its market. The Company's
stations compete for listeners and advertising revenue directly with other
radio stations within their respective markets. Radio stations compete for
listeners primarily on the basis of program content that appeals to a
particular demographic group. By building a strong listener base consisting of
a specific demographic group in each of its markets, the Company is able to
attract advertisers seeking to reach those listeners.
Factors that are material to a radio station's competitive position
include management experience, the station's local audience rank in its market,
transmitter power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other radio stations in the
market area. The Company attempts to improve its competitive position with
promotional campaigns aimed at the demographic groups targeted by its stations
and by sales efforts designed to attract advertisers. Recent changes in the
FCC's policies and rules permit increased ownership and operation of multiple
local radio stations. Management believes that radio stations that elect to
take advantage of joint arrangements such as LMAs or JSAs may in certain
circumstances have lower operating costs and may be able to offer advertisers
more attractive rates and services. Although the Company currently operates
several multiple station groups and intends to pursue the creation of
additional multiple station groups, the Company's competitors in certain
markets include operators of multiple stations or operators who already have
entered into LMAs or JSAs.
The radio broadcasting industry is highly competitive, although some
barriers to entry exist. The operation of a radio broadcast station requires a
license from the FCC and the number of radio stations that can operate in a
given market is limited by the availability of FM and AM radio frequencies
allotted by the FCC to communities in that market, as well as by the FCC's
multiple ownership rules that regulate the number of stations that may be owned
and controlled by a single entity. See "-- Federal Regulation of Radio
Broadcasting."
The Company's stations also compete for advertising revenue with other
media, including broadcast television, cable television, newspapers, magazines,
direct mail, coupons and billboard advertising. In addition, the radio
broadcasting industry is subject to competition from new media technologies
that are being developed or introduced, such as the delivery of audio
programming by cable television systems, by satellite and by DAB. DAB may
deliver by satellite to nationwide and regional audiences, multi-channel,
multi-format, digital radio services with sound quality equivalent to compact
discs. The delivery of information through the presently unregulated Internet
also could create a new form of competition. The radio broadcasting industry
historically has grown despite the introduction of new technologies for the
delivery of entertainment and information, such as television broadcasting,
cable television, audio tapes and compact disks. A growing population and
greater availability of radios, particularly car and portable radios, have
contributed to this growth. There can be no assurance, however, that the
development or introduction in the future of any new media technology will not
have an adverse effect on the radio broadcasting industry.
The FCC has allocated spectrum for a new technology, digital audio
radio services ("DARS"), to deliver audio programming. The FCC has adopted
licensing and operating rules for DARS and in April 1997 awarded two licenses
for this service. DARS may provide a medium for the delivery by satellite or
terrestrial means of multiple new audio programming formats to local and/or
national audiences. Digital technology also may be used in the future by
terrestrial radio broadcast stations either on existing or alternate
broadcasting frequencies, and the FCC has stated that it will consider making
changes to its rules to permit AM and FM radio stations to offer digital sound
following industry analysis of technical standards. In addition, the FCC has
authorized an additional 100 kHz of bandwidth for the AM band and has allotted
frequencies in this new band to certain existing AM station licensees that
applied for migration to the expanded AM band prior to the FCC's cut-off date,
subject to the requirement that such licensees apply to the FCC to implement
operations on their expanded band frequencies. At the end of a transition
period, those licensees will be required to return to the FCC either the
license for their existing AM band station or the license for the expanded AM
band station.
The Company cannot predict what other matters might be considered in
the future by the FCC, nor can it assess in advance what impact, if any, the
implementation of any of these proposals or changes might have on its business.
56
<PAGE> 59
The Company employs a number of on-air personalities and generally
enters into employment agreements with certain of these personalities to
protect its interests in those relationships that it believes to be valuable.
The loss of certain of these personalities could result in a short-term loss of
audience share, but the Company does not believe that any such loss would have
a material adverse effect on the Company.
FEDERAL REGULATION OF RADIO BROADCASTING
The ownership, operation and sale of radio stations are subject to the
jurisdiction of the FCC, which acts under authority granted by the
Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
determines whether to approve changes in ownership or control of station
licenses; regulates equipment used by stations; and adopts and implements
regulations and policies that directly affect the ownership, operation and
employment practices of stations. The FCC has the power to impose penalties for
violation of its rules or the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Reference
should be made to the Communications Act, FCC rules and the public notices and
rulings of the FCC for further information concerning the nature and extent of
federal regulation of radio stations.
FCC Licenses. Radio stations operate pursuant to broadcasting licenses
that are ordinarily granted by the FCC for maximum terms of eight years and are
subject to renewal upon application to the FCC. The FCC licenses for the
Company's stations are held by certain of the Company's subsidiaries. During
certain periods when renewal applications are pending, petitions to deny
license renewals can be filed by interested parties, including members of the
public. Historically, the Company's management has not experienced any material
difficulty in renewing any licenses for stations under its control. The FCC is
required to hold hearings on a station's renewal application if a substantial
or material question of fact exists as to whether (i) the station has served
the public interest, convenience and necessity, (ii) there have been serious
violations by the licensee of the Communications Act or the FCC rules
thereunder or (iii) there have been other violations by the licensee of the
Communications Act or the FCC rules thereunder that, taken together, constitute
a pattern of abuse. Historically, FCC licenses have generally been renewed. The
Company has no reason to believe that its licenses will not be renewed in the
ordinary course, although there can be no assurance to that effect. The
non-renewal of one or more of the Company's licenses could have a material
adverse effect on the Company.
The FCC classifies each AM and FM station. An AM station operates on
either a clear channel, regional channel or local channel. A clear channel is
one on which AM stations are assigned to serve wide areas. Clear channel AM
stations are classified as either: Class A stations, which operate on an
unlimited time basis and are designated to render primary and secondary service
over an extended area; Class B stations, which operate on an unlimited time
basis and are designed to render service only over a primary service area; and
Class D stations, which operate either during daytime hours only, during
limited times only or on an unlimited time basis with low nighttime power. A
regional channel is one on which Class B and Class D AM stations may operate
and serve primarily a principal center of population and the rural areas
contiguous to it. A local channel is one on which AM stations operate on an
unlimited time basis and serve primarily a community and the suburban and rural
areas immediately contiguous thereto. Class C AM stations operate on a local
channel and are designed to render service only over a primary service area
that may be reduced as a consequence of interference.
The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend upon the geographic zone
in which the transmitter of the FM station is located. In general, commercial
FM stations are classified as follows, in order of increasing power and antenna
height: Class A, B1, C3, B, C2, C1 and C.
The table in Annex A hereto sets forth the market, FCC license
classification and frequency of each of the Company's stations (including those
with which the Company has or will have a JSA or LMA), assuming the
consummation of the Pending Acquisitions, and the date on which each station's
FCC license expires. Each of the Company's AM stations is a regional channel
station other than WSTC-AM, WFAS-AM, WIRO-AM, WBBD-AM, WBHP-AM, WMMB-AM,
KRMD-AM, WSIC-AM, WCOS-AM and WROV-AM, which are local channel stations, and
WINE-AM, WPUT-AM, WKEE-AM, WWVA-AM, WHOS-AM, WESC-AM, KYAK-AM and WTSO-AM,
which are clear channel stations.
57
<PAGE> 60
Ownership Matters. The Communications Act prohibits the assignment of
a broadcast license or the transfer of control of a broadcast licensee without
the prior approval of the FCC. In determining whether to grant such approval,
the FCC considers a number of factors pertaining to the licensee, including
compliance with the various rules limiting common ownership of media
properties, the "character" of the licensee and those persons holding
"attributable" interests therein, and compliance with the Communications Act's
limitations on alien ownership as well as compliance with other FCC policies,
including FCC equal employment opportunity requirements.
A transfer of control of a corporation controlling a broadcast license
may occur in various ways. For example, a transfer of control occurs if an
individual stockholder gains or loses "affirmative" or "negative" control of
such corporation through issuance, redemption or conversion of stock.
"Affirmative" control would consist of control of more than 50% of such
corporation's outstanding voting power and "negative" control would consist of
control of exactly 50% of such voting power. To obtain the FCC's prior consent
to assign or transfer control of a broadcast license, appropriate applications
must be filed with the FCC. If the application involves a "substantial change"
in ownership or control, the application must be placed on public notice for a
period of approximately 30 days during which petitions to deny the application
may be filed by interested parties, including members of the public. If the
application does not involve a "substantial change" in ownership or control, it
is a "pro forma" application. The "pro forma" application is nevertheless
subject to having informal objections filed against it. If the FCC grants an
assignment or transfer application, interested parties have approximately 30
days from public notice of the grant to seek reconsideration of that grant.
Generally, parties that do not file initial petitions to deny or informal
objections against the application face a high hurdle in seeking
reconsideration of the grant. The FCC normally has approximately an additional
ten days to set aside such grant on its own motion. When passing on an
assignment or transfer application, the FCC is prohibited from considering
whether the public interest might be served by an assignment or transfer of the
broadcast license to any party other than the assignee or transferee specified
in the application.
In response to the Telecom Act, the FCC amended its multiple ownership
rules to eliminate the national limits on ownership of AM and FM stations.
Additionally, it established new local ownership rules that use a sliding scale
of permissible ownership, depending on market size. In radio markets with 45 or
more commercial radio stations, a licensee may own up to eight stations, no
more than five of which can be in a single radio service (i.e., no more than
five AM or five FM). In radio markets with 30 to 44 commercial radio stations,
a licensee may own up to seven stations, no more than four of which can be in a
single radio service. In radio markets having 15 to 29 commercial radio
stations, a licensee may own up to six radio stations, no more than four of
which can be in a single radio service. Finally, in radio markets having 14 or
fewer commercial radio stations, a licensee may own up to five radio stations,
no more than three of which can be in the same service; provided that the
licensee may not own more than one half of the radio stations in the market.
FCC ownership rules continue to permit an entity to own one FM and one AM
station in a local market regardless of market size.
The Communications Act and FCC rules also prohibit the common
ownership, operation or control of a radio broadcast station and a television
broadcast station serving the same geographic market (subject to a waiver of
such prohibition if certain conditions are satisfied) and of a radio broadcast
station and a daily newspaper serving the same geographic market. Under these
rules, absent waivers, the Company would not be permitted to acquire any daily
newspaper or television broadcast station (other than low-power television) in
any geographic market in which it now owns radio broadcast properties. On
October 1, 1996, the FCC commenced a proceeding to explore possible revisions
of its policies concerning waiver of the newspaper/radio cross-ownership
restrictions.
The FCC generally applies its ownership limits to "attributable"
interests held by an individual, corporation, partnership or other association.
In the case of corporations holding, or through subsidiaries controlling,
broadcast licenses, the interests of officers, directors and those who,
directly or indirectly, have the right to vote 5% or more of the corporation's
voting stock (or 10% or more of such stock in the case of insurance companies,
investment companies and bank trust departments that are passive investors) are
generally attributable.
R. Steven Hicks, the Company's President, Chief Executive Officer and
Chairman of the Board, is the Chairman, Chief Executive Officer and a director
of GulfStar, which is the licensee through its subsidiaries of radio stations
in various markets throughout the states of Texas, Louisiana, Arkansas and New
Mexico and is seeking to acquire additional radio stations in the states of
Texas and Louisiana. Thomas O. Hicks, a director of Capstar and GulfStar, is
the President and a director of HM2/Chancellor Holdings, Inc., which through
its subsidiaries holds attributable interests in radio stations in various
markets in the States of California, Florida, Minnesota, New York, Ohio,
58
<PAGE> 61
Kentucky, Arizona, Colorado, Georgia, Maryland, Pennsylvania, New Jersey,
Wisconsin and Washington, D.C. and is seeking to acquire an interest in
stations in Illinois and Michigan. Thomas O. Hicks is also the President, Chief
Executive Officer and Chief Operating Officer and 100% stockholder of
HM3/Sunrise, Inc., which through subsidiaries owns television stations in
California, New York and Michigan and is seeking to acquire an attributable
interest in a television station in Ohio. Eric C. Neuman is an Executive Vice
President and a director of Capstar, a Vice President of GulfStar, the Vice
President and Secretary of HM2/Chancellor Holdings, Inc., and the Vice
President of HM3/Sunrise, Inc.
In determining whether the Company is in compliance with the local
ownership limits on AM and FM stations, the FCC will consider the Company's AM
and FM holdings as well as the attributable broadcast interests of the
Company's officers, directors and attributable stockholders. Accordingly, the
attributable broadcast interests of the Company's officers and directors
described in the preceding paragraph will limit the number of radio stations
the Company may acquire or own in any market in which such officers or
directors hold or acquire attributable broadcast interests. In addition, the
Company's officers and directors may from time to time hold various
nonattributable interests in media properties.
Under its "cross-interest" policy, the FCC considers certain
"meaningful" relationships among competing media outlets in the same market,
even if the ownership rules do not specifically prohibit the relationship.
Under the cross-interest policy, the FCC in certain instances may prohibit one
party from acquiring an attributable interest in one media outlet and a
substantial non-attributable economic interest in another media outlet in the
same market. Under this policy, the FCC may consider significant equity
interests combined with an attributable interest in a media outlet in the same
market, joint ventures, and common key employees among competitors. The
cross-interest policy does not necessarily prohibit all of these interests, but
requires that the FCC consider whether, in a particular market, the
"meaningful" relationships between competitors could have a significant adverse
effect upon economic competition and program diversity. Heretofore, the FCC has
not applied its cross-interest policy to LMAs and JSAs between broadcast
stations. In its ongoing rulemaking proceeding concerning the attribution rules
described below, the FCC has sought comment on, among other things, (i) whether
the cross-interest policy should be applied only in smaller markets and (ii)
whether non-equity financial relationships such as debt, when combined with
multiple business interrelationships such as LMAs and JSAs, raise concerns
under the cross-interest policy.
The Communications Act prohibits the issuance of broadcast licenses
to, or the holding of broadcast licenses by, any corporation of which more than
20% of the capital stock is owned of record or voted by non-U.S. citizens or
their representatives or by a foreign government or a representative thereof,
or by any corporation organized under the laws of a foreign country
(collectively, "Aliens"). The Communications Act also authorizes the FCC, if
the FCC determines that it would be in the public interest, to prohibit the
issuance of a broadcast license to, or the holding of a broadcast license by,
any corporation directly or indirectly controlled by any other corporation of
which more than 25% of the capital stock is owned of record or voted by Aliens.
The Company has been advised that the FCC staff has interpreted this provision
to require a public interest finding in favor of such a grant or holding before
a broadcast license may be granted to or held by any such corporation and has
made such a finding only in limited circumstances generally involving licenses
other than broadcast licenses. The FCC has issued interpretations of existing
law (i) under which these restrictions in modified form apply to other forms of
business organizations, including partnerships and (ii) indicating how alien
interests in a company that are held directly through intermediate entities
should be considered in determining whether that company is in compliance with
these alien ownership restrictions. As a result of these provisions, the
licenses granted to the radio station subsidiaries of the Company by the FCC
could be revoked if, among other restrictions imposed by the FCC, more than 25%
of the Capstar's stock were directly or indirectly owned or voted by Aliens.
Accordingly, Capstar's Restated Certificate of Incorporation restricts the
ownership, voting and transfer of Capstar's capital stock in accordance with
the Communications Act and the rules of the FCC, and prohibits ownership of
more than 25% of Capstar's outstanding capital stock (or more than 25% of the
voting rights it represents) by or for the account of Aliens or corporations
otherwise subject to domination or control by Aliens. The Restated Certificate
of Incorporation authorizes Capstar's Board of Directors to adopt such
provisions as it deems necessary to enforce these prohibitions. In addition,
the Restated Certificate of Incorporation provides that shares of capital stock
of Capstar determined by Capstar's Board of Directors to be owned beneficially
by an Alien or an entity directly or indirectly owned by Aliens in whole or in
part shall always be subject to redemption by Capstar by action of the Board of
Directors to the extent necessary, in the judgment of the Board of Directors,
to comply with these alien ownership restrictions.
59
<PAGE> 62
Local Marketing Agreements. Over the past few years, a number of radio
stations have entered into what have commonly been referred to as local
marketing agreements or LMAs. While these agreements may take varying forms,
under a typical LMA, separately owned and licensed radio stations agree to
enter into cooperative arrangements of varying sorts, subject to compliance
with the requirements of antitrust laws and with the FCC's rules and policies.
Under these arrangements, separately-owned stations could agree to function
cooperatively in programming, advertising sales and similar matters, subject to
the requirement that the licensee of each station maintain independent control
over the programming and operations of its own station. One typical type of LMA
is a programming agreement between two separately-owned radio stations serving
a common service area, whereby the licensee of one station programs substantial
portions of the broadcast day on the other licensee's station, subject to
ultimate editorial and other controls being exercised by the latter licensee,
and sells advertising time during those program segments. Such arrangements are
an extension of the concept of "time brokerage" agreements, under which a
licensee of a station sells blocks of time on its station to an entity or
entities that program the blocks of time and sell their own commercial
advertising announcements during the time periods in question.
The FCC has specifically revised its "cross-interest" policy to make
that policy inapplicable to time brokerage arrangements. Furthermore, the staff
of the FCC's Mass Media Bureau has held that LMAs are not contrary to the
Communications Act provided that the licensee of the station that is being
substantially programmed by another entity maintains complete responsibility
for, and control over, programming and operations of its broadcast station and
assures compliance with applicable FCC rules and policies.
The FCC's multiple ownership rules specifically permit radio station
LMAs to continue to be entered into and implemented, but provide that a
licensee or a radio station that brokers more than 15% of the weekly broadcast
time on another station serving the same market will be considered to have an
attributable ownership interest in the brokered station for purposes of the
FCC's multiple ownership rules. As a result, in a market where it owns a radio
station, the Company would not be permitted to enter into an LMA with another
local radio station in the same market that it could not own under the revised
local ownership rules, unless the Company's programming constituted 15% or less
of the other local station's programming time on a weekly basis. The FCC rules
also prohibit a broadcast licensee from simulcasting more than 25% of its
programming on another station in the same broadcast service (i.e., AM-AM or
FM-FM) through a time brokerage or LMA arrangement where the brokered and
brokering stations which it owns or programs serve substantially the same area.
Such 25% simulcasting limitation also applies to commonly owned stations in the
same broadcast service that serve substantially the same area.
Joint Sales Agreements. Over the past few years, a number of radio
stations have entered into cooperative arrangements commonly known as joint
sales agreements or JSAs. While these agreements may take varying forms, under
the typical JSA, a station licensee obtains, for a fee, the right to sell
substantially all of the commercial advertising on a separately-owned and
licensed station in the same market. The typical JSA also customarily involves
the provision by the selling licensee of certain sales, accounting and "back
office" services to the station whose advertising is being sold. The typical
JSA is distinct from an LMA in that a JSA normally does not involve
programming.
The FCC has determined that issues of joint advertising sales should
be left to enforcement by antitrust authorities, and therefore does not
generally regulate joint sales practices between stations. Currently, stations
for which a licensee sells time under a JSA are not deemed by the FCC to be
attributable interests of that licensee. However, in connection with its
ongoing rulemaking proceeding concerning the attribution rules, the FCC is
considering whether JSAs should be considered attributable interests or within
the scope of the FCC's cross-interest policy, particularly when JSAs contain
provisions for the supply of programming services and/or other elements
typically associated with LMAs. If JSAs become attributable interests as a
result of changes in the FCC rules, the Company may be required to terminate
any JSA it might have with a radio station which the Company could not own
under the FCC's multiple ownership rules.
Programming and Operation. The Communications Act requires
broadcasters to serve the "public interest." The FCC gradually has relaxed or
eliminated many of the more formalized procedures it had developed in the past
to promote the broadcast of certain types of programming responsive to the
needs of a station's community of license. A licensee continues to be required,
however, to present programming that is responsive to issues of the station's
community and to maintain certain records demonstrating such responsiveness.
Complaints from listeners concerning a station's programming often will be
considered by the FCC when it evaluates renewal applications of a licensee,
although listener complaints may be filed at any time and generally may be
considered by the FCC at any time. Stations also must pay regulatory and
application fees and follow various rules promulgated under the Communications
Act that
60
<PAGE> 63
regulate, among other things, political advertising, sponsorship
identifications, the advertisement of contests and lotteries, obscene and
indecent broadcasts, and technical operations, including limits on radio
frequency radiation. In addition, licensees must develop and implement
affirmative action programs designed to promote equal employment opportunities
and must submit reports to the FCC with respect to these matters on an annual
basis and in connection with a renewal application.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
"short term" (less than the full term) license renewal or, for particularly
egregious violations, the denial of a license renewal application or the
revocation of a license.
Proposed and Recent Changes. The FCC has a pending rulemaking
proceeding that seeks, among other things, comment on whether the FCC should
modify its radio and television broadcast ownership "attribution" rules by (i)
raising the basic benchmark for attributing ownership in a corporate licensee
from 5% to 10% of the licensee's outstanding voting power, (ii) increasing from
10% to 20% of the licensee's outstanding voting power the attribution benchmark
for "passive investors" in corporate licensees, (iii) attributing certain
minority stockholdings in corporations with a single majority shareholder and
(iv) attributing certain LMA, JSA, debt or non-voting stock interests that have
heretofore been non-attributable.
Moreover, Congress and the FCC have under consideration, and in the
future may consider and adopt, new laws, regulations and policies regarding a
wide variety of matters that could affect, directly or indirectly, the
operation, ownership and profitability of the Company's radio stations, result
in the loss of audience share and advertising revenues for the Company's radio
stations, and affect the ability of the Company to acquire additional radio
stations or to finance those acquisitions. Such matters may include spectrum
use or other fees on FCC licenses; foreign ownership of broadcast licenses;
revisions to the FCC's equal employment opportunity rules and rules relating to
political broadcasting; technical and frequency allocation matters; proposals
to restrict or prohibit the advertising of beer, wine and other alcoholic
beverages on radio; changes in the FCC's cross-interest, multiple ownership and
attribution policies; new technologies such as DAB; and proposals to auction
the right to use the radio broadcast spectrum to the highest bidder.
The Company cannot predict what other matters might be considered in
the future by the FCC or Congress, nor can it judge in advance what impact, if
any, the implementation of any of these proposals or changes might have on its
business.
Federal Antitrust Laws. In addition to the risks associated with the
acquisition of radio stations, the Company is also aware of the possibility
that certain acquisitions it proposes to make may be investigated by the FTC or
the DOJ, which are the agencies responsible for enforcing the federal antitrust
laws. The agencies have recently investigated several radio station
acquisitions where an operator proposed to acquire new stations in its existing
markets, including the Benchmark Acquisition, which was resolved favorably to
the Company. Any decision by the FTC or the DOJ to challenge a proposed
acquisition could affect the ability of the Company to consummate the
acquisition or to consummate it on the proposed terms.
For an acquisition meeting certain size thresholds, the HSR Act and
the rules promulgated thereunder require the parties to file Notification and
Report Forms with the FTC and the DOJ and to observe specified waiting period
requirements before consummating the acquisition. During the initial 30 day
period after the filing, the agencies decide which of them will investigate the
transaction. If the investigating agency determines that the transaction does
not raise significant antitrust issues, then it will either terminate the
waiting period or allow it to expire after the initial 30 days. On the other
hand, if the agency determines that the transaction requires a more detailed
investigation, then at the conclusion of the initial 30 day period, it will
issue a formal request for additional information ("Second Request"). The
issuance of a Second Request extends the waiting period until the twentieth
calendar day after the date of substantial compliance by all parties to the
acquisition. Thereafter, such waiting period may only be extended by court
order or with the consent of the parties. In practice, complying with a Second
Request can take a significant amount of time. In addition, if the
investigating agency raises substantive issues in connection with a proposed
transaction, then the parties frequently engage in lengthy discussions or
negotiations with the investigating agency concerning possible means of
addressing those issues, including but not limited to persuading the agency
that the proposed acquisition would not violate the antitrust laws,
restructuring the proposed acquisition, divestiture of other assets of one or
more parties, or abandonment of the transaction. Such discussions and
negotiations can be time-consuming, and the parties may agree to delay
consummation of the acquisition during their pendency.
61
<PAGE> 64
At any time before or after the consummation of a proposed
acquisition, the FTC or the DOJ could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking to
enjoin the acquisition or seeking divestiture of the business acquired or other
assets of the Company. Acquisitions that are not required to be reported under
the HSR Act may be investigated by the FTC or the DOJ under the antitrust laws
before or after consummation. In addition, private parties may under certain
circumstances bring legal action to challenge an acquisition under the
antitrust laws.
The Company does not believe that any Pending Acquisition will be
adversely affected in any material respect by review under the HSR Act. The
Company has received early termination of the applicable waiting period under
the HSR Act in regard to the Community Pacific Acquisition and the Madison
Acquisition, and no other Pending Acquisition is subject to the HSR Act.
As part of its increased scrutiny of radio station acquisitions, the
DOJ has stated publicly that it believes that LMAs, JSAs and other similar
agreements customarily entered into in connection with radio station transfers
prior to the expiration of the waiting period under the HSR Act could violate
the HSR Act.
EMPLOYEES
At December 31, 1996, the Company had a staff of 303 full-time
employees and 139 part-time employees. If the Osborn Transactions, the
Benchmark Acquisition and the Space Coast Acquisitions had been consummated as
of December 31, 1996, the Company would have had a staff of approximately 880
full-time employees and 425 part-time employees as of such date. There are no
collective bargaining agreements between the Company and its employees. The
Company does have, however, one union member employed in connection with its
Muzak franchise in Atlanta, Georgia, and is negotiating a collective bargaining
agreement with the American Federation of Television and Radio Artists of
America ("AFTRA") which represents the on-air performance staff of WFAS-AM/FM
in Westchester County, New York for collective bargaining purposes. WFAS-AM/FM
has approximately nine employees that would be represented by AFTRA. The
Company believes that its relations with its employees are good.
SEASONALITY
Seasonal revenue fluctuations are common in the radio broadcasting
industry and are due primarily to fluctuations in advertising expenditures by
retailers. The Company's revenues and broadcast cash flows are typically lowest
in the first quarter and highest in the second and fourth quarters.
PROPERTIES AND FACILITIES
The types of properties required to support each of the Company's
radio stations include offices, studios and transmitter/antenna sites. A
station's studios are generally housed with its offices in downtown or business
districts. The transmitter/antenna sites generally are located so as to provide
maximum market coverage.
The Company owns transmitter and antenna sites in Gadsden and
Tuscaloosa, Alabama; Norwalk and Brookfield, Connecticut; Wilmington and Dover,
Delaware; Ft. Pierce, Melbourne, Port St. Lucie and Vero Beach, Florida;
Catlettsburg, Kentucky; Jackson, Mississippi; Hartsdale and Brewster, New York;
Asheville and Statesville, North Carolina; Dayton, Ohio; Whitehall,
Pennsylvania; Columbia, Garrison and Greenville, South Carolina; Jackson,
Tennessee; Amherst County, Bedford County, Roanoke and Winchester, Virginia;
and Huntington and Wheeling, West Virginia. The Company also leases transmitter
and antenna sites in Huntsville and Tuscaloosa, Alabama; Stamford, Connecticut;
Bethany Beach, Delaware; Indian River County, Cocoa and Vero Beach, Florida;
Caddo Parish, Louisiana; Jackson and Pelahatchi, Mississippi; Asheville and
Cool Springs, North Carolina; Bridgeport and Dayton, Ohio; Washington Township
and Bethlehem, Pennsylvania; Columbia, South Carolina; Boonea Mill and
Winchester, Virginia; Huntington, Milton and Cabell County and Wheeling, West
Virginia; Pawling and Bedford, New York; and Ocean City, Maryland. The Company
typically leases studio and office space, although it owns its facilities in
Gadsden and Tuscaloosa, Alabama; Brookfield, Connecticut; Dover, Delaware; Port
St. Lucie and Ft. Pierce, Florida; Catlettsburg, Kentucky; Shreveport,
Louisiana; Hartsdale and Patterson, New York; Asheville and Statesville, North
Carolina; Columbia and Greenville, South Carolina; Jackson, Tennessee; Roanoke,
Virginia; and Huntington and Wheeling, West Virginia.
62
<PAGE> 65
The Company generally considers its facilities to be suitable and of
adequate size for its current and intended purposes. The Company does not
anticipate any difficulties in renewing any facility leases or in leasing
additional space, if required.
The Company owns substantially all of its other equipment, consisting
principally of transmitting antennae, transmitters, studio equipment and
general office equipment. The towers, antennae and other transmission equipment
used by the Company's stations are generally in good condition, although
opportunities to upgrade facilities are continuously reviewed.
The principal executive offices of the Company are located at 600
Congress Avenue, Suite 1400, Austin, Texas 78701. The telephone number of the
Company at that address is (512) 404-6840.
LITIGATION
The Company is involved in litigation from time to time in the
ordinary course of its business. In management's opinion, the litigation in
which the Company is currently involved, individually and in the aggregate, is
not material to the Company's financial condition or results of operations.
63
<PAGE> 66
THE PENDING ACQUISITIONS
As part of the Company's overall strategy to take advantage of the
passage of the Telecom Act, the Company has entered into agreements to acquire
or assume agreements to provide services to an additional 32 stations in seven
new markets and three existing markets and, upon completion of the Pending
Acquisitions, the Company will own and operate or provide services to 121 radio
stations in 31 mid-sized markets located throughout the United States. The
Company must obtain additional financing to consummate the Pending Acquisitions
and there can be no assurance that such financing will be available to the
Company on terms acceptable to its management or at all. The consummation of
the Pending Acquisitions is subject to various conditions, including FCC and
other regulatory approval. No assurances can be given that the Pending
Acquisitions will be consummated or that, if completed, they will be
successful.
COMMUNITY PACIFIC ACQUISITION
On December 26, 1996, the Company agreed to acquire substantially all
of the assets of Community Pacific (the "Community Pacific Acquisition"). The
purchase price of the Community Pacific Acquisition will equal approximately
$35.0 million payable in cash. Community Pacific owns and operates 11 radio
stations (six FM and five AM) in four markets located in Anchorage, Alaska,
Modesto and Stockton, California and Des Moines, Iowa. In January 1997, the
Company and Community Pacific each filed an (i) application with the FCC for
approval to transfer control of such radio stations to the Company and (ii) a
Notification and Report Form with the DOJ and the FTC. The applicable waiting
period under the HSR Act terminated on February 21, 1997, after which time the
Company and Community Pacific entered into an LMA in connection with Community
Pacific's radio stations pursuant to which the Company provides certain sales,
programming and marketing services for Community Pacific's stations under an
LMA. The FCC approved the Community Pacific Acquisition in April 1997. The
Company anticipates that the Community Pacific Acquisition will be consummated
in November 1997. See "-- COMCO Acquisition."
Under the terms of the acquisition agreement, which was entered into
by Pacific Star, the acquisition agreement may be terminated by Community
Pacific prior to consummation of the asset purchase under various
circumstances, including, but not limited to, a material breach of any
representation, warranty, covenant or agreement, by Pacific Star. If the
acquisition agreement is terminated due to a material breach of any
representation, warranty, covenant or agreement by Pacific Star, then Community
Pacific will be entitled to liquidated damages in the amount of $2.6 million as
Community Pacific's exclusive remedy. Pacific Star has secured its obligation
to consummate the asset purchase by placing into escrow a letter of credit in
the amount of $2.6 million. See "Description of Other Indebtedness -- Letters
of Credit."
MADISON ACQUISITION
On January 27, 1997, the Company agreed to acquire substantially all
of the assets of Madison (the "Madison Acquisition"). The purchase price of the
Madison Acquisition will equal approximately $38.8 million payable in cash.
Madison owns and operates six radio stations (four FM and two AM) in Madison,
Wisconsin. In February 1997, the Company and Madison filed an application with
the FCC for approval to transfer control of such radio stations to the Company.
The Company and Madison filed a Notification and Report Form with the DOJ and
the FTC in February 1997. The applicable waiting period under the HSR Act
terminated on March 11, 1997. The Company anticipates that the Madison
Acquisition will be consummated in October 1997.
Under the terms of the acquisition agreement, which was entered into
by Point Madison Acquisition Company, Inc., a subsidiary of the Company
("Madison Acquisition Co."), the acquisition agreement may be terminated by
Madison prior to consummation of the asset purchase under various
circumstances, including a material breach of any representation, warranty,
covenant or agreement by Madison Acquisition Co. If the acquisition agreement
is terminated due to a material breach of any representation, warranty,
covenant or agreement by Madison Acquisition Co., then Madison will be entitled
to liquidated damages in the amount of $3.2 million as Madison's exclusive
remedy. Madison Acquisition Co. has secured its obligation to consummate the
asset purchase by placing into escrow a letter of credit in the amount of $3.2
million. See "Description of Other Indebtedness -- Letters of Credit."
64
<PAGE> 67
COMMONWEALTH ACQUISITION
On January 27, 1997, the Company agreed to acquire substantially all
of the assets of Commonwealth (the "Commonwealth Acquisition"). The purchase
price of the Commonwealth Acquisition will equal approximately $5.3 million
payable in cash. Commonwealth owns and operates three radio stations (two FM
and one AM) in Yuma, Arizona. In February 1997, the Company and Commonwealth
filed an application with the FCC for approval to transfer control of such
radio stations to the Company. No filing under the HSR Act is required. The
Company anticipates that the Commonwealth Acquisition will be consummated in
October 1997.
Under the terms of the acquisition agreement, which was entered into
by Pacific Star., the acquisition agreement may be terminated by Commonwealth
prior to consummation of the asset purchase under various circumstances,
including a material breach of any representation, warranty, covenant or
agreement by Pacific Star. If the acquisition agreement is terminated due to a
material breach of any representation, warranty, covenant or agreement, by
Pacific Star, then Commonwealth will be entitled to liquidated damages in the
amount of $262,500 as Commonwealth's exclusive remedy. Pacific Star has secured
its obligation to consummate the asset purchase by placing into escrow a letter
of credit in the amount of $262,500. See "Description of Other Indebtedness --
Letters of Credit."
CAVALIER ACQUISITION
On January 27, 1997, the Company agreed to acquire substantially all
of the assets of Cavalier (the "Cavalier Acquisition"). The purchase price of
the Cavalier Acquisition will equal approximately $8.3 million payable in cash.
Cavalier owns and operates five radio stations (four FM and one AM) in the
Roanoke and Lynchburg, Virginia markets. In February 1997, the Company and
Cavalier filed an application with the FCC for approval to transfer control of
such radio stations to the Company. No filing under the HSR Act is required.
The Company anticipates that the Cavalier Acquisition will be consummated in
October 1997.
Under the terms of the acquisition agreement, which was entered into
by Cavalier Acquisition Co., the acquisition agreement may be terminated by
Cavalier prior to consummation of the asset purchase under various
circumstances, including a material breach of any representation, warranty,
covenant or agreement, by Cavalier Acquisition Co. If the acquisition agreement
is terminated due to a material breach of any representation, warranty,
covenant or agreement by Cavalier Acquisition Co., then Cavalier will be
entitled to liquidated damages in the amount of $900,000 as Cavalier's
exclusive remedy. Cavalier Acquisition Co. has secured its obligation to
consummate the asset purchase by placing into escrow a letter of credit in the
amount of $900,000. See "Description of Other Indebtedness -- Letters of
Credit."
COMCO ACQUISITION
On February 3, 1997, the Company agreed to acquire substantially all
of the assets of COMCO (the "COMCO Acquisition"). The purchase price of the
COMCO Acquisition will equal approximately $6.7 million payable in cash. COMCO
owns and operates six radio stations (four FM and two AM) in the Anchorage and
Fairbanks, Alaska markets. The Company and COMCO filed an application with the
FCC for approval to transfer control of such radio stations to the Company in
February 1997. No filing under the HSR Act is required. The Company anticipates
that the COMCO Acquisition will be consummated in October 1997.
Under the terms of the agreement, which was entered into by Pacific
Star, the acquisition agreement may be terminated by COMCO prior to
consummation of the asset purchase under various circumstances, including a
material breach of any representation, warranty, covenant or agreement, by
Pacific Star. If the acquisition agreement is terminated due to a material
breach of any representation, warranty, covenant or agreement by Pacific Star,
then COMCO will be entitled to liquidated damages in the amount of $335,000 as
COMCO's exclusive remedy. Pacific Star has secured its obligation to consummate
the asset purchase by placing into escrow a letter of credit in the amount of
$335,000. See "Description of Other Indebtedness -- Letters of Credit."
Upon consummation of the Community Pacific Acquisition and the COMCO
Acquisition, the Company will own and operate seven radio stations (four FM and
three AM) in the Anchorage, Alaska market, which number exceeds the multiple
station ownership limitations under the Communications Act. Accordingly, the
Company has sought permission from the FCC to consummate both the Community
Pacific Acquisition and the COMCO Acquisition provided
65
<PAGE> 68
that the Company agrees to sell radio station KASH-AM in Anchorage, Alaska
within 18 months of the date on which the Community Pacific Acquisition is
consummated. The Company would be in compliance with the ownership limitations
of the Communications Act in the Anchorage, Alaska market once it disposes of
KASH-AM. No assurances can be given that the FCC will grant permission to the
Company to consummate both the Community Pacific Acquisition and the COMCO
Acquisition and dispose of KASH-AM, or if the FCC grants such permission, that
the Company will be able to sell KASH-AM. See "-- Community Pacific
Acquisition."
EMERALD CITY ACQUISITION
On March 10, 1997, the Company agreed to acquire substantially all of
the assets of Emerald City (the "Emerald City Acquisition") used or useful in
the operations of Emerald City's three radio stations (two FM and one AM) in
the Columbia, South Carolina market. The Company has agreed to assign WNOK
Acquisition Co.'s right to acquire two of Emerald City's radio stations
(WOIC-AM and WMFX-FM) on or before the date on which the Company acquires
Emerald City's third radio station (WNOK-FM) to Clear Channel Radio Licensing,
Inc. The purchase price of the Emerald City Acquisition will equal
approximately $14.9 million payable in cash, of which approximately $9.5
million has been allocated to station WNOK-FM and will be payable by the
Company.
The Company and Emerald City intend to file an application with the
FCC in April 1997 for approval to transfer control of WNOK-FM to the Company.
No assurances can be given that the FCC will grant permission to the Company to
consummate the Emerald City Acquisition. No filing under the HSR Act is
required. The Company anticipates that the Emerald City Acquisition will be
consummated in July 1997.
Under the terms of the agreement, which was entered into by WNOK
Acquisition Company, Inc., a subsidiary of the Company ("WNOK Acquisition
Co."), the acquisition agreement may be terminated by Emerald City prior to
consummation of the asset purchase under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by WNOK
Acquisition Co. If the acquisition agreement is terminated due to a material
breach of any representation, warranty, covenant or agreement by WNOK
Acquisition Co., then Emerald City will be entitled to liquidated damages in
the amount of $500,000 as Emerald City's exclusive remedy. WNOK Acquisition Co.
has secured its obligation to consummate the asset purchase by placing into
escrow cash in the amount of $75,000 and has agreed that $425,000 of the loan
described below will be forgiven if Emerald City becomes entitled to liquidated
damages.
In connection with the Emerald City Acquisition, the Company has
loaned Emerald City approximately $13.5 million, the proceeds of which were
used by Emerald City (i) to pay matured indebtedness of Emerald City to Clear
Channel Radio, Inc. in the amount of approximately $13.3 million, including
principal and interest, and (ii) for other business purposes in the amount of
approximately $200,000. The loan matures on the earlier to occur of (i) October
31, 1997, (ii) the closing of the Emerald City Acquisition or (iii) within 75
days after the termination of the acquisition agreement with WNOK Acquisition
Co.
WRIS ACQUISITION
On April 11, 1997, the Company agreed to acquire substantially all of
the assets of WRIS used or held for use in the operation of station WJLM-FM in
Salem, Virginia (the "WRIS Acquisition"). The purchase price of the WRIS
Acquisition will equal approximately $3.1 million payable in cash. In April
1997, the Company and WRIS will file an application with the FCC for approval
to transfer control of such radio station to the Company. No filing under the
HSR Act is required. The Company anticipates that the WRIS Acquisition will be
consummated in August 1997.
Under the terms of the acquisition agreement, which was entered into
by Capstar Acquisition Company, Inc., a subsidiary of the Company ("Capstar
Acquisition Co."), the acquisition agreement may be terminated by WRIS prior to
consummation of the asset purchase under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co. If the acquisition agreement is terminated due to a
material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co., then WRIS will be entitled to liquidated damages in
the amount of $150,000 as WRIS's exclusive remedy. Capstar Acquisition Co. has
secured its obligation to consummate the asset purchase by placing into escrow
a letter of credit in the amount of $150,000. See "Description of Other
Indebtedness -- Letters of Credit."
66
<PAGE> 69
POSSIBLE ACQUISITIONS
The Company has entered into nine separate nonbinding letters of
intent to acquire and/or exchange substantially all of the assets of the
respective potential sellers used or useful in the operations of each seller's
radio stations, each of which is subject to various conditions, including the
ability of the Company to enter into a definitive agreement to acquire such
assets. No assurances can be given that definitive agreements will be entered
into to acquire such assets or that such acquisitions will be consummated. As
part of the Company's ongoing acquisition strategy, the Company is continually
evaluating certain other potential acquisition opportunities. See "Risk Factors
- -- Risks of Acquisition Strategy."
67
<PAGE> 70
MANAGEMENT
The directors and executive officers of the Company are listed below.
Each of the directors will hold office until the next annual meeting of
stockholders and until his successor has been duly elected and qualified. The
holders of the Class A Common Stock, voting separately as a class, will be
entitled to elect two members of Capstar's Board of Directors (the "Class A
Directors"). Executive officers are generally elected annually by the Board of
Directors to serve, subject to the discretion of the Board of Directors, until
their successors are appointed.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
R. Steven Hicks 47 Chairman of the Board, President, Chief
Executive Officer and Director
Paul D. Stone 36 Executive Vice President and Chief
Financial Officer
William S. Banowsky, Jr. 35 Executive Vice President, General Counsel
and Secretary
Eric C. Neuman 52 Executive Vice President and Director
James T. Shea, Jr. 44 President of Commodore
Frank D. Osborn 49 President and Chief Executive Officer of
Osborn
David J. Benjamin, III (1) 50 Chairman of the Board and Chief Executive
Officer of Pacific Star
Dex Allen 54 President and Chief Operating Officer of
Pacific Star
Thomas O. Hicks 51 Director
Lawrence D. Stuart, Jr. 52 Director
</TABLE>
- ---------------
(1) David J. Benjamin, III will become the President and Chief Operating
Officer of Pacific Star upon consummation of the Community Pacific
Acquisition.
R. Steven Hicks has served as the Chairman of the Board, President,
Chief Executive Officer and as a director of the Company since its inception in
October 1996. Mr. Hicks has also served as Chairman of the Board and Chief
Executive Officer of GulfStar since January 1987. From November 1993 to May
1996, he was President and Chief Executive Officer of SFX, a publicly traded
radio broadcasting company. Mr. Hicks is a 30-year veteran of the radio
broadcasting industry, including 18 years as a station owner. Mr. Hicks is the
brother of Thomas O. Hicks.
Paul D. Stone has served as Executive Vice President and the Chief
Financial Officer of the Company since January 1997. Mr. Stone was an Executive
Vice President and the Chief Financial Officer of GulfStar from April 1996
until January 1997 at which time Mr. Stone resigned from such positions. Prior
to January 1997, Mr. Stone was Vice President and Controller of Hicks Muse for
six years. He holds a Masters Degree in Accounting from the University of North
Texas and is a Certified Public Accountant.
William S. Banowsky, Jr. has served as Executive Vice President and
the General Counsel of the Company since January 1997. Mr. Banowsky was an
attorney with Snell, Banowsky & Trent, P.C., Dallas, Texas, for six years
before joining the Company. Prior to that time, he was an attorney for Johnson
& Gibbs, P.C., Dallas, Texas, for four years.
Eric C. Neuman has served as Executive Vice President and a director
of the Company since its inception in October 1996. Mr. Neuman has served as an
officer of Hicks Muse since 1993 and as a Senior Vice President thereof since
1996. Before joining Hicks Muse, Mr. Neuman served for eight years as Managing
General Partner of Communications Partners, Ltd., a Dallas-based private
investment firm. Mr. Neuman has served as a director of Chancellor Broadcasting
Company since 1996.
68
<PAGE> 71
James T. Shea, Jr. is President of Commodore and has served in such
position since October 16, 1996. Mr. Shea joined Commodore as the President of
its MidAtlantic Region in March 1992. He joined Wilks-Schwartz as Vice
President, General Manager, and Partner of WKRZ, Wilkes Barre, Pennsylvania in
1980, and became Vice President, General Manager and Partner of WQQQ/WEEX,
Allentown, Pennsylvania in 1984, was promoted to Executive Vice President and
Partner in 1986 and served in such capacity until 1992. Prior to serving as
President of Commodore, Mr. Shea served as Chief Operating Officer of Commodore
from January 1995 to October 1996.
Frank D. Osborn has been President and Chief Executive Officer of
Osborn since Osborn's inception in 1984. He is Chairman of the Board of
Fairmont Communications and is a member of the Board of Directors of Northstar
Television Group. From 1983 to 1985, Osborn served as Senior Vice
President/Radio for Price Communications Corporation. From 1981 to 1983, Mr.
Osborn served as Vice President and General Manager of WYNY, NBC's New York FM
radio station, and was Vice President of Finance and Administration of NBC
Radio from 1977 to 1981.
David J. Benjamin, III, has been President and Chief Executive Officer
of Community Pacific since 1992. Prior to such time, he co-founded and served
as Chairman and Chief Executive Officer of Community Pacific's predecessor,
Community Pacific Broadcasting Corporation, which positions he had held since
1974. Mr. Benjamin is a former President of the Oregon Association of
Broadcasters and a former board member of the National Association of
Broadcasters. Upon consummation of the Community Pacific Acquisition, Mr.
Benjamin will serve as Chairman of the Board and Chief Executive Officer of
Pacific Star.
Dex Allen serves as the President and Chief Operating Officer of
Pacific Star. Mr. Allen has served as the managing member of Commonwealth since
1984 and is expected to continue to serve in such position until consummation
of the Commonwealth Acquisition. Prior to 1984, Mr. Allen was Vice
President/General Manager of KOGO-AM and KPRI-FM in San Diego, California and
the Sales Manager of KCBQ-AM in San Diego, California. Mr. Allen is a 29-year
veteran of the radio broadcasting industry, including 12 years as a station
owner.
Thomas O. Hicks has been a director of the Company since its inception
in October 1996. Thomas O. Hicks has been Chairman and Chief Executive Officer
of Hicks Muse since co-founding the firm in 1989. Prior to forming Hicks Muse,
Thomas O. Hicks co-founded Hicks & Haas Incorporated in 1983 and served as its
Co-Chairman and Co-Chief Executive Officer through 1989. Thomas O. Hicks also
serves as a director of Chancellor Broadcasting Company, Berg Electronics
Corp., Sybron International Corporation and Neodata Corporation. Thomas O.
Hicks is the brother of R. Steven Hicks.
Lawrence D. Stuart, Jr. has served as a director of the Company since
January 1997. Mr. Stuart has been a Managing Director and Principal of Hicks
Muse since 1995. Prior to joining Hicks Muse, Mr. Stuart had served for over 20
years as the principal outside legal counsel for the investment firms and
portfolio companies led by Thomas O. Hicks. From 1989 to 1995, Mr. Stuart was
the Managing Partner of the Dallas office of Weil, Gotshal & Manges (a Limited
Liability Partnership including Professional Corporations).
ELECTION OF DIRECTORS
The Restated Certificate of Incorporation of Capstar provides that the
Board of Directors shall consist of at least five but no more than nine
directors, two of whom shall be elected by the holders of the Class A Common
Stock voting as a class, and the remainder of whom (the "Classified Directors")
shall be elected by the holders of the Class A Common Stock and the Class C
Common Stock, voting together as a single class. It is expected that the Class
A directorships will be vacant immediately following the completion of the
Offering and will be filled at the next annual meeting of the stockholders of
Capstar, provided that such vacancies may be filled by the Board of Directors
before the next annual meeting of stockholders and such appointees would then
be nominated for election as the Class A Directors at the next annual meeting
of stockholders. The Classified Directors are divided into three classes of
directors, designated as Class I, Class II and Class III directors. The Class A
Directors will be elected for one-year terms at each annual meeting of the
stockholders of Capstar commencing after the Offering. The Classified Directors
will be elected for three-year terms. The initial term of office of the Class I
directors expires at the 1998 annual meeting of stockholders, the initial term
of the Class II directors expires at the 1999 annual meeting of stockholders
and the initial term of the Class III directors expires at the 2000 annual
meeting of stockholders. Beginning with the 1998 annual meeting, and at each
annual meeting of stockholders thereafter, Classified Directors in the class to
be elected at such meeting will be elected
69
<PAGE> 72
to succeed those directors whose terms expire at such meeting. The Class I
director is Eric C. Neuman; the Class II director is Lawrence D. Stuart, Jr.;
and the Class III directors are R. Steven Hicks and Thomas O. Hicks.
BOARD COMMITTEES
In January 1997, the Company's Board of Directors established an Audit
Committee and a Compensation Committee. The Audit Committee's functions include
recommending to the Board of Directors the engagement of the Company's
independent public accountants, reviewing with such accountants the plans for
and the results and scope of their auditing engagement and certain other
matters relating to their services provided to the Company, including the
independence of such accountants. The Compensation Committee determines the
compensation of executive officers and administers the Stock Option Plan and
the Stock Purchase Plan. Lawrence D. Stuart, Jr. and Eric C. Neuman currently
serve on the Audit Committee. The Audit Committee will consist of two
independent directors who will be appointed after the Offering. R. Steven
Hicks, Thomas O. Hicks and Mr. Stuart serve on the Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation received or accrued by the Company's Chief Executive Officer and
its other most highly compensated executive officers (collectively, the "Named
Executive Officers") for services rendered during the fiscal year ended
December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------- ------------------------
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING LTIP COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION OPTIONS(#) PAYOUTS($) ($)
- --------------------------- ---------- -------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Steven Hicks ..................... 135,400 -- -- 930,000(1) -- 744,000(1)
Chairman of the Board, President and
Chief Executive Officer
James T. Shea, Jr. .................. 262,500 -- 6,000 720,880 170,000 3,412,495(2)
President of Commodore
Frank D. Osborn ..................... 387,000 300,000 -- -- -- 1,778,375(3)
President of Osborn
</TABLE>
- ---------------
(1) See "Certain Transactions -- Warrants."
(2) Represents the amount paid to Mr. Shea in connection with the Commodore
Acquisition in settlement of such executive officer's outstanding options
to purchase shares of common stock of Commodore.
(3) Frank D. Osborn became an executive officer of the Company upon
consummation of the Osborn Acquisition in February 1997. Mr. Osborn's
employment agreement with Osborn prior to the Osborn Acquisition obligated
Osborn to pay $16,000 annually into a retirement benefit arrangement for
Mr. Osborn. Mr. Osborn elected to have such amount deposited into Osborn's
Non-Qualified Deferred Compensation Plan. In 1996, Mr. Osborn also
received $1,746,875 in compensation from the exercise of non-qualified
stock options granted by Osborn and $15,500 from the exercise of incentive
stock options granted by Osborn.
70
<PAGE> 73
The following table contains information about stock options and stock
purchase rights granted to the Named Executive Officers during the fiscal year
ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------------
NAME GRANTED(#) IN 1996 PER SHARE DATE 5%($) 10%($)
---- ---------- ---------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
R. Steven Hicks ................... 930,000(2) 100% $10.00(2) 10-16-06 $5,848,720 $14,821,805
James T. Shea, Jr. ................ 72,088(3) 17.86% $10.00 11-26-06 $ 453,358 $ 1,148,897
35,000(4) 8.67% $10.00 12-26-96 -- --
Frank D. Osborn ................... -- -- -- -- -- --
</TABLE>
- ---------------------------
(1) The assumed rates are compounded annually for the full terms of the
options and warrants.
(2) See "Certain Transactions -- Warrants."
(3) Represents options granted pursuant to the Company's Stock Option Plan (as
defined).
(4) Represents stock purchase rights granted pursuant to the Company's Stock
Purchase Plan (as defined).
The following table sets forth certain information (i) with respect to
the number of shares of Common Stock issued upon exercises of options and stock
purchase rights by the Named Executive Officers during the fiscal year ended
December 31, 1996 and (ii) with respect to the unexercised options granted
under the Stock Option Plan held by the Named Executive Officers at December
31, 1996.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1996 DECEMBER 31, 1996($)(1)
-------------------------- --------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Steven Hicks ................ -- -- 744,000(2) 186,000(2) $744,000 $186,000
James T. Shea, Jr. ............. -- -- -- 72,088(3) -- 72,088
35,000(4) -- -- -- -- --
Frank D. Osborn ................ -- -- -- -- -- --
</TABLE>
- ---------------
(1) There is no public market for the Common Stock. Based on the per share
price of the Equity Investment and the Osborn Contribution of $11.00.
(2) See "Certain Transactions -- Warrants."
(3) Represents options granted pursuant to the Stock Option Plan.
(4) Represents stock purchase rights granted pursuant to the Stock Purchase
Plan.
EMPLOYMENT AGREEMENTS
R. Steven Hicks Employment Agreement. Capstar has entered into an
employment agreement with R. Steven Hicks pursuant to which Mr. Hicks serves as
Chairman of the Board, President and Chief Executive Officer of Capstar. Mr.
Hicks' employment agreement terminates on December 31, 2001, and will be
automatically renewed for successive one year terms unless Mr. Hicks or Capstar
gives the other party written notice of his or its intention not to renew the
employment agreement at least six months prior to the date the employment
agreement would otherwise expire (but no more than 12 months prior to such
expiration date). Mr. Hicks' current base salary is $250,000 per year and is
subject to further annual increases at least equal to five percent of the then
current annual base salary. He is also entitled to receive such annual
performance bonuses as Capstar's Board of Directors may determine. Further, Mr.
Hicks is entitled
71
<PAGE> 74
to receive stock options to purchase shares of Class A Common Stock. If Capstar
terminates Mr. Hicks' employment for cause or Mr. Hicks terminates his
employment for other than good reason, Capstar must pay Mr. Hicks all accrued
obligations and other benefits earned prior to the date of termination. If
Capstar terminates Mr. Hicks' employment agreement other than for cause or Mr.
Hicks terminates his employment agreement for good reason, Mr. Hicks'
employment agreement provides for (A) a lump sum payment of (x) two times Mr.
Hicks' then current annual salary and (y) any accrued obligations and other
benefits earned prior to the date of termination and (B) unless the Board of
Directors of the Company determines that Mr. Hicks has not satisfactorily
performed his obligations and duties under the agreement, the immediate vesting
of all stock options between the Company and Mr. Hicks and the right to
exercise those options until the earlier of (x) the expiration date of those
options or (y) the 90th day after Mr. Hicks' termination. Mr. Hicks has entered
into a substantially similar employment agreement with GulfStar.
James T. Shea, Jr. Employment Agreement. Capstar and Commodore have
entered into an employment agreement with James T. Shea, Jr. pursuant to which
Mr. Shea serves as the President of Commodore. Mr. Shea's employment agreement
terminates on April 30, 1999. Mr. Shea's current base salary is $275,625, which
increases at the beginning of each calendar year by an amount which shall not
be less than five percent of his then current base salary. Mr. Shea is also
entitled to receive annual bonuses as the Board of Directors of Commodore may
determine, provided that the bonus shall not be more than $150,000. In
addition, the employment agreement provides for an automobile allowance,
participation in the retirement, savings, and welfare benefit plans of
Commodore, a life insurance policy of $650,000 and stock options to purchase
720,880 shares of Class A Common Stock of the Company at $1.00 per share under
the Stock Option Plan (which stock options were granted in 1996). If Commodore
terminates Mr. Shea's employment for cause, Commodore is obligated to pay Mr.
Shea's then accrued base salary, reimbursable expenses, and any other
compensation then due and owing. In addition, Commodore must continue to fund
Mr. Shea's life insurance policy. If the employment agreement is terminated due
to death or disability, without cause or by Mr. Shea for good reason, Mr. Shea
will be entitled to (i) the continuation of his annual base salary, as then in
effect, for a period equal to (A) if the termination date occurs after April
21, 1998 but prior to April 30, 1999, a 12-month period commencing on the
termination date or (B) if the termination date occurs on or prior to April 21,
1998, the lesser of (x) a 24-month period commencing on the termination date
and (y) the period starting on the termination date and ending on April 30,
1999, (ii) a pro rata amount of his annual bonus, (iii) any annual base salary
and annual bonus then accrued but not yet paid, (iv) the continuation of his
welfare benefits for a period equal to (A) if the termination date occurs after
April 21, 1998 but prior to April 30, 1999, a 12-month period commencing on the
termination date or (B) if the termination date occurs on or prior to April 21,
1998, the lesser of (x) a 24-month period commencing on the termination date
and (y) the period starting on the termination date and ending on April 30,
1999, (v) the continuation of his life insurance policy, (vi) any other
compensation and benefits as may be provided in accordance with the terms and
provisions of any applicable plans and programs, (vii) reimbursement for
certain expenses incurred as of the termination date but not yet paid as of the
date of termination and (viii) any other rights afforded to him under other
written agreements between Mr. Shea and the Company.
Frank D. Osborn Employment Agreement. Upon consummation of the Osborn
Acquisition, Osborn entered into an employment agreement with Frank D. Osborn
pursuant to which Mr. Osborn serves as the President and Chief Executive
Officer of Osborn. Mr. Osborn's employment agreement terminates on the fifth
anniversary of the consummation of the Osborn Acquisition. Mr. Osborn's base
salary is $375,000, and commencing on January 1, 1998, and on each subsequent
January 1, his base salary will be adjusted to reflect the annual increase in
the Consumer Price Index during the preceding year. Mr. Osborn is entitled to a
$300,000 signing bonus. In addition, Mr. Osborn is entitled to a guaranteed
bonus of $25,000 per month for a period of 60 months after the date of the
agreement and an annual bonus as determined by Osborn's Board of Directors.
Further, Mr. Osborn was granted non-qualified stock options for 1,500,000
shares of Class A Common Stock of the Company. Except as otherwise provided in
the employment agreement or in the Stock Option Plan, the stock options will
vest with respect to 20.0% of the shares of Class A Common Stock subject
thereto on the first anniversary of the date of grant, and 1/60th of such
shares shall vest on the last day of each calendar month thereafter. If Mr.
Osborn's employment is terminated by Osborn for cause or by Mr. Osborn for
other than good reason, Osborn is obligated to pay all accrued obligations and
other benefits to Mr. Osborn. If the employment agreement is terminated by
Osborn other than for cause or disability or by Mr. Osborn for good reason, Mr.
Osborn's employment agreement provides for (A) a lump sum payment of any
accrued obligations and other benefits earned prior to the date of termination,
(B) the payment in regular installments of (x) if the remainder of the
employment period is 24 months or less, Mr. Osborn's then current salary for
the remainder of the employment period, (y) if the remainder of the employment
period is more than 24 months but less than 36 months, twice the sum of Mr.
Osborn's then current salary, plus Mr. Osborn's then current salary for a
period of 12 months after the 24 months have expired from the
72
<PAGE> 75
termination date, (C) the payment of the guaranteed bonus as if Mr. Osborn's
employment had not been terminated and (D) unless the Board of Directors of
Osborn determines that Mr. Osborn has not satisfactorily performed his
obligations and duties under the agreement, the immediate vesting of all stock
options between the Company and Mr. Osborn and the right to exercise those
options until the earlier of (x) the expiration date of those options or (y)
the 90th day after Mr. Osborn's termination. Mr. Osborn is also entitled to
participate in Osborn's employee medical benefit plan for 24 months following
termination unless Osborn fails to achieve 60.0% of its annual budget for
operating profit for the last calendar year ended prior to termination. In that
case, Mr. Osborn is entitled to participate in such plan for 12 months
following termination.
Paul D. Stone Employment Agreement. Capstar has entered into an
employment agreement with Paul D. Stone pursuant to which Mr. Stone serves as
an Executive Vice President and the Chief Financial Officer of Capstar. Mr.
Stone's employment agreement terminates on December 31, 2001, and will be
renewed automatically for successive one year terms unless Mr. Stone or Capstar
gives the other party written notice of his or its intention not to renew the
employment agreement at least six months prior to the date the employment
agreement would otherwise expire (but no more than 12 months prior to such
expiration date). Mr. Stone's current base salary is $200,000 per year, subject
to annual increases at least equal to the percentage increase, if any, in the
Consumer Price Index during the preceding calendar year. Mr. Stone is also
entitled to receive such annual bonuses as Capstar's Board of Directors may
determine. Further, Mr. Stone is entitled to receive stock options to purchase
shares of Class A Common Stock. If Capstar terminates Mr. Stone's employment
for cause or Mr. Stone terminates his employment for other than good reason,
Capstar must pay Mr. Stone all accrued obligations and other benefits earned
prior to the date of termination. If Capstar terminates Mr. Stone's employment
agreement other than for cause or Mr. Stone terminates his employment agreement
for good reason, Mr. Stone's employment agreement provides for (A) a lump sum
payment of (x) two times Mr. Stone's then current annual salary and (y) any
accrued obligations and other benefits earned prior to the date of termination
and (B) unless the Board of Directors of the Company determines that Mr. Stone
has not satisfactorily performed his obligations and duties under the
agreement, the immediate vesting of all stock options between the Company and
Mr. Stone and the right to exercise those options until the earlier of (x) the
expiration date of those options or (y) the 90th day after Mr. Stone's
termination.
