<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1997
REGISTRATION NO. 333-25683
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CAPSTAR BROADCASTING PARTNERS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4832 75-2672663
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<C> <C>
R. STEVEN HICKS
600 CONGRESS AVENUE CAPSTAR BROADCASTING PARTNERS, INC.
SUITE 1400 600 CONGRESS AVENUE
AUSTIN, TEXAS 78701 SUITE 1400
(512) 404-6840 AUSTIN, TEXAS 78701
(Address, including zip code, and telephone (512) 404-6840
number, (Name, address, including zip code, and telephone
including area code, of registrant's principal number,
executive offices) including area code, of agent for service)
</TABLE>
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Copies to:
<TABLE>
<S> <C>
WILLIAM S. BANOWSKY, JR. JEFFREY A. CHAPMAN
CAPSTAR BROADCASTING PARTNERS, INC. P. GREGORY HIDALGO
600 CONGRESS AVENUE ANDREW M. WRIGHT
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
</TABLE>
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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>
===========================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
12% Senior Exchangeable Preferred Stock, $.01 par value per
share(3)................................................. $180,671,900 $54,207
- ---------------------------------------------------------------------------------------------------------------------------
12% Exchange Debentures due 2009(4)........................ -- --
===========================================================================================================================
</TABLE>
(1) In accordance with rule 457(o) under the Securities Act of 1933, the number
of shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Includes 1,000,000 shares, plus up to approximately 806,719 additional
shares to be issued as stock dividends.
(4) No separate consideration will be received for the Exchange Debentures.
------------------------
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, 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
PROSPECTUS
OFFER FOR ALL OUTSTANDING
12% SENIOR EXCHANGEABLE PREFERRED STOCK
IN EXCHANGE FOR
12% SENIOR EXCHANGEABLE PREFERRED STOCK
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 one share of 12% Senior
Exchangeable Preferred Stock (the "New Preferred Stock") issued by the Company
for each outstanding share of 12% Senior Exchangeable Preferred Stock (the "Old
Preferred Stock") issued by the Company, of which 1,000,000 shares are
outstanding. The powers, preference and relative rights of the New Preferred
Stock are substantially identical to the Old Preferred Stock except that the
shares of New Preferred Stock have been registered under the Securities Act of
1933 (the "Securities Act") and will not bear any legends restricting their
transfer. The Exchange Offer is being made in order to satisfy certain
contractual obligations of the Company. See "The Exchange Offer" and
"Description of the New Senior Exchangeable Preferred Stock and Exchange
Debentures." The New Preferred Stock and the Old Preferred Stock are sometimes
collectively referred to herein as the "Senior Exchangeable Preferred Stock."
Dividends on the New Preferred Stock will accumulate from the date of
issuance of the Old Preferred Stock and will be payable semi-annually,
commencing January 1, 1998, at a rate per annum of 12% of the liquidation
preference per share. Dividends may be paid, at the Company's option, on any
dividend payment date occurring on or prior to July 1, 2002 either in cash or in
additional shares of the New Preferred Stock. The liquidation preference of the
New Preferred Stock will be $100.00 per share.
The New Preferred Stock is redeemable at the Company's option, in whole or
in part at any time on or after July 1, 2002, at the redemption prices set forth
herein, plus, without duplication, accumulated and unpaid dividends to the date
of redemption. In addition, prior to July 1, 2001, the Company may, at its
option, redeem the New Preferred Stock with the net cash proceeds from one or
more Public Equity Offerings (as defined) or Major Asset Sales (as defined), at
the redemption price set forth herein, plus, without duplication, accumulated
and unpaid dividends to the redemption date; provided, however, that after any
such redemption there is outstanding at least $75.0 million in aggregate
liquidation preference of New Preferred Stock. The Company is required, subject
to certain conditions, to redeem all of the New Preferred Stock outstanding on
July 1, 2009, at a redemption price equal to 100% of the liquidation preference
thereof, plus, without duplication, accumulated and unpaid dividends to the date
of redemption.
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
shares of New Preferred Stock at a price equal to 101% of the liquidation
preference thereof, plus, without duplication, accumulated and unpaid dividends
to the date of purchase. In addition, prior to July 1, 2002, upon the occurrence
of a Change of Control, the Company will have the option to redeem the New
Preferred Stock in whole but not in part at a redemption price equal to 100% of
the liquidation preference thereof, plus accumulated and unpaid dividends to the
date of redemption, plus the Applicable Premium (as defined).
Subject to certain conditions, the New Preferred Stock is exchangeable in
whole but not in part at the option of the Company on any dividend payment date
for the Company's 12% Subordinated Exchange Debentures due 2009 (including any
such securities paid in lieu of cash interest, as described herein, the
"Exchange Debentures"). Interest on the Exchange Debentures will be payable
semi-annually in cash or, at the option of the Company, on or prior to July 1,
2002, in additional Exchange Debentures, in arrears on each January 1 and
(Continued on next page)
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE NEW PREFERRED STOCK, SEE "RISK FACTORS" ON PAGE 19 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
<PAGE> 3
(Continued from previous page)
July 1, commencing on the first such date after the exchange of the Exchange
Debentures for the New Preferred Stock. The Exchange Debentures mature on July
1, 2009 and are redeemable, at the option of the Company, in whole or in part,
on or after July 1, 2002, at the redemption prices set forth herein, plus
accrued and unpaid interest to the date of redemption. In addition, prior to
July 1, 2001, the Company may, at its option, redeem the Exchange Debentures
with the net cash proceeds from one or more Public Equity Offerings or Major
Asset Sales at the redemption price set forth herein, plus, without duplication,
accrued and unpaid interest to the redemption date; provided, however, that
after any such redemption the aggregate principal amount of the Exchange
Debentures outstanding must equal at least $75.0 million.
Upon the occurrence of a Change of Control, the Company will, subject to
certain conditions, offer to purchase all of the outstanding Exchange Debentures
at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest to the purchase date. In addition, prior to July 1, 2002, upon
the occurrence of a Change of Control, the Company will have the option to
redeem the Exchange Debentures in whole but not in part at a redemption price
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
to the date of redemption, plus the Applicable Premium (as defined).
The Exchange Debentures will be subordinated to all existing and future
Senior Debt (as defined) of the Company and will rank pari passu with or senior
to all future Indebtedness (as defined) of the Company that expressly provides
that it ranks pari passu with or junior to the Exchange Debentures. As of
March 31, 1997, on a pro forma basis (i) after giving effect to the Completed
Transactions (as defined) and the Financing (as defined) and the application of
the net proceeds therefrom, there would have been no Senior Debt of the Company
outstanding and approximately $293.1 million of Indebtedness of the Company's
subsidiaries, including current payables and (ii) after giving further effect to
the Pending Transactions (as defined) and their related financing, there would
have been no Senior Debt of the Company outstanding and approximately $482.7
million of Indebtedness of the Company's subsidiaries, including current
payables. See "Risk Factors -- Holding Company Structure; Limitation on Access
to Cash Flow of the Company's Subsidiaries" and "Description of the New Senior
Exchangeable Preferred Stock and Exchange Debentures."
The Company is a holding company which conducts, or will conduct,
substantially all of its operations through its direct subsidiary, Capstar Radio
Broadcasting Partners, Inc. (formerly named Commodore Media, Inc.) (referred to
herein as either "Commodore" or "Capstar Radio") and Capstar Radio's
subsidiaries, Atlantic Star Communications, Inc. (formerly named Commodore
Holdings, Inc.) ("Atlantic Star"), Southern Star Communications, Inc. (formerly
named Osborn Communications Corporation) (referred to herein as either "Osborn"
or "Southern Star"), GulfStar Communications, Inc. ("GulfStar"), Central Star
Communications, Inc. ("Central Star"), and Pacific Star Communications, Inc.
("Pacific Star"). Capstar Radio entered into the Existing Credit Facility in
February 1997, which is secured by the assets of the Company's subsidiaries
(other than Capstar Radio). In addition, the Company has guaranteed the
Indebtedness under the Existing Credit Facility. As of March 31, 1997, no
principal amount was outstanding under the Existing Credit Facility. As of
August 6, 1997 (the date on which the Benchmark Acquisition (as defined) was
consummated), $12.2 million in principal amount was outstanding under the
Existing Credit Facility and $21.7 million was available for borrowing
thereunder. The Company expects to amend and restate the Existing Credit
Facility in August 1997 to provide for, among other things, borrowings of up to
$200.0 million (the "New Credit Facility" and together with the Existing Credit
Facility, the "Credit Facilities"). See "Description of Indebtedness -- Existing
Credit Facility" and "-- New Credit Facility."
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").
Each broker-dealer that receives New Preferred Stock for its own account
pursuant to the Exchange Offer in exchange for Old Preferred Stock must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Preferred Stock. 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 Preferred Stock
received in exchange for Old Preferred Stock where such Old Preferred Stock was
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 Preferred Stock is designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. To the extent
shares of Old Preferred Stock are tendered and accepted
<PAGE> 4
(Continued from previous page)
in the Exchange Offer, the aggregate number of outstanding shares of Old
Preferred Stock will decrease with a resulting decrease in the liquidity in the
market therefor. Following the consummation of the Exchange Offer, holders of
Old Preferred Stock who were eligible to participate in the Exchange Offer but
who did not tender their Old Preferred Stock will not be entitled to certain
rights under the Registration Rights Agreement (as defined) and such Old
Preferred Stock will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity in the market for the Old Preferred Stock could be
adversely affected. No assurance can be given as to the liquidity of the trading
market for either the Old Preferred Stock or the New Preferred Stock.
<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. In June 1997, Capstar Broadcasting Corporation ("Capstar
Broadcasting") acquired all of the issued and outstanding common stock of the
Company in exchange for common stock of Capstar Broadcasting. Unless otherwise
specified, this Prospectus assumes the consummation of the Pending Transactions
(as defined). As used in this Prospectus, unless otherwise specified, the
"Company" means Capstar Broadcasting Partners, Inc. and its subsidiaries after
giving effect to the consummation of the Pending Transactions. The Company
conducts, or will conduct, its business through its direct subsidiary, Capstar
Radio, and Capstar Radio's subsidiaries, Atlantic Star, Southern Star, GulfStar,
Central Star and 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 owns and operates or provides
services to 155 radio broadcasting stations in 46 mid-sized markets located
throughout the United States. On a pro forma basis after giving effect to the
Pending Transactions, the Company will own and operate or provide services to
233 radio broadcasting stations in 62 mid-sized markets located throughout the
United States. These stations comprise the leading radio group, in terms of
revenue share and/or audience share, in 41 markets. On a pro forma basis after
giving effect to the Completed Transactions (as defined) and the Pending
Transactions and the financing thereof, including the Financing, as if they had
occurred on January 1, 1996, the Company would have had net revenue, EBITDA (as
defined) and a net loss of $296.6 million, $67.5 million and $29.3 million,
respectively, for the twelve-month period ended March 31, 1997, and EBITDA as
adjusted for estimated cost savings of $85.0 million. The Company has entered
into 17 agreements to acquire 85 additional stations, including seven stations
for which the Company currently provides services pursuant to an LMA (as
defined) (the "Pending Acquisitions"), and one agreement to dispose of three FM
stations (the "Pending Transactions").
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 the Company 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. The station portfolio
will be organized into five regions: the Northeast (Atlantic Star), the
Southeast (Southern Star), the Southwest (GulfStar), the Midwest (Central Star)
and the West (Pacific Star), each of which is, or will be, managed by regional
executives in conjunction with general managers in each of the Company's
markets.
1
<PAGE> 6
STATION PORTFOLIO
The following table sets forth certain information regarding the Company
and its markets assuming the Pending Transactions have been consummated.
<TABLE>
<CAPTION>
COMPANY COMPANY
STATIONS REVENUE AUDIENCE
MSA --------- SHARE SHARE
MARKET(1) RANK FM AM RANK RANK SOURCE COMPANY(2)
--------- ---- --- --- ------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION (ATLANTIC STAR)
Allentown-Bethlehem, PA............... 64 3 3 1 1 Commodore/Patterson
Wilmington, DE........................ 74 1 1 2 2 Commodore
Roanoke, VA........................... 101 4 1 2 1 Benchmark/Cavalier/WRIS
Worcester, MA......................... 106 1 1 1 1 Knight Quality
Fairfield County, CT.................. 112 4 4 2 2 Commodore
Portsmouth-Dover-Rochester, NH........ 117 2 1 1 2 Knight Quality
Huntington, WV-Ashland, KY............ 139 5 5 1 1 Commodore
Salisbury-Ocean City, MD.............. 153 2 -- 3 4 Benchmark
Manchester, NH........................ 193 1 1 1 2 Knight Quality
Wheeling, WV.......................... 213 5 2 1 1 Osborn
Winchester, VA........................ 219 2 1 2 1 Benchmark
Burlington, VT........................ 221 1 -- 2t 5 Knight Quality
Harrisburg-Lebanon-Carlisle, PA....... 253 1 1 2 2 Patterson
Dover, DE............................. NA 2 1 1 1 Benchmark
Westchester-Putnam Counties, NY....... NA 2 1 NA 1 Commodore
Lynchburg, VA......................... NA 3 1 1 1 Benchmark/Cavalier
--- --
Subtotal........................ 39 24
SOUTHEAST REGION (SOUTHERN STAR)
Birmingham, AL........................ 55 2 1 2 3 Ameron
Greenville, SC........................ 59 1 -- 2t 2 Benchmark
Columbia, SC.......................... 88 4 2 1 1 Benchmark/Emerald City
Daytona Beach, FL..................... 93 1 -- 1 2 SFX
Melbourne-Titusville-Cocoa, FL........ 96 3 2 1 1 Space Coast
Huntsville, AL........................ 114 4 2 1 1 Osborn/Griffith
Ft. Pierce-Stuart-Vero Beach, FL...... 121 5 1 1 1 Commodore
Pensacola, FL......................... 125 3 -- 1 1 Patterson
Montgomery, AL........................ 142 3 -- 2 2 Benchmark
Savannah, GA.......................... 153 4 2 1 1 Patterson
Asheville, NC......................... 179 1 1 1 1 Osborn
Tuscaloosa, AL........................ 212 3 1 1 1 Osborn/Grant
Jackson, TN........................... 257 2 1 1 1 Osborn
Statesville, NC....................... NA 1 1 NA NA Benchmark
Gadsden, AL........................... NA 1 1 NA 1 Osborn
--- --
Subtotal........................ 38 15
SOUTHWEST REGION (GULFSTAR)
Baton Rouge, LA....................... 81 3 3 1 1 GulfStar
Wichita, KS........................... 91 2 1 3 3 SFX
Jackson, MS........................... 118 2 2 2 2 Benchmark
Shreveport, LA........................ 126 1 1 2 3 Benchmark
Beaumont,TX........................... 127 3 1 1 1 GulfStar
Corpus Christi, TX.................... 128 3 1 1 1 GulfStar
Tyler-Longview, TX.................... 143 4 1 1 1 GulfStar/Noalmark
Killeen, TX........................... 149 2 -- 1 1 GulfStar
Fayetteville, AR...................... 161 4 -- 1 1 GulfStar/KJEM
Ft. Smith, AR......................... 169 2 1 1 1 GulfStar/Booneville
Lubbock, TX........................... 171 4 2 1 1 GulfStar/American General
Waco, TX.............................. 190 4 2 1 1 GulfStar
Texarkana, TX......................... 237 3 1 1 1 GulfStar
Lawton, OK............................ 243 2 -- 1 1 KLAW
Lufkin, TX............................ NA 2 -- NA NA GulfStar
Victoria, TX.......................... NA 2 -- NA 1 GulfStar
--- --
Subtotal........................ 43 16
MIDWEST REGION (CENTRAL STAR)
Grand Rapids, MI...................... 66 3 1 2 3 Patterson
Des Moines, IA........................ 89 2 1 4 4 Community Pacific
Madison, WI........................... 120 4 2 1 1 Madison
Springfield, IL....................... 192 2 1 3 3 Patterson
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
COMPANY COMPANY
STATIONS REVENUE AUDIENCE
MSA --------- SHARE SHARE
MARKET(1) RANK FM AM RANK RANK SOURCE COMPANY(2)
--------- ---- --- --- ------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Cedar Rapids, IA...................... 197 2 1 2 1 Quass
Battle Creek-Kalamazoo, MI............ 229 2 2 1 1 Patterson
--- --
Subtotal........................ 15 8
WEST REGION (PACIFIC STAR)
Honolulu, HI.......................... 58 4 3 1 1 Patterson
Fresno, CA............................ 65 3 2 2 3 Patterson
Stockton, CA.......................... 85 1 1 3 3 Community Pacific
Modesto, CA........................... 121 1 1 2 2 Community Pacific
Reno, NV.............................. 133 2 1 4 3 Patterson
Anchorage, AK......................... 165 4 2 2 1 Community Pacific/COMCO
Fairbanks, AK......................... NA 2 1 NA 1 COMCO
Farmington, NM........................ NA 3 1 NA NA GulfStar
Yuma, AZ.............................. NA 2 1 NA 1 Commonwealth
--- --
Subtotal........................ 22 13
--- --
Total........................... 157 76
=== ==
</TABLE>
- ---------------
NA Information not available.
(1) See explanatory notes to this table beginning on page 64 of this Prospectus.
(2) As defined in "The Acquisitions" and/or "Glossary of Certain Terms and
Market and Industry Data."
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 such 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 and operating resources (such as
on-air talent, programming and music research) and through the reduction of
redundant corporate expenses. Furthermore, management expects
3
<PAGE> 8
that the Company, as a result of the large size of its portfolio, combined with
the consolidated purchasing power of other portfolio companies of Hicks Muse,
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 decentralized
operational 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.
MANAGEMENT
R. Steven Hicks, the President and Chief Executive Officer of the Company,
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.
The Company has designed a regional organizational structure to manage
effectively its existing station portfolio as well as to accommodate future
in-market or group acquisitions. Each of the Company's regions is, or will be,
headquartered within the region and led by a regional operating executive who
manages, or will manage, the operations of that region's station portfolio and
who oversees, or will oversee, the regional and general managers of the
stations. Each regional operating executive reports to R. Steven Hicks. In
assembling each of the existing regional management teams, the Company has
sought to retain the senior management of many 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 other radio broadcasters and is therefore
well situated to identify strategic acquisition candidates.
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 this compensation structure, along with the
ownership interests of management, fosters teamwork and the sharing of the best
practices across regions to maximize the overall financial performance of the
Company.
4
<PAGE> 9
Each of the Company's regional executives has extensive experience
operating radio stations in mid-sized markets, as described below.
Northeast Region. The Northeast Region is managed by its president and
chief executive officer, James T. Shea, Jr. Mr. Shea has over 22 years of
experience in the radio broadcasting industry. Mr. Shea's operating knowledge
and strong advertising relationships helped Commodore, prior to its acquisition
by the Company, become a leading radio group in each of its markets. Pro forma
for the Pending Acquisitions, the Northeast Region will include 63 stations in
16 markets.
Southeast Region. The Southeast Region is being managed on an interim basis
by Frank D. Osborn. Mr. Osborn serves on the Executive Council (as defined) of
Capstar Radio and brings more than 19 years of radio industry experience to the
Company. The Company intends to employ a new president and chief executive
officer of the Southeast Region by the end of 1997, so that Mr. Osborn may focus
his attention on his responsibilities as a member of the Executive Council. Pro
forma for the Pending Acquisitions, the Southeast Region will include 53
stations in 15 markets.
Southwest Region. The Southwest Region is managed by its president and
chief executive officer, John D. Cullen. Mr. Cullen has served as president and
chief operating officer of GulfStar since 1996 and brings more than 16 years of
radio industry experience to the Company. Prior to joining GulfStar, Mr. Cullen
served as a regional manager for SFX. Pro forma for the Pending Transactions,
the Southwest Region will include 59 stations in 16 markets.
Midwest Region. The Midwest Region will be managed by Mary K. Quass, the
current president and chief executive officer of Quass Broadcasting Company
("Quass"), who will serve as the Midwest Region's president and chief executive
officer upon consummation of the Quass Acquisition (as defined). Ms. Quass has
more than 19 years experience in the radio broadcasting industry in numerous
roles, including Vice President and General Manager of radio stations KHAK-FM
and KHAK-AM prior to purchasing such radio stations in 1988. The Company expects
to benefit significantly from Ms. Quass' experience and knowledge of the markets
in the Midwest Region. Pro forma for the Pending Acquisitions, the Midwest
Region will include 23 stations in six markets.
West Region. The West Region is managed by its president and chief
executive officer, Dex Allen, who has over 35 years of experience in the radio
broadcasting industry. 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). Pro forma for the Pending Acquisitions,
the West Region will include 35 stations in nine markets.
The Company has created an Executive Council, consisting of R. Steven
Hicks, Paul D. Stone, William S. Banowsky, Jr. and other executive officers of
Capstar Radio who will serve as managing directors (each a "Managing Director").
The Executive Council will develop and implement the Company's strategy and
corporate culture to enable the Company's regional operating executives to focus
substantially all of their efforts upon operating their stations by relieving
them of many of the business activities that are not directly related to station
operations. The Executive Council, in consultation with the regional operating
executives, is responsible for strategic planning, acquisitions, financial
reporting, facilities consolidation, public service activities, technological
development, network opportunities, national vendor relationships, investor and
government relations, recruiting and training employees, and all other matters
affecting the Company which are not directly related to regional operations. Mr.
Hicks will allocate primary responsibility for each of these areas to
appropriate members of the Executive Council.
The executive officers of Capstar Radio who serve as Managing Directors on
the Executive Council are Frank D. Osborn, David J. Benjamin, III, Joseph L.
Mathias, IV and James M. Strawn. Mr. Osborn brings more than 19 years of radio
industry experience, including 13 years as the President and Chief Executive
Officer of Osborn. Mr. Benjamin has 23 years of radio broadcasting experience,
including co-founding and serving as Chairman and Chief Executive Officer of
Community Pacific (as defined) since 1974. Mr. Mathias has managed the
operations of Benchmark (as defined) since 1990 and prior to 1990 held various
positions in the cable television and radio broadcast industry. Mr. Strawn has
31 years of radio industry experience, including two years
5
<PAGE> 10
as an Executive Vice President and Chief Financial Officer of Patterson (as
defined) and 13 years as a radio station owner.
OWNERSHIP
In April 1996, Hicks Muse combined its financial expertise with the
operating experience of R. Steven Hicks to form the Company. 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, upon the consummation
of its merger with Evergreen Media Corporation, will be one of the largest
pure-play radio broadcasting companies in the United States based on net
revenues. Hicks, Muse, Tate & Furst Equity Fund III, L.P. ("HM Fund III"), an
affiliate of Hicks Muse, and its affiliates (including Capstar Broadcasting
Partners, L.P. ("Capstar L.P.")) have invested $233.9 million in Common Stock
(as defined) of Capstar Broadcasting, including $86.1 million invested as part
of the Financing. HM Fund III and its affiliates have committed to invest an
additional $50.0 million in Capstar Broadcasting, and Capstar Broadcasting has
committed to issue additional equity to HM Fund III and its affiliates in
exchange therefor.
R. Steven Hicks, the President and Chief Executive Officer of the Company,
has invested $3.1 million in Class C Common Stock, par value $.01 per share
("Class C Common Stock"), of Capstar Broadcasting. Certain other members of the
management of Capstar Broadcasting and its subsidiaries, including certain of
the Company's regional executives and Managing Directors, have invested an
additional $7.2 million in Class A Common Stock, par value $.01 per share
("Class A Common Stock"), of Capstar Broadcasting.
As part of the GulfStar Merger (as defined), GulfStar common stockholders
received Common Stock of Capstar Broadcasting having a deemed value of
approximately $113.0 million. Thomas O. Hicks, chairman and chief executive
officer of Hicks Muse and a director of Capstar Broadcasting and the Company,
beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting
and beneficially owned approximately 87.3% of the voting power of GulfStar
immediately before completion of the GulfStar Merger. In addition, Thomas O.
Hicks and R. Steven Hicks filled two of the four director seats of GulfStar, and
R. Steven Hicks was also the Chief Executive Officer of GulfStar. Certain
members of management of Capstar Broadcasting also received Common Stock of
Capstar Broadcasting in connection with the GulfStar Merger as more fully
described in "The Acquisitions -- GulfStar Transaction."
THE ACQUISITIONS
COMPLETED ACQUISITIONS
Since the purchase by the Company of Commodore in October 1996 for a
purchase price of $213.6 million ("the Commodore Acquisition"), which was funded
with the proceeds of a $90.0 million equity investment in the Company by HM Fund
III and its affiliates, bank indebtedness of $35.0 million and the assumption of
Commodore's then outstanding indebtedness, the Company has consummated (i) the
purchase of (A) Osborn in February 1997 (the "Osborn Acquisition") for a
purchase price of approximately $118.8 million comprised of $117.0 million paid
in cash, which was funded with the proceeds of an equity investment by HM Fund
III in the Company and the proceeds from the issuance of the Notes, and Class A
common stock of Capstar Partners having a deemed value of approximately $1.8
million, (B) substantially all of the assets of EZY Com, Inc. ("EZY"), City
Broadcasting Co., Inc. ("City") and Roper Broadcasting, Inc. ("Roper" and,
collectively, with EZY and City, "Space Coast") in April 1997 (collectively, the
"Space Coast Acquisitions") for an aggregate purchase price of approximately
$12.0 million paid in cash, which was funded with borrowings under the credit
facility dated February 20, 1997 (the "Existing Credit Facility"), between the
Company, Capstar Radio, as borrower, and Bankers Trust Company, (C)
substantially all of the assets of Taylor Communications Corporation ("Taylor")
6
<PAGE> 11
utilized in the operation of Taylor's stations in the Tuscaloosa, Alabama market
in April 1997 (the "Osborn Tuscaloosa Acquisition") for an aggregate purchase
price of approximately $1.0 million paid in cash, which was funded with
borrowings under the Existing Credit Facility, (D) all of the outstanding
capital stock of Dixie Broadcasting, Inc. and Radio WBHP, Inc. (collectively,
"Mountain Lakes") in May 1997 (the "Osborn Huntsville Acquisition" and, together
with the Osborn Tuscaloosa Acquisition, the "Osborn Add-on Acquisitions") for a
purchase price of approximately $24.5 million comprised of $22.0 million paid in
cash, which was funded with borrowings under the Existing Credit Facility, and
two three-year consulting agreements valued at approximately $2.5 million, (E)
GulfStar in July 1997 through the merger of a wholly-owned subsidiary of Capstar
Broadcasting with and into GulfStar (the "GulfStar Merger") and the subsequent
contribution of GulfStar (through the Company) to Capstar Radio (collectively
with the GulfStar Merger, the "GulfStar Transaction"), for a purchase price of
approximately $232.5 million comprised of $119.5 million paid in cash, which was
funded with the proceeds of the Hicks Muse GulfStar Equity Investment (as
defined), the Capstar BT Equity Investment (as defined) and the proceeds of the
Preferred Stock Offering, and Common Stock having a deemed value of
approximately $113.0 million, (F) substantially all of the assets of Community
Pacific Broadcasting Company, L.P. ("Community Pacific") in July 1997 (the
"Community Pacific Acquisition") for a purchase price of approximately $35.0
million paid in cash, which was funded with proceeds from the Capstar Radio
Notes Offering (as defined), (G) substantially all of the assets of Cavalier
Communications, L.P. ("Cavalier") in July 1997 (the "Cavalier Acquisition") for
a purchase price of approximately $8.3 million paid in cash, which was funded
with proceeds from the Capstar Radio Notes Offering, (H) substantially all of
the assets of McForhun, Inc. ("McForhun") in July 1997 (the
"GulfStar -- McForhun Acquisition") for a purchase price of approximately $7.1
million paid in cash, which was funded with proceeds from the Hicks Muse
GulfStar Equity Investment and the Capstar BT Equity Investment, (I)
substantially all of the assets of Livingston Communications, Inc.