William S. Banowsky, Jr. Employment Agreement. Capstar has entered
into an employment agreement with William S. Banowsky pursuant to which Mr.
Banowsky serves as an Executive Vice President and the General Counsel of the
Company. Mr. Banowsky's employment agreement terminates on December 31, 2001,
and will be renewed automatically for successive one-year terms unless Mr.
Banowsky or Capstar gives the other party written notice of his or its
intention not to renew the employment agreement at least six months prior to
the date the employment agreement would otherwise expire (but not more than 12
months prior to such expiration date). Mr. Banowsky's current base salary is
$200,000 per year, subject to annual increases at least equal to the percentage
increase, if any, in the Consumer Price Index during the preceding calendar
year. Mr. Banowsky is also entitled to receive such annual bonuses as the
Company's Board of Directors may determine. Further, Mr. Banowsky is entitled
to receive stock options to purchase shares of Class A Common Stock. If Capstar
terminates Mr. Banowsky's employment for cause or Mr. Banowsky terminates his
employment for other than good reason, Capstar must pay Mr. Banowsky all
accrued obligations and other benefits earned prior to the date of termination.
If Capstar terminates Mr. Banowsky's employment agreement other than for cause
or Mr. Banowsky terminates his employment agreement for good reason, Mr.
Banowsky's employment agreement provides for (A) a lump sum payment of (x) two
times Mr. Banowsky's then current annual salary and (y) any accrued obligations
and other benefits earned prior to the date of termination and (B) unless the
Board of Directors of the Company determines that Mr. Banowsky has not
satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between the Company and Mr. Banowsky and
the right to exercise those options until the earlier of (x) the expiration
date of those options or (y) the 90th day after Mr. Banowsky's termination.
Dex Allen Employment Agreement. Dex Allen is the President and Chief
Operating Officer of Pacific Star. Pacific Star and Mr. Allen have entered into
an employment agreement having the following terms: (i) Mr. Allen will serve as
President and Chief Operating Officer of Pacific Star; (ii) Mr. Allen's term of
employment is five years, provided that on the fifth anniversary and on each
anniversary thereafter, Mr. Allen's employment period shall automatically be
extended for one additional year unless Mr. Allen or Pacific Star gives the
other party written notice of his or its intention not to renew the employment
agreement at least six months prior to such anniversary (but no more than 12
months prior to such anniversary); (iii) Mr. Allen will receive a base salary
of $150,000 during his first year of employment, which will increase to
$200,000 per year thereafter, subject to further annual increases at least
equal to the
73
<PAGE> 76
percentage increase, if any, in the Consumer Price Index during the preceding
calendar year; and (iv) Mr. Allen will be entitled to receive an annual bonus
of at least $50,000 per year if certain financial goals, as determined by
Pacific Star's Board of Directors are achieved. The Company and Mr. Allen also
agreed that (i) if Pacific Star terminates Mr. Allen's employment for cause or
Mr. Allen terminates his employment for other than good reason, Pacific Star
will only be obligated to make a lump sum payment to Mr. Allen of any accrued
obligations of Pacific Star to Mr. Allen, including Mr. Allen's salary earned
or accrued through the date of his termination, and (ii) if Pacific Star
terminates Mr. Allen's employment other than for cause or disability or Mr.
Allen terminates his employment for good reason, Mr. Allen's employment
agreement provides for (A) a severance payment of Mr. Allen's then current base
salary in regular installments for a one year period, (B) a lump sum payment of
any accrued obligations and other benefits earned prior to the date of
termination, and (C) unless the Board of Directors of Pacific Star determines
that Mr. Allen has not satisfactorily performed his obligations and duties
under the agreement, the immediate vesting of all stock options between the
Company and Mr. Allen and the right to exercise those options until the earlier
of (x) the expiration date of those options or (y) the 90th day after Mr.
Allen's termination.
David J. Benjamin, III Employment Agreement. Upon consummation of the
Community Pacific Acquisition, Pacific Star will enter into an employment
agreement with David J. Benjamin, III pursuant to which Mr. Benjamin will serve
as Chairman and Chief Executive Officer of Pacific Star and chief executive
officer of the West Region. Mr. Benjamin's employment agreement will terminate
on the fifth anniversary of the consummation of the Community Pacific
Acquisition. The employment agreement will automatically be renewed for
successive one-year terms unless Mr. Benjamin or the Company gives written
notice of his or its intention not to renew the agreement at least six months
(but no more than 12 months) prior to the date the agreement would otherwise
expire. Mr. Benjamin's base salary will be $200,000, subject to annual
increases at least equal to the percentage increase, if any, in the Consumer
Price Index during the preceding calendar year. Mr. Benjamin is also entitled
to receive an annual bonus of $50,000 per year if certain financial goals, as
determined by the Board of Directors of Pacific Star, are achieved. In
addition, Mr. Benjamin is entitled to receive stock options to purchase shares
of Common Stock. Except as otherwise provided in the employment agreement or in
the Stock Option Plan, the stock options will vest with respect to 20.0% of the
shares of Common Stock subject thereto on the first anniversary of the date of
grant, and 1/60th of such shares shall vest on the last day of each calendar
month thereafter. If the Company terminates Mr. Benjamin's employment for cause
or Mr. Benjamin terminates his employment for other than good reason, Pacific
Star will not be obligated to make any further salary payments to Mr. Benjamin
except those earned prior to the date of termination. If Pacific Star
terminates Mr. Benjamin's employment without cause or Mr. Benjamin terminates
his employment for good reason, Mr. Benjamin's employment agreement provides
for (A) a lump sum payment equal to any accrued obligations of Pacific Star to
Mr. Benjamin, (B) in regular installments of (x) if the remainder of the
employment period is less than 24 months, Mr. Benjamin's then annual salary for
the remainder of the employment period, (y) if the remainder of the employment
period is more than 24 but less than 36 months, the sum of two times Mr.
Benjamin's then annual salary plus his annual salary for a period of 12 months
after 24 months have expired from the date of his termination, or (z) if the
remainder of the employment period is greater than 36 months, the sum of two
times Mr. Benjamin's then annual salary plus his annual salary for a period of
12 months after 24 months have expired from the date of his termination and (C)
the payment of his bonus as if the termination did not occur and (D) unless the
Board of Directors of Pacific Star determines that Mr. Benjamin has not
satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between the Company and Mr. Benjamin and
the right to exercise those options until the earlier of (x) the expiration
date of those options or (y) the 90th day after Mr. Benjamin's termination.
Notwithstanding clause (B) of the immediately preceding sentence, if the
Company's West Region fails to achieve at least 60.0% of its annual budget for
operating profit for the last calendar year ended prior to termination, Pacific
Star will only be obligated to pay Mr. Benjamin's then current salary for 12
months. If Mr. Benjamin's employment is terminated due to death or disability,
Pacific Star shall pay all accrued obligations and investments, guaranteed
bonuses and other benefits for 12 months after the termination date.
BENEFIT PLANS
Stock Option Plan
The Company's 1996 Stock Option Plan (the "Stock Option Plan") gives
certain individuals and key employees of the Company and any parent corporation
or subsidiary corporation thereof (such parent and subsidiary corporations are
referred to as "Related Entities") who are responsible for the continued growth
of the Company an opportunity to acquire a proprietary interest in the Company,
and thus to create in such persons an increased interest in and a greater
concern for the welfare of the Company and any Related Entities. After giving
effect to the Recapitalization, the Stock
74
<PAGE> 77
Option Plan provides for the grant of options to acquire up to 9,000,000 shares
of Class A Common Stock. Grants of stock options with respect to 706,895 shares
of Class A Common Stock have been made under the Stock Option Plan.
The Stock Option Plan is administered by the Company's Compensation
Committee. The Compensation Committee has authority, subject to the terms of
the Stock Option Plan (including the formula grant provisions and the
provisions relating to incentive stock options contained therein), to determine
when and to whom to make grants or awards under the Stock Option Plan, the
number of shares to be covered by the grants or awards, the types and terms of
the grants and awards, and in the case of grants of stock options, the exercise
price of stock options. Moreover, the Compensation Committee will have the
authority, subject to the provisions of the Stock Option Plan, to establish
such rules and regulations as it deems necessary for the proper administration
of the Stock Option Plan and to make such determinations and interpretations
and to take such action in connection with the Stock Option Plan and any grants
and awards thereunder as it deems necessary or advisable. The Compensation
Committee's determinations and interpretations under the Stock Option Plan are
final, binding and conclusive on all participants and need not be uniform and
may be made by the Compensation Committee selectively among persons who
receive, or are eligible to receive, grants and awards under the Stock Option
Plan.
Grants of "incentive stock options" within the meaning of section 422
of the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified
stock options (options which do not qualify under section 422 of the Code) may
be made under the Stock Option Plan to key employees. Grants of non-qualified
stock options may be made to eligible non-employees (as defined in the Stock
Option Plan). No incentive stock option may be granted pursuant to the Stock
Option Plan after October 16, 2006.
The exercise price per share of Class A Common Stock under each option
is fixed by the Compensation Committee at the time of grant and must equal at
least 100.0% of the fair market value (as defined in the Stock Option Plan) of
a share of Class A Common Stock on the date of grant; provided, however , that
the exercise price of an incentive stock option granted to a person who, at the
time of grant, owns shares of the Company or any Related Entity which possess
more than 10.0% of the total combined voting power of all classes of stock of
the Company or of any Related Entity may not be less than 110.0% of the fair
market value of a share of Class A Common Stock on the date of grant. No option
is exercisable after the expiration of ten years from the date of grant,
unless, as to any non-qualified stock option, otherwise expressly provided in
the option agreement; provided, however , that no incentive stock option
granted to a person who, at the time of grant, owns stock of the Company, or
any Related Entity, possessing more than 10.0% of the total combined voting
power of all classes of stock of the Company, or any Related Entity, is
exercisable after the expiration of five years from the date of grant.
In the event of a change of control or sale of the Company, all
outstanding stock options may, subject to the sole discretion of the
Compensation Committee, become exercisable in full at such time or times as the
Compensation Committee may determine. Each stock option accelerated by the
Compensation Committee would terminate on such date (not later than the stated
exercise date) as the Compensation Committee determines.
Unless an option or other agreement provides otherwise, upon the date
of death of an optionee (or upon the termination of an optionee because of such
optionee's disability), the person who acquires the right to exercise the
option of such optionee (or the optionee in the case of disability) must
exercise such option within 180 days after the date of death (or termination in
the case of disability), unless a longer period is expressly provided in such
incentive stock option or a shorter period is established by the Compensation
Committee, but in no event after the expiration date of such option. Following
an optionee's termination of employment for cause, all stock options held by
such optionee will immediately be canceled as of the date of termination of
employment. Following an optionee's termination of employment for other than
cause, such optionee must exercise his stock option within 30 days after the
date of such termination, unless a longer period is expressly provided in such
stock option or a shorter period is established by the Compensation Committee,
provided that no incentive stock option shall be exercisable more than three
months after such termination.
The option exercise price may be paid in cash or, in the discretion of
the Compensation Committee, by the delivery of shares of Class A Common Stock
of the Company then owned by the participant, or by a combination of these
methods. Also, in the discretion of the Compensation Committee, payment may
also be made by delivering a properly executed exercise notice to the Company
together with a copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds to pay the exercise
price.
75
<PAGE> 78
Except as otherwise expressly provided in any non-qualified stock
option, stock options may be transferred by a participant only by will or by
the laws of descent and distribution and may be exercised only by the
participant during his lifetime.
If an optionee's employment is terminated for any reason or a change
of control occurs, the Company, or its designee, may purchase the remaining
options and/or shares of Class A Common Stock held by such optionee at a price
per share equal to fair market value. Prior to the transfer by an optionee of
any shares of Class A Common Stock issued to such optionee upon exercise of a
stock option, the Company or its designee has the right to acquire such shares
of Class A Common Stock on the same terms and conditions as the proposed
transfer.
Stock Purchase Plan
The Company's 1996 Stock Purchase Plan (the "Stock Purchase Plan")
gives certain key employees of the Company and any Related Entities who are
expected to contribute materially to the success of the Company and any Related
Entities an opportunity to acquire a proprietary interest in the Company, and
thus to retain such persons and create in such persons an increased interest in
and a greater concern for the welfare of the Company and any Related Entities.
The Stock Purchase Plan provides for the grant of stock purchase rights to
acquire up to 315,500 shares of Class A Common Stock. To date, grants of stock
purchase rights with respect to 115,500 shares of Class A Common Stock have
been made under the Stock Purchase Plan, all of which have been exercised. The
Company intends to terminate the Stock Purchase Plan upon consummation of the
Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There was no compensation committee of the Board of Directors during
1996. Compensation decisions in 1996 were made by the entire Board of
Directors, the members of which were R. Steven Hicks (Capstar's President and
Chief Executive Officer), Eric C. Neuman (an Executive Vice President of
Capstar) and Thomas O. Hicks. In February 1997, R. Steven Hicks, Thomas O.
Hicks and Lawrence D. Stuart, Jr. were appointed to the Compensation Committee
of the Board of Directors, of which Thomas O. Hicks serves as chairman.
COMPENSATION OF DIRECTORS
Directors of the Company do not presently receive compensation for
their services as directors. Directors of the Company are entitled to
reimbursement of their reasonable out-of-pocket expenses in connection with
their travel to and attendance at meetings of the Board of Directors or
committees thereof.
After the consummation of the Offering, the non-employee directors of
Capstar will receive an annual retainer of $12,000 for serving as directors of
Capstar and its subsidiaries. Non-employee directors will also receive
attendance fees of $1,000 ($500 in the case of telephonic meetings) for each
meeting which they attend. Directors who are officers or employees of the
Company are not presently expected to receive compensation for their services
as directors. Directors of Capstar will continue to be entitled to
reimbursement of their reasonable out-of-pocket expenses in connection with
their travel to and attendance at meetings of the Board of Directors or
committees thereof.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation provides that no
director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of his fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or purchases or (iv) for any transaction from which the director
derived an improper personal benefit. The effect of these provisions is to
eliminate the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against
a director for breach of fiduciary duty as a director (including breaches
resulting from grossly negligent behavior), except in the situations described
above.
The Company has entered into indemnification agreements with each of
its directors and executive officers under which the Company has agreed to
indemnify the director or officer to the fullest extent permitted by law and to
76
<PAGE> 79
advance expenses, if the director or officer becomes a party to or witness or
other participant in any threatened, pending or completed action, suit or
proceeding (a "Claim") by reason of any occurrence related to the fact that the
person is or was a director, officer, employee, agent or fiduciary of the
Company or a subsidiary of the Company or another entity at the Company's
request (an "Indemnifiable Event"), unless a reviewing party (either outside
counsel or a committee appointed by the Board of Directors) determines that the
person would not be entitled to indemnification under applicable law. In
addition, if a change in control or a potential change in control of the
Company occurs and if the person indemnified so requests, the Company will
establish a trust for the benefit of the indemnitee and fund the trust in an
amount sufficient to satisfy all expenses reasonably anticipated at the time of
the request to be incurred in connection with any Claim relating to an
Indemnifiable Event. The reviewing party will determine the amount deposited in
the trust. An indemnitee's rights under the indemnification agreement are not
exclusive of any other rights under the Company's Restated Certificate of
Incorporation or By-laws or applicable law.
The Company believes that these provisions and agreements will assist
the Company in attracting and retaining qualified individuals to serve as
directors and officers.
77
<PAGE> 80
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below gives effect to the Recapitalization and the Offering
and sets forth, as if each of the foregoing had occurred on December 31, 1996,
(i) the number and percentage of outstanding shares of each class of the
capital stock of Capstar that are beneficially owned by (a) each person or
group beneficially owning five percent or more of any class of the capital
stock of Capstar, (b) each director of Capstar, (c) each Named Executive
Officer, and (d) all directors and executive officers of Capstar as a group and
(ii) the combined percentage of all classes of the capital stock of Capstar
that is beneficially owned by each of such person or group of persons. Except
as noted below, each individual or entity named below is believed to have sole
investment and voting power with respect to all the shares of capital stock
reflected below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
COMMON STOCK (1) COMMON STOCK (2) COMMON STOCK (3)
------------------- ------------------- -------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT PERCENT OF
OF OF OF OF OF OF ECONOMIC
NAME OF BENEFICIAL OWNER SHARES CLASS SHARES CLASS SHARES CLASS INTEREST
------------------------ ------ ------- ------ ------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Capstar Broadcasting Partners, L.P. -- -- -- -- 12,238,452 97.5% %
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Capstar BT Partners, L.P. -- -- 1,818,181 100% -- -- %
200 Crescent Court, Suite 1600
Dallas, Texas 75201
R. Steven Hicks (4) -- -- -- -- 1,258,255 9.3% %
Thomas O. Hicks (5) 272,727 % 1,818,181 100% 13,496,707 100% %
Eric C. Neuman -- -- -- -- -- -- --
Lawrence D. Stuart, Jr. -- -- -- -- -- -- --
James T. Shea, Jr. 35,000 -- -- -- --
Frank D. Osborn 163,636 * -- -- -- -- *
All directors and executive officers
as a group (10 persons) ......... 594,089 % 1,818,181 100% 13,496,707 100% %
</TABLE>
- ---------------
* Less than one percent.
(1) Capstar proposes to issue __________ shares of Class A Common Stock in the
Offering (________ shares if the Underwriters exercise their
over-allotment option in full). Such shares of Class A Common Stock will
represent immediately after the Offering, _____% of the combined voting
power of all classes of Common Stock (_____% if the Underwriters exercise
their over-allotment option in full). The holders of the Class A Common
Stock will be entitled as a class to elect two members of the Board of
Directors of Capstar. See "Description of Capital Stock."
(2) The holders of shares of Class B Common Stock will not be entitled to
vote, except as required by law. The shares of Class B Common Stock are
convertible in whole but not in part, at the option of the holder or
holders thereof, into the same number of shares of Class A Common Stock,
subject to certain conditions. See "Description of Capital Stock."
(3) The holders of the Class C Common Stock will be entitled to vote with the
holders of the Class A Common Stock on all matters submitted to a vote of
stockholders of Capstar, except with respect to the election of the Class
A Directors, certain "going private" transactions and as otherwise
required by law and except under the circumstances described under
"Description of Capital Stock." Each share of Class C Common Stock will be
entitled to ten votes per share on all matters submitted to a vote of
stockholders. See "Description of Capital Stock."
(4) The number of shares of Class C Common Stock includes (i) 10,000 shares
owned of record by R. Steven Hicks' children, (ii) 744,000 shares
purchasable by R. Steven Hicks pursuant to the terms of the Warrant and
(iii) 204,255 shares purchasable by R. Steven Hicks pursuant to the terms
of the New Warrant. See "Certain Transactions -- Stockholders Agreements
-- Affiliate Stockholders Agreement" and "-- Warrants." R. Steven Hicks
has voting rights to the shares owned by his children under the terms of
the Affiliate Stockholders Agreement. R. Steven Hicks disclaims beneficial
ownership of the shares of Common Stock not owned by him of record. The
shares owned of record by R. Steven Hicks and his children are subject to
a voting agreement as described in "Certain Transactions -- Stockholders
Agreements -- Affiliate Stockholders Agreement."
(5) The number of shares of Class A Common Stock is comprised of 272,727
shares owned of record by Capstar Boston Partners, L.L.C., which shares
are subject to a voting agreement as described in "Certain Transactions --
Stockholders Agreements -- Affiliate Stockholders Agreement. The number of
shares of Class B Common Stock is comprised of the 1,818,181 shares owned
of record by Capstar BT Partners, L.P., which shares are subject to the
Affiliate Stockholders Agreement as described in "Certain Transactions --
Stockholders Agreements -- Affiliate Stockholders Agreement." The number
of shares of Class C Common Stock includes (i) 10,000 shares owned of
record by R. Steven Hicks' children, which shares are subject to a voting
agreement as described in "Certain Transactions -- Stockholders Agreements
-- Affiliate Stockholders Agreement," (ii) 744,000 shares purchasable by
R. Steven Hicks pursuant to the terms of the Warrant, which shares are
subject to a voting agreement as described in "Certain Transactions --
Stockholders Agreements -- Affiliate Stockholders Agreement," (iii)
204,255 shares that are purchasable by R. Steven Hicks pursuant to the
terms of the New Warrant, which shares are subject
78
<PAGE> 81
to a voting agreement as described in "Certain Transactions --
Stockholders Agreements -- Affiliate Stockholders Agreement," and (iv)
12,238,452 shares owned of record by Capstar L.P., of which the ultimate
general partner is an entity controlled by Thomas O. Hicks and (iv)
300,000 shares owned of record by R. Steven Hicks who is a party to the
Affiliate Stockholders Agreement, which shares are subject to a voting
agreement as described in "Certain Transactions -- Stockholders Agreements
-- Affiliate Stockholders Agreement," Hicks Muse is a party to the
Affiliate Stockholders Agreement which agreement requires the parties to
such agreement to vote their shares (i) in favor of the election to the
Company's Board of Directors of such individuals as may be designated by
Hicks Muse and its affiliates (including Capstar L.P.) and (ii) on other
matters as the holders of a majority of the voting power of the
outstanding shares of Common Stock vote on such matters. Thomas O. Hicks
is the controlling stockholder of Hicks Muse and serves as its Chairman of
the Board, President, Chief Executive Officer, Chief Operating Officer and
Secretary. Accordingly, Thomas O. Hicks may be deemed to be the beneficial
owner of all of the Common Stock subject to the Affiliate Stockholders
Agreement. Thomas O. Hicks disclaims beneficial ownership of the shares of
Common Stock not owned by him of record.
79
<PAGE> 82
CERTAIN TRANSACTIONS
MONITORING AND OVERSIGHT AGREEMENT
The Company has entered into a monitoring and oversight agreement (the
"Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P.
("Hicks Muse Partners"). Pursuant thereto, the Company has agreed to pay to
Hicks Muse Partners an annual fee of $100,000 for ongoing financial oversight
and monitoring services. The annual fee is adjustable upward or downward at the
end of each fiscal year to an amount equal to 0.2% of the budgeted consolidated
annual net sales of the Company for the then-current fiscal year; provided,
that such fee shall at no time be less than $100,000 per year. The annual fee
in 1997 is estimated to be $320,000. Hicks Muse Partners is also entitled to
reimbursement for any out-of-pocket expenses incurred by it in connection with
rendering services under the Monitoring and Oversight Agreement. In addition,
the Company has agreed to indemnify Hicks Muse Partners, its affiliates and
shareholders, and their respective directors, officers, agents, employees and
affiliates from and against all claims, actions, proceedings, demands,
liabilities, damages, judgments, assessments, losses and costs, including fees
and expenses, arising out of or in connection with the services rendered by
Hicks Muse Partners in connection with the Monitoring and Oversight Agreement.
Hicks Muse Partners has reserved the right to seek an increase in the amount of
its annual fee based on the increased scope of the Company's operations. Any
such increase will be subject to the approval of the Board of Directors of the
Company, including a majority of the disinterested directors, based on the
exercise of their independent judgment.
The Monitoring and Oversight Agreement makes available on an ongoing
basis the resources of Hicks Muse Partners concerning a variety of financial
matters. The services that have been and will continue to be provided by Hicks
Muse Partners could not otherwise be obtained by the Company without the
addition of personnel or the engagement of outside professional advisors. The
Monitoring and Oversight Agreement expires on the earlier to occur of (i)
October 16, 2006 or (ii) the date on which HM Fund III and its affiliates cease
to own beneficially, directly or indirectly, any securities of the Company or
its successors.
FINANCIAL ADVISORY AGREEMENT
The Company is a party to a financial advisory agreement (the
"Financial Advisory Agreement") with Hicks Muse Partners. Pursuant to the
Financial Advisory Agreement, Hicks Muse Partners is entitled to receive a fee
equal to 1.5% of the transaction value (as defined in the Financial Advisory
Agreement) for each add-on transaction (as defined) in which the Company or any
of its subsidiaries is involved. Hicks Muse Partners is also entitled to
reimbursement for any out-of-pocket expenses incurred by it in connection with
rendering services under the Financial Advisory Agreement. The term
"transaction value" means the total value of any add-on transaction, including,
without limitation, the aggregate amount of the funds required to complete the
add-on transaction (excluding any fees payable pursuant to the Financial
Advisory Agreement, but including the amount of any indebtedness, preferred
stock or similar items assumed or remaining outstanding). The term "add-on
transaction" means any future proposal for a tender offer, acquisition, sale,
merger, exchange offer, recapitalization, restructuring, or other similar
transaction directly or indirectly involving the Company or any of its
subsidiaries and any other person or entity. In addition, the Company has
agreed to indemnify Hicks Muse Partners, its affiliates and partners, and their
respective directors, officers, agents, employees and affiliates from and
against all claims, actions, proceedings, demands, liabilities, damages,
judgments, assessments, losses and costs, including fees and expenses, arising
out of or in connection with the services rendered by Hicks Muse Partners in
connection with the Financial Advisory Agreement.
Pursuant to the Financial Advisory Agreement, Hicks Muse Partners
provides investment banking, financial advisory and other similar services with
respect to the add-on transactions in which the Company is involved. Such
transactions require additional attention beyond that required to monitor and
advise the Company on an ongoing basis and accordingly the Company pays
separate financial advisory fees with respect to such matters in addition to
those paid in connection with the Monitoring and Oversight Agreement. The
services that have been and will continue to be provided by Hicks Muse Partners
could not otherwise be obtained by the Company without the addition of
personnel or the engagement of outside professional advisors. The Financial
Advisory Agreement will terminate concurrently with the termination of the
Financial Monitoring and Oversight Agreement. The Company has paid Hicks Muse
Partners financial advisory fees of approximately $8.0 million since the
Company's inception in October 1996.
80
<PAGE> 83
STOCKHOLDERS AGREEMENTS
Affiliate Stockholders Agreement. R. Steven Hicks, five of his
children, Capstar BT Partners, L.P., Capstar Boston Partners, L.L.C. and
Capstar L.P. (the "Affiliate Stockholders") have entered into the Affiliate
Stockholders Agreement with the Company and Hicks Muse that provides, among
other things, that the Affiliate Stockholders may require the Company, subject
to certain registration volume limitations, to effect up to three demand
registrations of their Common Stock under the Securities Act at any time after
consummation of a Qualified IPO (as defined in the Affiliate Stockholders
Agreement). The Affiliate Stockholders Agreement also provides that in the
event the Company proposes to register any shares of its Common Stock under the
Securities Act, whether or not for its own account, the Affiliate Stockholders
will be entitled, with certain exceptions, to include their shares of Common
Stock in such registration.
The Affiliate Stockholders Agreement also requires the Affiliate
Stockholders, subject to certain conditions, to vote their shares (i) in favor
of the election to the Company's Board of Directors of such individuals as may
be designated by Hicks Muse and its affiliates (including Capstar L.P.) and
(ii) on other matters as the holders of a majority of the voting power of the
outstanding shares of Common Stock vote on such matters. If certain conditions
are met, including Mr. Hicks serving as the President and Chief Executive
Officer of the Company or holding not less than 3.0% of the fully-diluted
Common Stock of the Company, the Affiliate Stockholders Agreement provides that
Mr. Hicks shall be one of such designees to serve on the Company's Board of
Directors.
The Affiliate Stockholders Agreement provides that (i) R. Steven Hicks
shall retain the voting rights of any securities (subject to such agreement)
which he transfers, conveys, assigns or hypothecates to an affiliate or any of
his family members and (ii) Mr. Hicks may not transfer, convey, assign or
hypothecate any of his securities (subject to the Affiliate Stockholders
Agreement) to an affiliate or to any family member of Mr. Hicks unless such
affiliate or family member joins in the Affiliate Stockholders Agreement.
Management Stockholders Agreement . Certain employees of the Company
and other persons have entered into the Management Stockholders Agreement with
the Company and Hicks Muse that provides, among other things, that in the event
the Company proposes to register any shares of its Common Stock under the
Securities Act, whether or not for its own account, the stockholders that are
parties to the Management Stockholders Agreement will be entitled, with certain
exceptions, to include their shares of Common Stock in such registration.
REGISTRATION RIGHTS AGREEMENT
Frank D. Osborn entered into a registration rights agreement with the
Company upon consummation of the Osborn Acquisition which provides, among other
things, that Mr. Osborn may require the Company to effect a demand registration
of his Common Stock under the Securities Act at any time within 30 days after
the tenth anniversary of the date of the registration rights agreement. Mr.
Osborn's right to demand a registration will terminate upon the first to occur
of a Qualified IPO or a change in control (both as defined in the registration
rights agreement). Accordingly, Mr. Osborn's right to demand a registration
will terminate upon completion of the Offering. If the Offering is not
completed, then after receipt of a demand for registration of Common Stock
pursuant to the registration rights agreement, the Company would have the
option to purchase all of the shares of Common Stock, then held by Mr. Osborn
for a 30-day period, at appraised value (as defined in the registration rights
agreement).
WARRANTS
On October 16, 1996, the Company issued a warrant (the "Warrant") to
R. Steven Hicks. Pursuant to the terms of the Warrant, Mr. Hicks is entitled to
purchase 744,000 shares of Class C Common Stock at any time or from time to
time and, upon the fulfillment of a certain triggering event, may purchase an
additional 186,000 shares of Class C Common Stock. The exercise price of the
Warrant is equal to a per share price of $10.00 as increased by an annual rate
of interest equal to 8.0% per year commencing as of October 16, 1996. The term
"triggering event" means the date upon which distributions equal to an internal
rate of return of at least 30.0%, calculated in accordance with generally
accepted financial practice, on the initial investment of Capstar L.P. of $90.0
million in the Company (which investment was made on October 16, 1996) have
been made to Hicks Muse and its affiliates and its and their respective
officers, directors and employees (and members of their respective families
(other than Mr. Hicks) and trusts for the primary benefit of those family
members). The Warrant will terminate on October 16, 2006. The Warrant and the
Class C Common Stock issuable thereunder are subject to the Affiliate
Stockholders Agreement.
81
<PAGE> 84
Under the terms (prior to the Offering) of the Affiliate Stockholders
Agreement, the Company issued a new warrant (the "New Warrant" and collectively
with the Warrant, the "Warrants") to Mr. Hicks upon completion of the Hicks
Muse Equity Investment (as defined). Pursuant to the terms of the New Warrant,
Mr. Hicks is entitled to purchase 204,255 shares of Class C Common Stock at any
time or from time to time and, upon the fulfillment of the triggering event
(which is based on Capstar L.P.'s $34.8 million investment in the Company made
on February 20, 1997), may purchase an additional 51,063 shares of Class C
Common Stock. See "-- Management and Affiliate Equity Investments." The
exercise price of the New Warrant is equal to a per share price of $11.00 per
share as increased by an annual rate of interest equal to 8.0% per year
commencing as of February 20, 1997. The New Warrant will terminate ten years
from the date of grant. The remaining terms of the New Warrant are
substantially similar to the terms of the Warrant.
MANAGEMENT AND AFFILIATE EQUITY INVESTMENTS
HM Fund III and its affiliates (including Capstar L.P.) have invested
$125.7 million in the Class C Common Stock, including $90.0 million for
9,000,000 shares in connection with the Commodore Acquisition, $34.8 million
for 3,163,452 shares in connection with the Osborn Acquisition (the "Hicks Muse
Equity Investment") and $750,000 for 75,000 shares in connection with the
Benchmark Acquisition. In connection with the Osborn Acquisition, Capstar BT
Partners, L.P., a limited partnership controlled by Hicks Muse, invested $20.0
million for 1,818,181 shares of Class B Common Stock (the "BT Equity
Investment" and, collectively with the Hicks Muse Equity Investment, the
"Equity Investment"). In a similar transaction, Capstar Boston Partners,
L.L.C., a Delaware limited liability company controlled by Hicks Muse, invested
$3.0 million for 272,727 shares of Class A Common Stock.
R. Steven Hicks, the President and Chief Executive Officer of Capstar,
has invested $3.1 million for 310,000 shares of Class C Common Stock. James T.
Shea, Jr., the chief executive officer of the Northeast Region, has invested
$350,000 for 35,000 shares of Class A Common Stock. In connection with the
Osborn Acquisition, Frank D. Osborn, the President and Chief Executive Officer
of Osborn and the chief executive officer of the Southeast Region, contributed
certain shares of common stock of Osborn to the Company in exchange for 163,636
shares of Class A Common Stock having a deemed value of $1.8 million. David J.
Benjamin, who will serve as the chief executive officer of the West Region, and
Dex Allen, who serves as the chief operating officer of the West Region, have
each invested $400,000 for 36,363 shares of Class A Common Stock. In connection
with the Benchmark Acquisition, Joseph L. Mathias IV, the President and Chief
Operating Officer of Benchmark Communications, Inc., an indirectly wholly-owned
subsidiary of Capstar, received 153,846 shares of Class A Common Stock having a
deemed value of $2.0 million in consideration of part of his ownership interest
in Benchmark. Certain other members of the Company's management have invested
approximately $1.1 million for 113,000 shares of Class A Common Stock.
INDEBTEDNESS OF MANAGEMENT
In connection with his employment, Dex Allen, the chief operating
officer of the West Region, purchased 36,363 shares of Class A Common Stock in
exchange for $200,000 in cash and a promissory note payable to Capstar in the
principal amount of $200,000. The note is secured by the Class A Common Stock
purchased by Mr. Allen and bears interest at a rate of 9% per annum with
interest payable monthly and principal payable at maturity. The note will
mature and be payable on the first to occur of (i) October 31, 1997 or (ii)
consummation of the Commonwealth Acquisition. Such shares are subject to the
Management Stockholders Agreement. See "-- Stockholders Agreements."
David J. Benjamin, who will serve as the chief executive officer of
the West Region upon consummation of the Community Pacific Acquisition,
purchased 36,363 shares of Class A Common Stock in exchange for a promissory
note payable to Capstar in the principal amount of $400,000. The note is
secured by the Class A Common Stock purchased by Mr. Benjamin and bears
interest at a rate of 9% per annum with principal and interest payments due at
maturity. The note will mature and be payable on the first to occur of (i)
November 10, 1997 or (ii) consummation of the Community Pacific Acquisition.
The Company will have the right to repurchase Mr. Benjamin's shares of Class A
Common Stock (by forgiveness of the note) if (i) the Community Pacific
Acquisition is not closed by November 10, 1997 or (ii) the acquisition
agreement therefor is terminated. Such shares are subject to the Management
Stockholders Agreement. See "-- Stockholders Agreements."
82
<PAGE> 85
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of Capstar gives effect
to the Recapitalization, which will occur prior to the Offering, and the
proposed sale of shares of Class A Common Stock, par value $.01 per share
("Class A Common Stock"), in the Offering. The Company's authorized capital
stock consists of (i) 150,000,000 shares of Class A Common Stock, of which
shares are issued and outstanding, (ii) 50,000,000 shares of Class B Common
Stock, par value $.01 per share ("Class B Common Stock"), of which 1,818,181
shares are issued and outstanding, and (iii) 50,000,000 shares of Class C
Common Stock, par value $.01 per share ("Class C Common Stock" and,
collectively with the Class A Common Stock and Class B Common Stock, the
"Common Stock"), of which 12,548,452 shares are issued and outstanding, and
(iv) 10,000,000 shares of Preferred Stock, $.01 par value per share ("Preferred
Stock"), none of which are issued and outstanding. In addition, the Company has
reserved for issuance (i) 1,185,318 shares of Class C Common Stock upon the
exercise of the Warrants and (ii) 9,000,000 shares of Class A Common Stock
under the Stock Option Plan. See "Management -- Benefit Plans."
COMMON STOCK
The rights of holders of the Common Stock are identical in all
respects, except for voting rights. All the outstanding shares of Class A
Common Stock, Class B Common Stock and Class C Common Stock are, and the shares
of Class A Common Stock sold in the Offering will be, upon issuance and payment
of the purchase price therefor, validly issued, fully paid and nonassessable.
Dividends. Subject to the right of the holders of any class of
Preferred Stock, holders of shares of Common Stock are entitled to receive such
dividends as may be declared by Capstar's Board of Directors out of funds
legally available for such purpose. No dividend may be declared or paid in cash
or property on any share of any class of Common Stock unless simultaneously the
same dividend is declared or paid on each share of the other class of Common
Stock, provided that, in the event of stock dividends, holders of a specific
class of Common Stock shall be entitled to receive only additional shares of
such class.
Voting Rights. The Class A Common Stock and the Class C Common Stock
vote together as a single class on all matters submitted to a vote of
stockholders, with each share of Class A Common Stock entitled to one vote and
each share of Class C Common Stock entitled to ten votes, except (i) that the
holders of Class A Common Stock, voting as a separate class, are entitled
initially to elect two members of the Board of Directors of Capstar; (ii) with
respect to any proposed "going private" transaction (as defined in Rule 13e-3
under the Securities Exchange Act of 1934 (the "Exchange Act")) with Hicks Muse
or any of its affiliates (a "Rule 13e-3 Transaction"), each share of Class A
Common Stock and Class C Common Stock shall be entitled to one vote; and (iii)
as otherwise required by law. The Class B Common Stock has no voting rights
except as otherwise required by law.
In the election of directors, the holders of Class A Common Stock,
voting as a separate class, will be entitled to elect two persons to Capstar's
Board of Directors, each of whom must be an "independent director." For this
purpose, an "independent director" means a person who is not an officer or
employee of Capstar or its subsidiaries, and who does not have a relationship
which, in the opinion of the Board of Directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director. Capstar anticipates that the Class A Directors will be elected by the
holders of the Class A Common Stock at the next regularly scheduled annual
meeting of stockholders of Capstar occurring after the Offering, provided that
such vacancies may be filled by the Board of Directors before the next annual
meeting of stockholders and such appointees would then be nominated for
election as the Class A Directors at the next annual meeting of stockholders.
The holders of Class A Common Stock and Class C Common Stock, voting as a
single class, are entitled to elect the Classified Directors. Notwithstanding
the foregoing, upon the earlier to occur of (i) the date on which Hicks Muse
and its affiliates ceases to own beneficially more than 50% of the number of
shares of Class C Common Stock owned by them upon completion of the Offering
and (ii) the third anniversary date of the completion of the Offering, the
holders of Class A Common Stock and Class C Common Stock shall vote together as
a single class upon the election of all directors. Holders of Common Stock are
not entitled to cumulate votes in the election of directors.
Under Delaware law, the affirmative vote of the holders of a majority
of the outstanding shares of any class of Common Stock is required to approve
any amendment to the certificate of incorporation of Capstar that would
increase or decrease the aggregate number of authorized shares of such class,
increase or decrease the par value of the shares of
83
<PAGE> 86
such class, or modify or change the powers, preferences or special rights of
the shares of any class so as to affect such class adversely.
Liquidation Rights. Upon liquidation, dissolution or winding-up of
Capstar, the holders of the Common Stock are entitled to ratably share in all
assets available for distribution after payment in full of creditors and
holders of the Preferred Stock, if any.
Conversion of Class B Common Stock. The shares of Class B Common Stock
are convertible, in whole but not in part, at the option of the holder or
holders thereof at any time into a like number of shares of Class A Common
Stock, subject to certain conditions. Upon the sale or other transfer of any
share or shares of Class B Common Stock to any person (subject to certain
exceptions) other than Hicks Muse and its affiliates, each share so sold or
transferred shall automatically be converted into one share of Class A Common
Stock, subject to certain conditions.
Conversion of Class C Common Stock. The shares of Class C Common Stock
are convertible, in whole but not in part, at the option of the holder or
holders thereof at any time into a like number of shares of Class A Common
Stock. Upon the sale or other transfer of any share or shares of Class C Common
Stock to any person other than Hicks Muse or its affiliates, each share so sold
or transferred shall automatically be converted into one share of Class A
Common Stock.
Preemptive Rights. The holders of Common Stock are not entitled to
preemptive or similar rights.
Transfer Agent. Harris Trust & Savings Bank is the Transfer Agent and
Registrar for the Class A Common Stock.
PREFERRED STOCK
Capstar is authorized to issue 10,000,000 shares of Preferred Stock.
The Board of Directors of Capstar, in its sole discretion, may designate and
issue one or more series of Preferred Stock from the authorized and unissued
shares of Preferred Stock. Subject to limitations imposed by law or Capstar's
Restated Certificate of Incorporation, the Board of Directors is empowered to
determine the designation of and the number of shares constituting a series of
Preferred Stock. The dividend rate for the series, the terms and conditions of
any voting and conversion rights for the series, the amounts payable on the
series upon redemption or upon the liquidation, dissolution or winding-up of
Capstar, the provisions of any sinking fund for the redemption or purchase of
shares of any series, and the preferences and relative rights among the series
of Preferred Stock. Such rights, preferences, privileges and limitations could
adversely effect the rights of holders of Common Stock.
FOREIGN OWNERSHIP
The Restated Certificate of Incorporation restricts the ownership,
voting and transfer of Capstar's capital stock, including the Common Stock, in
accordance with the Communications Act and the rules of the FCC, which prohibit
ownership of more than 25% of Capstar's outstanding capital stock (or more than
25% of the voting rights it represents) by or for the account of Aliens or
corporations otherwise subject to domination or control by Aliens. The Restated
Certificate of Incorporation authorizes the Board of Directors to adopt such
provisions as it deems necessary to enforce these prohibitions, including the
inclusion of a legend regarding restrictions on foreign ownership of such stock
on the certificates representing the Common Stock. In addition, the Restated
Certificate of Incorporation provides that shares of capital stock of Capstar
determined by the Board of Directors to be owned beneficially by an Alien or an
entity directly or indirectly owned by Aliens in whole or in part shall always
be subject to redemption by Capstar by action of the Board of Directors to the
extent necessary, in the judgment of the Board of Directors, to comply with the
Alien ownership restrictions of the Communications Act and the FCC rules and
regulations.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND
RESTATED BYLAWS OF THE COMPANY
Capstar's Restated Certificate of Incorporation and Restated Bylaws
include certain provisions that could have an anti-takeover effect. These
provisions are intended to enhance the likelihood of continuity and stability
in the composition of the Board of Directors and in the policies formulated by
the Board of Directors. These provisions also
84
<PAGE> 87
are intended to help ensure that the Board of Directors, if confronted by a
surprise proposal from a third party which has acquired a block of stock of the
Company, will have sufficient time to review the proposal and appropriate
alternatives to the proposal and to act in what it believes to be the best
interests of the stockholders.
The following is a summary of selected provisions included in the
Restated Certificate of Incorporation and Restated Bylaws of the Company and is
qualified in its entirety by reference to such documents, copies of which will
be filed as exhibits to the Registration Statement of which this Prospectus
forms a part. The Board of Directors has no current plans to formulate or
effect additional measures that could have an anti-takeover effect.
Classified Board of Directors. In addition to the Class A Directors,
the Restated Certificate of Incorporation provides for three additional classes
of directors, which serve staggered three-year terms and which shall be elected
by the holders of the Class A Common Stock and Class C Common Stock, voting as
a single class. Under certain circumstances, the classification of directors
has the effect of making it more difficult for stockholders to change the
composition of the Board of Directors in a relatively short period of time. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board of Directors at any time
Capstar has seven or more directors. See "Management." Stockholders may remove
a director only for cause upon the vote of holders of at least 662/3% of the
outstanding shares of Common Stock entitled to vote thereon.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The Restated Bylaws will include an advance notice procedure with
regard to business proposed to be submitted by a stockholder at any annual or
special meeting of stockholders of the Company, including the nomination of
candidates for election as directors. The procedure provides that a notice of
proposed stockholder business must be timely given in writing to the Secretary
of Capstar prior to the meeting. In all cases, to be timely, notice relating to
an annual meeting must be received at the principal executive office of Capstar
not less than 60 days nor more than 90 days before the first anniversary of the
prior year's annual meeting.
Notice to Capstar from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating
to such person that is required to be disclosed in solicitations of proxies for
election of directors pursuant to Regulation 14A under the Exchange Act,
including such person's written consent to being named in the proxy statement
as a nominee and to serve as a director if elected.
Special Meetings; Action by Written Consent. The Restated Certificate
of Incorporation provides that special meetings of holders of Common Stock may
be called only by Capstar's Board of Directors and that only business proposed
by the Board of Directors may be considered at special meetings of the holders
of Common Stock. The Restated Certificate of Incorporation also provides that
holders of Common Stock may act at annual or special meetings of holders of
Common Stock and by written consent.
Blank Check Preferred Stock. Capstar's Restated Certificate of
Incorporation provides that the Board of Directors of Capstar may authorize the
issuance of up to 10,000,000 shares of preferred stock in one or more classes
or series and may designate the dividend rate, voting rights and other rights,
preferences and restrictions of each such class or series. The Board of
Directors of Capstar has no present intention to issue any preferred stock;
however, the Board of Directors of Capstar has the authority, without further
shareholder approval, to issue one or more series of preferred stock that
could, depending on the terms of such series, either impede or facilitate the
completion or a merger, tender offer or other takeover attempt. Although the
Board of Directors of Capstar is required to make any determination to issue
such stock based on its judgment as to the best interests of the stockholders
of Capstar, the Board of Directors of Capstar could act in a manner that would
discourage an acquisition attempt or other transaction that some, or a
majority, of the stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over the then market
price of such stock. The Board of Directors of Capstar does not intend to seek
stockholder approval prior to any issuance of such stock, unless otherwise
required by law.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Generally, Section 203 of the General Corporation Law of the State of
Delaware prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless one of the following events occurs: (i) prior to
the date of the business combination, the transaction is approved by the board
of directors of
85
<PAGE> 88
the corporation; (ii) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owns at least 85% of the outstanding voting stock; or (iii) on or after such
date the business combination is approved by the board and by the affirmative
vote of at least two-thirds of the outstanding voting stock which is not owned
by the interested stockholder. A "business combination" includes mergers, asset
sales and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock.
86
<PAGE> 89
DESCRIPTION OF OTHER INDEBTEDNESS
COMMODORE NOTES
The following summary of certain terms of the Commodore Notes and the
Commodore Indenture does not purport to be complete and is qualified in its
entirety by reference to the Trust Indenture Act of 1939, as amended, and to
the full text of the Commodore Indenture, which is filed as an exhibit to the
registration statement to which this Prospectus is a part.
The Commodore Notes were issued pursuant to the Commodore Indenture
among Commodore, the guarantors named therein and IBJ Schroder Bank & Trust
Company, as Trustee. The Commodore Notes mature on May 1, 2003, are limited in
aggregate principal amount to $76,808,000 and bear cash interest at a rate of 7
1/2% per annum from the date of original issuance until May 1, 1998, and at a
rate of 13 1/4% per annum from and including May 1, 1998 until maturity.
Interest is payable semi-annually in arrears on May 1 and November 1.
The Commodore Notes are general unsecured obligations of Commodore
subordinated in right of payment to all senior indebtedness (as defined in the
Commodore Indenture) and senior in rights of payment to any current or future
indebtedness of Communications which, by its terms, is subordinated to the
Commodore Notes. The Commodore Notes are unconditionally guaranteed, on a
senior subordinated basis, as to payment of principal, premium, if any, and
interest, jointly and severally, by the guarantors named in the Commodore
Indenture.
The Commodore Notes are redeemable at the option of Commodore, in
whole or in part, at any time on or after (i) May 1, 1999 at 107.5% of their
principal amount, (ii) May 1, 2000, at 105.0% of their principal amount, (iii)
May 1, 2001, at 102.5% of their principal amount and (iv) May 1, 2002 and
thereafter, at 100.0% of their principal amount, together, in each case, with
accrued and unpaid interest to the redemption date. Notwithstanding the
foregoing, Commodore may redeem in the aggregate up to one-third of the
original principal amount of the Commodore Notes at any time and from time to
time prior to May 1, 1998 at a redemption price equal to 108% of the Accreted
Value of the Commodore Notes thereof plus accrued interest to the redemption
date out of the net proceeds of one or more public equity offerings (as defined
in the Commodore Indenture), provided, that at least $50 million in aggregate
principal amount of Commodore Notes remains outstanding immediately after the
occurrence of any such redemption and that any such redemption occurs within
120 days following the closing of any such public equity offering.
Limitation on Additional Indebtedness. Under the Commodore Indenture,
Commodore will not, and will not permit any restricted subsidiary of Commodore
to, directly or indirectly, incur any indebtedness (including acquired
indebtedness as such term is defined in the Commodore Indenture) unless (i)
after giving effect to the incurrence of such indebtedness and the receipt and
application of the proceeds thereof, the ratio of Commodore's total
indebtedness to Commodore's EBITDA (determined on a pro forma basis for the
last four fiscal quarters of Commodore for which financial statements are
available at the date of determination) is less than 6.75 to 1 if the
indebtedness is incurred prior to May 1, 1998 and 6.25 to 1 if the indebtedness
is incurred thereafter and (ii) no default or event of default (as such terms
are defined in the Commodore Indenture) shall have occurred and be continuing
at the time or immediately after giving effect to the incurrence of such
indebtedness.
Limitation on Restricted Payments. Subject to certain exceptions set
forth in the Commodore Indenture, Commodore will not make, and will not permit
any of its restricted subsidiaries to, directly or indirectly, make, any
restricted payment (as defined in the Commodore Indenture), unless: (i) no
default or event of default shall have occurred and be continuing at the time
of or immediately after giving effect to such restricted payment; (ii)
immediately after giving pro forma effect to such restricted payment, Commodore
could incur $1.00 of additional indebtedness (other than permitted
indebtedness) in compliance with the covenant described above under "Limitation
on Additional Indebtedness"; and (iii) immediately after giving effect to such
restricted payment, the aggregate of all restricted payments declared or made
after the issue date of the Commodore Notes does not exceed the sum of (a) 50%
of Commodore's cumulative consolidated net income (or in the event such
consolidated net income shall be a deficit, minus 100% of such deficit) after
the issue date, plus (b) 100% of the aggregate net proceeds and the fair market
value of securities or other property received by Commodore from the issue or
sale, after the issue date, of capital stock of Commodore (other than
disqualified capital stock as such term is defined in the Commodore Indenture
or capital stock of Commodore issued to any subsidiary of Commodore) or any
indebtedness or other securities of Commodore
87
<PAGE> 90
convertible into or exercisable or exchangeable for capital stock (other than
disqualified capital stock) of Commodore which has been so converted or
exercised or exchanged, as the case may be.
Change of Control. Under the Commodore Indenture, in the event of a
Change of Control (as defined therein) of Commodore, Commodore will be required
to make an offer to purchase the outstanding Commodore Notes at a purchase
price equal to 101% of their accreted value (as defined in the Commodore
Indenture), plus any accrued and unpaid interest, if any, to the date of
repurchase.
Other Restrictive Covenants. The Commodore Indenture contains certain
other restrictive covenants that, among other things, impose limitations
(subject to certain exceptions) on Commodore with respect to (i) the issuance
of preferred stock by any of Commodore's subsidiaries, (ii) the sale, pledge,
hypothecation or other transfer of any capital stock of a subsidiary of
Commodore, (iii) the issuance of any capital stock of Commodore's subsidiaries
other than to Commodore or a wholly-owned subsidiary, (iv) sales of assets by
the Company and its subsidiaries, (v) transactions with stockholders and
affiliates, (vi) the existence of liens on the assets of the Company or its
subsidiaries, (vii) investments by the Company and its subsidiaries, (viii) the
creation or acquisition of subsidiaries, (ix) the incurrence of indebtedness
senior to the Commodore Notes and subordinate to other indebtedness of the
Company, (x) the guarantee of indebtedness, (xi) the merger or sale of all or
substantially all the assets of Commodore and (xii) limitations on assets
swaps.
Events of Default. Under the Commodore Indenture, each of the
following events constitutes an "Event of Default": (i) a default in the
payment of any principal of, or premium, if any, on the Commodore Notes when
the same becomes due and payable; (ii) a default in the payment of any interest
on any Commodore Note when the same becomes due and payable and the default
continues for a period of 30 days; (iii) Commodore or any guarantor defaults in
the observance or performance of any covenant in the Commodore Notes or
Commodore Indenture for 60 days after written notice from the trustee or the
holders of not less than 25% in the aggregate principal amount of the Commodore
Notes then outstanding; (iv) Commodore or any guarantor fails to pay when due
principal, interest or premium aggregating $1,000,000 or more with respect to
any indebtedness of Commodore or any restricted subsidiary thereof, or the
acceleration of any such indebtedness aggregating $1,000,000 or more which
default is not cured, waived or postponed pursuant to an agreement with the
holders of such indebtedness within 60 days after written notice; (v) a court
of competent jurisdiction enters a final and unappealable judgment or judgments
for the payment of money in excess of $1,000,000 against Commodore or any
restricted subsidiary thereof and such judgment remains undischarged and
unbonded, for a period of 60 consecutive days during which a stay of
enforcement of such judgment is not in effect by reason of appeal or otherwise;
and (vi) certain events of bankruptcy, insolvency, or reorganization affecting
Commodore or any of its restricted subsidiaries.
Upon the happening of any Event of Default specified in the Commodore
Indenture, the trustee may, and upon the request of holders of at least 25% in
principal amount of the Commodore Notes, shall, or the holders of at least 25%
in principal amount of outstanding Commodore Notes may, declare the principal
of and accrued but unpaid interest, if any, on all of such Commodore Notes to
be due and payable.
NEW CREDIT FACILITY
Commodore will enter into a Credit Facility (the "New Credit
Facility") with Bankers Trust Company, an affiliate of BT Securities
Corporation, as administrative agent (the "Agent"), and the other institutions
party thereto (the "Banks"), in connection with the Benchmark Acquisition. The
New Credit Facility will consist of [to be completed]. The following
description of certain provisions of the New Credit Facility does not purport
to be complete and is qualified in its entirety by reference to the full text
of the New Credit Facility, which is filed as an exhibit to the registration
statement to which this Prospectus forms a part.
[Explanatory Note: The terms of the New Credit Facility will be provided by
amendment to this Form S-4 Registration Statement.]
LETTERS OF CREDIT
The acquisition agreement for each Pending Acquisition may be
terminated prior to consummation of the Pending Acquisition under various
circumstances, including, generally, a breach (a material breach in the case of
certain
88
<PAGE> 91
Pending Acquisitions) of any representation or warranty, or any material breach
of any covenant or agreement, by the Company. If the acquisition agreement for
any of the Community Pacific Acquisition, the Madison Acquisition, the
Commonwealth Acquisition, the Cavalier Acquisition, the COMCO Acquisition or
the WRIS Acquisition is terminated due to any such breach by the Company, the
seller will be entitled to liquidated damages as such seller's exclusive
remedy. The Company has secured its obligation to consummate each such Pending
Acquisition by placing into escrow a letter of credit. The letters of credit
(the "Letters of Credit") for all Pending Acquisitions total approximately $7.4
million. If the Pending Acquisition is not consummated due to any such breach
by the Company, the escrow agent will, upon joint written instruction by the
Company and the seller, release the letter of credit in connection therewith to
the seller. If the Pending Acquisition is not consummated for any other reason,
or upon consummation of such Pending Acquisition, the escrow agent will, upon
joint written instruction by the Company and the seller, release the letter of
credit to the Company. See "The Pending Acquisitions" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
89
<PAGE> 92
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on February 20, 1997 in a
private placement. In connection with that placement, the Company entered into
the Registration Rights Agreement which requires that the Company file a
registration statement under the Securities Act with respect to the New Notes
on or prior to 90 days after the date of issuance of the Old Notes (the "Issue
Date") and, upon the effectiveness of that registration statement, offer to the
holders of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of New Notes, which will be issued without a restrictive
legend and may be reoffered and resold by the holder without registration under
the Securities Act. The Registration Rights Agreement further provides that the
Company must use its reasonable best efforts to cause the registration
statement with respect to the Exchange Offer to be declared effective within
180 days following the Issue Date. A copy of the Registration Rights Agreement
has been filed as an exhibit to the registration statement of which this
Prospectus is a part.
In order to participate in the Exchange Offer, a holder must represent
to the Company, among other things, that (i) any New Notes to be received by it
will be acquired in the ordinary course of its business, (ii) it has no
arrangement with any person to participate in the distribution of the New Notes
and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities
Act, of the Company, or if it is an affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer should acknowledge that it acquired the
Old Notes for its own account as the result of market making activities or
other trading activities. Any holder who is unable to make the appropriate
representations to the Company will not be permitted to tender the Old Notes in
the Exchange Offer and will be required to comply with the registration and
prospectus delivery requirements of the Securities Act (or an appropriate
exemption therefrom) in connection with any sale or transfer of the Old Notes.
If the holder is not a broker-dealer, it will be required to represent
that it is not engaged in, and does not intend to engage in, the distribution
of the New Notes. If the holder is a broker-dealer that will receive New Notes
for its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
The Old Notes are designated for trading in the PORTAL market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, holders of Old Notes who were eligible to participate in the Exchange
Offer but who did not tender their Old Notes will not be entitled to certain
rights under the Registration Rights Agreement and such Old Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity
of the market for the Old Notes could be adversely affected. No assurance can
be given as to the liquidity of the trading market for either the Old Notes or
the New Notes.
Based on an interpretation by the Commission's staff set forth in
no-action letters issued to third parties unrelated to the Company, the Company
believes that, with the exceptions discussed herein, New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any person receiving the New Notes, whether
or not that person is the holder (other than any such holder or such other
person that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that (i) the New
Notes are acquired in the ordinary course of business of that holder or such
other person, (ii) neither the holder nor such other person is engaging in or
intends to engage in a distribution of the New Notes, and (iii) neither the
holder nor such other person has an arrangement or understanding with any
person to participate in the distribution of the New Notes. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes, where
those Old Notes were acquired by the broker-dealer as a result of its
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of those New Notes. See
"Plan of Distribution."
90
<PAGE> 93
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the offer or sale of the Old Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act and
applicable state securities laws, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not intend to register the Old Notes under the
Securities Act and, after consummation of the Exchange Offer, will not be
obligated to do so. Based on an interpretation by the staff of the Commission
set forth in a series of no-action letters issued to third parties, the Company
believes that, except as set forth in the next sentence, New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by holders thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such Old
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such New Notes. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and
all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Company will issue $1,000 principal
amount at maturity of New Notes in exchange for each $1,000 principal amount at
maturity of outstanding Old Notes accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer. However,
Old Notes may be tendered only in integral multiples of $1,000 in principal
amount.
The form and terms of the New Notes are substantially the same as the
form and terms of the Old Notes except that the New Notes have been registered
under the Securities Act and will not bear legends restricting their transfer.
The New Notes will evidence the same debt as the Old Notes and will be issued
pursuant to, and entitled to the benefits of, the Indenture pursuant to which
the Old Notes were, and the New Notes will be, issued.
As of the date of this Prospectus, $277.0 million in aggregate
principal amount at maturity of the Old Notes were outstanding. The Company has
fixed the close of business on _______________, 1997 as the record date for the
Exchange Offer for purposes of determining the persons to whom this Prospectus,
together with the Letter of Transmittal, will initially be sent. As of such
date, there were _____ registered holders of the Old Notes. Holders of Old
Notes do not have any appraisal or dissenters' rights under the General
Corporation Law of the State of Delaware or the Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old
Notes when, as, and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the New Notes from the Company. If any
tendered Old Notes are not accepted for exchange because of an invalid tender,
the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Old Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "The Exchange Offer -- Solicitation of Tenders; Fees and Expenses."
91
<PAGE> 94
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time,
on _______________, 1997, unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended. In order to
extend the Exchange Offer, the Company will notify the Exchange Agent of any
extension by oral or written notice prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date. The
Company reserves the right, in its sole discretion, (i) to delay accepting any
Old Notes, to extend the Exchange Offer or, if any of the conditions set forth
under "The Exchange Offer -- Conditions" shall not have been satisfied, to
terminate the Exchange Offer, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend the terms of
the Exchange Offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange
Offer. Except as set forth under "The Exchange Offer -- Book Entry Transfer,"
to tender in the Exchange Offer a holder must complete, sign and date the
Letter of Transmittal, or a copy thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver the Letter of Transmittal or copy to the Exchange Agent prior to the
Expiration Date. In addition, either (i) certificates for such Old Notes must
be received by the Exchange Agent along with the Letter of Transmittal, (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Old Notes, if that procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "DTC" or the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described below,
must be received by the Exchange Agent prior to the Expiration Date, or (iii)
the holder must comply with the guaranteed delivery procedures described below.
To be tendered effectively, the Old Notes, Letter of Transmittal and other
required documents must be received by the Exchange Agent at the address set
forth under "The Exchange Offer -- Exchange Agent" prior to the Expiration
Date.
The tender by a holder that is not withdrawn before the Expiration
Date will constitute an agreement between that holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE AND
PROPER INSURANCE SHOULD BE OBTAINED. NO LETTER OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the
Old Notes in the beneficial owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution (as defined
herein) unless Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box titled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. If signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, the guarantee must be by any eligible guarantor institution that
is a member of or participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program, the Stock
Exchange Medallion Program, or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
92
<PAGE> 95
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Company of their authority to so act must be submitted with
the Letter of Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that the Company
determines are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "The Exchange Offer -- Conditions," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among
other things, (i) the New Notes acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the holder, (ii) if it is not a
broker-dealer, neither the holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes, (iii) neither the holder
nor any such other person has an arrangement or understanding with any person
to participate in the distribution of such New Notes, and (iv) neither the
holder nor any such other person is an "affiliate" (as defined in Rule 405 of
the Securities Act) of the Company. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities (other than Old Notes acquired directly from the Company),
may participate in the Exchange Offer but may be deemed an "underwriter" under
the Securities Act and, therefore, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
In all cases, issuance of New Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, a properly completed and duly executed Letter
of Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the Letter of Transmittal), and all other required
documents. If any tendered Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering holder thereof (or,
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, such non-exchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
93
<PAGE> 96
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility for purposes of
the Exchange Offer within two business days after the date of this Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility system may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in
any case other than as set forth in the following paragraph, be transmitted to
and received by the Exchange Agent at the address set forth under "The Exchange
Offer -- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
The DTC's Automated Tender Offer Program ("ATOP") is the only method
of processing exchange offers through the DTC. To accept the Exchange Offer
through ATOP, participants in the DTC must send electronic instructions to the
DTC through the DTC's communication system in place of sending a signed, hard
copy Letter of Transmittal. The DTC is obligated to communicate those
electronic instructions to the Exchange Agent. To tender Old Notes through
ATOP, the electronic instructions sent to the DTC and transmitted by the DTC to
the Exchange Agent must contain the character by which the participant
acknowledges its receipt of and agrees to be bound by the Letter of
Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old
Notes and the Old Notes are not immediately available, or time will not permit
such holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent received from such Eligible Institution a properly completed and
duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within three NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written
or (for DTC participants) electronic ATOP transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior to
5:00 p.m., New York City time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate number or numbers and principal amount at
maturity of such Old Notes), (iii) be signed by the holder in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the person
withdrawing the tender, and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, in its sole discretion, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder
94
<PAGE> 97
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Old Notes may be retendered by following one of the procedures described under
"The Exchange Offer -- Procedures for Tendering" at any time on or prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company
shall not be required to accept for exchange, or exchange New Notes for, any
Old Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or
any applicable interpretation of the staff of the Commission; or
(b) any action or proceeding is instituted or threatened in
any court or by any governmental agency that might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company; or
(c) any governmental approval has not been obtained, which
approval the Company shall deem necessary for the consummation of the
Exchange Offer.
If the Company determines in its sole discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility), (ii) extend the Exchange
Offer and retain all Old Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Old Notes
(see "-- Withdrawal Rights") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn. If such waiver constitutes a material change to the
Exchange Offer, the Company will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the waiver and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five-to-ten-business-day period.
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. U.S. Trust Company of Texas, N.A., has been appointed as Exchange Agent
for the Exchange Offer. Questions, requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail,
by Overnight Courier or by Hand:
U.S. Trust Company of Texas, N.A.
P.O. Box 841
Cooper Station
New York, New York 10276-0841
By Hand:
U.S. Trust Company of Texas, N.A.
111 Broadway
Lower Level
Corporate Trust Window
New York, New York 10006-1906
95
<PAGE> 98
By Overnight Courier:
U.S. Trust Company of Texas, N.A.
770 Broadway
13th Floor - Corporate Trust Operations
New York, New York 10003
By Facsimile:
(212) 420-6504
Confirm by Telephone:
(800) 225-2398
SOLICITATIONS OF TENDERS; FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, among
others.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register New Notes in the name of, or request that Old
Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
96
<PAGE> 99
DESCRIPTION OF NEW NOTES
GENERAL
The Old Notes were, and the New Notes will be, issued under an
Indenture, dated as of February 20, 1997 (the "Indenture"), between the Company
and U.S. Trust Company of Texas, N.A., as trustee (the "Trustee"), a copy of
which is filed as an exhibit to the Registration Statement (as defined). The
terms of the New Notes are identical in all material respects to the Old Notes,
except that the New Notes have been registered under the Securities Act and,
therefor, will not bear legends restricting their transfer. Upon the issuance
of the New Notes, the Indenture will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summary of certain provisions of the Indenture and the New Notes does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture (including the definitions of
certain terms therein and those terms made a part thereof by the Trust
Indenture Act) and the New Notes. The Old Notes and the New Notes are sometimes
collectively referred to herein as the "Notes."
Principal of, premium, if any, and interest on the New Notes will be
payable, and the New Notes may be exchanged or transferred, at the office or
agency of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the corporate trust office of the Trustee in New York, New
York), except that, at the option of the Company, payment of interest may be
made by check mailed to the address of the holders as such address appears in
the Note Registrar.
The New Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustees will act as Paying Agent and Registrar for the New Notes. The New
Notes may be presented for registration of transfer and exchange at the offices
of the Registrar, which initially will be the Trustee's corporate trust office.
The Company may change any Paying Agent and Registrar without notice to holders
of the Notes.
Old Notes that remain outstanding after the consummation of the
Exchange Offer and New Notes issued in connection with the Exchange Offer will
be entitled to vote or consent on all matters as a single class of securities
under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be unsecured, senior obligations of the Company and
will be limited to $277.0 million in aggregate principal amount at maturity and
will mature on February 1, 2009. No interest will accrue on the Notes prior to
February 1, 2002. Thereafter, interest on the Notes will accrue at the rate of
12 3/4% and will be payable in cash semiannually on February 1 and August 1
commencing on August 1, 2002 to holders of record on the immediately preceding
January 15 and July 15. Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
February 1, 2002. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The yield to maturity of the Notes is 12 3/4% (computed on a
semi-annual bond equivalent basis), calculated from February 20, 1997. The Old
Notes were offered at a substantial discount from their principal amount at
maturity. See "Certain Federal Income Tax Considerations -- Original Issue
Discount."
OPTIONAL REDEMPTION
The Notes may be redeemed (subject to contractual and other
restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after February 1, 2002, in whole or in part, at the
option of the Company, at the redemption prices (expressed as a percentage of
the Accreted Value thereof on the applicable redemption date) set forth below,
plus accrued and unpaid interest, if any, to the redemption date, if redeemed
during the 12-month period beginning February 1 of each of the years set forth
below:
97
<PAGE> 100
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002 106.375%
2003 105.313%
2004 104.250%
2005 103.188%
2006 102.125%
2007 100.000%
</TABLE>
In addition, prior to February 1, 2001, the Company may, at its
option, use the net cash proceeds of one or more Public Equity Offerings or
Major Asset Sales to redeem up to 25% of the principal amount at maturity of
the Notes at a redemption price of 112.75% of the Accreted Value thereof at the
redemption date of the Notes so redeemed; provided, however , that after any
such redemption, at least 75% in aggregate principal amount at maturity of
Notes would remain outstanding immediately after giving effect to such
redemption. Any such redemption will be required to occur on or prior to the
date that is one year after the receipt by the Company of the proceeds of a
Public Equity Offering or Major Asset Sale. The Company shall effect such
redemption on a pro rata basis.
In addition, prior to February 1, 2002, the Company may, at its
option, redeem the Notes upon a Change of Control. See "-- Change of Control."
The Commodore Indenture and the New Credit Facility restrict
Commodore's ability to pay dividends or make other restricted payments to the
Company and, accordingly, may also limit the ability of the Company to redeem
the Notes. See "Description of Other Indebtedness."
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, in the absence of such requirements or if the
Notes are not so listed, on a pro rata basis, provided that no Notes of $1,000
or less shall be redeemed in part. Notice of redemption shall be mailed by
first class mail at least 30 but not more than 60 days before the redemption
date to each holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount at maturity thereof
to be redeemed. A new Note in principal amount at maturity equal to the
unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest ceases to accrue on Notes or portions of them called for redemption.
CHANGE OF CONTROL
The Indenture will provide that, upon the occurrence of a Change of
Control, each holder will have the right to require that the Company purchase
all or a portion of such holder's Notes in cash pursuant to the offer described
below (the "Change of Control Offer"), at a purchase price equal to (i) 101% of
the Accreted Value on the Change of Control Payment Date if the Change of
Control Payment Date is on or before February 1, 2002 and (ii) 101% of the
principal amount at maturity thereof, plus, without duplication, all accrued
and unpaid interest, if any, to the Change of Control Payment Date if such
Change of Control Payment Date is after February 1, 2002.
The Indenture will provide that, prior to the mailing of the notice
referred to below, but in any event within 30 days following the date on which
the Company becomes aware that a Change of Control has occurred, the Company
covenants that if the purchase of the Notes would violate or constitute a
default under any other Indebtedness of the Company, then the Company shall, to
the extent needed to permit such purchase of Notes, either (i) repay all such
Indebtedness and terminate all commitments outstanding thereunder or (ii)
obtain the requisite consents, if any, under such Indebtedness required to
permit the purchase of the Notes as provided below. The Company will first
comply with the covenant in the preceding sentence before it will be required
to make the Change of Control Offer or purchase the Notes pursuant to the
provisions described below.
Within 30 days following the date on which the Company becomes aware
that a Change of Control has occurred, the Company must send, by first-class
mail postage prepaid, a notice to each holder of Notes, which notice shall
govern the terms of the Change of Control Offer. Such notice shall state, among
other things, the purchase date, which must be no earlier than 30 days nor
later than 45 days from the date such notice is mailed, other than as may be
required by law (the "Change of Control Payment Date"). Holders electing to
have any Notes purchased pursuant to a
98
<PAGE> 101
Change of Control Offer will be required to surrender such Notes to the paying
agent and registrar for the Notes at the address specified in the notice prior
to the close of business on the business day prior to the Change of Control
Payment Date.
In addition, the Indenture will provide that, prior to February 1,
2002, upon the occurrence of a Change of Control, the Company will have the
option to redeem the Notes in whole but not in part (a "Change of Control
Redemption") at a redemption price equal to 100% of the Accreted Value thereof
at the redemption date of the Notes plus the Applicable Premium. In order to
effect a Change of Control Redemption, the Company must send a notice to each
holder of Notes, which notice shall govern the terms of the Change of Control
Redemption. Such notice must be mailed to holders of Notes within 30 days
following the date the Change of Control occurred (the "Change of Control
Redemption Date") and state that the Company is effecting a Change of Control
Redemption in lieu of a Change of Control Offer.
"Applicable Premium" means, with respect to a Note at any Change of
Control Redemption Date, the greater of (i) 1.0% of the Accreted Value of such
Note and (ii) the excess of (A) the present value at such time of the
redemption price of such Note at February 1, 2002 (such redemption price being
described under "-- Optional Redemption") computed using a discount rate equal
to the Treasury Rate plus 150 basis points over (B) the principal amount at
maturity of such Note.
"Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) that
has become publicly available at least two business days prior to the Change of
Control Redemption Date (or, if such Statistical Release is no longer
published, any publicly available source or similar market data)) most nearly
equal to the period from the Change of Control Redemption Date to February 1,
2002; provided, however, that if the period from the Change of Control
Redemption Date to February 1, 2002 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given except that if the period
from the Change of Control Redemption Date to February 1, 2002 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act to the extent applicable in connection with the purchase of Notes
pursuant to a Change of Control Offer.
This "Change of Control" covenant will not apply in the event of (a)
changes in a majority of the board of directors of the Company so long as a
majority of the board of directors continues to consist of Continuing Directors
and (b) certain transactions with Permitted Holders. In addition, this covenant
is not intended to afford holders of Notes protection in the event of certain
highly leveraged transactions, reorganizations, restructurings, mergers and
other similar transactions that might adversely affect the holders of Notes,
but would not constitute a Change of Control. The Company could, in the future,
enter into certain transactions, including certain recapitalizations of the
Company, that would not constitute a Change of Control with respect to the
Change of Control purchase feature of the Notes, but would increase the amount
of indebtedness outstanding at such time. However, the Indenture will contain
limitations on the ability of the Company to incur additional Indebtedness and
to engage in certain mergers, consolidations and sales of assets, whether or
not a Change of Control is involved. See "-- Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness and Issuance of Preferred Stock of
Subsidiaries" and "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets" below.
If a Change of Control were to occur, there can be no assurance that
the Company would have sufficient funds to pay the purchase price for all Notes
that the Company might be required to purchase. Moreover, as of the date
hereof, after giving effect to the Old Notes Offering and the application of
the proceeds therefrom, the Company would not have sufficient funds available
to purchase all of the outstanding Notes pursuant to a Change of Control Offer.
In the event that the Company were required to purchase outstanding Notes
pursuant to a Change of Control Offer, the Company expects that it would need
to seek third-party financing to the extent it does not have available funds to
meet its purchase obligations. However, there can be no assurance that the
Company would be able to obtain such financing on favorable terms, if at all.
The Commodore Indenture and the New Credit Facility restrict the ability of
Commodore to pay dividends and make other restricted payments to the Company
and, accordingly, may also limit the ability of the Company to purchase the
Notes. See "Description of Other Indebtedness."
99
<PAGE> 102
With respect to the sale of "all or substantially all" the assets of
the Company, which would constitute a Change of Control for purposes of the
Indenture, the meaning of the phrase "all or substantially all" varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company and,
therefore, it may be unclear whether a Change of Control has occurred and
whether the Notes should be subject to a Change of Control Offer.
None of the provisions in the Indenture relating to a purchase of
Notes upon a Change of Control is waiveable by the board of directors of the
Company. Without the consent of each holder of Notes affected thereby, after
the mailing of the notice of a Change of Control Offer, no amendment to the
Indenture may, directly or indirectly, affect the Company's obligation to
purchase the outstanding Notes or amend, modify or change the obligation of the
Company to consummate a Change of Control Offer or waive any default in the
performance thereof or modify any of the provisions of the definitions with
respect to any such offer.
CERTAIN COVENANTS
Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries. The Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (other than
Permitted Indebtedness), and the Company's Subsidiaries will not issue any
Preferred Stock; provided, however, that the Company and its Subsidiaries may
incur Indebtedness and the Company's Subsidiaries may issue shares of Preferred
Stock if, in either case, the Company's Leverage Ratio at the time of
incurrence of such Indebtedness or the issuance of such Preferred Stock, as the
case may be, after giving pro forma effect to such incurrence or issuance as of
such date and to the use of proceeds therefrom is less than 7.0 to 1.
Limitation on Restricted Payments. (a) The Indenture will provide that
neither the Company nor any of its Subsidiaries will, directly or indirectly,
make any Restricted Payment if at the time of such Restricted Payment and
immediately after giving effect thereto:
(i) a Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Restricted
Payment; or
(ii) the Company is not able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Incurrence of Additional Indebtedness and Issuance
of Preferred Stock of Subsidiaries" covenant; or
(iii) the aggregate amount of Restricted Payments made
subsequent to the Issue Date (the amount expended for such purposes,
if other than in cash, being the fair market value of such property as
determined by the board of directors of the Company in good faith)
exceeds the sum of (a) (x) 100% of the aggregate Consolidated EBITDA
of the Company (or, in the event such Consolidated EBITDA shall be a
deficit, minus 100% of such deficit) accrued subsequent to the Issue
Date to the most recent date for which financial information is
available to the Company, taken as one accounting period, less (y) 1.4
times Consolidated Interest Expense for the same period, plus (b) 100%
of the aggregate net proceeds, including the fair market value of
property other than cash as determined by the board of directors of
the Company in good faith, received by the Company from any Person
(other than a Subsidiary of the Company) from the issuance and sale on
or subsequent to the Issue Date of Qualified Capital Stock of the
Company (excluding (i) any net proceeds from issuances and sales
financed directly or indirectly using funds borrowed from the Company
or any Subsidiary of the Company, until and to the extent such
borrowing is repaid, but including the proceeds from the issuance and
sale of any securities convertible into or exchangeable for Qualified
Capital Stock to the extent such securities are so converted or
exchanged and including any additional proceeds received by the
Company upon such conversion or exchange and (ii) any net proceeds
received from issuances and sales that are used to consummate a
transaction described in clauses (2) and (3) of paragraph (b) below),
plus (c) without duplication of any amount included in clause (iii)(b)
above, 100% of the aggregate net proceeds, including the fair market
value of property other than cash (valued as provided in clause
(iii)(b) above), received by the Company as a capital contribution on
or after the Issue Date, plus (d) the amount equal to the net
reduction in Investments (other than Permitted Investments) made by
the Company or any of its Subsidiaries in any Person resulting from
(i) repurchases or redemptions of such Investments by such Person,
proceeds realized upon the sale of such Investment to an unaffiliated
purchaser and repayments of loans or advances or other transfers of
assets by such
100
<PAGE> 103
Person to the Company or any Subsidiary of the Company or (ii) the
redesignation of Unrestricted Subsidiaries as Subsidiaries (valued in
each case as provided in the definition of "Investment") not to
exceed, in the case of any Subsidiary, the amount of Investments
previously made by the Company or any Subsidiary in such Unrestricted
Subsidiary, which amount was included in the calculation of Restricted
Payments; provided, however , that no amount shall be included under
this clause (d) to the extent it is already included in Consolidated
EBITDA, plus (e) the aggregate net cash proceeds received by a Person
in consideration for the issuance of such Person's Capital Stock
(other than Disqualified Capital Stock) that are held by such Person
at the time such Person is merged with and into the Company in
accordance with the "Merger, Consolidation and Sale of Assets"
covenant subsequent to the Issue Date; provided, however , that
concurrently with or immediately following such merger the Company
uses an amount equal to such net cash proceeds to redeem or repurchase
the Company's Capital Stock, plus (f) $2,500,000.
(b) Notwithstanding the foregoing, these provisions will not prohibit:
(1) the payment of any dividend or the making of any distribution within 60
days after the date of its declaration if such dividend or distribution would
have been permitted on the date of declaration; (2) the purchase, redemption or
other acquisition or retirement of any Capital Stock of the Company or any
warrants, options or other rights to acquire shares of any class of such
Capital Stock either (x) solely in exchange for shares of Qualified Capital
Stock or other rights to acquire Qualified Capital Stock or (y) through the
application of the net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of shares of Qualified Capital
Stock or warrants, options or other rights to acquire Qualified Capital Stock
or (z) in the case of Disqualified Capital Stock, solely in exchange for, or
through the application of the net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of, Disqualified Capital
Stock that has a redemption date no earlier than, and requires the payment of
current dividends or distributions in cash no earlier than, in each case, the
Disqualified Capital Stock being purchased, redeemed or otherwise acquired or
retired; (3) the acquisition of Indebtedness of the Company that is subordinate
or junior in right of payment to the Notes either (x) solely in exchange for
shares of Qualified Capital Stock (or warrants, options or other rights to
acquire Qualified Capital Stock), for shares of Disqualified Capital Stock that
have a redemption date no earlier than, and require the payment of current
dividends or distributions in cash no earlier than, in each case, the maturity
date and interest payments dates, respectively, of the Indebtedness being
acquired, or for Indebtedness of the Company that is subordinate or junior in
right of payment to the Notes, at least to the extent that the Indebtedness
being acquired is subordinated to the Notes and has a Weighted Average Life to
Maturity no less than that of the Indebtedness being acquired or (y) through
the application of the net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of shares of Qualified Capital
Stock (or warrants, options or other rights to acquire Qualified Capital
Stock), shares of Disqualified Capital Stock that have a redemption date no
earlier than, and require the payment of current dividends or distributions in
cash no earlier than, in each case, the maturity date and interest payments
dates, respectively, of the Indebtedness being refinanced, or Indebtedness of
the Company that is subordinate or junior in right of payment to the Notes at
least to the extent that the Indebtedness being acquired is subordinated to the
Notes and has a Weighted Average Life to Maturity no less than that of the
Indebtedness being refinanced; (4) payments by the Company to repurchase
Capital Stock or other securities from employees of the Company in an aggregate
amount not to exceed $5,000,000; (5) payments to enable the Company to redeem
or repurchase stock purchase or similar rights in an aggregate amount not to
exceed $500,000; (6) payments, not to exceed $100,000 in the aggregate, to
enable the Company to make cash payments to holders of its Capital Stock in
lieu of the issuance of fractional shares of its Capital Stock; (7) payments
made pursuant to any merger, consolidation or sale of assets effected in
accordance with the "Merger, Consolidation and Sale of Assets" covenant;
provided, however, that no such payment may be made pursuant to this clause (7)
unless, after giving effect to such transaction (and the incurrence of any
Indebtedness in connection therewith and the use of the proceeds thereof), the
Company would be able to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness and Issuance of Preferred Stock of Subsidiaries"
covenant such that after incurring that $1.00 of additional Indebtedness, the
Leverage Ratio would be less than 6.0 to 1; and (8) the payments of dividends
on the Company's Common Stock after an initial public offering of Common Stock
in an annual amount not to exceed 6.0% of the gross proceeds (before deducting
underwriting discounts and commissions and other fees and expenses of the
offering) received by the Company from shares of Common Stock sold for the
account of the Company (and not for the account of any stockholder) in such
initial public offering; provided, however , that in the case of clauses (3),
(4), (5), (6), (7) and (8), no Event of Default shall have occurred or be
continuing at the time of such payment or as a result thereof. In determining
the aggregate amount of Restricted Payments made subsequent to the Issue Date,
amounts expended pursuant to clauses (1), (4), (5), (6), (7) and (8) shall be
included in such calculation.
Merger, Consolidation and Sale of Assets. The Indenture will provide
that the Company may not, in a single transaction or a series of related
transactions, consolidate with or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets to, another Person or adopt a plan of liquidation unless (i) either (1)
the Company is the surviving or continuing Person or (2) the Person (if other
than the Company) formed
101
<PAGE> 104
by such consolidation or into which the Company is merged or the person that
acquires by conveyance, transfer or lease the properties and assets of the
Company substantially as an entirety or in the case of a plan of liquidation,
the Person to which assets of the Company have been transferred, shall be a
corporation, partnership or trust organized and existing under the laws of the
United States or any State thereof or the District of Columbia; (ii) such
surviving person shall assume all of the obligations of the Company under the
Notes and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after giving effect
to such transaction and the use of the proceeds therefrom (on a pro forma
basis, including giving effect to any Indebtedness incurred or anticipated to
be incurred in connection with such transaction), the Company (in the case of
clause (1) of the foregoing clause (i)) or such Person (in the case of clause
(2) of the foregoing clause (i)) shall be able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred
Stock of Subsidiaries" covenant; (iv) immediately after giving effect to such
transactions, no Default or Event of Default shall have occurred or be
continuing; and (v) the Company has delivered to the Trustee prior to the
consummation of the proposed transaction an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer
complies with the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied. For purposes of the
foregoing, the transfer (by lease, assignment, sale or otherwise, in a single
transaction or series of related transactions) of all or substantially all of
the properties and assets of one or more Subsidiaries, the Capital Stock of
which constitutes all or substantially all of the properties or assets of the
Company, will be deemed to be the transfer of all or substantially all of the
properties and assets of the Company. Notwithstanding the foregoing clauses
(ii) and (iii), (1) any Subsidiary of the Company may consolidate with, merge
into or transfer all or part of its properties and assets to the Company and
(2) the Company may merge with a corporate Affiliate thereof incorporated
solely for the purpose of reincorporating the Company in another jurisdiction
in the U.S. to realize tax or other benefits.
Limitation on Asset Sales. The Indenture provides that neither the
Company nor any of its Subsidiaries will consummate an Asset Sale unless (i)
the Company or the applicable Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by management of the Company or, if such Asset Sale involves consideration in
excess of $2,500,000, by the board of directors of the Company, as evidenced by
a board resolution), (ii) at least 75% of the consideration received by the
Company or such Subsidiary, as the case may be, from such Asset Sale is in cash
or Cash Equivalents (other than in the case where the Company is exchanging all
or substantially all the assets of one or more broadcast businesses operated by
the Company (including by way of the transfer of capital stock) for all or
substantially all the assets (including by way of the transfer of capital
stock) constituting one or more broadcast businesses operated by another
Person, in which event the foregoing requirement with respect to the receipt of
cash or Cash Equivalents shall not apply) and is received at the time of such
disposition and (iii) upon the consummation of an Asset Sale, the Company
applies, or causes such Subsidiary to apply, such Net Cash Proceeds within 180
days of receipt thereof either (A) to repay any Senior Debt of the Company or
any Indebtedness of a Subsidiary of the Company (and, to the extent such Senior
Debt relates to principal under a revolving credit or similar facility, to
obtain a corresponding reduction in the commitments thereunder), (B) to
reinvest, or to be contractually committed to reinvest pursuant to a binding
agreement, in Productive Assets and, in the latter case, to have so reinvested
within 360 days of the date of receipt of such Net Cash Proceeds or (C) to
purchase Notes tendered to the Company for purchase at a price equal to 100% of
the Accreted Value thereof plus accrued interest thereon, if any, to the date
of purchase pursuant to an offer to purchase made by the Company as set forth
below (a "Net Proceeds Offer"); provided, however, that the Company may defer
making a Net Proceeds Offer until the aggregate Net Cash Proceeds from Asset
Sales not otherwise applied in accordance with this covenant equal or exceed
$5,000,000.
Subject to the deferral right set forth in the final proviso of the
preceding paragraph, each notice of a Net Proceeds Offer will be mailed, by
first-class mail, to holders of Notes not more than 180 days after the relevant
Asset Sale or, in the event the Company or a Subsidiary has entered into a
binding agreement as provided in (B) above, within 180 days following the
termination of such agreement but in no event later than 360 days after the
relevant Asset Sale. Such notice will specify, among other things, the purchase
date (which will be no earlier than 30 days nor later than 45 days from the
date such notice is mailed, except as otherwise required by law) and will
otherwise comply with the procedures set forth in the Indenture. Upon receiving
notice of the Net Proceeds Offer, holders of Notes may elect to tender their
Notes in whole or in part in integral multiples of $1,000. To the extent
holders properly tender Notes in an amount exceeding the Net Proceeds Offer,
Notes of tendering holders will be repurchased on a pro rata basis (based upon
the principal amount at maturity tendered). To the extent that the aggregate
principal amount at maturity of Notes tendered pursuant to any Net Proceeds
Offer is less than the amount of Net Cash Proceeds subject to such Net Proceeds
Offer, the Company may use any remaining portion of such Net Cash Proceeds not
required to fund the repurchase of tendered Notes for any purposes otherwise
permitted by the Indenture. Upon the consummation of any Net Proceeds
102
<PAGE> 105
Offer, the amount of Net Cash Proceeds subject to any future Net Proceeds Offer
from the Asset Sales giving rise to such Net Cash Proceeds shall be deemed to
be zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act to the extent applicable in connection with the repurchase of
Notes pursuant to a Net Proceeds Offer.
Limitation on Asset Swaps. The Indenture provides that the Company
will not, and will not permit any Subsidiary to, engage in any Asset Swaps,
unless: (i) at the time of entering into such Asset Swap and immediately after
giving effect to such Asset Swap, no Default or Event of Default shall have
occurred or be continuing or would occur as a consequence thereof, (ii) in the
event such Asset Swap involves an aggregate amount in excess of $1.0 million,
the terms of such Asset Swap have been approved by a majority of the members of
the board of directors of the Company and (iii) in the event such Asset Swap
involves an aggregate amount in excess of $5.0 million, the Company has
received a written opinion from an independent investment banking firm of
nationally recognized standing that such Asset Swap is fair to the Company or
such Subsidiary, as the case may be, from a financial point of view.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, create or otherwise cause to permit
to exist or become effective, by operation of the charter of such Subsidiary or
by reason of any agreement, instrument, judgment, decree, rule, order, statute
or governmental regulation, any encumbrance or restriction on the ability of
any Subsidiary to (a) pay dividends or make any other distributions on its
Capital Stock; (b) make loans or advances or pay any Indebtedness or other
obligation owed to the Company or any of its Subsidiaries; or (c) transfer any
of its property or assets to the Company, except for such encumbrances or
restrictions existing under or by reason of: (1) applicable law, (2) the
Indenture, (3) customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any Subsidiary, (4) any instrument
governing Acquired Indebtedness, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, (5)
agreements existing on the Issue Date (including the New Credit Facility and
the Commodore Indenture) as such agreements are from time to time in effect;
provided, however, that any amendments or modifications of such agreements that
affect the encumbrances or restrictions of the types subject to this covenant
shall not result in such encumbrances or restrictions being less favorable to
the Company in any material respect, as determined in good faith by the board
of directors of the Company, than the provisions as in effect before giving
effect to the respective amendment or modification, (6) any restriction with
respect to such a Subsidiary imposed pursuant to an agreement entered into for
the sale or disposition of all or substantially all the Capital Stock or assets
of such Subsidiary pending the closing of such sale or disposition, (7) an
agreement effecting a refinancing, replacement or substitution of Indebtedness
issued, assumed or incurred pursuant to an agreement referred to in clause (2),
(4) or (5) above; provided, however, that the provisions relating to such
encumbrance or restriction contained in any such refinancing, replacement or
substitution agreement are not less favorable to the Company in any material
respect as determined in good faith by the board of directors of the Company
than the provisions relating to such encumbrance or restriction contained in
agreements referred to in such clause (2), (4) or (5) above, (8) any agreement
evidencing Indebtedness permitted under the Indenture; provided, however, that
the provisions relating to such encumbrance or restriction contained in such
agreement are not less favorable to the Company in any material respect as
determined in good faith by the board of directors of the Company then the
provisions relating to such encumbrance or restriction contained in the
Indenture, or (9) restrictions on the transfer of the assets subject to any
Lien imposed by the holder of such Lien.
Limitations on Transactions with Affiliates. The Indenture provides
that neither the Company nor any of its Subsidiaries will, directly or
indirectly, enter into or permit to exist any transaction (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with or for the benefit of any of its Affiliates
(other than transactions between the Company and a Wholly Owned Subsidiary of
the Company or among Wholly Owned Subsidiaries of the Company) (an "Affiliate
Transaction"), other than Affiliate Transactions on terms that are no less
favorable than those that might reasonably have been obtained in a comparable
transaction on an arm's-length basis from a person that is not an Affiliate;
provided, however, that for a transaction or series of related transactions
involving value of $1,000,000 or more, such determination will be made in good
faith by a majority of members of the board of directors of the Company and by
a majority of the disinterested members of the board of directors of the
Company, if any; provided, further, that for a transaction or series of related
transactions involving value of $5,000,000 or more, the board of directors of
the Company has received an opinion from a nationally recognized investment
banking firm that such Affiliate Transaction is fair, from a financial point of
view, to the Company or such Subsidiary. The foregoing restrictions will not
apply to (1) reasonable and customary directors' fees, indemnification and
similar arrangements and payments thereunder, (2) any obligations of the
Company under the Financial Monitoring and Oversight Agreements (provided that
each amendment of any of the foregoing agreements shall be subject to the
limitations of this covenant) or any employment agreement, noncompetition or
confidentiality with any officer of the
103
<PAGE> 106
Company, (3) reasonable and customary investment banking, financial advisory,
commercial banking and similar fees and expenses paid to BT Securities
Corporation and its Affiliates, (4) any Restricted Payment permitted to be made
pursuant to the covenant described under "Limitation on Restricted Payments,"
(5) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board of
Directors of the Company, (6) loans or advances to employees in the ordinary
course of business of the Company or any of its Subsidiaries consistent with
past practices, (7) payments made in connection with the Osborn Acquisition,
the Osborn Add-on Acquisitions, the Osborn Ft. Myers Disposition and the
Pending Acquisitions, including fees to Hicks Muse, and (8) the issuance of
Capital Stock of the Company (other than Disqualified Capital Stock).
Reports. The Indenture will provide that so long as any of the Notes
is outstanding, the Company will provide to the holders of Notes and file with
the Commission copies of the annual reports and of the information, documents
and other reports that the Company would have been required to file with the
Commission pursuant to Sections 13 or 15(d) of the Exchange Act regardless of
whether the Company is then obligated to file such reports.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of
Default": (i) the failure to pay interest on the Notes when the same becomes
due and payable and the Default continues for a period of 30 days; (ii) the
failure to pay the Accreted Value of or premium, if any, on any Notes when such
Accreted Value or premium, if any, becomes due and payable, at maturity, upon
redemption or otherwise; (iii) a default in the observance or performance of
any other covenant or agreement contained in the Notes or the Indenture, which
default continues for a period of 30 days after the Company receives written
notice thereof specifying the default from the Trustee or holders of at least
25% in aggregate principal amount at maturity of outstanding Notes; (iv) the
failure to pay at the final stated maturity (giving effect to any extensions
thereof) the principal amount of any Indebtedness of the Company or any
Subsidiary of the Company, or the acceleration of the final stated maturity of
any such Indebtedness, if the aggregate principal amount of such Indebtedness,
together with the aggregate principal amount of any other such Indebtedness in
default for failure to pay principal at the final stated maturity (giving
effect to any extensions thereof) or which has been accelerated, aggregates
$5,000,000 or more at any time in each case after a 10-day period during which
such default shall not have been cured or such acceleration rescinded; (v) one
or more judgments in an aggregate amount in excess of $5,000,000 (which are not
covered by insurance as to which the insurer has not disclaimed coverage) being
rendered against the Company or any of its Significant Subsidiaries and such
judgment or judgments remain undischarged or unstayed for a period of 60 days
after such judgment or judgments become final and nonappealable; and (vi)
certain events of bankruptcy, insolvency or reorganization affecting the
Company or any of its Significant Subsidiaries.
Upon the happening of any Event of Default specified in the Indenture,
the Trustee may, and the Trustee upon the request of holders of 25% in
principal amount at maturity of the outstanding Notes shall, or the holders of
at least 25% in principal amount at maturity of outstanding Notes may, declare
the Accreted Value of all the Notes, together with all accrued and unpaid
interest and premium, if any, to be due and payable by notice in writing to the
Company and the Trustee specifying the respective Event of Default and that it
is a "notice of acceleration" (the "Acceleration Notice"), and the same (i)
shall become immediately due and payable or (ii) if there are any amounts
outstanding under the New Credit Facility, will become due and payable upon the
first to occur of an acceleration under the New Credit Facility or five
Business Days after receipt by the Company and the agent under the New Credit
Facility of such Acceleration Notice (unless all Events of Default specified in
such Acceleration Notice have been cured or waived). If an Event of Default
with respect to bankruptcy proceedings relating to the Company occurs and is
continuing, then such amount will ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder of the Notes.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the holders of a majority in principal amount at maturity of the Notes then
outstanding (by notice to the Trustee) may rescind and cancel such declaration
and its consequences if (i) the rescission would not conflict with any judgment
or decree of a court of competent jurisdiction, (ii) all existing Events of
Default have been cured or waived except nonpayment of Accreted Value of or
interest on the Notes that has become due solely by such declaration of
acceleration, (iii) to the extent the payment of such interest is lawful,
interest (at the same rate specified in the Notes) on overdue installments of
interest and overdue payments of principal which has become due otherwise than
by such declaration of acceleration has been paid, (iv) the Company has paid
the Trustee its reasonable compensation and reimbursed the Trustee for its
expenses, disbursements and advances and (v) in the event of the cure or waiver
of a Default or Event of Default of the type described in clause (vi) of the
description of Events of Default in the first paragraph above, the Trustee has
received an Officers' Certificate and Opinion of Counsel that such Default or
104
<PAGE> 107
Event of Default has been cured or waived. The holders of a majority in
principal amount at maturity of the Notes may waive any existing Default or
Event of Default under the Indenture, and its consequences, except a default in
the payment of the Accreted Value of or interest on any Notes.
The Company is required to deliver to the Trustee, within 120 days
after the end of the Company's fiscal year, a certificate indicating whether
the signing officers know of any Default or Event of Default that occurred
during the previous year and whether the Company has complied with its
obligations under the Indenture. In addition, the Company will be required to
notify the Trustee of the occurrence and continuation of any Default or Event
of Default promptly after the Company becomes aware of the same.
Subject to the provisions of the Indenture relating to the duties of
the Trustee in case an Event of Default thereunder should occur and be
continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under the Indenture at the request or direction of any of the
holders of the Notes unless such holders have offered to the Trustee reasonable
indemnity or security against any loss, liability or expense. Subject to such
provision for security or indemnification and certain limitations contained in
the Indenture, the holders of a majority in principal amount at maturity of the
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its obligations under the Indenture at any
time by delivering all outstanding Notes to the Trustee for cancellation and
paying all sums payable by it thereunder. The Company, at its option, (i) will
be discharged from any and all obligations with respect to the Notes (except
for certain obligations of the Company to register the transfer or exchange of
such Notes, replace stolen, lost or mutilated Notes, maintain paying agencies
and hold moneys for payment in trust) or (ii) need not comply with certain of
the restrictive covenants with respect to the Indenture, if the Company
deposits with the Trustee, in trust, U.S. Legal Tender or U.S. Government
Obligations or a combination thereof that, through the payment of interest and
premium thereon and principal amount at maturity in respect thereof in
accordance with their terms, will be sufficient to pay all the principal amount
at maturity of and interest and premium on the Notes on the dates such payments
are due in accordance with the terms of such Notes as well as the Trustee's
fees and expenses. To exercise either such option, the Company is required to
deliver to the Trustee (A) an Opinion of Counsel or a private letter ruling
issued to the Company by the Internal Revenue Service (the "Service") to the
effect that the holders of the Notes will not recognize income, gain or loss
for federal income tax purposes as a result of the deposit and related
defeasance and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
option had not been exercised and, in the case of an Opinion of Counsel
furnished in connection with a discharge pursuant to clause (i) above,
accompanied by a private letter ruling issued to the Company by the IRS to such
effect, (B) subject to certain qualifications, an Opinion of Counsel to the
effect that funds so deposited will not be subject to avoidance under
applicable bankruptcy law and (C) an Officers' Certificate and an Opinion of
Counsel to the effect that the Company has complied with all conditions
precedent to the defeasance. Notwithstanding the foregoing, the Opinion of
Counsel required by clause (A) above need not be delivered if all Notes not
theretofore delivered to the Trustee for cancellation (i) have become due and
payable, (ii) will become due and payable on the maturity date within one year
or (iii) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, together, without the
consent of the holders of the Notes, may amend or supplement the Indenture for
certain specified purposes, including curing ambiguities, defects or
inconsistencies, so long as such change does not adversely affect the rights of
any of the holders in any material respect. Other modifications and amendments
of the Indenture may be made with the consent of the holders of a majority in
principal amount at maturity of the then outstanding Notes, except that,
without the consent of each holder of the Notes affected thereby, no amendment
may, directly or indirectly: (i) reduce the amount of Notes whose holders must
consent to an amendment; (ii) reduce the rate of or change the time for payment
of interest, including defaulted interest, on any Notes or amend the rate of
accretion or amend the definition of Accreted Value; (iii) reduce the Accreted
Value of or change the fixed maturity of any Notes, or change the date on which
any Notes may be subject to redemption or repurchase, or reduce the redemption
or repurchase price therefor; (iv) make any Notes payable in money other than
that stated in the Notes and the Indenture; (v) make any change in provisions
of the Indenture protecting the right of each holder of a Note to receive
payment of principal of, premium on and interest on such Note on or after the
due date thereof or to bring suit to enforce such payment or permitting holders
of a majority in principal amount at maturity of the Notes
105
<PAGE> 108
to waive Default or Event of Default; or (vi) after the Company's obligation to
purchase the Notes arises under the Indenture, amend, modify or change the
obligation of the Company to make or consummate a Change of Control Offer or a
Net Proceeds Offer or waive any default in the performance thereof or modify
any of the provisions or definitions with respect to any such offers.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it requires any conflicting interest,
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount at maturity of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Notes, unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the Indenture. Reference is made to the Indenture for the full definition of
all such terms, as well as any other terms used herein for which no definition
is provided.
"Accreted Value" means, as of any date of determination, the sum of
(i) the initial offering price of each Note and (ii) the portion of the excess
of the principal amount at maturity of each Note over such initial offering
price that shall have been amortized through such date, such amount to be so
amortized on a daily basis and compounded semi-annually on each February 1 and
August 1 at the rate of 12 3/4% per annum from the date of issuance of the
Notes through the date of determination; provided, that the Accreted Value of
the Notes shall be 100% from February 1, 2002 to maturity of the Notes.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of its
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and not incurred by such Person in connection with, or in anticipation
or contemplation of, such Person becoming a Subsidiary of the Company or such
acquisition, merger or consolidation.
"Affiliate" means a Person who, directly or indirectly, through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the Company. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Asset Acquisition" means (i) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or shall be consolidated or merged
with the Company or any Subsidiary of the Company or (ii) the acquisition by
the Company or any Subsidiary of the Company of assets of any Person comprising
a division or line of business of such Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Subsidiaries (excluding any Sale and Leaseback Transaction or any
pledge of assets or stock by the Company or any of its Subsidiaries) to any
Person other than the Company or a Wholly Owned Subsidiary of the Company of
(i) any Capital Stock of any Subsidiary of the Company or (ii) any other
property or assets of the Company or any Subsidiary of the Company other than
in the ordinary course of business; provided, however, that for purposes of the
"Limitation on Asset Sales" covenant, Asset Sales shall not include (a) a
transaction or series of related transactions in which the Company or its
Subsidiaries receive aggregate consideration of less than $500,000, (b)
transactions permitted under the "Limitation on Asset Swaps" covenant or (c)
transactions covered by the "Merger, Consolidation and Sale of Assets"
covenant.
106
<PAGE> 109
"Asset Swap" means the execution of a definitive agreement, subject
only to FCC approval, if applicable, and other customary closing conditions,
that the Company in good faith believes will be satisfied, for a substantially
concurrent purchase and sale, or exchange, of Productive Assets between the
Company or any of its Subsidiaries and another Person or group of affiliated
Persons; provided that any amendment to or waiver of any closing condition that
individually or in the aggregate is material to the Asset Swap shall be deemed
to be a new Asset Swap.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated) of capital stock of such Person and (ii) with respect to
any Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligation
of such Person to pay rent or other amounts under a lease to which such Person
is a party that is required to be classified and accounted for as a capital
lease obligation under GAAP, and for purposes of this definition, the amount of
such obligation at any date shall be the capitalized amount of such obligation
at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and surplus of not
less than $200,000,000; (v) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (iv)
above; and (vi) investments in money market funds that invest substantially all
their assets in securities of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group") (whether or not
otherwise in compliance with the provisions of the Indenture), other than to
Hicks Muse, any of its affiliates (excluding Chancellor), officers and
directors or R. Steven Hicks (the "Permitted Holders"); or (ii) a majority of
the board of directors of the Company shall consist of Persons who are not
Continuing Directors; or (iii) the acquisition by any Person or Group (other
than the Permitted Holders) of the power, directly or indirectly, to vote or
direct the voting of securities having more than 50% of the ordinary voting
power for the election of directors of the Company.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by the Company or
any of its Subsidiaries designed to protect the Company or any of its
Subsidiaries against fluctuations in the price of commodities actually used in
the ordinary course of business of the Company and its Subsidiaries.
"Commodore" means Commodore Media, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company.
"Commodore Indenture" means the indenture dated as of April 21, 1995
by and among Commodore, as Issuer, the Subsidiaries of Commodore named therein,
as Guarantors, and IBJ Schroder Bank & Trust Company, as Trustee, as in effect
on the Issue Date.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the sum (without duplication) of (i) Consolidated Net Income and (ii)
to the extent Consolidated Net Income has been reduced thereby, (A) all income
taxes of such Person and its Subsidiaries paid or accrued in accordance with
GAAP for such period (other than income taxes attributable to extraordinary or
nonrecurring gains or losses), (B) Consolidated Interest Expense and (C)
Consolidated Non-Cash Charges, all as determined on a consolidated basis for
such Person and its Subsidiaries in conformity with GAAP.
107
<PAGE> 110
"Consolidated Interest Expense" means, with respect to any Person for
any period, without duplication, the sum of (i) the interest expense of such
Person and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Interest Swap Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit, bankers' acceptance financing
or similar facilities, and (e) all accrued interest and (ii) the interest
component of Capitalized Lease Obligations paid or accrued by such Person and
its Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or loss) of such Person and its Subsidiaries for such
period on a consolidated basis, determined in accordance with GAAP; provided
that there shall be excluded therefrom, without duplication, (a) gains and
losses from Asset Sales (without regard to the $500,000 limitation set forth in
the definition thereof) or abandonments or reserves relating thereto and the
related tax effects, (b) items classified as extraordinary or nonrecurring
gains and losses, and the related tax effects according to GAAP, (c) the net
income (or loss) of any Person acquired in a pooling of interests transaction
accrued prior to the date it becomes a Subsidiary of such first referred to
Person or is merged or consolidated with it or any of its Subsidiaries, (d) the
net income of any Subsidiary to the extent that the declaration of dividends or
similar distributions by that Subsidiary of that income is restricted by
contract, operation of law or otherwise, (e) the net income of any Person,
other than a Subsidiary, except to the extent of the lesser of (x) dividends or
distributions paid to such first referred to Person or its Subsidiary by such
Person and (y) the net income of such Person (but in no event less than zero),
and the net loss of such Person shall be included only to the extent of the
aggregate Investment of the first referred to Person or a consolidated
Subsidiary of such Person and (f) any non-cash expenses attributable to grants
or exercises of employee stock options.
"Consolidated Non-Cash Charges" means, with respect to any Person for
any period, the aggregate depreciation, amortization and other non-cash
expenses of such Person and its Subsidiaries (excluding any such charges
constituting an extraordinary or nonrecurring item) reducing Consolidated Net
Income of such Person and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Continuing Director" means, as of the date of determination, any
Person who (i) was a member of the Board of Directors of the Company on the
Issue Date, (ii) was nominated for election or elected to the board of
directors of the Company with the affirmative vote of a majority of the
Continuing Directors who were members of such board of directors at the time of
such nomination or election or (iii) is a representative of a Permitted Holder.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
the Company or any of its Subsidiaries against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Disqualified Capital Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, matures
(excluding any maturity as the result of an optional redemption by the issuer
thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the sole option of the holder thereof (except,
in each case, upon the occurrence of a Change of Control), in whole or in part,
on or prior to the final maturity date of the Notes.
"Financial Monitoring and Oversight Agreements" means, collectively,
the Monitoring and Oversight Agreement between the Company and Hicks, Muse &
Co. Partners, L.P., as in effect on the Issue Date, and the Financial Advisory
Agreement between the Company and Hicks Muse & Co. Partners L.P., as in effect
on the Issue Date.
"GAAP" means generally accepted accounting principles as in effect in
the United States of America as of the Issue Date.
"Indebtedness" means with respect to any Person, without duplication,
any liability of such Person (i) for borrowed money, (ii) evidenced by bonds,
debentures, notes or other similar instruments, (iii) constituting Capitalized
Lease Obligations, (iv) incurred or assumed as the deferred purchase price of
property, or pursuant to conditional sale obligations and title retention
agreements (but excluding trade accounts payable arising in the ordinary course
of business), (v) for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit
108
<PAGE> 111
transaction, (vi) for Indebtedness of others guaranteed by such Person, (vii)
for Interest Swap Obligations, Commodity Agreements and Currency Agreements and
(viii) for Indebtedness of any other Person of the type referred to in clauses
(i) through (vii) which is secured by any Lien on any property or asset of such
first referred to Person, the amount of such Indebtedness being deemed to be
the lesser of the value of such property or asset or the amount of the
Indebtedness so secured. The amount of Indebtedness of any Person at any date
shall be the outstanding principal amount of all unconditional obligations
described above, as such amount would be reflected on a balance sheet prepared
in accordance with GAAP, and the maximum liability at such date of such Person
for any contingent obligations described above.
"Interest Swap Obligations" means the obligations of any Person under
any interest rate protection agreement, interest rate future, interest rate
option, interest rate swap, interest rate cap or other interest rate hedge or
arrangement.
"Investment" means (i) any transfer or delivery of cash, stock or
other property of value in exchange for Indebtedness, stock or other security
or ownership interest in any Person by way of loan, advance, capital
contribution, guarantee or otherwise and (ii) an investment deemed to have been
made by the Company at the time any entity which was a Subsidiary of the
Company ceases to be such a Subsidiary in an amount equal to the value of the
loans and advances made, and any remaining ownership interest in, such entity
immediately following such entity ceasing to be a Subsidiary of the Company.
The amount of any non-cash Investment shall be the fair market value of such
Investment, as determined conclusively in good faith by management of the
Company unless the fair market value of such Investment exceeds $1,000,000, in
which case the fair market value shall be determined conclusively in good faith
by the Board of Directors of the Company at the time such Investment is made.
"Leverage Ratio" shall mean the ratio of (i) the aggregate outstanding
amount of Indebtedness of the Company and its Subsidiaries as of the date of
calculation on a consolidated basis in accordance with GAAP plus the aggregate
liquidation preference of all outstanding Preferred Stock of the Company's
Subsidiaries on such date less the Accreted Value of the Notes on such date to
(ii) the Consolidated EBITDA of the Company for the four full fiscal quarters
(the "Four Quarter Period") ending on or prior to the date of determination.
For purposes of this definition, the aggregate outstanding principal
amount of Indebtedness of the Company and its Subsidiaries and the aggregate
liquidation preference of all outstanding Preferred Stock of the Company's
Subsidiaries for which such calculation is made shall be determined on a pro
forma basis as if the Indebtedness and Preferred Stock giving rise to the need
to perform such calculation had been incurred and issued and the proceeds
therefrom had been applied, and all other transactions in respect of which such
Indebtedness is being incurred or Preferred Stock is being issued had occurred,
on the last day of the Four Quarter Period. In addition to the foregoing, for
purposes of this definition, "Consolidated EBITDA" shall be calculated on a pro
forma basis after giving effect to (i) the incurrence of the Indebtedness of
such Person and its Subsidiaries and the issuance of the Preferred Stock of
such Subsidiaries (and the application of the proceeds therefrom) giving rise
to the need to make such calculation and any incurrence (and the application of
the proceeds therefrom) or repayment of other Indebtedness, other than the
incurrence or repayment of Indebtedness pursuant to working capital facilities,
at any time subsequent to the beginning of the Four Quarter Period and on or
prior to the date of determination, as if such incurrence or issuance (and the
application of the proceeds thereof), or the repayment, as the case may be,
occurred on the first day of the Four Quarter Period, (ii) any Asset Sales or
Asset Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of such Person or one of
its Subsidiaries (including any Person that becomes a Subsidiary as a result of
such Asset Acquisition) incurring, assuming or otherwise becoming liable for
Indebtedness or such Person's Subsidiaries issuing Preferred Stock) at any time
on or subsequent to the first day of the Four Quarter Period and on or prior to
the date of determination, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Indebtedness
and the issuance of such Preferred Stock and also including any Consolidated
EBITDA associated with such Asset Acquisition) occurred on the first day of the
Four Quarter Period and (iii) cost savings resulting from employee
terminations, facilities consolidations and closings, standardization of
employee benefits and compensation practices, consolidation of property,
casualty and other insurance coverage and policies, standardization of sales
representation commissions and other contract rates, and reductions in taxes
other than income taxes (collectively, "Cost Savings Measures"), which cost
savings the Company reasonably believes in good faith would have been achieved
during the Four Quarter Period as a result of such Asset Acquisitions
(regardless of whether such cost savings could then be reflected in pro forma
financial statements under GAAP, Regulation S-X promulgated by the Commission
or any other regulation or policy of the Commission), provided that both (A)
such cost savings and Cost Savings Measures were identified and such cost
savings were quantified in an officer's certificate delivered to the Trustee at
the time of the consummation of the Asset Acquisition and such officer's
certificate states that such officer believes in good faith that actions will
be commenced or initiated within 90 days of such Asset Acquisition to effect
such Cost Savings Measures and (B) with respect to each Asset Acquisition
completed prior to the 90th day preceding such date of determination, actions
were commenced or initiated by the Company within 90 days of such Asset
Acquisition to
109
<PAGE> 112
effect the Cost Savings Measures identified in such officer's certificate
(regardless, however, of whether the corresponding cost savings have been
achieved). Furthermore, in calculating "Consolidated Interest Expense" for
purposes of the calculation of "Consolidated EBITDA," (i) interest on
Indebtedness determined on a fluctuating basis as of the date of determination
(including Indebtedness actually incurred on the date of the transaction giving
rise to the need to calculate the Leverage Ratio) and which will continue to be
so determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness as in effect on the
date of determination and (ii) notwithstanding (i) above, interest determined
on a fluctuating basis, to the extent such interest is covered by Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Major Asset Sale" means an Asset Sale or series of related Asset
Sales involving assets with a fair market value in excess of $25,000,000.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents (including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents) received by the Company or any of its Subsidiaries from such Asset
Sale net of (i) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions, recording fees, title insurance premiums,
appraisers fees and costs reasonably incurred in preparation of any asset or
property for sale), (ii) taxes paid or reasonably estimated to be payable
(calculated based on the combined state, federal and foreign statutory tax
rates applicable to the Company or the Subsidiary engaged in such Asset Sale)
and (iii) repayment of Indebtedness secured by assets subject to such Asset
Sale; provided that if the instrument or agreement governing such Asset Sale
requires the transferor to maintain a portion of the purchase price in escrow
(whether as a reserve for adjustment of the purchase price or otherwise) or to
indemnify the transferee for specified liabilities in a maximum specified
amount, the portion of the cash or Cash Equivalents that is actually placed in
escrow or segregated and set aside by the transferor for such indemnification
obligation shall not be deemed to be Net Cash Proceeds until the escrow
terminates or the transferor ceases to segregate and set aside such funds, in
whole or in part, and then only to the extent of the proceeds released from
escrow to the transferor or that are no longer segregated and set aside by the
transferor.
"New Credit Facility" means the credit agreement entered into among
the Company, Commodore, Bankers Trust Company, as agent and the lenders parties
thereto from time to time, as the same may be amended, supplemented or
otherwise modified from time to time, and (ii) any renewal, extension,
refunding, restructuring, replacement or refinancing thereof (whether with the
original agent and lenders or another agent or agents or other lenders and
whether provided under the original New Credit Facility or any other credit
agreement).
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing, or otherwise relating
to, any Indebtedness.
"Permitted Indebtedness" means, without duplication, (i) Indebtedness
outstanding on the Issue Date; (ii) Indebtedness of the Company or a Subsidiary
incurred pursuant to the New Credit Facility in an aggregate principal amount
at any time outstanding not to exceed the sum of the aggregate commitments
pursuant to the New Credit Facility as in effect on the Issue Date; (iii)
Indebtedness evidenced by or arising under the Notes and the Indenture; (iv)
Interest Swap Obligations; provided that such Interest Swap Obligations are
entered into to protect the Company from fluctuations in interest rates of its
Indebtedness; (v) additional Indebtedness of the Company or any of its
Subsidiaries not to exceed $10,000,000 in principal amount outstanding at any
time (which amount may, but need not, be incurred under the New Credit
Facility); (vi) Refinancing Indebtedness; (vii) Indebtedness owed by the
Company to any Wholly Owned Subsidiary of the Company or by any Subsidiary of
the Company to the Company or any Wholly Owned Subsidiary of the Company;
(viii) guarantees by Subsidiaries of any Indebtedness permitted to be incurred
pursuant to the Indenture; (ix) Indebtedness in respect of performance bonds,
bankers' acceptances and surety or appeal bonds provided by the Company or any
of its Subsidiaries to their customers in the ordinary course of their
business; (x) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Subsidiaries pursuant to such
agreements, in each case incurred in connection with the disposition of any
business assets or Subsidiaries of the Company (other than guarantees of
Indebtedness or other obligations
110
<PAGE> 113
incurred by any Person acquiring all or any portion of such business assets or
Subsidiaries of the Company for the purpose of financing such acquisition) in a
principal amount not to exceed the gross proceeds actually received by the
Company or any of its Subsidiaries in connection with such disposition;
provided, however, that the principal amount of any Indebtedness incurred
pursuant to this clause (x), when taken together with all Indebtedness incurred
pursuant to this clause (x) and then outstanding, shall not exceed $7,500,000;
and (xi) Indebtedness represented by Capitalized Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the purpose
of financing all or any part of the purchase price or cost of construction or
improvement of property used in a related business or incurred to refinance any
such purchase price or cost of construction or improvement, in each case
incurred no later than 365 days after the date of such acquisition or the date
of completion of such construction or improvement; provided, however, that the
principal amount of any Indebtedness incurred pursuant to this clause (xi)
shall not exceed $3,000,000 at any time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Subsidiary of the Company to acquire the stock or assets of any Person (or
Acquired Indebtedness acquired in connection with a transaction in which such
Person becomes a Subsidiary of the Company) engaged in the broadcast business
or businesses reasonably related thereto; provided that if any such Investment
or series of related Investments involves an Investment by the Company in
excess of $5,000,000, the Company is able, at the time of such investment and
immediately after giving effect thereto, to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred
Stock of Subsidiaries" covenant, (ii) Investments received by the Company or
its Subsidiaries as consideration for a sale of assets, (iii) Investments by
the Company or any Wholly Owned Subsidiary of the Company in any Wholly Owned
Subsidiary of the Company (whether existing on the Issue Date or created
thereafter) or any Person that after such Investments, and as a result thereof,
becomes a Wholly Owned Subsidiary of the Company and Investments in the Company
by any Wholly Owned Subsidiary of the Company, (iv) cash and Cash Equivalents,
(v) Investments in securities of trade creditors, wholesalers or customers
received pursuant to any plan of reorganization or similar arrangement, (vi)
loans or advances to employees of the Company or any Subsidiary thereof for
purposes of purchasing the Company's Capital Stock and other loans and advances
to employees made in the ordinary course of business consistent with past
practices of the Company or such Subsidiary, and (vii) additional Investments
in an aggregate amount not to exceed $1,000,000 at any time outstanding.
"Person" means an individual, partnership, corporation, limited
liability company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Productive Assets" means assets of a kind used or usable by the
Company and its Subsidiaries in broadcast businesses or businesses reasonably
related thereto, and specifically includes assets acquired through Asset
Acquisitions.
"Public Equity Offering" means an underwritten public offering of
Capital Stock (other than Disqualified Capital Stock) of the Company, pursuant
to an effective registration statement filed with the Commission in accordance
with the Securities Act.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Refinancing Indebtedness" means any refinancing by the Company of
Indebtedness of the Company or any of its Subsidiaries incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries" covenant (other than pursuant to clause (iii)
or (iv) of the definition of Permitted Indebtedness) that does not (i) result
in an increase in the aggregate principal amount of Indebtedness (such
principal amount to include, for purposes of this definition, any premiums,
penalties or accrued interest paid with the proceeds of the Refinancing
Indebtedness) of such Person or (ii) create Indebtedness with (A) a Weighted
Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being refinanced.
"Restricted Payment" means (i) the declaration or payment of any
dividend or the making of any other distribution (other than dividends or
distributions payable in Qualified Capital Stock or in options, rights or
warrants to acquire Qualified Capital Stock on shares of the Company's Capital
Stock, (ii) the purchase, redemption, retirement or other acquisition for value
of any Capital Stock of the Company, or any warrants, rights or options to
acquire shares of Capital Stock of the Company, other than through the exchange
of such Capital Stock or any warrants, rights or options to acquire shares of
any class of such Capital Stock for Qualified Capital Stock or warrants, rights
or options to acquire
111
<PAGE> 114
Qualified Capital Stock, (iii) the making of any principal payment on, or the
purchase, defeasance, redemption, prepayment, decrease or other acquisition or
retirement for value, prior to any scheduled final maturity, scheduled
repayment or scheduled sinking fund payment, of, any Indebtedness of the
Company or its Subsidiaries that is subordinated or junior in right of payment
to the Notes or (iv) the making of any Investment (other than a Permitted
Investment).
"Senior Debt" means any Indebtedness of the Company (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law), whether outstanding on
the Issue Date or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be pari passu in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Debt" shall also include the
principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for
in the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in respect
of, and all monetary obligations of every nature under, (w) the New Credit
Facility, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees, expenses and
indemnities and (x) all Interest Swap Obligations. Notwithstanding the
foregoing, Senior Debt shall not include any of the following amounts (whether
or not constituting Indebtedness as defined in the Indenture): (i) any
Indebtedness of the Company to a Subsidiary of the Company; (ii) Indebtedness
and other amounts owing to trade creditors incurred in connection with
obtaining goods, materials or services; (iii) Indebtedness represented by
Disqualified Capital Stock; and (iv) any liability for federal, state, local or
other taxes owed or owing by the Company.
"Significant Subsidiary" means for any Person each Subsidiary of such
Person which (i) for the most recent fiscal year of such Person accounted for
more than 5% of the consolidated net income of such Person or (ii) as at the
end of such fiscal year, was the owner of more than 5% of the consolidated
assets of such Person.