("Livingston") in July 1997 (the "GulfStar -- Livingston Acquisition") for a
purchase price of approximately $250,000 paid in cash, which was funded with
proceeds from the Hicks Muse GulfStar Equity Investment and the Capstar BT
Equity Investment, and (J) Benchmark Communications Radio Limited Partnership,
L.P. and certain of its subsidiary partnerships (collectively, "Benchmark") in
August 1997 for a purchase price of approximately $176.2 million comprised of
$174.1 million paid in cash, which was funded with proceeds from the Capstar
Radio Notes Offering, the Hicks Muse GulfStar Equity Investment, the Capstar BT
Equity Investment and borrowings under the Existing Credit Facility, and Class A
Common Stock having a deemed value of approximately $2.1 million (the "Benchmark
Acquisition" and together with the Commodore Acquisition, the Osborn
Transactions (as defined), the Space Coast Acquisitions, the GulfStar
Transaction, the Community Pacific Acquisition, the Cavalier Acquisition, the
GulfStar -- McForhun Acquisition, the GulfStar -- Livingston Acquisition, the
"Completed Transactions") and (ii) the disposition of substantially all of the
assets used or held for use in connection with the operation of the Company's
stations in the Port Charlotte and Ft. Myers, Florida markets in April 1997 for
a sale price of $11.0 million in cash (the "Osborn Ft. Myers Disposition" and
together with the Osborn Acquisition and the Osborn Add-on Acquisitions, the
"Osborn Transactions").
PENDING ACQUISITIONS
The Company has agreed, subject to various conditions, to acquire 85 radio
stations (59 FM and 26 AM) in 17 separate transactions. Upon completion of the
Pending Transactions, the Company's portfolio will include a total of 233
stations located in 62 mid-sized markets throughout the United States. The
purchase price of each of the Pending Acquisitions will be paid in cash and/or
Common Stock and is expected to be financed as more fully described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "The Acquisitions."
7
<PAGE> 12
PENDING ACQUISITIONS
<TABLE>
<CAPTION>
ESTIMATED
COMPANY PURCHASE PRICE
STATIONS OF PENDING NUMBER NUMBER
--------- EXPECTED ACQUISITIONS OF NEW OF EXISTING
COMPANY FM AM REGION CLOSING DATE ($ IN MILLIONS) MARKETS MARKETS
- ------------------------------------- --- --- ------------------- -------------- --------------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerald City......................... 1 -- Southeast August 1997 9.5 -- 1
Madison.............................. 4 2 Midwest August 1997 38.8 1 --
Grant................................ 1 -- Southeast September 1997 3.2 -- 1
Griffith............................. 3 -- Southeast September 1997 5.4 -- 1
WRIS................................. 1 -- Northeast September 1997 3.1 -- 1
SFX (Exchange)....................... 3 1 Southeast/Southwest October 1997 -- 2 --
Ameron............................... 2 1 Southeast October 1997 31.5 1 --
COMCO................................ 4 2 West October 1997 6.7 1 1
Commonwealth......................... 2 1 West October 1997 5.3 1 --
KLAW................................. 2 -- Southwest November 1997 2.2 1 --
American General..................... 1 -- Southwest November 1997 3.2 -- 1
Booneville........................... 1 -- Southwest December 1997 1.5 -- 1
KJEM................................. 1 -- Southwest December 1997 0.8 -- 1
Knight Quality....................... 5 3 Northeast January 1998 60.0 4 --
Quass................................ 2 1 Midwest January 1998 14.9 1 --
Patterson............................ 25 14 NE/SE/MW/W February 1998 215.0 9 1
Noalmark(1).......................... 1 1 Southwest March 2000 1.4 -- 1
-- -- ------ -- --
Total........................ 59 26 $402.5 21 10
== == ====== == ==
</TABLE>
- ---------------
(1) GulfStar has an option to acquire two stations in the Longview, Texas market
from Noalmark Broadcasting Corp. ("Noalmark") on or before March 6, 2000.
GulfStar currently provides services for such stations pursuant to an LMA
and expects to exercise the option on or before March 6, 2000. See "The
Acquisitions."
The Company has agreed to sell all of the outstanding capital stock of
Bryan Broadcasting Operating Company, a wholly owned subsidiary of GulfStar
("BBOC"). The Company anticipates that such sale will be completed in August
1997 (the "GulfStar -- Bryan Disposition"). BBOC owns and operates three FM
radio stations in Bryan, Texas. See "Certain Transactions -- GulfStar
Transactions."
Consummation of each of the Pending Transactions is subject to numerous
conditions, including approval of the Federal Communications Commission (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 Transactions may vary from the anticipated
closing dates. For further information concerning the Pending Transactions, see
"Risk Factors -- Risks of Acquisition Strategy," "Business," "The Acquisitions"
and "Certain Transactions -- GulfStar Transactions."
THE EXCHANGE OFFER
The Exchange Offer......... One share of New Preferred Stock in exchange for
each outstanding share of Old Preferred Stock. As
of the date hereof, 1,000,000 shares of Old
Preferred Stock are issued and outstanding. The New
Preferred Stock offered hereby is identical in all
material respects to the Old Preferred Stock,
except that shares of New Preferred Stock will be
freely transferable by the holders thereof except
as otherwise provided herein. See "Description of
the New Senior Exchangeable Preferred Stock and
Exchange Debentures."
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 Preferred Stock issued
pursuant to the Exchange Offer in exchange for Old
Preferred Stock may be offered for resale, resold
and otherwise transferred by any person receiving
the New Preferred Stock, whether or not that person
is the holder (other than any such holder or such
other person that is an "affiliate" of the Company
8
<PAGE> 13
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 Preferred Stock is
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
Preferred Stock, 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 Preferred Stock. 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
Preferred Stock for its own account in exchange for
Old Preferred Stock, where the Old Preferred Stock
was 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 such
New Preferred Stock. See "Plan of Distribution."
Registration Rights
Agreement................ The shares of the Old Preferred Stock were sold by
the Company on June 17, 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 and Credit Suisse First Boston, the
initial purchasers of the Old Preferred Stock (the
"Initial Purchasers"), 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 Preferred Stock 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 Preferred Stock 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.
Dividends on the New
Preferred Stock and Old
Preferred
Stock.................... Dividends on each share of New Preferred Stock will
accrue from the date of issuance of the Old
Preferred Stock for which the New Preferred Stock
is exchanged or from the date of the last dividend
payment (or deemed dividend payment) on such Old
Preferred Stock, whichever is later. No additional
dividends will be paid on shares of Old Preferred
Stock tendered and accepted for exchange.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Company. See "The Exchange Offer -- Conditions."
Procedures for Tendering
Old Preferred Stock...... Each holder of Old Preferred Stock 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
9
<PAGE> 14
the Old Preferred Stock and any other required
documentation, to the Exchange Agent at the address
set forth herein. Persons holding Old Preferred
Stock 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 shares of New Preferred Stock 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 Preferred Stock 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 New Preferred
Stock. If the holder is a broker-dealer that will
receive New Preferred Stock for its own account in
exchange for Old Preferred Stock that was 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 Preferred
Stock.
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 Preferred Stock if existing Commission
interpretations are changed such that the New
Preferred Stock received by holders in the Exchange
Offer is 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 Preferred
Stock and Delivery of New
Preferred Stock.......... The Company will accept for exchange any and all
shares of Old Preferred Stock which are properly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date. The New
Preferred Stock 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............. Harris Trust and Savings Bank is serving as
exchange agent (the "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.... Shares of Old Preferred Stock 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 Preferred
Stock.
10
<PAGE> 15
TERMS OF THE NEW PREFERRED STOCK
Securities Offered......... 1,000,000 shares (the "Shares") of 12% Senior
Exchangeable Preferred Stock, par value $.01 per
share (together with such additional shares as may
be paid in lieu of cash dividends, as described
herein).
Liquidation Preference..... Initially equal to $100.00, plus accumulated and
unpaid dividends.
Optional Redemption........ The New Preferred Stock 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 July 1, 2002
at the redemption prices set forth herein, plus,
without duplication, accumulated and unpaid
dividends to the date of redemption. In addition,
at any time and from time to time prior to July 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 the New
Preferred Stock at the redemption price set forth
herein, plus, without duplication, accumulated and
unpaid dividends to the date of redemption;
provided, however, that after any such redemption,
there is outstanding at least $75.0 million
aggregate liquidation preference of New Preferred
Stock. See "Description of the New Senior
Exchangeable Preferred Stock and Exchange
Debentures -- New Preferred Stock -- Optional
Redemption."
Mandatory Redemption....... The Company is required, subject to certain
conditions, to redeem all of the New Preferred
Stock outstanding on July 1, 2009 at a redemption
price equal to 100% of the liquidation preference
thereof, plus, without duplication, accumulated and
unpaid dividends to the date of redemption. See
"Description of the New Senior Exchangeable
Preferred Stock and Exchange Debentures -- New
Preferred Stock -- Mandatory Redemption."
Dividends.................. At a rate equal to 12% per annum of the liquidation
preference per share, cumulative and, when
declared, payable semi-annually beginning January
1, 1998 and accumulating from the Issue Date. The
Company, at its option, may pay dividends on any
dividend payment date occurring on or before July
1, 2002 either in cash or in additional shares of
the New Preferred Stock.
Dividend Payment Dates..... January 1 and July 1, commencing January 1, 1998.
Voting..................... The New Preferred Stock will be non-voting, except
as otherwise required by law and except in certain
circumstances described herein. In addition, if the
Company (i) after July 1, 2002, fails to pay
dividends in respect of three or more semi-annual
dividend periods in the aggregate, (ii) fails to
make a mandatory redemption, a Change of Control
Offer (as defined) or a Preferred Special Offer or
(iii) fails to comply with certain covenants or
make certain payments on its Indebtedness, holders
of a majority of the outstanding shares of
Preferred Stock, voting as a class, will be
entitled to elect the lesser of two directors or
that number of directors constituting at least 25%
of the Company's Board of Directors.
Exchange Provisions........ The New Preferred Stock will be exchangeable in
whole but not in part into the Exchange Debentures,
at the Company's option, subject to certain
conditions, on any scheduled dividend payment date.
Ranking.................... The New Preferred Stock will, with respect to
dividend rights and rights on liquidation,
winding-up and dissolution of the Company, rank
senior to all other classes of equity securities of
the Company outstanding upon consummation of the
Exchange Offer.
11
<PAGE> 16
Change of Control.......... Prior to July 1, 2002, upon the occurrence of a
Change of Control, the Company will have the option
to redeem the New Preferred Stock in whole but not
in part at a redemption price equal to 100% of the
liquidation preference thereof, plus accumulated
and unpaid dividends to the redemption date, plus
the Applicable Premium. If a Change of Control
occurs after July 1, 2002, or if the Company does
not redeem the New Preferred Stock as provided in
the immediately preceding sentence, the Company
will, subject to certain conditions, be required to
offer to purchase all outstanding shares of New
Preferred Stock at a purchase price equal to 101%
of the liquidation preference thereof, plus,
without duplication, accumulated and unpaid
dividends to the date of purchase. There can be no
assurance that the Company would have sufficient
funds to purchase all of the New Preferred Stock in
the event of a Change of Control or that the
Company would be able to obtain financing for such
purpose on favorable terms, if at all. In addition,
the Credit Facilities (as defined) restrict, or
will restrict, the Company's ability to repurchase
the New Preferred Stock, including pursuant to a
Change of Control Offer. Furthermore, a Change of
Control would result in a default under the Credit
Facilities. In addition, the indenture (the "Notes
Indenture") governing the Company's 12 3/4% Senior
Discount Notes due 2009 (the "Notes") has
provisions relating to the change of control of the
Company that would require the repurchase of the
Notes. Moreover, the indenture (the "Existing
Capstar Radio Indenture") governing Capstar Radio's
13 1/4% Senior Subordinated Notes due 2003 (the
"Existing Capstar Radio Notes") and the indenture
(the "New Capstar Radio Indenture" and,
collectively with the Existing Capstar Radio
Indenture, the "Capstar Radio Indentures")
governing the New Capstar Radio Notes have
provisions relating to the change of control of
Capstar Radio that would require the repurchase of
the Existing Capstar Radio Notes and the New
Capstar Radio Notes (collectively, the "Capstar
Radio Notes"). A "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
Certificate of Designation or the Exchange
Indenture, as the case may be), 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 (as
defined in the certificate of designation governing
the New Preferred Stock (the "Certificate of
Designation")); 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. See "Risk
Factors -- Change of Control," "Description of
Indebtedness" and "Description of the New Senior
Exchangeable Preferred Stock and Exchange
Debentures -- New Preferred Stock -- Change of
Control."
Certain Restrictive
Provisions................. The Certificate of Designation contains restrictive
provisions that, among other things, limit the
ability of the Company and its subsidiaries to
incur additional Indebtedness, pay dividends or
make certain other restricted
12
<PAGE> 17
payments, or merge or consolidate with or sell all
or substantially all of their assets to any other
person.
THE EXCHANGE DEBENTURES
Issue...................... 12% Subordinated Exchange Debentures due 2009
issuable in exchange for the New Preferred Stock in
an aggregate principal amount equal to the
liquidation preference of the New Preferred Stock,
plus any additional Exchange Debentures issued
thereafter in lieu of cash interest.
Maturity................... July 1, 2009.
Interest Rate and Payment
Date....................... The Exchange Debentures will bear interest at a
rate of 12% per annum. Interest will accrue from
the most recent interest payment date to which
interest has been paid or provided for or, if no
interest has been paid or provided for, from the
Exchange Date. Interest will be payable semi-
annually in cash (or, at the option of the Company,
on or prior to July 1, 2002, in additional Exchange
Debentures) in arrears on each January 1 and July
1, commencing with the first such date after the
Exchange Date.
Optional Redemption........ The Exchange Debentures will be redeemable, in
whole or in part, at the option of the Company, at
any time and from time to time on or after July 1,
2002 at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, to the
date of redemption. In addition, at any time and
from time to time prior to July 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 the Exchange Debentures
at the redemption price set forth herein, plus
accrued and unpaid interest, if any, to the date of
redemption; provided, however, that after any such
redemption, the aggregate principal amount of the
Exchange Debentures outstanding must equal at least
$75.0 million. See "Description of the New Senior
Exchangeable Preferred Stock and Exchange
Debentures -- Exchange Debentures -- Optional
Redemption."
Ranking.................... The Exchange Debentures will be subordinated to all
existing and future Senior Debt of the Company. In
addition, the Exchange Debentures will be
effectively subordinated to all existing and future
Indebtedness of the Company's subsidiaries. The
Exchange Debentures will rank pari passu or senior
to any class or series of Indebtedness that
expressly provides that it ranks pari passu or
subordinate to the Exchange Debentures, as the case
may be. As of March 31, 1997, on a pro forma basis
(i) after giving effect to the Completed
Transactions, the Financing and the application of
the net proceeds therefrom, there would have been
no Senior Debt of the Company outstanding and
approximately $329.4 million of Indebtedness of the
Company's subsidiaries, including current payables
and (ii) after giving further effect to the Pending
Transactions and their related financing, there
would have been no Senior Debt of the Company
outstanding and approximately $482.7 million of
Indebtedness of the Company's subsidiaries,
including current payables. Capstar Radio entered
into the Existing Credit facility in February 1997,
which is secured by the assets of its subsidiaries.
As of March 31, 1997, no principal amount was
outstanding under the Existing Credit Facility. As
of August 6, 1997, (the date on which the Benchmark
Acquisition was consummated), $12.2 million in
principal amount was outstanding under the Existing
Credit Facility and $21.7 million was available for
borrowing thereunder. The Company
13
<PAGE> 18
expects to amend and restate the Existing Credit
Facility in August 1997 to provide for, among other
things, borrowings of up to $200.0 million. See
"Description of the Senior Exchangeable Preferred
Stock and Exchange Debentures -- Exchange
Debentures -- Ranking" and "Description of
Indebtedness."
Change of Control.......... Prior to July 1, 2002, upon the occurrence of a
Change of Control, the Company will have the option
to redeem the Exchange Debentures in whole but not
in part at a redemption price equal to 100% of the
principal amount thereof, plus accrued and unpaid
interest to the redemption date plus the Applicable
Premium (as defined). If a Change of Control occurs
after July 1, 2002, or if the Company does not
redeem the Exchange Debentures as provided in the
immediately preceding sentence, the Company will,
subject to certain conditions, be required to offer
to purchase all outstanding Exchange Debentures at
a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase. There can be no
assurance that the Company will have sufficient
funds to purchase all of the Exchange Debentures in
the event of a Change of Control or that the
Company would be able to obtain financing for such
purpose on favorable terms, if at all. In addition,
the Existing Credit Facility restricts the
Company's ability to repurchase the Exchange
Debentures, including pursuant to a Change of
Control Offer. Furthermore, a Change of Control
will result in a default under the Existing Credit
Facility. In addition, the Notes Indenture has
provisions relating to the change of control of the
Company that would require the repurchase of the
Notes, and the Capstar Radio Indentures have
provisions relating to the change of control of
Capstar Radio that would require the repurchase of
the Capstar Radio Notes. See "Risk
Factors -- Change of Control," "Description of
Indebtedness" and "Description of the New Senior
Exchangeable Preferred Stock and Exchange
Debentures -- Exchange Debentures -- Change of
Control."
Certain Covenants.......... The indenture governing the Exchange Debentures
(the "Exchange Indenture") will contain certain
covenants that, among other things, limit 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.
14
<PAGE> 19
THE FINANCING
The Company received proceeds of approximately $94.8 million, net of $5.2
million of the initial purchasers' discount and estimated fees and expenses,
from the Company's issuance of 1,000,000 shares of its Old Preferred Stock,
which was consummated on June 17, 1997 (the "Preferred Stock Offering").
Concurrently with consummation of the GulfStar Merger, Capstar Broadcasting
received $75.0 million from the Hicks Muse GulfStar Equity Investment and $11.1
million from the Capstar BT Equity Investment (as defined), of which $30.9
million was used by Capstar Broadcasting to redeem preferred stock of GulfStar
(the "Preferred Stock Redemption") and the remaining $55.2 million was
contributed as equity by Capstar Broadcasting to the Company. The Company has
contributed $150.0 million to Capstar Radio (consisting of $44.1 million of the
Hicks Muse GulfStar Equity Investment, the Capstar BT Equity Investment of $11.1
million and $94.8 million in net proceeds from the Preferred Stock Offering).
Concurrently with the Preferred Stock Offering, Capstar Radio received proceeds
of approximately $191.5 million, net of $8.5 million of the initial purchasers'
discount and estimated fees and expenses, from Capstar Radio's issuance of
$200.0 million in aggregate principal amount of its New Capstar Radio Notes (the
"Capstar Radio Notes Offering"). The Preferred Stock Offering, the Hicks Muse
GulfStar Equity Investment, the Capstar BT Equity Investment and the Capstar
Radio Notes Offering are collectively referred to herein as the "Financing."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the New Preferred Stock.
15
<PAGE> 20
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents summary historical financial data of the
Company and its predecessor Commodore, 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>
THE THE
COMMODORE COMPANY COMMODORE COMPANY
---------------------------------------------------- ------------ ----------- -----------
JANUARY 1, OCTOBER 17, THREE MONTHS
YEARS ENDED DECEMBER 31, 1996 -- 1996 -- ENDED MARCH 31,
-------------------------------------- OCTOBER 16, DECEMBER 31, -------------------------
1992 1993 1994 1995 1996(1) 1996(2) 1996(3) 1997(4)
------- -------- ------- ------- ----------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net revenue................ $17,961 $ 19,798 $26,225 $30,795 $ 31,957 $ 10,303 $ 7,416 $ 14,107
Station operating
expenses................. 12,713 13,509 16,483 19,033 21,291 6,283 5,375 10,356
Depreciation and
amortization............. 1,676 1,129 2,145 1,926 2,158 1,331 480 2,389
Corporate expenses......... 1,602 2,531 2,110 2,051 1,757 601 466 1,424
Other operating
expenses(5).............. -- 1,496 2,180 2,007 13,834 744 -- --
Operating income (loss).... 1,970 1,133 3,307 5,778 (7,083) 1,344 1,095 (62)
Interest expense........... 4,614 4,366 3,152 7,806 8,861 5,035 2,452 6,792
Net loss................... (2,580) (3,782) (527) (2,240) (17,836) (3,756) (1,436) (7,471)
OTHER DATA:
Broadcast cash flow(6)..... $ 5,248 $ 6,289 $ 9,742 $11,762 $ 10,666 $ 4,020 $ 2,041 $ 3,751
Broadcast cash flow
margin(6)................ 29.2% 31.8% 37.1% 38.2% 33.4% 39.0% 27.5% 26.6%
EBITDA(7).................. $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 8,909 $ 3,419 $ 1,575 $ 2,327
Cash flows related to:(8)
Operating activities..... (406) 477 4,061 1,245 1,990 (49) 1,891 409
Investing activities..... (458) (10,013) (50) (4,408) (34,358) (127,372) (15,798) (129,389)
Financing activities..... 951 9,377 (2,855) 12,013 26,724 132,449 8,103 136,977
Cash interest expense(9)... 4,408 4,218 2,932 5,132 5,545 2,627 1,454 3,926
Capital expenditures....... 371 333 623 321 449 808 124 916
Deficiency of earnings to
fixed charges(10)........ 2,998 3,743 918 1,908 17,703 3,756 1,409 6,827
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents..................................................................................... $ 13,025
Intangible and other assets, net.............................................................................. 358,891
Total assets.................................................................................................. 444,100
Long-term debt, including current portion..................................................................... 229,955
Total stockholders' equity.................................................................................... 140,898
</TABLE>
- ---------------
(1) The historical financial data set forth includes the results of operations
of Commodore from January 1, 1996 through October 16, 1996, the date of the
Commodore Acquisition.
(2) The historical financial data set forth includes the results of operations
of the Company from October 17, 1996 through December 31, 1996.
(3) The historical financial data set forth includes the results of operations
of Commodore from January 1, 1996 through March 31, 1996.
(4) The historical financial data set forth includes the results of operations
of the Company from January 1, 1997 through March 31, 1997 and balance
sheet data as of March 31, 1997.
(5) 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 Commodore Acquisition 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.
(6) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses and other operating 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. See "Glossary of Certain
Terms and Market and Industry Data."
(7) EBITDA consists of operating income before depreciation, amortization and
other operating 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. See "Glossary of Certain Terms and Market and Industry Data."
(8) Cash flows related to operating activities, investing activities and
financing activities are derived from the related statement of cash flows
and are prepared in accordance with GAAP.
(9) Cash interest expense excludes non-cash amortization of deferred finance
costs, discounts to initial purchases, and interest on the Notes.
(10) 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.
16
<PAGE> 21
SUMMARY PRO FORMA FINANCIAL DATA
The following table presents summary pro forma financial data of the
Company as of and for the twelve months ended March 31, 1997. 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, as if each had occurred on January 1, 1996: (i) the Completed
Transactions and their related financing, including the Financing; and (ii) the
Pending Transactions and their related financing, including the foregoing
transactions. The pro forma balance sheet data at March 31, 1997 have been
prepared as if any such transaction not completed by March 31, 1997 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 dates. The following
financial information should be read in conjunction with the Financial
Statements, the Pro Forma Financial Information and, in each case, the related
notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31, 1997
-------------------------------
PRO FORMA
FOR COMPLETED
TRANSACTIONS
AND THE
FINANCING PRO FORMA(1)
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING DATA:
Net revenue............................................... $190,475 $ 296,559
Station operating expenses................................ 137,759 214,438
Depreciation and amortization............................. 25,745 40,469
Corporate expenses........................................ 8,862 14,581
Other operating expenses.................................. 9,815 10,165
Operating income.......................................... 8,294 16,906
Interest expense.......................................... 50,252 65,128
Net income (loss)......................................... (23,223) (29,308)
OTHER DATA:
Broadcast cash flow(3).................................... $ 52,716 $ 82,121(2)
Broadcast cash flow margin(3)............................. 27.7% 27.7%
EBITDA(4)................................................. $ 43,854 $ 67,540(2)
Cash interest expense(5).................................. 42,661 57,537
Deficiency of earnings to fixed charges(6)................ 22,035 48,770
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................................. $ 9,137 $ 1,837
Intangible and other assets, net.......................... 685,552 1,085,959
Total assets.............................................. 834,691 1,279,675
Long-term debt, including current portion(7).............. 429,167 615,113
Senior exchangeable preferred stock....................... 94,750 94,750
Total stockholders' equity(7)............................. 219,344 431,288
</TABLE>
- ---------------
(1) Gives effect to the Completed Transactions, the Pending Transactions and the
financing of each of the foregoing, including the Financing.
(2) The pro forma financial results exclude the effects of estimated cost
savings resulting from the Completed Transactions and the Pending
Acquisitions. On a pro forma basis, assuming the consummation of such
transactions, including related cost savings as if they had occurred on
January 1, 1996, broadcast cash flow and EBITDA would have been $93.9
million and $85.0 million, respectively, for the twelve-month period ended
March 31, 1997. The Company expects to realize approximately $11.8 million
of estimated cost savings resulting from the elimination of redundant
operating expenses arising from such transactions, including elimination of
certain management positions, the consolidation of facilities and new rates
associated with revised vendor contracts and savings related to automation
of certain station operations. In addition, the Company expects to realize
approximately $5.7 million 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 such 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) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses and other operating expenses. Although
broadcast cash flow 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. See "Glossary
of Certain Terms and Market and Industry Data."