"Subsidiary," with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
Notwithstanding anything in the Indenture to the contrary, all references to
the Company and its consolidated Subsidiaries or to financial information
prepared on a consolidated basis in accordance with GAAP shall be deemed to
include the Company and its Subsidiaries as to which financial statements are
prepared on a consolidated basis in accordance with GAAP and to financial
information prepared on such a consolidated basis. Notwithstanding anything in
the Indenture to the contrary, an Unrestricted Subsidiary shall not be deemed
to be a Subsidiary for purposes of the Indenture.
"Unrestricted Subsidiary" means a Subsidiary of the Company created
after the Issue Date and so designated by a resolution adopted by the Board of
Directors of the Company, provided that (a) neither the Company nor any of its
other Subsidiaries (other than Unrestricted Subsidiaries) (1) provides any
credit support for any Indebtedness of such Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness) or (2) is
directly or indirectly liable for any Indebtedness of such Subsidiary and (b)
at the time of designation of such Subsidiary, such Subsidiary has no property
or assets (other than de minimis assets resulting from the initial
capitalization of such Subsidiary). The board of directors may designate any
Unrestricted Subsidiary to be a Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries" covenant and (y) no Default or Event of
Default shall have occurred or be continuing. Any designation pursuant to this
definition by the board of directors of the Company shall be evidenced to the
Trustee by the filing with the Trustee of a certified copy of the resolution of
the Company's Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the total
of the product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
112
<PAGE> 115
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such
Person of which all the outstanding voting securities (other than directors'
qualifying shares) which normally have the right to vote in the election of
directors are owned by such Person or any Wholly-Owned Subsidiary of such
Person.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does
not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended,
Treasury regulations, Internal Revenue Service rulings and pronouncements and
judicial decisions now in effect, all of which are subject to change at any
time by legislative, judicial or administrative action. Any such changes may be
applied retroactively in a manner that could adversely affect a holder of the
New Notes. The description does not consider the effect of any applicable
foreign, state, local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The exchange of Old Notes for New Notes should not be an exchange or
otherwise a taxable event to a holder for federal income tax purposes.
Accordingly, a holder should have the same adjusted issue price, adjusted basis
and holding period in the New Notes as it had in the Old Notes immediately
before the exchange.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, certain of the Notes are
represented by a single permanent global certificate in definitive, fully
registered form (the "Global Certificate"). The Global Certificate was
deposited on the Issue Date with, or on behalf of, DTC and registered in the
name of a nominee of DTC. The Global Certificate is subject to certain
restrictions on transfer set forth therein.
The Notes (i) originally purchased by or transferred to "foreign
purchasers" or Accredited Investors who are not Qualified Institutional Buyers
("OIBs") under Rule 144A under the Securities Act or (ii) held by QIBs who
elect to take physical delivery of their certificates instead of holding their
interest through the Global Certificate (and which are thus ineligible to trade
through DTC) (collectively referred to herein as the "Non-Global Purchasers")
were issued in registered form (a "Certificated Security"). Upon the transfer
to a QIB of any Certificated Security initially issued to a Non-Global
Purchaser, such Certificated Security will, unless the transferee requests
otherwise or the Global Certificate has previously been exchanged in whole for
Certificated Securities, be exchanged for an interest in the Global
Certificate.
The Global Certificate. Pursuant to procedures established by DTC (i)
upon the issuance of the Global Certificate, DTC or its custodian credited, on
its internal system, the number of Notes of the individual beneficial interests
represented by such global securities to the respective accounts of persons who
have accounts with such depositary and (ii) ownership of beneficial interests
in the Global Certificate are shown on, and the transfer of such ownership are
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants). Such accounts initially were
designated by or on behalf of the Initial Purchaser and ownership of beneficial
interests in the Global Certificate are limited to persons who have accounts
with DTC ("participants") or persons who hold interests through participants.
QIBs may hold their interests in the Global Certificate directly through DTC if
they are participants in such system, or indirectly through organizations which
are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of
the Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Certificate for all
purposes. No beneficial owner of an interest in the Global Certificate will be
able to transfer that interest except in accordance with DTC's procedures.
Payments of principal of, premium, if any, and interest, if any, on
the Global Certificate will be made to DTC or its nominee, as the case may be,
as the registered owner thereof. Neither the Company nor the Paying Agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial
113
<PAGE> 116
ownership interests in the Global Certificate or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any
payment of principal of, premium, if any, and interest, if any, in respect of
the Global Certificate, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the Global Certificate as shown on the records of DTC or its nominee.
The Company also expects that payments by participants to owners of beneficial
interests in the Global Certificate held through such participants will be
governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in clearinghouse funds. If
a holder requires physical delivery of a Certificated Security for any reason,
including to sell Notes to persons in states which require physical delivery of
the certificate evidencing the Notes, or to pledge such securities, such holder
must transfer its interest in the Global Certificate, in accordance with the
normal procedures of DTC and with the procedures set forth in the Certificate
of Designation.
DTC has advised the Company that it will take any action permitted to
be taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Certificate are credited and only in
respect of such Notes as to which such participant or participants has or have
given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Certificate among participants
of DTC, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. The Company will not have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Certificate and a successor depositary
is not appointed by the Company within 90 days, Certificated Securities will be
issued in exchange for the Global Certificate, which certificates will bear the
legends referred to under the heading "Transfer Restrictions."
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 90 days after the Expiration Date, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until ________________, 1997, all dealers
effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes
by broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or
114
<PAGE> 117
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such New Notes. Any broker-dealer that resells New Notes that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus or any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company agreed to pay all expenses incident
to the Exchange Offer (including the expenses of counsel for the Holders of the
Old Notes) other than commissions or concessions of any broker-dealers and will
indemnify the holders of the Old Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
See "The Exchange Offer" for additional information concerning the
Exchange Offer and interpretations of the Commission's staff with respect to
prospectus delivery obligations of broker-dealers.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for
the Company by Vinson & Elkins L.L.P., Dallas, Texas.
EXPERTS
The consolidated balance sheet of Capstar Broadcasting Partners, Inc.
and Subsidiaries as of December 31, 1996 and the consolidated statements of
operations, stockholders' equity and cash flows for the period from October 11,
1996 ("inception") to December 31, 1996 included in this Prospectus, have been
included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheet of Commodore Media, Inc. and
Subsidiaries, the Predecessor Company of Capstar Broadcasting Partners, Inc.,
as of December 31, 1995, and for the period from January 1, 1996 to October 16,
1996 and for the years ended December 31, 1995 and 1994, appearing in this
Prospectus, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report appearing herein given upon such firm as experts in
accounting and auditing.
The consolidated balance sheets of Osborn Communications Corporation
as of December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, appearing in this Prospectus, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report appearing
herein, given upon such firm as experts in accounting and auditing.
The combined balance sheets of Benchmark Communications Radio Limited
Partnership as of December 31, 1996 and 1995 and the combined statements of
operations, changes in partners' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1996 included in this
Prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The balance sheet of Midcontinent Broadcasting Co. of Wisconsin, Inc.
as of December 31, 1996 and the statements of income and retained earnings and
cash flows for the year ended December 31, 1996 included in this Prospectus,
have been included herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The balance sheet of Point Communications Limited Partnership as of
December 31, 1996 and the statements of operations, partners' equity and cash
flows for the year ended December 31, 1996 included in this Prospectus, have
115
<PAGE> 118
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The balance sheet of Community Pacific Broadcasting Company L.P. as of
December 31,1996 and the statements of operations, changes in partners' equity
and cash flows for the year ended December 31, 1996 included in this
Prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The statements of operations and deficit and cash flows of Q
Broadcasting, Inc. for each of the three years in the period ended September
30, 1995 included in this Prospectus, have been included herein in reliance on
the report of Holtz Rubenstein & Co., L.L.P., independent accountants, given on
the authority of that firm as experts in accounting and auditing.
The statements of operations and accumulated deficit and cash flows of
Danbury Broadcasting, Inc. for the year ended June 30, 1995 included in this
prospectus, have been included herein in reliance on the report of Paneth,
Haber & Zimmerman L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The balance sheet of Adventure Communications-Huntington (Division of
Adventure Communications, Inc.) as of December 31, 1995 and the statements of
operations, division's deficit and cash flows for the year ended December 31,
1995 included in this Prospectus, have been included herein in reliance on the
report of Brown, Edwards & Co., LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement
(the "Registration Statement") under the Securities Act with respect to the New
Notes offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth
in the Registration Statement. For further information with respect to the
Company and the New Notes offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules filed therewith. Statements
contained in this Prospectus concerning the provisions of any contract,
agreement or other document referred to herein or therein are not necessarily
complete, but contain a summary of the material terms of such contracts,
agreements or other documents. With respect to each contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for the complete contents of the exhibit, and each
statement concerning its provisions is qualified in its entirety by such
reference. The Registration Statement may be inspected, without charge, at the
offices of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and
at its regional offices at 7 World Trade Center, New York, New York, 10048 and
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-2551. Copies
of such materials may also be obtained by mail at prescribed rates from the
Public Reference Section of the Commission at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such materials may also be
obtained from the web site that the Commission maintains at www.sec.gov.
116
<PAGE> 119
GLOSSARY OF CERTAIN TERMS AND MARKET AND INDUSTRY DATA
"advertising inventory" refers to the amount of advertising air time a
radio station has available to sell to advertisers.
"broadcast cash flow" consists of operating income before
depreciation, amortization, corporate and other compensation expenses. Although
broadcast cash flow is not a measure of performance calculated in accordance
with generally accepted accounting principles ("GAAP"), management believes
that it is useful to an investor in evaluating the Company because it is a
measure widely used in the broadcast industry to evaluate a radio company's
operating performance. However, broadcast cash flow should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in accordance
with GAAP as a measure of liquidity or profitability.
"Benchmark Acquisition" means the pending acquisitions of, and mergers
of directly and indirectly wholly-owned subsidiaries of HM Fund III with,
Benchmark Communications Radio Limited Partnership, L.P. and certain of its
subsidiary partnerships (collectively, "Benchmark").
"Benchmark Combination" means the Benchmark Acquisition and all
acquisitions or dispositions completed by Benchmark since January 1, 1996
through the date of the Benchmark Acquisition.
"broadcast cash flow margin" represents the percentage of net revenue
which is attributable to broadcast cash flow.
"BT Equity Investment" means BT Investment Partners, Inc.'s $20.0
million investment in Capstar BT Partners, L.P., a limited partnership
controlled by Hicks Muse, which used such investment to acquire $20.0 million
of the nonvoting Class B Common Stock of Capstar.
"Capstar" and the "Company" each means, unless the context otherwise
requires, Capstar Broadcasting Partners, Inc. and its subsidiaries after
consummation of the Pending Acquisitions.
"Cavalier Acquisition" means the Company's pending acquisition of
substantially all of the assets of Cavalier Communications, L.P. ("Cavalier").
"COMCO Acquisition" means the Company's pending acquisition of
substantially all of the assets of COMCO Broadcasting, Inc. ("COMCO").
"Commodore Acquisition" means the Company's completed acquisition of
Commodore Media, Inc. ("Commodore").
"Commodore Combination" means the Commodore Acquisition and all
acquisitions or dispositions completed by Commodore since January 1, 1996
through the date of the Commodore Acquisition.
"Commodore Notes" refers to Commodore's 13 1/4% Senior Subordinated
Notes due 2003.
"Commonwealth Acquisition" means the Company's pending acquisition of
substantially all of the assets of Commonwealth Broadcasting of Arizona, L.L.C.
("Commonwealth").
"Communications Act" means the Communications Act of 1934, as amended.
"Community Pacific Acquisition" means the Company's pending
acquisition of substantially all of the assets of Community Pacific
Broadcasting Company L.P. ("Community Pacific").
"EBITDA" consists of operating income before depreciation,
amortization and other expenses. Although EBITDA is not a measure of
performance calculated in accordance with GAAP, management believes that it is
useful to an investor in evaluating the Company because it is a measure widely
used in the broadcast industry to evaluate a radio company's operating
performance. However, EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with GAAP as a
measure of liquidity or profitability.
117
<PAGE> 120
"Emerald City Acquisition" means the Company's pending acquisition of
substantially all of the assets of Emerald City Radio Partners, L.P. ("Emerald
City") used or held for use in connection with station WNOK-FM in the Columbia,
South Carolina market.
"Equity Investment" collectively refers to the Hicks Muse Equity
Investment and the BT Equity Investment.
"Gadsden Acquisition" means Osborn's completed acquisition of
substantially all the assets of WAAX-AM/WQEN-FM, Gadsden, Alabama.
"Hicks Muse Equity Investment" means the purchase by an affiliate of
Hicks Muse of certain shares of Class A Common Stock for $34.8 million in cash
concurrently with the consummation of the Osborn Acquisition.
"Huntington Acquisition" collectively refers to certain defined assets
of radio stations WKEE-FM and WKEE-AM in Huntington, West Virginia; WZZW-AM
and WFXN-FM in Milton, West Virginia; WBVB-FM in Coal Grove, Ohio; and WIRO-AM
and WMLV-FM in Ironton, Ohio, acquired by Commodore.
"JSA" refers to a joint sales agreement, whereby a station licensee
obtains, for a fee, the right to sell substantially all of the commercial
advertising on a separately-owned and licensed station. JSAs take varying forms.
A JSA, unlike an LMA, normally does not involve programming.
"LMA" refers to a local marketing agreement, whereby a radio station
outsources the management of certain limited functions of its operations. LMAs
take varying forms; however, the FCC requires that, in all cases, the licensee
maintain independent control over the programming and operations of the
station.
"Madison Acquisition" means the Company's pending acquisition of
substantially all of the assets of the Madison Radio Group ("Madison") which is
comprised of the stations formerly owned by Midcontinent Broadcasting Co. of
Wisconsin, Inc. and Point Communication Limited Partnership.
"Management Equity Investment" means the $600,000 investment in Common
Stock by certain members of the Company's management in January 1997.
"Notes" refers to Capstar's 12 3/4% Senior Discount Notes due 2009.
"Osborn Acquisition" means the Company's completed acquisition of
Osborn Communications Corporation ("Osborn").
"Osborn Add-on Acquisitions" means the Company's completed
acquisitions of (i) all of the issued and outstanding capital stock of Dixie
Broadcasting, Inc. and Radio WBHP, Inc. and (ii) substantially all of the
assets of Taylor Communications Corporation ("Taylor") utilized in the
operations of Taylor's stations in the Tuscaloosa, Alabama market.
"Osborn Combination" means the Osborn Transactions and all
acquisitions or dispositions completed by Osborn since January 1, 1996 through
the date of the Osborn Acquisition.
"Osborn Contribution" means the contribution by Frank D. Osborn, the
President and Chief Executive Officer of Osborn, of certain shares of common
stock of Osborn to the Company in exchange for shares of Class A Common Stock
having a deemed value of $1.8 million.
"Osborn Ft. Myers Disposition" means Osborn's completed disposition of
substantially all of the assets used or held for use in connection with the
business and operations of Osborn's stations in the Port Charlotte and Ft.
Myers, Florida markets.
"Osborn Transactions" collectively refers to the Osborn Acquisition,
the Osborn Add-on Acquisitions and the Osborn Ft. Myers Disposition.
"Other Acquisitions" collectively refers to the Madison Acquisition
and the Community Pacific Acquisition.
118
<PAGE> 121
"Pending Acquisitions" collectively refers to the Madison Acquisition,
the Community Pacific Acquisition, the Commonwealth Acquisition, the COMCO
Acquisition, the Cavalier Acquisition, the WRIS Acquisition and the Emerald
City Acquisition.
"WRIS Acquisition" means the Company's pending acquisition of
substantially all of the assets of WRIS, Inc. ("WRIS").
Unless otherwise indicated herein, (i) MSA rankings by population were
obtained from the Summer 1996 Radio Market Survey Schedule (copyright 1996), as
provided by The Arbitron Company ("Arbitron"), (ii) all audience share
rankings, except for the Yuma, Arizona market and where specifically stated to
the contrary, have been derived from surveys of persons, ages 25 to 54,
listening Monday through Sunday, 6 a.m. to 12 midnight, and are based on either
the Spring, Summer or Fall 1996 survey period, as reported in Radio Market
Reports, Metro Audience Trends (copyright 1996), a publication of Arbitron,
(iii) audience share rankings in Yuma, Arizona, are based on the Spring 1996
survey period, as reported in AccuRatings(TM) (Copyright 1996), a publication
of Strategic Radio Research, Inc. ("AccuRatings(TM)") and (iv) all revenue
share rankings are based on data compiled as of February 27, 1997, as reported
in BIA Publications Radio Analyzer -- BIA's Master Access, Version 1.7
(copyright 1996), a computer database by BIA Publications Inc. ("BIA").
119
<PAGE> 122
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR
Report of Independent Accountants .................................................................... F-3
Report of Independent Auditors ....................................................................... F-4
Consolidated Balance Sheets as of December 31, 1996 and 1995 ......................................... F-5
Consolidated Statements of Operations for the period ended December 31, 1996, for the period
ended October 16, 1996, and for the years ended December 31, 1995 and 1994 ......................... F-6
Consolidated Statements of Stockholders' Equity (Deficit) for the period ended December 31,
1996, for the period ended October 16, 1996, and for the years ended December 31, 1995 and
1994 ............................................................................................... F-7
Consolidated Statements of Cash Flows for the period ended December 31, 1996, for the period
ended October 16, 1996, and for the years ended December 31, 1995 and 1994 ......................... F-8
Notes to Consolidated Financial Statements ........................................................... F-9
OSBORN COMMUNICATIONS CORPORATION
Report of Independent Auditors ....................................................................... F-31
Consolidated Balance Sheets as of December 31, 1996 and 1995 ......................................... F-32
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 ........... F-33
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31,
1996, 1995 and 1994 ................................................................................ F-34
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994 ........................................................................................... F-35
Notes to Consolidated Financial Statements ........................................................... F-36
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
Report of Independent Accountants .................................................................... F-45
Combined Balance Sheets as of December 31, 1996 and 1995 ............................................. F-46
Combined Statements of Operations for the years ended December 31, 1996, 1995 and 1994 ............... F-47
Combined Statements of Changes in Partners' Equity (Deficit) for the years ended
December 31, 1996, 1995 and 1994 ................................................................... F-48
Combined Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 ............... F-49
Notes to Combined Financial Statements ............................................................... F-50
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
Report of Independent Accountants .................................................................... F-58
Balance Sheet as of December 31, 1996 ................................................................ F-59
Statement of Income and Retained Earnings for the year ended December 31, 1996 ....................... F-60
Statement of Cash Flows for the year ended December 31, 1996 ......................................... F-61
Notes to Financial Statements ........................................................................ F-62
POINT COMMUNICATIONS LIMITED PARTNERSHIP
Report of Independent Accountants .................................................................... F-65
Balance Sheet as of December 31, 1996 ................................................................ F-66
Statement of Operations for the year ended December 31, 1996 ......................................... F-67
Statement of Partners' Equity for the year ended December 31, 1996 ................................... F-68
Statement of Cash Flows for the year ended December 31, 1996 ......................................... F-69
Notes to Financial Statements ........................................................................ F-70
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
Report of Independent Accountants .................................................................... F-74
Balance Sheet as of December 31, 1996 ................................................................ F-75
Statement of Operations for the year ended December 31, 1996 ......................................... F-76
Statement of Changes in Partners' Equity for the year ended December 31, 1996 ........................ F-77
Statement of Cash Flows for the year ended December 31, 1996 ......................................... F-78
Notes to Financial Statements ........................................................................ F-79
</TABLE>
F-1
<PAGE> 123
<TABLE>
<S> <C>
Q BROADCASTING, INC.
Independent Auditors' Report ......................................................................... F-84
Statements of Operations and Deficit for the years ended September 30, 1995, 1994 and 1993 ........... F-85
Statements of Cash Flows for the years ended September 30, 1995, 1994 and 1993 ....................... F-86
Notes to Financial Statements ........................................................................ F-87
DANBURY BROADCASTING, INC.
Report of Independent Auditors ....................................................................... F-90
Statement of Operations and Accumulated Deficit for the year ended June 30, 1995 ..................... F-91
Statement of Cash Flows for the year ended June 30, 1995 ............................................. F-92
Notes to Financial Statements ........................................................................ F-93
ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
Independent Auditors' Report ......................................................................... F-96
Balance Sheet as of December 31, 1995 ................................................................ F-97
Statement of Operations for the year ended December 31, 1995 ......................................... F-98
Statement of Division's Deficit for the year ended December 31, 1995 ................................. F-99
Statement of Cash Flows for the year ended December 31, 1995 ......................................... F-100
Notes to Financial Statements ........................................................................ F-101
</TABLE>
F-2
<PAGE> 124
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Capstar Broadcasting Partners, Inc.:
We have audited the accompanying consolidated balance sheet of Capstar
Broadcasting Partners, Inc. and Subsidiaries as of December 31, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the period from October 11, 1996 ("inception") to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Capstar Broadcasting Partners, Inc. and Subsidiaries as of December
31, 1996 and the consolidated results of their operations and their cash flows
for the period from inception to December 31, 1996, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Austin, Texas
February 14, 1997
F-3
<PAGE> 125
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Capstar Broadcasting Partners, Inc.
We have audited the accompanying consolidated balance sheet of
Commodore Media, Inc. and Subsidiaries ("Commodore"), the Predecessor Company
of Capstar Broadcasting Partners, Inc., as of December 31, 1995. We have also
audited the consolidated statements of operations, stockholders' deficit and
cash flows for the period from January 1, 1996 to October 16, 1996 and for the
years ended December 31, 1995 and 1994. These financial statements are the
responsibility of Commodore's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Commodore as of December 31, 1995, and the consolidated results of
its operations and its cash flows for the period from January 1, 1996 to
October 16, 1996 and for the years ended December 31, 1995 and 1994, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 10, 1997
F-4
<PAGE> 126
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR
-----------
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> || <C>
Current assets: ||
Cash and short-term cash investments ........................................... $ 5,028,014 || $10,891,489
Accounts receivable, less allowance of $838,081 ||
in 1996 and $700,336 in 1995 ................................................ 8,913,390 || 6,131,447
Prepaid expenses and other current assets ...................................... 443,900 || 285,412
------------ || -----------
Total current assets ......................................................... 14,385,304 || 17,308,348
Property, plant and equipment, net ................................................ 15,628,361 || 8,080,043
FCC licenses and goodwill, net of accumulated amortization of ||
$1,047,768 in 1996 and $3,912,167 in 1995 ...................................... 202,644,356 || 20,767,625
Other intangible assets, net ...................................................... 3,178,469 || 1,761,306
Deferred charges, net ............................................................. 1,800,234 || 3,910,582
Deposits and other assets ......................................................... 931,340 || 982,876
------------ || -----------
Total assets ................................................................... $238,568,064 || $52,810,780
============ || ===========
||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ||
||
Current liabilities: ||
Accounts payable and accrued expenses .......................................... $ 3,046,883 || $ 1,774,256
Accrued compensation ........................................................... 422,062 || 815,162
Accrued interest ............................................................... 1,810,292 || 960,368
Accrued income taxes ........................................................... -- || 16,840
Current maturities of capital lease obligations ................................ 16,056 || 11,977
Current maturities of long-term debt ........................................... 3,750,000 || --
Due to affiliate ............................................................... 536,738 || --
------------ || -----------
Total current liabilities .................................................... 9,582,031 || 3,578,603
Long-term capital lease obligation ................................................ 49,629 || 43,130
Long-term debt .................................................................... 135,762,277 || 66,261,339
Noncurrent compensation ........................................................... -- || 1,482,275
Deferred income taxes ............................................................. 2,031,580 || --
------------ || -----------
Total liabilities .............................................................. 147,425,517 || 71,365,347
------------ || -----------
Stockholders' equity (deficit): ||
CAPSTAR: ||
Preferred Stock, $.01 par value, 10,000,000 ||
shares authorized, none issued and outstanding ............................... -- || --
Class A Common Stock, $.01 par value; 200,000,000 ||
shares authorized, 94,155,000 shares issued and outstanding .................. 941,550 ||
Additional paid-in capital ..................................................... 93,957,450 ||
Accumulated deficit ............................................................ (3,756,453) ||
COMMODORE: ||
Class A Common Stock, $0.01 par value; 3,000,000 ||
shares authorized and issued: 146,526 shares in 1995 ......................... -- || 1,465
Class B Common Stock, convertible into Class A Common Stock, ||
$0.01 par value; 486,373 shares authorized and issued in 1995 ................ -- || 4,864
Additional paid-in capital ..................................................... -- || 23,580,184
Accumulated deficit ............................................................ -- || (42,115,080)
------------ || -----------
|| (18,528,567)
Less treasury stock, at cost, 85,524 shares in 1995 ............................ -- || 26,000
------------ || -----------
Total stockholders' equity (deficit) ........................................ 91,142,547 || (18,554,567)
------------ || -----------
Total liabilities and stockholders' equity (deficit) ......................... $238,568,064 || $52,810,780
============ || ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 127
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------
PERIOD ENDED
---------------------------- YEAR ENDED DECEMBER 31,
DECEMBER 31, OCTOBER 16, ----------------------------
1996 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> || <C> <C> <C>
Total revenue .................................. $11,133,586 || $ 34,826,060 $ 33,652,677 $ 28,686,381
Less agency commissions ........................ (830,271)|| (2,869,014) (2,857,912) (2,461,478)
----------- || ------------ ------------ ------------
Net revenue .................................... 10,303,315 || 31,957,046 30,794,765 26,224,903
Operating expenses: ||
Programming, technical and news ........... 1,836,667 || 5,906,967 5,365,686 4,601,374
Sales and promotion ....................... 2,935,890 || 9,303,914 8,796,481 7,325,549
General and administrative ................ 1,511,143 || 6,081,262 4,870,463 4,556,515
Corporate expenses ............................. 600,532 || 1,756,797 2,051,181 2,109,741
Depreciation and amortization .................. 1,331,386 || 2,157,750 1,926,250 2,145,201
Other expense .................................. 744,000 || 13,833,728 2,006,550 2,180,000
----------- || ------------ ------------ ------------
Operating income (loss) ........................ 1,343,697 || (7,083,372) 5,778,154 3,306,523
Interest expense ............................... 5,035,142 || 8,860,958 7,805,525 3,152,352
Interest income ................................ 34,063 || 221,806 420,659 266
Other expenses, net ............................ 99,071 || 1,980,908 48,796 381,550
----------- || ------------ ------------ ------------
Loss before provision for income ||
taxes and extraordinary loss .............. (3,756,453)|| (17,703,432) (1,655,508) (227,113)
Provision for income taxes ..................... -- || 133,000 140,634 300,000
----------- || ------------ ------------ ------------
Loss before extraordinary loss ................. (3,756,453)|| (17,836,432) (1,796,142) (527,113)
Extraordinary loss on extinguishment of debt ... -- || -- (443,521) --
----------- || ------------ ------------ ------------
Net loss ....................................... $(3,756,453)|| $(17,836,432) $ (2,239,663) $ (527,113)
=========== || ============ ============ ============
Loss per common share:
Loss before extraordinary loss ............ $ (.04)
===========
Extraordinary loss ........................ $ --
===========
Net loss .................................. $ (.04)
===========
Weighted average number of shares outstanding .. 93,691,842
</TABLE>
See accompanying notes.
F-6
<PAGE> 128
CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
PAR VALUE ADDITIONAL STOCKHOLDERS'
------------------ PAID-IN ACCUMULATED TREASURY EQUITY
CLASS A CLASS B CAPITAL DEFICIT STOCK (DEFICIT)
-------- -------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR:
Balance at January 1, 1994 ................................ $ 1,192 $ 4,864 $22,523,192 $(38,348,304) $ (1,000) $(15,820,056)
Cumulative dividends on redeemable preferred stock ........ -- -- (690,660) -- -- (690,660)
Adjustment to carrying value of redeemable warrant ........ -- -- -- (1,000,000) -- (1,000,000)
Loss for the year ......................................... -- -- -- (527,113) -- (527,113)
-------- -------- ----------- ------------ -------- ------------
Balance at December 31, 1994 .............................. 1,192 4,864 21,832,532 (39,875,417) (1,000) (18,037,829)
Cumulative dividends on redeemable preferred stock ........ -- -- (252,175) -- -- (252,175)
Allocation of net proceeds of debt offering to warrants ... -- -- 2,000,000 -- -- 2,000,000
Repurchase of common stock ................................ -- -- -- -- (25,000) (25,000)
Exercise of warrants ...................................... 273 -- (173) -- -- 100
Loss for the year ......................................... -- -- -- (2,239,663) -- (2,239,663)
-------- -------- ----------- ------------ -------- ------------
Balance at December 31, 1995 .............................. 1,465 4,864 23,580,184 (42,115,080) (26,000) (18,554,567)
Warrants issued with preferred stock facility ............ -- -- 981,500 -- -- 981,500
Dividends on senior exchangeable redeemable
preferred stock ......................................... -- -- (359,957) -- -- (359,957)
EFFECTS OF THE COMMODORE ACQUISITION (NOTE 1):
Recapitalization and acquisition of common
shares by Capstar ....................................... (1,455) (4,864) 32,092,400 -- 26,000 32,112,081
Redemption of preferred stock ............................. -- -- (1,101,235) -- -- (1,101,235)
Net loss for the period ................................... -- -- -- (17,836,432) -- (17,836,432)
-------- -------- ----------- ------------ -------- ------------
Balance at October 16, 1996 ............................... $ 10 $ -- $55,192,892 $(59,951,512) $ -- $ (4,758,610)
======== ======== =========== ============ ======== ============
CAPSTAR:
Balance at inception (October 11, 1996) ................... $ -- $ -- $ -- $ --
-------- ----------- ------------ ------------
Issuance of common stock in connection
with the Commodore Acquisition (Note 1) ................. 932,750 92,342,250 -- 93,275,000
Issuance of warrants ...................................... -- 744,000 -- 744,000
Issuance of common stock (November 26, 1996) .............. 8,800 871,200 -- 880,000
Net loss for the period ................................... -- -- (3,756,453) (3,756,453)
-------- ----------- ------------ ------------
Balance at December 31, 1996 .............................. $941,550 $93,957,450 $ (3,756,453) $ 91,142,547
======== =========== ============ ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 129
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------------------
PERIOD ENDED
----------------------------- YEAR ENDED DECEMBER 31,
DECEMBER 31, || OCTOBER 16, ------------------------------
1996 || 1996 1995 1994
------------- || ------------- ------------- -------------
<S> <C> || <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES ||
Net loss ...................................................... $ (3,756,453) || $ (17,836,432) $ (2,239,663) $ (527,113)
Adjustments to reconcile net loss to net cash provided ||
by operating activities: ||
Loss on extinguishment of debt ............................ -- || -- 443,521 --
Depreciation and amortization ............................. 1,331,386 || 2,157,750 2,311,162 2,365,111
Noncash interest .......................................... 2,407,739 || 3,315,669 2,288,917 --
Long-term incentive compensation .......................... -- || 1,066,893 79,000 2,180,000
Non-cash compensation ..................................... 744,000 || 12,731,587 -- --
Provision for uncollectible accounts and notes ||
receivable .............................................. 104,838 || 488,320 556,137 468,155
Loss on disposition of assets ............................. || -- 9,819 335,736
Net barter income ......................................... || (222,645) (184,300) (122,163)
Initial public offering and pending merger expenses ....... || 1,909,648 -- --
Changes in assets and liabilities, net of amounts acquired: ||
Increase in accounts receivable ........................ (1,057,861) || (2,315,753) (1,847,015) (1,509,195)
(Increase) decrease in prepaid expenses and ||
other current assets ................................. 91,280 || (208,462) (88,787) (267,196)
Increase (decrease) in accounts payable and ||
accrued expenses ..................................... 341,308 || (337,896) (158,855) 326,251
(Decrease) increase in accrued compensation ............ 110,127 || (496,177) (230,645) 197,881
(Decrease) increase in accrued interest ................ (902,248) || 1,752,172 582,525 351,639
(Decrease) increase in accrued income taxes ............ -- || 20,952 (277,135) 261,541
Increase in due to affiliate ........................... 536,738 || -- -- --
------------- || ------------- ------------- -------------
Total adjustments ................................... 3,707,307 || 19,862,058 3,484,344 4,587,760
------------- || ------------- ------------- -------------
Net cash provided by operating activities .................... (49,146) || 1,989,626 1,244,681 4,060,647
CASH FLOWS FROM INVESTING ACTIVITIES ||
Proceeds from redemption of note .............................. -- || -- -- 405,000
Proceeds from sale of property, plant and equipment ........... -- || -- -- 398,018
Repayment of loan by stockholder .............................. -- || 250,375 182,988 --
Purchase of property, plant and equipment ..................... (807,532) || (448,677) (320,980) (623,414)
Acquisition of Commodore ...................................... (125,494,171) || -- -- --
Payments for acquisitions ..................................... || (31,900,000) (3,100,000) --
Deferred acquisition costs incurred ........................... (1,070,262) || (1,326,673) (417,020) (172,558)
Deposits on pending acquisitions .............................. -- || (745,000) (525,000) --
Loans to employees ............................................ -- || -- (315,863) (57,500)
Other investing activities, net ............................... -- || (187,528) 87,528 --
------------- || ------------- ------------- -------------
Net cash used in investing activities ......................... (127,371,965) || (34,357,503) (4,408,347) (50,454)
CASH FLOWS FROM FINANCING ACTIVITIES ||
Proceeds from issuance of Commodore ||
Notes and warrants .......................................... -- || -- 64,956,422 --
Proceeds from Existing Credit Facility ........................ 6,000,000 || 18,700,000 -- --
Proceeds from Existing Term Loan Facility ..................... 35,000,000 || -- -- --
Net proceeds from issuance of preferred stock ................. -- || 9,822,520 -- --
Proceeds from issuance of common stock ........................ 94,155,000 || -- 100 --
Payment of initial public offering and merger expenses ........ -- || (1,007,297) -- --
Repayment of amounts borrowed ................................. -- || -- (39,014,833) (2,738,166)
Payment of financing related costs ............................ (2,705,875) || (781,170) (4,226,762) (104,245)
Redemption of preferred stock ................................. -- || -- (8,665,835) --
Purchase of redeemable warrant ................................ -- || -- (1,000,000) --
Repurchase of common stock .................................... -- || -- (25,000) --
Principal payments on capital leases .......................... -- || (9,812) (11,186) (12,389)
------------- || ------------- ------------- -------------
Net cash provided by (used in) financing activities ........... 132,449,125 || 26,724,241 12,012,906 (2,854,800)
------------- || ------------- ------------- -------------
Net (decrease) increase in cash and short-term cash ||
investments ................................................. || (5,643,636) 8,849,240 1,155,393
Cash and short-term cash investments at beginning of period ... -- || 10,891,489 2,042,249 886,856
------------- || ------------- ------------- -------------
Cash and short-term cash investments at end of period ......... $ 5,028,014 || $ 5,247,853 $ 10,891,489 $ 2,042,249
============= || ============= ============= =============
SUPPLEMENTARY CASH FLOW INFORMATION ||
Cash paid for interest ........................................ $ 3,529,651 || $ 3,793,117 $ 4,474,789 $ 2,580,522
Cash paid for income taxes .................................... -- || 112,049 417,769 38,209
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES ||
ASSET ACQUISITIONS RECORDED IN CONNECTION WITH BARTER ||
TRANSACTIONS ................................................ -- || $ 189,982 $ 112,636 $ 144,500
</TABLE>
See accompanying notes.
F-8
<PAGE> 130
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, COMMODORE ACQUISITION AND
BASIS OF PRESENTATION
Organization and Nature of Business
Capstar Broadcasting Partners, Inc. (the "Company") was incorporated under
the laws of the State of Delaware on October 11, 1996. The Company's
wholly-owned subsidiary, Commodore Media, Inc. and Subsidiaries, the Company's
predecessor, ("Commodore") is comprised of radio stations that derive their
revenue from local, regional and national advertisers. The radio stations are
located in the following markets: Wilmington, Delaware; Hartsdale, Brewster,
Patterson, Mt. Kisco, New York; Huntington, West Virginia -- Ashland, Kentucky;
Allentown -- Bethlehem, Pennsylvania; Fort Pierce -- Stuart -- Vero Beach,
Florida; and Fairfield County, Connecticut. Commodore extends credit to its
customers in the normal course of business.
Basis of Presentation
The consolidated financial statements as of December 31, 1996 and for the
period from October 11, 1996 through December 31, 1996 include the accounts of
Capstar and its wholly-owned subsidiary, Commodore, since October 16, 1996, the
date of the Commodore Acquisition. The Company had no substantive operations
until its acquisition of Commodore and Commodore is considered the Company's
predecessor for financial reporting purposes. The accompanying consolidated
financial statements include the results of operations of Commodore and its
Subsidiaries for the period ended October 16, 1996, and as of and for the year
ended December 31, 1995 and the results of its operations for the year ended
December 31, 1994. The financial position and results of operations of
Commodore prior to the acquisition by the Company have not been adjusted to
give effect to the Commodore Acquisition. All intercompany accounts and
transactions have been eliminated in consolidation.
Commodore Acquisition
On October 16, 1996, the Company acquired Commodore pursuant to a merger
agreement dated June 21, 1996 (the "Commodore Acquisition"). The purchase price
was approximately $229.2 million including acquisition costs and assumed
liabilities of approximately $108.5 million. The purchase price was funded
through borrowings under the Former Term Loan Facility of approximately $35.0
million, the assumption of liabilities referred to above and the investment of
common stock of the Company of approximately $93.3 million by an affiliate of
Hicks, Muse, Tate & Furst, Incorporated (Hicks Muse) and members of management
of the Company. The Commodore Acquisition has been accounted for under the
purchase method of accounting. Accordingly, the purchase price has been
allocated to the assets and liabilities based upon their fair values at the
date of acquisition as described below.
The acquisition is summarized as follows:
<TABLE>
<S> <C>
Cash ........................................................ $ 6,074,954
Accounts receivable, net .................................... 7,960,367
Prepaid expenses and other .................................. 535,180
Property and equipment ...................................... 15,343,939
FCC licenses, goodwill and other intangible assets .......... 202,304,691
Other assets ................................................ 4,823,414
Accounts payable and accrued expenses ....................... (5,701,978)
Other long-term liabilities ................................. (93,757)
Deferred tax liability ...................................... (2,031,580)
--------------
Total purchase price .................................. $ 229,215,230
==============
</TABLE>
At the time of the merger, the holders of Commodore Class A Common
Stock and Class B Common Stock (collectively, the "Commodore Common Stock"),
received $140 per share as consideration for their interest. Each of the option
and warrant holders received the difference between $140 per share and the
exercise price per share in consideration for their interest. In addition, the
senior exchangeable redeemable preferred stock, Series A, $.01 par value per
share, was redeemed, including all accrued and unpaid dividends.
F-9
<PAGE> 131
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commodore recognized as other expense approximately $12.7 million in
stock option compensation expense, and approximately $1.4 million of merger
related fees and expenses during the period ended October 16, 1996 in
connection with the Commodore Acquisition.
As a result of the Commodore Acquisition and the change of control
effected thereby, Commodore was obligated to satisfy the existing deferred
compensation and employment agreements with its then President and Chief
Executive Officer and its deferred compensation agreement with its then Chief
Operating Officer resulting in a charge to other expense of approximately $1.1
million during the period ended October 16, 1996. Furthermore, Commodore was
required to make an offer to purchase the outstanding 13 1/4% Senior
Subordinated Notes due 2003 ("Commodore Notes") at a purchase price equal to
101% of their accreted value, plus any accrued and unpaid interest. No requests
for repurchase were made by the note holders.
As a result of the merger, Commodore did not proceed with its
previously announced intention to undertake an initial public equity offering
and has, therefore, withdrew its registration statement filed on Form S-1 on
May 17, 1996 with the Securities and Exchange Commission. Included in other
expenses during the period ended October 16, 1996 are approximately $525,000 in
various fees and expenses incurred in connection with this filing.
Short-Term Cash Investments
The Company and Commodore consider investments which have a remaining
maturity of three months or less at the time of purchase to be short-term cash
investments. The Company and Commodore invest their excess cash in U.S.
Treasury Bills.
Income Taxes
The Company and Commodore account for income taxes in accordance with
FASB Statement No. 109, "Accounting for Income Taxes." Under this method,
deferred income taxes are provided for differences between the book and tax
bases of assets and liabilities. The Company and its subsidiaries plan to file
a consolidated federal income tax return.
Risks and Uncertainties -- Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Risks and Uncertainties -- Regulatory Environment
The consummation of radio broadcasting acquisitions requires prior
approval of the Federal Communications Commission (the "FCC") with respect to
the transfer of control or assignment of the broadcast licenses of the acquired
stations. Certain of the pending acquisitions referred to in Note 7b have not
yet received FCC approval. There can be no assurance that the FCC will approve
future acquisitions by the Company, including the pending acquisitions.
On February 8, 1996, the President signed into law the
Telecommunications Act of 1996. Among other things, this legislation requires
the FCC, to relax its numerical restrictions on local ownership and affords
renewal applicants significant new protections from competing applications for
their broadcast licenses. The new legislation will enable the Company to retain
all of its current radio stations and to acquire more properties. At the same
time, this legislation will also allow other broadcast entities to increase
their ownership in markets where the Company currently operates stations. The
Company's management is unable to determine the ultimate effect of this
legislation on its competitive environment.
F-10
<PAGE> 132
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consummation of certain acquisitions, including certain of the
pending acquisitions, is also subject to applicable waiting periods and
possible review by the U.S. Department of Justice (the "DOJ") or the Federal
Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). The Company understands that since the
passage of the Telecom Act several radio broadcasting acquisitions have been
the subject of "second requests" for additional information by federal
authorities under the HSR Act. The Company also understands that the DOJ is
currently reviewing its internal guidelines for antitrust review of radio
broadcasting acquisitions.
As part of its increased scrutiny of radio station acquisitions, the
DOJ has stated publicly that it believes that local marketing agreements
("LMAs") and other similar agreements customarily entered into in connection
with radio station transfers prior to the expiration of the waiting period
under the HSR Act could violate the HSR Act.
Risks and Uncertainties -- Concentration of Credit
Financial instruments which potentially subject the Company and
Commodore to concentration of credit risk consist primarily of trade
receivables. The Company's and Commodore's revenue is principally derived from
local broadcast advertisers who are impacted by the local economy.
The Company and Commodore routinely assess the financial strength of
its customers and do not require collateral or other security to support
customer receivables. Credit losses are provided for in the consolidated
financial statements in the form of an allowance for doubtful accounts.
Accounting Periods
Commodore maintained its interim consolidated financial statements
based upon the broadcast month end which always ends on the last Sunday of the
calendar month or quarter. The Company's fiscal year end and fourth quarter end
on December 31.
Fair Value of Financial Instruments
In 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosure about Fair Value of Financial
Instruments," which requires disclosures of fair value information about
financial instruments, whether or not recognized in the balance sheet.
The carrying amount reported in the balance sheets for cash, accounts
receivable, accounts payable and accrued liabilities approximate their fair
value due to the immediate or short-term maturity of such instruments. The
carrying amounts reported for the Existing Credit Facility and Existing Term
Loan Facility approximate fair value due to the debt being priced at floating
rates. The carrying amount reported for the Commodore Notes at December 31,
1996 approximates fair value based on the published market prices for the
publicly traded indebtedness at the date of acquisition (October 16, 1996). The
fair value of the Commodore Notes and associated warrants at December 31, 1996
were $930 per unit and $105 per warrant, respectively based on published market
prices.
F-11
<PAGE> 133
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is provided on the straight-line
method based on the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED LIFE
CLASSIFICATION (YEARS)
-------------- --------------
<S> <C>
Land improvements ....................................... 20
Buildings ............................................... 20
Furniture, fixtures and equipment ....................... 7-10
Broadcasting and technical equipment .................... 7-10
Towers and antennas ..................................... 20
Music library ........................................... 7
Leasehold improvements .................................. 10-20
Vehicles ................................................ 3
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred. Expenditures for betterments and major renewals are capitalized and,
therefore, are included in property, plant and equipment.
Property Held Under Capital Leases
The Company and Commodore are the lessees of office equipment under
capital leases expiring in various years through 2004. The assets and
liabilities under capital leases are recorded at the lower of the present value
of the minimum lease payments or the fair value of the asset. The assets are
depreciated over their estimated productive lives of seven to ten years.
Revenue Recognition
The Company and Commodore recognize revenue upon the airing of
advertisements.
Intangible Assets
Intangible assets are being amortized by the straight-line method over
the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED LIFE
CLASSIFICATION (YEARS)
-------------- --------------
<S> <C>
FCC licenses and goodwill ............................... 40
Organization expenses ................................... 5
Network affiliation agreement ........................... 5
Covenant not to compete ................................. 5
Tower site lease ........................................ 3
Contract rights ......................................... 3
Software ................................................ 3
Pre-sold advertising contracts .......................... 1
</TABLE>
Goodwill represents the excess of cost over the fair values of
identifiable tangible and other intangible net assets acquired. Management
continually reviews the appropriateness of the carrying value of goodwill of
its subsidiaries and the related amortization period based on their anticipated
undiscounted cash flows. The Company and Commodore consider operating results,
trends and prospects of the Company's and Commodore's stations, as well as
competitive comparisons. The Company and Commodore also take into consideration
recent acquisition patterns within the broadcast
F-12
<PAGE> 134
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
industry, the impact of recently, enacted or potential FCC rules and
regulations and any other events or circumstances which might indicate
potential impairment.
Deferred Charges
Legal fees, bank loan closing costs and other expenses associated with
debt financing are being amortized using the effective interest rate method.
Amortization of debt expense charged to operations and included in interest
expense amounted to $1,691,172 for the period ended December 31, 1996 for the
Company, and $449,905 for the period ended October 16, 1996 and $384,908 and
$219,893 for the years ended December 31, 1995 and 1994, respectively, for
Commodore.
Advertising Costs
The Company and Commodore expense advertising costs related to their
radio station operations as incurred. Advertising expense amounted to $281,085
for the period ended December 31, 1996 for the Company, and $557,155 for the
period ended October 16, 1996 and $754,489 and $560,818 for the years ended
December 31, 1995 and 1994, respectively, for Commodore.
Barter Transactions
The fair value of barter and trade-out transactions is included in
broadcast revenue and sales and promotion expense. Barter revenue is recorded
when advertisements are broadcast and barter expense is recorded when
merchandise or services are received. Barter transactions charged to operations
were as follows:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------------------
YEAR ENDED DECEMBER 31,
PERIOD ENDED PERIOD ENDED ------------------------------
DECEMBER 31, 1996 OCTOBER 16, 1996 1995 1994
----------------- ---------------- ------------ ------------
<S> <C> || <C> <C> <C>
Trade sales ..................... $ 1,049,739 || $ 3,204,468 $ 3,238,111 $ 2,473,002
Trade expense ................... (1,003,987) || (2,981,823) (3,053,811) (2,350,839)
------------ || -------------- ------------ ------------
Net barter transactions ......... $ 45,752 || $ 222,645 $ 184,300 $ 122,163
============ || ============== ============ ============
</TABLE>
Loss Per Share
Net loss per share is based on the weighted average number of shares
of common stock and common stock equivalents outstanding during each respective
period. Proceeds from the exercise of the dilutive stock options are assumed to
be used to repurchase outstanding shares of the Company's common stock at the
average fair market value during the period.
Recent Pronouncements
In February 1997, the FASB issued FASB Statement No. 128 "Earnings Per
Share ("SFAS No. 128")" which establishes standards for computing and
presenting earnings per share. SFAS No. 128 is effective for fiscal years
beginning after December 15, 1997. Management does not believe the
implementation of SFAS No. 128 will have a material effect on its financial
statements.
In February 1997, the FASB issued FASB Statement No. 129 "Disclosure
of Information About Capital Structure ("SFAS No. 129")" which establishes
disclosure requirements for an entity's capital structure. SFAS No. 129 is
effective for fiscal years beginning after December 15, 1997. Management does
not believe the implementation of SFAS No. 129 will have a material effect on
its financial statements.
F-13
<PAGE> 135
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial Statement Presentation
Certain prior year financial statement items of Commodore have been
reclassified to conform to the current year presentation.
2. THE RECAPITALIZATION TRANSACTION
On April 21, 1995, Commodore completed the offering of the Commodore
Notes. The net proceeds of approximately $65.0 million were used to retire
existing senior indebtedness of approximately $36.2 million, fund the purchase
of assets (excluding cash and accounts receivable) and broadcasting license of
radio broadcast station WQOL-FM in Vero Beach, Florida (the "Treasure Coast
Acquisition") for $3.1 million, and repay the Note payable to Michael Hansen
("Hansen Note") and the Note payable to Radio Financial Partners, Inc. ("RFP
Note") for an aggregate amount of $2.4 million. In addition, Commodore used
$8.7 million to redeem its preferred stock, paid $1.9 million in connection
with the long-term incentive compensation of its then President and its then
Chief Operating Officer (see Note 1), paid approximately $4.2 million in
related deferred fees of the offering, and used the balance of $8.5 million for
general corporate purposes. Commodore converted all of its existing common
stock for 486,373 shares of its Class B Common Stock ("Class B") and 119,212
shares (including 85,524 treasury shares) of its Class A Common Stock ("Class
A"). At the time of conversion, Commodore's then President and its then Chief
Operating Officer purchased 27,369 shares and 6,319 shares, respectively, of
Class A from the Chairman. In addition, William A.M. Burden and Company, an
affiliated entity, exercised its option to acquire 27,314 shares of Class A
from the Company. Each share of Class B is entitled to eight votes and each
share of Class A is entitled to one vote. The consolidated financial statements
of Commodore have been retroactively adjusted for this conversion.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR
-----------
DECEMBER 31,
--------------------------------
1996 || 1995
------------ || ------------
<S> <C> || <C>
Land and land improvements ......................... $ 2,274,510 || $ 2,813,139
Buildings .......................................... 2,404,538 || 2,499,399
Furniture, fixtures and equipment .................. 1,846,692 || 2,188,502
Broadcasting and technical equipment ............... 5,548,233 || 5,907,905
Towers and antennas ................................ 3,046,783 || 3,401,300
Music library ...................................... 235,237 || 250,456
Leasehold improvements ............................. 278,614 || 365,825
Vehicles ........................................... 125,693 || 147,567
Property held under capital leases ................. 41,399 || 81,497
------------ || ------------
15,801,699 || 17,655,590
Less accumulated depreciation and amortization ..... (173,338) || (9,575,547)
------------ || ------------
Property, plant and equipment, net ................. $ 15,628,361 || $ 8,080,043
============ || ============
</TABLE>
Accumulated amortization of property acquired under capital leases was
$21,663 as of December 31, 1996 for the Company and $12,728 as of December 31,
1995 for Commodore. Depreciation as a charge to income amounted to $173,338 for
the period ended December 31, 1996 for the Company, and $779,903 for the period
ended October 16, 1996, $831,656 in 1995 and $768,826 in 1994 for Commodore.
F-14
<PAGE> 136
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OTHER INTANGIBLE ASSETS
Other intangible assets, at cost, consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR
-----------
DECEMBER 31,
--------------------------
1996 || 1995
----------- || -----------
<S> <C> || <C>
Covenant not to compete ................................................... $ 1,021,788 || $ 1,325,000
Deferred acquisition expenses ............................................. 1,569,767 || 953,441
Pre-sold advertising contracts ............................................ 311,056 || 103,642
Network affiliation agreement ............................................. 232,738 || 260,000
Other ..................................................................... 153,400 || 14,516
----------- || -----------
3,288,749 || 2,656,599
Less accumulated amortization ............................................. (110,280)|| (895,293)
----------- || -----------
Other intangible assets, net .............................................. $ 3,178,469 || $ 1,761,306
=========== || ===========
</TABLE>
Amortization of the aforementioned intangible assets included as a
charge to income amounted to $130,569 for the period ended December 31, 1996
for the Company, and $592,348 for the period ended October 16, 1996, $506,447
for 1995 and $817,087 for 1994 for Commodore. Amortization of FCC licenses and
goodwill amounted to $1,047,768 for the period ended December 31, 1996 for the
Company, and $501,482 for the period ended October 16, 1996, $588,149 for 1995
and $559,304 for 1994 for Commodore.
5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR
-------------
DECEMBER 31,
------------------------------
1996 || 1995
------------- || -------------
<S> <C> || <C>
Former Credit Facility collateralized by capital stock of all subsidiaries, ||
interest at 3.5% over LIBOR, due December 31, 2002 ................... $ 24,700,000 || $ --
Commodore Notes, $76,808,000 principal, including unamortized ||
premium of $3,004,277 at December 31, 1996 and unamortized ||
discount of $10,546,661 at December 31, 1995, due 2003 ............... 79,812,277 || 66,261,339
Former Term Loan Facility ................................................. 35,000,000 || --
------------- || -------------
Total debt ................................................................ 139,512,277 || 66,261,339
Less current maturities ................................................... (3,750,000)|| --
------------- || -------------
Long-term debt ............................................................ $ 135,762,277 || $ 66,261,339
============= || =============
</TABLE>
Former Credit Facility
On March 13, 1996, Commodore entered into a Senior Credit Facility with
AT&T Commercial Finance Corporation ("AT&T") pursuant to which AT&T will make
available to Commodore senior secured (i) revolving loans in an amount up to
$30.0 million and (ii) accounts receivable loans in an amount which shall be
the lesser of (a) $5.0 million or (b) 85% of the net book value of the accounts
receivable of Commodore (the "AT&T Senior Credit Facility"). The indebtedness
to AT&T is collateralized by the tangible and intangible assets and the capital
stock of all Commodore's subsidiaries. Interest is payable monthly at a rate of
3.5% over LIBOR (8.9% at September 29, 1996) and principal amortization of the
revolving loans and accounts receivable loans begins June 1, 1998 and November
30, 1997, respectively. At December 31, 1996, Commodore had additional
available borrowings under the revolving and accounts
F-15
<PAGE> 137
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
receivable loans of approximately $9,000,000 and $1,300,000, respectively.
Commodore pays a commitment fee of .25% every six months on the unused
commitment.
Commodore Notes
The Commodore Notes bear cash interest at a rate of 7 1/2% per annum on
the principal amount until May 1, 1998 then at a rate of 13 1/4% per annum
until maturity, with interest payment dates on May 1 and November 1. The
Commodore Notes may be redeemed at the option of Commodore at any time on or
after May 1, 1999 at redemption prices specified in the indenture. The terms of
the Commodore Notes contain various covenants for the benefit of the holders
that, among other things, restrict the ability of Commodore to incur additional
indebtedness, pay dividends and make certain investments. Specified events such
as a failure to make principal or interest payments when due or failure to
observe or perform any covenant creates an event of default (as defined) under
the Commodore Notes. Upon an event of default, the trustee may or upon the
request of 25% of the holders declare the principal and unpaid interest due and
payable. The Commodore Notes, excluding the notes that were held for the
benefit of the former President of Commodore, were issued with detachable
warrants to purchase 75,500 shares of Class A Common Stock at an exercise price
of $.01 per warrant less the exercise price. The warrant holders at the time of
the merger received $140 in cash for each warrant. Commodore estimated the fair
market value of the warrants to be $2,000,000 as of the date of issuance and
allocated this amount out of the net proceeds of the debt offering to paid-in
capital.
Former Term Loan Facility
The Former Term Loan Facility of the Company consists of a term loan
facility in the amount of $30.0 million and a second term loan facility in the
amount of $5.0 million. The Term Loans matured upon consummation of the Osborn
Acquisition (Note 7b). As more fully described in Note 7b, the Company used a
portion of the proceeds of a private placement offering of 12 3/4% Senior
Discount Notes (the "Notes") to repay the balances owed under these term loans
(unaudited). Accordingly, amounts outstanding under the Former Term Loan
Facility at December 31, 1996 have been classified as "long-term" in the
accompanying financial statements.
The weighted average effective interest rate at December 31, 1996 was
11.7%.
Aggregate maturities of long-term debt due within the next five years
ending December 31 are as follows:
<TABLE>
<S> <C>
1997 ....................................................... $ 3,750,000
1998 ....................................................... --
1999 ....................................................... --
2000 ....................................................... --
Thereafter ................................................. 132,758,000
------------
$136,508,000
============
</TABLE>
In connection with the debt restructuring of The Bank of New York loan
on December 28, 1993, Commodore issued the bank a warrant to purchase 4.99% of
the common stock of Commodore, on a fully diluted basis, for $100. The warrant
was exercisable at any time prior to its expiration on December 28, 2003 and
contained a put option under which the bank could require Commodore to purchase
the warrant at any time after January 1, 1997 up until expiration or upon an
initial public offering or a sale of Commodore at a price based upon (1) the
actual proceeds received by Commodore in an initial public offering or sale,
(2) negotiations between the parties, or (3) an independent appraisal. No value
was ascribed to the warrant at the time of issuance. The increase in the fair
value of the warrant in 1994 of $1,000,000 was recorded as a reduction to
retained earnings. Commodore repurchased the warrant in March 1995 for a
negotiated price of $1,000,000.
F-16
<PAGE> 138
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, Commodore wrote off the balance of the unamortized deferred
financing costs on its retired debt of $443,521. Inasmuch as Commodore had no
current federal taxable income and had fully reserved for its net deferred tax
assets, there was no tax effect attributable to this extraordinary item.
The Former Credit Facility, the Commodore Notes and the Former Term
Loan Facility indentures contain certain restrictive financial covenants,
including, among others, the maintenance of certain financial ratios.
6. PREFERRED STOCK
Capstar Preferred Stock
The board of directors is authorized, without further action by the
Company's stockholders to issue up to 10,000,000 shares of $.01 par value per
share preferred stock in one or more series and to fix, as to such series, the
voting rights, if any, applicable to such series and other such designations,
preferences and special rights as the board of directors may determine,
including dividend, conversion, redemption, and liquidation rights and
preferences. There are no shares of preferred stock outstanding.
Senior Exchangeable Redeemable Preferred Stock
On May 1, 1996, Commodore entered into a Securities Purchase Agreement
with CIBC WG Argosy Merchant Fund 2, LLC ("CIBC Merchant Fund"), pursuant to
which the CIBC Merchant Fund agreed to purchase from Commodore, if and when
requested by Commodore, up to an aggregate liquidation value of $12,500,000 of
Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per
share, of Commodore in such amounts as Commodore requested (the "Preferred
Stock Facility"). In connection with the Stamford Acquisition on May 30, 1996
and the Florida Acquisition on May 31, 1996 (see Note 7a), Commodore issued
5,700 shares and 4,300 shares, respectively, of Preferred Stock for an
aggregate purchase price of $10,000,000. The Preferred Stock accrued cash
dividends at the rate of 8.0% per annum and was redeemed, including accrued
dividends, in connection with the merger on October 16, 1996. In connection
with the Preferred Stock Facility, Commodore issued to the CIBC Merchant Fund a
warrant to purchase 7,550 shares of Commodore's Class A Common Stock, at an
exercise price of $.01 per warrant, which were valued in the aggregate at the
date of issue at $981,500. This warrant was redeemed in connection with the
merger for $140 per share less the exercise price.
8.87% Cumulative Redeemable Preferred Stock
On December 28, 1993, Radio Financial Partners, Inc., formerly a
related entity of Commodore, converted $7.7 million of outstanding debt and
accrued interest into 10,000 shares of Commodore's newly issued 8.87%
cumulative redeemable preferred stock. Commodore redeemed all outstanding
shares of the preferred stock on April 21, 1995; the total liquidation value as
of the date of redemption was $8.7 million which included $942,835 in
accumulated dividends.
7(a) CONSUMMATED ACQUISITIONS
On October 16, 1996, Commodore purchased certain defined assets of
radio stations WKEE-FM and WKEE- AM in Huntington, West Virginia, WZZW-AM in
Milton, West Virginia, WBVB-FM in Coal Grove, Ohio and WIRO- AM in Ironton,
Ohio from Adventure Communications, Inc. for $7.7 million and certain defined
assets of WFXN-FM in Milton, West Virginia and WMLV-FM in Ironton, Ohio for
$4.3 million (collectively, the "Huntington Acquisition"). The transactions
were funded with borrowings from the AT&T Senior Credit Facility and with funds
provided from the Company. Commodore provided programming to these stations
under an LMA effective April 1996 until the purchase date. In addition,
Commodore has an option to purchase WHRD-AM in Huntington, West Virginia and
provides programming services to the station under an LMA arrangement.
F-17
<PAGE> 139
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On May 31, 1996, Commodore purchased certain defined assets of radio
stations WBBE-FM (formerly WKQS- FM), WAVW-FM and WAXE-AM in the Fort
Pierce-Stuart-Vero Beach, Florida market from Media VI for $8.0 million (the
"Florida Acquisition"). The transaction was funded with borrowings from the
AT&T Senior Credit Facility and funds from the Preferred Stock Facility.
Commodore sold advertising time on these stations under a JSA from February
1996 until the purchase date.
On May 30, 1996, Commodore purchased certain defined assets of radio
stations WKHL-FM and WSTC-AM in Stamford, Connecticut from Q Broadcasting, Inc.
for $9.5 million. The transaction was financed with borrowings from the AT&T
Senior Credit Facility and funds from the Preferred Stock Facility.