17
<PAGE> 22
(4) EBITDA consists of operating income before depreciation, amortization and
other operating 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.
See "Glossary of Certain Terms and Market and Industry Data."
(5) Cash interest expense excludes non-cash amortization of deferred finance
costs, discounts to initial purchasers, and interest on the Notes.
(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) 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 Certificate
of Designation, the Indentures (as defined) and the Credit Facilities. As a
result, the Company expects the actual amount of indebtedness incurred in
connection with the Pending Acquisitions to exceed the amount assumed for
purposes of the Pro Forma Financial Information. The Company expects to fund
additional amounts needed to consummate the Pending Acquisitions through a
combination of (i) additional debt capacity resulting from cash flow growth
and (ii) an additional $50.0 million equity investment in Capstar
Broadcasting by HM Fund III and its affiliates.
18
<PAGE> 23
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 Preferred Stock for New Preferred
Stock.
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 would be of any
acquisitions. The Company is currently evaluating certain acquisitions; however,
other than as described in "The 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 any or all of the
Pending Acquisitions 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 such financing will be
permitted under the Notes Indenture, the Certificate of Designation, the
Exchange Indenture (the Notes Indenture and the Exchange Indenture, the "Capstar
Indentures"), the Capstar Radio Indentures (the Capstar Indentures together with
the Capstar Radio Indentures, the "Indentures"), the Existing Credit Facility or
any other loan agreements to which the Company, Capstar Radio or Capstar
Broadcasting may become a party, including the New Credit Facility. Moreover,
there can be no assurances 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."
SUBSTANTIAL LEVERAGE
The Company has, and after giving effect to the Pending Transactions and
the financing thereof (including the Financing) 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 March 31, 1997, on a
pro forma basis after giving effect to the Completed Transactions and the
related financing thereof (including the Financing), as if each had occurred on
January 1, 1996, the Company would have had outstanding, on a consolidated
basis, long-term indebtedness (including current portions) of approximately
$429.2 million and stockholders' equity of approximately $219.3 million and,
after giving further effect to the Pending Transactions and their related
financing, the Company would have had outstanding, on a consolidated basis,
long-term indebtedness (including current portions) of approximately $615.1
million and stockholders' equity of approximately $431.3 million. See
"Capitalization," "Unaudited Pro Forma Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Indentures, the Certificate
of Designation and the Credit Facilities limit, or will limit, the incurrence of
additional indebtedness by the Company and its subsidiaries, in each case
subject to certain significant exceptions. See "Description of
19
<PAGE> 24
Capital Stock," "Description of Indebtedness" and "Description of the New Senior
Exchangeable Preferred Stock and Exchange Debentures."
The level of the Company's indebtedness could have several important
consequences to the holders of the New Preferred Stock, 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, 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 the borrowings under
the Credit Facilities), which will expose the Company to the risk of increased
interest rates; (iv) the Company's leveraged position and the covenants
contained in the Indentures, the Certificate of Designation and the Credit
Facilities could limit the Company's ability to compete, expand and make capital
improvements; and (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. As of March 31, 1997, none of the Company's indebtedness
was subject to variable rates of interest. See "Description of Capital Stock,"
"Description of Indebtedness" and "Description of the New Senior Exchangeable
Preferred Stock and Exchange Debentures."
The Company's ability to pay cash dividends on, and to satisfy the
redemption obligations in respect of, the New Preferred Stock and 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 indebtedness in the future. In the absence of such operating
results and resources, the Company could face substantial liquidity problems and
might be required to dispose of 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 Indebtedness."
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 and expects to continue to grow
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 the period from October 17, 1996 through December 31, 1996
and Commodore, the Company's predecessor, has had a net loss for each fiscal
year since its inception in 1980. There can be no assurance that the Company
will become 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."
The Company incurred or assumed, and will incur or assume, substantial
indebtedness to finance the Completed Transactions and the Pending Transactions
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.
See "Certain Transactions." Consequently, the Company expects that, for the
foreseeable future as it pursues its acquisition strategy, it will report net
losses substantially in excess of those experienced historically, which will
result in decreases in stockholders' equity.
20
<PAGE> 25
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 Capstar Radio, which in turn, directly owns the
capital stock of Southern Star, Atlantic Star, GulfStar, Pacific Star and
Central Star, which in turn, directly or indirectly, own the capital stock of
the Company's other operating subsidiaries. Consequently, the Company's sole
source of cash from which to make payments of cash dividends on the New
Preferred Stock (or principal, premium, if any, and interest on the Exchange
Debentures) will be dividends distributed or other payments made to it by its
subsidiaries. The Capstar Radio Indentures restrict the ability of Capstar Radio
to pay dividends or make other restricted payments to the Company. Except as
permitted, or as will be permitted, under the Indentures, the Certificate of
Designation, and the Credit Facilities, the Company's subsidiaries may not incur
additional indebtedness. Furthermore, the Company's subsidiaries are legally
distinct from the Company and have no obligation, contingent or otherwise, to
pay amounts due pursuant to the New Preferred Stock (and the Exchange
Debentures, if issued) 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 subsidiaries of Capstar
Radio are guarantors of the Existing Capstar Radio Notes. Capstar Radio is, or
will be, the borrower under the Credit Facilities and all of the subsidiaries of
the Company, other than Capstar Radio, are guarantors under the Credit
Facilities. Capstar Radio and 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 shares of New Preferred Stock are effectively
subordinated to all liabilities of the Company's subsidiaries. As of March 31,
1997, on a pro forma basis after giving effect to the Completed Transactions and
their related financing, including the Financing, as if each had occurred on
January 1, 1996, the total liabilities of the Company's subsidiaries would have
been approximately $329.4 million and, after giving further effect to the
Pending Transactions and their related financing, the total liabilities of the
Company's subsidiaries would have been approximately $562.4 million. As of March
31, 1997, on a pro forma basis (i) after giving effect to the Completed
Transactions and the Financing and the application of the net proceeds
therefrom, there would have been no Senior Debt of the Company outstanding and
approximately $293.1 million of Indebtedness of the Company's subsidiaries,
including current payables and (ii) after giving further effect to the Pending
Transactions and their related financing, there would have been no Senior Debt
of the Company outstanding and approximately $482.7 million of Indebtedness of
the Company's subsidiaries, including current payables. The difference as of
March 31, 1997 between total liabilities and Indebtedness of the Company's
subsidiaries is comprised principally of deferred tax liabilities and noncurrent
compensation liabilities.
LIMITATIONS ON ABILITY TO PAY DIVIDENDS
The Credit Facilities restrict, or will restrict, the Company from paying
cash dividends through the maturity of their borrowings. However, for all
dividend payment dates through and including July 1, 2002, the Company may, at
its option, pay dividends in additional shares of the New Preferred Stock in
lieu of paying cash dividends. After July 1, 2002, if the Company is in arrears
in the payment of dividends for three or more semi-annual dividend periods, the
holders of the New Preferred Stock will be permitted to elect the lesser of two
directors or that number of directors constituting at least 25% of the board of
directors of the Company. See "Description of the New Senior Exchangeable
Preferred Stock and Exchange Debentures -- New Preferred Stock -- Voting
Rights."
Under Delaware law, the Company is permitted to pay dividends on its
capital stock, including the New Preferred Stock, only out of its surplus or, in
the event that it has no surplus, out of its net profits for the year in which a
dividend is declared or for the immediately preceding fiscal year. Surplus is
defined as the excess of a company's total assets over the sum of its total
liabilities plus the par value of its outstanding capital stock. In order to pay
dividends in cash, the Company must have surplus or net profits equal to the
full amount of the cash dividend at the time such dividend is declared.
In determining the Company's ability to pay dividends, Delaware law permits
the Company's board of directors to revalue the Company's assets and liabilities
from time to time to their fair market values in order to
21
<PAGE> 26
create surplus. The Company cannot predict what the value of its assets or the
amount of its liabilities will be in the future and, accordingly, there can be
no assurance that the Company will be able to pay cash dividends on the New
Preferred Stock.
The Certificate of Designation does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the New Preferred
Stock, although such liquidation preference will be substantially in excess of
the par value of such shares of New Preferred Stock. In addition, the Company is
not aware of any provision of Delaware law or any controlling decision of the
courts of the State of Delaware (the state of incorporation of the Company) that
requires a restriction upon the surplus of the Company solely because the
liquidation preference of the New Preferred Stock will exceed its par value.
Consequently, there is no restriction upon the surplus of the Company solely
because the liquidation preference of the New Preferred Stock will exceed its
par value and there are no remedies available to holders of the New Preferred
Stock before or after the payment of any dividend on any capital stock, other
than in connection with the liquidation of the Company, solely by reason of the
fact that such dividend would reduce the surplus of the Company to an amount
less than the difference between the liquidation preference of the New Preferred
Stock and its par value.
SUBORDINATION OF EXCHANGE DEBENTURES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Exchange Debentures, if issued, will be
subordinated to the prior payment in full of all existing and future Senior Debt
of the Company. As of March 31, 1997, on a pro forma basis after giving effect
to the Completed Transactions and the Financing, and the application of the net
proceeds therefrom, approximately $152.3 million of Senior Debt would have been
outstanding. In the event of the bankruptcy, liquidation, dissolution,
reorganization or other winding up of the Company, the assets of the Company
will be available to pay obligations on the Exchange Debentures only after all
Senior Debt has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Exchange Debentures. In
addition, under certain circumstances, the Company may not pay principal of,
premium, if any, or interest on, or any other amounts owing in respect of, the
Exchange Debentures, or purchase, redeem or otherwise retire the Exchange
Debentures, if a payment default or a non-payment default exists with respect to
certain Senior Debt and, in the case of a non-payment default, if a payment
blockage notice has been received by the trustee. See "-- Substantial Leverage,"
"Description of the New Senior Exchangeable Preferred Stock and Exchange
Debentures -- Exchange Debentures -- Subordination" and "Description of
Indebtedness."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indentures, the Certificate of Designation and the Credit Facilities
contain, or will contain, certain covenants that restrict, among other things,
the ability of the Company and its subsidiaries to incur additional
indebtedness, issue preferred stock, 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 the Company and its subsidiaries. The Credit
Facilities also require, or will require, the Company's subsidiaries to maintain
specified financial ratios and to satisfy certain financial condition tests. The
ability of the Company's subsidiaries to meet those financial ratios and
financial condition tests can be affected by events beyond their control, and
there can be no assurance that the Company's subsidiaries will meet those tests.
A breach of any of these covenants could result in a default under the Credit
Facilities and/or the Indentures. Upon an event of default under the Credit
Facilities or the Indentures, 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 Credit Facilities, if Capstar
Radio were unable to repay those amounts, the lenders thereunder could proceed
against the collateral granted to them to secure that indebtedness. If the
indebtedness under the Credit Facilities were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay in full
and/or redeem such indebtedness, the Notes, the other indebtedness of the
Company and its subsidiaries, and the New Preferred Stock. See "Description of
Capital Stock," "Description of Indebtedness" and "Description of the New Senior
Exchangeable Preferred Stock and Exchange Debentures."
22
<PAGE> 27
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 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 IN CONTROL
Thomas O. Hicks beneficially owns 100% of the outstanding capital stock of
Capstar Broadcasting through his controlling interest in Hicks Muse and certain
stockholders agreements. See "Certain Transactions." As a result, Thomas O.
Hicks is able to control the vote on the election of the Board of Directors of
Capstar Broadcasting and, therefore, is able to direct the management and
policies of the Company. The interests of Thomas O. Hicks may differ from the
interests of holders of the New Preferred Stock. See "Management," "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."
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, the Company's Chief Executive Officer and Chairman of the Board. Capstar
Broadcasting has, or will have, employment agreements with several of the
Company's key employees, including R. Steven Hicks, Paul D. Stone, the Company's
Executive Vice President and Chief Financial Officer, and William S. Banowsky,
Jr., the Company's Executive Vice President and General Counsel.
23
<PAGE> 28
Capstar Broadcasting and its subsidiaries have or will enter into employment
agreements with the presidents and chief executive officers of the Company's
five regions and the Managing Directors of Capstar Radio. The Company believes
that the loss of any of these individuals could have a material adverse effect
on the Company. See "Management."
CONFLICT OF INTEREST
Thomas O. Hicks, a director of Capstar Broadcasting and the Company,
beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting.
Thomas O. Hicks is the President and a director of HM2/Chancellor Holdings, Inc.
("HM2/Chancellor"), which through its subsidiaries, including Chancellor, holds
attributable interests in radio stations in various markets in the States of
California, Florida, Minnesota, New York, Ohio, Arizona, Colorado, Georgia,
Pennsylvania and Washington, D.C. and, upon completion of Chancellor's pending
acquisitions and merger with Evergreen Media Corporation, will have attributable
interests in radio stations in four additional states, including Illinois,
Massachusetts, Michigan and Texas. Thomas O. Hicks is also the President, Chief
Executive Officer, Chief Operating Officer and 100% stockholder of HM3/Sunrise,
Inc. ("HM3/Sunrise"), 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 a director of
Capstar Broadcasting, the Vice President and Secretary of HM2/Chancellor, and
the Vice President of HM3/Sunrise. Thomas O. Hicks and Eric C. Neuman may in the
future acquire interests in, manage or otherwise control other radio or
television stations or other entertainment and communications media.
Accordingly, Thomas O. 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 Broadcasting who are also
directors and executive officers of HM2/Chancellor and HM3/Sunrise may have
conflicts of interest with respect to matters potentially or actually involving
or affecting the Company and HM2/Chancellor or HM3/Sunrise, such as
acquisitions, operations, financings and other corporate opportunities that may
be suitable for both Capstar Broadcasting and HM2/Chancellor or HM3/Sunrise. 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 whether
such opportunities are presented to any such director or executive officer in
his capacity as a director or executive officer of Capstar Broadcasting or its
subsidiaries, whether such opportunities are consistent with Capstar
Broadcasting's strategic objectives and whether Capstar Broadcasting will be
able to undertake or benefit from such opportunities. In addition,
determinations may be made by Capstar Broadcasting'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.
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.
24
<PAGE> 29
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 is a wholly-owned subsidiary of Capstar Broadcasting. Capstar
Broadcasting's Certificate of Incorporation restricts the ownership, voting and
transfer of Capstar Broadcasting's capital stock in accordance with the
Communications Act and the rules of the FCC to prohibit ownership of more than
25% of Capstar Broadcasting's outstanding capital stock, or more than 25% 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. Capstar
Broadcasting's Certificate of Incorporation provides that shares of capital
stock of Capstar Broadcasting determined by Capstar Broadcasting'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 Broadcasting by action of its Board of Directors to the
extent necessary, in the judgment of such 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 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,
certain 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 DOJ's investigation with respect to the
Benchmark Acquisition was closed, however, when the DOJ granted early
termination of the applicable waiting period under the HSR Act in May 1997. The
Company cannot predict the outcome of any specific DOJ or FTC investigation,
which are necessarily very fact specific. 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."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to purchase all outstanding New Preferred Stock at a purchase price equal
to 101% of the liquidation preference thereof, plus, without duplication,
accumulated and unpaid dividends, if any, to the Change of Control Payment Date
(including an amount in cash equal to a prorated dividend for the period from
the Dividend Payment Date immediately prior to the Change in Control Payment
Date to the Change of Control Payment Date). 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 New Preferred Stock that the Company might
be required to purchase. The Notes Indenture provides that, upon a change in
control (as therein defined), the Company will be required to offer to purchase
all outstanding Notes at a purchase price equal to (i) 101% of the accreted
value (as defined therein) thereof on the change of control payment date (as
defined therein) 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 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. The Existing Capstar Radio
Indenture provides that, upon a change of control (as therein defined) of
Capstar Radio, Capstar Radio will be required to purchase all of the Existing
Capstar Radio Notes then outstanding at a purchase price equal to 101% of their
accreted value (as therein defined), plus accrued interest to the date of
repurchase, in the case of
25
<PAGE> 30
such a purchase prior to May 1, 1998, and thereafter at a purchase price equal
to 101% of the principal amount thereof, plus accrued interest to the date of
repurchase. The New Capstar Radio Indenture provides that, upon a change of
control (as therein defined) of Capstar Radio, Capstar Radio will be required to
purchase all of the New Capstar Radio Notes then outstanding at a purchase price
equal to 101% of their principal amount plus accrued and unpaid interest, if
any, to the date of purchase. A change of control (as defined therein) under any
Indenture or the Certificate of Designation would in all likelihood also
constitute a change of control under the other Indentures and the Certificate of
Designation, will constitute an event of default under the Credit Facilities,
and may cause acceleration of other indebtedness, if any, in which case the
Company would be required to repay in full the Credit Facilities and any other
indebtedness before repurchasing the New Preferred Stock. Moreover, as of the
date of this Prospectus, after giving effect to the issuance of the New
Preferred Stock, the Completed Transactions and their relating financings, and
the Pending Acquisitions, the Company would not have sufficient funds available
to purchase all of the outstanding New Preferred Stock pursuant to a Change of
Control Offer. In the event that the Company was required to purchase the New
Preferred Stock 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 Indebtedness" and "Description of the New
Senior Exchangeable Preferred Stock and Exchange Debentures." In such event, the
Company may be unable to repurchase the New Preferred Stock tendered in response
to a Change of Control Offer.
FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Exchange
Debentures in favor of other existing or future creditors of the Company. If a
court in a lawsuit on behalf of any unpaid creditor of the Company or a
representative of the Company's creditors were to find that, at the time the
Company issued the Exchange Debentures, the Company (x) intended to hinder,
delay or defraud any existing or future creditor or contemplated insolvency with
a design to prefer one or more creditors to the exclusion in whole or in part of
others or (y) did not receive fair consideration or reasonably equivalent value
for issuing such Exchange Debentures and the Company (i) was insolvent, (ii) was
rendered insolvent by reason of such issuance, (iii) was engaged or about to
engage in a business or transaction for which its remaining assets constituted
unreasonably small capital to carry on its business or (iv) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court could void the Company's obligations under the Exchange
Debentures and void such transactions. Alternatively, in such event, claims of
the holders of the Exchange Debentures could be subordinated to claims of the
other creditors of the Company.
ABSENCE OF PUBLIC MARKET
The Old Preferred Stock is designated for trading in the PORTAL market.
There is no established trading market for the New Preferred Stock. The New
Preferred Stock will not trade on PORTAL and the Company does not currently
intend to list the New Preferred Stock 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 Preferred Stock. If such a market were to exist, no
assurance can be given as to the trading prices of the New Preferred Stock.
Future trading prices of the New Preferred Stock 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.
26
<PAGE> 31
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company at March 31, 1997, (ii) the unaudited pro forma capitalization of the
Company, after giving effect to the Completed Transactions and the Financing,
and (iii) the unaudited pro forma capitalization of the Company, after giving
effect to the Completed Transactions, the Pending Transactions and, in each
case, the financing of the foregoing transactions, including the Financing, and
the application of the net proceeds therefrom. This table should be read in
conjunction with the Financial Statements, the Pro Forma Financial Information
and, in each case, the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------
PRO FORMA
FOR
COMPLETED
TRANSACTIONS
AND THE
ACTUAL FINANCING PRO FORMA
-------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............... $ 13,025 $ 9,137 $ 1,837
======== ======== ==========
Long-term debt (including current
maturities):
Capstar Radio:
Credit Facilities(1)............... $ -- $ -- $ 185,946
9 1/4% Senior Subordinated Notes
due 2007......................... -- 199,212 199,212
13 1/4% Senior Subordinated Notes
due 2003(2)...................... 77,614 77,614 77,614
-------- -------- ----------
Total Capstar Radio long-term
debt........................ 77,614 276,826 462,772
The Company:
12 3/4% Senior Discount Notes due
2009(3).......................... 152,341 152,341 152,341
-------- -------- ----------
Total long-term debt.......... 229,955 429,167 615,113
-------- -------- ----------
12% Senior Exchangeable Preferred
Stock............................ -- 94,750 94,750
Stockholders' equity(4)(5)(6)......... 140,898 219,344 431,288
-------- -------- ----------
Total capitalization.......... $370,853 $743,261 $1,141,151
======== ======== ==========
</TABLE>
- ---------------
(1) The Company and Capstar Radio, as the borrower thereunder, anticipates
amending and restating the Existing Credit Facility in August 1997, which
facility will consist of, among other things, a $200.0 million revolving
loan facility. See "Description of Indebtedness -- New Credit Facility."
(2) As a result of a purchase accounting adjustment in connection with the
Commodore Acquisition, the carrying value of the Existing Capstar Radio
Notes includes an unamortized premium of $806,000. The Existing Capstar
Radio 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. Beginning on May 1, 1998, the Existing
Capstar Radio 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 Existing Capstar
Radio Notes are reduced to their face value of $76.8 million at maturity in
2003.
(3) The Notes were issued by the Company at a substantial discount from their
aggregate principal amount at maturity of $277.0 million 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.
(4) The pro forma capitalization of the Company excludes certain equity
investments made subsequent to March 31, 1997 which were not made in
connection with the transactions given effect in the pro forma financial
statements. These equity investments totaled $3.8 million.
(5) The GulfStar Merger was accounted for at historical cost (on a basis similar
to a pooling of interests) as the Company and GulfStar were under common
control. Immediately subsequent to the GulfStar Merger and the Preferred
Stock Redemption, Capstar Broadcasting contributed the capital stock of
GulfStar to the Company. Additionally, had (i) the Preferred Stock
Redemption, (ii) the GulfStar Transaction and (iii) the repayment and
termination of the GulfStar credit facility occurred at March 31, 1997, the
Company would have incurred (i) a loss on redemption of preferred of $5.4
million, (ii) a charge for estimated merger fees and expense of $3.7
million, and (iii) an extraordinary charge on the early extinguishment of
debt of $2.3 million, respectively.
(6) In connection with the Benchmark Acquisition, Capstar Broadcasting issued
$750,000 of Class C Common Stock to an affiliate of Hicks Muse in
consideration for its agreement to purchase the indebtedness of a subsidiary
(the "Fund III Acquisition Sub") of HM Fund III 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 resulted in an extraordinary charge in the period in
which the Company consummated the Benchmark Acquisition. Had the Benchmark
Acquisition been consummated at March 31, 1997, the Company would have
recorded an extraordinary charge of approximately $750,000.
27
<PAGE> 32
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 its predecessor (Commodore), Osborn, GulfStar, Benchmark,
Madison, Community Pacific, Patterson, Ameron, Knight Quality, Quass and
Mountain Lakes 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,
and for the three months ended March 31, 1997 and 1996 have been prepared to
illustrate the effects of: (i) the Commodore Acquisition; (ii) the Completed
Transactions, including the Financing; and (iii) the Pending Transactions and
the anticipated financing thereof, as if each had occurred on January 1, 1996.
The pro forma balance sheet as of March 31, 1997, 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,
GulfStar, Benchmark, Madison, Community Pacific, Patterson, Ameron, Knight
Quality, Quass and Mountain Lakes, 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 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, or to be contained, in the Certificate of
Designation, the Indentures and the Credit Facilities. As a result, the Company
expects the actual amount of indebtedness incurred in connection with the
Pending Transactions to exceed the amount in the Pro Forma Financial
Information. 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 dates.
All acquisitions, except for the GulfStar Transaction, 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 closed or
to be closed after April 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. The GulfStar Transaction is
accounted for at historical cost, on a basis similar to a pooling of interests,
as the Company and GulfStar were under common control prior to the GulfStar
Transaction.
For the purpose of the pro forma statement of operations for the year ended
December 31, 1996 and for the three months ended March 31, 1997 and 1996, (i)
"Completed Transactions Combined" collectively refers to the historical results
of operations of the entities and stations acquired or sold in the Completed
Transactions, excluding the Commodore Acquisition, and (ii) "Pending
Transactions Combined" collectively refers to the results of operations of the
entities and stations to be acquired or sold in the Pending Transactions.
For the purpose of the pro forma balance sheet as of March 31, 1997, (i)
"Completed Transactions Combined" collectively refers to the historical balance
sheets of the entities and stations acquired or sold in the Completed
Transactions, excluding the Commodore Acquisition and the Osborn Acquisition,
and (ii) "Pending Transactions Combined" collectively refers to the historical
balance sheets of the entities and stations to be acquired or sold in the
Pending Transactions.
As used in the Pro Forma Financial Information, (i) "Company Combined"
presents unaudited pro forma financial data for the Company, including its
predecessor, Commodore, (ii) "Pro Forma for Completed Transactions and the
Financing" gives effect to the Completed Transactions and the financing thereof,
including the Financing and (iii) "Pro Forma" gives effect to each of the
foregoing transactions, the Pending Transactions, and the anticipated financing
thereof.
28
<PAGE> 33
The following tables present a summary of the Pro Forma Financial
Information included on the following pages.
<TABLE>
<CAPTION>
PRO FORMA FOR COMPLETED TRANSACTIONS AND THE FINANCING
----------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED ------------------ TWELVE MONTHS ENDED
DECEMBER 31, 1996 1996 1997 MARCH 31, 1997
----------------- ------- ------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net revenue....................... $189,840 $38,852 $39,487 $190,475
Station operating expenses........ 137,665 30,512 30,606 137,759
Depreciation and amortization..... 25,745 6,435 6,435 25,745
Corporate expenses................ 8,269 2,087 2,680 8,862
Other operating expenses.......... 9,800 2,454 2,469 9,815
Operating income (loss)........... 8,361 (2,636) (2,703) 8,294
Interest expense.................. 50,252 12,565 12,565 50,252
Net income (loss)................. (22,040) (8,450) (9,633) (23,223)
OTHER DATA:
Broadcast cash flow(1)............ $ 52,175 $ 8,340 $ 8,881 $ 52,716
Broadcast cash flow margin(1)..... 27.5% 21.5% 22.5% 27.7%
EBITDA(2)......................... $ 43,906 $ 6,253 $ 6,201 $ 43,854
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED -------------------- TWELVE MONTHS ENDED
DECEMBER 31, 1996 1996 1997 MARCH 31, 1997
----------------- -------- -------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net revenue........................ $294,531 $ 61,144 $ 63,172 $296,559
Station operating expenses......... 214,098 48,760 49,100 214,438
Depreciation and amortization...... 40,469 10,116 10,116 40,469
Corporate expenses................. 13,430 3,134 4,285 14,581
Other operating expenses........... 9,912 2,451 2,704 10,165
Operating income (loss)............ 16,622 (3,317) (3,033) 16,906
Interest expense................... 65,128 16,284 16,284 65,128
Net income (loss).................. (27,877) (12,179) (13,610) (29,308)
OTHER DATA:
Broadcast cash flow(1)............. $ 80,433 $ 12,384 $ 14,072 $ 82,121(3)
Broadcast cash flow margin(1)...... 27.3% 20.3% 22.3% 27.7%
EBITDA(2).......................... $ 67,003 $ 9,250 $ 9,787 $ 67,540(3)
Deficiency of earnings to fixed
charges(4)...................... 46,711 17,252 19,311 48,770
</TABLE>
- ---------------
(1) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expenses and other operating expenses. Although
broadcast cash flow 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
broadcasting industry to evaluate a radio company's operating performance.
See "Glossary of Certain Terms and Market and Industry Data."
(2) EBITDA consists of operating income before depreciation, amortization and
other operating 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 broadcasting industry to evaluate a radio company's operating
performance. See "Glossary of Certain Terms and Market and Industry Data."
(3) The pro forma financial results exclude the effects of estimated cost
savings resulting from the Completed Transactions and the Pending
Acquisitions. On a pro forma basis, assuming the consummation of the
aforementioned transactions, including related cost savings as if they had
occurred on January 1, 1996, broadcast cash flow and EBITDA would have been
$93.9 million and $85.0 million, respectively, for the twelve-month period
ended March 31, 1997. The Company expects to realize approximately $11.8
million of estimated cost savings resulting from the elimination of
redundant operating expenses arising from such transactions, including
elimination of certain management positions, the consolidation of facilities
and new rates associated with revised vendor contracts and savings related
to automation of certain station operations. In addition, the Company
expects to realize approximately $5.7 million 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 such
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.
(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.
29
<PAGE> 34
CAPSTAR BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
ADJUSTMENTS PRO FORMA FOR THE
FOR THE FOR THE PENDING
COMPLETED COMPLETED TRANSACTIONS
COMPLETED TRANSACTIONS TRANSACTIONS PENDING AND THE
THE COMPANY TRANSACTIONS AND THE AND THE TRANSACTIONS RELATED
COMBINED(A) COMBINED(B) FINANCING FINANCING COMBINED(F) FINANCING PRO FORMA
----------- ------------ ------------ ------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... $13,847 25,640 $ -- $ 39,487 $23,685 $ -- $ 63,172
Station operating
expenses................ 10,356 20,250 -- 30,606 18,494 -- 49,100
Depreciation and
amortization............ 2,389 2,888 1,158(C) 6,435 2,580 1,101(C) 10,116
Corporate expenses........ 1,424 1,256 -- 2,680 1,605 -- 4,285
Other operating
expenses................ -- 2,469 -- 2,469 235 -- 2,704
------- ------- -------- -------- ------- -------- --------
Operating income
(loss)............... (322) (1,223) (1,158) (2,703) 771 (1,101) (3,033)
Interest expense.......... 6,532 3,268 2,765(D) 12,565 3,028 691(G) 16,284
Gain (loss) on sale of
assets.................. -- 5,348 -- 5,348 6 -- 5,354
Increase in fair value of
redeemable warrants..... -- -- -- -- 5,882 (5,882)(H) --
Other (income) expense.... (27) (260) -- (287) (66) -- (353)
------- ------- -------- -------- ------- -------- --------
Income (loss) before
provision for income
taxes................ (6,827) 1,117 (3,923) (9,633) (8,067) 4,090 (13,610)
Provision (benefit) for
income taxes............ 46 (68) 22(E) -- (2,807) 2,807(E) --
------- ------- -------- -------- ------- -------- --------
Net income (loss)......... $(6,873) $ 1,185 $ (3,945) $ (9,633) $(5,260) $ 1,283 (13,610)
======= ======= ======== ======== ======= ========
Dividends and accretion on
preferred
stock(I)................ 3,450
--------
Loss applicable to common
shares.................. $(17,060)
========
Deficiency of earnings to
fixed charges
and preferred stock
dividends and
accretion(J)............ $ 19,311
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
30
<PAGE> 35
CAPSTAR BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS
FOR THE FOR THE PRO FORMA
COMMODORE COMPLETED FOR
ACQUISITION TRANSACTIONS COMPLETED
AND THE COMPLETED COMBINATION TRANSACTIONS PENDING
THE COMPANY RELATED TRANSACTIONS AND THE AND THE TRANSACTIONS
COMBINED(K) FINANCING COMBINED(M) FINANCING FINANCING COMBINED(O)
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............................. $ 9,103 $ -- $29,749 $ -- 38,852 $22,292
Station operating expenses.............. 6,862 -- 23,650 -- 30,512 18,248
Depreciation and amortization........... 480 1,336(C) 3,372 1,247(C) 6,435 2,039
Corporate expenses...................... 466 -- 1,621 -- 2,087 1,047
Other operating (income) expenses....... -- -- 273 2,181(N) 2,454 (3)
------- ------- ------- ------- ------- -------
Operating income (loss)............... 1,295 (1,336) 833 (3,428) (2,636) 961
Interest expense........................ 2,452 5,052(L) 2,273 2,788(D) 12,565 2,080
Gain (loss) on sale of assets........... -- -- 6,876 -- 6,876 530
Other (income) expense.................. 52 -- 73 -- 125 (141)
------- ------- ------- ------- ------- -------
Income (loss) before provision for
income taxes....................... (1,209) (6,388) 5,363 (6,216) (8,450) (448)
Provision (benefit) for income taxes.... 27 (27)(E) 660 (660)(E) -- 29
------- ------- ------- ------- ------- -------
Net income (loss)....................... $(1,236) $(6,361) $ 4,703 $(5,556) $(8,450) $ (477)
======= ======= ======= ======= ======= =======
Dividends and accretion on preferred
stock(I)..............................
Loss applicable to common shares........
Deficiency of earnings to fixed charges
and preferred stock dividends and
accretion(J)..........................
<CAPTION>
ADJUSTMENTS
FOR THE
PENDING
TRANSACTIONS
AND THE
RELATED
FINANCING PRO FORMA
------------ ---------
<S> <C> <C>
Net revenue............................. $ -- $ 61,144
Station operating expenses.............. -- 48,760
Depreciation and amortization........... 1,642(C) 10,116
Corporate expenses...................... -- 3,134
Other operating (income) expenses....... -- 2,451
-------- --------
Operating income (loss)............... (1,642) (3,317)
Interest expense........................ 1,639(G) 16,284
Gain (loss) on sale of assets........... -- 7,406
Other (income) expense.................. -- (16)
-------- --------
Income (loss) before provision for
income taxes....................... (3,281) (12,179)
Provision (benefit) for income taxes.... (29)(E) --
-------- --------
Net income (loss)....................... $ (3,252) (12,179)
========
Dividends and accretion on preferred
stock(I).............................. 3,073
--------
Loss applicable to common shares........ $(15,252)
========
Deficiency of earnings to fixed charges
and preferred stock dividends and
accretion(J).......................... $ 17,252
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
31
<PAGE> 36
CAPSTAR BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE ADJUSTMENTS PRO FORMA
COMMODORE FOR THE FOR
ACQUISITION COMPLETED COMPLETED
AND THE COMPLETED TRANSACTIONS TRANSACTIONS PENDING
THE COMPANY RELATED TRANSACTIONS AND THE AND THE TRANSACTIONS
COMBINED(P) FINANCING COMBINED(R) FINANCING FINANCING COMBINED(S)
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................................. $ 44,473 $ -- $145,367 $ -- $189,840 $104,691
Station operating expenses.................. 29,798 -- 107,867 -- 137,665 76,433
Depreciation and amortization............... 3,489 3,774(C) 13,610 4,872(C) 25,745 9,654
Corporate expenses.......................... 2,358 -- 5,911 -- 8,269 5,161
Other operating expenses.................... 14,578 (13,834)(Q) 6,875 2,181(N) 9,800 112
-------- -------- -------- -------- -------- --------
Operating income (loss)................... (5,750) 10,060 11,104 (7,053) 8,361 13,331
Interest expense............................ 13,896 16,115(L) 10,639 9,602(D) 50,252 10,169
Gain (loss) on sale of assets............... -- -- 23,155 -- 23,155 496
Increase in fair value of redeemable
warrants.................................. -- -- -- -- -- 5,499
Other (income) expense...................... 1,824 -- 292 -- 2,116 (282)
-------- -------- -------- -------- -------- --------
Income (loss) before provision for income
taxes................................... (21,470) (6,055) 23,328 (16,655) (20,852) (1,559)
Provision (benefit) for income taxes........ 133 (133)(E) 2,059 (2,059)(E) -- (2,039)
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary item... (21,603) (5,922) 21,269 (14,596) (20,852) 480
Extraordinary item, loss on early
extinguishment of debt.................... -- -- 1,188 -- 1,188 --
-------- -------- -------- -------- -------- --------
Net income (loss)........................... $(21,603) $ (5,922) $ 20,081 $(14,596) $(22,040) $ 480
======== ======== ======== ======== ======== ========
Dividends and accretion on preferred
stock(I)..................................
Loss applicable to common shares............
Deficiency of earnings to fixed charges and
preferred stock dividends and
accretion (J).............................
<CAPTION>
ADJUSTMENTS
FOR THE
PENDING
TRANSACTIONS
AND THE
RELATED
FINANCING PRO FORMA
------------ ---------
<S> <C> <C>
Net revenue................................. $ -- $294,531
Station operating expenses.................. -- 214,098
Depreciation and amortization............... 5,070(C) 40,469
Corporate expenses.......................... -- 13,430
Other operating expenses.................... -- 9,912
------- --------
Operating income (loss)................... (5,070) 16,622
Interest expense............................ 4,707(G) 65,128
Gain (loss) on sale of assets............... -- 23,651
Increase in fair value of redeemable
warrants.................................. (5,499)(H) --
Other (income) expense...................... -- 1,834
------- --------
Income (loss) before provision for income
taxes................................... (4,278) (26,689)
Provision (benefit) for income taxes........ 2,039(E) --
------- --------
Income (loss) before extraordinary item... (6,317) (26,689)
Extraordinary item, loss on early
extinguishment of debt.................... -- 1,188
------- --------
Net income (loss)........................... $(6,317) (27,877)
=======
Dividends and accretion on preferred
stock(I).................................. 12,843
--------
Loss applicable to common shares............ $(40,720)
========
Deficiency of earnings to fixed charges and
preferred stock dividends and
accretion (J)............................. $ 46,711
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
32
<PAGE> 37
CAPSTAR BROADCASTING PARTNERS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO FORMA
FOR THE FOR
COMPLETED COMPLETED
TRANSACTIONS TRANSACTIONS PENDING
COMPLETED AND THE AND THE TRANSACTIONS
THE COMPANY TRANSACTIONS(T) FINANCING FINANCING COMBINED(FF)
----------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ 13,025 $ 11,123 $ (571)(U) $ 9,137 $ 5,128
(14,440)(V)
Accounts receivable, net.............. 13,051 16,253 (2,648)(U) 26,656 18,202
Prepaid expenses and other............ 17,142 3,250 (699)(U) 19,363 3,213
(330)(W)
-------- -------- -------- -------- --------
Total current assets............ 43,218 30,626 (18,688) 55,156 26,543
Property and equipment, net............. 41,991 38,514 13,478(U) 93,983 33,489
Intangible and other assets, net........ 358,891 152,695 165,434(U) 685,552 160,623
(550)(X)
(396)(U)
11,750(Y)
(2,272)(Z)
-------- -------- -------- -------- --------
Total assets.................... $444,100 $221,835 $168,756 $834,691 $220,655
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses............................ $ 15,490 $ 11,096 $ (1,300)(U) $ 25,286 $ 9,856
Current portion of long-term debt..... -- 16,272 (16,272)(U) -- 9,476
-------- -------- -------- -------- --------
Total current liabilities....... 15,490 27,368 (17,572) 25,286 19,332
Long-term debt, less current
portion(PP)........................... 229,955 125,732 (43,172)(U) 429,167 111,375
(82,560)(Z)
199,212(AA)
60,000(BB)
(60,000)(BB)
Other long-term liabilities............. 57,757 6,047 2,340(U) 66,144 290
-------- -------- -------- -------- --------
Total liabilities............... 303,202 159,147 58,248 520,597 130,997
Senior exchangeable preferred
stock(PP)............................. -- -- 94,750(CC) 94,750 --
Redeemable preferred stock.............. -- 23,081 (23,081)(DD) -- 20,747
Redeemable warrants..................... -- -- -- -- 17,803
Stockholders' equity (deficit).......... 140,898 39,607 (37,970)(U) 219,344 51,108
750(BB)
(750)(BB)
84,500(EE)
(2,272)(Z)
(5,419)(DD)
-------- -------- -------- -------- --------
Total liabilities and
stockholders' equity.......... $444,100 $221,835 $168,756 $834,691 $220,655
======== ======== ======== ======== ========
<CAPTION>
ADJUSTMENTS
FOR THE
PENDING
TRANSACTIONS
AND THE
RELATED
FINANCING PRO FORMA
------------ ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ (3,896)(GG) $ 1,837
(8,532)(HH)
Accounts receivable, net.............. (5,724)(GG) 38,810
(324)(II)
Prepaid expenses and other............ (1,918)(GG) 7,152
(6)(II)
(13,500)(JJ)
--------- ----------
Total current assets............ (33,900) 47,799
Property and equipment, net............. 18,785(GG) 145,917
(340)(II)
Intangible and other assets, net........ 244,669(GG) 1,085,959
(435)(II)
(4,375)(GG)
(75)(KK)
--------- ----------
Total assets.................... $ 224,329 $1,279,675
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued
expenses............................ $ (5,945)(GG) $ 28,975
(222)(II)
Current portion of long-term debt..... (9,476)(LL) --
--------- ----------
Total current liabilities....... (15,643) 28,975
Long-term debt, less current
portion(PP)........................... (111,375)(LL) 615,113
185,946(MM)
Other long-term liabilities............. 43,116(GG) 109,549
(1)(II)
--------- ----------
Total liabilities............... 102,043 753,637
Senior exchangeable preferred
stock(PP)............................. 94,750
Redeemable preferred stock.............. (20,747)(NN) --
Redeemable warrants..................... (17,803)(NN) --
Stockholders' equity (deficit).......... (51,108)(OO) 431,288
(882)(II)
221,217(MM)
(8,391)(NN)
--------- ----------
Total liabilities and
stockholders' equity.......... $ 224,329 $1,279,675
========= ==========
</TABLE>
See Accompanying Notes to Pro Forma Financial Information.
33
<PAGE> 38
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(A) The schedule below gives effect to the historical acquisitions of the
Company consummated prior to March 31, 1997 for the period from January
1, 1997 through March 31, 1997.
THE COMPANY
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
HISTORICAL
ACQUISITIONS THE
THE BY THE COMPANY
COMPANY COMPANY(2) COMBINED
------- ------------ --------
<S> <C> <C> <C>
Net revenue.......................................... $14,107 $(260) $13,847
Station operating expenses........................... 10,356 -- 10,356
Depreciation and amortization........................ 2,389 -- 2,389
Corporate expenses................................... 1,424 -- 1,424
Other operating expenses............................. -- -- --
------- ----- -------
Operating income.................................. (62) (260) (322)
Interest expense..................................... 6,792 (260) 6,532
Gain (loss) on sale of assets........................ -- -- --
Other (income) expense............................... (27) -- (27)
------- ----- -------
Income (loss) before provision for income taxes... (6,827) -- (6,827)
Provision (benefit) for income taxes................. 46 -- 46
------- ----- -------
Income (loss) before extraordinary loss........... (6,873) -- (6,873)
Extraordinary loss on early extinguishment of debt... 598 (598)(3) --
------- ----- -------
Net income (loss)................................. $(7,471) $ 598 $(6,873)
======= ===== =======
Deficiency of earnings to fixed charges(1)........... $6,827
</TABLE>
- ---------------
(1) 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.
(2) The column gives effect to the LMA fees related to the Community
Pacific Acquisition.
(3) The adjustment reflects the elimination of an extraordinary loss
related to the extinguishment of the Company's former credit facility
in connection with the Osborn Acquisition during the pro forma period.
34
<PAGE> 39
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(B) The schedule below gives effect to the following for the period from
January 1, 1997 through March 31, 1997: (i) the historical acquisitions
and dispositions of the indicated entities consummated prior to March 31,
1997 and (ii) the acquisitions and dispositions of the indicated entities
which were pending at March 31, 1997 and were consummated prior to the
date of this Prospectus.
COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER
HISTORICAL COMPLETED
HISTORICAL HISTORICAL HISTORICAL COMMUNITY TRANSACTIONS
OSBORN(1) GULFSTAR BENCHMARK PACIFIC COMBINED(2)
---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Net revenue...................................... $3,577 $10,995 $ 6,444 $1,681 $2,098
Station operating expenses....................... 2,937 7,948 5,338 1,311 1,974
Depreciation and amortization.................... 418 1,001 1,336 350 (217)
Corporate expenses............................... 268 518 265 197 8
Other operating expenses......................... -- 2,469 -- -- --
------ ------- ------- ------ ------
Operating income (loss)........................ (46) (941) (495) (177) 333
Interest expense................................. 385 1,846 937 238 (138)
Gain (loss) on sale of assets.................... 5,348 -- -- -- --
Other (income) expense........................... (212) (36) (61) 2 47
------ ------- ------- ------ ------
Income (loss) before provision for income
taxes....................................... 5,129 (2,751) (1,371) (417) 424
Provision (benefit) for income taxes............. 32 (102) -- -- 2
------ ------- ------- ------ ------
Net income (loss).............................. $5,097 $(2,649) $(1,371) $ (417) $ 422
====== ======= ======= ====== ======
<CAPTION>
ADJUSTMENTS
FOR COMPLETED
HISTORICAL TRANSACTIONS
TRANSACTIONS(3) COMBINED
--------------- ------------
<S> <C> <C>
Net revenue...................................... $845 $25,640
Station operating expenses....................... 742 20,250
Depreciation and amortization.................... -- 2,888
Corporate expenses............................... -- 1,256
Other operating expenses......................... -- 2,469
---- -------
Operating income (loss)........................ 103 (1,223)
Interest expense................................. -- 3,268
Gain (loss) on sale of assets.................... -- 5,348
Other (income) expense........................... -- (260)
---- -------
Income (loss) before provision for income
taxes....................................... 103 1,117
Provision (benefit) for income taxes............. -- (68)
---- -------
Net income (loss).............................. $103 $ 1,185
==== =======
</TABLE>
- ---------------
(1) The column represents the consolidated results of operations of
Osborn from January 1, 1997 through February 20, 1997, the date of
the Osborn Acquisition.
(2) The column represents the historical combined operating results of
the following entities and stations which were acquired or sold prior
to the date of this Prospectus: (i) Stephens Radio, acquired by
GulfStar prior to the GulfStar Transaction; (ii) Space Coast,
Cavalier, McForhun and Livingston, all acquired by the Company; (iii)
WESC-AM/FM and WFNQ-FM, all sold by Benchmark prior to the Benchmark
Acquisition; (iv) WMCZ-FM, WMHS-FM and WZHT-FM, all acquired by
Benchmark prior to the Benchmark Acquisition; (v) the stations
acquired in the Osborn Add-on Acquisitions; and (vi) the stations
sold in the Osborn Ft. Myers Disposition.
(3) The adjustments give effect to the historical operating results
and/or LMA or JSA expense and/or revenue of the following stations
which were acquired prior to March 31, 1997: (i) WYNU-FM and WTXT-FM,
both acquired by Osborn; (ii) WSCQ-FM, WFMX-FM and WSIC-AM, all
acquired by Benchmark; (iii) KTRA-FM, KKFG-FM, KDAG-FM and KCQL-AM,
all acquired by GulfStar; and (iv) the stations acquired in the
Osborn Add-on Acquisitions.
35
<PAGE> 40
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(C) 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, FCC licenses,
and intangible assets to their estimated fair market value and the
recording of goodwill associated with the acquisitions. Goodwill and FCC
licenses are being amortized over 40 years.
(D) The adjustment reflects interest expense associated with (i) the Existing
Capstar Radio Notes, (ii) the Notes, (iii) the New Capstar Radio Notes,
(iv) the New Credit Facility, and (v) the amortization of deferred
financing fees associated with the Notes, the New Capstar Radio Notes and
the Credit Facilities, net of interest expense related to the existing
indebtedness of the companies included within the Completed Transactions
Combined and the Company. Deferred financing fees are amortized over the
term of the related debt.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, -----------------
1996 1996 1997
------------ ------- -------
<S> <C> <C> <C>
Existing Capstar Radio Notes........................... $ 8,878 $ 2,220 $ 2,220
Notes.................................................. 20,261 5,065 5,065
New Capstar Radio Notes................................ 18,427 4,607 4,607
-------- ------- -------
Interest expense before amortization of deferred
financing fees....................................... 47,566 11,892 11,892
Amortization of deferred financing fees................ 2,686 673 673
-------- ------- -------
Pro forma interest expense........................... 50,252 12,565 12,565
Pro forma interest expense for the Company and
Commodore............................................ (30,011) (7,504) --
Historical interest expense for the Company............ -- -- (6,532)
Historical interest expense for the Completed
Transactions Combined................................ (10,639) (2,273) (3,268)
-------- ------- -------
Net adjustment....................................... $ 9,602 $ 2,788 $ 2,765
======== ======= =======
</TABLE>
(E) The adjustment reflects the elimination of historical income tax expense
(benefit) as the Company would have generated a taxable loss during the
pro forma period.
36
<PAGE> 41
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(F) The columns represent the combined income statements for the period from
January 1, 1997 through March 31, 1997 of the acquisitions and
dispositions of the Company which were pending at March 31, 1997 and have
not been consummated as of the date of this Prospectus.
PENDING TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER
HISTORICAL PENDING PENDING
HISTORICAL HISTORICAL KNIGHT HISTORICAL HISTORICAL TRANSACTIONS TRANSACTIONS
MADISON PATTERSON QUALITY AMERON QUASS COMBINED(1) COMBINED
---------- ---------- ---------- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue.................. $2,028 $10,727 $3,663 $1,856 $921 $4,490 $23,685
Station operating expenses... 1,246 8,319 2,965 1,616 689 3,659 18,494
Depreciation and
amortization............... 376 1,162 206 167 73 596 2,580
Corporate expenses........... 47 1,151 371 -- -- 36 1,605
Other operating expenses..... -- 233 -- -- 2 -- 235
------ ------- ------ ------ ---- ------ -------
Operating income (loss).... 359 (138) 121 73 157 199 771
Interest expense............. 348 1,716 165 218 86 495 3,028
Gain (loss) on sale of
assets..................... -- -- 6 -- -- -- 6
Increase in fair value of
redeemable warrants........ -- 5,882 -- -- -- -- 5,882
Other (income) expense....... -- (3) (36) 5 -- (32) (66)
------ ------- ------ ------ ---- ------ -------
Income (loss) before
provision for income
taxes................... 11 (7,733) (2) (150) 71 (264) (8,067)
Provision (benefit) for
income taxes............... -- (2,861) 24 -- 30 -- (2,807)
------ ------- ------ ------ ---- ------ -------
Net income (loss).......... $ 11 $(4,872) $ (26) $ (150) $ 41 $ (264) $(5,260)
====== ======= ====== ====== ==== ====== =======
</TABLE>
---------------------
(1) The column represents the historical combined operating results of the
following entities and stations to be acquired or sold subsequent to
the date of this Prospectus: (i) WMEZ-FM, KRDU-AM, KJOI-FM, and
WQFN-FM, all pending acquisitions of Patterson; (ii) Emerald City,
COMCO, Commonwealth, WRIS, Griffith, Grant, the stations to be
acquired in the SFX Exchange, American General, KLAW, KJEM, and
Booneville, all pending acquisitions of the Company; and (iii)
WTAW-FM, KTSR-FM, and KAGG-FM, all pending dispositions of the
Company.
37
<PAGE> 42
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(G) The adjustment reflects interest expense associated with (i) the Existing
Capstar Radio Notes, (ii) the Notes, (iii) the New Capstar Radio Notes,
(iv) the New Credit Facility and (v) the amortization of deferred
financing fees associated with the Notes, the New Capstar Radio Notes and
the Credit Facilities, all net of interest expense related to the
existing indebtedness of the companies included within the Pending
Transactions Combined and the Company. Deferred financing fees are
amortized over the term of the related debt.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, --------------------
1996 1996 1997
------------ -------- --------
<S> <C> <C> <C>
Existing Capstar Radio Notes......................... $ 8,878 $ 2,220 $ 2,220
Notes................................................ 20,261 5,065 5,065
New Capstar Radio Notes.............................. 18,427 4,607 4,607
New Credit Facility at 8.0%.......................... 14,876 3,719 3,719
-------- -------- --------
Interest expense before amortization of deferred
financing
fees............................................... 62,442 15,611 15,611
Amortization of deferred financing fees.............. 2,686 673 673
-------- -------- --------
Pro forma interest expense......................... 65,128 16,284 16,284
Pro forma interest expense for the Completed
Transactions....................................... (50,252) (12,565) (12,565)
Historical interest expense for the Pending
Transactions Combined.............................. (10,169) (2,080) (3,028)
-------- -------- --------
Net adjustment..................................... $ 4,707 $ 1,639 $ 691
======== ======== ========
</TABLE>
(H) The adjustment reflects the elimination of the increase in fair value of
the redeemable warrants as the warrants will be repurchased in connection
with the Patterson Acquisition.
(I) The adjustment reflects the dividends and accretion on the Senior
Exchangeable Preferred Stock.
(J) 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.
38
<PAGE> 43
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(K) The schedule below gives effect to the historical acquisitions of the
Company's predecessor, Commodore, consummated prior to March 31, 1997 for
the period from January 1, 1996 through March 31, 1996.