On March 27, 1996, Commodore purchased (i) certain defined assets of
radio stations WZZN-FM in Mount Kisco, New York, WAXB-FM in Patterson, New York
and WPUT-AM in Brewster, New York from Hudson Valley Growth, L.P. for $5.5
million and (ii) all of the issued and outstanding common stock of Danbury
Broadcasting, Inc., owner of WRKI-FM, and WINE-AM in Brookfield, Connecticut,
plus certain real property for $10.0 million. The transaction was financed with
Commodore's existing cash and borrowings under the AT&T Senior Credit Facility.
Commodore provided programming to these stations under LMAs from October 1995
until the purchase date.
On June 27, 1995, Commodore purchased the assets (excluding cash and
accounts receivable) and broadcasting license of radio broadcast station
WQOL-FM in Vero Beach, Florida (the "Treasure Coast" Acquisition) for a total
purchase price of $3.0 million.
All of the transactions described above were accounted for under the
purchase method of accounting. The total purchase price of the transactions
described above of approximately $57.5 million has been preliminary allocated
as follows: (1) approximately $6.4 million to property, plant and equipment,
(2) approximately $52.8 million to FCC licenses and goodwill and other
intangible assets and (3) approximately $1.7 million to deferred income taxes.
Unaudited pro forma results of operations for the Company as if the
aforementioned acquisitions and the Commodore Acquisition had been consummated
on January 1, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Net revenue ..................................... $ 44,615 $ 42,467
Net loss before extraordinary loss .............. (13,633) (14,366)
Net loss ........................................ (13,633) (14,810)
Net loss before extraordinary loss per share .... (0.15) (0.15)
Net loss per share .............................. (0.15) (0.16)
</TABLE>
7(b) ACQUISITIONS CONSUMMATED SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)
Space Coast Acquisitions
On April 8, 1997, the Company acquired substantially all of the assets
of City Broadcasting Co. ("City"), EZY Com, Inc. ("EZY") and Roper
Broadcasting, Inc. ("Roper"), (collectively, the "Space Coast Acquisitions").
The purchase price of the City acquisition was approximately $3.0 million. City
owned and operated two radio stations (one FM and one AM) in the Melbourne,
Florida market. The purchase price of the EZY acquisition was approximately
$5.0 million. EZY owned and operated two radio stations (one FM and one AM) in
the Cocoa, Florida market. The purchase price of the Roper acquisition was
approximately $4.0 million. Roper owned and operated one FM radio station in
the Rockledge, Florida market.
F-18
<PAGE> 140
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Osborn Acquisition
On February 20, 1997, the Company acquired Osborn Communications
Corporation ("Osborn"). The purchase price of the Osborn Acquisition was
approximately $145.1 million (including $17.4 million in transaction fees and
expenses) payable in cash and common stock.
The purchase price includes $113.0 million for the 18 stations which
are owned and operated or to which services have been provided by the Company
since consummation of the transaction and $25.7 million for the five stations
in the Huntsville and Tuscaloosa, Alabama markets which were pending
acquisitions of Osborn and excludes $11.0 million to be received by the Company
upon the disposition of three stations in the Ft. Myers, Florida market
currently under sale agreements by Osborn.
The acquisitions of the five stations in Huntsville and Tuscaloosa,
Alabama are expected to be completed in March and April 1997 and the Ft. Myers,
Florida dispositions are expected to be completed in May 1997.
On February 20, 1997, the Company completed a private placement of
$277.0 million 12 3/4% Senior Discount Notes which mature in 2009. The proceeds
of the offering of $145.0 million, net of $5.3 million of fees and expenses,
and proceeds from a sale of the Company's common stock of approximately $54.8
million to an affiliate of Hicks Muse, and additional sales of equity to
management were used to finance the Osborn purchase price and certain other
acquisitions and repay certain existing indebtedness of Osborn, Commodore and
the Company. Also in February 1997 and in connection with the Osborn
Acquisition, the Company obtained a $50.0 million credit facility which was not
utilized at the time of the acquisition and which the Company intends to
refinance in connection with the Benchmark Acquisition.
7(C) PENDING ACQUISITIONS
Benchmark Acquisition
On December 9, 1996, the Company agreed to acquire directly or
indirectly all of the outstanding partnership interests of the Benchmark
Partnerships (the "Benchmark Acquisition"). The purchase price of the Benchmark
Acquisition is estimated to be approximately $186.4 million (excluding $13.0
million in transaction fees and expenses). Benchmark owns and operates 26 radio
stations (16 FM and 10 AM), has agreed to acquire two radio stations in the
Montgomery, Alabama market (the "Benchmark Montgomery Acquisition") and has
agreed to acquire substantially all of the assets of WSCQ-FM in the Columbia,
South Carolina market (the "Benchmark Columbia Acquisition"). Those stations
are located in ten markets in the Southeastern United States, including the
Dover, Delaware, Salisbury-Ocean City, Maryland, Montgomery, Alabama,
Shreveport, Louisiana, Jackson, Mississippi, Statesville, North Carolina,
Columbia, South Carolina, Greenville, South Carolina, Roanoke-Lynchburg,
Virginia and Winchester, Virginia markets. The Company anticipates that the
Benchmark Acquisition will be consummated in June 1997.
Under the terms of several acquisition agreements, each dated as of
December 9, 1996 (collectively, the "Benchmark Acquisition Agreements"),
entered into by Benchmark, the Company, certain affiliates of Hicks Muse and
other signatories thereto, Benchmark will become an indirect wholly-owned
subsidiary of the Company through a series of mergers and stock purchases with
acquisition subsidiaries, (each a "Fund III Acquisition Sub"). A Fund III
Acquisition Sub has arranged to borrow up to approximately $62.0 million the
proceeds of which may be loaned to Benchmark to provide funds to close the
Benchmark Montgomery Acquisition and the Benchmark Columbia Acquisition, and to
provide additional working capital to cover other corporate expenses. The
Company has unconditionally guaranteed all of the Fund III Acquisition Subs'
indebtedness under the senior credit agreement. As of December 31, 1996, $12.6
million had been loaned to Benchmark by Fund III Acquisition Subs for
acquisitions, and during January, 1997, $26.1 million was loaned to Benchmark
for acquisitions. Through January 1997, a Fund III Acquisition Sub has borrowed
$40.5 million under the senior credit agreement. (Approximately $60.0 million
through April 1997 (unaudited).)
F-19
<PAGE> 141
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Benchmark Acquisition Agreements may be terminated by Benchmark
prior to consummation of the Benchmark Acquisition under various circumstances,
including a breach of one or more representations, warranties, covenants or
agreements by a Fund III Acquisition Sub, which is in the aggregate has, or
would reasonably be expected to have, a material adverse effect on Benchmark
and its subsidiaries, taken as a whole. If the Benchmark Acquisition is not
consummated due to a breach of one or more representations, warranties,
covenants or agreements in the Benchmark Acquisition Agreements by a Fund III
Acquisition Sub, which in the aggregate has, or would reasonably be expected to
have, a material adverse effect on Benchmark and its subsidiaries, taken as a
whole, then Benchmark will be entitled to liquidated damages in the amount of
$8.2 million as Benchmark's exclusive remedy. The Fund III Acquisition Subs
have secured their obligations to consummate the Benchmark Acquisition by
placing into escrow $410,000 in cash and a letter of credit in the amount of
$6.7 million. An additional $1.0 million in letters of credit may also be
placed in escrow under the terms of the Benchmark Acquisition Agreements.
Benchmark Montgomery Acquisition
On November 4, 1996, Benchmark agreed to acquire substantially all of
the assets of Capital Communications utilized in the operations of Capital
Communications' radio stations in the Montgomery, Alabama market. The purchase
price of the Benchmark Montgomery Acquisition is estimated to be approximately
$18.0 million payable in cash by Benchmark. Capital Communications owns and
operates three FM radio stations in the Montgomery, Alabama market. In January
1997, Benchmark and the Company filed an application with the FCC for approval
of the transfer of control of two of Capital Communications' stations to the
Company. The Company anticipates that the Benchmark Montgomery Acquisition will
be consummated in June 1997. Benchmark has placed $1.0 million in cash in
escrow as security for its obligations under the asset purchase agreement.
Benchmark Columbia Acquisition
On September 20, 1996, Benchmark agreed to acquire all of the issued
and outstanding capital stock of Congaree Broadcasters, Inc. ("Congaree"). The
purchase price is estimated to be approximately $4.1 million, and is payable in
cash by Benchmark. Congaree owns and operates WSCQ-FM in the Columbia, South
Carolina market. The Company anticipates that the Benchmark Columbia
Acquisition will be consummated prior to June of 1997. Benchmark has placed
$100,000 in cash in escrow as security for its obligations under the stock
purchase agreement.
Community Pacific Acquisition
On December 26, 1996, the Company agreed to acquire substantially all
of the assets of Community Pacific (the "Community Pacific Acquisition"). The
purchase price of the Community Pacific Acquisition will equal approximately
$35.0 million. Community Pacific owns and operates 12 radio stations (six FM
and six AM) in four markets located in the Western United States and Iowa,
including Anchorage, Alaska, Modesto and Stockton, California and Des Moines,
Iowa. The Company and Community Pacific entered into an LMA in connection with
Community Pacific's radio stations pursuant to which the Company will provide
certain sales, programming and marketing services for Community Pacific's
stations (unaudited). The Company anticipates that the Community Pacific
Acquisition will be consummated in November 1997.
Under the terms of the acquisition agreement, which was entered into
by Community Acquisition Company, Inc., the acquisition agreement may be
terminated by Community Pacific prior to consummation of the asset purchase
under various circumstances, including a breach of any representation or
warranty, or any other material breach of any covenant or agreement, by
Community Acquisition Company, Inc. If the acquisition agreement is terminated
due to a breach of any representation or warranty, or any material breach of
any covenant or agreement, by Community Acquisition Company, Inc., then
Community Pacific will be entitled to liquidated damages in the amount of $2.6
million as Community Pacific's exclusive remedy. Community Acquisition Company,
Inc. has secured its obligation to consummate the asset purchase by placing
into escrow a letter of credit in the amount of $2.6 million.
F-20
<PAGE> 142
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMCO Acquisition
On February 3, 1997, the Company agreed to acquire substantially all
of the assets of COMCO (the "COMCO Acquisition"). The purchase price of the
COMCO Acquisition will equal approximately $6.7 million. COMCO owns and
operates six radio stations (two AM and four FM) in the Anchorage and
Fairbanks, Alaska markets. The Company anticipates that the COMCO Acquisition
will be consummated in October 1997. COMCO Acquisition Co. has secured its
obligation to consummate the asset purchase by placing into escrow a letter of
credit in the amount of $335,000.
Upon consummation of the Community Pacific Acquisition and the COMCO
Acquisition, the Company will own and operate six radio stations (four FM and
two AM) in the Anchorage, Alaska market, which number exceeds the ownership
limitations under the Telecom Act. Accordingly, the Company intends to obtain
permission from the FCC to consummate both the Community Pacific Acquisition
and the COMCO Acquisition provided that the Company sell radio station KASH-AM
in Anchorage, Alaska within nine months of the date on which the Community
Pacific Acquisition is consummated. The Company will comply with the ownership
limitations of the Telecom Act in the Anchorage, Alaska market once it disposes
of KASH-AM. No assurances can be given that the Company will be able to sell
KASH-AM or that if the Company is able to sell KASH-AM, the Company will not
recognize a loss on the sale.
Madison Acquisition
On February 4, 1997, the Company agreed to acquire substantially all
of the assets of Madison (the "Madison Acquisition"). The purchase price of the
Madison Acquisition will be approximately $38.8 million. Madison owns and
operates six radio stations (four FM and two AM) in Madison, Wisconsin. The
Company anticipates that the Madison Acquisition will be consummated in October
1997.
Under the terms of the acquisition agreement, which was entered into
by Point Madison Acquisition Company, Inc., a subsidiary of the Company
("Madison Acquisition Co."), the acquisition agreement may be terminated by
Madison prior to consummation of the asset purchase under various
circumstances, including a breach of any representation or warranty, or any
material breach of any covenant or agreement, by Madison Acquisition Co. If the
acquisition agreement is terminated due to a breach of any representation or
warranty, or any material breach of any covenant or agreement, by Madison
Acquisition Co., then Madison will be entitled to liquidated damages in the
amount of $3.2 million as Madison's exclusive remedy. Madison Acquisition Co.
has secured its obligation to consummate the asset purchase by placing into
escrow a letter of credit in the amount of $3.2 million.
Commonwealth Acquisition
In January 1997, the Company agreed to acquire substantially all of
the assets of Commonwealth (the "Commonwealth Acquisition"). The purchase price
of the Commonwealth Acquisition will equal approximately $5.3 million.
Commonwealth owns and operates three radio stations (two FM and one AM) in
Yuma, Arizona. The Company anticipates that the Commonwealth Acquisition will
be consummated in October 1997.
Under the terms of the acquisition agreement, which was entered into
by Pacific Star, the acquisition agreement may be terminated by Commonwealth
prior to consummation of the asset purchase under various circumstances,
including a breach of any representation or warranty, or any material breach of
any covenant or agreement, by Pacific Star. If the acquisition agreement is
terminated due to a breach of any representation or warranty, or any material
breach of any covenant or agreement, by Pacific Star, then Commonwealth will be
entitled to liquidated damages in the amount of $262,500 as Commonwealth's
exclusive remedy. Pacific Star has secured its obligation to consummate the
asset purchase by placing into escrow a letter of credit in the amount of
$262,500.
Cavalier Acquisition
In January 1997, the Company agreed to acquire substantially all of
the assets of Cavalier (the "Cavalier Acquisition"). The enterprise value of
the Cavalier Acquisition will equal approximately $8.3 million. Cavalier owns
and operates five radio stations (four FM and one AM) in the Roanoke/Lynchburg,
Virginia market. The Company anticipates that the Cavalier Acquisition will be
consummated in October 1997.
F-21
<PAGE> 143
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the acquisition agreement, which was entered into
by Madison Acquisition Co., the acquisition agreement may be terminated by
Cavalier prior to consummation of the asset purchase under various
circumstances, including a breach of any representation or warranty, or any
material breach of any covenant or agreement, by Cavalier Acquisition Co. If
the acquisition agreement is terminated due to a breach of any representation
or warranty, or any material breach of any covenant or agreement, by Cavalier
Acquisition Co., then Cavalier will be entitled to liquidated damages in the
amount of $900,000 as Cavalier's exclusive remedy. Cavalier Acquisition Co. has
secured its obligation to consummate the asset purchase by placing into escrow
a letter of credit in the amount of $900,000.
Emerald City Acquisition
On March 10, 1997, the Company entered into an Asset Purchase
Agreement with Emerald City Radio Partners, L.P. (the "Emerald City
Acquisition") to purchase substantially all of the assets of radio stations
WNOK-FM, WMFX- FM and WOIC-AM located in Columbia, South Carolina. Because of
certain multiple station ownership limitations under the Telecommunications Act
of 1996, the Company has agreed to assign the right to acquire WMFX-FM and
WOIC-AM on or before the date on which the Company acquires WNOK-FM. The
purchase price will equal approximately $14.9 million in cash, of which
approximately $9.5 million has been allocated to WNOK-FM and will be payable by
the Company. The Company anticipates that the Emerald City Acquisition will be
consummated in July 1997.
Under the terms of the agreement, which was entered into by WNOK
Acquisition Company, Inc., a subsidiary of the Company ("WNOK Acquisition
Co."), the acquisition agreement may be terminated by Emerald City prior to
consummation of the asset purchase under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by WNOK
Acquisition Co. If the acquisition agreement is terminated due to a material
breach of any representation, warranty, covenant or agreement by WNOK
Acquisition Co., then Emerald City will be entitled to liquidated damages in
the amount of $500,000 as Emerald City's exclusive remedy. WNOK Acquisition Co.
has secured its obligation to consummate the asset purchase by placing into
escrow cash in the amount of $75,000 and has agreed that $425,000 of the loan
described below will be forgiven if Emerald City becomes entitled to liquidated
damages.
In connection with the Emerald City Acquisition, the Company has
loaned Emerald City approximately $13.5 million, the proceeds of which were
used by Emerald City (i) to pay matured indebtedness of Emerald City to Clear
Channel Radio, Inc. in the amount of approximately $13.3 million, including
principal and interest, and (ii) for other business purposes in the amount of
approximately $200,000. The loan matures on the earlier to occur of (i) October
31, 1997, (ii) the closing of the Emerald City Acquisition or (iii) within 75
days after the termination of the acquisition agreement with WNOK Acquisition
Co.
WRIS Acquisition
On April 11, 1997, the Company agreed to acquire substantially all of
the assets of WRIS used or held for use in the operation of station WJLM-FM in
Salem, Virginia (the "WRIS Acquisition"). The purchase price of the WRIS
Acquisition will equal approximately $3.1 million payable in cash. In April
1997, the Company and WRIS will file an application with the FCC for approval
to transfer control of such radio station to the Company. No filing under the
HSR Act is required. The Company anticipates that the WRIS Acquisition will be
consummated in August 1997.
Under the terms of the acquisition agreement, which was entered into
by Capstar Acquisition Company, Inc., a subsidiary of the Company ("Capstar
Acquisition Co."), the acquisition agreement may be terminated by WRIS prior to
consummation of the asset purchase under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co. If the acquisition agreement is terminated due to a
material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co., then WRIS will be entitled to liquidated damages in
the amount of $150,000 as WRIS's exclusive remedy. Capstar Acquisition Co. has
secured its obligation to consummate the asset purchase by placing into escrow
a letter of credit in the amount of $150,000.
F-22
<PAGE> 144
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7(c) LOCAL MARKETING AND JOINT SALES AGREEMENTS
The Company and Commodore have entered into various LMAs and JSAs.
While each agreement is unique in its terms and conditions, generally under an
LMA or JSA the brokering station purchases substantially all of the commercial
time available on the brokered station and provides promotional and sales
related services. Under an LMA, the brokering station may also provide
programming; a JSA does not involve programming. The brokering station pays a
fee to the brokered station for the services provided based upon a flat monthly
amount, and/or an amount contingent on the net revenue or profit as calculated
in the agreement. As the brokering station, Commodore currently has LMAs or
JSAs with WKAP-AM, Allentown, PA, WPAW-FM, Vero Beach, FL and WHRD-AM in
Huntington, WV. Commodore provided programming to and sold advertising time on
various stations that were under contract to purchase under LMAs or JSAs.
8. INCOME TAXES
The Company and Commodore have recorded a provision for income taxes
as follows:
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------------------
YEAR ENDED DECEMBER 31,
PERIOD ENDED PERIOD ENDED ----------------------------
DECEMBER 31, 1996 OCTOBER 16, 1996 1995 1994
------------------ ---------------- ------------- ----------
<S> <C> || <C> <C> <C>
Current: ||
Federal ...................... $ -- || $ -- $ -- $ 70,400
State and local .............. -- || 133,000 140,634 229,600
Deferred: ||
Federal ...................... -- || -- -- --
State and local .............. -- || -- -- --
------- || ---------- ---------- ----------
Total ........................... $ -- || $ 133,000 $ 140,634 $ 300,000
======= || ========== ========== ==========
</TABLE>
The Company did not record a federal tax benefit on the taxable loss
for the period ended December 31, 1996, nor did Commodore record a federal tax
benefit on the taxable loss for the period ended October 16, 1996 or for the
year ended December 31, 1995 since it was not assured that they could realize a
benefit for such losses in the future. During 1994, Commodore utilized
approximately $2.5 million of Federal net operating losses to offset current
taxable income. Since the valuation allowance remained at 100% at the end of
1994, there was no deferred tax effect on 1994 earnings. Commodore recorded a
provision for federal alternative minimum tax in 1994 because net operating
loss carryforwards may be used to offset only 90% of a corporation's
alternative minimum taxable income.
Commodore received Internal Revenue Service approval and changed its
tax method of accounting for Federal Communications Commission ("the FCC")
licenses for the tax year ended December 31, 1995. The aggregate amount of
cumulative amortization that will be deductible ratably over six taxable years
for the Company and Commodore for tax purposes is approximately $12.1 million.
The reconciliation of income tax computed at the U.S. federal
statutory rates to effective income tax expense is as follows:
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------------------------
YEAR ENDED DECEMBER 31,
PERIOD ENDED PERIOD ENDED ----------------------------
DECEMBER 31, 1996 OCTOBER 16, 1996 1995 1994
------------------ ---------------- ------------- ----------
<S> <C> || <C> <C> <C>
Provision at statutory rate ..... $(1,277,194) || $(1,184,000) $(734,695) $ (79,400)
State and local taxes ........... -- || 133,000 140,634 229,600
Nondeductible expense ........... 8,888 || 33,800 8,286 36,575
Increase in valuation allowance, ||
net of rate changes ........... 1,268,306 || 1,150,200 726,409 42,825
Alternative minimum tax ......... -- || -- -- 70,400
------------ || ------------ ---------- ----------
Total ........................... $ -- || $ 133,000 $ 140,634 $ 300,000
============ || ============ ========== ==========
</TABLE>
F-23
<PAGE> 145
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
approximate effect of temporary differences were as follows:
<TABLE>
<CAPTION>
PREDECESSOR
-----------
DECEMBER 31,
--------------------------------
1996 || 1995
-------------- || ------------
<S> <C> || <C>
Deferred tax assets: ||
Allowance for bad debts ............................................... $ 370,800 || $ 312,100
Deferred compensation ................................................. 126,400 || 1,244,100
Unamortized discount on Commodore Notes ............................... -- || 959,200
Intangibles ........................................................... -- || 290,300
Depreciation .......................................................... -- || 76,460
Non-cash stock option compensation .................................... 297,600 || --
Other ................................................................. 78,200 || --
Net operating loss carryforwards ................................... 22,789,543 || 12,405,800
-------------- || ------------
Total deferred tax assets ............................................. 23,662,543 || 15,287,960
Deferred tax liabilities: ||
Intangibles ........................................................... (4,920,900) || --
Depreciation .......................................................... (848,080) || (537,260)
Unamortized premium on Commodore Notes ................................ (1,201,711) || --
Other ................................................................. -- || (4,800)
-------------- || ------------
Total deferred tax liabilities ..................................... (6,970,691) || (542,060)
-------------- || ------------
Net deferred tax asset ................................................... 16,691,852 || 14,745,900
Less valuation allowance ................................................. (18,723,432) || (14,745,900)
-------------- || ------------
Net deferred tax liability, net of allowance ............................. $ (2,031,580) || $ --
============= || ============
</TABLE>
The Company and Commodore have provided valuation allowances
equivalent to their net deferred tax assets in 1995, 1994 and 1993 as the
historical results of the Company and Commodore make the realization of taxable
income in the future years uncertain. During 1996, the Company and Commodore
have provided valuation allowances in excess of the net deferred tax asset as
certain temporary differences will not reverse in the net operating loss
carryforward period. As of December 31, 1996, the Company had net operating
loss carryforwards of approximately $54.9 million for federal purposes that
expire in the years 1999 through 2011. Due to the change in control which
occurred at the time the Company acquired Commodore, the utilization of net
operating losses of Commodore incurred through the date of acquisition,
approximately $49.2 million, are limited under Section 382 of the Internal
Revenue Code. Commodore also has available as of December 31, 1996, $36.2
million for state purposes that expire in the years 1996 to 2011 and $6.1
million of carryforward deductions related to the change in accounting for FCC
licenses that will be deductible in the tax years 1996 to 2000.
9. COMMITMENTS
Lease Commitments
The principal types of property leased by the Company and its
subsidiaries and Commodore are office space, towers, real estate related to
tower sites, office equipment and transmitting equipment.
Total rent expense was approximately $188,000 for the period ended
December 31, 1996 for the Company, and $383,000 for the period ended October
16, 1996 and $332,000 and $306,400 for the years ended December 31, 1995 and
1994, respectively for Commodore.
The minimum rental commitments of the Company, under all
noncancellable operating leases, are set forth below:
F-24
<PAGE> 146
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Year ended December 31,:
1997 .................................................. $ 656,044
1998 .................................................. 630,478
1999 .................................................. 556,492
2000 .................................................. 364,302
Thereafter ................................................. 1,003,780
----------
Total minimum lease payments ....................... $3,211,096
==========
</TABLE>
Other Commitments
Commodore entered into a separation agreement with its former
President effective December 31, 1993, under which Commodore agreed to pay him
an aggregate amount of $1.7 million; a portion was paid in cash, and the
remainder of $1.0 million became payable in semi-monthly installments through
December 31, 1997. A present value discount of $154,000 was recorded against
the total installment liability of $1.0 million as of December 31, 1993. At
December 31, 1995, the current portion under this obligation of $219,816 is
included in accounts payable and accrued expenses and the remainder of $239,275
is reflected in noncurrent compensation.
10. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with several
executives of the Company including its President and Chief Executive Officer,
its Executive Vice President and Chief Financial Officer, its Executive Vice
President and General Counsel and the current President of Commodore. The
agreements generally provide for terms of employment, annual salaries, bonuses,
eligibility for option awards and severance benefits.
Effective January 1, 1994, Commodore entered into an agreement with
its then President and Chief Executive Officer under which he would be employed
in that capacity through 1996 and provided for annual salary requirements and
bonuses, and a Long-Term Incentive Payment ("LTIP"). A fair value amount of
$1.8 million was charged to income as long-term incentive compensation in 1994
relating to the LTIP. On April 21, 1995, the then President's employment
agreement was amended and restated. In lieu of the LTIP, Commodore paid the
then President $1.5 million in cash, issued $1.3 million principal ($1.1
million net of discount) of Commodore's Commodore Notes to a trust for his
benefit and agreed to provide $1.5 million in deferred compensation which
accrues interest at a rate of 7% and is payable in 2003. Commodore recorded the
deferred compensation on April 21, 1995 at its calculated net present value of
$921,000. The aggregate effect of the employment agreement restructuring was to
charge $1.8 million to long-term incentive compensation expense during 1995. In
addition, the then President's amended employment agreement extended his date
of employment through April 30, 1998, granted stock options to him to acquire
28,313 shares of Class A Common Stock at an exercise price of $45 per share and
provided for annual bonuses based upon specific operating results of the
Company.
Commodore also amended its then existing employment agreement with its
then Chief Operating Officer on April 21, 1995. The prior employment agreement
provided for a long-term incentive based upon the increase in certain station
values. As of December 31, 1994, $430,000 had been accrued as long-term
incentive compensation. The amended employment agreement provided for a cash
payment of $400,000 on April 21, 1995 and deferred compensation of $346,000
which accrues interest at a rate of 7% and is payable in 2003. Commodore
recorded the deferred compensation on April 21, 1995 at its calculated net
present value of $213,000. The aggregate effect of the employment agreement
restructuring was to charge $188,800 to long-term incentive compensation
expense during 1995. In addition, the amended employment agreement extended his
date of employment through April 30, 1999, granted stock options to acquire
28,313 shares of Class A Common Stock at an exercise price of $45 per share and
provides for annual bonuses based upon specific operating results of Commodore.
F-25
<PAGE> 147
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a result of the merger and the change of control effected thereby,
Commodore was obligated to satisfy the existing deferred compensation and
employment agreements with its then President and Chief Executive Officer and
its deferred compensation agreement with its then Chief Operating Officer,
resulting in an additional charge to operations of approximately $1.1 million
which was recorded in the period ended October 16, 1996. Furthermore, all stock
options for the aforementioned officers, as well as for all holders, were
redeemed at $140 per share, less the exercise price of $45 per share at the
time of the merger. Commodore's then President and Chief Executive Officer
resigned his position effective October 16, 1996 as required by the Merger
Agreement.
11. RELATED PARTY TRANSACTIONS
Monitoring and Oversight Agreement
The Company has entered into a monitoring and oversight agreement (the
"Monitoring and Oversight Agreement") with Hicks, Muse & Co. Partners, L.P.
("Hicks Muse Partners"). Pursuant thereto, the Company has agreed to pay to
Hicks Muse Partners an annual fee of $100,000 for ongoing financial oversight
and monitoring services. The annual fee is adjustable upward or downward at the
end of each fiscal year to an amount equal to 0.2% of the budgeted consolidated
annual net sales of the Company for the then-current fiscal year; provided,
that such fee shall at no time be less than $100,000 per year.
The Monitoring and Oversight Agreement makes available on an ongoing
basis the resources of Hicks Muse Partners concerning a variety of financial
matters. The services that have been and will continue to be provided by Hicks
Muse Partners could not otherwise be obtained by the Company without the
addition of personnel or the engagement of outside professional advisors.
Financial Advisory Agreement
The Company is a party to a financial advisory agreement (the
"Financial Advisory Agreement") with Hicks Muse Partners. Pursuant to the
Financial Advisory Agreement, Hicks Muse Partners is entitled to receive a fee
equal to 1.5% of the transaction value (as defined in the Financial Advisory
Agreement) for each add-on transaction (as defined) in which the Company or any
of its subsidiaries is involved.
Pursuant to the Financial Advisory Agreement, Hicks Muse Partners
provides investment banking, financial advisory and other similar services with
respect to the add-on transactions in which the Company is involved. Such
transactions require additional attention beyond that required to monitor and
advise the Company on an ongoing basis and accordingly the Company pays
separate financial advisory fees with respect to such matters in addition to
those paid in connection with the Monitoring and Oversight Agreement. The
services that have been and will continue to be provided by Hicks Muse Partners
could not otherwise be obtained by the Company without the addition of
personnel or the engagement of outside professional advisors. The Company paid
Hicks Muse Partners a financial advisory fee in the amount of approximately
$3.4 million upon consummation of the Commodore Acquisition.
Registration Rights Agreement (Unaudited)
Frank D. Osborn entered into a registration rights agreement with the
Company upon consummation of the Osborn Acquisition which provides, among other
things, that Mr. Osborn may require the Company to effect a demand registration
of his Common Stock under the Securities Act at any time within 30 days after
the tenth anniversary of the date of the registration rights agreement. Mr.
Osborn's right to demand a registration will terminate upon the first to occur
of a Qualified IPO or a change in control (both as defined in the registration
rights agreement). Accordingly, Mr. Osborn's right to demand a registration
will terminate upon completion of the Offering. If the Offering is not
completed, then after receipt of a demand for registration of Common Stock
pursuant to the registration rights agreement, the Company would have the
option to purchase all of the shares of Common Stock, then held by Mr. Osborn
for a 30- day period, at appraised value (as defined in the registration rights
agreement).
F-26
<PAGE> 148
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stockholders Agreements
Affiliate Stockholders Agreement. R. Steven Hicks, five of his
children and Capstar L.P. (the "Affiliate Stockholders") have entered into a
Stockholders Agreement (the "Affiliate Stockholders Agreement") with the
Company and Hicks Muse that provides, among other things, that the Affiliate
Stockholders may require the Company, subject to certain registration volume
limitations, to effect up to three demand registrations of their Common Stock
under the Securities Act at any time after consummation of a Qualified IPO (as
defined in the Affiliate Stockholders Agreement). The Affiliate Stockholders
Agreement also provides that in the event the Company proposes to register any
shares of its Common Stock under the Securities Act, whether or not for its own
account, the Affiliate Stockholders will be entitled, with certain exceptions,
to include their shares of Common Stock in such registration.
The Affiliate Stockholders Agreement also requires the Affiliate
Stockholders, subject to certain conditions, to vote their shares (i) in favor
of the election to the Company's Board of Directors of such individuals as may
be designated by Hicks Muse and its affiliates (including Capstar L.P.) and
(ii) on other matters as the holders of a majority of the voting power of the
outstanding shares of Common Stock vote on such matters. If certain conditions
are met, including Mr. Hicks serving as the President and Chief Executive
Officer of the Company or holding not less than 3.0% of the fully-diluted
Common Stock of the Company, the Affiliate Stockholders Agreement provides that
Mr. Hicks shall be one of such designees to serve on the Company's Board of
Directors.
The Affiliate Stockholders Agreement provides that, in connection with
any transfer of the Company's securities held by Hicks Muse and its affiliates
(which would constitute a "sale" thereof within the meaning of the Securities
Act) representing more than 50.0% of the shares of Common Stock then held by
Hicks Muse and its affiliates, Hicks Muse and its affiliates have the right to
require the Affiliate Stockholders to also transfer a portion of their shares
of Common Stock. If Hicks Muse and its affiliates desire to effect a sale of
more than 50.0% of the shares of Common Stock then held by Hicks Muse and its
affiliates, such stockholders may "tag along" and sell a portion of their
shares of Common Stock on the same terms.
Prior to the transfer of any securities subject to the Affiliate
Stockholders Agreement by any stockholder other than an affiliate of Hicks
Muse, Hicks Muse has the right to acquire such securities on the same terms and
conditions as the proposed transfer. If R. Steven Hicks is no longer an
officer, director or employee of the Company or any of its subsidiaries or a
change of control (as defined in the Affiliate Stockholders Agreement) occurs,
the Company has the option to purchase all or any portion of the Company's
securities held by Mr. Hicks and his children. The Affiliate Stockholders
Agreement provides that (i) R. Steven Hicks shall retain the voting rights of
any securities (subject to such agreement) which he transfers, conveys, assigns
or hypothecates to an affiliate or any of his family members and (ii) Mr. Hicks
may not transfer, convey, assign or hypothecate any of his securities (subject
to the Affiliate Stockholders Agreement) to an affiliate or any family member
of Mr. Hicks unless such affiliate or family member joins in the Affiliate
Stockholders Agreement.
Subject to certain exceptions, if the Company proposes to issue or
sell any shares of Common Stock to Hicks Muse or any of its affiliates, Mr.
Hicks has the right to purchase a pro rata share of such shares of Common
Stock. Mr. Hicks has waived his preemptive right to acquire additional shares
of Common Stock in connection with the Hicks Muse Equity Investment. Mr. Hicks
is entitled to receive, for no additional consideration, a warrant to acquire
additional shares of Common Stock (determined as provided in the Affiliate
Stockholders Agreement) if Hicks Muse or any of its affiliates otherwise
acquires additional shares of Common Stock.
Management Stockholders Agreement. Certain employees of the Company
and its subsidiaries have entered into a Stockholders Agreement (the
"Management Stockholders Agreement") with the Company and Hicks Muse that
provides, among other things, that in the event the Company proposes to
register any shares of its Common Stock under the Securities Act, whether or
not for its own account, the stockholders that are parties to the Management
Stockholders Agreement will be entitled, with certain exceptions, to include
their shares of Common Stock in such registration. The Management Stockholders
Agreement also requires the parties thereto to vote their shares in favor of
the election to the Company's Board of Directors of such individuals as may be
designated by Hicks Muse and its affiliates.
F-27
<PAGE> 149
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Management Stockholders Agreement provides that, in connection
with any transfer of the Company's securities held by Hicks Muse and its
affiliates (which would constitute a "sale" thereof within the meaning of the
Securities Act) representing more than 50.0% of the shares of Common Stock then
held by Hicks Muse and its affiliates, Hicks Muse and its affiliates have the
right to require the stockholders subject to the Management Stockholders
Agreement also to transfer a portion of their shares of Common Stock. If Hicks
Muse and its affiliates desire to effect a sale of more than 50.0% of the
shares of Common Stock then held by Hicks Muse and its affiliates, such
stockholders may "tag along" and sell a portion of their shares of Common Stock
on the same terms.
Prior to the transfer of any securities subject to the Management
Stockholders Agreement by any stockholder other than an affiliate of Hicks
Muse, Hicks Muse has the right to acquire such securities on the same terms and
conditions as the proposed transfer. If at any time a stockholder subject to
the Management Stockholders Agreement is no longer an officer, director or
employee of the Company or any of its subsidiaries or a change of control (as
defined in the Management Stockholders Agreement) of the Company occurs, the
Company has the option to purchase all or any portion of the Company's
securities held by such stockholder.
During the period ended October 16, 1996 and the year ended December
31, 1995, Commodore paid the majority stockholder a salary of approximately
$185,000 and $175,000, respectively. In addition, the majority stockholder
repaid an outstanding loan of $182,988, of which $65,488 was advanced in the
year ended December 31, 1995; the majority stockholder owed Commodore $117,500
as of December 31, 1994, which was reflected in other current assets.
On April 10, 1992, Commodore obtained $9.3 million from Radio
Financial Partners ("RFP") in exchange for a subordinated note bearing interest
at 7% and maturing in 1997. On December 28, 1993, RFP agreed to convert a total
of $7,247,000 of the unpaid principal on the subordinated note and $476,000 of
accrued interest into 10,000 shares of Redeemable Preferred Stock (see Note 6).
The remaining principal balance of $2.1 million was converted into a
noninterest-bearing subordinated note with a final maturity of April 10, 1997.
Commodore repaid the outstanding balance of the note and redeemed the preferred
stock on April 21, 1995.
During May 1995, Commodore loaned approximately $250,000 to certain
executive officers as evidenced by 7% promissory notes that mature in 2001,
with all accrued interest and principal due on the maturity date. The total
amount owed Commodore at December 31, 1995 was $261,329, which was included in
noncurrent assets. These loans were repaid in October 1996.
In connection with the debt restructuring described above, on December
28, 1993, Commodore granted a warrant to an affiliate to purchase 4.99% of its
common stock at an exercise price of $100, on a fully diluted basis. The
warrant was exercised during 1995.
The Company is involved in certain transactions in the normal course
of operations with GulfStar Communications, Inc., an affiliated entity. At
December 31, 1996, the Company owed GulfStar Communications, Inc. approximately
$277,000 and owed Hicks Muse approximately $260,000 for certain costs paid on
behalf of the Company.
12. STOCK OPTION AND WARRANT AGREEMENTS
The Company's 1996 Stock Option Plan (the "Stock Option Plan") gives
certain individuals and key employees of the Company and any parent corporation
or subsidiary corporation thereof (such parent and subsidiary corporations are
referred to as "Related Entities") who are responsible for the continued growth
of the Company an opportunity to acquire a proprietary interest in the Company,
and thus to create in such persons an increased interest in and a greater
concern for the welfare of the Company and any Related Entities. The Board of
Directors has authorized issuance of options to acquire up to 9,000,000 shares
of common stock, and 9,000,000 shares of common stock have been reserved for
issuance. Through December 31, 1996, the Board of Directors had authorized
grants of stock options with respect to 4,100,000 shares of common stock under
the Stock Option Plan, and had reserved 4,100,000 shares of common stock for
issuance under the Plan.
F-28
<PAGE> 150
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with employment agreements executed with current key
employees and to be executed with certain future key employees upon the
consummation of certain pending acquisitions (see Note 10), the Company has
committed to grant stock options for the purchase of 4,127,400 common shares at
$1.10 per share. These stock options generally will vest with respect to 20% of
the shares of the first anniversary of the grant, and 1/60th of the shares
monthly thereafter. The maximum term of options granted is ten years.
Subsequent to December 31, 1996, grants of stock options for 795,880
shares of common stock have terminated.
On April 21, 1995, Commodore adopted a stock option plan (the "Plan")
which provided for the granting of incentive stock options and nonqualified
stock options to executives and key employees. On October 16, 1996, all
outstanding options were redeemed at $140 per share less their exercise price
of $45 per option.
The following table summarizes the transactions of the Stock Option
Plan and the Plan for the periods ended December 31, 1996 and October 16, 1996,
and the year ended December 31, 1995:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------
DECEMBER 31,||OCTOBER 16, DECEMBER 31,
1996 || 1996 1995
----------- ||----------- ------------
<S> <C> ||<C> <C>
Outstanding options, beginning of period ........................ -- || 96,670 --
Granted ......................................................... 3,737,430 || -- 96,670
Canceled or expired ............................................. -- || -- --
Exercised ....................................................... -- || (96,670) --
---------- || -------- ------------
Outstanding options, end of year ................................ 3,737,430 || -- 96,670
========== || ========= ============
Average price of options exercised .............................. $ -- || $ 45 $ --
Weighted average exercise price, end of period and weighted average ||
fair market value at date of grant ............................ 1.00 || -- 45
Options exercisable, end of period .............................. -- || -- 96,670
Options available for future grant .............................. 362,570 || -- 35,455
Weighted average remaining contractual life ..................... ten years ||
Range of exercise prices ........................................ $1.00-$1.00 ||
</TABLE>
The Company and Commodore apply Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees , and related interpretations,
in accounting for their stock option plans. As options are generally issued at
an exercise price which approximates the fair market value of the Company's
common stock at the date of grant, no compensation expense has been recognized
for the plans. Had compensation cost for the plans been determined based upon
the fair value at the grant date for awards under the plans consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation , Commodore's net loss would have
decreased by approximately $11.5 million and increased by approximately
$176,225, for the period ended October 16, 1996 and for the year ended December
31, 1995, respectively, using the minimum valuation method option-pricing model
with the following assumptions: dividend yield of 0.0%, risk-free interest rate
of 6.93% and an expected life of four years. The Company's net loss would have
decreased by approximately $600,000 for the period from October 16, 1996
through December 31, 1996 using the minimum valuation method option-pricing
model with the following assumptions: dividend yield of 0.0%, risk free
interest rate of 6.0%, expected volatility of 0.0% and an expected life of ten
years. Accordingly, on a pro forma basis, the Company's net loss and net loss
per share would have been $3.2 million and $0.03, respectively, for the period
ended December 31, 1996.
The Company's 1996 Stock Purchase Plan (the "Stock Purchase Plan")
gives certain key employees of the Company who are expected to contribute
materially to the success of the Company an opportunity to acquire a
proprietary interest in the Company, and thus to retain such persons and create
in such persons an increased interest in and a greater concern for the welfare
of the Company. The Company has reserved for issuance 3,155,000 shares of
common stock under the Stock Purchase Plan. To date, grants of stock purchase
rights with respect to 1,155,000 shares of common stock have been made under
the Stock Purchase Plan, all of which have been exercised.
F-29
<PAGE> 151
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 16, 1996, the Company issued a warrant (the "Warrant") to
R. Steven Hicks. Pursuant to the terms of the Warrant, Mr. Hicks is entitled to
purchase 7,440,000 shares of common stock of the Company at any time or from
time to time and, upon the fulfillment of a certain triggering event, may
purchase an additional 1,860,000 shares of Common Stock. The exercise price of
the Warrant is equal to a per share price of $1.00, representing the fair
market value of the date of grant, as increased by an annual rate of interest
equal to 8.0% per year commencing as of October 16, 1996. The term "triggering
event" means the date upon which distributions equal to an internal rate of
return of at least 30.0%, calculated in accordance with generally accepted
financial practice, on the initial investment of Capstar L.P. of $90.0 million
in the Company (which investment was made on October 16, 1996) have been made
to Hicks Muse and its affiliates and its and their respective officers,
directors and employees (and members of their respective families (other than
Mr. Hicks) and trusts for the primary benefit of those family members). The
Warrant will terminate on October 16, 2006. The Warrant and the Common Stock
issuable thereunder are subject to the Affiliate Stockholders Agreement. The
Company recorded non-cash compensation expense of approximately $744,000 in the
period ended December 31, 1996 in connection with the estimated increase in
value of the underlying common stock since the issuance date of the warrant.
Under the terms of the Affiliate Stockholders Agreement, the Company
will issue a new warrant (the "New Warrant") to Mr. Hicks upon completion of
the Hicks Muse Equity Investment. Pursuant to the terms of the New Warrant, Mr.
Hicks will be entitled to purchase 2,042,550 shares of Common Stock at any time
or from time to time and, upon the fulfillment of the triggering event, may
purchase an additional 510,630 shares of Common Stock. If an affiliate of the
underwriter of the private placement of 12 3/4% Senior Discount Notes purchases
shares of common stock that would otherwise be purchased by HM Fund III and its
affiliates, a proportionately lesser number of shares of Common Stock will be
purchasable under the New Warrant. The exercise price of the New Warrant will
be equal to a per share price of $1.10 per share as increased by an annual rate
of interest equal to 8.0% per year. The New Warrant will terminate ten years
from the date of grant.
13. DEFINED CONTRIBUTION PLAN
During 1995, Commodore established a 401(K) Plan for the benefit of
all eligible employees. Eligible participants under this plan are defined as
all full-time employees with one year of service. All eligible participants may
elect to contribute a portion of their compensation to the plan subject to
Internal Revenue Service limitations. Commodore may make discretionary matching
contributions to the plan, subject to board approval; no contributions were
made during the period ended October 16, 1996 and for the period ended December
31, 1996.
14. LEGAL PROCEEDINGS
Commodore is involved in various legal proceedings from time to time
in the normal course of business. In management's opinion, the litigation in
which Commodore is currently involved, individually and in the aggregate, is
not material to Commodore's financial condition or results of operations.
15. SUBSEQUENT EVENT (UNAUDITED)
The Company plans to file a registration statement under the
Securities Act of 1933 and intends to initiate a public offering of its common
stock (the "Offering") which is expected to generate gross proceeds of $100.0
million. The consummation of the Offering is not conditioned on the
consummation of any or all of the pending acquisitions of the Company.
F-30
<PAGE> 152
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Osborn Communications Corporation
We have audited the accompanying consolidated balance sheets of Osborn
Communications Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Osborn Communications Corporation at December 31, 1996 and 1995,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 3, 1997
F-31
<PAGE> 153
OSBORN COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................................... $ 2,944,205 $ 12,994,779
Accounts receivable, less allowance for doubtful accounts of $499,800 in 1996
and $518,157 in 1995 .......................................................... 5,505,351 5,759,562
Inventory ....................................................................... 1,095,157 889,942
Prepaid expenses and other current assets ....................................... 1,018,701 1,525,308
------------ ------------
Total current assets ............................................................... 10,563,414 21,169,591
Investment in affiliated companies ................................................. 512,088 524,084
Property, plant and equipment, at cost, less accumulated depreciation of
$16,162,605 in 1996 and $18,624,021 in 1995 .................................... 13,711,683 15,358,070
Intangible assets, net of accumulated amortization of $15,743,477 in 1996
and $15,238,193 in 1995 ........................................................ 31,743,083 40,463,595
Other noncurrent assets ............................................................ 925,000 118,753
------------ ------------
Total assets ....................................................................... $ 57,455,268 $ 77,634,093
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ........................................... $ 4,809,264 $ 4,509,292
Accrued wages and sales commissions ............................................. 434,986 434,309
Accrued interest payable ........................................................ 46,173 459,114
Accrued income taxes ............................................................ 1,492,114 825,712
Current portion of long-term debt ............................................... 320,000 2,718,000
------------ ------------
Total current liabilities .......................................................... 7,102,537 8,946,427
Long-term debt ..................................................................... 13,880,000 44,482,000
Deferred income taxes .............................................................. 3,061,298 2,275,711
Other noncurrent liabilities ....................................................... 1,501,279 432,916
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized 5,000,000 shares, none
issued and outstanding -- --
Common stock, par value $.01 per share;
authorized 7,425,000 shares, issued and outstanding shares:
5,547,497 and 5,537,497, respectively, in 1996; 5,286,347 and 5,276,347,
respectively, in 1995 ....................................................... 55,376 52,764
Non-voting common stock, par value $.01
per share; authorized 75,000 shares, none issued
and outstanding ............................................................. -- --
Additional paid-in capital ......................................................... 40,869,408 39,694,601
Accumulated deficit ................................................................ (9,014,630) (18,250,326)
------------ ------------
Total stockholders' equity ......................................................... 31,910,154 21,497,039
------------ ------------
Total liabilities and stockholders' equity ......................................... $ 57,455,268 $ 77,634,093
============ ============
</TABLE>
See accompanying notes.
F-32
<PAGE> 154
OSBORN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues ............................................... $ 37,215,048 $ 39,505,193 $ 34,982,110
Operating expenses:
Selling, technical and program ........................... 9,656,347 11,785,471 9,487,815
Direct programmed music and entertainment ................ 12,426,740 10,489,513 9,807,495
General and administrative ............................... 6,740,352 7,526,897 6,611,035
Depreciation and amortization ............................ 4,756,325 5,782,404 5,285,280
Corporate expenses ....................................... 1,849,820 1,705,850 2,475,675
Total operating expenses .............................. 35,429,584 37,290,135 33,667,300
------------ ------------ ------------
Operating income ........................................... 1,785,464 2,215,058 1,314,810
Other income (expense) ..................................... (291,163) 2,314,508 2,246,450
Interest expense ........................................... 2,201,616 5,212,999 4,385,827
Equity in results of affiliated company .................... -- (11,829) --
Other gains, including gains on sales of stations .......... 12,321,760 8,094,993 --
------------ ------------ ------------
Income (loss) before income taxes and extraordinary item ... 11,614,445 7,399,731 (824,567)
Provision for income taxes ................................. 2,378,749 775,982 289,220
------------ ------------ ------------
Income (loss) before extraordinary item .................... 9,235,696 6,623,749 (1,113,787)
Extraordinary item:
Loss on debt extinguishment .............................. -- (3,921,061) (436,329)
------------ ------------ ------------
Net income (loss) .......................................... $ 9,235,696 $ 2,702,688 $ (1,550,116)
============ ============ ============
Primary earnings per common share:
Income (loss) before extraordinary item .................. $ 1.65 $ 1.23 $ (0.21)
Loss on extinguishment of debt ........................... -- (0.73) (0.08)
------------ ------------ ------------
Net income (loss) per common share ......................... $ 1.65 $ 0.50 $ (0.29)
============ ============ ============
Fully diluted earnings per common share:
Income (loss) before extraordinary item .................. $ 1.62 $ 1.22 $ (0.21)
Loss on extinguishment of debt ........................... -- (0.72) (0.08)
------------ ------------ ------------
Net income (loss) per common share ......................... $ 1.62 $ 0.50 $ (0.29)
============ ============ ------------
Weighted average common shares outstanding:
Primary shares ........................................... 5,598,237 5,388,001 5,376,715
============ ============ ============
Fully diluted shares ..................................... 5,687,927 5,459,353 5,376,715
============ ============ ============
</TABLE>
See accompanying notes.
F-33
<PAGE> 155
OSBORN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
VOTING NON-VOTING
---------------------- --------------- ADDITIONAL
PAR PAR PAID-IN ACCUMULATED
SHARES VALUE SHARES VALUE CAPITAL DEFICIT
---------- -------- ------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ........................ 10,752,181 $107,523 -- -- $38,453,555 $(19,402,898)
Exercise of stock options ....................... 1,500 15 -- -- 5,984 --
Issuance of stock warrant ....................... -- -- -- -- 1,774,837 --
Effect of 1-for-2 reverse stock split ........... (5,376,091) (53,762) -- -- 53,762 --
Purchase and retirement of treasury stock ....... (17,843) (178) -- -- (106,880) --
Net loss ........................................ -- -- -- -- -- (1,550,116)
---------- -------- ------ -------- ----------- ------------
Balance at December 31, 1994 ........................ 5,359,747 53,598 -- -- 40,181,258 (20,953,014)
Purchase and retirement of treasury stock ....... (107,059) (1,071) -- -- (641,283) --
Exercise of stock options ....................... 23,659 237 -- -- 154,626 --
Net income ...................................... -- -- -- -- -- 2,702,688
---------- -------- ------ ------- ----------- ------------
Balance at December 31, 1995 ........................ 5,276,347 52,764 -- -- 39,694,601 (18,250,326)
Exercise of stock options ....................... 173,667 1,737 -- -- 732,182 --
Issuance of common stock ........................ 132,500 1,325 -- -- 1,106,175 --
Acquisition and retirement of treasury stock ... (45,017) (450) -- -- (663,550) --
Net income ...................................... -- -- -- -- -- 9,235,696
---------- -------- ------ ------- ----------- ------------
Balance at December 31, 1996 ........................ 5,537,497 $ 55,376 -- -- $40,869,408 $ (9,014,630)
========== ======== ====== ======= =========== ============
</TABLE>
See accompanying notes.
F-34
<PAGE> 156
OSBORN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) .......................................................... $ 9,235,696 $ 2,702,688 $ (1,550,116)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ........................................... 4,756,325 5,782,404 5,285,280
Other gains (losses), including gains on sales of stations .............. (12,321,760) (8,094,993) --
Deferred income taxes ................................................... 785,587 240,664 175,000
Transaction costs for proposed merger ................................... 479,754 -- --
Loss on extinguishment of debt .......................................... -- 3,921,061 436,329
Write-off of registration statement costs ............................... -- -- 397,583
Non-cash interest expense ............................................... 244,363 332,284 210,421
Equity in results of affiliated company ................................. -- 11,829 --
Distributions from affiliated companies ................................. (62,500) (1,942,731) --
Changes in current assets and current liabilities:
Decrease (increase) in accounts receivable ........................... 254,211 (323,770) (2,165,123)
(Increase) decrease in inventory ..................................... (205,215) 190,705 (214,241)
Decrease (increase) in prepaid expenses and other current assets ..... 506,607 (742,764) (177,499)
Acquisition deposit held in escrow ................................... -- 180,000 --
Increase in distribution receivable .................................. -- -- (2,264,552)
Increase in accounts payable and accrued expenses .................... 299,972 721,764 1,069,534
(Decrease) increase in accrued wages and sales commissions ........... 677 129,528 (96,287)
Increase (decrease) in accrued interest payable ...................... (412,941) (1,485,673) 1,632,742
Increase in accrued income taxes ..................................... 666,402 290,223 15,009
------------ ------------ ------------
Total adjustments .......................................................... (5,008,518) (789,469) 4,304,196
------------ ------------ ------------
Net cash provided by operating activities .................................. 4,227,178 1,913,219 2,754,080
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from affiliated companies .................................... 62,500 4,207,283 --
Payments for business acquisitions ......................................... (13,605,591) -- (21,825,094)
Net proceeds from sale of stations ......................................... 34,687,928 10,000,000 --
Accrued transaction costs .................................................. (479,754) (1,411,981) --
Net proceeds from sale of other assets ..................................... 580,653 -- --
Proceeds from note receivable .............................................. -- 1,620,455 329,545
Capital expenditures ....................................................... (1,707,351) (1,326,492) (942,771)
Acquisition deposit held in escrow ......................................... (925,000) (180,000) --
Reclassification of other noncurrent assets ................................ 118,753 -- --
Expenditures for intangible assets ......................................... -- (524,863) --
------------ ------------ ------------
Net cash provided by (used in) investing activities ....................... 18,732,138 12,384,402 (22,438,320)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt ................................... -- 44,500,000 48,460,982
Proceeds from issuance of stock warrant .................................... -- -- 1,774,837
Debt issuance costs ........................................................ (79,807) (1,183,824) (1,887,965)
Registration statement costs ............................................... -- -- (228,587)
Proceeds from exercise of stock options .................................... 69,917 154,863 6,000
Purchase and retirement of treasury stock .................................. -- (642,354) (107,058)
Prepayment penalty on debt retirement ...................................... -- (500,000) --
Principal payments on long-term debt and notes payable ..................... (33,000,000) (50,000,000) (23,286,671)
------------ ------------ ------------
Net cash (used in) provided by financing activities ....................... (33,009,890) (7,671,315) 24,731,538
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents ....................... (10,050,574) 6,626,306 5,047,298
Cash and cash equivalents at beginning of period .......................... 12,994,779 6,368,473 1,321,175
------------ ------------ ------------
Cash and cash equivalents at end of period ................................. $ 2,944,205 $ 12,994,779 $ 6,368,473
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest ..................................................... $ 2,370,194 $ 6,366,388 $ 2,542,664
============ ============ ============
Cash paid for income taxes ................................................. $ 926,760 $ 245,095 $ 99,211
============ ============ ============
</TABLE>
See accompanying notes.
F-35
<PAGE> 157
OSBORN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF BUSINESS AND ORGANIZATION
Osborn Communications Corporation ("Osborn") is engaged in the
operation of radio stations, programmed music, cable television and other
communications properties throughout the United States.
2. PLAN OF MERGER
On July 23, 1996, Osborn entered into an agreement and plan of merger
with a subsidiary of Capstar Broadcasting Partners, Inc. ("the Company")
whereby the Company will acquire all of Osborn's common stock for $15.375 per
share. A majority of the holders of the Osborn's common stock voted to approve
the merger in December 1996 and the Federal Communications Commission ("FCC")
approved the transfer of Osborn's broadcast licenses to the Company in January
1997. The merger is expected to be completed in February 1997.
Concurrently with the execution of the merger agreement and as
security for liquidated damages that may be payable by the Company to Osborn
for the Company's failure to consummate the merger, the Company has deposited
in an escrow account an irrevocable letter of credit in favor of Osborn for the
sum of $5.0 million. If Osborn terminates the merger agreement by reason of
receiving an alternative proposal which is deemed more favorable to Osborn's
stockholders, Osborn must pay a termination fee of $3,750,000 to the Company.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Osborn and its subsidiaries. All material intercompany items and
transactions have been eliminated. Investments in affiliated companies are
accounted for using the equity method. Certain prior years' amounts have been
reclassified to conform with the current year's presentation.
Depreciation
Property, plant and equipment are recorded at cost and depreciated
using the straight-line method over the estimated useful lives of the assets,
as follows:
<TABLE>
<S> <C>
Buildings ....................................................... 10-39 years
Furniture and fixtures .......................................... 5-7 years
Broadcasting equipment .......................................... 3-19 years
Transportation equipment ........................................ 2-5 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred.
Intangible Assets
Intangible assets include $2.6 million and $2.5 million in 1996 and
1995, respectively, for agreements not to compete relating to certain
transactions described in Note 4, and $3.4 million in 1996 and 1995 assigned to
Muzak customer contracts acquired in 1990 and 1986, which are being amortized
over their estimated useful lives. Deferred financing costs of $1.3 million and
$1.2 million in 1996 and 1995, respectively, are being amortized over the term
of the related debt on a straight-line basis, which approximates the interest
method. The remainder in the amount of $40.2 million and $48.6 million in 1996
and 1995, respectively, represents the excess of acquisition cost over the
amounts assigned to other assets acquired in Osborn's acquisitions, and is
being amortized on a straight-line basis principally over a 40-year period.
It is Osborn's policy to account for goodwill and all other intangible
assets at the lower of amortized cost or estimated realizable value. As part of
an ongoing review of the valuation and amortization of intangible assets of
Osborn and its subsidiaries, management assesses the carrying value of the
intangible assets, if facts and circumstances suggest
F-36
<PAGE> 158
OSBORN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
that there may be impairment. If this review indicates that the intangibles
will not be recoverable as determined by a non- discounted cash flow analysis
of the operating assets over the remaining amortization period, the carrying
value of the intangible assets would be reduced to estimated realizable value.
During 1996, Osborn adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which established standards for the recognition and measurement of impairment
losses on long-lived assets, certain identifiable intangible assets, and
goodwill (see Note 5).
Barter Transactions
Revenue from barter transactions (advertising provided in exchange for
goods and services) is recognized as income when advertisements are broadcast,
and merchandise or services received are charged to expense (or capitalized as
appropriate) when received or used.
Revenue
Broadcast revenue is presented net of advertising commissions of
approximately $1.3 million, $2.1 million and $1.7 million for the years ended
December 31, 1996, 1995 and 1994, respectively.
Per Share Data
Primary earnings per common share for 1996 and 1995 is based on the
net income for the year divided by the weighted average number of common and
common equivalent shares. Common stock equivalents consist of stock options and
warrants (see Notes 12 and 13). Shares issuable upon the exercise of all common
stock equivalents and other potentially dilutive securities are not included in
the computations for 1994 since their effect is not dilutive.
Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments
which are readily convertible into cash and have an original maturity of three
months or less when purchased.
Inventory
Inventories, consisting of merchandise for Osborn's entertainment
properties, sound equipment held for resale by Osborn's Muzak franchises and
equipment held for resale by Osborn's healthcare cable business, are valued at
the lower of cost or market using the first-in, first-out method.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires Osborn to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results may differ from those estimates.
4. ACQUISITIONS/DISPOSITIONS/PENDING TRANSACTIONS
At December 31, 1996, Osborn owned and operated ten FM and six AM
radio stations, four programmed music and sound equipment distributorships, a
hospital cable television company and certain entertainment properties.
1996
In March 1996, Osborn acquired substantially all the assets of radio
station WRIR-FM (formerly WHLX-FM), Wheeling, West Virginia, for $0.8 million
plus transaction costs. In June 1996, Osborn acquired substantially all the
assets of radio stations WBBD-AM/WKWK-FM (formerly WKWK-AM/FM), Wheeling, West
Virginia, for $2.7 million plus transaction costs. Osborn programmed
WBBD-AM/WKWK-FM pursuant to a local marketing agreement ("LMA")
F-37
<PAGE> 159
OSBORN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS/DISPOSITIONS/PENDING TRANSACTIONS -- (CONTINUED)
from March 1996 through the closing of the acquisition. In October 1996, Osborn
acquired substantially all the assets of radio station WEGW-FM, Wheeling, West
Virginia, for $0.8 million. Osborn already owned radio stations WWVA-AM/WOVK-FM
in Wheeling, West Virginia.
In April 1996, Osborn acquired substantially all the assets of radio
stations WKII-AM/WFSN-FM (formerly WKII-AM/WEEJ-FM). Port Charlotte, Florida,
for $2.85 million plus transaction costs. Upon completion of the relocation of
WFSN-FM's broadcast antenna to Osborn's Pine Island, Florida tower in order to
better serve the Port Charlotte/Ft. Myers market, additional consideration of
$750,000 will be paid. The additional consideration is included in other
noncurrent liabilities in the consolidated balance sheet at December 31, 1996.
The additional consideration was paid in January 1997. Pending the closing of
the acquisition, the stations were programmed by Osborn pursuant to an LMA
since September 1995. Osborn already owns radio station WOLZ-FM, Ft. Myers, and
has a 50% non-voting ownership interest in radio station WDRR-FM, San Carlos
Park/Ft. Myers. Osborn plans to dispose of radio stations WOLZ-FM/WFSN-FM/
WKII-AM in 1997 (see Pending Transactions below).
In May 1996, Osborn acquired substantially all the assets of radio
stations KNAX-FM/KRBT-FM, Fresno, California. Consideration for the acquisition
consisted of $6.0 million plus 120,000 shares of Osborn's common stock. Pending
the closing of the acquisition, the stations were programmed by Osborn since
January 1996 pursuant to an LMA. In December 1996, the Company sold
substantially all the assets of radio stations KNAX-FM/ KRBT-FM for $11.0
million, resulting in a pre-tax gain of approximately $3.5 million. Pending the
closing of the transaction, the purchaser managed the stations pursuant to an
LMA since August 1, 1996.
In January 1996, Osborn sold substantially all the assets of radio
station WWRD-FM, Jacksonville, Florida/Brunswick, Georgia, for $2.5 million,
resulting in a pre-tax gain of approximately $0.8 million. Pending the closing
of the disposition, the station was programmed by the purchaser pursuant to an
LMA.
In February 1996, Osborn sold substantially all the assets of radio
stations WNDR-AM/WNTQ-FM, Syracuse, New York, for $12.5 million, resulting in a
pre-tax gain of approximately $6.0 million. Pending the closing of the
disposition, the stations were programmed by the purchaser pursuant to an LMA.
In June 1996, Osborn sold substantially all the assets of radio
station WFXK-FM, Raleigh/Tarboro, North Carolina, for $5.9 million, resulting
in a pre-tax gain of approximately $2.2 million. Pending the closing of the
transaction, the purchaser programmed the station pursuant to an LMA.
In June 1996, Osborn sold substantially all the assets of radio
station WAYV-FM, Atlantic City, New Jersey, for $3.1 million, resulting in a
pre-tax gain of approximately $0.2 million. Pending the closing of the
transaction, the purchaser programmed the station pursuant to an LMA since
March 1996.
In June 1996, Osborn sold substantially all the assets of radio
station WFKS-FM, Daytona Beach/Palatka, Florida, for $4.0 million, resulting in
a pre-tax gain of approximately $0.8 million. Pending the closing of the
transaction, the purchaser programmed the station pursuant to an LMA.
The net cash proceeds from each of the dispositions were used
principally to repay long-term debt and fund transaction costs.
All of the acquisitions have been accounted for using the purchase
method of accounting. Accordingly, the purchase price of each acquisition has
been allocated to the assets based upon their fair values at the date of
acquisition. The results of operations of the properties acquired are included
in Osborn's consolidated results of operations from the respective dates of
acquisition and until the date of disposition for properties disposed.
1995
In December 1995, Osborn entered into an option agreement with
Allbritton Communications Company for the sale of television station WJSU-TV,
Anniston, Alabama, and an associated 10-year LMA. In consideration for the
option, Osborn received a nonrefundable cash payment of $10.0 million. Because
the cash proceeds from the option are
F-38
<PAGE> 160
OSBORN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS/DISPOSITIONS/PENDING TRANSACTIONS -- (CONTINUED)
nonrefundable, Osborn accounted for the economic substance of the transaction
as if a sale of substantially all the assets of the station had occurred.
Accordingly, a gain of approximately $8.1 million was recorded. In addition,
upon the exercise of the option and the necessary FCC consent, Osborn will
receive an additional cash payment of $2.0 million. Upon the grant of the
necessary regulatory approvals to relocate the station's broadcast transmitter
to maximize broadcast coverage of the facility, Osborn could have received
additional cash payments of up to $7.0 million. In January 1997, the regulatory
approvals were granted for the relocation of the station's broadcast
transmitter, and a cash payment of approximately $5.3 million was paid to
Osborn. An additional payment relating to the transmitter relocation of
approximately $1.4 million will be payable upon exercise of the option.
1994
In June 1994, Osborn acquired substantially all the assets of three FM
radio stations and one AM radio station for $20.0 million plus transaction
costs. The acquisition included radio stations WWNC-AM/WKSF-FM, Asheville,
North Carolina; WOLZ-FM, Ft. Myers, Florida; and WFKS-FM, Daytona Beach,
Florida. In August 1994, Osborn acquired substantially all the assets of radio
stations WAAX-AM/WQEN-FM, Gadsden, Alabama, (the "Gadsden Acquisition") for
$1.75 million plus transaction costs. Prior to the grant of the waiver of the
FCC's cross-ownership regulations, the Gadsden acquisition was accounted for
using the equity method of accounting. Accordingly, prior year financial
statements have been reclassified to reflect the consolidation of the Gadsden
radio stations.
In March 1994, Osborn, through a wholly-owned subsidiary, acquired
radio station WAYV-FM, Atlantic City, New Jersey, for consideration of
approximately $2.5 million.
Pending Transactions
In January 1997, Osborn acquired substantially all the assets of radio
station WYNU-FM, Jackson/Milan, Tennessee for $3.6 million plus transaction
costs. Osborn already owns one FM and one AM radio station in the market.
In November 1996, Osborn agreed to acquire substantially all the
assets of radio station WTXT-FM, Tuscaloosa/Fayette, Alabama from Tuscaloosa
Broadcasting Company, Inc. for approximately $5.8 million, subject to FCC
approval. The transaction is expected to close in February 1997. In December
1996, Osborn agreed to acquire substantially all the assets of radio stations
WACT-AM/FM, Tuscaloosa, Alabama from Taylor Communications Corporation for $1.0
million, subject to FCC approval. Pending the closing of the transaction, which
is expected in the first quarter of 1997, Osborn is managing the stations
pursuant to an LMA.
In November 1996, Osborn agreed to acquire the stock of Dixie
Broadcasting, Inc. and Radio WBHP, Inc., the owners of radio stations
WDRM-FM/WHOS-AM/WBHP-AM, Huntsville, Alabama. Consideration for the acquisition
consists of (i) $23.0 million; (ii) a three year consulting agreement valued at
$2.5 million; and (iii) a $1.5 million earn-out based on future operating
results. The transaction, which is subject to FCC approval, is expected to
close in 1997.
In December 1996, Osborn agreed to sell substantially all the assets
of WOLZ-FM, WFSN-FM and WKII-AM, Fort Myers/Port Charlotte, Florida for
approximately $11.0 million to Clear Channel Radio, Inc., subject to FCC
approval. Pending the closing of the transaction, which is expected in 1997,
the stations are being managed by the Purchaser pursuant to a LMA starting in
January 1997.
Other Investments
In 1989, Osborn acquired, $620,000, a 50% non-voting ownership
interest (without control) in a corporation that owns and operates radio
station WDRR-FM, San Carlos Park, Florida. The station became operational in
September 1995. Osborn's net investment is included in investment in affiliated
companies on the consolidated balance sheet.
In 1989, Osborn acquired a 32% ownership interest in Northstar
Television Group, Inc. ("Northstar") for $329,000. From Northstar's inception
through May 1994, Osborn managed Northstar's four television stations for an
annual fee of up to $250,000, plus reimbursement of out-of-pocket expenses and
allocated overhead costs. In 1994, as a result of a proposed restructuring of
Northstar, Osborn agreed, as payment for prior services rendered, to receive an
immediate payment of $250,000, another payment of $250,000 within two years,
and the retention of an economic
F-39
<PAGE> 161
OSBORN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS/DISPOSITIONS/PENDING TRANSACTIONS -- (CONTINUED)
interest. Osborn's management agreement terminated following the restructuring.
In 1995, three of Northstar's four television stations were sold and Osborn
received a distribution of $1.6 million, classified as other income in the
consolidated statement of operations, plus accrued management fees of $250,000.
In 1987, Osborn acquired 25% of the stock of Fairmont Communications
Corporation ("Fairmont") for $500,000. Fairmont owned seven radio stations in
four large and medium sized markets. In August 1992, Fairmont filed for
protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. In
September 1993, Fairmont emerged from Chapter 11 upon approval by the
bankruptcy court of a plan of reorganization (the "Plan"). The Plan provided
for the sale of Fairmont's assets, distribution of the proceeds in accordance
with the Plan, and subsequent liquidation of Fairmont. All of Fairmont's
stations were sold by the second quarter of 1994. Osborn will continue to
manage Fairmont pursuant to a management agreement which expires upon the
liquidation of Fairmont, which is expected in 1997. For managing Fairmont,
Osborn receives an annual fee of $125,000, plus reimbursement of out-of-pocket
expenses and allocated overhead costs. In 1994, Osborn received additional
management fees of $728,000 related to the sale of Fairmont's stations. Osborn
also earned distributions of $400,000 and $2.3 million in 1995 and 1994,
respectively, classified as other income and distribution receivable in the
consolidated financial statements, determined by the amount realized by
Fairmont from sales of its assets.
5. OSBORN HEALTHCARE
Osborn Healthcare, a division of Osborn Entertainment Enterprises
Corporation, continued to experience operating losses through the second
quarter of 1996. Consistent with Osborn's previously stated intention to
evaluate options to increase shareholder value, management has reviewed the
strategic direction and long-term prospects of the Osborn Healthcare operations
and has restructured the operations. Osborn plans to focus resources on only
the more profitable product lines. In conjunction with these plans, Osborn has
combined the Osborn Healthcare operations and Osborn's programmed music
operations, terminating certain employees of the Osborn Healthcare operations,
and consolidating certain overhead. In the second quarter of 1996, Osborn
accrued costs of approximately $300,000, principally severance costs, in
connection with the consolidation of operations. In addition, Osborn has
reduced goodwill by approximately $900,000 to reflect the anticipated
discounted cash flow from the remaining healthcare operations. The charges,
totaling $1.2 million, are included in other gains (losses), including gains on
sales of stations in the consolidated statement of operations.
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net revenues ................................ $ 36,131,000 $ 32,667,000
Income (loss) before extraordinary item ..... 633,000 (808,000)
Net income (loss) ........................... 633,000 (4,729,000)
Net income (loss) per share ................. $ 0.11 $ (0.87)
</TABLE>
The unaudited pro forma information for the years ended December 31,
1996 and 1995 assumes that the acquisitions and dispositions described in Note
4, excluding pending transactions, had occurred on January 1, 1995. The gains
on sales of stations and the loss from Osborn Healthcare's restructuring in
1996 and the distributions from Northstar Television Group in 1995 are excluded
from the pro forma information because of their nonrecurring nature. The pro
forma information is not necessarily indicative either of the results of
operations that would have occurred had these transactions been made on the
date indicated, or of future results of operations.
Net assets of properties to be disposed in Ft. Myers aggregated $7.5
million at December 31, 1996, consisting of current assets of $500,000, plant
and equipment of $2.0 million, and net intangible assets of $5.0 million.
F-40
<PAGE> 162
OSBORN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Note payable to KeyBank National Association, at the prime rate plus
0.5%; interest payable quarterly; quarterly commitment
reductions from December 31, 1996 through December 31, 2001(A) ....... $ 200,000 $ 14,500,000
Note payable to KeyBank National Association, at LIBOR plus 1.75%;
principal due in quarterly installments from December 31, 1996
through December 31, 2001(A) ......................................... 14,000,000 30,000,000
Term loan payable to National Westminster Bank, net of unamortized debt
discount of $700,000; interest payable quarterly at LIBOR plus 2.5%;
principal due in quarterly installments in varying amounts from June
1996 through March 2000(B) ........................................... -- 2,700,000
------------ ------------
14,200,000 47,200,000
Less current portion ................................................... 320,000 2,718,000
------------ ------------
$ 13,880,000 $ 44,482,000
============ ============
</TABLE>
- ---------------
(A) In August 1995, Osborn entered into a credit facility of $56.0 million
with KeyBank National Association (the "Credit Facility"). The Credit
Facility consists of a $46.0 million revolving credit facility and a
$10.0 million facility which may be used for acquisitions. The initial
drawdown of $44.5 million, along with Osborn's internally generated
funds, was used to repay existing loans totaling $50.0 million and pay
transaction costs. The Credit Facility contains covenants which
require, among other things, that Osborn and its subsidiaries
(excluding Atlantic City Broadcasting Corp.) maintain certain
financial levels, principally with respect to EBITDA (earnings before
interest, income tax, depreciation and amortization) and leverage
ratios, and limit the amount of capital expenditures. The Credit
Facility also restricts the payment of cash dividends. The Credit
Facility is collateralized by pledges of the tangible and intangible
assets of Osborn and its subsidiaries, as well as the stock of those
subsidiaries. At December 31, 1996, Osborn has additional availability
under the revolving credit facility of $14.1 million. Effective
December 31, 1996 the outstanding balance under the acquisition
facility will convert to a term loan. Under the current terms of the
Credit Facility, no additional amounts under the acquisition facility
may be borrowed after December 31, 1996 unless the terms are modified.
Osborn pays an annual commitment fee of 0.5% of the unused commitment.
(B) The term loan contained covenants with respect to Osborn's
wholly-owned subsidiary, Atlantic City Broadcasting Corp., which,
among other things, restricted cash distributions to Osborn and
limited the amount of annual capital expenditures. The loan was
collateralized by pledges of the tangible and intangible assets and
stock of Atlantic City Broadcasting Corp. ("Atlantic City"), and were
otherwise nonrecourse to Osborn and its other assets. In June 1996,
the Company sold substantially all the assets of Atlantic City. The
net proceeds were used primarily to repay long-term debt and fund
transaction costs.
At December 31, 1996, the aggregate amounts of long-term debt due
during the next five years are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Year:
1997 ............................................. $ 320,000
1998 ............................................. 640,000
1999 ............................................. 640,000
2000 ............................................. 800,000
2001 ............................................. 11,800,000
</TABLE>
The fair value of the debt approximates net book value.
F-41
<PAGE> 163
OSBORN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land ............................................. $ 3,303,266 $ 4,256,414
Buildings ........................................ 4,304,159 4,168,839
Equipment ........................................ 22,266,863 25,556,838
------------ ------------
29,874,288 33,982,091
------------ ------------
Less accumulated depreciation .................... (16,162,605) (18,624,021)
------------ ------------
$ 13,711,683 $ 15,358,070
============ ============
</TABLE>
At December 31, 1996, all property, plant and equipment is pledged as
collateral for the debt disclosed in Note 7.
9. INCOME TAXES
At December 31, 1996, Osborn has consolidated net operating loss
carryforwards for income tax purposes of $20.6 million that expire in years
2006 through 2010. Of the total net operating loss carryforwards, $11.0 million
may be used only to offset future income of Osborn's subsidiary, Osborn
Entertainment Enterprises Corporation.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of Osborn's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ............... $ 8,237,540 $ 13,577,873
Other .......................................... 971,542 713,951
------------ ------------
9,209,082 14,291,824
Valuation allowance .............................. (5,940,696) (9,088,722)
------------ ------------
3,268,386 5,203,102
Deferred tax liabilities:
Depreciation and amortization .................. 2,865,184 4,014,313
Sale of station ................................ 3,289,500 3,289,500
Other .......................................... 175,000 175,000
------------ ------------
6,329,684 7,478,813
------------ ------------
Net deferred tax liabilities ..................... $ 3,061,298 $ 2,275,711
============ ============
</TABLE>
The provision for income taxes for 1996 consists of federal taxes of
$269,000, state and local taxes of $1,324,000 and deferred federal, state and
local taxes of $786,000. The provision for income taxes for 1995 and 1994
consists entirely of state and local taxes, of which $535,000 and $114,000,
respectively, is current and $241,000 and $175,000, respectively, is deferred.
The reconciliation of income tax computed at the U.S. federal
statutory tax rate to income tax expense is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Amount computed using statutory rate ............. $ 4,065,056 $ 1,217,532 $ (428,705)
State and local taxes, net of federal benefit .... 860,748 504,388 190,885
Net operating losses (utilized) generated ........ (2,673,429) (1,228,507) 234,539
Nondeductible expenses ......................... 126,374 282,569 292,501
----------- ---------- -----------
$ 2,378,749 $ 775,982 $ 289,220
=========== ========== ===========
</TABLE>
F-42
<PAGE> 164
OSBORN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS
Osborn leases office and broadcast tower space, vehicles and office
equipment. Rental expense amounted to $1,113,000, $994,000 and $768,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
The minimum aggregate annual rentals under noncancellable operating
leases are payable as follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Year:
1997 ............................................. $1,038,000
1998 ............................................. 752,000
1999 ............................................. 532,000
2000 ............................................. 305,000
2001 ............................................. 244,000
Thereafter ....................................... 2,693,000
----------
$5,564,000
==========
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Osborn sponsors a profit sharing plan which qualifies under Section
401(k) of the Internal Revenue Code (the "IRC"). The Plan is available to all
full-time employees with at least one year of employment with Osborn. All
eligible employees may elect to contribute a portion of their compensation to
the profit sharing plan, subject to IRC limitations. Effective January 1, 1996,
the Plan provides for employer contributions based upon an employee's salary.
In December 1994, Osborn adopted a non-qualified deferred compensation plan
available to certain management employees.
12. STOCK OPTION PLAN
Osborn's Incentive Stock Option Plan (the "Plan") provides for the
granting to officers and key employees of incentive and non-qualified stock
options to purchase Osborn's voting common stock as defined under current tax
laws. Incentive stock options are exercisable at a price equal to the fair
market value, as defined, on the date of grant, for a maximum 10-year period
from the date of grant. Non-qualified stock options may be granted at an
exercise price equal to at least 85% of the fair market value on the date of
grant, for a maximum 11-year period from the date of grant. The exercise prices
of all options granted in 1994 through 1996 were at fair market value at the
date of grant.
The following table summarizes the Plan's transactions for the years
ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Outstanding options, beginning of year .................... 447,341 417,000 382,750
Granted ................................................... 52,000 66,500 108,250
Cancelled or expired ...................................... (8,299) (12,500) (72,500)
Exercised ................................................. (173,667) (23,659) (1,500)
-------- -------- --------
Outstanding options, end of year .......................... 317,375 447,341 417,000
======== ======== ========
Weighted average price of options granted ................. $ 10.10 $ 6.76 $ 6.26
Weighted average price of options canceled or expired ..... $ 6.46 $ 7.00 $ 6.61
Weighted average price of options exercised ............... $ 4.23 $ 6.55 $ 4.00
Weighted average exercise price, end of year .............. $ 8.55 $ 6.66 $ 6.64
Options exercisable, end of year .......................... 205,125 283,921 280,083
Options available for future grant ........................ 35,299 79,000 133,000
</TABLE>
At December 31, 1996, the range of exercise prices for outstanding
options was $4.00 through $14.40 These outstanding options have a remaining
contractual life of five years.
F-43
<PAGE> 165
OSBORN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK OPTION PLAN -- (CONTINUED)
Osborn applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for
its Plan. Had compensation cost for the Plan been determined based upon the
fair value at the grant date for awards under the Plan consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation, Osborn's net income and earnings
per share would have been reduced by approximately $144,000, or $0.03 per
share, and $46,000, or $0.01 per share for the years ended December 31, 1996
and 1995, respectively. The fair value of the options granted during the years
ended December 31, 1996 and 1995 is estimated as $102,000 and $114,000,
respectively, on the date of grant using the Black- Scholes option-pricing
model with the following assumptions: dividend yield of 0.0%, volatility of
40.7%, risk-free interest rate of 6.5%, assumed forfeiture rate of 0.0%, and an
expected life of 1 to 2 years. The assumptions used assume that the proposed
merger as described in Note 2 is consummated in the first quarter of 1997.
13. STOCKHOLDERS' EQUITY
During 1996, approximately 174,000 shares of common stock were issued
pursuant to the exercise of stock options. Approximately 45,000 existing shares
were retired to fund the exercise of certain of these options.
In January 1995, Osborn paid $642,000 to repurchase and subsequently
retired 107,059 unregistered shares of its common stock which were held by an
institution. In December 1994, Osborn paid $107,000 to repurchase and
subsequently retired 17,843 shares of its common stock at $6.00 per share.
In June 1994, Osborn entered into two credit agreements totaling $50.0
million with Citicorp Mezzanine Investment Fund ("CMIF"). As partial
consideration for making the loans, CMIF received a warrant to purchase
1,014,193 shares (after giving effect to the reverse stock split described
below) of Osborn's common stock at $7.00 per share. The warrant is exercisable
for a 10-year period. Under the terms of the warrant agreement, in the event
that the CMIF loans were repaid by December 31, 1995, purchase rights with
respect to 676,162 warrant shares will be canceled. The loans were repaid in
August 1995 and, accordingly, the purchase rights with respect to 676,162
warrant shares were canceled.
In July 1994, Osborn effected a 1-for-2 reverse stock split for
shareholders of record on that date. Cash was paid in lieu of fractional
shares. All per share amounts in the consolidated statement of operations
reflect the reverse stock split.
14. SUBSEQUENT EVENT (UNAUDITED)
On February 20, 1997, Capstar Broadcasting Partners, Inc. acquired all
of Osborn's common stock and Osborn was merged with a subsidiary of the Company.
F-44
<PAGE> 166
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Benchmark Communications
Radio Limited Partnership:
We have audited the accompanying combined balance sheets of Benchmark
Communications Radio Limited Partnership (as identified in Note 1)
(collectively "Benchmark") as of December 31, 1996 and 1995 and the related
combined statements of operations, changes in partners' equity (deficit), and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of Benchmark's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
Benchmark as of December 31, 1996 and 1995 and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 8, 1997
F-45
<PAGE> 167
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash ........................................................................... $ 11,029,177 $ 825,403
Escrow deposit ................................................................. 150,000 --
Accounts receivable, net of allowance for doubtful accounts of $324,719 and
$280,366, respectively ....................................................... 4,731,405 4,016,421
Due from related entities ...................................................... 23,753 10,884
Deferred acquisition costs ..................................................... 375,882 --
Prepaid expenses and other current assets ...................................... 244,784 354,211
------------ ------------
Total current assets ......................................................... 16,555,001 5,206,919
Property and equipment, net ....................................................... 13,721,546 14,156,177
Investment in limited partnership ................................................. 66,331 82,721
Intangible assets, net ............................................................ 43,788,173 30,204,762
------------ ------------
Total assets ................................................................. $ 74,131,051 $ 49,650,579
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses .......................................... $ 2,900,204 $ 1,645,018
Due to related entities ........................................................ 2,865,164 65,345
Current portion of long-term debt .............................................. 14,219,155 12,846,733
Obligations under capital leases, current portion .............................. 78,984 114,451
------------ ------------
Total current liabilities .................................................... 20,063,507 14,671,547
Long-term debt .................................................................... 29,841,341 14,127,693
Obligations under capital leases, net of current portion .......................... 78,820 220,058
------------ ------------
Total liabilities .............................................................. 49,983,668 29,019,298
------------ ------------
Commitments (Note 8)
Partners' capital ................................................................. 24,147,383 20,631,281
------------ ------------
Total liabilities and partners' capital ........................................ $ 74,131,051 $ 49,650,579
============ ============
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-46
<PAGE> 168
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Gross broadcast revenue .................................... $ 29,697,028 $ 25,198,304 $ 17,621,955
Less agency commissions .................................... 2,441,800 2,051,455 1,449,843
------------ ------------ ------------
Net revenue ........................................... 27,255,228 23,146,849 16,172,112
------------ ------------ ------------
Operating expenses:
Programming, technical and news ....................... 6,760,363 5,210,641 3,804,695
Sales and promotion ................................... 9,233,843 8,245,763 5,787,235
General and administrative ............................ 5,257,968 4,823,394 3,383,768
Depreciation and amortization ......................... 5,320,258 5,005,245 4,149,542
Corporate expenses .................................... 1,513,438 1,271,455 569,480
------------ ------------ ------------
28,085,870 24,556,498 17,694,720
------------ ------------ ------------
Loss from operations .............................. (830,642) (1,409,649) (1,522,608)
Other income (expense):
Interest expense ...................................... (3,384,388) (2,519,578) (1,799,169)
Gain on sale of broadcasting properties (Note 6b) ..... 9,612,496 -- 1,437,817
Other, net ............................................ 678,636 (414,561) 96,920
------------ ------------ ------------
Net income (loss) ..................................... $ 6,076,102 $ (4,343,788) $ (1,787,040)
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-47
<PAGE> 169
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CHANGES
IN PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1994 ................... $ (1,879,470) $ 13,165,680 $ 11,286,210
Capital contributions from partners .... (48,191) 9,163,878 9,115,687
Capital distributions to partners ...... (255,000) -- (255,000)
Net income (loss) ...................... 233,554 (2,020,594) (1,787,040)
------------ ------------ ------------
Balance, December 31, 1994 ................. (1,949,107) 20,308,964 18,359,857
Capital contributions from partners .... 961,516 6,253,441 7,214,957
Capital distributions to partners ...... (599,745) -- (599,745)
Net income (loss) ...................... (300,171) (4,043,617) (4,343,788)
------------ ------------ ------------
Balance, December 31, 1995 ................. (1,887,507) 22,518,788 20,631,281
Capital contributions from partners .... 800,000 -- 800,000
Capital distributions to partners ...... (1,260,000) (2,100,000) (3,360,000)
Net income (loss) ...................... 2,137,845 3,938,257 6,076,102
------------ ------------ ------------
Balance, December 31, 1996 ................. $ (209,662) $ 24,357,045 $ 24,147,383
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-48
<PAGE> 170
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................. $ 6,076,102 $ (4,343,788) $ (1,787,040)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ...................................... 5,320,258 5,005,245 4,149,542
Provision for doubtful accounts .................................... 332,487 280,760 342,038
Loss from investment in limited partnership ........................ 16,490 7,381 7,914
Gain on sale of broadcast properties and equipment ................. (9,612,496) (4,766) (1,437,817)
Change in barter receivable/payable, net ........................... (83,433) 197,335 35,795
Changes in assets and liabilities, net of the effects of acquired
broadcasting properties:
Accounts receivable .............................................. (996,735) (1,528,818) (569,941)
Due from/due to related entities, net ............................ 2,786,950 (332,505) 167,622
Prepaid expenses and other current assets ........................ (109,427) (277,703) 42,261
Accounts payable and accrued expenses ............................ 1,375,292 635,184 (227,408)
------------ ------------ ------------
Net cash flows provided by (used in) operating
activities .................................................. 5,105,488 (361,675) 722,966
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment ................................ (1,133,074) (1,140,417) (542,749)
Purchases of broadcasting properties ............................... (22,225,278) (16,535,198) (5,189,233)
Net proceeds from sales of broadcasting properties ................. 14,123,152 -- 4,866,629
Capital contribution to limited partnerships ....................... -- -- 3,900,000
------------ ------------ ------------
Net cash flows provided by (used in) investing
activities .................................................. (9,235,200) (17,675,615) 3,034,647
------------ ------------ ------------
Cash flows from financing activities:
Repayments of notes payable and capital leases ..................... (6,903,389) (9,341,629) (5,363,989)
Proceeds from borrowing under notes payable and
promissory notes ................................................. 23,846,875 15,652,627 1,755,000
Distributions to partners .......................................... (3,360,000) (599,745) (255,000)
Capital contributions for acquisition of broadcasting
properties ....................................................... 800,000 7,393,804 5,700,000
Cash paid for syndication costs .................................... -- (178,847) (584,313)
Borrowings under line of credit .................................... 647,075 215,535 --
Repayments under line of credit .................................... (697,075) -- --
Proceeds from sale leaseback transaction ........................... -- -- 141,000
Proceeds from assumption of capital lease obligation ............... -- -- 28,000
------------ ------------ ------------
Net cash flows provided by financing activities ................ 14,333,486 13,141,745 1,420,698
------------ ------------ ------------
Net increase (decrease) in cash ....................................... 10,203,774 (4,895,545) 5,178,311
Cash, at beginning of year ............................................ 825,403 5,720,948 542,637
------------ ------------ ------------
Cash, at end of year .................................................. $ 11,029,177 $ 825,403 $ 5,720,948
============ ============ ============
Supplementary information:
Cash paid for interest ............................................. $ 3,459,331 $ 2,473,568 $ 1,363,052
Noncash activities:
Asset additions under capital lease obligations .................... 15,882 16,936 211,371
Assumption of note payable in connection with fund
merger ........................................................... -- 500,000 --
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-49
<PAGE> 171
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DECEMBER 31, 1996, 1995 AND 1994)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying financial statements include the combined radio
station holdings of Benchmark Communications Radio Limited Partnership (BCRLP),
and Benchmark Radio Acquisition Fund I Limited Partnership (BRAF I), Benchmark
Radio Acquisition Fund IV Limited Partnership (BRAF IV), Benchmark Radio
Acquisition Fund VII Limited Partnership (BRAF VII), and Benchmark Radio
Acquisition Fund VIII Limited Partnership (BRAF VIII) (collectively,
Benchmark). BCRLP is a Maryland limited partnership formed on June 1, 1991 to
invest in and manage radio stations and serves as the general partner for the
four funds listed above, as well as other funds not included in these combined
financial statements. Benchmark serves certain radio markets in Delaware,
Maryland, South Carolina, Virginia, Louisiana, Mississippi and Alabama.
All significant intercompany accounts and transactions have been
eliminated.
Benchmark Radio Acquisition Fund I Limited Partnership
BRAF I is a Maryland limited partnership formed on May 16, 1990, and
operates radio stations WDOV-AM, WDSD-FM and WSRV-FM.
Benchmark Radio Acquisition Fund IV Limited Partnership
BRAF IV is a Maryland limited partnership formed on December 10, 1992,
to operate radio stations and its 99.99999% owned subsidiary, Benchmark Radio
Acquisition Fund V Limited Partnership (BRAF V) (together, the Fund IV
Partnership). BRAF IV is the general partner in BRAF V and BCRLP is the limited
partner. The Fund IV Partnership operates radio stations WOSC-FM, WWFG-FM,
WCOS-AM/FM, WHKZ-FM, WVOC-AM, and KRMD-AM/FM.
Benchmark Radio Acquisition Fund VII Limited Partnership
BRAF VII is a Maryland limited partnership formed on June 20, 1994,
and operates WESC-AM/FM, WFNQ- FM and WJMZ-FM.
Benchmark Radio Acquisition Fund VIII Limited Partnership
BRAF VIII is a Maryland limited partnership formed on November 15,
1994, and operates WUSQ-FM, WNTW-AM, WYYD-FM, WROV-AM/FM and WFQX-FM.
On January 1, 1995, Benchmark Radio Acquisition Fund II Limited
Partnership (BRAF II), which owned WUSQ-FM and WNTW-AM in Winchester, Virginia,
and Benchmark Radio Acquisition Fund VI Limited Partnership (BRAF VI), which
owned WFQX-FM in Front Royal, Virginia, were merged into BRAF VIII. The limited
partners of BRAF II and BRAF VI collectively received approximately 33 units,
of the total of 73 units, in BRAF VIII. The merger has been accounted for in a
manner similar to a pooling of interests, whereby the net assets of the merged
partnerships are recorded at their carrying amounts at the time of the merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
Broadcasting operations derive revenue primarily from the sale of
program time and commercial announcements to local, regional and national
advertisers. Revenue is recognized when the programs and commercial
announcements are broadcast.
F-50
<PAGE> 172
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
BARTER TRANSACTIONS
Barter transactions represent advertising time exchanged for
promotional items, advertising, supplies, equipment, and services. Barter
revenue is recorded at the fair value of the goods or services received and is
recognized in income when the advertisements are broadcast. Goods or services
are charged to expense when received or used. Advertising time owed and goods
or services due Benchmark are included in accounts payable and accounts
receivable, respectively.
INVESTMENT IN LIMITED PARTNERSHIP
Investment in limited partnership (representing BRAF Fund III which is
not included in these combined financial statements) is accounted for using the
equity method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is determined using the
straight-line method based upon the estimated useful lives of the assets as
follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings ....................................................... 39
Building improvements ........................................... 13-39
Broadcast equipment ............................................. 5-25
Furniture, fixtures and equipment ............................... 5-10
</TABLE>
Leasehold improvements are amortized over the shorter of their useful
lives or the terms of the related leases. Costs of repairs and maintenance are
charged to operations as incurred.
INTANGIBLE ASSETS
Intangible assets are stated at cost, less accumulated amortization.
Amortization is determined using the straight-line method based upon the
estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Licenses and authorization costs ...................... 25
Organization costs .................................... 5
Deferred financing costs .............................. Life of respective loan
Noncompete agreements ................................. 5
Goodwill .............................................. 25
Other ................................................. 1-5
</TABLE>
Benchmark evaluates intangible assets for potential impairment by
analyzing the operating results, trends and prospects of the business, as well
as comparing them to their competitors. Benchmark also takes into consideration
recent acquisition patterns within the broadcast industry as well as the impact
of recently enacted or potential Federal Communications Commission (the FCC)
rules and regulations and any other events or circumstances which might
indicate potential impairment.
ADVERTISING COSTS
Benchmark incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred or deferred and
amortized over the interim periods which they benefit and totaled approximately
$1.6 million, $1.6 million and $1.2 million for the years ended December 31,
1996, 1995 and 1994, respectively.
F-51
<PAGE> 173
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
Benchmark's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast
areas. Benchmark's management performs ongoing credit evaluations of the
customers' financial condition and, generally, requires no collateral from
their customers. Credit losses have been within management's expectations and
adequate allowances for any uncollectible trade receivables are maintained.
INCOME TAXES
Benchmark is comprised of limited partnerships which are exempt from
federal and state income taxes. Accordingly, no provision for income taxes has
been made in the accompanying financial statements as all items of tax
attributes pass through pro rata to each partner in accordance with the
partnership agreements.
3. UNCERTAINTIES AND USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
On February 8, 1996, the President signed into law the
Telecommunications Act of 1996. Among other things, this legislation requires
the FCC to relax its numerical restrictions on local ownership and affords
renewal applicants significant new protections from competing applications for
their broadcast licenses. The ultimate effect of this legislation on the
competitive environment is currently undeterminable.
4. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land ................................... $ 1,489,647 $ 1,532,116
Tower, building and improvements ....... 5,588,771 5,357,989
Broadcast equipment .................... 9,936,338 10,087,239
Office furniture and fixtures .......... 1,137,222 1,245,332
Equipment under capital leases ......... 321,638 293,174
Vehicles ............................... 281,305 310,742
Computer equipment ..................... 603,496 516,604
------------ ------------
19,358,417 19,343,196
Less accumulated depreciation .......... (5,636,871) (5,187,019)
------------ ------------
$ 13,721,546 $ 14,156,177
============ ============
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1995 and
1994 was $2,409,696, $2,227,478 and $1,680,039, respectively.
F-52
<PAGE> 174
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS:
Intangible assets at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Licenses and authorization costs ....... $ 42,423,027 $ 28,335,031
Organization costs ..................... 2,801,440 2,339,639
Deferred financing costs ............... 688,971 460,610
Noncompete agreements .................. 4,685,668 4,785,669
Goodwill ............................... 2,430,590 2,258,490
Other .................................. 1,254,282 1,536,518
------------ ------------
54,283,978 39,715,957
Less accumulated amortization .......... (10,495,805) (9,511,195)
------------ ------------
$ 43,788,173 $ 30,204,762
============ ============
</TABLE>
Amortization expense for the years ended December 31, 1996, 1995 and
1994 was $2,910,562, $2,777,767 and $2,469,503, respectively.
6A. ACQUISITIONS OF BROADCASTING PROPERTIES:
On January 19, 1995, BRAF VIII purchased substantially all the assets
of WYYD-FM for approximately $8.5 million, including acquisition costs and an
agreement by the seller not to compete with the station. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment ............... $1,059
Goodwill and other intangibles ....... 7,441
------
Purchase price ......................... $8,500
======
</TABLE>
On February 10, 1995, BRAF IV purchased substantially all of the
assets of WVOC-AM for approximately $2.5 million including acquisition costs
and an agreement by the seller not to compete with the station. The acquisition
has been accounted for as a purchase and, accordingly, the results of
operations associated with the acquired assets have been included in the
accompanying statements from the date of acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment ............... $1,006
Goodwill and other intangibles ....... 1,494
------
Purchase price ......................... $2,500
======
</TABLE>
On March 1, 1995, BRAF VII purchased substantially all the assets of
WESC-AM/FM for approximately $8.1 million, including acquisition costs and an
agreement by the seller not to compete with the station. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations
associated with the acquired assets have been included in the accompanying
statements from the date of acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment ............... $3,447
Goodwill and other intangibles ....... 4,653
------
Purchase price ......................... $8,100
======
</TABLE>
On January 1, 1996, BRAF VIII purchased substantially all the assets
of WROV-AM/FM for approximately $5.8 million, including acquisition costs and
an agreement by the seller not to compete with the stations. The acquisition
F-53
<PAGE> 175
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
has been accounted for as a purchase and, accordingly, the results of
operations associated with the acquired assets have been included in the
accompanying statements from the date of acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment ............... $1,388
Goodwill and other intangibles ....... 4,412
------
Purchase price ......................... $5,800
======
</TABLE>
On November 27, 1996, BRAF IV purchased substantially all the assets
of KRMD-AM/FM in Shreveport, Louisiana (Shreveport) for approximately $7.5
million, including acquisition costs and an agreement by the seller not to
compete with the stations. The acquisition has been accounted for as a purchase
and, accordingly, the results of operations associated with the acquired assets
have been included in the accompanying statement from the date of the
acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment ............... $1,330
Goodwill and other intangibles ....... 6,170
------
Purchase price ......................... $7,500
======
</TABLE>
On December 9, 1996, BRAF VII purchased substantially all the assets
of WJMZ-FM in Greenville, South Carolina (Greenville) for approximately $7.5
million, including acquisition costs and an agreement by the seller not to
compete with the station. The acquisition has been accounted for as a purchase
and, accordingly, the results of operations associated with the acquired assets
have been included in the accompanying statements from the date of the
acquisition.
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment ............... $ 903
Goodwill and other intangibles ....... 6,597
------
Purchase price ......................... $7,500
======
</TABLE>
The following summarizes the unaudited combined historical and pro
forma data for the years ended December 31, 1996 and 1995, as though
Benchmark's acquisitions of WYYD-FM, WVOC-AM, WESC-AM/FM, WROV-AM/FM,
KRMD-AM/FM and WJMZ-FM, had occurred as of January 1, 1995 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- ---------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenue ......... $ 27,255 $ 30,002 $ 23,147 $ 30,615
Net income (loss) ... $ 6,076 $ 7,334 $ (4,344 $ (3,352)
</TABLE>
6b. RADIO BROADCASTING DISPOSITIONS:
During 1994, Benchmark sold substantially all of the assets of WZNY-FM
and WXFQ-FM/WGUS-AM for $3,600,000 and $1,284,700, respectively, and had
recorded gains of $1,316,741 and $121,076, respectively.
In October 1996, BRAF IV sold substantially all of the assets of
WLTY-FM, WTAR-AM and WKOC-FM for $14.1 million, net of closing costs of
approximately $500,000. Benchmark received cash proceeds from the sale and,
F-54
<PAGE> 176
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
in November 1996, acquired the assets of KRMD-AM/FM valued at $7.5 million.
BRAF IV recorded a gain of $9.6 million.
7. DEBT:
Debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
BRAF I:
Term note, maximum principal amount of $4,700,000;
interest at bank's prime plus applicable
margin ranging from 1/2% to 1 1/2%
(9.75% at December 31, 1996 and 1995),
due in full on December 31, 2002 .......................... $ 4,249,986 $ 2,269,761
BRAF IV:
Revolving line of credit, maximum principal amount
of $13,500,000; interest at LIBOR plus 2% - 2 3/4%
(8.2% at December 31, 1996 and 7.4% at December
31, 1995), due in full on June 30, 1997 ................... 11,900,039 10,600,038
Subordinated promissory note, maximum principal
amount of $500,000; interest at 10% per annum due
quarterly; due in full on October 23, 1996 ................ -- 437,500
Notes payable for vehicles .................................. 12,361 30,594
Subordinated promissory note, maximum principal amount
of $1,200,000; interest at 8.25% per annum
due monthly; due in full in October 1996;
personally guaranteed by the general partners
of BCRLP .................................................. -- 1,200,000
BRAF VII:
Bank debt; interest at 8.4% per annum due monthly;
due in full on June 1, 1999; paid in full on
December 9, 1996 .......................................... -- 3,325,998
Line of credit agreement, maximum principal amount
of $200,000; interest at bank's prime plus 2%
(8.25% at December 31, 1995); due in full on January
1, 1997; paid in full on December 9, 1996 ................. -- 50,000
Note payable to Fund III Acquisition Sub. (See Note 12),
maximum principal amount of $12,600,000,
interest due monthly at prime plus 1%
(9.25% at December 31, 1996) due in full on
March 9, 1998 ............................................. 12,600,000 --
BRAF VIII:
Revolving line of credit, maximum principal amount
of $14,500,000; interest at bank's prime rate plus
applicable margin ranging from 1/4% to 1/2%
(8.63% at December 31, 1996 and 8.75% at
December 31, 1995) per annum due monthly;
due in full in December 2002 .............................. 13,198,441 8,325,000
Subordinated promissory note, maximum principal
amount of $500,000; interest at 8% per annum
payable monthly; due in full on August 31, 1997 .......... 425,000 475,000
Subordinated promissory note, maximum principal
amount of $1,500,000; interest at bank's prime
plus 1% (8.9% at December 31, 1996 and 9.25% at
December 31, 1995); due in full on January 1, 2001 ....... 1,500,000 --
Notes payable for vehicles .................................. 14,134 --
BCRLP:
Note payable, maximum principal amount of $75,000;
interest at 7% per annum due monthly; due in full
on demand; guaranteed jointly and severally by
certain general and limited partners of BCRLP ............. 75,000 75,000
Note payable, maximum principal amount of $37,500
assumed from an affiliated entity; due in full on
demand (See Note 10) ...................................... 20,000 20,000
Revolving line of credit, maximum principal amount
of $250,000; interest at bank's prime rate (8.25%
at December 31, 1996 and 8.5% at December 31, 1995);
due in full on demand ..................................... 65,535 165,535
----------- -----------
44,060,496 26,974,426
Less: Current portion ..................................... 14,219,155 12,846,733
----------- -----------
$29,841,341 $14,127,693
=========== ===========
</TABLE>
Borrowings were primarily used to finance the acquisition of
additional stations and are collateralized by substantially all of Benchmark's
assets.
The various agreements impose restrictive covenants on Benchmark with
respect to, among other things, the maintenance of certain financial ratios and
limits on capital expenditures, new indebtedness, investments and disposition
of assets. Benchmark was in compliance with all such financial covenants or had
obtained waivers for any items of noncompliance as of December 31, 1996.
At December 31, 1996 the aggregate amounts of debt due during the next
five years are as follows:
<TABLE>
<S> <C>
1997 ................................... $14,219,155
1998 ................................... 14,767,925
1999 ................................... 2,766,704
2000 ................................... 3,217,662
2001 ................................... 5,421,900
2002 and thereafter .................... 3,667,150
-----------
$44,060,496
===========
</TABLE>
F-55
<PAGE> 177
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES AND OTHER COMMITMENTS:
Effective May 22, 1992, BRAF I entered into a participation agreement
with the General Manager of WDSD-FM, WDOV-AM and WSRV-FM which provides for
the General Manager to receive a portion (based upon certain vesting criteria)
of the "Net Sales Proceeds," as defined, in the event that the stations are
sold or a percentage of adjusted cash flow (as defined in the agreement) in the
event that the General Manager ceases to be employed by BRAF I. At December 31,
1996, Benchmark had recorded an expense of $140,000 related to this
participation agreement due to the agreement dated December 9, 1996 to sell the
stations. See Note 12.
Benchmark leases certain transmitting tower facilities, vehicles, and
office space under various operating leases.
Future minimum lease payments (which reflect leases having
noncancelable lease terms in excess of one year) are as follows for the year
ended December 31:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
1997 ................................................... $ 100,821 $ 346,575
1998 ................................................... 69,316 276,964
1999 ................................................... 10,156 204,000
2000 ................................................... 7,090 155,212
2001 ................................................... -- 53,195
Thereafter ............................................. -- 97,171
---------- ----------
Total ............................................ 187,383 $1,133,117
==========
Less amount representing interest ...................... (29,579)
----------
Present value of minimum lease payments ................ 157,804
Less current portion ................................... (78,984)
----------
Obligations under capital leases, net of
current portion ...................................... $ 78,820
==========
</TABLE>
Rental expense under operating leases for the years ended December 31,
1996, 1995 and 1994 was approximately $365,000, $414,000 and $366,000,
respectively.
9. PROFIT SHARING PLAN:
The employees of Benchmark are included in a 401(k) profit sharing
plan (the "Plan"). All full-time employees of Benchmark who have attained the
age of 21 years are eligible for participation in the Plan after one year and
one thousand hours of service. The Plan allows the employees to defer up to 16%
of their compensation through a salary reduction arrangement. Benchmark makes a
matching contribution equal to 25% of the employees' salary reduction. In
addition, Benchmark may make a discretionary contribution to the Plan.
Participation in the Plan is subject to a five year vesting schedule. During
the years ended December 31, 1996, 1995 and 1994, Benchmark's combined expense
related to the Plan was approximately $85,900, $70,700 and $40,300,
respectively.
10. RELATED PARTY TRANSACTIONS:
The various entities defined in Note 1 are involved in certain
transactions with each other related to sharing of services and purchasing.
These transactions are settled on a current basis through adjustments to
partners' equity accounts.
F-56
<PAGE> 178
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1996, BRAF VII borrowed $1,500,000 from a limited partner
to finance the escrow deposit for the acquisition of WJMZ-FM (Greenville). The
note was paid in full on December 9, 1996. In connection with such debt,
interest expense of $287,436 was recorded for the year ended December 31, 1996.
As of July 1, 1992, BCRLP assumed $37,500 of a note payable to limited
partners in Benchmark made by an affiliated entity. Interest expense related to
this note was immaterial for the years ended December 31, 1996, 1995 and 1994,
respectively.
11. LITIGATION:
Benchmark is the plaintiff or the defendant in several legal actions,
the probable outcomes of which are not considered material, either individually
or in the aggregate.
12. PENDING SALE OF BENCHMARK AND OTHER TRANSACTIONS (UNAUDITED):
On December 9, 1996, Benchmark agreed to be acquired by Capstar
Broadcasting Partners, Inc. (the Company), a Delaware corporation, through an
acquisition affiliate, Fund III Acquisition Sub. The sale is subject to
regulatory approval. The purchase price is estimated to be approximately $173.4
million and is subject to adjustment. No adjustments have been made to the
combined financial statements to reflect the pending sale, except as described
in Note 8 relating to the participation agreement.
Benchmark and certain other related entities (BRAF IX, BRAF X and BRAF
XI) under common control of the Benchmark General Partners also have agreed to
acquire two radio stations in the Montgomery, Alabama market (the "Benchmark
Montgomery Acquisition") for an aggregate cash price of approximately $17.0 to
$18.0 million and Fund IV has agreed to acquire substantially all of the assets
of WSCQ-FM in the Columbia, South Carolina market (the "Benchmark Columbia
Acquisition") for an aggregate cash price of approximately $4.1 million.
In May 1996, BRAF IX entered into an agreement to acquire
substantially all the assets and certain liabilities of WFMX-FM and WSIC-AM in
Statesville, North Carolina (Statesville) for an aggregate cash price of
approximately $9.6 million. Liabilities assumed were limited to certain ongoing
contractual rights and obligations. The acquisition was completed in January
1997.
In September, 1996, BRAF X entered into an agreement to acquire
substantially all the assets and certain liabilities of WJMI-FM, WKXI-AM/FM and
WOAD-FM in Jackson, Mississippi (Jackson) for an aggregate cash price of
approximately $15.0 million. Liabilities assumed were limited to certain
ongoing contractual rights and obligations.
The acquisition was completed in December 1996.
As part of the acquisition of Benchmark by the Company and Fund III
Acquisition Sub, BRAF VII, (along with certain other partnerships not included
in these combined financial statements, specifically referred to as BRAF IX,
BRAF X and BRAF XI) entered into separate senior credit agreements with Fund
III Acquisition Sub. Under these agreements, BRAF VII, BRAF IX, BRAF X and BRAF
XI can collectively borrow up to approximately $60.0 million. Approximately
$60.0 million has been loaned to BRAF VII , BRAF IX and BRAF X, net of
expenses, of which approximately $12.6 million as of December 31, 1996 has been
loaned to BRAF VII, to consummate the acquisition of substantially all of the
assets of WJMZ-FM (Greenville) and to refinance debt, and, during January 1997,
the remainder has been borrowed by BRAF IX, BRAF X, and BRAF XI to consummate
the acquisitions of Statesville, Jackson, and Montgomery and for working
capital purposes.
F-57
<PAGE> 179
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Capstar Broadcasting Partners, Inc.:
We have audited the accompanying balance sheet of Midcontinent
Broadcasting Co. of Wisconsin, Inc. (the "Company") as of December 31, 1996,
and the related statements of income and retained earnings, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Midcontinent
Broadcasting Co. of Wisconsin, Inc. as of December 31, 1996, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 3, 1997
F-58
<PAGE> 180
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash ............................................................................ $ 78,996
Accounts receivable, net of $34,143 allowance for doubtful accounts ............. 718,133
Prepaid expenses and other assets ............................................... 17,088
----------
Total current assets ......................................................... 814,217
Property and equipment, net ......................................................... 686,433
Intangible assets, net .............................................................. 3,031,048
Other ............................................................................... 101,085
----------
Total assets ................................................................. $4,632,783
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable ................................................................ $ 25,226
Accounts payable, related party ................................................. 7,083
Accrued expenses ................................................................ 119,274
----------
Total current liabilities .................................................... 151,583
Due to Parent ....................................................................... 1,369,004
Stockholder's equity:
Common stock, no par value, 2,500 shares authorized, 2,000 shares issued and
outstanding .................................................................. 200,000
Retained earnings ............................................................... 2,912,196
----------
Total stockholder's equity ................................................... 3,112,196
----------
Total liabilities and stockholder's equity ................................... $4,632,783
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 181
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Broadcasting revenue:
Gross revenue .......................................... $3,876,324
Less agency commissions ................................ 430,031
----------
Net broadcasting revenue ............................ 3,446,293
Operating expenses:
Programming, technical and news ........................ 988,406
Sales, advertising and promotion ....................... 1,221,541
General and administrative ............................. 345,283
Depreciation and amortization .......................... 405,091
----------
2,960,321
----------
Operating income .................................... 485,972
Other income:
Rental income .......................................... 47,207
Other .................................................. 21,952
----------
69,159
----------
Income before income taxes .......................... 555,131
Provision for income taxes ................................. 188,745
----------
Net income .......................................... 366,386
Retained earnings:
Beginning of year ...................................... 2,545,810
----------
End of year ............................................ $2,912,196
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE> 182
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income .................................................. $ 366,386
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ............................ 405,091
Changes in operating assets and liabilities:
Accounts receivable .................................... (240,785)
Prepaid expenses and other assets ...................... 17,838
Accounts payable ....................................... (56,069)
Accrued expenses ....................................... (72,929)
---------
Net cash provided by operating activities ............ 419,532
---------
Cash flows from investing activities:
Purchases of property and equipment ......................... (66,893)
Madison Radio Group related costs ........................... (101,085)
Other ....................................................... (15,182)
---------
Net cash used in investing activities ................ (183,160)
---------
Cash flows from financing activities:
Due to Parent ............................................... (251,932)
---------
Net cash used in financing activities .................. (251,932)
---------
Net decrease in cash ................................... (15,560)
Cash, beginning of year ......................................... 94,556
---------
Cash, end of year ............................................... $ 78,996
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE> 183
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Organization and Basis of Presentation: Midcontinent Broadcasting
Co. of Wisconsin, Inc. (the "Company") is a wholly-owned subsidiary of
Midcontinent Broadcasting Co., which in turn is wholly-owned by Midcontinent
Media, Inc. (the "Parent"). The Company owns and operates radio stations
WZEE-FM, WTSO-AM and WMLI-FM (the "Stations") serving the Madison, Wisconsin
area.
The Company's financial statements have been prepared in accordance
with generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses for the period presented. They also affect
the disclosures of contingencies. Actual results could differ from those
estimates.
On February 8, 1996, the President signed into law the
Telecommunications Act of 1996. Among other things, this legislation requires
the Federal Communications Commission (the "FCC") to relax its numerical
restrictions on local ownership and affords renewal applicants significant new
protections from competing applications for the broadcast licenses. The
ultimate effect of this legislation on the competitive environment is currently
undeterminable.
b. Property and Equipment: Property and equipment are stated at cost
less accumulated depreciation. Depreciation is computed using accelerated and
straight-line methods over the estimated useful lives of the assets as follows:
buildings and improvements 5-39 years, tower and antennae 3-15 years, equipment
5-15 years, and other 3-10 years. Expenditures for repairs are expensed while
major additions are capitalized. Upon sale or disposal, the asset cost and
accumulated depreciation are removed and any gain or loss is recognized in
earnings.
c. Intangible Assets: Intangible assets are stated at cost and
amortized on a straight-line basis over their estimated useful lives, as
follows:
FCC broadcast licenses -- 15 years. Accumulated amortization as of
December 31, 1996 was $190,903.
Goodwill -- Goodwill acquired prior to November 1, 1970 ($374,223) is
not being amortized. Goodwill arising from acquisitions subsequent to November
1, 1970 is being amortized over 40 years. Accumulated amortization as of
December 31, 1996 was $88,098.
Other -- Five years. Accumulated amortization at December 31, 1996 was
$7,048.
On an ongoing basis, management evaluates the recoverability of the
net carrying value of intangible assets by reference to the Company's
undiscounted anticipated future cash flows.
d. Barter Transactions: The Company exchanges advertising airtime for
goods and services, as is customary in the broadcast industry. In accordance
with Statement of Financial Accounting Standards No. 63, "Financial Reporting
by Broadcasters", revenue is recognized as the advertising is broadcast at the
estimated fair market value of goods or services received or to be received.
The value of the goods and services received in barter transactions is charged
to expense when received or used. Barter revenues and expenses were
approximately $45,000 and $53,000, respectively, for 1996.
e. Revenue Recognition: Revenue from the sale of air-time is
recognized at the time the related program or advertisement is broadcast.
f. Concentration of Risk: The Stations operate within the Madison,
Wisconsin geographic area. They extend credit to their various customers in the
form of accounts receivable. The Company performs ongoing credit evaluations of
its customers and maintains an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends and other
information.
g. Income Taxes: The Company files a consolidated federal income tax
return with the Parent, which provides for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109,
F-62
<PAGE> 184
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
"Accounting for Income Taxes", which requires the liability method of
accounting for deferred income taxes. The consolidated provision for income
taxes is allocated among the members of the consolidated group based upon each
member's pre-tax earnings compared to the consolidated pre-tax earnings. The
liability for income taxes is included in Due to Parent in the accompanying
balance sheet. At December 31, 1996, there was no provision for deferred income
taxes, as temporary differences between tax and financial reporting bases of
assets and liabilities are immaterial.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31,
1996:
<TABLE>
<S> <C>
Land ..................................... $ 27,013
Buildings and improvements ............... 520,077
Tower and antennae ....................... 567,569
Equipment ................................ 1,249,975
Other .................................... 66,262
----------
2,430,896
Less accumulated depreciation ............ 1,744,463
----------
$ 686,433
==========
</TABLE>
Depreciation expense was $211,319 in 1996
3. INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
FCC broadcast licenses ................... $2,749,000
Goodwill ................................. 532,523
Other intangibles ........................ 35,574
----------
3,317,097
Less accumulated amortization ............ 286,049
----------
$3,031,048
==========
</TABLE>
4. ACCRUED EXPENSES:
Accrued expenses consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Salaries, wages and benefits ............. $ 45,149
Property taxes ........................... 38,367
Music license fees ....................... 11,478
Professional fees ........................ 9,300
Other .................................... 14,980
--------
$119,274
========
</TABLE>
5. INCOME TAXES:
The provision for income taxes for 1996 consists of the following:
<TABLE>
<S> <C>
Currently payable
Federal ................................ $144,190
State .................................. 44,555
--------
$188,745
========
</TABLE>
F-63
<PAGE> 185
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following reconciles the statutory federal income tax rate with
the effective income tax rate:
<TABLE>
<S> <C>
Statutory federal income tax rate ............................ 34.0%
State income tax, net ........................................ 5.3
Effect of tax sharing arrangement among consolidated group ... (5.3)
----
Effective income tax rate .................................... 34.0%
====
</TABLE>
6. EMPLOYEE BENEFIT PLAN:
The Company, along with other affiliated companies, participates in a
profit sharing plan for substantially all full-time employees who have at least
one year of service and have attained age 21. Company contributions, which are
based on a percentage of the compensation paid to eligible employees,
approximated $32,000 for 1996.
The Company is not obligated to provide any postretirement medical and
life insurance benefits or any other postretirement benefits to employees.
7. SUBSEQUENT EVENT:
On January 2, 1997, the Company exchanged its broadcasting and real
estate assets of stations WZEE-FM, WMLI-FM and WTSO-AM and $400,000 cash for a
50% partnership interest in Madison Radio Group (a general partnership).
Simultaneously, Point Communications Limited Partnership ("Point"), a company
that also owns and operates radio stations serving the Madison, Wisconsin area,
exchanged its broadcasting and real estate assets of stations WMAD-FM, WIBA-FM
and WIBA-AM and $400,000 cash, subject to its long-term debt, for the remaining
50% partnership interest in Madison Radio Group, and $3,500,000 cash (which was
financed by Madison Radio Group borrowings). During 1996, the Company incurred
$101,085 of costs directly related to its investment in Madison Radio Group,
which are included in other assets on the accompanying balance sheet.
In February 1997, Madison Radio Group entered into an agreement to
sell substantially all the assets of its stations to Capstar Broadcasting
Partners, Inc., a radio investment group. The closing of this transaction,
which is subject to various conditions and approvals as defined in the
agreement, is expected to occur in the fourth quarter of 1997.
F-64
<PAGE> 186
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Point Communications Limited Partnership:
We have audited the accompanying balance sheet of Point Communications
Limited Partnership (the "Partnership") as of December 31, 1996, and the
related statement of operations, partners' equity and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Point
Communications Limited Partnership as of December 31, 1996, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
February 3, 1997
F-65
<PAGE> 187
POINT COMMUNICATIONS LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents ............................................... $ 260,670
Certificate of deposit .................................................. 93,441
Accounts receivable, net of $65,000 allowance for doubtful accounts ..... 1,309,154
Accounts receivable, related party ...................................... 59,320
Prepaid expenses ........................................................ 43,064
-----------
Total current assets ................................................. 1,765,649
Property and equipment, net ................................................. 2,339,617
Intangible assets, net ...................................................... 10,060,913
Other ....................................................................... 103,097
-----------
Total assets ......................................................... $14,269,276
===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of long-term debt ....................................... $ 912,500
Accounts payable ........................................................ 204,645
Accounts payable, related party ......................................... 15,765
Accrued expenses ........................................................ 135,156
Trade payable, net ...................................................... 25,311
-----------
Total current liabilities ............................................ 1,293,377
Long-term debt .............................................................. 8,625,000
Partners' equity ............................................................ 4,350,899
-----------
Total liabilities and partners' equity ............................... $14,269,276
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE> 188
POINT COMMUNICATIONS LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Broadcasting revenue:
Gross revenue ................................ $ 6,235,475
Less agency commissions ...................... 634,833
-----------
Net broadcasting revenue .................. 5,600,642
Operating expenses:
Sales and promotion .......................... 1,276,030
Programming, engineering and news ............ 1,467,136
General and administrative ................... 685,926
Depreciation and amortization ................ 1,538,196
Management fees and other expenses ........... 178,749
-----------
5,146,037
-----------
Operating income .......................... 454,605
Other income (expense):
Interest expense ............................. (1,071,241)
Interest income .............................. 7,916
-----------
(1,063,325)
-----------
Net loss .................................. $ (608,720)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE> 189
POINT COMMUNICATIONS LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Partners' equity, January 1, 1996 ..... $ 50,484 $ 4,909,135 $ 4,959,619
Net loss for 1996 ..................... (6,195) (602,525) (608,720)
----------- ----------- -----------
Partners' equity, December 31, 1996 ... $ 44,289 $ 4,306,610 $ 4,350,899
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE> 190
POINT COMMUNICATIONS LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss .................................................... $ (608,720)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ............................ 1,538,196
Changes in operating assets and liabilities:
Accounts receivable .................................... (293,368)
Prepaid expenses ....................................... 3,648
Accounts payable and accrued expenses .................. 90,615
Trade payable, net ..................................... 19,584
-----------
Net cash provided by operating activities ............ 749,955
-----------
Cash flows from investing activities:
Madison Radio Group related costs ........................... (103,097)
Advances to related party ................................... (32,082)
Purchases of property and equipment ......................... (80,058)
Other ....................................................... (5,510)
-----------
Net cash used in investing activities .................. (220,747)
-----------
Cash flows from financing activities:
Principal payments on term loan ............................. (462,500)
-----------
Net cash used in financing activities .................. (462,500)
-----------
Net increase in cash and cash equivalents .............. 66,708
Cash and cash equivalents, beginning of year .................... 193,962
-----------
Cash and cash equivalents, end of year .......................... $ 260,670
===========
Supplemental disclosure of cash flow information:
Cash paid for interest ...................................... $ 985,801
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE> 191
POINT COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. ORGANIZATION AND BASIS OF PRESENTATION: Point Communications
Limited Partnership (the "Partnership") was formed to acquire, own and operate
radio stations WIBA-AM, WIBA-FM, WMAD-AM and WMAD-FM (the "Stations")
servicing the Madison, Wisconsin area. The general partner of Point
Communications L.P. is a corporation wholly-owned by the president of the radio
stations. Included in management fees and other expenses in the Statement of
Operations are management fees paid to the general partner and other costs
related to the general partner's activities.