THE COMPANY
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
THE HISTORICAL
THE ACQUISITIONS BY THE COMPANY
COMPANY(1) COMMODORE(3) COMBINED
---------- --------------- -----------
<S> <C> <C> <C>
Net revenue................................... $ 7,416 $1,687 $ 9,103
Station operating expenses.................... 5,375 1,487 6,862
Depreciation and amortization................. 480 -- 480
Corporate expenses............................ 466 -- 466
Other operating expenses...................... -- -- --
------- ------ -------
Operating income (loss)..................... 1,095 200 1,295
Interest expense.............................. 2,452 -- 2,452
Gain (loss) on sale of assets................. -- -- --
Other (income) expense........................ 52 -- 52
------- ------ -------
Income (loss) before provision for income
taxes.................................... (1,409) 200 (1,209)
Provision (benefit) for income taxes.......... 27 -- 27
------- ------ -------
Net income (loss)........................... $(1,436) $ 200 $(1,236)
======= ====== =======
Deficiency of earnings to fixed charges(2).... $ 1,409
</TABLE>
- ---------------
(1) The column represents the results of operations of the Company's
predecessor, Commodore, from January 1, 1996 through March 31, 1996.
(2) 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.
(3) The column gives effect to the historical operating results and LMA
and JSA revenue and expense of the following stations acquired by the
Commodore: the stations acquired in the Huntington Acquisition (as
defined), WKHL-FM, WSTC-AM, WAVW-FM, WBBE-FM, WAXE-AM, WAXB-FM,
WZZN-FM and WPUT-AM.
(L) The adjustment reflects interest expense associated with (i) the Existing
Capstar Radio Notes, (ii) the Notes, and (iii) the amortization of
deferred financing fees associated with the Notes, net of interest
expense related to the existing indebtedness of the Company and
Commodore. Deferred financing fees are amortized over the term of the
related debt.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------------
<S> <C> <C>
Existing Capstar Radio Notes....................... $ 8,878 $ 2,220
Notes.............................................. 20,261 5,065
------- --------
Interest expense before amortization of deferred
financing fees................................... 29,139 7,285
Amortization of deferred financing fees............ 872 219
------- --------
Pro forma interest expense....................... 30,011 7,504
Historical interest expense for the Company........ (5,035) --
Historical interest expense for Commodore.......... (8,861) (2,452)
------- --------
Net adjustment..................................... $16,115 $ 5,052
======= ========
</TABLE>
39
<PAGE> 44
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(M) The schedule below gives effect to the following for the period from
January 1, 1996 through March 31, 1996: (i) the historical acquisitions
and dispositions of the indicated entities consummated prior to March 31,
1997; and (ii) the acquisitions and dispositions of the indicated
entities which were pending at March 31, 1997 and were consummated prior
to the date of this Prospectus.
COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER ADJUSTMENTS
HISTORICAL COMPLETED FOR COMPLETED
HISTORICAL HISTORICAL HISTORICAL COMMUNITY TRANSACTIONS HISTORICAL TRANSACTIONS
OSBORN GULFSTAR BENCHMARK PACIFIC COMBINED(1) TRANSACTIONS(2) COMBINED
---------- ---------- ---------- ---------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue......... $6,852 $4,595 $ 6,217 $2,403 $3,046 $6,636 $29,749
Station operating
expenses.......... 5,868 3,604 4,964 2,025 2,285 4,904 23,650
Depreciation and
amortization...... 1,211 677 1,330 329 (175) -- 3,372
Corporate
expenses.......... 457 171 819 166 8 -- 1,621
Other operating
expenses.......... -- 273 -- -- -- -- 273
------ ------ ------- ------ ------ ------ -------
Operating income
(loss).......... (684) (130) (896) (117) 928 1,732 833
Interest expense.... 635 851 646 216 (75) -- 2,273
Gain (loss) on sale
of assets......... 6,874 -- -- -- 2 -- 6,876
Other (income)
expense........... 93 (4) (58) 50 (8) -- 73
------ ------ ------- ------ ------ ------ -------
Income (loss)
before provision
for income
taxes........... 5,462 (977) (1,484) (383) 1,013 1,732 5,363
Provision (benefit)
for income
taxes............. 851 (191) -- -- -- -- 660
------ ------ ------- ------ ------ ------ -------
Net income
(loss).......... $4,611 $ (786) $(1,484) $ (383) $1,013 $1,732 $ 4,703
====== ====== ======= ====== ====== ====== =======
</TABLE>
- ---------------
(1) The column represents the historical combined operating results of
the following entities and stations which were acquired or sold prior
to the date of this Prospectus: (i) Stephens Radio, KWHN-AM, KMAG-FM,
KLLI-FM and KYGL-FM, all acquired by GulfStar prior to the GulfStar
Transaction; (ii) Space Coast, Cavalier, McForhun and Livingston, all
acquired by the Company; (iii) the stations acquired in the Osborn
Add-on Acquisitions; (iv) WESC-AM/FM and WFNQ-FM, all sold by
Benchmark prior to the Benchmark Acquisition; (iv) WMCZ-FM, WMHS-FM
and WZHT-FM, all acquired by Benchmark prior to the Benchmark
Acquisition; and (v) the stations sold in the Osborn Ft. Myers
Disposition.
(2) The adjustments give effect to the historical operating results
and/or LMA or JSA expense and/or revenue of the following stations
which were acquired or sold prior to March 31, 1997: (i) WKWK-FM,
WRIR-FM, WGEW-FM, WEEL-FM, WBBD-AM, WYNU-FM and WTXT-FM, all acquired
by Osborn prior to the Osborn Acquisition; (ii) WWRD-FM, WNDR-AM,
WNTQ-FM, WFXK-FM, WAYV-FM, and WFKS-FM, all sold by Osborn prior to
the Osborn Acquisition; (iii) KRYS-AM/FM, KMXR-FM, KNCN-FM, KEZA-FM,
KKIX-FM, KKZQ-FM, KIIZ-FM, KLFX-FM, KFMX-FM, KKAM-AM, KRLB-FM,
KZII-FM, KFYO-AM, KBRQ-FM, KKTK-AM, WACO-FM, KCKR-FM, KWTX-AM/FM,
KTRA-FM, KKFG-FM, KDAG-FM, and KCQL-AM, all acquired by GulfStar;
(iv) KLTX-AM, sold by GulfStar; (v) WJMI-FM, WOAD-FM, WKXI-FM/AM,
WSCQ-FM, WFMX-FM, WSIC-AM, KRMD-AM/FM and WJMZ-FM, all acquired by
Benchmark; and (vi) WLTY-FM, WTAR-AM and WKOC-FM, all sold by
Benchmark.
(N) The adjustment collectively gives effect to the warrants issued to R.
Steven Hicks in connection with the financing of the Commodore
Acquisition, the Osborn Acquisition and the GulfStar Transaction.
40
<PAGE> 45
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(O) The column represents the combined income statements for the period from
January 1, 1996 through March 31, 1996 of the acquisitions and
dispositions of the Company which were pending at March 31, 1997 and have
not been consummated as of the date of this Prospectus.
PENDING TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
HISTORICAL POINT HISTORICAL KNIGHT HISTORICAL HISTORICAL
MIDCONTINENT COMMUNICATIONS PATTERSON QUALITY AMERON QUASS
------------ -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue...................... $ 735 $ 950 $6,097 $3,757 $1,602 $894
Station operating expenses....... 794 684 5,144 2,949 1,461 708
Depreciation and amortization.... 108 382 522 259 165 69
Corporate expenses............... -- 52 576 371 -- --
Other operating income........... -- -- -- -- -- (3)
----- ----- ------ ------ ------ ----
Operating income (loss)........ (167) (168) (145) 178 (24) 120
Interest expense................. -- 260 821 174 221 103
Gain (loss) on sale of assets.... -- -- -- 530 -- --
Other (income) expense........... (17) -- (55) (19) (11) (7)
----- ----- ------ ------ ------ ----
Income (loss) before provision
for income taxes............ (150) (428) (911) 553 (234) 24
Provision (benefit) for income
taxes.......................... (51) -- -- 69 -- 11
----- ----- ------ ------ ------ ----
Net income (loss).............. $ (99) $(428) $ (911) $ 484 $ (234) $ 13
===== ===== ====== ====== ====== ====
<CAPTION>
OTHER ADJUSTMENTS
PENDING FOR PENDING
TRANSACTIONS HISTORICAL TRANSACTIONS
COMBINED(1) TRANSACTIONS(2) COMBINED
------------ --------------- ------------
<S> <C> <C> <C>
Net revenue...................... $4,396 $3,861 $22,292
Station operating expenses....... 3,665 2,843 18,248
Depreciation and amortization.... 534 -- 2,039
Corporate expenses............... 48 1,047
Other operating income........... -- (3)
------ ------ -------
Operating income (loss)........ 149 1,018 961
Interest expense................. 501 2,080
Gain (loss) on sale of assets.... -- -- 530
Other (income) expense........... (32) -- (141)
------ ------ -------
Income (loss) before provision
for income taxes............ (320) 1,018 (448)
Provision (benefit) for income
taxes.......................... -- -- 29
------ ------ -------
Net income (loss).............. $ (320) $1,018 $ (477)
====== ====== =======
</TABLE>
- ---------------
(1) The column represents the historical combined operating results of
the following entities and stations to be acquired or sold subsequent
to the date of this Prospectus: (i) WMEZ-FM, KRDU-AM, KJOI-FM, and
WQFN-FM, all pending acquisitions of Patterson; and (ii) Emerald
City, COMCO, Commonwealth, WRIS, Griffith, Grant, the stations to be
acquired in the SFX Exchange, Noalmark, American General, KLAW, KJEM
and Booneville, all pending acquisitions of the Company.
(2) The adjustments give effect to the historical operating results
and/or LMA or JSA expense and/or revenue of the following stations:
WNNK-FM, WTCY-AM, WXBM-FM, WWSF-FM, WSOK-AM, WLVH-FM, WAEV-FM,
KIKI-FM/AM, KKLV-FM, KHVH-AM, WFMB-FM/AM, WCVS-FM, KCBL-AM, KBOS-FM
and KTHT-FM, all purchased by Patterson prior to March 31, 1997.
41
<PAGE> 46
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(P) The schedule below gives effect to the historical acquisitions of the
Company's predecessor, Commodore, consummated prior to March 31, 1997 for
the period from January 1, 1996 through December 31, 1996.
THE COMPANY
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
HISTORICAL
THE HISTORICAL ACQUISITIONS BY THE COMPANY
COMPANY(1) COMMODORE(3) COMMODORE(4) COMBINED
---------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Net revenue......................... $10,303 $ 31,957 $2,213 $ 44,473
Station operating expenses.......... 6,283 21,291 2,224 29,798
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) (11) (5,750)
Interest expense.................... 5,035 8,861 -- 13,896
Gain (loss) on sale of assets....... -- -- -- --
Other (income) expense.............. 65 1,759 -- 1,824
------- -------- ------ --------
Income (loss) before provision for
income taxes................... (3,756) (17,703) (11) (21,470)
Provision (benefit) for income
taxes............................. -- 133 -- 133
------- -------- ------ --------
Net income (loss)................. $(3,756) $(17,836) $ (11) $(21,603)
======= ======== ====== ========
Deficiency of earnings to fixed
charges(2)........................ $ 3,756
</TABLE>
- ---------------
(1) The column represents the consolidated result of operations of the
Company and its predecessor, Commodore, from October 17, 1996 through
December 31, 1996.
(2) 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.
(3) The column represents the consolidated results of operations of
Commodore from January 1, 1996 through October 16, 1996, the date of
the Commodore Acquisition.
(4) The column gives effect to the historical operating results and LMA or
JSA revenue and expense of the following stations acquired by
Commodore: the stations acquired in the Huntington Acquisition,
WKHL-FM, WSTC-AM, WAVW-FM, WBBE-FM, WAXE-AM, WAXB-FM, WZZN-FM and
WPUT-AM.
(Q) The adjustment reflects the elimination of (i) merger related
compensation expenses and (ii) other expenses related to the acquisition
of Commodore by the Company, including costs related to the abandoned
initial public offering of Commodore. These expenses were recognized by
Commodore in connection with the acquisition.
42
<PAGE> 47
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(R) The schedule below gives effect to the following for the period from
January 1, 1996 through December 31, 1996: (i) the historical
acquisitions and dispositions of the indicated entities consummated prior
to March 31, 1997, and (ii) the acquisitions and dispositions of the
indicated entities which were pending at March 31, 1997 and were
consummated prior to the date of this Prospectus.
COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER ADJUSTMENTS
HISTORICAL COMPLETED FOR COMPLETED
HISTORICAL HISTORICAL HISTORICAL COMMUNITY TRANSACTIONS HISTORICAL TRANSACTIONS
OSBORN GULFSTAR BENCHMARK PACIFIC COMBINED(1) TRANSACTIONS(2) COMBINED
---------- ---------- ---------- ---------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue......... $37,215 $32,563 $27,255 $11,199 $12,742 $24,393 $145,367
Station operating
expenses.......... 28,823 24,299 21,253 8,916 8,142 16,434 107,867
Depreciation and
amortization...... 4,756 2,810 5,320 1,416 (692) -- 13,610
Corporate
expenses.......... 1,850 1,923 1,513 760 (135) -- 5,911
Other operating
expenses.......... 1,200 5,432 -- -- 243 -- 6,875
------- ------- ------- ------- ------- ------- --------
Operating income
(loss).......... 586 (1,901) (831) 107 5,184 7,959 11,104
Interest expense.... 2,202 4,604 3,384 933 (484) -- 10,639
Gain (loss) on sale
of assets......... 13,522 -- 9,612 (11) 32 -- 23,155
Other (income)
expense........... 291 829 (679) 8 (157) -- 292
------- ------- ------- ------- ------- ------- --------
Income (loss)
before provision
for income
taxes........... 11,615 (7,334) 6,076 (845) 5,857 7,959 23,328
Provision (benefit)
for income
taxes............. 2,379 (322) -- -- 2 -- 2,059
------- ------- ------- ------- ------- ------- --------
Income (loss)
before
extraordinary
item............ 9,236 (7,012) 6,076 (845) 5,855 7,959 21,269
Extraordinary item,
loss on early
extinguishment of
debt.............. -- 1,188 -- -- -- -- 1,188
------- ------- ------- ------- ------- ------- --------
Net income........ $ 9,236 $(8,200) $ 6,076 $ (845) $ 5,855 $ 7,959 $ 20,081
======= ======= ======= ======= ======= ======= ========
</TABLE>
- ---------------
(1) The column represents the historical combined operating results of
the following entities and stations which were acquired or sold
prior to the date of this Prospectus: (i) Stephens Radio, KWHN-AM,
KMAG-FM, KLLI-FM and KYGL-FM, all acquired by GulfStar prior to
the GulfStar Transaction; (ii) Space Coast, Cavalier, McForhun and
Livingston, all acquired by the Company; (iii) the stations
acquired in the Osborn Add-on Acquisitions; (iv) WESC-AM/FM and
WFNQ-FM, all sold by Benchmark prior to the Benchmark Acquisition;
(v) WMCZ-FM, WMHS-FM and WZHT-FM, all acquired by Benchmark prior
to the Benchmark Acquisition; and (vi) the stations sold in the
Osborn Ft. Myers Disposition.
(2) The adjustments give effect to the historical operating results
and/or LMA or JSA expense and/or revenue of the following stations
which were acquired or sold prior to March 31, 1997: (i) WKWK-FM,
WRIR-FM, WEGW-FM, WEEL-FM, WBBD-AM, WYNU-FM and WTXT-FM, all
acquired by Osborn; (ii) WWRD-FM, WNDR-AM, WNTQ-FM, WFXK-FM,
WAYV-FM, and WFKS-FM, all sold by Osborn; (iii) KRYS-AM/FM,
KMXR-FM, KNCN-FM, KEZA-FM, KKIX-FM, KKZQ-FM, KIIZ-FM, KLFX-FM,
KLTX-FM, KFMX-FM, KKAM-AM, KRLB-FM, KZII-FM, KFYO-AM, KBRQ-FM,
KKTK-AM, WACO-FM, KCKR-FM, KWTX-AM/FM, KTRA-FM, KKFG-FM, KDAG-FM,
and KCQL-AM, all acquired by GulfStar; (iv) KLTX-AM, sold by
GulfStar; (v) WJMI-FM, WOAD-FM, WKXI-FM/AM, WSCQ-FM, WFMX-FM,
WSIC-AM, KRMD-AM/FM and WJMZ-FM, all acquired by Benchmark; and
(vi) WLTY-FM, WTAR-AM and WKOC-FM, all sold by Benchmark.
43
<PAGE> 48
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(S) The column represents the combined income statements for the period from
January 1, 1996 through December 31, 1996 of the acquisitions and
dispositions which were pending at March 31, 1997 and have not been
consummated as of the date of this Prospectus.
PENDING TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
HISTORICAL POINT HISTORICAL KNIGHT HISTORICAL HISTORICAL
MIDCONTINENT COMMUNICATIONS PATTERSON QUALITY AMERON QUASS
------------ -------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue................... $3,446 $5,601 $41,369 $16,597 $8,131 $4,037
Station operating expenses.... 2,555 3,430 30,225 12,812 5,858 3,273
Depreciation and
amortization................ 405 1,538 3,537 1,005 663 293
Corporate expenses............ -- 179 2,624 2,084 -- --
Other operating (income)
expenses.................... -- -- 143 -- -- (31)
------ ------ ------- ------- ------ ------
Operating income (loss)..... 486 454 4,840 696 1,610 502
Interest expense.............. -- 1,071 5,052 710 843 428
Gain (loss) on sale of
assets...................... -- -- -- 568 -- --
Increase in fair value of
redeemable warrants......... -- -- 5,499 -- -- --
Other (income) expense........ (69) (8) (37) (60) 76 (26)
------ ------ ------- ------- ------ ------
Income (loss) before
provision for income
taxes..................... 555 (609) (5,674) 614 691 100
Provision (benefit) for income
taxes....................... 189 -- (2,344) 77 -- 39
------ ------ ------- ------- ------ ------
Net income (loss)........... $ 366 $ (609) $(3,330) $ 537 $ 691 $ 61
====== ====== ======= ======= ====== ======
<CAPTION>
OTHER ADJUSTMENTS
PENDING FOR PENDING
TRANSACTIONS HISTORICAL TRANSACTIONS
COMBINED(1) TRANSACTIONS(2) COMBINED
------------ --------------- ------------
<S> <C> <C> <C>
Net revenue................... $18,098 $7,412 $104,691
Station operating expenses.... 13,434 4,846 76,433
Depreciation and
amortization................ 2,213 -- 9,654
Corporate expenses............ 274 -- 5,161
Other operating (income)
expenses.................... -- -- 112
------- ------ --------
Operating income (loss)..... 2,177 2,566 13,331
Interest expense.............. 2,065 -- 10,169
Gain (loss) on sale of
assets...................... (72) -- 496
Increase in fair value of
redeemable warrants......... -- -- 5,499
Other (income) expense........ (158) -- (282)
------- ------ --------
Income (loss) before
provision for income
taxes..................... 198 2,566 (1,559)
Provision (benefit) for income
taxes....................... -- -- (2,039)
------- ------ --------
Net income (loss)........... $ 198 $2,566 $ 480
======= ====== ========
</TABLE>
- ---------------
(1) The column represents the historical combined operating results of
the following entities and stations to be acquired or sold
subsequent to the date of this Prospectus: (i) WMEZ-FM, KRDU-AM,
KJOI-FM, and WQFN-FM, all pending acquisitions of Patterson; (ii)
Emerald City, COMCO, Commonwealth, WRIS, Griffith, Grant, the
stations be acquired in the SFX Exchange, Noalmark, American
General, KLAW, KJEM, and Booneville, all pending acquisitions of the
Company; and (iii) WTAW-AM, KTSR-FM and KAGG-FM, all pending
dispositions of the Company.
(2) The adjustments give effect to the historical operating results
and/or LMA or JSA expense and/or revenue of the following stations:
WNNK-FM, WTCY-AM, WXBM-FM, WWSF-FM, WSOK-AM, WLVH-FM, WAEV-FM,
KIKI-FM/AM, KKLV-FM, KHVH-AM, WFMB-FM/AM, WCVS-FM, KCBL-AM, KBOS-FM,
and KTHT-FM, all purchased by Patterson prior to March 31, 1997.
44
<PAGE> 49
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(T) The schedule below gives effect to the acquisitions and dispositions of
the companies acquired in the Completed Transactions which were
consummated prior to the date of this Prospectus.
COMPLETED TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER
HISTORICAL COMPLETED COMPLETED
HISTORICAL HISTORICAL COMMUNITY TRANSACTIONS TRANSACTIONS
GULFSTAR BENCHMARK PACIFIC COMBINED(1) COMBINED
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 5,979 $ 4,021 $ 331 $ 792 $ 11,123
Accounts receivable, net......................... 8,232 4,563 745 2,713 16,253
Prepaid expenses and other....................... 1,536 1,232 145 337 3,250
-------- ------- ------- ------- --------
Total current assets..................... 15,747 9,816 1,221 3,842 30,626
Property and equipment, net........................ 17,485 14,055 3,806 3,168 38,514
Intangible and other assets, net................... 84,805 46,221 12,696 8,973 152,695
-------- ------- ------- ------- --------
Total assets............................. $118,037 $70,092 $17,723 $15,983 $221,835
======== ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses...... $ 4,819 $ 4,112 $ 330 $ 1,835 $ 11,096
Current portion of long-term debt................ 214 14,223 1,438 397 16,272
-------- ------- ------- ------- --------
Total current liabilities................ 5,033 18,335 1,768 2,232 27,368
Long-term debt, less current portion............... 82,346 29,849 8,337 5,200 125,732
Other long-term liabilities........................ 5,940 56 -- 51 6,047
-------- ------- ------- ------- --------
Total liabilities........................ 93,319 48,240 10,105 7,483 159,147
Redeemable preferred stock......................... 23,081 -- -- -- 23,081
Stockholders' equity............................... 1,637 21,852 7,618 8,500 39,607
-------- ------- ------- ------- --------
Total liabilities and stockholders'
equity................................. $118,037 $70,092 $17,723 $15,983 $221,835
======== ======= ======= ======= ========
</TABLE>
- ---------------
(1) The column represents the historical combined balance sheets of (i)
the stations in the Osborn Add-On Acquisitions and the Osborn Ft.
Myers Disposition; (ii) Stephens Radio, KWHN-AM, KMAG-FM, KLLI-FM and
KYGL-FM, all acquired by GulfStar prior to the GulfStar Transaction;
(iii) Space Coast, Cavalier, McForhun and Livingston, all acquired by
the Company; and (iv) WMCZ-FM, WMHS-FM and WZHT-FM all acquired by
Benchmark prior to the Benchmark Acquisition.
45
<PAGE> 50
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(U) The adjustments reflect (i) the assumption of $2,391 in liabilities in
connection with the Completed Transactions, (ii) the acquisition of
GulfStar, which is accounted for at historical cost on a basis similar to
a pooling of interests, and (iii) the elimination of the historical
equity of the Completed Transactions, excluding the equity of GulfStar of
$24,718, and the allocation of the purchase prices, net of the proceeds
from the Osborn Ft. Myers Disposition, of the Completed Transactions to
the assets acquired and liabilities assumed resulting in an adjustment to
property and equipment and FCC licenses to their estimated fair market
values and the recording of goodwill associated with the acquisitions as
follows:
<TABLE>
<CAPTION>
ALLOCATION OF
PURCHASE
PRICES AND CARRYING
GULFSTAR AT VALUE OF
HISTORICAL COMPLETED
COST TRANSACTIONS ADJUSTMENTS
------------- ------------ -----------
<S> <C> <C> <C>
Cash and cash equivalents........................ $ 10,552 $ 11,123 $ (571)
Accounts receivable, net......................... 13,605 16,253 (2,648)
Prepaid expenses and other....................... 2,551 3,250 (699)
Property and equipment, net...................... 51,992 38,514 13,478
Intangible and other assets, net................. 315,461 150,027 165,434
Deferred financing............................... 2,272 2,668 (396)
Accounts payable and other accrued expenses...... (9,796) (11,096) (1,300)
Long-term debt, including the current portion.... (82,560) (142,004) (59,444)
Other long-term liabilities...................... (8,387) (6,047) 2,340
Stockholders' equity............................. (24,718) (62,688) (37,970)
--------
Total purchase prices and deferred financing
charges................................... $270,972
========
</TABLE>
(V) The adjustment reflects the excess cash used in connection with the
Completed Transactions.
(W) The adjustment reflects $330 placed in escrow as security for Benchmark's
obligation to consummate the acquisition of WESC-AM/FM and WFNQ-FM located
in Greenville, South Carolina, and the use of the deposit to pay a portion
of the purchase price in connection with the related acquisition.
(X) The adjustment reflects $550 placed in escrow as security for the
Company's obligation to consummate the Osborn Huntsville Acquisition,
which was subsequently used to pay a portion of the purchase price in
connection with the related acquisition.
(Y) The adjustment reflects the estimated deferred financing costs of $7,750
and $4,000 associated with the Capstar Radio Notes Offering and the New
Credit Facility, respectively.
(Z) The adjustments reflect the repayment of current borrowings of GulfStar
of $82,560, including repayment of indebtedness under the GulfStar credit
facility, and the write-off of $2,272 of related deferred financing costs
which resulted in an extraordinary charge in the period the repayment was
made.
(AA) The adjustment reflects proceeds of $199,212 from the Capstar Radio Notes
Offering.
46
<PAGE> 51
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(BB) As part of the Benchmark Acquisition, 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, of which approximately
$60,000 of the proceeds were loaned to Benchmark to enable Benchmark to
consummate four separate acquisitions of radio station properties and for
certain other purposes of Benchmark. The Company unconditionally
guaranteed all of the Fund III Acquisition Sub's indebtedness under the
Acquisition Sub Credit Agreement. Simultaneously with the Benchmark
Acquisition, the Fund III Acquisition Sub was merged with a subsidiary of
Capstar Broadcasting and the Acquisition Sub Credit Agreement was repaid
(the "Repayment"). In connection with the Repayment, Capstar Broadcasting
issued $750 of Class C Common Stock to HM Fund III in consideration of HM
Fund III's agreement to purchase the obligations owing to Bankers Trust
Company under the Acquisition Sub Credit Agreement and the Company
recorded an extraordinary charge of $750.
The related pro forma adjustments are as follows:
<TABLE>
<S> <C>
Guarantee of loans to Benchmark under the Acquisition Sub
Credit Agreement.......................................... $ 60,000
Repayment of indebtedness under the Acquisition Sub Credit
Agreement in connection with the Benchmark Acquisition.... (60,000)
Issuance of Common Stock in connection with the Company's
guarantee................................................. 750
Extraordinary charge........................................ (750)
</TABLE>
(CC) The adjustment reflects the net proceeds from the Preferred Stock Offering
of $94,750, net of fees and expenses of $5,250.
(DD) The adjustment reflects the elimination of the redeemable preferred stock
of GulfStar which was redeemed in connection with the GulfStar
Transaction. GulfStar recognized a loss on the Preferred Stock Redemption
of $5,419 which represents the difference between the carrying value and
the liquidation preference of the preferred stock.
(EE) The adjustment reflects (i) the Hicks Muse GulfStar Equity Investment of
$75,000 in connection with the GulfStar Transaction, (ii) the common
equity investment of $2,100 by Joseph L. Mathias, IV, a former partner of
Benchmark, in connection with the Benchmark Acquisition, (iii) the
Capstar BT Equity Investment of $11,100, and (iv) the fees and expenses
incurred in connection with the GulfStar Merger, which were expensed in
the period in which the GulfStar Merger was consummated.
47
<PAGE> 52
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(FF) The column represents the combined balance sheets as of March 31, 1997 of
the acquisitions which were pending as of the date of this Prospectus.
PENDING TRANSACTIONS COMBINED
<TABLE>
<CAPTION>
OTHER
PENDING
HISTORICAL HISTORICAL HISTORICAL HISTORICAL HISTORICAL ACQUISITIONS
MADISON PATTERSON KNIGHT QUALITY AMERON QUASS COMBINED(1)
---------- ---------- -------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 348 $ 1,177 $ 2,498 $ 90 $ 55 $ 960
Accounts receivable, net.............. 1,415 8,171 2,631 1,405 536 4,044
Prepaid expenses and other............ 132 1,889 385 206 64 537
-------- -------- ------- ------- ------ -------
Total current assets.......... 1,895 11,237 5,514 1,701 655 5,541
Property and equipment, net............. 2,739 19,114 4,784 1,917 1,182 3,753
Intangible and other assets, net........ 12,852 118,088 676 13,006 2,373 13,628
-------- -------- ------- ------- ------ -------
Total assets.................. $ 17,486 $148,439 $10,974 $16,624 $4,210 $22,922
======== ======== ======= ======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued
expenses........................... $ 790 $ 3,742 $ 1,219 $ 761 $ 169 $ 3,175
Current portion of long-term debt..... 250 -- 848 5,200 250 2,928
-------- -------- ------- ------- ------ -------
Total current liabilities..... 1,040 3,742 2,067 5,961 419 6,103
Long-term debt, less current portion.... 13,250 66,500 7,773 4,563 3,418 15,871
Other long-term liabilities............. -- 87 -- -- 203 --
-------- -------- ------- ------- ------ -------
Total liabilities............. 14,290 70,329 9,840 10,524 4,040 21,974
Redeemable preferred stock.............. -- 20,747 -- -- -- --
Redeemable warrants..................... -- 17,803 -- -- -- --
Stockholders' equity.................... 3,196 39,560 1,134 6,100 170 948
-------- -------- ------- ------- ------ -------
Total liabilities and
stockholders' equity........ $ 17,486 $148,439 $10,974 $16,624 $4,210 $22,922
======== ======== ======= ======= ====== =======
<CAPTION>
PENDING
TRANSACTIONS
COMBINED
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 5,128
Accounts receivable, net.............. 18,202
Prepaid expenses and other............ 3,213
--------
Total current assets.......... 26,543
Property and equipment, net............. 33,489
Intangible and other assets, net........ 160,623
--------
Total assets.................. $220,655
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued
expenses........................... $ 9,856
Current portion of long-term debt..... 9,476
--------
Total current liabilities..... 19,332
Long-term debt, less current portion.... 111,375
Other long-term liabilities............. 290
--------
Total liabilities............. 130,997
Redeemable preferred stock.............. 20,747
Redeemable warrants..................... 17,803
Stockholders' equity.................... 51,108
--------
Total liabilities and
stockholders' equity........ $220,655
========
</TABLE>
- ---------------
(1) The columns represents the historical combined balance sheets of (i)
WMEZ-FM, KRDU-FM, KJOI-FM and WQFN-FM, all pending acquisitions of
Patterson; and (ii) Emerald City, COMCO, Commonwealth, WRIS,
Griffith, Grant, American General, Booneville, Noalmark, KLAW and
KJEM, all pending acquisitions of the Company.
48
<PAGE> 53
(GG) The adjustment reflects (i) the assumption of $2,086 in liabilities in
connection with the Pending Transactions and (ii) the allocation of the
purchase prices of the Pending Transactions to the assets acquired and
liabilities assumed resulting in an adjustment to property and equipment
and FCC licenses to their estimated fair market values and the recording
of goodwill associated with the acquisitions as follows:
<TABLE>
<CAPTION>
CARRYING
ALLOCATION OF VALUE OF
PURCHASE PENDING
PRICES TRANSACTIONS ADJUSTMENTS
------------- ------------ -----------
<S> <C> <C> <C>
Cash and cash equivalents............................ $ 1,232 $ 5,128 $ (3,896)
Accounts receivable, net............................. 12,478 18,202 (5,724)
Prepaid expenses and other........................... 1,295 3,213 (1,918)
Property and equipment, net.......................... 52,274 33,489 18,785
Intangible and other assets, net..................... 400,917 156,248 244,669
Deferred financing................................... -- 4,375 (4,375)
Accounts payable and other accrued expenses.......... (3,911) (9,856) (5,945)
Other long-term liabilities.......................... (43,406) (290) 43,116
--------
Total purchase prices........................... $420,879
========
</TABLE>
(HH) The adjustment reflects the excess cash used in connection with the
Pending Transactions.
(II) The adjustments reflect the disposition of WTAW-AM, KTSR-FM and KAGG-FM
located in Bryan, Texas.
(JJ) The adjustment reflects the elimination of the outstanding loan balance
of $13,500 to Emerald City which will be repaid in connection with the
Emerald City Acquisition.
(KK) The adjustment reflects $75 placed in escrow as security for the Company's
obligation to consummate the Emerald City Acquisition, which will be used
to pay a portion of the expenses in connection with the related
acquisition.
(LL) The adjustment reflects the elimination of the historical debt of the
entities to be acquired in the Pending Transactions of $120,851, including
the current portion of $9,476.
(MM) The adjustments reflect borrowings of $185,946 under the New Credit
Facility with an annual interest rate of 8.0% and an equity contribution of
$221,217, including the commitment by HM Fund III and its affiliates to
invest up to an additional $50,000, in connection with the financing of the
Pending Transactions.
(NN) The adjustment reflects the purchase and subsequent retirement of the
redeemable preferred stock of $20,747 and redeemable warrants of $17,803
in connection with the Patterson Acquisition. As a result of the
redemption, Patterson will recognize a loss of $8,391 which represents the
difference between the carrying value and the liquidation preference on
the preferred stock.
(OO) The adjustment reflects the net effect of the elimination of the
historical equity of the entities to be acquired in the Pending
Transactions, based on the purchase method of accounting, of $51,108.
(PP) The pro forma amounts reflect the effects of the exchange offers for the
Notes, the New Capstar Radio Notes and the Senior Exchangeable Preferred
Stock.
49
<PAGE> 54
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, 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, unaudited financial statements of the Company for the three
months ended March 31, 1997, and unaudited financial statements of Commodore for
the three months ended March 31, 1996, all of which are included elsewhere in
this Prospectus, and from audited financial statements of Commodore for the
years ended December 31, 1993 and 1992. The selected balance sheet data in the
following table have been derived from audited financial statements of the
Company as of December 31, 1996, from audited financial statements of Commodore
as of December 31, 1995 which are included elsewhere in this Prospectus, from
audited financial statements of Commodore as of December 31, 1994, 1993 and 1992
and from unaudited financial statements of the Company as of March 31, 1997,
included elsewhere in this Prospectus, and from unaudited financial statements
of Commodore as of March 31, 1996.
In management's opinion, the unaudited financial statements from which such
data have been derived include all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly, in all material respects,
the results of operations and financial condition of the Company and Commodore
as of and for the periods presented.
<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)
<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(5)........ -- 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 income (loss).................. (2,580) (3,782) (527) (2,240) (17,836) (3,756)
OTHER DATA:
Broadcast cash flow(6)............. $ 5,248 $ 6,289 $ 9,742 $ 11,762 $ 10,666 $ 4,020
Broadcast cash flow margin(6)...... 29.2% 31.8% 37.1% 38.2% 33.4% 39.0%
EBITDA(7).......................... $ 3,646 $ 3,758 $ 7,632 $ 9,711 $ 8,909 $ 3,419
Cash flows related to(8):
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
Cash interest expense(9)........... 4,408 4,218 2,932 5,132 5,545 2,627
Capital expenditures............... 371 333 623 321 449 808
Deficiency of earnings to fixed
charges(10)...................... 2,998 3,743 918 1,908 17,703 3,756
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents.......... $ 1,045 $ 887 $ 2,042 $ 10,891 $ 5,028
Intangible and other assets, net... 13,819 22,419 21,096 27,422 234,915
Total assets....................... 27,508 36,192 36,283 52,811 264,928
Long-term debt, including current
portion.......................... 51,934 41,773 36,962 66,261 136,372
Redeemable preferred stock......... 5,800 10 8,414 -- --
Total stockholders' equity
(deficit)........................ (28,766) (8,097) (18,038) (18,555) 91,143
<CAPTION>
THE
COMMODORE COMPANY
--------- -----------
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996(3) 1997(4)
--------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Net revenue........................ $ 7,416 $ 14,107
Station operating expenses......... 5,375 10,356
Depreciation and amortization...... 480 2,389
Corporate expenses................. 466 1,424
Other operating expenses(5)........ -- --
Operating income (loss)............ 1,095 (62)
Interest expense................... 2,452 6,792
Net income (loss).................. (1,436) (7,471)
OTHER DATA:
Broadcast cash flow(6)............. $ 2,041 $ 3,751
Broadcast cash flow margin(6)...... 27.5% 26.6%
EBITDA(7).......................... $ 1,575 $ 2,327
Cash flows related to(8):
Operating activities............. 1,891 409
Investing activities............. (15,798) (129,389)
Financing activities............. 8,103 136,977
Cash interest expense(9)........... 1,454 3,926
Capital expenditures............... 124 916
Deficiency of earnings to fixed
charges(10)...................... 1,409 6,827
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents.......... 5,087 $ 13,025
Intangible and other assets, net... 42,748 358,891
Total assets....................... 63,211 444,100
Long-term debt, including current
portion.......................... 74,478 229,955
Redeemable preferred stock......... -- --
Total stockholders' equity
(deficit)........................ (19,991) 140,898
</TABLE>
- ---------------
(1) The historical financial data set forth includes the results of operations
of Commodore from January 1, 1996 through October 16, 1996, the date of
the Commodore Acquisition.
(2) The historical financial data set forth includes the results of operations
of the Company from October 17, 1996 through December 31, 1996 and the
balance sheet data as of December 31, 1996.
50
<PAGE> 55
(3) The historical financial data set forth includes the results of operations
of Commodore from January 1, 1996 through March 31, 1996.
(4) The historical financial data set forth includes the results of operations
of the Company from January 1, 1997 through March 31, 1997.
(5) 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 Commodore Acquisition 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.
(6) Broadcast cash flow consists of operating income before depreciation,
amortization, corporate expense and other expense. Although broadcast cash
flow 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. See "Glossary of Certain
Terms and Market and Industry Data."
(7) EBITDA consists of operating income before depreciation, amortization and
other expense. 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. See "Glossary of Certain Terms and Market and Industry Data."
(8) Cash flows related to operating activities, investing activities and
financing activities are derived from the related statement of cash flows
and are prepared in accordance with GAAP.
(9) Cash interest expense excludes non-cash amortization of deferred finance
costs, discounts to initial purchasers, and interest on the Notes.
(10) 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.
51
<PAGE> 56
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 should be read in conjunction with the consolidated
financial statements and related notes thereto of the Company 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.
Upon completion of the Pending Transactions, the Company will own and
operate or provide services to 233 radio stations serving 62 mid-sized markets.
The Company anticipates that it will consummate the Pending Transactions;
however, the closing of each such transaction 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
Indentures, the Certificate of Designation, the Credit Facilities 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 or assumed, and will incur or assume, substantial
indebtedness to finance the Completed Transactions 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
and compensation charges in connection with stock option agreements and warrants
issued to certain members of management. See "Certain Transactions."
Consequently, the Company expects that, for the foreseeable future as it pursues
its acquisition strategy, it will report net losses substantially in excess of
those experienced historically, which will result in decreases in stockholders'
equity.
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 operating expenses. EBITDA consists
of operating income before depreciation, amortization and other operating
expenses. Although broadcast cash flow and EBITDA are not measures of
performance calculated in accordance with 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.
52
<PAGE> 57
Combined Results of Operation -- The Company and its predecessor, Commodore, and
GulfStar
The GulfStar Transaction was accounted for at historical cost on a basis
similar to a pooling of interests as the Company and GulfStar were under common
control. The following table presents summary supplemental historical combined
financial data of the Company and its predecessor, Commodore, and GulfStar.
Management believes that the aggregate financial information shown below may be
helpful in understanding the past operations of the stations now owned by the
Company after the GulfStar Transaction before exchanging the Old Preferred Stock
for the New Preferred Stock. The following financial information should be read
in conjunction with the consolidated financial statements of the Company,
Commodore and GulfStar and, in each case, the related notes included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------------
1994 1995 1996 1996 1997
------- ------- -------- ----------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Data
Net revenue.............................. $36,059 $46,592 $ 74,823 $12,011 $ 25,102
Station operating expenses............... 23,144 30,771 51,873 8,979 18,303
Depreciation and amortization............ 2,857 3,060 6,299 1,157 3,390
Corporate expenses....................... 2,449 2,564 4,281 637 1,942
Other operating expenses................. 2,180 2,007 20,010 273 2,469
Operating income (loss).................. 5,429 8,190 (7,640) 965 (1,002)
Interest expense......................... 4,117 9,952 18,500 3,303 8,638
Net income............................... $ 118 $ (670) $(29,792) $(2,222) $(10,120)
Other Data
Broadcast cash flow...................... 12,915 15,821 22,950 3,032 6,799
Broadcast cash flow margin............... 35.8% 34.0% 30.7% 25.2% 27.1%
EBITDA................................... 10,466 13,257 18,669 2,395 4,857
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
Net Revenue. Net revenue increased $13.1 million or 109.2% to $25.1 million
for the three months ended March 31, 1997 from $12.0 million for the three
months ended March 31, 1996. Net revenue included from the operations purchased
in connection with the Osborn Acquisition for the period February 21, 1997
through March 31, 1997 comprised $3.7 million of the increase. The inclusion of
revenue from the remaining acquisitions of radio stations and revenue generated
from LMAs and JSAs provided $5.1 million of the increase. For stations owned or
operated for a comparable period in 1997 and 1996, net revenue increased
approximately $4.3 million or 35.8% to $16.3 million for the three months ended
March 31, 1997 from $12.0 million for the same period in 1996 primarily due to
increased ratings and improved selling efforts.
Station Operating Expenses. Station operating expenses increased $9.3
million or 103.3% to $18.3 million for the three months ended March 31, 1997
from $9.0 million for the three months ended March 31, 1996. The increase was
primarily attributable to (i) additional operating expenses of the operations
purchased in connection with the Osborn Acquisition of $2.9 million and (ii)
station operating expenses of the radio station acquisitions and the JSAs and
LMAs which contributed $2.9 million of the increase. For stations owned or
operated for a comparable period in 1997 and 1996, station operating expenses
increased approximately $3.5 million or 38.9% to $12.5 million in 1997 from $9.0
million in 1996 primarily due to increased selling expenses.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased approximately $3.8 million or 126.7% to $6.8 million for the
three months ended March 31, 1997 from $3.0 million for the same period in 1996.
The broadcast cash flow margin was 27.1% for the three months ended March 31,
1997 compared to 25.2% for the same period in 1996. The broadcast cash flow
provided from the Osborn Acquisition accounted for approximately $861,000 of the
increase; the broadcast cash flow margin from these operations was 23.0%. The
inclusion of broadcast cash flows from the remaining acquisitions and LMAs
accounts for approximately $1.2 million of the increase. Excluding the effects
of the acquisitions and LMAs, broadcast cash flow increased approximately $1.7
million or 56.7% to $4.7 million for the three months ended March 31, 1997
53
<PAGE> 58
from $3.0 million for the same period in 1996 and the broadcast cash flow margin
on a same station basis increased to 28.8% from 25.2%.
Corporate Expenses. Corporate expenses increased approximately $1.3 million
or 204.1% to approximately $1.9 million for the three months ended March 31,
1997 from approximately $637,000 for the same period in 1996. This increase was
primarily due to the additional corporate expense associated with Osborn's
operations and the Company's acquisition activity.
EBITDA. As a result of the factors described above, EBITDA increased
approximately $2.5 million or 104.1% to $4.9 million for the three months ended
March 31, 1997 from $2.4 million for the three months ended March 31, 1996. The
EBITDA margin for the three months ended March 31, 1997 was 19.5% compared to
20.0% for the same period in 1996.
Other Operating Expenses. Depreciation and amortization increased $2.2
million to $3.4 million for the three months ended March 31, 1997 from
approximately $1.2 million for the three months ended March 31, 1996 primarily
due to the various acquisitions consummated during 1996 and 1997. For the three
months ended March 31, 1997, the Company recognized $2.5 million in compensation
charges related to options issued in previous years, compared to $273,000 for
the same period in 1996.
Other (Income) Expense. Interest expense increased approximately $5.3
million or 160.6% to $8.6 million for the three months ended March 31, 1997 from
$3.3 million for the three months ended March 31, 1996 due primarily to interest
expense on $24.7 million of the principal balance of Commodore's senior credit
facility with AT&T Commercial Finance Corporation (the "AT&T Credit Facility")
which was repaid in full in connection with the Osborn Acquisition, interest
expense on the GulfStar credit facility and interest expense on the $35.0
million term loan facility of the Company (the "Former Term Loan Facility")
which was repaid in full in connection with the Osborn Acquisition. Interest
income increased 55% to $181,000 as a result of the interest accrual on a loan
by the Company to Emerald City, will be repaid upon the consummation of the
Emerald City Acquisition, and Eurodollar investments by GulfStar. Other
expenses, net, decreased approximately $111,000 for the three months ended March
31, 1997 compared to the same period in 1996. The Company realized an
extraordinary loss on early retirement of the AT&T Credit Facility during the
three months ended March 31, 1997 of approximately $598,000 in prepayment
penalties and fees. Additionally, the provision for income taxes decreased
$108,000 or 65.9%.
Net Loss. As a result of the factors described above, net loss increased
approximately $7.9 million to $10.1 million for the three months ended March 31,
1997 from $2.2 million for the three months ended March 31, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Revenue. Net revenue increased $28.2 million or 60.5% to $74.8 million
in the year ended December 31, 1996 from $46.6 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 years
ended December 31, 1996 and 1995 provided $21.1 million of the increase. For
stations owned and operated for a comparable period in 1996 and 1995, net
revenue increased approximately $7.1 million or 15.2% to $53.7 million in 1996
from $46.6 million in 1995 primarily due to increased ratings and improved
selling efforts.
Station Operating Expenses. Station operating expenses increased $21.1
million or 68.5% to $51.9 million in the year ended December 31, 1996 from $30.7
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 the LMAs entered into during the years ended December 31, 1996
and 1995, which contributed $13.9 million to the increase. For stations owned
and operated for a comparable period in 1996 and 1995, station operating
expenses increased approximately $7.2 million, or 23.4% to $38.0 million in 1996
from $30.8 million in 1995 primarily due to increased selling expenses.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased $7.1 million or 45.0% to $22.9 million in the year ended
December 31, 1996 from $15.8 million in the year ended December 31, 1995. The
broadcast cash flow margin was 30.7% for 1996 as compared to 34.0% during 1995.
The inclusion of broadcast cash flow from acquisitions and LMAs accounted for
$4.9 million of the increase. Excluding the effects of the acquisitions and
LMAs, broadcast cash flow increased $2.2 million or 13.9% to
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<PAGE> 59
$18.0 million in 1996 from $15.8 million in 1995 and the broadcast cash flow
margin increased to 34.8% from 33.9%.
Corporate Expenses. Corporate expenses increased approximately $1.7 million
or 65.4% during 1996 to $4.3 million from $2.6 million in 1995 as a result of
higher salary expense for additional staffing.
EBITDA. As a result of the factors described above, EBITDA increased $5.4
million or 40.6% to $18.7 million in the year ended December 31, 1996 from $13.3
million in the year ended December 31, 1995. The EBITDA margin decreased to
25.0% in 1996 from 28.5% in 1995.
Other Operating Expenses. Depreciation and amortization increased $3.2
million or 103.2% to $6.3 million in 1996 from $3.1 million in 1995 primarily
due to certain radio station acquisitions consummated in 1996 and 1995. In 1996,
the Company recognized $20.0 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, the former President and Chief Executive
Officer of Commodore, and James T. Shea, Jr., the former Chief Operating Officer
of Commodore, was $2.0 million in 1995.
Other (Income) Expenses. Interest expense increased $8.5 million or 85.0%
to $18.5 million in the year ended December 31, 1996 from $10.0 million during
the same period in 1995 primarily due to the interest expense associated with
the Existing Capstar Radio Notes and $24.7 million in acquisition and working
capital funding from the AT&T Credit Facility and interest incurred on the
GulfStar credit facility. Other expenses, net, increased approximately $5.2
million to $2.7 million in expense for the year ended December 31, 1996 from
approximately $2.7 million in other income for the period ended December 31,
1995. The increase 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, $1.4
million of merger related costs and expenses in connection with the Commodore
Acquisition, and a decrease in gains on asset sales. Commodore earned
approximately $300,000 in interest income on its temporary cash investments in
1996. Extraordinary loss on extinguishment of debt of approximately $1.2 million
was recorded in 1996 related to the recognition of deferred financing fees
associated with the GulfStar credit facility, compared to $444,000 in 1995 in
connection with Commodore's debt restructuring on April 21, 1995. Additionally,
there was a $1.4 million or 116.1% decrease in the provision for income taxes.
Net Loss. As a result of the factors described above, net loss increased
approximately $29.1 million to $29.8 million for the year ended December 31,
1996 from approximately $700,000 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 $10.5 million or 29.1% to
$46.6 million in 1995 from $36.1 million in 1994. The inclusion of revenue from
the acquisitions of radio stations and revenue generated from JSAs and LMAs
entered into during 1995 provided approximately $5.4 million of the increase.
For stations owned and operated for a comparable period in 1995 and 1994, net
revenue improved approximately $5.1 million or 14.1% to $41.2 million in 1995
from $36.1 million in 1994, primarily due to higher ratings and improved selling
efforts.
Station Operating Expenses. Station operating expenses increased
approximately $7.7 million or 33.3% to $30.8 million in 1995 from $23.1 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 $2.8 million to the increase. For stations owned and
operated for a comparable period in 1995 and 1994, station operating expenses
increased approximately $4.8 million or 20.7% to $28 million in 1995 from $23.2
million in 1994 due to increased selling expenses.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased approximately $2.9 million or 22.5% to $15.8 million in 1995
from $12.9 million in 1994. The broadcast cash flow margin was 34.0% in 1995 as
compared to 35.8% in 1994. The inclusion of broadcast cash flow from
acquisitions, JSAs and LMAs accounted for $1.8 million of the increase.
Excluding the effects of the acquisitions, broadcast cash flow increased $1.1
million or 7.7% to $14.0 million in 1995 from $12.9 million in 1994 and the
broadcast cash flow margin decreased to 34.0% from 35.8%.
55
<PAGE> 60
Corporate Operating Expenses. Corporate expenses increased approximately
$115,000 or 4.6% to $2.6 million in 1995 from $2.5 million in 1994.
EBITDA. As a result of the factors described above, EBITDA increased
approximately $2.8 million or 26.7% to $13.3 million in the year ended December
31, 1995 from $10.5 million in the year ended December 31, 1994. The EBITDA
margin decreased to 28.5% in 1995 from 29.1% in 1994.
Other Operating Expenses. Depreciation and amortization increased
approximately $203,000 or 7.0% to $3.1 million in 1995 from $2.9 million in 1994
primarily as a result of Commodore fully amortizing certain costs in December
31, 1993. Long-term incentive compensation decreased approximately $173,000 or
7.9% 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
Bruce A. Friedman and James T. Shea, Jr. pursuant to their prior employment
agreements.
Other (Income) Expenses. Interest expense increased approximately $5.8
million or 141.7% to $9.9 million in 1995 from $4.1 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 Existing Capstar
Radio 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 Existing Capstar Radio 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 $3.1
million or 731.0% to $2.7 million in income in 1995 from $424,000 in expenses in
1994 primarily due to an increase in the gain on sale of assets. Additionally,
there was an increase of approximately $402,000 or 52.2% in provision for income
taxes and an approximate $444,000 loss on the early extinguishment of debt in
1995.
Net Loss. As a result of the factors described above, Commodore recognized
a net loss of approximately $670,000 in 1995, compared to income of $118,000 in
1994.
The Company and its predecessor, Commodore
The Company acquired Commodore on October 16, 1996, at which time Commodore
became a wholly-owned subsidiary. 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 the Commodore Acquisition with the results of
operations of Commodore from January 1, 1996, through October 16, 1996. The
historical results of operations for the three-month period ended March 31, 1997
reflect the historical results of operations of the Company. The results of
operations for the three-month period ended March 31, 1996, and the years ended
December 31, 1995, 1994 and 1993 reflect the results of operations of Commodore.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
Net Revenue. Net revenue increased $6.7 million or 90.2% to $14.1 million
for the three months ended March 31, 1997 from $7.4 million for the three months
ended March 31, 1996. Net revenue included from the operations purchased in
connection with the Osborn Acquisition for the period February 21, 1997 through
March 31, 1997 comprised $3.7 million of the increase. The inclusion of revenue
from the remaining acquisitions of radio stations and revenue generated from
LMAs and JSAs provided $2.8 million of the increase. For stations owned or
operated for a comparable period in 1997 and 1996, net revenue increased
approximately $232,000, or 3.2%, to $7.4 million for the three months ended
March 31, 1997 from $7.2 million for the same period in 1996 due to improved
ratings and selling efforts.