The Partnership's financial statements have been prepared in
accordance with generally accepted accounting principles, which require
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, and expenses for the period presented. They
also affect the disclosures of contingencies. Actual results could differ from
those estimates.
On February 8, 1996, the President signed into law the
Telecommunications Act of 1996. Among other things, this legislation requires
the Federal Communications Commission (the "FCC") to relax its numerical
restrictions on local ownership and affords renewal applicants significant new
protections from competing applications for the broadcast licenses. The
ultimate effect of this legislation on the competitive environment is currently
undeterminable.
B. CASH EQUIVALENTS: For purposes of the Statement of Cash Flows, the
Partnership considers all highly liquid, short-term investments purchased with
original maturities of three months or less to be cash equivalents.
C. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost
less accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, as follows: buildings and
improvements 15-39 years, tower and antennae 5-15 years, equipment 5-7 years,
and other 3-5 years. Expenditures for repairs are expensed while major
additions are capitalized. Upon sale or disposal, the asset cost and
accumulated depreciation are removed and any gain or loss is recognized in
earnings.
D. INTANGIBLE ASSETS: Intangible assets are stated at cost and
amortized on a straight-line basis over their estimated useful lives, as
follows:
FCC broadcast licenses -- 15 years. Accumulated amortization as of
December 31, 1996 was $848,533.
Other intangibles -- 15 years. Accumulated amortization as of December
31, 1996 was $82,089.
Goodwill -- 15 years. Accumulated amortization as of December 31, 1996
was $25,721.
Deferred financing costs -- loan term. Accumulated amortization as of
December 31, 1996 was $67,933.
Organization cost -- 5 years. Accumulated amortization as of December
31, 1996 was $26,033.
On an ongoing basis, management evaluates the recoverability of the
net carrying value of intangible assets by reference to the Partnership's
undiscounted anticipated future cash flows.
E. BARTER TRANSACTIONS: The Partnership exchanges advertising airtime
for goods and services, as is customary in the broadcast industry. In
accordance with Statement of Financial Accounting Standards No. 63, "Financial
Reporting by Broadcasters", revenue is recognized as the advertising is
broadcast at the estimated fair market value of goods or services received or
to be received. The value of the goods and services received in barter
transactions is charged to expense when received or used. Barter revenues and
expenses approximated $214,000 for 1996.
F. REVENUE RECOGNITION: Revenue from the sale of air-time is
recognized at the time the related program or advertisement is broadcast.
F-70
<PAGE> 192
POINT COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
G. CONCENTRATION OF RISK: The Stations operate within the Madison,
Wisconsin geographic area. They extend credit to their various customers in the
form of accounts receivable. The Partnership performs ongoing credit
evaluations of its customers and maintains an allowance for doubtful accounts
based on factors surrounding the credit risk of specific customers, historical
trends and other information.
H. ALLOCATIONS AND DISTRIBUTIONS: The profits and losses of the
Partnership are being allocated among the partners, and cash flow from
operations or cash from capital transactions, if any, will be distributed to
the partners in accordance with the terms of the partnership agreement.
I. INCOME TAXES: No provision for federal or state income taxes has
been provided as the partners report their pro rata share of the partnership
profits or losses on their individual tax returns.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31,
1996:
<TABLE>
<S> <C>
Land and improvements .................... $ 283,200
Buildings ................................ 725,720
Tower and antennae ....................... 986,770
Equipment ................................ 703,640
Other .................................... 148,983
----------
2,848,313
Less accumulated depreciation ............ 508,696
----------
$2,339,617
==========
</TABLE>
Depreciation expense was $383,010 in 1996.
3. INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
FCC broadcast licenses ................... $ 9,546,000
Other intangibles ........................ 911,544
Goodwill ................................. 301,306
Deferred financing costs ................. 254,749
Organization costs ....................... 97,623
-----------
11,111,222
Less accumulated amortization ............ 1,050,309
-----------
$10,060,913
===========
</TABLE>
F-71
<PAGE> 193
POINT COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt consisted of the following at December 31, 1996:
<TABLE>
<S> <C>
Term loan payable in quarterly installments of
$212,500 to $400,000, with a balloon payment of
remaining balance due August 1, 2000, bearing
interest at the bank's reference rate plus
2.5% (reference rate was 8.25% at December 31, 1996) ... $9,537,500
Less current portion ..................................... 912,500
----------
$8,625,000
==========
</TABLE>
The term loan is subject to certain restrictive financial covenants,
including the maintenance of minimum broadcast operating cash flow amounts, and
limitations on additional indebtedness, capital expenditures, lease agreements,
investments and distributions to partners.
The term loan is collateralized by substantially all assets of the
Partnership.
The carrying amount reported for long-term debt approximates fair
value since the underlying instrument bears interest at a variable rate that
reprices frequently.
The aggregate scheduled maturities of debt in subsequent years is as
follows:
<TABLE>
<S> <C>
1997..................................................... $ 912,500
1998..................................................... 1,125,000
1999..................................................... 2,100,000
2000..................................................... 5,400,000
-----------
$ 9,537,500
===========
</TABLE>
5. OPERATING LEASES:
The Partnership leases vehicles, office equipment, office space and a
tower site under operating leases with future minimum rental payments as
follows:
<TABLE>
<S> <C>
1997 .................................................... $ 87,004
1998 .................................................... 67,512
1999 .................................................... 67,512
2000 .................................................... 67,512
2001 .................................................... 38,705
Thereafter .............................................. 331,000
--------
$659,245
========
</TABLE>
Rental expense charged to operations was $84,382 for 1996.
6. LETTER OF CREDIT:
At December 31, 1996, the Partnership had a letter of credit
outstanding for $90,000. The letter of credit can be drawn upon if the
Partnership fails to make payments due under the terms and conditions of a
network agreement which expires in May 1997. The Partnership has pledged a
certificate of deposit as collateral for the letter of credit.
F-72
<PAGE> 194
POINT COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBSEQUENT EVENTS:
On January 2, 1997, the Partnership exchanged its broadcasting and
real estate assets of stations WMAD-FM, WIBA-FM and WIBA-AM and $400,000 cash,
subject to its long-term debt, for a 50% partnership interest in Madison Radio
Group (a general partnership), and $3,500,000 cash (which was financed by
Madison Radio Group borrowings). Simultaneously, Midcontinent Broadcasting Co.
of Wisconsin, Inc. ("Midcontinent"), a company that also owns and operates
radio stations serving the Madison, Wisconsin area, exchanged its broadcasting
and real estate assets of stations WZEE-FM, WMLI-FM and WTSO-AM and $400,000
cash for the remaining 50% partnership interest in Madison Radio Group. During
1996, the Partnership incurred $103,097 of costs directly related to its
investment in Madison Radio Group, which are included in other assets on the
accompanying balance sheet. Also, on January 2, 1997, the Partnership
contributed the assets of its WMAD-AM station with a net book value of
approximately $230,000 to an educational institution and received $85,000 cash.
On February 4, 1997, Madison Radio Group entered into an agreement to
sell substantially all the assets of its stations to Capstar Broadcasting
Partners, Inc., a radio investment group. The closing of the transaction, which
is subject to various conditions and approvals as defined in the agreement, is
expected to occur in the fourth quarter of 1997.
F-73
<PAGE> 195
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Community Pacific Broadcasting Company L.P.:
We have audited the accompanying balance sheet of Community Pacific
Broadcasting Company L.P. (the "Partnership") as of December 31, 1996, and the
related statements of operations, partners' equity and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Community Pacific
Broadcasting Company L.P. as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
February 13, 1997
F-74
<PAGE> 196
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
ASSETS
<S> <C>
Current assets:
Cash ..................................................................... $ 38,532
Accounts receivable, net of allowance for doubtful accounts of $70,525 ... 1,708,213
Prepaid expenses and other current assets ................................ 97,239
-----------
Total current assets .................................................. 1,843,984
Property and equipment, net .................................................. 3,843,508
Intangible assets, net ....................................................... 12,817,337
Other assets ................................................................. 125,453
-----------
Total assets .......................................................... $18,630,282
===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 237,996
Accrued liabilities ...................................................... 483,065
Current portion of long-term debt ........................................ 1,175,125
-----------
Total current liabilities ............................................. 1,896,186
Long-term debt, net of current portion ....................................... 8,696,875
-----------
Total liabilities ..................................................... 10,593,061
-----------
Commitments (Note 9)
Partners' equity ............................................................. 8,037,221
-----------
Total liabilities and partners' equity ................................ $18,630,282
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE> 197
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenue:
Broadcasting revenue ........................................ $ 12,318,547
Less agency commissions ..................................... 1,119,613
------------
Net revenue .............................................. 11,198,934
------------
Station operating expenses:
Programming and technical expense ........................... 3,935,571
Selling and promotion expense ............................... 2,981,563
General and administrative expense .......................... 1,998,698
------------
Total station operating expense .......................... 8,915,832
------------
Station operating income ................................. 2,283,102
Corporate expenses .............................................. 760,150
------------
Operating income before depreciation and amortization .... 1,522,952
Depreciation and amortization ................................... 1,416,077
------------
Operating income ......................................... 106,875
Other expense, net .............................................. (8,438)
Loss on disposal of assets ...................................... (10,611)
Interest expense ................................................ (933,315)
------------
Net loss ................................................. $ (845,489)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 198
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balances as of January 1, 1996 .............. $ 272,872 $ 7,583,322 $ 7,856,194
Capital contributions from partners ...... 20,000 3,058,916 3,078,916
Capital distributions to partners ........ (800) (2,051,600) (2,052,400)
Net loss ................................. (176,474) (669,015) (845,489)
----------- ----------- -----------
Balances as of December 31, 1996 ............ $ 115,598 $ 7,921,623 $ 8,037,221
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE> 199
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss .................................................... $ (845,489)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ............................ 1,416,077
Loss on sale of fixed assets ............................. 10,611
Changes in operating assets and liabilities:
Accounts receivable, net ............................... 116,834
Prepaid expenses and other current assets .............. 41,643
Accounts payable ....................................... (345,207)
Accrued liabilities .................................... (108,490)
-----------
Net cash provided by operating activities ............ 285,979
-----------
Cash flows from investing activities:
Purchase of property and equipment, net of acquisition ...... (408,731)
Proceeds from sale of fixed assets .......................... 3,500
Intangible assets, net of acquisition ....................... (103,635)
Increase in other assets .................................... (17,919)
Cash used in acquisition .................................... (450,000)
-----------
Net cash used in investing activities .................... (976,785)
-----------
Cash flows from financing activities:
Proceeds from notes payable ................................. 1,408,000
Repayment of notes payable .................................. (1,650,000)
Capital contributions from partners ......................... 3,092,954
Capital distributions to partners ........................... (2,209,658)
-----------
Net cash provided by financing activities ................ 641,296
-----------
Net decrease in cash ............................................ (49,510)
Cash, beginning of year ......................................... 88,042
-----------
Cash, end of year ............................................... $ 38,532
===========
Supplemental disclosure of cash flow information:
Interest paid ............................................... $ 991,233
===========
Supplemental disclosure of noncash activities:
Revenue related to barter transactions ...................... $ 2,171,006
===========
Advances from partners converted into equity ................ $ 427,046
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE> 200
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Community Pacific Broadcasting Company L.P. (the Partnership), a
Delaware limited partnership, was formed April 1, 1992 and operates AM and FM
radio broadcasting stations in the following communities as of December 31,
1996:
o Modesto, California -- KFIV-AM, KJSN-FM, KVFX-FM and KJAX-AM
o Anchorage, Alaska -- KASH-AM, KASH-FM, KENI-AM and KBFX-FM
o Des Moines, Iowa -- KGGO-FM, KDMI-AM, and KHKI-FM
2. USE OF ESTIMATES AND UNCERTAINTIES:
The Partnership's financial statements have been prepared in
accordance with generally accepted accounting principles, which require
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses for the period presented. They
also affect the disclosures of contingencies. Actual results could differ from
those estimates.
On February 8, 1996, the President signed into law the
Telecommunications Act of 1996. Among other things, this legislation requires
the Federal Communications Commission (the "FCC") to relax its numerical
restrictions on local ownership and affords renewal applicants significant new
protections from competing applications for the broadcast licenses. The
ultimate effect of this legislation on the competitive environment is currently
undeterminable.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is calculated on a straight-line basis over the
estimated useful life of the assets as follows:
<TABLE>
<S> <C>
Tower and antennae ....................... 7-20 years
Broadcast equipment ...................... 7 to 10 years
Building ................................. 30 years
Furniture and fixtures ................... 7 to 10 years
Automobiles .............................. 3-5 years
Leasehold improvements ................... Shorter of the life of the asset or the lease
</TABLE>
When items are retired or sold, the cost and accumulated depreciation
are removed and any gain or loss is included in income.
F-79
<PAGE> 201
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets:
Intangible assets are stated at cost, less accumulated amortization.
Amortization is determined using the straight-line method based upon the
estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
FCC licenses and goodwill .......................... 20
Organization costs ................................. 5
Noncompetition agreements .......................... 5
Other .............................................. 2-5
</TABLE>
On an ongoing basis, management evaluates the recoverability of the
net carrying value of intangible assets by reference to the Company's
undiscounted anticipated future cash flows.
Revenue:
Revenue is recognized when advertisements are broadcast.
Barter Transactions:
The Partnership trades or barters commercial air time for syndicated
radio shows and for goods and services used for promotional, sales and other
business activities. These exchanges are recorded at the fair market value of
the radio shows or the goods or services received or the value of the
advertising time provided, whichever is more clearly determinable. Revenue from
barter transactions is recognized as income when advertisements are broadcast,
and radio shows are charged to expense when broadcast, and goods or services
are charged to expense or capitalized when used or received. Barter revenue
totaled $2,171,006 for the year ended December 31, 1996.
Advertising Costs:
The Partnership incurs various marketing and promotional costs to add
and maintain listenership. These costs are expensed as incurred and totaled
approximately $1,007,626 for the year ended December 31, 1996.
Concentration of Credit Risk:
The Partnership's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast
areas. The Partnership's management perform ongoing credit evaluations of the
customers' financial condition and, generally, require no collateral from their
customers. The Partnership maintains an allowance for doubtful accounts and
past credit losses have been within management's expectations.
Income Taxes:
No provision has been made for income taxes since the Partnership is
not a taxable entity. Partners report their share of the Partnership's income
on their respective tax returns.
F-80
<PAGE> 202
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
At December 31, 1996, property and equipment consist of the following:
<TABLE>
<S> <C>
Land and improvements .................... $ 131,130
Buildings ................................ 400,603
Tower and antenna systems ................ 952,025
Broadcast and transmitter equipment ...... 2,644,931
Furniture and fixtures ................... 878,730
Leasehold improvements ................... 93,038
----------
5,100,457
Less accumulated depreciation ............ 1,256,949
----------
$3,843,508
==========
</TABLE>
Depreciation expense was $473,380 in 1996.
5. INTANGIBLE ASSETS:
At December 31, 1996, intangible assets consist of the following:
<TABLE>
<S> <C>
FCC licenses and goodwill ................ $15,451,996
Organization costs ....................... 103,511
Noncompetition agreements ................ 117,500
Other .................................... 26,100
-----------
15,699,107
Less accumulated amortization ............ 2,881,770
-----------
$12,817,337
===========
</TABLE>
Amortization expense was $942,697 in 1996.
6. LONG-TERM DEBT:
In January 1995, the Partnership entered into a variable rate loan
agreement with a bank whereby the Partnership could borrow up to $11,500,000.
Borrowings under this agreement bear interest at a rate based on the London
Interbank Offered Rate (LIBOR) or the bank's prime rate plus the applicable
margin, which ranges from 1.50% to 2.75% for LIBOR and prime depending on
ratios of debt to operating cash flow. The interest rate is approximately 8.75%
as of December 31, 1996 and $9,872,000 is outstanding under this agreement. The
Partnership pays a commitment fee of 0.5% per annum on the unused portion of
the loan commitment and paid a onetime facility fee of $115,000 in January
1995, which is being amortized over the term of the loan agreement.
The credit facility agreement contains certain financial and
operational covenants and other restrictions with which the Partnership must
comply, which include limitations on incurrence of additional indebtedness,
partner distributions and redemptions.
Borrowings under this agreement are collateralized by substantially
all assets of the Partnership.
The carrying amount reported for long-term debt approximates fair
value since the underlying instrument bears interest at a variable rate that
reprices frequently.
F-81
<PAGE> 203
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Total annual maturities of long-term debt, excluding mandatory
prepayments, are as follows:
<TABLE>
<S> <C> <C>
1997 ..................................... $1,175,125
1998 ..................................... 1,653,125
1999 ..................................... 1,725,000
2000 ..................................... 2,156,250
2001 ..................................... 2,515,625
Thereafter ............................... 646,875
----------
$9,872,000
==========
</TABLE>
7. PARTNERS' EQUITY:
Under the amended and restated agreement of limited partnership dated
December 1, 1995, the general partner is authorized to manage the activities of
the Partnership. No management fee is to be paid, although the general partner
is reimbursed for expenses incurred. Extraordinary actions, as defined, require
the approval of the holders of a majority of the voting partner units (general
partner plus Classes B and C limited partner units).
Losses and profits are allocated among the partners in accordance with
the partnership agreement.
For tax purposes, any gain, loss, income or deductions with respect to
property contributed to the Partnership are subject to the special allocation
rules of Section 704 of the Internal Revenue Code.
In December 1995, the Partnership issued warrants to purchase 76,868
units of Class C stock at $0.75 per unit. In July 1996, the Partnership issued
warrants to purchase 11,647 units of Class C stock at $0.825 per unit. The
warrants expire five years after the date of issuance.
8. EMPLOYEE BENEFIT PLAN:
The Company maintains a salary deferral 401(k) Plan (the Plan) that
allows eligible employees, at their discretion, to make pretax contributions to
the Plan. The Partnership may make discretionary contributions to the Plan. No
amounts have been accrued or paid for such discretionary contributions in
respect of the year ended December 31, 1996.
9. COMMITMENTS:
The Partnership rents certain facilities and equipment under
noncancelable operating leases. Minimum annual payments under these leases as
of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 ..................................... $ 323,670
1998 ..................................... 269,566
1999 ..................................... 245,175
2000 ..................................... 204,547
2001 ..................................... 151,938
Thereafter ............................... 220,388
----------
Total ................................ $1,415,284
==========
</TABLE>
Rent expense was approximately $362,685 for the year ended December
31, 1996.
The Partnership has entered into several royalty agreements in order
to broadcast music. Most of these contracts require payments based upon related
advertising revenue.
F-82
<PAGE> 204
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. ACQUISITION:
In April 1996, the Partnership acquired substantially all the assets
of KJAX-AM in Stockton, California, for $450,000 plus acquisition costs of
$64,757. The purchase price has been allocated $100,000 to property and
equipment, $325,000 to FCC licenses and goodwill and $25,000 to other
intangibles.
The acquisition has been accounted for as an asset purchase. The
purchase price has been allocated to the assets acquired based on their
estimated fair market value at the date of the acquisition.
Accordingly, the accompanying financial statements include the results
of operations of the acquired entity from the date of acquisition. Had the
acquisition occurred January 1, 1996 the Partnership's results of operations
for the year ended December 31, 1996 would not have been materially different.
11. PENDING SALE OF PARTNERSHIP:
On December 26, 1996, the Partnership agreed to be acquired by Capstar
Broadcasting Partners, Inc., a Delaware corporation, through an acquisition
affiliate, Community Acquisition Company, Inc. The sale is subject to
regulatory approval. The purchase price is estimated to be approximately $35.0
million and is subject to adjustment. No adjustments have been made to the
financial statements to reflect the pending sale.
F-83
<PAGE> 205
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Q Broadcasting, Inc.
Stamford, Connecticut
We have audited the accompanying statements of operations and deficit
and cash flows of Q Broadcasting, Inc. for each of the three years in the
period ended September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, these financial statements referred to above present
fairly, in all material respects, the results of Q Broadcasting, Inc.'s
operations and its cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting
principles.
Holtz Rubenstein & Co., LLP
Certified Public Accountants
Melville, New York
February 12, 1996
F-84
<PAGE> 206
Q BROADCASTING, INC.
STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE ..................................... $ 2,508,867 $ 2,267,625 $ 1,511,181
Less: Commissions and fees .............. 222,411 193,342 127,866
----------- ----------- -----------
2,286,456 2,074,283 1,383,315
----------- ----------- -----------
EXPENSES:
Broadcast and production (Note 8) ....... 786,377 742,018 715,511
Selling and promotion ................... 1,500,873 880,429 844,004
General and administrative (Note 8) ..... 823,312 703,908 764,768
Depreciation and amortization ........... 447,602 538,600 637,397
----------- ----------- -----------
3,558,164 2,864,955 2,961,680
----------- ----------- -----------
LOSS FROM OPERATIONS ........................ (1,271,708) (790,672) (1,578,365)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (Note 9) ............... (493,578) (438,647) (257,732)
Other, net .............................. 153,871 51,805 13,705
----------- ----------- -----------
(339,707) (386,842) (244,027)
----------- ----------- -----------
NET LOSS .................................... (1,611,415) (1,177,514) (1,822,392)
DEFICIT, beginning of period ................ (3,217,713) (2,040,199) (217,807)
----------- ----------- -----------
DEFICIT, end of period ...................... $(4,829,128) $(3,217,713) $(2,040,199)
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-85
<PAGE> 207
Q BROADCASTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................... $(1,611,415) $(1,177,514) $(1,822,392)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ..................... 447,602 538,600 637,397
Provision for doubtful accounts ................... 29,702 75,655 25,150
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable ........................... 111,743 (444,619) (9,557)
Prepaid expenses and other current assets ..... 337 (196) (690)
Other assets .................................. 17,963 (25,309) (3,853)
(Decrease) increase in liabilities:
Accounts payable .............................. 54,530 14,456 (22,712)
Accrued expenses .............................. 46,165 12,009 (31,444)
----------- ----------- -----------
Total adjustments ................................. 708,042 170,596 594,291
----------- ----------- -----------
Net cash used in operating activities ............. (903,373) (1,006,918) (1,228,101)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................ (73,381) (23,118) (91,532)
----------- ----------- -----------
Net cash used in investing activities ........... (73,381) (23,118) (91,532)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayment of note payable ............... -- -- (327,719)
Repayment of capital lease obligations ............ (8,692) (9,823) (8,585)
Loans from stockholders ........................... 967,397 1,111,592 1,632,185
Loans to related parties .......................... (37,447) (35,433) --
----------- ----------- -----------
Net cash provided by financing activities ....... 921,258 1,066,336 1,295,881
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents .. (55,496) 36,300 (23,752)
Cash and cash equivalents at beginning of period ...... 56,327 20,027 43,779
----------- ----------- -----------
Cash and cash equivalents at end of period ............ $ 831 $ 56,327 $ 20,027
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-86
<PAGE> 208
Q BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. DESCRIPTION OF ORGANIZATION AND BUSINESS:
Q Broadcasting, Inc. ("Q Broadcasting") owns and operates two radio
broadcast stations in Stamford, Connecticut. These stations, WSTC-AM and
WKHL-FM, principally serve the Stamford metropolitan area.
2. BASIS OF PRESENTATION:
The financial statements have been prepared on a going concern basis
which contemplates continuity of operations and realization of assets and
liquidation of liabilities in the ordinary course of business. Q Broadcasting's
ability to continue as a going concern is dependent upon the continued
financial support of its shareholders.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Revenue recognition
Broadcasting revenue is recognized when commercials are
aired. Barter transactions are recorded at the estimated fair value of the
merchandise or services received.
b. Depreciation
Q Broadcasting provides for depreciation using the declining
balance method over the estimated useful lives of the fixed assets as follows:
<TABLE>
<S> <C>
Broadcast and other equipment ............ 5 years
Tower and antenna systems ................ 7 years
Transmitter equipment .................... 7 years
Furniture and fixtures ................... 7 years
</TABLE>
c. Amortization
Q Broadcasting provides for amortization using the
straight-line method over the estimated useful lives of the intangible assets
as follows:
<TABLE>
<S> <C>
Broadcast license ........................ 25 years
Transmitter lease ........................ 23 years
Covenant not to compete .................. 3 years
Organizational costs ..................... 5 years
</TABLE>
d. Income taxes
The shareholders of Q Broadcasting elected to be taxed as a
"Small Business Corporation," for federal and state income tax purposes
pursuant to the Internal Revenue Code. As a result of this election, the income
of Q Broadcasting will be taxed directly to the individual shareholders.
Accordingly, no provision for taxes is included in the financial statements of
Q Broadcasting.
e. Statement of cash flows
For purposes of the statement of cash flows, Q Broadcasting
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
F-87
<PAGE> 209
Q BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
f. Advertising
Q Broadcasting charges to expense, advertising costs as incurred.
Advertising costs amounted to $112,226, $41,405 and $227,094 for the years
ended September 30, 1995, 1994 and 1993, respectively.
4. DUE FROM RELATED PARTIES:
Q Broadcasting advanced funds on behalf of three related entities.
Approximately $54,200 and $16,800 for two entities 100% owned by Q
Broadcasting's owners as of September 30, 1995 and 1994, respectively and
approximately $18,700 to an entity which Q Broadcasting's owners have a
minority interest as of September 30, 1995 and 1994.
5. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Broadcast and office equipment .... $ 586,269 $ 583,853
Tower and antenna systems ......... 268,000 268,000
Transmitter equipment ............. 75,000 75,000
Furniture and fixtures ............ 300,484 229,519
---------- ----------
1,229,753 1,156,372
Less accumulated depreciation ..... 822,461 633,347
---------- ----------
$ 407,292 $ 523,025
========== ==========
</TABLE>
Included in furniture and fixtures was $41,975 related to assets
recorded under capital leases; the related amount included in accumulated
depreciation is $28,707 and $19,095 as of September 30, 1995 and 1994.
6. INTANGIBLES:
Intangibles, at cost, is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Organizational costs .............. $ 97,917 $ 97,917
Covenant not to compete ........... 450,000 450,000
Broadcast license ................. 1,000,000 1,000,000
Transmitter lease ................. 1,700,000 1,700,000
---------- ----------
3,247,917 3,247,917
Less accumulated amortization ..... 872,722 614,234
---------- ----------
$2,375,195 $2,633,683
========== ==========
</TABLE>
F-88
<PAGE> 210
Q BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. CAPITAL LEASE OBLIGATIONS:
Included in property and equipment are assets recorded under capital
leases. The future minimum lease payments for these capital leases and the
present value of the net minimum lease payments as of September 30, 1995 are as
follows:
FISCAL YEAR
<TABLE>
<S> <C>
1996 ......................................... $ 6,826
1997 ......................................... 4,168
-------
Minimum lease payments ......................... 10,994
Less amount representing interest .............. 830
-------
Present value of net minimum lease payments .... $10,164
=======
</TABLE>
8. COMMITMENTS:
Q Broadcasting leases studio and office space and a transmitter tower
site under operating leases expiring in September 1999 and December 2017,
respectively. Rent expense for these leases was approximately $211,000,
$186,000 and $179,000 for the years ended September 30, 1995, 1994 and 1993,
respectively.
Minimum rental commitments for the remaining terms of the operating
leases are as follows:
Year Ending September 30,
<TABLE>
<S> <C>
1996 ......................................... $212,685
1997 ......................................... 213,180
1998 ......................................... 213,180
1999 ......................................... 213,180
2000 ......................................... 21,780
Thereafter ..................................... 430,939
</TABLE>
9. NOTE PAYABLE -- STOCKHOLDERS:
In connection with advances made by its stockholders for the
acquisition of assets and working capital, Q Broadcasting has issued an 8%
demand note payable to its stockholders. The stockholders have agreed not to
demand payment until a date subsequent to October 1, 1996. Interest expense for
the years ended September 30, 1995, 1994 and 1993 was $492,397, $435,895 and
$238,187, respectively.
10. SUBSEQUENT EVENT:
Q Broadcasting sold substantially all of its operating assets to
Commodore on May 30, 1996.
11. SUPPLEMENTARY INFORMATION -- STATEMENT OF CASH FLOWS:
Barter transactions resulted in sales and related expenses of
$315,900, $314,500 and $306,600 for the years ending September 30, 1995, 1994
and 1993, respectively.
Cash paid during the years ended September 30, 1995, 1994 and 1993 for
interest was $493,578, $438,648 and $261,018, respectively.
F-89
<PAGE> 211
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Danbury Broadcasting Inc.
We have audited the accompanying statement of operations and
accumulated deficit and cash flows of Danbury Broadcasting, Inc. for the year
ended June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of Danbury Broadcasting, Inc.'s
operations and its cash flows for the year ended June 30, 1995 in conformity
with generally accepted accounting principles.
Paneth, Haber & Zimmerman LLP
New York, NY
August 18, 1995
F-90
<PAGE> 212
DANBURY BROADCASTING INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1995
-------------
<S> <C>
REVENUE
Broadcasting revenue ................................. $3,451,684
Less agency commissions .............................. 311,768
----------
Net Revenue ....................................... 3,139,916
----------
EXPENSES
Programming .......................................... 502,299
Technical ............................................ 106,475
Selling .............................................. 865,381
General and Administrative ........................... 903,627
Interest Expense ..................................... 347,578
Depreciation ......................................... 197,197
Amortization ......................................... 236,213
----------
Total Expenses .................................... 3,158,770
----------
NET LOSS ................................................. (18,854)
ACCUMULATED DEFICIT
Beginning of year .................................... (681,947)
Preferred stock dividends ............................ (55,000)
----------
End of year ....................................... $ (755,801)
==========
</TABLE>
See notes to financial statements.
F-91
<PAGE> 213
DANBURY BROADCASTING INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1995
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ......................................................................... $ (18,854)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization ................................................. 433,410
Change in:
Accounts receivable ......................................................... (78,637)
Due from related party ...................................................... 24,663
Prepaid expenses and other current assets ................................... (20,147)
Other assets ................................................................ (2,749)
Accounts payable ............................................................ (42,801)
Accrued expenses ............................................................ (71,465)
-----------
Net Cash Provided by Operating Activities ................................. 223,420
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances from affiliate .......................................................... (6,100)
Purchases of property and equipment .............................................. (34,521)
-----------
Net Cash Used in Investing Activities ....................................... (40,621)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deferred financing costs ......................................................... (211,110)
Proceeds of notes payable ........................................................ 3,404,106
Repayments of notes payable ...................................................... (3,263,384)
Preferred stock dividends ........................................................ (27,500)
-----------
Net Cash Used in Financing Activities ................................................ (97,888)
-----------
NET INCREASE IN CASH ................................................................. 84,911
CASH
Beginning of year ................................................................ 92,716
-----------
End of year ...................................................................... $ 177,627
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest Paid .................................................................... $ 434,894
Income Taxes Paid ................................................................ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Broadcast equipment acquired through trade-out transactions ...................... $ 2,400
Broadcast equipment and property exchanged for favorable tower lease (Note 7) .... $ 190,248
Unpaid accrual of redeemable preferred stock dividends ........................... $ 41,250
</TABLE>
See notes to financial statements.
F-92
<PAGE> 214
DANBURY BROADCASTING INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Danbury Broadcasting Inc. ("Danbury"), a Connecticut corporation,
operates radio stations WRKI-FM and WINE-AM in Danbury, Connecticut. Its
revenues are derived from advertisers consisting primarily of local businesses.
Credit is extended to its advertisers in the normal course of business.
Depreciation and Amortization
Depreciation of property and equipment is computed over the estimated
useful lives of the respective assets using the straight-line method. Estimated
useful lives range from 5 to 20 years. Expenditures for repairs and maintenance
are charged to operations as incurred.
Goodwill, which is included in intangible assets, represents the cost
of acquired assets in excess of values ascribed to the net identified assets
and is being amortized using the straight-line method over 40 years. Costs
incurred in obtaining long-term financing were capitalized and are included in
intangible assets. They are being amortized using the straight-line method
(that does not differ materially from the interest rate method) over the term
of the related debt.
A covenant not to compete, which restricts the seller and the previous
owner from competing with Danbury in the Greater Danbury, Connecticut area for
a period of four years, is included in intangible assets. This covenant is
being amortized on a straight-line basis over its four year life.
The stations' broadcast license is being amortized using the
straight-line method over 25 years.
A favorable lease for broadcast tower rental is being amortized using
the straight-line method over its 30 year term.
Non-Monetary Transactions
Barter transactions represent the exchange of unsold advertising time
for merchandise or services. Barter transactions are reported at the estimated
fair value of the product or service received. Revenue is recognized when
commercials are broadcast and merchandise or services obtained are reported
when received or used. For merchandise or services received prior to the
broadcast of the commercial, a liability is provided; conversely, a receivable
is established when the commercial is broadcast prior to the receipt of the
merchandise or services.
Income Taxes
Danbury has adopted Statement of Financial Accounting Standards 109
("SFAS 109") and recognizes deferred tax assets and liabilities for temporary
differences between amounts recorded for financial statement and tax purposes.
F-93
<PAGE> 215
DANBURY BROADCASTING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1995
2. BARTER TRANSACTIONS
The accompanying financial statements include the following barter
transactions:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1995
-------------
<S> <C>
Barter revenue ........................... $271,253
========
Barter expenditures ...................... $182,821
========
</TABLE>
3. REDEEMABLE PREFERRED STOCK
The Series A cumulative preferred stock carries a liquidation
preference of $1,000 per share and a par value of $100 per share. Danbury may
redeem the shares at this price, plus accrued but unpaid dividends, at any time
through June 30, 1997. At the earlier of that date, or an event of default (as
defined) the holder can require Danbury to redeem the shares in full, with
accrued but unpaid dividends out of funds "legally available". An event of
default occurred during the year ended June 30, 1995 in that Danbury did not
pay the full dividend. This gives the holders of the shares the right to demand
redemption.
The Series A cumulative preferred stock provides for an annual
dividend of $110 per share. Dividends of $55,000 were declared on the preferred
stock and $13,750 was paid for the year ended June 30, 1995.
4. LEASES
During 1995, Danbury leased space on a transmitting tower under a five
year lease renewable in five (5) year terms at Danbury's option from a related
party (Note 7). Automobiles under operating leases expire in various years
through 1998.
Rent expense on the above, for the year ended June 30, 1995 was
$46,500.
5. INCOME TAXES
Danbury has a net operating loss carryforward of approximately
$284,000 which can be carried forward to the years 2008 and 2009 to offset
taxable income resulting in a deferred tax asset of $118,000. Other temporary
differences resulting from differences between book and tax amortization and
depreciation result in a deferred tax asset of approximately $81,000 at June
30, 1995. Total deferred tax assets of approximately $199,000 at June 30, 1995
have been completely offset by a valuation allowance. The valuation allowance
decreased by $25,000 during the year ended June 30, 1995.
F-94
<PAGE> 216
DANBURY BROADCASTING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1995
Income tax benefit for the year ended June 30, 1995 differs from the
expected statutory rate for the following reasons:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Federal, at statutory rates ........................ $ (6,500)
State, net of Federal benefit ...................... (1,500)
Nondeductible expenses ............................. 10,000
Taxable gain on asset transfer ..................... 23,000
--------
25,000
Change in deferred tax asset valuation allowance ... (25,000)
--------
Tax provision ...................................... $ --
========
</TABLE>
6. RETIREMENT PLAN
Employees of Danbury may participate in profit sharing/401(k) savings
plan and may elect to make contributions pursuant to a salary reduction
agreement upon meeting length of service and age requirements. Danbury can
elect to make discretionary contributions to the profit sharing plan but has
not done so for the year. Danbury has matched 20% of individual 401(k)
contributions during the year ended June 30, 1995. Danbury's cost amounted to
approximately $4,500.
7. RELATED PARTY TRANSACTIONS
During the year ended June 30, 1995, Danbury exchanged its tower and
associated real property with a book value of $190,000 for a favorable lease
with a Partnership formed to improve and rent the tower to Danbury and others.
The Partnership has committed to the financing of tower improvements which will
improve the broadcast signal. Danbury's lease for placement of its antenna on
the tower at the optimal site is at below market rates. Danbury and the
Partnership are related through common control. The favorable lease has been
valued at $190,000, the book value of the property exchanged.
F-95
<PAGE> 217
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Adventure Communications -- Huntington
(Division of Adventure Communications, Inc.)
We have audited the accompanying balance sheet of Adventure
Communications-Huntington (Division of Adventure Communications, Inc.) as of
December 31, 1995, and the related statements of operations, division's
deficit, and cash flows for the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Adventure
Communications-Huntington (Division of Adventure Communications, Inc.) as of
December 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Brown, Edwards & Company, LLP
Bluefield, West Virginia
May 1, 1996
F-96
<PAGE> 218
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
CURRENT ASSETS
Cash ........................................................ $ 105,926
Accounts receivable, less allowance for doubtful accounts
of $66,000 on December 31, 1995 (Note 7) ................. 647,986
Prepaid assets .............................................. 1,325
Other receivables ........................................... 43,120
Deferred income taxes (Note 5) .............................. 26,400
-----------
Total current assets ..................................... 824,757
-----------
PROPERTY AND EQUIPMENT, NET (Notes 3 and 7) ..................... 1,225,957
-----------
INTANGIBLES, NET (Note 4) ....................................... 135,140
-----------
$ 2,185,854
===========
LIABILITIES AND DIVISION'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses ....................... $ 177,321
Inter-divisional transaction payable (Note 6) ............... 2,282,170
-----------
Total current liabilities ................................ 2,459,491
-----------
Commitment (Note 7) ............................................. --
DIVISION'S DEFICIT .............................................. (273,637)
-----------
$ 2,185,854
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-97
<PAGE> 219
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Advertising revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,352,771
Agency commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (187,292)
-----------
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,165,479
Other operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,225
-----------
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,201,704
-----------
Operating expenses (Note 6):
Station operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,118,139
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 572,980
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230,600
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,587
-----------
2,935,306
-----------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266,398
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,273
-----------
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273,671
Provision for income taxes (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . (75,640)
-----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 198,031
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-98
<PAGE> 220
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
STATEMENT OF DIVISION'S DEFICIT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Balance, January 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (471,668)
1995 net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,031
-----------
Balance, December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (273,637)
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-99
<PAGE> 221
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 198,031
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 244,187
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,400)
Changes in current assets and liabilities:
(Increase) decrease in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (112,955)
Prepaid expenses and other receivables . . . . . . . . . . . . . . . . . . . . 4,027
Increase in:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . 28,473
-----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . 335,363
-----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . (366,455)
Purchase of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . (89,000)
-----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . (455,455)
-----------
CASH FLOW FROM FINANCING ACTIVITIES
Increase in inter-divisional payable . . . . . . . . . . . . . . . . . . . . . . 975,018
Repayment of inter-divisional payable . . . . . . . . . . . . . . . . . . . . . . (1,020,000)
-----------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . (44,982)
-----------
Decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (165,074)
CASH
Beginning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271,000
-----------
Ending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 105,926
===========
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Barter revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 233,219
===========
Barter expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 163,100
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-100
<PAGE> 222
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
Adventure Communications -- Huntington (the "Division") is a division
of Adventure Communications, Inc. ("Adventure"). Adventure's principal
business is the operation of AM and FM radio broadcasting stations in the areas
of Bluefield and Huntington, West Virginia; Statesville, North Carolina; and
Hilton Head, South Carolina. The Division operates WKEE-AM and FM, WBVB-FM,
WZZW-AM and WIRO-AM (the Stations).
Adventure also has joint operating and marketing agreements with other
radio stations located in the Huntington area. Under these agreements,
Adventure is responsible for various promotional and marketing activities of
the Stations. Revenue and expenses resulting from these agreements are
included in the Division's operations.
On April 8, 1996, Adventure entered into an asset purchase agreement
to sell substantially all the assets relating to the operations of the Stations
(Note 11).
Revenue recognition:
Advertising revenue is recognized in the accounting period which
corresponds with the broadcast of the advertisement. Barter revenue is
reported when advertisements are broadcast and barter merchandise or services
received are expensed when used. Barter transactions are valued at the market
value of the broadcast time which approximates the market value of the product
or services received.
Property and equipment:
Property and equipment are recorded at cost and are depreciated over
their estimated useful lives using straight-line and accelerated methods.
Valuation of receivables:
The Division provides for bad debts under the reserve method which
charges current operations for estimated uncollectibles based upon the
Division's collection experience and an evaluation of the receivables at year
end.
Intangible assets:
Acquisition costs (non-compete covenants and goodwill) in excess of
the net tangible assets of acquired radio stations are amortized on a
straight-line basis over periods of up to 15 years, and are included in the
financial statements at cost less accumulated amortization.
Income taxes:
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to the allowance for doubtful accounts which is not
deductible for income tax return purposes until the accounts are written off as
uncollectible. The deferred tax asset represents the future tax return
deduction.
Effective January 1, 1995, Adventure revoked its S Corporation
election and became a taxable entity. Previously, its income and losses were
included in the personal tax returns of the stockholders, and Adventure did not
record an income tax provision or benefit.
F-101
<PAGE> 223
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Statement of cash flows:
Separate disclosures have not been made for cash paid for interest and
income taxes because these amounts are included in inter-divisional
transactions with Adventure.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
NOTE 2. ACQUISITIONS
In June 1995, Adventure purchased selected assets of an AM radio
station in Ironton, Ohio. The acquisition was accounted for by the purchase
method, and the statement of income includes the results of operations of this
station from the date of acquisition.
<TABLE>
<S> <C>
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . $ 211,000
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,000
----------
$ 300,000
----------
</TABLE>
Pro forma results of operations from this acquisition were not
material to the Division's operations. Therefore, such information has not
been presented.
NOTE 3. PROPERTY AND EQUIPMENT
Major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
Land and improvements . . . . . . . . . . . . . . . . . $ 60,000
Buildings and improvements . . . . . . . . . . . . . . . 550,557
Broadcasting equipment . . . . . . . . . . . . . . . . . 1,735,498
Furniture and fixtures . . . . . . . . . . . . . . . . . 124,756
Transportation equipment . . . . . . . . . . . . . . . . 22,280
Computer and office equipment . . . . . . . . . . . . . 187,416
-----------
2,680,507
Less accumulated depreciation . . . . . . . . . . . . . 1,454,550
-----------
$ 1,225,957
===========
</TABLE>
F-102
<PAGE> 224
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 4. INTANGIBLES
Intangibles are stated at cost, net of amortization and consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
Non-compete covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,317
License fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
---------
213,317
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . 78,177
---------
$ 135,140
=========
</TABLE>
NOTE 5. INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Current expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (102,040)
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,400
----------
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . $ (75,640)
==========
Income tax expense differs from the statutory federal rate of 34% as follows:
YEAR ENDED
DECEMBER 31, 1995
-----------------
Tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (109,468)
Non-deductible items . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,172)
Change in tax status . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000
----------
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . $ (75,640)
==========
</TABLE>
As discussed in Note 1, Adventure changed its tax status from
nontaxable to taxable effective for 1995. Accordingly, the deferred tax asset
of approximately $38,000 at the date that the termination election became
effective has been recorded through a charge to the tax provision for 1995.
NOTE 6. INTER-DIVISIONAL TRANSACTIONS
Adventure has allocated to the Division various expenses it incurred
for corporate services, overhead and interest costs. The amounts included in
corporate services and overhead allocations are comprised mainly of corporate
office salaries, related payroll taxes and employee benefits, professional fees
and administrative expenses. These costs have been allocated based on revenues
of the Division compared to total revenues of Adventure. Management believes
the amounts allocated to the Division have been computed and charged to the
Division on a reasonable basis.
F-103
<PAGE> 225
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
The Division is obligated to Adventure for monies received from
Adventure for the original purchase of the Stations as well as the allocated
expenses mentioned above. The Division, in return, transfers cash to Adventure
that is in excess of its operating needs. These transactions are conducted on
an interest free basis. The inter-divisional payable is analyzed below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Balance, beginning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,327,152
Allocations of corporate costs to the Division . . . . . . . . . . . . . . . 675,018
Purchase of Stations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
Cash transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,020,000)
------------
Balance, ending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,282,170
============
</TABLE>
NOTE 7. COMMITMENT
Adventure is obligated for long-term debt of approximately $6,900,000
for which substantially all assets of Adventure (including the Division) are
pledged as collateral. At December 31, 1995, the book value of total assets of
Adventure exceeds the long-term debt. Approximately $3,700,000 of the debt is
also secured by a $4,000,000 life insurance policy on the majority stockholder
of Adventure.
A note payable to the majority stockholder of Adventure of $2,400,000
is included in the $6,900,000 debt referred to above.
NOTE 8. EMPLOYEE BENEFIT PLANS
Adventure has a contributory profit sharing plan covering all full
time employees with one or more years of service. The plan provides for annual
employer contributions on a discretionary basis as determined by the Board of
Directors. No contributions were made to the plan in 1995.
Adventure also has a 401(k) retirement plan, whereby participants may
contribute a percentage of their compensation.
Adventure's matching contribution percentage (which is determined
annually by Adventure) is limited to 10% of the participant's compensation for
each plan year. The Division's contribution was approximately $8,200 for the
year ended December 31, 1995.
NOTE 9. OPERATING LEASES
The Division leases certain transmission towers and automobiles under
non-cancelable lease agreements. These leases have been classified as
operating leases; and accordingly, all rents are charged to operations as
incurred.
The following is a schedule by years of future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31, 1995:
F-104
<PAGE> 226
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31:
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,630
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,500
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400
-------
Total minimum payments required . . . . . . . . . . . . . . . . . . . $31,330
=======
</TABLE>
Lease expense was approximately $15,630 for 1995.
NOTE 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the inter-divisional payable approximates fair
value. It is included in the financial statements as a current liability due
to the pending sales discussed in Note 11. The inter-divisional payable will
be satisfied by the proceeds of the sale. In the financial statements of
Adventure, all inter-divisional payables/receivables are eliminated.
NOTE 11. SUBSEQUENT EVENT
On April 8, 1996, Adventure entered into an asset purchase agreement
to sell substantially all the assets relating to the operations of the Stations
for $7,765,000. The sale of the Station is contingent on FCC consent. The
buyer will purchase all of the assets for the Stations, free and clear of any
liabilities, mortgages, liens, pledges, conditions or encumbrances except for
the Stations' cash, rights to refunds or deposits which relate to the period
prior to closing and accounts receivable. Also at closing, $475,000 of the
sales price will be deposited with the indemnification escrow agent. The
indemnification period will be for a period of two (2) years following the
closing. The indemnification by seller and buyer shall be for any losses,
liabilities or damages resulting from untrue representations, breach of
warranty or non-fulfillment of covenants, liabilities not expressly assumed by
buyer, liabilities resulting from operations prior to the closing date for the
buyer or liabilities resulting from operation after the closing date for the
seller.
F-105
<PAGE> 227
ANNEX A TO PROSPECTUS
The following table hereto sets forth the market, FCC license
classification and frequency of each of the Company's stations (including those
with which the Company has or will have a JSA or LMA), assuming the
consummation of the Pending Acquisitions, and the date on which each station's
FCC license expires.
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
- --------- ---------- ----- --------- -------
<S> <C> <C> <C> <C>
NORTHEAST REGION
Allentown-Bethlehem, PA
WAEB-AM B 790 kHz 08-01-98
WAEB-FM B 104.1 MHz 08-01-98
WZZO-FM B 95.1 MHz 08-01-98
WKAP-AM(3) B 1470 kHz 08-01-98
Melbourne-Titusville-Cocoa, FL
WMMB-AM C 1240 kHz 02-01-04
WGGD-FM A 95.1 MHz 02-01-04
WMYM-AM B 1350 kHz 02-01-04
WLRQ-FM C2 99.3 MHz 02-01-04
WHKR-FM C2 102.7 MHz 02-01-04
Fairfield County, CT
WNLK-AM B 1350 kHz 04-01-98
WEFX-FM A 95.9 MHz 04-01-98
WSTC-AM C 1400 kHz 04-01-98
WKHL-FM A 96.7 MHz 04-01-98
WINE-AM D 940 kHz 04-01-98
WRKI-FM B 95.1 MHz 04-01-98
Ft. Pierce-Stuart-Vero Beach, FL
WZZR-FM C2 92.7 MHz 02-01-04
WQOL-FM C2 103.7 MHz 02-01-04
WPAW-FM(3) C2 99.7 MHz 02-01-04
WBBE-FM C3 94.7 MHz 02-01-04
WAVW-FM A 101.7 MHz 02-01-04
WAXE-AM D 1370 kHz 02-01-04
Huntington, WV-Ashland, KY
WTCR-AM B 1420 kHz 10-01-03
WTCR-FM B 103.3 MHz 10-01-03
WIRO-AM C 1230 kHz 10-01-04
WHRD-AM(3) D 1470 kHz 10-01-03
WZZW-AM D 1600 kHz 10-01-03
WKEE-AM D 800 kHz 10-01-03
WKEE-FM A 100.5 MHz 10-01-03
WAMX-FM A 106.3 MHz 10-01-03
WFXN-FM A 107.1 MHz 10-01-04
WBVB-FM A 97.1 MHz 10-01-04
Salisbury-Ocean City, MD
WWFG-FM B 99.9 MHz 10-01-03
WOSC-FM B1 95.9 MHz 08-01-98
Dover, DE
WDSD-FM B 94.7 MHz 08-01-98
WSRV-FM A 92.9 MHz 08-01-98
WDOV-AM B 1410 kHz 08-01-98
Wilmington, DE
WJBR-AM D 1290 kHz 08-01-98
WJBR-FM B 99.5 MHz 08-01-98
</TABLE>
A-1
<PAGE> 228
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
- --------- ---------- ----- --------- -------
<S> <C> <C> <C> <C>
Westchester-Putnam Counties, NY
WFAS-AM C 1230 kHz 06-01-98
WPUT-AM D 1510 kHz 06-01-98
WFAS-FM A 103.9 MHz 06-01-98
WZZN-FM A 106.3 MHz 06-01-98
WAXB-FM A 105.5 MHz 06-01-98
SOUTHEAST REGION
Greenville, SC
WJMZ-FM C 107.3 MHz 12-01-03
WESC-FM C 92.5 MHz 12-01-03
WESC-AM D 660 kHz 12-01-03
WFNQ-FM C 93.3 MHz 12-01-03
Columbia, SC
WCOS-FM C1 97.5 MHz 12-01-03
WHKZ-FM A 96.7 MHz 12-01-03
WVOC-AM B 560 kHz 12-01-03
WSCQ-FM A 100.1 MHz 12-01-03
WCOS-AM C 1400 kHz 12-01-03
WNOK-FM C 104.7 MHz 12-01-03
Huntsville, AL
WDRM-FM C1 102.1 MHz 04-01-04
WHOS-AM D 800 kHz 04-01-04
WBHP-AM C 1230 kHz 04-01-04
Jackson, MS
WJMI-FM C 99.7 MHz 06-01-04
WOAD-AM C 1300 kHz 06-01-04
WKXI-AM B 1400 kHz 06-01-04
WKXI-FM C1 107.5 MHz 06-01-04
Shreveport, LA
KRMD-FM C 101.1 MHz 06-01-04
KRMD-AM C 1340 kHz 06-01-04
Montgomery, AL
WZHT-FM C 105.7 MHz 04-01-04
WMCZ-FM A 97.1 MHz 04-01-04
WDHT-FM C1 104.3 MHz *
Asheville, NC
WWNC-AM B 570 kHz 12-01-03
WKSF-FM C 99.9 MHz 12-01-03
Tuscaloosa, AL
WACT-AM D 1420 kHz 04-01-04
WACT-FM A 105.5 MHz 04-01-04
WTXT-FM C1 98.1 MHz 04-01-04
Wheeling, WV
WWVA-AM A 1170 kHz 10-01-03
WOVK-FM B 98.7 MHz 10-01-03
WKWK-FM B 97.3 MHz 10-01-03
WBBD-AM D 1400 kHz 10-01-03
WRIR-FM B1 105.5 MHz 10-01-03
WEGW-FM B 107.5 MHz 10-01-03
WEEL-FM(3) A 95.7 MHz 10-01-04
</TABLE>
A-2
<PAGE> 229
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
- --------- ---------- ----- --------- -------
<S> <C> <C> <C> <C>
Winchester, VA
WUSQ-FM B 102.5 MHz 10-01-03
WFQX-FM A 99.3 MHz 10-01-03
WNTW-AM B 610 kHz 10-01-03
Jackson, TN
WTJS-AM B 1390 kHz 08-01-04
WTNV-FM C1 104.1 MHz 08-01-04
WYNU-FM C 92.3 MHz 08-01-04
Roanoke, VA
WROV-AM C 1240 kHz 10-01-03
WROV-FM C1 96.3 MHz 10-01-03
WRDJ-FM C3 104.9 MHz *
WJJS-FM A 106.1 MHz 10-01-03
WJLM-FM A 93.5 MHz 10-01-03
Lynchburg, VA
WLDJ-FM B 102.7 MHz 10-01-03
WJJX-FM A 101.7 MHz 10-01-03
WJJS-AM B 1320 kHz 10-01-03
WYYD-FM C1 107.9 MHz 10-01-03
Statesville, NC
WFMX-FM C 105.7 MHz 12-01-03
WSIC-AM C 1400 kHz 12-01-03
Gadsden, AL
WAAX-AM B 570 kHz 04-01-04
WQEN-FM C 103.7 MHz 04-01-04
WEST REGION
Stockton, CA
KVFX-FM(3) A 96.7 MHz 12-01-97
KJAX-AM(3) B 1280 kHz 12-01-97
Des Moines, IA
KHKI-FM(3) C1 97.3 MHz 02-01-05
KGGO-FM(3) C 94.9 MHz 02-01-05
KDMI-AM(3) B 1460 kHz 02-01-05
Madison, WI
WIBA-AM B 1310 kHz 12-01-04
WIBA-FM B 101.5 MHz 12-01-04
WMAD-FM A 92.1 MHz 12-01-04
WTSO-AM B 1070 kHz 12-01-04
WZEE-FM B 104.1 MHz 12-01-04
WMLI-FM B1 96.3 MHz 12-01-04
Modesto, CA
KJSN-FM(3) A 102.3 MHz 12-01-97
KFIV-AM(3) B 1360 kHz 12-01-97
Anchorage, AK
KBFX-FM(3) C3 100.5 MHz 02-01-98
KENI-AM(3) B 550 kHz 02-01-98
KYAK-AM A 650 kHz 02-01-98
KGOT-FM C2 101.3 MHz 02-01-98
KYMG-FM C1 98.9 MHz 02-01-98
KASH-FM(3) C1 107.5 MHz 02-01-98
Fairbanks, AK
KIAK-FM C 102.5 MHz 02-01-98
KIAK-AM B 970 kHz 02-01-98
KAKQ-FM C2 101.1 MHz 02-01-98
Yuma, AZ
KYJT-FM A 100.9 MHz 10-01-97
KTTI-FM C 95.1 MHz 10-01-97
KBLU-AM B 560 kHz 10-01-97
</TABLE>
- --------------------------------
* Not licensed -- Construction Permit only.
A-3
<PAGE> 230
(1) Actual city of license may be different from metropolitan market
served. Market may be different from market definition used under FCC
multiple ownership rules.
(2) The table does not include (i) station WING-FM in Dayton, Ohio, which
is owned by the Company and for which an unrelated third party, who
has an option to purchase such station, currently provides certain
sales, programming and marketing services pursuant to an LMA, (ii)
station WDRR-FM in Ft. Myers, Florida, in which the Company owns a 50%
nonvoting interest and which the Company intends to sell or (iii)
station KASH-AM in Anchorage, Alaska, which the Company will own upon
consummation of the Community Pacific Acquisition, but expects to sell
subsequent thereto to remain in compliance with the station ownership
limitations under the Communications Act. See "Acquisitions."
(3) The Company provides certain sales and marketing services to stations
WKAP-AM in Allentown, Pennsylvania, WPAW-FM in Ft. Pierce-Stuart-Vero
Beach, Florida and WEEL-FM in Wheeling, West Virginia, pursuant to
JSAs. The Company provides certain sales, programming and marketing
services to station WHRD-AM in Huntington, West Virginia, and pending
consummation of the Community Pacific Acquisition, to stations KFIV-AM
and KJSN-FM in Modesto, California, KVFX-FM and KJAX-FM in Stockton,
California, KASH-FM, KENI-AM and KBFX-FM in Anchorage, Alaska, and
KDMI-AM, KHKI-FM and KGGO-FM in Des Moines, Iowa, pursuant to LMAs.
A-4
<PAGE> 231
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE
INITIAL PURCHASER OF THE OLD NOTES. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . 3
Summary Historical Financial Data . . . . . 12
Summary Pro Forma Financial Data . . . . . 13
Risk Factors . . . . . . . . . . . . . . . 14
Use of Proceeds . . . . . . . . . . . . . . 20
Capitalization . . . . . . . . . . . . . . 21
Unaudited Pro Forma Financial Information . 22
Selected Historical Financial Data . . . . 37
Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . 38
Business . . . . . . . . . . . . . . . . . 43
The Pending Acquisitions . . . . . . . . . 64
Management . . . . . . . . . . . . . . . . 68
Security Ownership of Certain
Beneficial Owners . . . . . . . . . . . 78
Certain Transactions . . . . . . . . . . . 80
Description of Capital Stock . . . . . . . 83
Description of Other Indebtedness . . . . . 87
The Exchange Offer . . . . . . . . . . . . 90
Description of New Notes . . . . . . . . . 97
Certain United States Federal Income
Tax Considerations . . . . . . . . . . . 113
Book-Entry; Delivery & Form . . . . . . . . 113
Plan of Distribution . . . . . . . . . . . 114
Legal Matters . . . . . . . . . . . . . . . 115
Experts . . . . . . . . . . . . . . . . . . 115
Available Information . . . . . . . . . . . 116
Glossary of Certain Terms and Market and
Industry Data . . . . . . . . . . . . . 117
Index to Financial Statements . . . . . . . F-1
Annex A -- Table of Additional Station
Information . . . . . . . . . . . . . . A-1
</TABLE>
----------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[LOGO]
$277,000,000
CAPSTAR BROADCASTING
PARTNERS, INC.
12 3/4% SENIOR DISCOUNT NOTES
DUE 2009
PROSPECTUS
, 1997
<PAGE> 232
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VI of the Bylaws of the Registrant provides that the
Registrant shall indemnify its officers and directors to the maximum extent
allowed by the Delaware General Corporation Law. Pursuant to Section 145 of
the Delaware General Corporation Law, the Registrant generally has the power to
indemnify its current and former directors against expenses and liabilities
incurred by them in connection with any suit to which they are, or are
threatened to be made, a party by reason of their serving in those positions so
long as they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the Registrant, and with respect
to any criminal action, so long as they had no reasonable cause to believe
their conduct was unlawful. With respect to suits by or in the right of the
Registrant, however, indemnification is generally limited to attorneys' fees
and other expenses and is not available if the person is adjudged to be liable
to the Registrant, unless the court determines that indemnification is
appropriate. The statute expressly provides that the power to indemnify
authorized thereby is not exclusive of any rights granted under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise. The
Registrant also has the power to purchase and maintain insurance for its
directors and officers and has purchased a policy providing such insurance.
The preceding discussion of the Registrant's Bylaws and Section 145 of
the Delaware General Corporation Law is not intended to be exhaustive and is
qualified in its entirety by the Bylaws and Section 145 of the Delaware General
Corporation Law.
The Registrant has entered into indemnification agreements with the
Registrant's directors and officers. Pursuant to such agreements, the
Registrant will, to the extent permitted by applicable law, indemnify such
persons against all expenses, judgments, fines and penalties incurred in
connection with the defense or settlement of any actions brought against them
by reason of the fact that they were directors or officers of the Registrant or
assumed certain responsibilities at the direction of the Registrant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
2.1.1 Agreement and Plan of Merger, dated June 21, 1996, by and
among CMI Acquisition Company, Inc., Commodore Media, Inc.
("Commodore") and the stockholders and other signatories
thereto. (1)
2.1.2 First Amendment to Agreement and Plan of Merger, dated as of
September 3, 1996. (2)
2.1.3 Second Amendment to Agreement and Plan of Merger, dated as of
October 16, 1996. (2)
3.1 Certificate of Incorporation of the Company.+
3.2 By-Laws of the Company.+
4.1 Registration Rights Agreement dated February 20, 1997 by and
between the Registrant and BT Securities Corporation. (3)
4.2.1 Indenture, dated February 20, 1997, between the Company and
U.S. Trust Company of Texas, N.A, governing the Company's
outstanding 12 3/4% Senior Discount Notes due 2009. (3)
4.2.2 Indenture, dated as of April 21, 1995, among Commodore, IBJ
Schroder Bank & Trust Company, as Trustee, and the Guarantors
named therein, governing Commodore's Senior Subordinated Notes
(the "Commodore Indenture"). (4)
4.2.3 Amendment No. 1 to Commodore Indenture. (4)
4.2.4 Amendment No. 2 to Commodore Indenture. (5)
II-1
<PAGE> 233
4.2.5 Amendment No. 3 to Commodore Indenture. (5)
4.2.6 Amendment No. 4 to Commodore Indenture. (6)
4.2.7 Amendment No. 5 to Commodore Indenture. (7)
4.2.8 Amendment No. 6 to Commodore Indenture. (3)
5.1 Opinion of Vinson & Elkins L.L.P.+
10.1.1 Agreement and Plan of Merger, dated as of December 9, 1996, by
and among Benchmark Communications Radio Limited Partnership,
Benchmark Acquisition, Inc., Benchmark Radio Acquisition Fund
I Limited Partnership, Benchmark Radio Acquisition Fund IV
Limited Partnership, Benchmark Radio Acquisition Fund VII
Limited Partnership, Benchmark Radio Acquisition Fund VIII
Limited Partnership, Joe L. Mathis IV, Bruce R. Spector, the
Company and BCR Holding, Inc. ("Benchmark Merger Agreement").+
10.1.2 Letter Agreement amending Benchmark Merger Agreement, dated
January 9, 1997, by and among Benchmark Communications Radio
Limited Partnership, Benchmark Acquisition, Inc. and the other
signatories listed therein.+
10.1.3 Letter Agreement amending Benchmark Merger Agreement, dated
January 31, 1997, by and among Benchmark Communications Radio
Limited Partnership, Benchmark Acquisition, Inc., BCR Holding,
Inc., the Company, and the other signatories listed therein.+
10.1.4 Letter Agreement amending Benchmark Merger Agreement, dated
April [__], 1997, by and among Benchmark Communications Radio
Limited Partnership, Benchmark Acquisition, Inc., BCR Holding,
Inc., and the Company.+
10.2 Asset Purchase Agreement, dated as of January 27, 1997, by and
among Point Communications Limited Partnership, Midcontinent
Broadcasting Co. of Wisconsin, Inc., Madison Radio Group and
Point Madison Acquisition Company, Inc.+
10.3 Asset Purchase Agreement, dated as of December 26, 1996,
between Community Pacific Broadcasting Company L.P. and
Community Acquisition Company, Inc.+
10.4 Credit Agreement, dated February 20, 1997, among Commodore,
as borrower, the Company, as guarantor, various banks, and
Bankers Trust Company, as administrative agent.(8)
10.5 New Credit Facility.+
10.6 Financial Advisory Agreement, dated as of October 16, 1996,
between the Company and Hicks, Muse & Co. Partners, L.P.
("HMCo"). (3)
10.7 Monitoring and Oversight Agreement, dated as of October 16,
1996, between the Company and HMCo. (3)
10.8 Form of Indemnification Agreement between the Company and
each of its directors and officers.+
10.9 Employment Agreement, dated February 14, 1997, between the
Company and R. Steven Hicks. (3)
10.10 Employment Agreement, dated [______], 1997, between the
Company and Paul D. Stone.+
10.11 Employment Agreement, dated [_______], 1997, between the
Company and William S. Banowsky, Jr.+
10.12 Amended and Restated Employment Agreement, dated October 16,
1996, between Commodore, the Company and James T. Shea, Jr.
(3)
10.13 Employment Agreement, dated January 27, 1997, between Pacific
Star Communications, Inc. and Claude C. Turner (also known as
Dex Allen). (3)
II-2
<PAGE> 234
10.14.1 Employment Agreement dated July 1, 1994, between Osborn
Communications Corporation ("Osborn") and Frank D. Osborn. (9)
10.14.2 Amendment No. 1, dated July 1, 1996, to the employment
agreement dated July 1, 1994 between Osborn and Frank D.
Osborn. (10)
10.14.3 Amendment No. 2, dated July 23, 1996, to the employment
agreement dated July 1, 1994 between Osborn and Frank D.
Osborn. (10)
10.15 Employment Agreement, dated February 20, 1997, between Osborn
and Frank D. Osborn.(7)
10.16 Form of Employment Agreement to be entered into between
Pacific Star Communications, Inc. and David T. Benjamin,
III.+
10.17.1 1996 Stock Option Plan of the Company, dated October 16, 1996.
(3)
10.17.2 First Amendment to the Capstar Broadcasting Partners, Inc.
1996 Stock Option Plan, dated February 13, 1997. (3)
10.18.1 Form of Incentive Stock Option Agreement.+
10.18.2 Form of Non-Qualified Stock Option Agreement.+
10.19.1 1996 Stock Purchase Plan of the Company, dated November 26,
1996. (3)
10.19.2 First Amendment to the Company's 1996 Stock Purchase Plan,
dated January 27, 1997. (3)
10.20.1 Stockholders Agreement, dated October 16, 1996, among the
Registrant, Hicks, Muse, Tate & Furst Incorporated ("Hicks
Muse"), R. Steven Hicks and the security holders listed
therein. (3)
10.20.2 First Amendment and Supplement to Stockholders Agreement,
dated January 27, 1997, by and among the Company, the
securityholders listed therein and Hicks Muse. (3)
10.21.1 Stockholders Agreement, dated November 26, 1996, among the
Company, the securityholders listed therein and Hicks Muse.
(3)
10.21.2 First Amendment to Stockholders Agreement, dated January 27,
1997, by and among the Company and the securityholders listed
therein. (3)
10.22.1 Stock Pledge, Security Agreement and Power of Attorney, dated
February 20, 1997, executed by Claude C. Turner in favor of
the Company. (3)
10.22.2 9% Promissory Note, dated February 20, 1997, executed by
Claude C. Turner in favor of the Company in the principal sum
of $200,000. (3)
10.23.1 9% Promissory Note, dated February 20, 1997, executed by David
J. Benjamin, III in favor of the Company in the principal sum
of $396,363.64. (3)
10.23.2 Stock Pledge, Security Agreement and Power of Attorney, dated
February 20, 1997, executed by David J. Benjamin, III in
favor of the Company. (3)
10.24 Mandatory Buyback Agreement, dated February 20, 1997, between
David J. Benjamin, III and the Company. (3)
10.25 Registration Rights Agreement, dated February 20, 1997,
between the Registrant and Frank D. Osborn. (3)
10.26 Warrant, dated October 16, 1996, issued to R. Steven Hicks.
(3)
10.27 Warrant, dated February 20, 1997, issued to R. Steven Hicks.
(3)
11.1 Statement Re: Computation of Per Share Earnings. (3)
11.2 Statement Re: Computation of Pro Forma Per Share Earnings for
Recapitalization. (3)
II-3
<PAGE> 235
11.3 Statement Re: Computation of Pro Forma Per Share Earnings.+
12.1 Deficiency of Earnings to Fixed Charges.*
12.2 Pro Forma Deficiency of Earnings to Fixed Charges.*
21.1 List of Subsidiaries. (3)
23.1 Consent of Vinson & Elkins L.L.P. (included in its opinion
filed as Exhibit 5.1 hereto).+
23.2 Consent of Coopers & Lybrand L.L.P. -- Capstar Broadcasting
Partners, Inc.*
23.3 Consent of Ernst & Young LLP.*
23.4 Consent of Coopers & Lybrand L.L.P. -- Benchmark
Communications Radio Limited Partnership.*
23.5 Consent of Coopers & Lybrand L.L.P. -- Midcontinent
Broadcasting Co.*
23.6 Consent of Coopers & Lybrand L.L.P. -- Point Communications
Limited Partnership.*
23.7 Consent of Coopers & Lybrand L.L.P. -- Community Pacific
Broadcasting Company L.P.*
23.8 Consent of Holtz Rubenstein & Co., LLP.*
23.9 Consent of Paneth, Haber & Zimmerman, LLP.*
23.10 Consent of Brown, Edward & Co., LLP.*
24.1 Powers of Attorney (included on the signature page of this
Registration Statement).*
25.1 Form T-1 of U.S. Trust Company of Texas, N.A.*
99.1 Form Letter of transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
- ------------
+ To be filed by amendment.
* Filed herewith.
(1) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, File No. 33-92732.
(2) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, File No. 33-92732.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-25263), dated April 16, 1997.
(4) Incorporated by reference to Commodore's Registration Statement on Form
S-4 (File No. 33-92732), dated July 26, 1995.
(5) Incorporated by reference to Commodore's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 33-92732.
(6) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, File No. 33-92732.
(7) Incorporated by reference to Commodore's Annual Report on Form 10-K for
the year ended December 31, 1996, File No. 33-92732.
(8) Incorporated by reference to Commodore's Current Report on Form 8-K dated
February 20, 1997, File No. 33-92732.
(9) Incorporated by reference to Osborn's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, File No. 0-16841.
(10) Incorporated by reference to Osborn's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, File No. 0-16841.
II-4
<PAGE> 236
(b) Financial Statement Schedules:
The following financial statement schedules are included in this
Registration Statement:
Reports of Independent Accountants
I -- Condensed Financial Information of Registrant
II -- Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Trust Indenture Act.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-5
<PAGE> 237
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Company has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Austin, State of Texas, on the 22nd day of April, 1997.
CAPSTAR BROADCASTING PARTNERS, INC.
By:/s/ R. Steven Hicks
--------------------------------------
R. Steven Hicks, Chairman of the Board
Each person whose signature appears below authorizes R. Steven Hicks
and William S. Banowsky, Jr., and each of them, each of whom may act without
joinder of the other, to execute in the name of each such person who is then an
officer or director of the Company and to file any amendments to this
Registration Statement necessary or advisable to enable the Company to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the registration of the securities which are the subject of
this Registration Statement, which amendments may make such changes in the
Registration Statement as such attorney may deem appropriate. Pursuant to the
requirements of the Securities Act of 1933, this registration statement has
been signed by the following person in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ R. Steven Hicks Chairman of the Board, President and April 22, 1997
- ----------------------------- Chief Executive Officer (Principal
R. Steven Hicks Executive Officer)
/s/ Paul D. Stone Executive Vice President and Chief April 22, 1997
- ----------------------------- Financial Officer (Principal Financial and
Paul D. Stone Accounting Officer)
/s/ Eric C. Neuman Executive Vice President and Director April 22, 1997
- -----------------------------
Eric C. Neuman
/s/ Thomas O. Hicks Director April 22, 1997
- -----------------------------
Thomas O. Hicks
/s/ Lawrence D. Stuart, Jr. Director April 22, 1997
- -----------------------------
Lawrence D. Stuart, Jr.
</TABLE>
<PAGE> 238
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Capstar Broadcasting Partners, Inc.
In connection with our audit of the consolidated financial statements of
Capstar Broadcasting Partners, Inc. and Subsidiaries as of December 31, 1996
and for the period from October 11, 1996 ("inception") to December 31, 1996,
which financial statements are included in the Prospectus, we have also audited
the financial statement schedules of Capstar Broadcasting Partners, Inc. and
Subsidiaries listed in Item 16(b) herein.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Austin, Texas
February 14, 1997
S-1
<PAGE> 239
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Capstar Broadcasting Partners, Inc.
We have audited the consolidated balance sheet of Commodore Media, Inc. and
Subsidiaries, the Predecessor Company of Capstar Broadcasting Partners, Inc.,
as of December 31, 1995, and for the period from January 1, 1996 to October 16,
1996 and for the years ended December 31, 1995 and 1994, and have issued our
report thereon dated February 10, 1997 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule listed
in Item 16(b) of this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young LLP
February 10, 1997
New York, New York
S-2
<PAGE> 240
CAPSTAR BROADCASTING PARTNERS, INC.
PARENT COMPANY CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1996
------------
ASSETS
<S> <C>
Current assets:
Cash and short-term investments . . . . . . . . . . . . . . . . . . . $ 660,167
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . 425
-------------
Total current assets . . . . . . . . . . . . . . . . . . . . . 660,592
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . 1,365,306
FCC licenses and goodwill, net of accumulated amortization . . . . . . . . 139,498,885
Deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,234
Deposits and other assets . . . . . . . . . . . . . . . . . . . . . . . . . 178,000
Investment in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . (4,830,124)
-------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,672,893
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . $ 786,817
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 850,208
Due to affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . 536,738
-------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 2,173,763
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,025,003
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 331,580
-------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 47,530,346
-------------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,00 shares authorized,
none issued and outstanding . . . . . . . . . . . . . . . . . . --
Class A common stock, $.01 par value, 200,000,000 shares
authorized, 94,155,000 shares issued and outstanding . . . . . 941,550
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 93,957,450
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (3,756,453)
-------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 91,142,547
-------------
Total liabilities and stockholders' equity . . . . . . . . . . . $ 138,672,893
=============
</TABLE>
See accompanying notes.
S-3
<PAGE> 241
CAPSTAR BROADCASTING PARTNERS, INC.
PARENT COMPANY CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period ended
December 31, 1996
-----------------
<S> <C>
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 223,227
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,421,380
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 296,332
Equity in losses of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . 71,514
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744,000
------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,756,453)
============
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.04)
============
Weighted average number of shares outstanding . . . . . . . . . . . . . . . . . 93,691,842
============
</TABLE>
See accompanying notes.
S-4
<PAGE> 242
CAPSTAR BROADCASTING PARTNERS, INC.
PARENT COMPANY CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at inception (October 11, 1996) $ -- $ -- $ -- $ --
Issuance of common stock in connection
with Commodore Acquisition . . . . 932,750 92,342,250 -- 93,275,000
Issuance of warrants . . . . . . . . -- 744,000 -- 744,000
Issuance of common stock . . . . . . 8,800 871,200 -- 880,000
Net loss for the period . . . . . . . -- -- (3,756,453) (3,756,453)
-------- ----------- ----------- -----------
Balance at December 31, 1996 . . . . $941,550 $93,957,450 $(3,756,453) $91,142,547
======== =========== =========== ===========
</TABLE>
See accompanying notes.
S-5
<PAGE> 243
CAPSTAR BROADCASTING PARTNERS, INC.
PARENT COMPANY CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period Ended
December 31, 1996
-----------------
<S> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,756,453)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 296,332
Noncash compensation . . . . . . . . . . . . . . . . . . . . . . . 744,000
Noncash interest . . . . . . . . . . . . . . . . . . . . . . . . . 1,571,072
Equity in losses of subsidiary . . . . . . . . . . . . . . . . . . 71,514
Changes in assets and liabilities: . . . . . . . . . . . . . . . . . .
Increase in accounts receivable . . . . . . . . . . . . . . . . . (425)
Increase in accounts payable and accrued expenses . . . . . . . . 786,817
Increase in accrued interest . . . . . . . . . . . . . . . . . . . 850,208
Increase in due to affiliate . . . . . . . . . . . . . . . . . . . 536,738
-------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . 4,856,256
-------------
Net cash provided by operating activities . . . . . . . . . . . . . . . 1,099,803
Cash flows from investing activities:
Purchase of property, plant and equipment . . . . . . . . . . . . . . . (356,205)
Acquisition of Commodore . . . . . . . . . . . . . . . . . . . . . . . (125,569,125)
Deferred acquisition costs incurred . . . . . . . . . . . . . . . . . . (785,431)
Deposits on pending acquisitions and other . . . . . . . . . . . . . . (178,000)
-------------
Net cash used in investing activities . . . . . . . . . . . . . . (126,888,761)
Cash flows from financing activities:
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . 94,155,000
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . 35,000,000
Payment of financing related costs . . . . . . . . . . . . . . . . . . (2,705,875)
-------------
Net cash provided by financing activities . . . . . . . . . . . . . . . 126,449,125
-------------
Net increase in cash and short-term cash investments . . . . . . . . . 660,167
Cash and short-term cash investments at beginning of the period . . . . --
-------------
Cash and short-term cash investments at end of the period . . . . . . . $ 660,167
=============
</TABLE>
See accompanying notes.
S-6
<PAGE> 244
CAPSTAR BROADCASTING PARTNERS, INC.
NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
1. General
The accompanying condensed financial statements of Capstar
Broadcasting Partners, Inc. (the "Company") should be read in conjunction with
the consolidated financial statements of Capstar Broadcasting Partners, Inc.
and Subsidiaries and its Predecessors included elsewhere in this prospectus and
have been prepared using the equity method of accounting for an investment in a
subsidiary.
2. Other
See notes 5, 6, 7, 11, 12, and 15 to the consolidated financial
statements of Capstar Broadcasting Partners, Inc. and Subsidiaries and its
Predecessor for a description of capital stock, long-term obligations,
guarantees, and contingencies of the Company. The ability of the Company's
subsidiaries to transfer funds to the Company in the form of cash dividends is
restricted pursuant to the terms of certain debt agreements entered into by the
Company's subsidiary, Commodore Media, Inc.
S-7
<PAGE> 245
CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
------------------------------------
Balance Deductions Balance
at Beginning Charged to Costs Charged to Direct at End
Description of Period and Expenses(1) Other Accounts(2) Write-offs Of Period
----------- ------------ --------------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
PREDECESSOR:
Allowance for doubtful accounts 12/31/94 453,782 468,155 -- (389,706) 532,231
Allowance for doubtful accounts 12/31/95 532,231 556,137 -- (388,032) 700,336
Allowance for doubtful accounts 10/16/96 700,336 488,320 -- (326,379) 862,277
CAPSTAR:
Allowance for doubtful accounts 12/31/96 862,277 104,838 -- (129,034) 838,081
</TABLE>
S-8
<PAGE> 246
INDEX TO EXHIBITS
(a) Exhibits
2.1.1 Agreement and Plan of Merger, dated June 21, 1996, by and among CMI
Acquisition Company, Inc., Commodore Media, Inc. ("Commodore") and the
stockholders and other signatories thereto. (1)
2.1.2 First Amendment to Agreement and Plan of Merger, dated as of September
3, 1996. (2)
2.1.3 Second Amendment to Agreement and Plan of Merger, dated as of October
16, 1996. (2)
3.1 Certificate of Incorporation of the Company.+
3.2 By-Laws of the Company. +
4.1 Registration Rights Agreement dated February 20, 1997 by and between
the Registrant and BT Securities Corporation. (3)
4.2.1 Indenture, dated February 20, 1997, between the Company and U.S. Trust
Company of Texas, N.A, governing the Company's outstanding 12 3/4%
Senior Discount Notes due 2009. (3)
4.2.2 Indenture, dated as of April 21, 1995, among Commodore, IBJ Schroder
Bank & Trust Company, as Trustee, and the Guarantors named therein,
governing Commodore's Senior Subordinated Notes (the "Commodore
Indenture"). (4)
4.3.3 Amendment No. 1 to Commodore Indenture. (4)
4.2.4 Amendment No. 2 to Commodore Indenture. (5)
4.2.5 Amendment No. 3 to Commodore Indenture. (5)
4.2.6 Amendment No. 4 to Commodore Indenture. (6)
4.2.7 Amendment No. 5 to Commodore Indenture. (7)
4.2.8 Amendment No. 6 to Commodore Indenture. (3)
5.1 Opinion of Vinson & Elkins L.L.P.+
10.1.1 Agreement and Plan of Merger, dated as of December 9, 1996, by and
among Benchmark Communications Radio Limited Partnership, Benchmark
Acquisition, Inc., Benchmark Radio Acquisition Fund I Limited
Partnership, Benchmark Radio Acquisition Fund IV Limited Partnership,
Benchmark Radio Acquisition Fund VII Limited Partnership, Benchmark
Radio Acquisition Fund VIII Limited Partnership, Joe L. Mathis IV,
Bruce R. Spector, the Company and BCR Holding, Inc. ("Benchmark Merger
Agreement").+
10.1.2 Letter Agreement amending Benchmark Merger Agreement, dated January 9,
1997, by and among Benchmark Communications Radio Limited Partnership,
Benchmark Acquisition, Inc. and the other signatories listed therein.+
10.1.3 Letter Agreement amending Benchmark Merger Agreement, dated January
31, 1997, by and among Benchmark Communications Radio Limited
Partnership, Benchmark Acquisition, Inc., BCR Holding, Inc., the
Company, and the other signatories listed therein.+
10.1.4 Letter Agreement amending Benchmark Merger Agreement, dated April
[__], 1997, by and among Benchmark Communications Radio Limited
Partnership, Benchmark Acquisition, Inc., BCR Holding, Inc., and the
Company.+
10.2 Asset Purchase Agreement, dated as of January 27, 1997, by and among
Point Communications Limited Partnership, Midcontinent Broadcasting
Co. of Wisconsin, Inc., Madison Radio Group and Point Madison
Acquisition Company, Inc.+
<PAGE> 247
10.3 Asset Purchase Agreement, dated as of December 26, 1996, between
Community Pacific Broadcasting Company L.P. and Community Acquisition
Company, Inc.+
10.4 Credit Agreement, dated February 20, 1997, among Commodore, as
borrower, the Company, as guarantor, various banks, and Bankers Trust
Company, as administrative agent.(8)
10.5 New Credit Facility.+
10.6 Financial Advisory Agreement, dated as of October 16, 1996, between
the Company and Hicks, Muse & Co. Partners, L.P. ("HMCo"). (3)
10.7 Monitoring and Oversight Agreement, dated as of October 16, 1996,
between the Company and HMCo. (3)
10.8 Form of Indemnification Agreement between the Company and each of its
directors and officers.+
10.9 Employment Agreement, dated February 14, 1997, between the Company and
R. Steven Hicks. (3)
10.10 Employment Agreement, dated [______], 1997, between the Company and
Paul D. Stone.+
10.11 Employment Agreement, dated [_______], 1997, between the Company and
William S. Banowsky, Jr.+
10.12 Amended and Restated Employment Agreement, dated October 16, 1996,
between Commodore, the Company and James T. Shea, Jr. (3)
10.13 Employment Agreement, dated January 27, 1997, between Pacific Star
Communications, Inc. and Claude C. Turner (also known as Dex Allen).
(3)
10.14.1 Employment Agreement dated July 1, 1994, between Osborn Communications
Corporation ("Osborn") and Frank D. Osborn. (9)
10.14.2 Amendment No. 1, dated July 1, 1996, to the employment agreement dated
July 1, 1994 between Osborn and Frank D. Osborn. (10)
10.14.3 Amendment No. 2, dated July 23, 1996, to the employment agreement
dated July 1, 1994 between Osborn and Frank D. Osborn. (10)
10.15 Employment Agreement, dated February 20, 1997, between Osborn and
Frank D. Osborn.(7)
10.16 Form of Employment Agreement to be entered into between Pacific Star
Communications, Inc. and David T. Benjamin, III.+
10.17.1 1996 Stock Option Plan of the Company, dated October 16, 1996. (3)
10.17.2 First Amendment to the Capstar Broadcasting Partners, Inc. 1996 Stock
Option Plan, dated February 13, 1997. (3)
10.18.1 Form of Incentive Stock Option Agreement.+
10.18.2 Form of Non-Qualified Stock Option Agreement.+
10.19.1 1996 Stock Purchase Plan of the Company, dated November 26, 1996. (3)
10.19.2 First Amendment to the Company's 1996 Stock Purchase Plan, dated
January 27, 1997. (3)
10.20.1 Stockholders Agreement, dated October 16, 1996, among the Registrant,
Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse"), R. Steven Hicks
and the security holders listed therein. (3)
10.20.2 First Amendment and Supplement to Stockholders Agreement, dated
January 27, 1997, by and among the Company, the securityholders listed
therein and Hicks Muse. (3)
<PAGE> 248
10.21.1 Stockholders Agreement, dated November 26, 1996, among the Company,
the securityholders listed therein and Hicks Muse. (3)
10.21.2 First Amendment to Stockholders Agreement, dated January 27, 1997, by
and among the Company and the securityholders listed therein. (3)
10.22.1 Stock Pledge, Security Agreement and Power of Attorney, dated February
20, 1997, executed by Claude C. Turner in favor of the Company. (3)
10.22.2 9% Promissory Note, dated February 20, 1997, executed by Claude C.
Turner in favor of the Company in the principal sum of $200,000. (3)
10.23.1 9% Promissory Note, dated February 20, 1997, executed by David J.
Benjamin, III in favor of the Company in the principal sum of
$396,363.64. (3)
10.23.2 Stock Pledge, Security Agreement and Power of Attorney, dated February
20, 1997, executed by David J. Benjamin, III in favor of the Company.
(3)
10.24 Mandatory Buyback Agreement, dated February 20, 1997, between David J.
Benjamin, III and the Company. (3)
10.25 Registration Rights Agreement, dated February 20, 1997, between the
Registrant and Frank D. Osborn. (3)
10.26 Warrant, dated October 16, 1996, issued to R. Steven Hicks. (3)
10.27 Warrant, dated February 20, 1997, issued to R. Steven Hicks. (3)
11.1 Statement Re: Computation of Per Share Earnings. (3)
11.2 Statement Re: Computation of Pro Forma Per Share Earnings for
Recapitalization. (3)
11.3 Statement Re: Computation of Pro Forma Per Share Earnings.+
12.1 Deficiency of Earnings to Fixed Charges.*
12.2 Pro Forma Deficiency of Earnings to Fixed Charges.*
21.1 List of Subsidiaries. (3)
23.1 Consent of Vinson & Elkins L.L.P. (included in its opinion filed as
Exhibit 5.1 hereto).+
23.2 Consent of Coopers & Lybrand L.L.P. -- Capstar Broadcasting Partners,
Inc.*
23.3 Consent of Ernst & Young LLP.*
23.4 Consent of Coopers & Lybrand L.L.P. -- Benchmark Communications Radio
Limited Partnership.*
23.5 Consent of Coopers & Lybrand L.L.P. -- Midcontinent Broadcasting Co.*
23.6 Consent of Coopers & Lybrand L.L.P. -- Point Communications Limited
Partnership.*
23.7 Consent of Coopers & Lybrand L.L.P. -- Community Pacific Broadcasting
Company L.P.*
23.8 Consent of Holtz Rubenstein & Co., LLP.*
23.9 Consent of Paneth, Haber & Zimmerman, LLP.*
23.10 Consent of Brown, Edward & Co., LLP.*
24.1 Powers of Attorney (included on the signature page of this
Registration Statement).*
25.1 Form T-1 of U.S. Trust Company of Texas, N.A.*
99.1 Form Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
- -----------------------
<PAGE> 249
+ To be filed by amendment.
* Filed herewith.
(1) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, File No. 33-92732.
(2) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, File No. 33-92732.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-25263), dated April 16, 1997.
(4) Incorporated by reference to Commodore's Registration Statement on Form
S-4 (File No. 33-92732), dated July 26, 1995.
(5) Incorporated by reference to Commodore's Annual Report on Form 10-K for
the year ended December 31, 1995, File No. 33-92732.
(6) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, File No. 33-92732.
(7) Incorporated by reference to Commodore's Annual Report on Form 10-K for
the year ended December 31, 1996, File No. 33-92732.
(8) Incorporated by reference to Commodore's Current Report on Form 8-K dated
February 20, 1997, File No. 33-92732. (9) Incorporated by reference to
Osborn's Quarterly Report on Form 10-Q for the quarter ended June 30,
1994, File No. 0-16841.
(10) Incorporated by reference to Osborn's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, File No. 0-16841.
<PAGE> 1
EXHIBIT 12.1
CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR
DEFICIENCY OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
COMMODORE
----------------------------------------------------- THE COMPANY
YEARS ENDED DECEMBER 31, || ------------------
--------------------------------- JANUARY 1, 1996 - || OCTOBER 17, 1996 -
1992 1993 1994 1995 OCTOBER 16, 1996 || DECEMBER 31, 1996
---- ---- ---- ---- ---------------- || ------------------
(DOLLARS IN THOUSANDS) ||
<S> <C> <C> <C> <C> <C> || <C>
FIXED CHARGES: ||
Interest expense . . . . . . . . . . . . . . $5,493 $4,614 $ 4,366 $7,806 $8,861 || 5,035
Implicit interest in rent . . . . . . . . . . 66 73 102 111 128 || 63
Preferred stock dividends and accretion . . . -- -- 691 252 360 || --
Amortization of deferred financing costs. . . -- -- -- -- -- || --
------ ------- ------- ------ ------- || ---------
Total Fixed Charges. . . . . . . . . . . . 5,559 4,687 5,159 8,169 9,349 || 5,098
Loss before provision for income taxes . . . . (2,998) (3,743) (227) (1,656) (17,703) || (3,756)
Preferred stock dividends and accretion -- -- (691) (252) (360) || --
Fixed charges . . . . . . . . . . . . . . . . . 5,559 4,687 5,159 8,169 9,349 || 5,098
------ ------- ------- ------ ------- || ---------
EARNINGS, AS DEFINED . . . . . . . . . . . . 2,561 944 4,241 6,261 (8,714) || 1,342
||
Deficiency of earnings to fixed charges . . . . $2,998 $ 3,743 $ 918 $1,908 $18,063 || $ 3,756
</TABLE>
<PAGE> 1
Exhibit 12.2
CAPSTAR BROADCASTING PARTNERS, INC.
PRO FORMA DEFICIENCY OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------
PRO FORMA PRO FORMA
COMPLETED FOR THE
TRANSACTIONS OFFERING PRO FORMA
------------ -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FIXED CHARGES:
Interest expense . . . . . . . . . . . . . . . $ 53,302 $ 42,502 $ 53,130
Implicit interest in rent . . . . . . . . . . . 684 684 833
Preferred stock dividends and accretion . . . . -- -- --
Amortization of deferred financing costs . . . -- -- --
--------- --------- ----------
Total Fixed Charges . . . . . . . . . . . . 53,986 43,186 53,963
Loss before provision for income taxes . . . . . (20,849) (10,049) (18,583)
Preferred stock dividends and accretion . . . . . -- -- --
Fixed charges . . . . . . . . . . . . . . . . . . 53,986 43,186 53,963
--------- --------- ----------
EARNINGS, AS DEFINED. . . . . . . . . . . . . . 33,137 33,137 35,380
Deficiency of earnings to fixed charges . . . . . $ 20,849 $ 10,049 $ 18,583
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. ) of our report dated February 14, 1997, on our audit of the
consolidated financial statements and financial statement schedules of Capstar
Broadcasting Partners, Inc. We also consent to the reference to our firm under
the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Austin, Texas
April 21, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated (i) February 10, 1997 with respect to the
consolidated financial statements of Commodore Media, Inc. and Subsidiaries, the
Predecessor Company of Capstar Broadcasting Partners, Inc., and (ii) February 3,
1997 with respect to the consolidated financial statements of Osborn
Communications Corporation, both included in the Registration Statement (Form
S-4) and related Prospectus of Capstar Broadcasting Partners, Inc. for the
registration of $277,000,000 of 12 3/4% Senior Discount Notes due 2009.
/s/ ERNST & YOUNG LLP
New York, New York
April 21, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No._________) of our report dated February 8, 1997, on our audits of the
combined financial statements of Benchmark Communications Radio Limited
Partnership. We also consent to the reference to our firm under the caption
"Experts".
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
April 18, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. ) of our report dated February 3, 1997, on our audit of the
financial statements of Midcontinent Broadcasting Co. of Wisconsin, Inc. We also
consent to the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
April 21, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. ) of our report dated February 3, 1997, on our audit of the
financial statements of Point Communications Limited Partnership. We also
consent to the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
April 21, 1997
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. ) of our report dated February 13, 1997, on our audit of the
financial statements of Community Pacific Broadcasting Company L.P. We also
consent to the reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND L.L.P.
San Jose, California
April 21, 1997
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. ) of our report dated February 12, 1996, on our audits of the
financial statements of Q Broadcasting, Inc. We also consent to the reference to
our firm under the caption "Experts".
/s/ HOLTZ RUBENSTEIN & CO., L.L.P.
Melville, New York
April 18, 1997
<PAGE> 1
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. ) of our report dated August 18, 1995, on our audit of the
financial statements of Danbury Broadcasting, Inc. We also consent to the
reference to our firm under the caption "Experts".
/s/ PANETH, HABER & ZIMMERMAN L.L.P.
New York, NY
April 17, 1997
<PAGE> 1
EXHIBIT 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. ) of our report dated May 1, 1996, on our audit of the
financial statements of Adventure Communications-Huntington (Division of
Adventure Communications, Inc.). We also consent to the reference to our firm
under the caption "Experts".
/s/ BROWN, EDWARDS & CO., LLP
Bluefield, West Virginia
April 22, 1997
<PAGE> 1
EXHIBIT 25.1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2) X
---------------
U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)
75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
2001 Ross Avenue, Suite 2700 75201-2936
Dallas, Texas (Zip Code)
(Address of trustee's
principal executive offices)
Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201-2936
(214) 754-1200
(Name, address and telephone number of agent for service)
---------------
Capstar Broadcasting Partners, Inc.
(Exact name of obligor as specified in its charter)
Delaware 75-2672663
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
600 Congress Avenue, Suite 1400
Austin, TX 78701
(Address of principal executive offices) (Zip Code)
---------------
12 3/4% Senior Discount Notes due 2009
(Title of the indenture securities)
===============================================================================
<PAGE> 2
GENERAL
1. General Information.
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of Dallas (11th District), Dallas, Texas
(Board of Governors of the Federal Reserve System) Federal
Deposit Insurance Corporation, Dallas, Texas The Office of the
Comptroller of the Currency, Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of the
Trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting securities of
the Trustee:
As of April 18, 1997
- -------------------------------------------------------------------------------
Col A. Col B.
- -------------------------------------------------------------------------------
Title of Class Amount Outstanding
- -------------------------------------------------------------------------------
Capital Stock - par value $100 per share 5,000 shares
4. Trusteeships under Other Indentures.
Not Applicable
5. Interlocking Directorates and Similar Relationships with the Obligor or
Underwriters.
Not Applicable
<PAGE> 3
6. Voting Securities of the Trustee Owned by the Obligor or its Officials.
Not Applicable
7. Voting Securities of the Trustee Owned by Underwriters or their Officials.
Not Applicable
8. Securities of the Obligor Owned or Held by the Trustee.
Not Applicable
9. Securities of Underwriters Owned or Held by the Trustee.
Not Applicable
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
Not Applicable
11. Ownership or Holdings by the Trustee of any Securities of a Person Owning
50 Percent or More of the Voting Securities of the Obligor.
Not Applicable
12. Indebtedness of the Obligor to the Trustee.
Not Applicable
13. Defaults by the Obligor.
Not Applicable
14. Affiliations with the Underwriters.
Not Applicable
15. Foreign Trustee.
Not Applicable
16. List of Exhibits.
T-1.1 - A copy of the Articles of Association of U.S. Trust Company of
Texas, N.A.; incorporated herein by reference to Exhibit T-1.1
filed with Form T-1 Statement, Registration No. 22-21897.
<PAGE> 4
16. (con't.)
T-1.2 - A copy of the certificate of authority of the Trustee to commence
business; incorporated herein by reference to Exhibit T-1.2 filed with
Form T-1 Statement, Registration No. 22-21897.
T-1.3 - A copy of the authorization of the Trustee to exercise corporate trust
powers; incorporated herein by reference to Exhibit T-1.3 filed with
Form T-1 Statement, Registration No. 22-21897.
T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas, N.A., as
amended to date; incorporated herein by reference to Exhibit T-1.4 filed
with Form T-1 Statement, Registration No. 22-21897.
T-1.5 - The consent of the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939.
T-1.6 - A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
NOTE
As of April 18, 1997 the Trustee had 5,000 shares of Capital Stock outstanding,
all of which are owned by U.S. T.L.P.O. Corp. As of April 18, 1997 U.S.
T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of which are
owned by U.S. Trust Corporation. U.S. Trust Corporation had outstanding
19,591,502 shares of $1 par value Common Stock as of April 18, 1997.
The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of U.S
Trust Company of Texas, N.A., U.S. T.L.P.O. Corp. and U.S. Trust Corporation.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee of
all the facts on which to base responsive answers to Items 2, 5, 6, 7, 9, 10
and 11, the answers to said Items are based upon incomplete information. Items
2, 5, 6, 7, 9, 10 and 11 may, however, be considered correct unless amended by
an amendment to this Form T-1.
In answering any items in this Statement of Eligibility and Qualification which
relates to matters peculiarly within the knowledge of the obligors or their
directors or officers, or an underwriter for the obligors, the Trustee has
relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the
Trustee disclaims responsibility for the accuracy or completeness of such
information.
---------------
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
U.S Trust Company of Texas, N.A., a national banking association organized
under the laws of the United States of America, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Dallas, and State of Texas on the
18th day of April, 1997.
U.S. Trust Company of Texas, N.A.,
Trustee
By: /s/ John C. Stohlmann
------------------------
John C. Stohlmann
Vice President
<PAGE> 6
Exhibit T-1.5
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of Capstar Broadcasting
Partners, Inc. 12 3/4% Senior Discount Notes due 2009, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
U.S. Trust Company of Texas, N.A.
By: /s/John C. Stohlmann
----------------------------
John C. Stohlmann
Vice President
<PAGE> 7
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
Federal Financial Institutions Examination Council OMB Number: 1557-0081
Expires March 31,1999
- ------------------------------------------------------------------------------------------------------------------------------
(1)
Please Refer to Page i,
(LOGO) Table of Contents, for
the required disclosure
of estimated burden
- ------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH
DOMESTIC OFFICES ONLY AND TOTAL ASSETS OF LESS THAN $100
MILLION -- FFIEC 034
(961231)
REPORT AT THE CLOSE OF BUSINESS DECEMBER 31, 1996 (RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 (State This report form is to be filed by banks with domestic
member banks); 12 U.S. c. Section 1817 (State nonmember banks); offices only. Banks with branches and consolidated
and 12 U.S. C. Section 161 (National banks). subsidiaries in U.S. territories and possessions, Edge or
Agreement subsidiaries, foreign branches, consolidated
foreign subsidiaries, or International Banking Facilities
must file FFIEC 031.
- ------------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an The Reports of Condition and Income are to be prepared in
authorized officer and the Report of Condition must be attested accordance with Federal regulatory authority instructions.
to by not less than two directors (trustees) for State NOTE: these instructions may in some cases differ from
nonmember banks and three directors for State member and generally accepted accounting principles.
National Banks.
We, the undersigned directors (trustees), attest to the
I, Alfred B. Childs, SVP & Cashier correctness of this Report of Condition (including the
Name and Title of Officer Authorized to Sign Report supporting schedules) and declare that it has been examined
by us and to the best of our knowledge and belief has been
of the named bank do hereby declare that these Reports of prepared in conformance with the instructions issued by the
Condition and Income (including the supporting schedules) have appropriate Federal regulatory authority and is true and
been prepared in conformance with the instructions issued by correct.
the appropriate Federal regulatory authority and are true to
the best of my knowledge and belief. /s/ Stuart M. Pearman
-------------------------------
Director (Trustee)
/s/ Alfred B. Childs
- --------------------------------------
Signature of Officer Authorized to Sign Report /s/ J. T. Moore Jr.
-------------------------------
Director (Trustee)
January 15, 1997
- --------------------------------------
Date of Signature /s/ Peter J. Denker
-------------------------------
Director (Trustee)
- ------------------------------------------------------------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANKS: Return the original and one copy to the NATIONAL BANKS: Return the original only in the special
appropriate Federal Reserve District Bank. return address envelope provided. If express mail is used
in lieu of the special return address envelope, return the
STATE NONMEMBER BANKS: Return the original only in the special original only to the FDIC, c/o Quality Data Systems, 2127
return address envelope provided. If express mail is used in Espey Court, Suite 204, Crofton, MD 21114.
lieu of the special return address envelope, return the
original only to the FDIC, c/o Quality Data Systems, 2127 Espey
Court, Suite 204, Crofton, MD 21114.
- ------------------------------------------------------------------------------------------------------------------------------
FDIC Certificate Number _____________ 12-31-96
(RCRI 9050) Banks should affix the address label in this space.
U. S. Trust Company of Texas, National Association
--------------------------------------------------
Legal Title of Bank (TEXT 9010)
2001 Ross Avenue, Suite 2700
--------------------------------------------------
City (TEXT 9130)
Dallas, TX 75201
--------------------------------------------------
State Abbrev. (TEXT 9200) ZIP Code (TEXT 9220)
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the
Currency
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. TRUST COMPANY OF TEXAS, N.A. Call Date: 12/31/96 State #: 6797 FFIEC 034
2100 ROSS AVENUE, SUITE 2700 Vendor ID: D Cert #: 33217 Page RC-2
DALLAS, TX 75201 Transit #: 11101765
---------------
9
---------------
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
C100
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
1. Cash and balances due from depository institutions: RCON
----
a. Noninterest-bearing balances and currency and coin (1,2)............................... 0081 325 1.a
b. Interest bearing balances (3).......................................................... 0071 173 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)............................. 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)........................... 1773 101,385 2.b
3. Federal funds sold and securities purchased under agreements to resell:
a. Federal funds sold (4)................................................................. 0276 0 3.a
b. Securities purchased under agreements to resell (5).................................... 0277 0 3.b
RCON
4. Loans and lease financing receivables: ----
a. Loans and leases, net of unearned income (from Schedule RC-C)........ 2122 42,103 4.a
b. LESS: Allowance for loan and lease losses............................ 3123 481 4.b
c. LESS: Allocated transfer risk reserve................................ 3128 0 RCON 4.c
d. Loans and leases, net of unearned income, allowance, and reserve ----
(item minus and 4.b and 4.c) .......................................................... 2125 41,622 4.d
5. Trading assets............................................................................. 3545 0 5.
6. Premises and fixed assets (including capitalized leases)................................... 2145 753 6.
7. Other real estate owned (from Schedule RC-M).............................................. 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)....................................................................... 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding............................... 2155 0 9.
10. Intangible assets (from Schedule RC-M) .................................................... 2143 0 10.
11. Other assets (from Schedule RC-F).......................................................... 2160 1,511 11.
12. a. Total assets (sum of items 1 through 11)............................................... 2170 145,769 12.a
b. Losses deferred pursuant to U.S.C. 1823(j)............................................. 0306 0 12.b
c. Total assets and losses deferred pursuant to 12 U.S.C. 1823(j)
(sum of items 12.a and 12.b)........................................................... 0307 145,769 12.c
</TABLE>
(1) Includes cash items in process of collection and unposed debits.
(2) The amount reported in this item must be greater than or equal to the sum
of Schedule RC-M, items 3.a and 3.b.
(3) Includes time certificates of deposit not held for trading.
(4) Report `term federal funds sold' in Schedule RC, item 4.a, `Loans and
leases, net of unearned income,' and in Schedule RC-C, part 1.
(5) Report securities purchased under agreements to resell that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 3.a, `Federal
funds sold.'
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. TRUST COMPANY OF TEXAS, N.A. Call Date: 12/31/96 State #: 6797 FFIEC 034
2100 ROSS AVENUE, SUITE 2700 Vendor ID: D Cert #: 33217 Page RC-2
DALLAS, TX 75201 Transit #: 11101765
---------------
10
---------------
SCHEDULE RC - CONTINUED Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
13. Deposits: RCON
a. In domestic offices (sum of totals of ----
columns A and C from Schedule RC-E)................................... RCON 2200 118,129 13.a
----
(1) Noninterest-bearing (1).......................................... 6631 12,669 13.a.1
(2) Interest-bearing................................................. 6636 105,440
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing...............................................................
(2) Interest-bearing..................................................................
14. Federal funds purchased and securities sold under agreements to RCON
repurchase: ----
a. Federal funds purchased (2)............................................................ 0278 0 14.a
b. Securities sold under agreements to repurchase (3)..................................... 0279 0 14.b
15. a. Demand notes issued to the U.S. Treasury............................................... 2840 0 15.a
b. Trading liabilities.................................................................... 3548 0 15.b
16. Other borrowed money:
a. WITH A REMAINING MATURITY OF ONE YEAR OR LESS.......................................... 2332 0 16.a
b. WITH A REMAINING MATURITY OF MORE THAN ONE YEAR........................................ 2333 6,000 16.b
17. Mortgage indebtedness and obligations under capitalized leases............................. 2910 0 17.
18. Bank's liability on acceptances executed and outstanding................................... 29200 0 18.
19. Subordinated notes and debentures.......................................................... 3200 0 19.
20. Other liabilities (from Schedule RC-G)..................................................... 2930 1,575 20.
21. Total liabilities (sum of items 13 through 20)............................................. 2948 125,704 21.
22. Limited-life preferred stock and related surplus........................................... 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.............................................. 3838 7,000 23.
24. Common stock............................................................................... 3230 500 24.
25. Surplus (exclude all surplus related to preferred stock)................................... 2829 8,384 25.
26. a. Undivided profits and capital reserves................................................. 3632 4,045 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities................. 8434 136 26.b
27. Cumulative foreign currency translation.................................................... 3210
28. a. Total equity capital (sum of items 23 through 27)...................................... 3210 20,065 28.a
b. Losses deferred pursuant to 12 U.S.C. 1823(j).......................................... 0306 0 28.b
c. Total equity capital and losses deferred pursuant to 12 U.S.C. 1823(j)................. 3559 20,065 28.c
(sum of items 28.a and 28.b)
29. Total liabilities, limited-life preferred stock, equity capital, and
losses deferred pursuant to 12 U.S.C. 1823(j) (sum of items 21, 22, and 28.c).............. 2257 145,769 29.
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best describes the RCON
most comprehensive level of auditing work performed for the bank by independent external ----
auditors as of any date during 1995.......................................................... 6724 N/A M.1
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation
3 = Directors' examination of the bank conducted in accordance work)
with generally accepted auditing standards by a certified 8 = No external audit work
public accounting firm (may be required by state chartering
authority)
</TABLE>
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Report "term federal funds purchased" in Schedule RC, item 16,
`Other borrowed money.'
(3) Report securities sold under agreements to repurchase that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 14.a, `Federal
funds purchased.'
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER
OUTSTANDING 12 3/4% SENIOR DISCOUNT NOTES DUE 2009
of
CAPSTAR BROADCASTING PARTNERS, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED ___________, 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON _______________, 1997 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
U. S. TRUST COMPANY OF TEXAS, N. A.
By Registered or Certified Mail,
by Overnight Courier or by Hand:
U. S. Trust Company of Texas, N.A.
P.O. Box 841
Attn: Corporate Trust Services
Cooper Station
New York, New York 10276-0841
By Hand:
U. S. Trust Company of Texas, N.A.
111 Broadway
Lower Level
Attn: Corporate Trust Services
New York, New York 10006-1906
By Overnight Courier:
U. S. Trust Company of Texas, N.A.
770 Broadway, 13th Floor - Corporate Trust Operations
New York, New York 10003
By Facsimile:
(212) 420-6504
Confirm by Telephone:
(800) 225-2398
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
IF YOU WISH TO EXCHANGE CURRENTLY OUTSTANDING 12 3/4% SENIOR DISCOUNT NOTES
DUE 2009 (THE "OLD NOTES") FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF NEW 12
3/4% SENIOR DISCOUNT NOTES DUE 2009 PURSUANT TO THE EXCHANGE OFFER, YOU MUST
VALIDLY TENDER (AND NOT WITHDRAW) OLD NOTES TO THE EXCHANGE AGENT PRIOR TO THE
EXPIRATION DATE.
SIGNATURES MUST BE PROVIDED
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
<PAGE> 2
DESCRIPTION OF TENDERED OLD NOTES
<TABLE>
<CAPTION>
===============================================================================================================================
Aggregate Principal
Name(s) and Address(es) of Registered Owner(s) Certificate Amount
(Please fill in, if blank) Number(s) Tendered
- -------------------------------------------------------------------------------------------------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
<S> <C>
Total
Principal
Amount of
Notes
Tendered
===============================================================================================================================
</TABLE>
2
<PAGE> 3
LADIES AND GENTLEMEN:
1. The undersigned hereby tenders to Capstar Broadcasting Partners, Inc.,
a Delaware corporation (the "Company"), the Old Notes described above pursuant
to the Company's offer of $1,000 principal amount at maturity of 12 3/4% Senior
Discount Notes due 2009 (the "New Notes") in exchange for each $1,000 principal
amount at maturity of the Old Notes, upon the terms and subject to the
conditions contained in the Prospectus dated ____________, 1997 (the
"Prospectus"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which together constitute the "Exchange Offer").
2. The undersigned hereby represents and warrants that it has full
authority to tender the Old Notes described above. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Company to
be necessary or desirable to complete the tender of Old Notes.
3. The undersigned understands that the tender of the Old Notes pursuant
to all of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Company as to the terms and
conditions set forth in the Prospectus.
4. The undersigned hereby represents and warrants that:
(a) the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the
undersigned, whether or not the undersigned is the holder;
(b) neither the undersigned nor any such other person is engaging
in or intends to engage in a distribution of such New Notes;
(c) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in
the distribution of such New Notes; and
(d) neither the holder nor any such other person is an
"affiliate," as such term is defined under Rule 405
promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), of the Company.
5. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Securities. If the undersigned is a broker-dealer, the undersigned
represents that it acquired the Old Notes for its own account as a result of
market-making activities or other trading activities. If the undersigned is a
broker-dealer that will receive Exchange Securities for its own account in
exchange for Securities that were acquired as a result of market-making
activities or other trading activities, it acknowledges that it will deliver a
prospectus in connection with any resale of such Exchange Securities; however,
by so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
6. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and
legal and personal representatives of the undersigned.
7. Unless otherwise indicated herein under "Special Delivery
Instructions," please issue the certificates for the New Notes in the name of
the undersigned.
3
<PAGE> 4
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the New Notes are to be issued or sent to
someone other than the undersigned or to the undersigned at an address
other than that provided above.
Mail [ ] Issue [ ] (check appropriate boxes) certificates to:
Name:
---------------------------------------------------------------------------
(PLEASE PRINT)
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDING ZIP CODE)
SPECIAL BROKER-DEALER INSTRUCTIONS
(See Item 5)
[ ] Check here if you are a broker-dealer and wish to receive 10
additional copies of the Prospectus and 10 copies of any amendments or
supplements thereto.
Name:
--------------------------------------------------------------------------
(PLEASE PRINT)
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDING ZIP CODE)
4
<PAGE> 5
SIGNATURE
To be completed by all exchanging noteholders. Must be signed by the
registered holder exactly as its name appears on the Old Notes. If
signature is by trustee, executor, administrator, guardian, attorney-
in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
X
----------------------------------------------------------------------------
X
----------------------------------------------------------------------------
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATURE
Dated:
--------------------------------------------------------------------------
Name(s):
------------------------------------------------------------------------
-------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
----------------------------------------------------------------------
Address:
----------------------------------------------------------------------
-------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone No.:
----------------------------------------------------
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1)
Certain Signatures Must be Guaranteed by an Eligible Institution
-------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
-------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER
(INCLUDING AREA CODE) OF FIRM)
-------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
-------------------------------------------------------------------------------
(PRINTED NAME)
-------------------------------------------------------------------------------
(TITLE)
Dated:
-------------------------------------------------------------------------
PLEASE READ THE INSTRUCTIONS ON THE FOLLOWING PAGE,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL.
5
<PAGE> 6
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of
Transmittal must be guaranteed by an eligible guarantor institution that is a
member of or participant in the Securities Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Program, the Stock Exchange
Medallion Program, or by an "eligible guarantor institution" within the meaning
of Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934, as
amended (an "Eligible Institution"), unless the box titled "Special Delivery
Instructions" above has not been completed or the Old Notes described above are
tendered for the account of an Eligible Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. The Old
Notes, together with a properly completed and duly executed Letter of
Transmittal (or copy thereof), should be mailed or delivered to the Exchange
Agent at the address set forth above.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND
ENDORSEMENTS. If this Letter of Transmittal is signed by a person other than a
registered holder of any Old Notes, such Old Notes must be endorsed or
accompanied by appropriate bond powers, signed by such registered holder
exactly as such registered holder's name appears on such Old Notes.
If this Letter of Transmittal or any Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with this Letter of Transmittal.
4. TAX INFORMATION. Please complete the attached Substitute Form
W-9. See "Tax Information and Guidelines."
5. MISCELLANEOUS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance, and withdrawal of tendered
Old Notes will be resolved by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any or all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any defects,
irregularities, or conditions of tender as to particular Old Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding. Unless waived, any defects or irregularities in connection with
tenders of Old Notes must be cured within such time as the Company shall
determine. Neither the Company, the Exchange Agent, nor any other person shall
be under any duty to give notification of defects in such tenders or shall
incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such defects or irregularities
have been cured or waived. Any Old Notes received by the Exchange Agent that
are not properly tendered and as to which the defects or irregularities have
not been cured or waived will be returned by the Exchange Agent to the
tendering holder thereof as soon as practicable following the Expiration Date.
6
<PAGE> 7
TAX INFORMATION AND GUIDELINES
You must provide the Exchange Agent with your correct Taxpayer
Identification Number ("TIN") on the Substitute Form W-9 set forth below. If
you are an individual, your TIN is your social security number.
On the Substitute Form W-9, you must certify under penalties of
perjury that: (a) your TIN is correct, and (b) you are not subject to backup
withholding, either because the Internal Revenue Service ("IRS") has not
notified you that you are subject to backup withholding as a result of a
failure to report interest or dividends or because the IRS has notified you
that you are no longer subject to backup withholding. If the IRS has notified
you that you are subject to backup withholding because of under reporting of
interest or dividends, you must cross out item (2) in the "Certification"
section of the Substitute Form W-9. If subsequently, however, the IRS notifies
you that you are not longer subject to backup withholding, you should not cross
out item (2).
Exempt persons, which include all corporations and certain foreign
individuals, are not subject to the backup withholding and reporting
requirements. An exempt person should furnish its TIN, write "Exempt" on the
face of the Substitute Form W-9, and sign and date the form. To satisfy the
Exchange Agent that a foreign person qualifies as an exempt recipient, such
person must also submit to the Exchange Agent with this Letter of Transmittal a
Form W-8, Certificate of Foreign Status, signed under penalties of perjury,
attesting to such person's foreign status.
If you are required to provide a TIN, but have not been issued a TIN
and have applied for one, or intend to apply for one in the near future, you
should write "Applied For" on the line of the Substitute Form W-9 requiring a
TIN. Generally, you will then have 60 days to get a TIN and give it to the
Exchange Agent. If the Exchange Agent does not receive your TIN within 60
days, backup withholding, if applicable, will begin.
If you do not provide the Exchange Agent with your correct TIN, you
may be subject to a $50 penalty that the IRS imposes. Failure to comply
truthfully with the backup withholding certification requirements may also
result in the imposition of criminal and civil fines and penalties.
<PAGE> 8
<TABLE>
<S> <C> <C>
SUBSTITUTE PART I - PLEASE PROVIDE YOUR Social Security Number
Form W-9 TAXPAYER IDENTIFICATION NUMBER IN
- ----------------------------------THE BOX AT RIGHT AND CERTIFY BY ---------------------------------------
SIGNING AND DATING BELOW.
Employer Identification Number
- -----------------------------------------------------------------------------------------------------------
Department of the Treasury, PART II - FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING, SEE "TAX
Internal Revenue Service INFORMATION AND GUIDELINES" ABOVE FOR CERTIFICATION OF TAXPAYER
Payer's Request for Taxpayer IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 ENCLOSED HEREWITH AND
Identification Number (TIN) COMPLETE AS INSTRUCTED THEREIN.
- -----------------------------------------------------------------------------------------------------------
CERTIFICATION - Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number or a taxpayer
identification number has not been issued to me and either: (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration office, or (b) I intend to mail or deliver an
application in the near future. I understand that if I do not provide a taxpayer identification
number within 60 days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a number.
(2) I am not subject to backup withholding because I am exempt from backup withholding, I have not
been notified by the Service that I am subject to backup withholding as a result of a failure to
report all interest or dividends or the Service has notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTION - You must cross out item (2) above if you have been notified by the Service
that you are subject to backup withholding because of under reporting interest or dividends on your tax
return unless you received a subsequent notification from the Service stating that you are no longer
subject to backup withholding.
- ------------------------------------------------------------------------------------------------------------
SIGNATURE: DATE:
- ------------------------------------------------------------------------------------------------------------
NAME:
- ------------------------------------------------------------------------------------------------------------
ADDRESS:
- ------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
TO TENDER
OUTSTANDING 12 3/4% SENIOR DISCOUNT NOTES DUE 2009
OF
CAPSTAR BROADCASTING PARTNERS, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED ___________, 1997
As set forth in the Exchange Offer (as defined in the Prospectus (as
defined below)), this form or one substantially equivalent hereto must be used
to accept the Exchange Offer if certificates for outstanding 12 3/4% Senior
Discount Notes due 2009 (the "Old Notes") of Capstar Broadcasting Partners,
Inc. are not immediately available or time will not permit a holder's Old Notes
or other required documents to reach the Exchange Agent on or prior to the
Expiration Date (as defined), or the procedure for book-entry transfer cannot
be completed on a timely basis. This form may be delivered by facsimile
transmission, by registered or certified mail, by hand, or by overnight
delivery service to the Exchange Agent. See "The Exchange Offer -- Procedures
for Tendering" in the Prospectus.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON _________________, 1997 (THE "EXPIRATION DATE"), UNLESS
THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
U. S. TRUST COMPANY OF TEXAS, N.A.
By Registered or Certified Mail,
by Overnight Courier or by Hand:
U. S. Trust Company of Texas, N.A.
P.O. Box 841
Attn: Corporate Trust Services
Cooper Station
New York, New York 10276-0841
By Hand:
U. S. Trust Company of Texas, N.A.
111 Broadway
Lower Level
Attn: Corporate Trust Services
New York, New York 10006-1906
By Overnight Courier:
U. S. Trust Company of Texas, N.A.
770 Broadway, 13th Floor - Corporate Trust Operations
New York, New York 10003
By Facsimile:
(212) 420-6504
Confirm by Telephone:
(800) 225-2398
(Originals of all documents sent by facsimile should be sent
promptly by registered or certified mail, by
hand, or by overnight delivery service.)
DELIVERY OF THIS NOTICE TO AN ADDRESS OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Capstar Broadcasting Partners, Inc.,
a Delaware corporation (the "Company"), in accordance with the Company's offer,
upon the terms and subject to the conditions set forth in the Prospectus dated
________________, 1997 (the "Prospectus"), and in the accompanying Letter of
Transmittal, receipt of which is hereby acknowledged,
$__________________________ in aggregate principal amount of Old Notes pursuant
to the guaranteed delivery procedures described in the Prospectus.
Name(s) of Registered Holder(s):
------------------------------------------------
(Please Type or Print)
Address:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code & Telephone No.:
------------------------------------------------------
Certificate Number(s) for
Old Notes (if available):
-------------------------------------------------------
Total Principal Amount
Tendered and Represented
by Certificate(s):$
------------------------------------------------------------
Signature of Registered Holder(s):
----------------------------------------------
Dated:
--------------------------------------------------------------------------
[ ] The Depository Trust Company
(Check if Old Notes will be tendered
by book-entry transfer)
Account Number:
-----------------------------------------------------------------
THE GUARANTEE ON THE FOLLOWING PAGE MUST BE COMPLETED
2
<PAGE> 3
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, being a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office in the
United States, hereby guarantees (a) that the above named person(s) "own(s)"
the Old Notes tendered hereby within the meaning of Rule 14e-4 ("Rule 14e-4")
under the Securities Exchange Act of 1934, as amended, (b) that such tender of
such Old Notes complies with Rule 14e-4, and (c) to deliver to the Exchange
Agent the certificates representing the Old Notes tendered hereby or
confirmation of book-entry transfer of such Old Notes into the Exchange Agent's
account at The Depository Trust Company, in proper form for transfer, together
with the Letter of Transmittal (or facsimile thereof), properly completed and
duly executed, with any required signature guarantees and any other required
documents, within three New York Stock Exchange trading days after the
Expiration Date.
Name of Firm:
-------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
Area Code and Telephone No.:
----------------------------------------------------
Authorized Signature:
-----------------------------------------------------------
Name:
---------------------------------------------------------------------------
Title:
--------------------------------------------------------------------------
Dated:
--------------------------------------------------------------------------
NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF
OLD NOTES SHOULD BE SENT ONLY WITH A LETTER OF TRANSMITTAL.
3