Station Operating Expenses. Station operating expenses increased $5.0
million or 92.7% to $10.4 million for the three months ended March 31, 1997 from
$5.3 million for the three months ended March 31, 1996. The increase is
primarily attributable to (i) additional operating expenses of the operations
purchased in connection with the Osborn Acquisition of $2.9 million and (ii)
station operating expenses of the radio station acquisitions and the JSAs and
LMAs which contributed $2.2 million of the increase. For stations owned or
operated for a
56
<PAGE> 61
comparable period in 1997 and 1996, station operating expenses declined
approximately $86,000, or 1.7%, to $5.1 million in 1997 from $5.2 million in
1996 as a result of efficiencies realized from market consolidation.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased approximately $1.7 million or 85.0% to $3.8 million for the
three months ended March 31, 1997 from $2.0 million for the three months ended
March 31, 1996. The broadcast cash flow margin was 26.6% for the three months
ended March 31, 1997 compared to 27.5% for the three months ended March 31,
1996. The broadcast cash flow provided from the Osborn Acquisition accounted for
approximately $861,000 of the increase; the broadcast cash flow margin from
these operations was 23.0%. The inclusion of broadcast cash flows from the
remaining acquisitions and LMAs accounts for approximately $531,000 of the
increase. Excluding the effects of the acquisitions and LMAs, broadcast cash
flow increased approximately $319,000, or 15.7%, to $2.3 million for the three
months ended March 31, 1997 from $2.0 million for the three months ended March
31, 1996 and the broadcast cash flow margin on a same station basis increased to
31.4% from 28.0%.
Corporate Expenses. Corporate expenses increased approximately $934,000, or
200.4%, to approximately $1.4 million for the three months ended March 31, 1997
from approximately $466,000 for the three months ended March 31, 1996. This
increase was primarily due to the corporate offices of the Company which opened
in October 1996 and the additional corporate expense associated with Osborn's
operations.
EBITDA. As a result of the factors described above, EBITDA increased
approximately $752,000 or 47.7% to $2.3 million for the three months ended March
31,1997 from $1.6 million for the three months ended March 31, 1996. The EBITDA
margin for the three months ended March 31, 1997 was 16.5% compared to 21.2% for
the same period in 1996.
Other Operating Expenses. Depreciation and amortization increased $1.9
million to $2.4 million for the three months ended March 31, 1997 from
approximately $480,000 for the three months ended March 31, 1996 primarily due
to the various acquisitions consummated during 1996 and 1997.
Other (Income) Expense. Interest expense increased approximately $4.3
million, or 172.0%, to $6.8 million for the three months ended March 31, 1997
from $2.5 million for the three months ended March 31, 1996. The increase was
attributable to the write-off of $1.0 million of deferred financing costs and
$606,000 of interest associated with the Former Term Loan Facility, which was
repaid in full in connection with the consummation of the Osborn Acquisition;
$2.1 million of interest expense related to the Notes; and interest expense on
the AT&T Credit Facility which was repaid in full in connection with the
consummation of the Osborn Acquisition. Interest income increased 10.7% to
$128,000 as a result of the interest accrual on the loan under the credit
agreement with Emerald City. The Company realized an extraordinary loss on the
early retirement of the AT&T Credit Facility during the three months ended March
31, 1997 related to penalties and fees of approximately $598,000.
Net Loss. As a result of the factors described above, net loss increased
approximately $6.0 million to $7.5 million for the three months ended March 31,
1997 from $1.4 million for the three months ended March 31, 1996.
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 owned and operated for a comparable period in 1996 and 1995, station
operating
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<PAGE> 62
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 38.3% 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 1995 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 the 1996 period from 31.5% in 1995.
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, Jr. 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 Existing Capstar Radio Notes, (ii) $24.7 million in
acquisition and working capital funding from the AT&T 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 acquisitions of radio stations 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 stations 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.
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<PAGE> 63
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 38.3% 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 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 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 an 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 Bruce A. Friedman and James T. Shea Jr. 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 Existing Capstar
Radio Notes issued in the Recapitalization Transactions, 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. 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
Pursuit of the Company's 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 Common Stock to affiliates of Hicks Muse, R. Steven Hicks
and certain other investors and with $54.8 million of borrowings under the
Company's Former Term Loan Facility. In February 1997, the Company funded the
$143.7 million purchase price (including transaction costs) for the Osborn
Acquisition and the retirement of existing indebtedness of Capstar Radio and
Osborn in connection therewith from (i) $150.3 million of the net proceeds of
the issuance of the Notes, (ii) a $54.8 million investment in Common Stock by HM
Fund III and its affiliates in connection with the Osborn Acquisition (the
"Hicks Muse Osborn Equity Investment"), (iii) a contribution of shares of common
stock of Osborn to the Company by Frank D. Osborn in exchange for shares of
Common Stock having a deemed value of $1.8 million, and (iv) a $600,000
investment in Common Stock by certain members of management. In April and May
1997, the Company funded the purchase price (including transaction costs) of the
Osborn Add-on Acquisitions and the Space Coast Acquisitions through borrowings
under the Existing Credit Facility in the aggregate principal amount of $35.9
million. In July and August 1997, the Company funded (A) the GulfStar Merger
with $119.5 million in cash from the proceeds of the Hicks Muse GulfStar Equity
Investment, the Preferred Stock Offering and the Capstar BT Equity Investment,
and the issuance of Common Stock having a deemed value of approximately $113.0
million, (C) the Community Pacific Acquisition with $35.0 million in cash from
the proceeds of the Capstar Radio Notes Offering, (D) the Cavalier Acquisition
with $8.3 million in cash from the proceeds of the Capstar Radio Notes Offering,
(E) the GulfStar -- McForhun Acquisition with $7.1 million in cash from the
proceeds of the Hicks Muse GulfStar Equity Investment and the Capstar BT Equity
Investment, (F) the GulfStar -- Livingston Acquisition with $250,000 in
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cash from the proceeds of the Hicks Muse Equity Investment and the Capstar BT
Equity Investment, (G) the Benchmark Acquisition with $174.1 million in cash
from the proceeds from the Capstar Radio Notes Offering, the Hicks Muse GulfStar
Equity Investment, the Capstar BT Equity Investment and borrowings under the
Existing Credit Facility, and the issuance of Class A Common Stock having a
deemed value of approximately $2.1 million.
As a result of the financing of its acquisitions, the Company has a
substantial amount of long-term indebtedness, and for the foreseeable future,
the Company will use a large percentage of its cash to make payments under the
Credit Facilities, the Notes, the Existing Capstar Radio Notes and the New
Capstar Radio Notes.
In October 1996, the Company assumed the Existing Capstar Radio Notes in
connection with the Commodore Acquisition. The Existing Capstar Radio 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. Beginning on May 1, 1998, the Existing Capstar Radio Notes will bear cash
interest at a rate of 13 1/4% per annum until maturity. The Existing Capstar
Radio 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 November
1, 1998, until maturity. On February 20, 1997, the Company issued the Notes at a
substantial discount to their aggregate principal amount at maturity of $277.0
million. 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. Capstar
Radio entered into the Existing Credit Facility in February, 1997. Borrowings
under the existing Credit Facility bear interest at floating rates and require
interest payments on varying dates depending on the interest rate option
selected by Capstar Radio. The Existing Credit Facility consists of a $50.0
million revolving loan facility. As of August 6, 1997 (the date on which the
Benchmark Acquisition was consummated), a principal balance of $12.2 million was
outstanding under the Existing Credit Facility and approximately $21.7 million
would have been available for borrowing thereunder. The Company expects to enter
into the New Credit Facility in August 1997, which will provide for, among other
things, borrowings of up to $200.0 million under a revolving credit facility.
Borrowings under the New Credit Facility will bear interest at floating rates
and require interest payments on varying dates depending on the interest rate
option selected by Capstar Radio. See "Description of 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 intends to fund the $402.5 million
aggregate purchase price for the Pending Acquisitions with borrowings under the
Credit Facilities and a combination of indebtedness of Capstar Broadcasting,
Capstar Radio and/or the Company and/or capital stock of Capstar Broadcasting or
its subsidiaries. See "Unaudited 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 Indentures, the Certificate of Designation
and the Credit Facilities. As a result, the Company expects the actual amount of
indebtedness incurred in connection with the Pending Acquisitions to exceed the
amount reflected in the Pro Forma Financial Information. See "Description of
Capital Stock," "Description of Indebtedness" and "Description of the New Senior
Exchangeable Preferred Stock and Exchange Debentures." The Company has not
determined the terms of any such indebtedness or capital stock; the Company is,
however, currently negotiating the terms of the New Credit Facility. 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 the proceeds from the commitment by Hicks Muse
Fund III and its affiliates to invest an additional $50.0 million in equity of
Capstar Broadcasting (for which Capstar Broadcasting has committed to issue
capital stock in exchange therefor) and cash from operating activities, together
with available revolving credit borrowings under the Credit Facilities, should
be sufficient to permit the Company to fund its
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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 arrangements to dispose of any of its
stations other than (i) the disposition of station KASH-AM in Anchorage, Alaska
before consummation of the COMCO Acquisition (as defined) and (ii) the exchange
of stations WESC-FM, WFNQ-FM and WESC-AM in Greenville, South Carolina (which
were acquired in the Benchmark Acquisition) for stations KKRD-FM, KRZZ-FM, and
KNSS-AM in Wichita, Kansas, and WGNE-FM in Daytona Beach, Florida (which are
owned by SFX). See "The Acquisitions -- SFX Exchange."
Net cash provided by operating activities was $0.4 million and $1.9 million
for the three-month periods ended March 31, 1997 and 1996, and $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 $129.4 million and $15.8 million
for the three-month periods ended March 31, 1997 and 1996, and $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 $137.0 million and
$8.1 million for the three-month periods ended March 31, 1997 and 1996, and
$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.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997.
EXTRAORDINARY ITEMS
In connection with the Osborn Acquisition, the Company repaid the AT&T
Credit Facility. The repayment of the AT&T Credit Facility resulted in a
prepayment penalty in the amount of $598,000, which was reported as an
extraordinary item. In connection with the Preferred Stock Redemption and the
repayment and termination of the GulfStar credit facility, the Company recorded
a loss on redemption of preferred stock and an extraordinary
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loss on the early extinguishment of debt, respectively. Had the Preferred Stock
Redemption and the repayment and termination of the GulfStar credit facility
occurred on March 31, 1997, the Company would have recorded a loss on repurchase
of preferred stock of approximately $5.4 million and an extraordinary loss on
the early extinguishment of debt of approximately $2.3 million. In connection
with the Benchmark Acquisition, Capstar Broadcasting 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 resulted in an extraordinary charge in the period in which the
Company consummated the Benchmark Acquisition. Had the Benchmark Acquisition
been consummated at March 31, 1997, the Company would have recorded an
extraordinary charge of approximately $750,000.
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BUSINESS
THE COMPANY
The Company is the largest radio broadcaster in the United States operating
exclusively in mid-sized markets. The Company owns and operates or provides
services to 155 radio broadcasting stations in 46 mid-sized markets located
throughout the United States. On a pro forma basis after giving effect to the
Pending Transactions, the Company will own and operate or provide services to
233 radio broadcasting stations in 62 mid-sized markets located throughout the
United States. These stations comprise the leading radio group, in terms of
revenue share and/or audience share, in 41 markets. On a pro forma basis after
giving effect to the Completed Transactions of the Company and the Pending
Transactions and the financing thereof, including the Financing, as if they had
occurred on January 1, 1996, the Company would have had net revenue, EBITDA (as
defined) and a net loss of $296.6 million, $67.5 million and $29.3 million,
respectively, for the twelve-month period ended March 31, 1997, and EBITDA as
adjusted for estimated cost savings of $85.0 million. The Company has entered
into 17 agreements to acquire 85 additional stations, including seven stations
for which the Company currently provides services pursuant to an LMA, and one
agreement to dispose of three FM stations.
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 the Company
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. The station portfolio
has been, or will be, organized into five regions, the Northeast (Atlantic
Star), the Southeast (Southern Star), the Southwest (GulfStar), the Midwest
(Central Star) and the West (Pacific Star), each of which is, or will be,
managed by regional executives in conjunction with general managers in each of
the Company's markets.
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STATION PORTFOLIO
The following table sets forth certain information regarding the Company
and its markets assuming the Pending Transactions have been consummated.
<TABLE>
<CAPTION>
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 (ATLANTIC STAR)
Allentown-Bethlehem, PA(5)(6)...... 64 3 3 1 1 Commodore/Patterson
Wilmington, DE(7).................. 74 1 1 2 2 Commodore
Roanoke, VA(5)..................... 101 4 1 2 1 Benchmark/Cavalier/WRIS
Worcester, MA...................... 106 1 1 1 1 Knight Quality
Fairfield County, CT(8)............ 112 4 4 2 2 Commodore
Portsmouth-Dover-Rochester, NH..... 117 2 1 1 2 Knight Quality
Huntington, WV-Ashland, KY(5)...... 139 5 5 1 1 Commodore
Salisbury-Ocean City, MD........... 153 2 -- 3 4 Benchmark
Manchester, NH..................... 193 1 1 1 2 Knight Quality
Wheeling, WV(5).................... 213 5 2 1 1 Osborn
Winchester, VA..................... 219 2 1 2 1 Benchmark
Burlington, VT..................... 221 1 -- 2t 5 Knight Quality
Harrisburg-Lebanon-Carlisle, PA.... 253 1 1 2 2 Patterson
Dover, DE.......................... NA 2 1 1 1 Benchmark
Westchester-Putnam Counties,
NY(9)............................ NA 2 1 NA 1 Commodore
Lynchburg, VA...................... NA 3 1 1 1 Benchmark/Cavalier
--- --
Subtotal.................... 39 24
SOUTHEAST REGION (SOUTHERN STAR)
Birmingham, AL..................... 55 2 1 2 3 Ameron
Greenville, SC..................... 59 1 -- 2t 2 Benchmark
Columbia, SC....................... 88 4 2 1 1 Benchmark/Emerald City
Daytona Beach, FL.................. 93 1 -- 1 2 SFX
Melbourne-Titusville-Cocoa, FL..... 96 3 2 1 1 Space Coast
Huntsville, AL..................... 114 4 2 1 1 Osborn/Griffith
Ft. Pierce-Stuart-Vero Beach,
FL(5)............................ 121 5 1 1 1 Commodore
Pensacola, FL...................... 125 3 -- 1 1 Patterson
Montgomery, AL..................... 142 3 -- 2 2 Benchmark
Savannah, GA....................... 153 4 2 1 1 Patterson
Asheville, NC...................... 179 1 1 1 1 Osborn
Tuscaloosa, AL(5).................. 212 3 1 1 1 Osborn/Grant
Jackson, TN........................ 257 2 1 1 1 Osborn
Statesville, NC.................... NA 1 1 NA NA Benchmark
Gadsden, AL(10).................... NA 1 1 NA 1 Osborn
--- --
Subtotal.................... 38 15
</TABLE>
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<TABLE>
<CAPTION>
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>
SOUTHWEST REGION (GULFSTAR)
Baton Rouge, LA.................... 81 3 3 1 1 GulfStar/McForhun/Livingston
Wichita, KS........................ 91 2 1 3 3 SFX
Jackson, MS........................ 118 2 2 2 2 Benchmark
Shreveport, LA..................... 126 1 1 2 3 Benchmark
Beaumont, TX....................... 127 3 1 1 1 GulfStar
Corpus Christi, TX................. 128 3 1 1 1 GulfStar
Tyler-Longview, TX(5).............. 143 4 1 1 1 GulfStar/Noalmark
Killeen, TX(5)..................... 149 2 -- 1 1 GulfStar
Fayetteville, AR(5)................ 161 4 -- 1 1 GulfStar/KJEM
Ft. Smith, AR(5)................... 169 2 1 1 1 GulfStar/Booneville
Lubbock, TX........................ 171 4 2 1 1 GulfStar/American General
Waco, TX........................... 190 4 2 1 1 GulfStar
Texarkana, TX...................... 237 3 1 1 1 GulfStar
Lawton, OK(5)...................... 243 2 -- 1 1 KLAW
Lufkin, TX......................... NA 2 -- NA NA GulfStar
Victoria, TX....................... NA 2 -- NA 1 GulfStar
--- --
Subtotal.................... 43 16
MIDWEST REGION (CENTRAL STAR)
Grand Rapids, MI................... 66 3 1 2 3 Patterson
Des Moines, IA..................... 89 2 1 4 4 Community Pacific
Madison, WI........................ 120 4 2 1 1 Madison
Springfield, IL.................... 192 2 1 3 3 Patterson
Cedar Rapids, IA................... 197 2 1 2 1 Quass
Battle Creek-Kalamazoo, MI......... 229 2 2 1 1 Patterson
--- --
Subtotal.................... 15 8
WEST REGION (PACIFIC STAR)
Honolulu, HI....................... 58 4 3 1 1 Patterson
Fresno, CA......................... 65 3 2 2 3 Patterson
Stockton, CA....................... 85 1 1 3 3 Community Pacific
Modesto, CA........................ 121 1 1 2 2 Community Pacific
Reno, NV........................... 133 2 1 4 3 Patterson
Anchorage, AK...................... 165 4 2 2 1 Community Pacific/COMCO
Fairbanks, AK(8)................... NA 2 1 NA 1 COMCO
Farmington, NM..................... NA 3 1 NA NA GulfStar
Yuma, AZ........................... NA 2 1 NA 1 Commonwealth
--- --
Subtotal.................... 22 13
--- --
Total(10)(11)............... 157 76
=== ==
</TABLE>
- ---------------
NA Information not available.
t Tied with another radio station group.
(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 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. 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-Bethlehem, Pennsylvania, WPAW-FM in Ft.
Pierce-Stuart-Vero Beach, Florida, WEEL-FM in Wheeling, West Virginia,
KLFX-FM in Killeen, Texas and KJEM-FM in
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Fayetteville, Arkansas, pursuant to JSAs. The Company provides certain
sales, programming and marketing services to station WHRD-AM in Huntington,
West Virginia; pending consummation of the Grant Acquisition, to station
WZBQ-FM in Tuscaloosa, Alabama; and pending the consummation of the
respective acquisitions, to stations KKTX-AM and KKTX-FM in Tyler-Longview,
Texas, KZBB-FM in Ft. Smith, Arkansas, KLAW-FM and KZCD-FM in Lawton,
Oklahoma, and WJLM-FM in Roanoke, Virginia pursuant to LMAs. The chart
includes these stations.
(6) The DOJ has raised an issue with the Company regarding the number of radio
stations that the Company will own in the Allentown-Bethlehem, Pennsylvania
area upon completion of the Patterson Acquisition. The Company has begun
discussions with the DOJ to resolve the matter. See "Business -- Federal
Regulation of Radio Broadcasting" and "The Acquisitions -- Patterson
Acquisition."
(7) If the proposed merger of Chancellor and Evergreen Media Corporation is
completed, Thomas O. Hicks, through his control of HM2/Chancellor and the
Company, will have an attributable interest in a total number of radio
stations serving the Wilmington, Delaware market which exceeds FCC multiple
ownership limitations. The FCC could require the Company to divest itself
of radio stations WJBR-FM and WJBR-AM, which serve the Wilmington, Delaware
market. The Company has entered into binding letter of intent to contribute
the broadcasting licenses of such stations to a newly-formed company which
will be structured to satisfy FCC multiple ownership rules and
cross-interest limitations. While management of the Company believes that
such arrangement will meet FCC multiple ownership rules and cross-interest
limitations as they presently exist, there can be no assurance that the FCC
will act favorably on the proposed contribution or that the FCC will not
amend its rules and policies in an adverse manner. The Company does not
believe that an unfavorable decision by the FCC would have a material
adverse effect on the financial condition of the Company.
(8) Fairfield County, Connecticut 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. Fairbanks, Alaska is a CSA as defined by
Arbitron, for which audience share rank was obtained from Arbitron's Fall
1996 CSA Market Report.
(9) 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.
(10) 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.
(11) 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 KASH-AM
in Anchorage, Alaska, which the Company expects to dispose of before
consummation of the COMCO Acquisition in order to remain in compliance with
the station ownership limitations under the Communications Act, and (iii)
stations WESC-FM, WFNQ-FM, and WESC-AM which will be exchanged for stations
owned by SFX in the SFX Exchange. See "The 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
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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
other portfolio companies of Hicks Muse, 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 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.
MANAGEMENT
R. Steven Hicks, the President and Chief Executive Officer of the Company,
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.
The Company has designed a regional organizational structure to manage
effectively its existing station portfolio as well as to accommodate future
in-market or group acquisitions. Each of the Company's regions is, or will be,
headquartered within the region and led by a regional operating executive who
manages, or will manage, the operations of that region's station portfolio and
who oversees, or will oversee, the regional and general managers of the
stations. Each regional operating executive reports directly to R. Steven Hicks.
In assembling each of the existing regional management teams, the Company has
sought to retain the senior management of many 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.
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
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the form of cash bonuses and stock options. Management believes that this
compensation structure, along with the ownership interests of management,
fosters teamwork and the sharing of the best practices across regions to
maximize the overall financial performance of the Company.
The Company has created an Executive Council, consisting of R. Steven
Hicks, Paul D. Stone, William S. Banowsky, Jr. and other executive officers of
Capstar Radio who will serve as Managing Directors. The Executive Council will
develop and implement the Company's strategy and corporate culture and to enable
the Company's regional operating executives to focus substantially all of their
efforts upon operating their stations by relieving them of many of the business
activities that are not directly related to station operations. The Executive
Council, in consultation with the regional operating executives, is responsible
for strategic planning, acquisitions, financial reporting, facilities
consolidation, public service activities, technological development, network
opportunities, national vendor relationships, investor and government relations,
recruiting and training employees, and all other matters affecting the Company
which are not directly related to regional operations. R. Steven Hicks, the
Company's Chief Executive Officer will allocate primary responsibility for each
of these areas to appropriate members of the Executive Council.
The executive officers of Capstar Radio who serve, or will serve, as
Managing Directors on the Executive Council are Frank D. Osborn, David J.
Benjamin, III, Joseph C. Mathias, IV, and James M. Strawn. Mr. Osborn brings
more than 19 years of radio industry experience, including 13 years as the
President and Chief Executive Officer of Osborn. Mr. Benjamin has 23 years of
radio broadcasting experience, including co-founding and serving as Chairman and
Chief Executive Officer of Community Pacific since 1974. Mr. Mathias has managed
the operations of Benchmark since 1989 and prior to 1990 held various positions
in the cable television and radio broadcast industry. Mr. Strawn has 31 years of
radio industry experience, including two years as an Executive Vice President
and Chief Financial Officer of Patterson and 13 years as a radio station owner.
OWNERSHIP
In April 1996, Hicks Muse combined its financial expertise with the
operating experience of R. Steven Hicks to form the Company. In October 1996,
the Company acquired Commodore and Mr. Hicks became the Chief Executive Officer
of the Company. 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, a company which owns and operates radio stations exclusively
within the 40 largest MSAs in the United States and which, upon consummation of
its merger with Evergreen Media Corporation, will be one of the largest
pure-play radio broadcasting companies in the United States based on net
revenues. HM Fund III, an affiliate of Hicks Muse, and its affiliates (including
Capstar L.P.) have invested $233.9 million in Common Stock of Capstar
Broadcasting, including $86.1 million invested as part of the Financing. HM Fund
III and its affiliates have committed to invest an additional $50.0 million in
Capstar Broadcasting, and Capstar Broadcasting has committed to issue additional
equity to HM Fund III and its affiliates in exchange therefor.
R. Steven Hicks, the President and Chief Executive Officer of the Company,
has invested $3.1 million in Class C Common Stock. Certain other members of the
management of Capstar Broadcasting and its subsidiaries, including certain of
the Company's regional executives and Managing Directors, have invested an
additional $7.2 million in Class A Common Stock.
As part of the GulfStar Transaction, GulfStar common stockholders received
Common Stock of Capstar Broadcasting having a deemed value of approximately
$113.0 million. Thomas O. Hicks, the Chairman of the Board and Chief Executive
Officer of Hicks Muse and a director of Capstar Broadcasting and the Company,
beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting
and beneficially owned approximately 87.3% of the voting power of GulfStar
immediately before completion of the GulfStar Merger. In addition, Thomas O.
Hicks and R. Steven Hicks filled two of the four director seats of GulfStar, and
R. Steven Hicks was also the Chief Executive Officer of GulfStar. Certain
members of management of Capstar Broadcasting received Common Stock of Capstar
Broadcasting in connection with the GulfStar Merger as more fully described in
"The Acquisitions -- GulfStar Transaction."
68
<PAGE> 73
REGIONAL OPERATING GROUPS
Northeast Region (Atlantic Star)
The Company's portfolio of radio stations in the Northeast Region includes
63 radio stations (39 FM and 24 AM) located in 16 markets in Connecticut,
Delaware, Kentucky, Maryland, Massachusetts, New Hampshire, New York,
Pennsylvania, Vermont, Virginia and West Virginia. The Company has the leading
radio station cluster based on revenue share rank in eight of its 16 markets.
History. The stations owned and operated by the Company, or to which it
provided services before the Commodore Acquisition, formed the basis for the
Northeast Region with 27 stations located in the following Northeast Region
markets: Allentown-Bethlehem, Pennsylvania (four stations); Wilmington, Delaware
(two stations); Fairfield County, Connecticut (eight stations); Huntington, West
Virginia-Ashland, Kentucky (10 stations); and Westchester-Putnam Counties, New
York (three stations). The Company entered each of these five markets with an
initial acquisition of one or two stations during the 1980's. The Company's
portfolio of stations has undergone significant growth during the past two
years, as the management team completed acquisitions of 16 stations in the
Northeast Region markets in 1995 and 1996, especially after the passage of the
Telecom Act in February 1996. As a result of the recent acquisitions of many of
the Northeast Region's stations, management believes that the station clusters
in the original Northeast Region markets have not yet realized the full
potential of their recent consolidations.
In February 1997, the Company completed the Osborn Acquisition which
provided the Northeast Region with an additional seven stations in the Wheeling,
West Virginia market where the Company ranks number one in both revenue and
audience share. In the past year, Osborn purchased four stations and assumed a
JSA with a fifth station in order to add to its two existing radio stations in
the Wheeling, West Virginia market. The stations target a broad demographic
spectrum with five different formats: Country; Adult Contemporary; Adult;
Classic Rock; and Oldies. Southern Star 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 Benchmark Acquisition enhances the Company's Northeast Region station
portfolio through the addition of 11 stations in five new markets. The Benchmark
Acquisition provided the Company with two stations in Roanoke, Virginia; two
stations in Salisbury-Ocean City, Maryland; three stations in Winchester,
Virginia; three stations in Dover, Delaware; and one station in Lynchburg,
Virginia. The Company expects to realize substantial revenue growth and
economies of scale in the Northeast Region from this acquisition because two of
the new markets are adjacent to one of the original Company markets, as both the
Dover and Salisbury-Ocean City markets are near Wilmington, and the Roanoke and
Lynchburg markets are expected to be combined with five stations purchased in
connection with the Cavalier Acquisition and one station to be purchased in the
WRIS Acquisition. The Patterson Acquisition (as defined) will provide the
Company with two stations in Harrisburg-Lebanon-Carlisle, Pennsylvania, a new
market for the Company. In addition, the Knight Quality Acquisition will provide
the Company with eight stations in four new markets including: Worcester,
Massachusetts (two stations); Portsmouth-Dover-Rochester, New Hampshire (three
stations); Manchester, New Hampshire (two stations); and Burlington, Vermont
(one station).
Management. The Northeast Region is managed by its president and chief
executive officer, James T. Shea, Jr. Mr. Shea has over 22 years of experience
in the radio broadcasting industry. Mr. Shea's operating knowledge and strong
advertising relationships helped Commodore, prior to its acquisition by the
Company, become a leading radio group in each of its markets. Pro forma for the
Pending Acquisitions, the Northeast Region will include 63 stations in 16
markets.
Markets. Management believes that the station portfolio in the Northeast
Region has significant growth potential from the recent formation of station
clusters in the Northeast Region markets. The 16 markets comprising the
Northeast Region are highlighted by eight markets which rank number one in
revenue share and nine markets which rank number one in audience share. Six of
these markets, Allentown-Bethlehem, Pennsylvania; Worcester, Massachusetts;
Huntington, West Virginia-Ashland, Kentucky; Wheeling, West Virginia; Dover,
Delaware; and Lynchburg, Virginia, rank number one in both revenue and audience
share. The Wheeling, West Virginia market is a good example of the Company's
operating strategy. In the past year, Osborn purchased four stations and assumed
a JSA with a fifth station in order to add to its two existing radio stations.
The stations
69
<PAGE> 74
target a broad demographic spectrum with five different formats: Country, Adult
Contemporary, Adult, Class Rock, and Oldies. Southern Star also operates the
Country Music Hall and Jamboree in the Hills, a country music festival, which
compliment the strong radio station cluster in Wheeling.
In addition, 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. The Company 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. The Company believes that this market and the other
markets in the region have not yet realized their full potential with respect to
economies of scale and revenue enhancements.
The following table summarizes certain information relating to the
Company's radio stations in the Northeast Region, assuming consummation of the
Pending Acquisitions.
<TABLE>
<CAPTION>
TARGET COMPANY COMPANY STATION
DEMO- REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
----------------------- -------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLENTOWN-BETHLEHEM, PA.............. 64 1 1
WAEB-AM............................. 1982 Commodore 35+ 6
WAEB-FM............................. 1982 Commodore W18-49 3
WZZO-FM............................. 1993 Commodore M18-49 4
WKAP-AM(5).......................... 1995 Commodore 35+ 8
WEEX-AM(6).......................... 1995 Patterson 35-64 10
WODE-FM(6).......................... 1995 Patterson 35-64 2
WILMINGTON, DE(7).................... 74 2 2
WJBR-AM............................. 1985 Commodore W25-54 5t
WJBR-FM............................. 1985 Commodore 35+ 2
ROANOKE, VA.......................... 101 2 1
WROV-AM............................. 1996 Benchmark 25-54 NA
WROV-FM............................. 1996 Benchmark 18-49 1
WRDJ-FM............................. 1996 Cavalier 35-64 8t
WJJS-FM............................. 1996 Cavalier 18-34 3
WJLM-FM(5).......................... 1969 WRIS 25-54 5
WORCESTER, MA........................ 106 1 1
WTAG-AM............................. 1986 Knight Quality 35-64 4
WSRS-FM............................. 1963 Knight Quality F25-54 2
FAIRFIELD COUNTY, CT(8).............. 112 2 2
WNLK-AM............................. 1989 Commodore 35+ 9t
WEFX-FM............................. 1989 Commodore M18-49 6
WSTC-AM............................. 1996 Commodore 25-54 9t
WKHL-FM............................. 1996 Commodore 25-54 4
WINE-AM............................. 1996 Commodore 25-54 14
WRKI-FM............................. 1996 Commodore M18-49 7
WPUT-AM............................. 1996 Commodore 35+ NA
WAXB-FM............................. 1996 Commodore 25-54 NA
PORTSMOUTH-ROCHESTER, NH............. 117 1 2
WHEB-FM............................. 1965 Knight Quality M25-44 2
WXHT-FM............................. 1994 Knight Quality F25-44 6t
WTMN-AM............................. 1994 Knight Quality M18-50 NA
HUNTINGTON, WV-ASHLAND, KY........... 139 1 1
WTCR-AM............................. 1982 Commodore 25-54 10
WTCR-FM............................. 1982 Commodore 25-54 1
WIRO-AM............................. 1996 Commodore M25-54 14t
WHRD-AM(5).......................... 1996 Commodore M25-54 NA
WZZW-AM............................. 1996 Commodore M25-54 NA
WKEE-AM............................. 1996 Commodore 35+ 12t
WKEE-FM............................. 1996 Commodore 25-54 2
WAMX-FM............................. 1996 Commodore M25-54 5t
WFXN-FM............................. 1996 Commodore M25-54 7
WBVB-FM............................. 1996 Commodore M18-49 8
SALISBURY-OCEAN CITY, MD............. 153 3 4
WWFG-FM............................. 1993 Benchmark 25-54 4
WOSC-FM............................. 1994 Benchmark 18-34 12
<CAPTION>
MARKET AND
STATION CALL LETTERS(1) FORMAT
----------------------- ------
<S> <C>
ALLENTOWN-BETHLEHEM, PA..............
WAEB-AM............................. News/Talk
WAEB-FM............................. Contemporary Hits
WZZO-FM............................. Album Rock
WKAP-AM(5).......................... Middle-of-the-Road
WEEX-AM(6).......................... Country
WODE-FM(6).......................... Oldies
WILMINGTON, DE(7)....................
WJBR-AM............................. Middle-of-the-Road
WJBR-FM............................. Adult Contemporary
ROANOKE, VA..........................
WROV-AM............................. Oldies
WROV-FM............................. Album Rock
WRDJ-FM............................. Oldies
WJJS-FM............................. Contemporary Hits
WJLM-FM(5).......................... Country
WORCESTER, MA........................
WTAG-AM............................. News/Talk/Sports
WSRS-FM............................. Lite Rock
FAIRFIELD COUNTY, CT(8)..............
WNLK-AM............................. News/Talk
WEFX-FM............................. Classic Hits
WSTC-AM............................. News/Talk
WKHL-FM............................. Oldies
WINE-AM............................. News/Talk
WRKI-FM............................. Album Rock
WPUT-AM............................. Country
WAXB-FM............................. Oldies
PORTSMOUTH-ROCHESTER, NH.............
WHEB-FM............................. Album Rock
WXHT-FM............................. Classic Hits
WTMN-AM............................. Sports/Talk
HUNTINGTON, WV-ASHLAND, KY...........
WTCR-AM............................. Classic Country
WTCR-FM............................. Country
WIRO-AM............................. Sports
WHRD-AM(5).......................... Sports
WZZW-AM............................. Sports
WKEE-AM............................. Middle-of-the-Road
WKEE-FM............................. Adult Contemporary
WAMX-FM............................. Modern Rock
WFXN-FM............................. Classic Rock
WBVB-FM............................. Country
SALISBURY-OCEAN CITY, MD.............
WWFG-FM............................. Country
WOSC-FM............................. Contemporary Hits
</TABLE>
70
<PAGE> 75
<TABLE>
<CAPTION>
TARGET COMPANY COMPANY STATION
DEMO- REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
----------------------- -------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MANCHESTER, NH....................... 193 1 2
WGIR-AM............................. 1961 Knight Quality 35+ 3
WGIR-FM............................. 1965 Knight Quality M25-49 2
WHEELING, WV......................... 213 1 1
WWVA-AM............................. 1987 Osborn 25-54 8t
WOVK-FM............................. 1987 Osborn 25-54 1
WKWK-FM............................. 1996 Osborn 25-54 2
WBBD-AM............................. 1996 Osborn 25-54 8t
WRIR-FM............................. 1996 Osborn 25-54 5
WEGW-FM............................. 1996 Osborn 25-54 4
WEEL-FM(5).......................... 1996 Osborn 25-54 6t
WINCHESTER, VA....................... 219 2 1
WUSQ-FM............................. 1991 Benchmark 25-54 1
WFQX-FM............................. 1994 Benchmark 18-49 4
WNTW-AM............................. 1994 Benchmark 25-54 NA
BURLINGTON, VT....................... 221 2t 5
WEZF-FM............................. 1984 Knight Quality F25-54 2t
HARRISBURG-LEBANON-CARLISLE, PA...... 253 2 2
WTCY-AM............................. 1996 Patterson 35-54 7t
WNNK-FM............................. 1996.. Patterson W25-44 1
DOVER, DE............................ NA 1 1
WDSD-FM............................. 1990 Benchmark 25-54 1
WSRV-FM............................. 1994 Benchmark 25-54 2
WDOV-AM............................. 1990 Benchmark 25-54 NA
WESTCHESTER-PUTNAM COUNTIES,
NY(8)(9)............................ NA NA 1
WFAS-AM............................. 1986 Commodore 35+ NA
WFAS-FM............................. 1986 Commodore W25-54 1
WZZN-FM............................. 1996 Commodore W25-54 NA
LYNCHBURG, VA........................ NA 1 1
WLDJ-FM............................. 1996 Cavalier 35-64 2
WJJX-FM............................. 1996 Cavalier 18-34 4t
WJJS-AM............................. 1996 Cavalier 18-34 8t
WYYD-FM............................. 1995 Benchmark 25-54 1
<CAPTION>
MARKET AND
STATION CALL LETTERS(1) FORMAT
----------------------- ------
<S> <C>
MANCHESTER, NH.......................
WGIR-AM............................. News/Talk/Sports
WGIR-FM............................. Album Rock
WHEELING, WV.........................
WWVA-AM............................. Country
WOVK-FM............................. Country
WKWK-FM............................. Adult Contemporary
WBBD-AM............................. Adult Contemporary
WRIR-FM............................. Classic Rock
WEGW-FM............................. Classic Rock
WEEL-FM(5).......................... Oldies
WINCHESTER, VA.......................
WUSQ-FM............................. Country
WFQX-FM............................. Contemporary Hits
WNTW-AM............................. News/Talk
BURLINGTON, VT.......................
WEZF-FM............................. Adult Contemporary
HARRISBURG-LEBANON-CARLISLE, PA......
WTCY-AM............................. Urban/Adult Contemporary
WNNK-FM............................. Contemporary Hits
DOVER, DE............................
WDSD-FM............................. Country
WSRV-FM............................. Adult Contemporary
WDOV-AM............................. News/Talk
WESTCHESTER-PUTNAM COUNTIES,
NY(8)(9)............................
WFAS-AM............................. News/Talk
WFAS-FM............................. Adult Contemporary
WZZN-FM............................. Classic Rock
LYNCHBURG, VA........................
WLDJ-FM............................. Oldies
WJJX-FM............................. Contemporary Hits
WJJS-AM............................. Contemporary Hits
WYYD-FM............................. Country
</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, Dover, Delaware, Roanoke, Virginia, and
Lynchburg, Virginia markets were determined separately, using the City of
License to determine the split of the market.
(4) Company and 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 and Wheeling, West
Virginia, which are reported as of Spring 1996 because the markets were not
marked 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 stations
WKAP-AM in Allentown, Pennsylvania and WEEL-FM in Wheeling, West Virginia
pursuant to JSAs. The Company provides certain sales, programming and
marketing services to stations WHRD-AM in Huntington, West Virginia and
WJLM-FM in Roanoke, Virginia pursuant to an LMA.
(6) The DOJ has raised an issue with the Company regarding the number of radio
stations that the Company will own in the Allentown-Bethlehem, Pennsylvania
area upon completion of the Patterson Acquisition. The Company has begun
discussions with the DOJ to resolve the matter. See "Business -- Federal
Regulation of Radio Broadcasting" and "The Acquisitions -- Patterson
Acquisition."
(7) If the proposed merger of Chancellor and Evergreen Media Corporation is
completed, Thomas O. Hicks, through his control of HM2/Chancellor and the
Company, will have an attributable interest in a total number of radio
stations serving the Philadelphia, Pennsylvania market which exceeds FCC
multiple ownership limitations. The FCC could require the Company to divest
itself of radio
71
<PAGE> 76
stations WJBR-FM and WJBR-AM, which serve the Wilmington, Delaware market.
The Company has entered into a binding letter of intent to contribute the
broadcasting licenses of such stations to a newly-formed company which will
be structured to satisfy FCC multiple ownership rules and cross-interest
limitations. While management of the Company believes that such arrangement
will meet FCC multiple ownership rules and cross-interest limitations as
they presently exist, there can be no assurance that the FCC will act
favorably on the proposed contribution or that the FCC will not amend its
rules and policies in an adverse manner. The Company does not believe that
an unfavorable decision by the FCC would have a material adverse effect on
the financial condition of the Company. See "Risk Factors -- Government
Regulation of Broadcasting Industry" and "-- Federal Regulation of Radio
Broadcasting."
(8) 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.
(9) 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 (Southern Star)
Upon completion of the Pending Acquisitions, the Company's portfolio of
radio stations in the Southeast Region will include 53 stations (38 FM and 15
AM) located in 15 markets in Alabama, Florida, Georgia, North Carolina, South
Carolina and Tennessee. The Company's stations comprise the leading radio
station group based on revenue share in 10 of the 15 markets.
History. The Osborn Acquisition provided the core of the Southeast Region
with 13 stations located in five markets: Huntsville, Alabama (three stations);
Asheville, North Carolina (two stations); Tuscaloosa, Alabama (three stations);
Jackson, Tennessee (three stations); and Gadsden, Alabama (two stations). The
Company also owns two station clusters in Florida. The Commodore Acquisition
provided the Company with six stations in the Ft. Pierce-Stuart-Vero Beach
market and the Space Coast Acquisitions provided the Company with five stations
in the Melbourne-Titusville-Cocoa market. The Benchmark Acquisition enhances the
Company's Southeast Region station portfolio by providing the Company with 11
stations in the following new markets: Greenville, South Carolina (one station);
Columbia, South Carolina (five stations); Montgomery, Alabama (three stations);
and Statesville, North Carolina (two stations).
The Pending Acquisitions will enhance the Company's Southeast Region
station portfolio through the acquisition of 18 additional stations in four new
markets and three existing markets. The Patterson Acquisition will provide the
Company with station clusters in the following new markets: Savannah, Georgia
(six stations) and Pensacola, Florida (three stations). The SFX Exchange will
provide the Company with one station in Daytona Beach, Florida, which is a new
market for the Company. In addition, the Ameron Acquisition will provide the
Company with three stations in Birmingham, Alabama, a new market for the
Company. The Grant Acquisition will provide a new station in Tuscaloosa,
Alabama, an existing market for the Company. The Griffith Acquisition (three
stations) will enhance the Company's position in the Huntsville, Alabama market.
Finally, the Emerald City Acquisition (one station) will enhance the Company's
position in the Columbia, South Carolina market.
Management. The Southeast Region is being managed on an interim basis by
Frank D. Osborn. Mr. Osborn serves on the Executive Council of Capstar Radio and
brings more than 19 years of radio industry experience to the Company. The
Company intends to employ a new president and chief executive officer of the
Southeast Region by the end of 1997, so that Mr. Osborn may focus his attention
on his responsibilities as a member of the Executive Council. Pro forma for the
Pending Acquisitions, the Southeast Region will include 53 stations in 15
markets.
Markets. Management believes that the portfolio of markets in the Southeast
Region has significant consolidation and future add-on acquisition potential,
even though the Company ranks number one in both revenue and audience share in 9
of its 15 markets in the region. The Southeast Region's markets are highlighted
by four six-station clusters, including Columbia, South Carolina; Huntsville,
Alabama; Ft. Pierce-Stuart-Vero Beach, Florida; and Savannah, Georgia. The
Southeast Region illustrates the Company's acquisition strategy as the markets
have been formed through separate acquisitions ranging from one station add-on
acquisitions to multi-station and multi-market acquisitions.
72
<PAGE> 77
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 COMPANY STATION
DEMO- REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
--------------- -------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BIRMINGHAM, AL................. 55 2 3
WMJJ-FM....................... 1990 Ameron W25-54 3t
WERC-AM....................... 1990 Ameron M35-54 7
WOWC-FM....................... 1994 Ameron 18-44 14t
GREENVILLE, SC................. 59 2t 2
WJMZ-FM....................... 1990 Benchmark 25-54 2
COLUMBIA, SC................... 88 1 1
WCOS-FM....................... 1993 Benchmark 25-54 2
WHKZ-FM....................... 1993 Benchmark 25-54 10
WVOC-AM....................... 1994 Benchmark 35-64 8
WSCQ-FM....................... 1992 Benchmark 25-54 11t
WCOS-AM....................... 1993 Benchmark 25-54 13t
WNOK-FM....................... 1994 Emerald City 25-54 3t
DAYTONA BEACH, FL.............. 93 1 2
WGNE-FM....................... 1996 SFX 25-54 1
MELBOURNE-TITUSVILLE-COCOA, 96 1 1
FL............................
WMMB-AM....................... 1986 City 50+ 5t
WBVD-FM....................... 1986 City 35-64 4
WMMV-AM....................... 1982 EZY 35-64 7t
WLRQ-FM....................... 1982 EZY 25-54 1
WHKR-FM....................... 1989 Roper 25-54 3
HUNTSVILLE, AL................. 114 1 1
WDRM-FM....................... 1974 Osborn 25-54 1
WHOS-AM....................... 1997 Osborn 25-54 NA
WBHP-AM....................... 1997 Osborn 25-54 NA
WTAK-FM....................... 1993 Griffith M25-54 3
WXQW-FM....................... 1995 Griffith 25-54 13t
WWXQ-FM....................... 1994 Griffith 25-54 13t
FT. PIERCE-STUART-VERO BEACH, 121 1 1
FL............................
WZZR-FM....................... 1987 Commodore M18-49 2
WQOL-FM....................... 1995 Commodore 25-54 3t
WPAW-FM(5).................... 1995 Commodore 25-54 7
WBBE-FM....................... 1996 Commodore 25-54 1
WAVW-FM....................... 1996 Commodore 25-54 5t
WAXE-AM....................... 1996 Commodore 35+ 14t
PENSACOLA, FL.................. 125 1 1
WMEZ-FM....................... 1997 Patterson W25-54 3
WXBM-FM....................... 1996 Patterson 25-54 1
WWSF-FM....................... 1996 Patterson 35-54 NA
MONTGOMERY, AL................. 142 2 2
WZHT-FM....................... 1997 Benchmark 25-54 1
WMCZ-FM....................... 1997 Benchmark 25-54 4
WMHS-FM....................... 1997 Benchmark 25-54 NA
SAVANNAH, GA................... 153 1 1
WCHY-AM....................... 1995 Patterson 35-54 NA
WCHY-FM....................... 1995 Patterson 25-54 5
WYKZ-FM....................... 1996 Patterson 25-54 NA
WAEV-FM....................... 1996 Patterson 18-49 2
WSOK-AM....................... 1996 Patterson 25-54 6
WLVH-FM....................... 1996 Patterson 25-54 1
ASHEVILLE, NC.................. 179 1 1
WWNC-AM....................... 1994 Osborn 25-54 3
WKSF-FM....................... 1994 Osborn 25-54 1
TUSCALOOSA, AL................. 212 1 1
WACT-AM....................... 1997 Osborn 25-54 10t
WACT-FM....................... 1997 Osborn 25-54 9
WTXT-FM....................... 1997 Osborn 25-54 1
WZBQ-FM(5).................... 1995 Grant 18-34 2
<CAPTION>
MARKET AND
CALL LETTERS(1) FORMAT
--------------- ------
<S> <C>
BIRMINGHAM, AL.................
WMJJ-FM....................... Adult Contemporary
WERC-AM....................... News/Talk
WOWC-FM....................... Country
GREENVILLE, SC.................
WJMZ-FM....................... Urban
COLUMBIA, SC...................
WCOS-FM....................... Country
WHKZ-FM....................... Country
WVOC-AM....................... News/Talk
WSCQ-FM....................... Adult
WCOS-AM....................... Country
WNOK-FM....................... Contemporary Hits
DAYTONA BEACH, FL..............
WGNE-FM....................... Country
MELBOURNE-TITUSVILLE-COCOA,
FL............................
WMMB-AM....................... Middle-of-the-Road
WBVD-FM....................... Classic Rock
WMMV-AM....................... Middle-of-the-Road
WLRQ-FM....................... Adult Contemporary
WHKR-FM....................... Country
HUNTSVILLE, AL.................
WDRM-FM....................... Country
WHOS-AM....................... Country
WBHP-AM....................... Country
WTAK-FM....................... Classic Rock
WXQW-FM....................... Adult Contemporary
WWXQ-FM....................... Adult Contemporary
FT. PIERCE-STUART-VERO BEACH,
FL............................
WZZR-FM....................... Classic Rock
WQOL-FM....................... Oldies
WPAW-FM(5).................... Country
WBBE-FM....................... Adult Contemporary
WAVW-FM....................... Country
WAXE-AM....................... Financial
PENSACOLA, FL..................
WMEZ-FM....................... Adult Contemporary
WXBM-FM....................... Country
WWSF-FM....................... Oldies
MONTGOMERY, AL.................
WZHT-FM....................... Urban
WMCZ-FM....................... Urban/Adult
Contemporary
WMHS-FM....................... Urban
SAVANNAH, GA...................
WCHY-AM....................... Country
WCHY-FM....................... Country
WYKZ-FM....................... Adult Contemporary
WAEV-FM....................... Adult Contemporary
WSOK-AM....................... Gospel
WLVH-FM....................... Adult Contemporary
ASHEVILLE, NC..................
WWNC-AM....................... Country
WKSF-FM....................... Country
TUSCALOOSA, AL.................
WACT-AM....................... Gospel
WACT-FM....................... Country
WTXT-FM....................... Country
WZBQ-FM(5).................... Contemporary Hits
</TABLE>
73
<PAGE> 78
<TABLE>
<CAPTION>
TARGET COMPANY COMPANY STATION
DEMO- REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
--------------- -------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
JACKSON, TN.................... 257 1 1
WTJS-AM....................... 1986 Osborn 25-54 8t
WTNV-FM....................... 1986 Osborn 25-54 3
WYNU-FM....................... 1986 Osborn 25-54 1
STATESVILLE, NC................ NA NA NA
WFMX-FM....................... 1996 Benchmark 25-54 NA
WSIC-AM....................... 1996 Benchmark 25-54 NA
GADSDEN, AL(6)................. NA NA 1
WAAX-AM....................... 1994 Osborn 25-54 5
WQEN-FM....................... 1994 Osborn 25-54 2
<CAPTION>
MARKET AND
CALL LETTERS(1) FORMAT
--------------- ------
<S> <C>
JACKSON, TN....................
WTJS-AM....................... News/Talk
WTNV-FM....................... Country
WYNU-FM....................... Classic Rock
STATESVILLE, NC................
WFMX-FM....................... Country
WSIC-AM....................... News/Talk
GADSDEN, AL(6).................
WAAX-AM....................... News/Talk
WQEN-FM....................... 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 stations WESC-AM, WESC-FM, and WFNQ-FM in
Greenville, South Carolina, which stations will be sold to SFX in the SFX
Exchange. See "The Acquisitions."
(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.
(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 Asheville, North Carolina, Tuscaloosa, Alabama, and
Jackson, Tennessee, which are reported as of Spring 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 WPAW-FM
in Ft. Pierce-Stuart-Vero Beach, Florida, pursuant to a JSA, and to station
WZBQ-FM in Tuscaloosa, Alabama, pursuant to an LMA.
(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.
Southwest Region (GulfStar)
Upon consummation of the Pending Transactions, the Company's portfolio of
radio stations in the Southwest Region will include 59 radio stations (43 FM and
16 AM) located in 16 markets in Arkansas, Kansas, Louisiana, Mississippi,
Oklahoma and Texas. The Company's stations will comprise the leading radio
station group based on revenue share in 11 of its 16 markets.
History. The GulfStar Transaction, in combination with the Pending
Acquisitions of GulfStar, provide the core of the Southwest region with 50
stations located in the following 13 markets: Baton Rouge, Louisiana (six
stations); Beaumont, Texas (four stations); Corpus Christi, Texas (four
stations); Tyler-Longview, Texas (five stations); Fayetteville, Arkansas (four
stations); Fort Smith, Arkansas (three stations); Killeen, Texas (two stations);
Lubbock, Texas (six stations); Texarkana, Texas (four stations); Lawton,
Oklahoma (two stations); Lufkin, Texas (two stations); Victoria, Texas (two
stations); and Waco, Texas (six stations). The Company's stations comprise the
leading radio group based on both ratings and revenue share in 11 of these
markets.
GulfStar's portfolio of stations and markets have undergone significant
growth during 1996 and in 1997. GulfStar has completed acquisitions of 31
stations in 12 markets during this period and currently has five pending
acquisitions for seven stations in one new market and four existing markets.
The Benchmark Acquisition provided the Company with two stations in the
Shreveport, Louisiana market and four stations in the Jackson, Mississippi
market. The SFX Exchange will provide the Company with three stations in the
Wichita, Kansas market.
Management. The Southwest Region is managed by its president and chief
executive officer, John D. Cullen. Mr. Cullen has served as president and chief
operating officer of GulfStar since 1996 and brings more than 16 years of radio
industry experience to the Company. Prior to joining GulfStar, Mr. Cullen served
as a regional manager for SFX. Pro forma for the Pending Transactions, the
Southwest Region will include 59 stations in 16 markets.
74
<PAGE> 79
Markets. Management believes that growth opportunities remain in each of
its markets in the Southeast Region. Management believes that the benefits of
consolidation from GulfStar's completed acquisitions have not yet been fully
realized. Because advertising rates of other media are typically more expensive
than radio, GulfStar can effectively market an attractively priced alternative
medium to non-radio advertisers. The Company currently owns at least one of the
top three radio stations in each of its markets.
The following table summarizes certain information relating to the
Company's radio stations in the Southwest Region, assuming consummation of the
Pending Transactions.
<TABLE>
<CAPTION>
TARGET COMPANY COMPANY STATION
MARKET AND DEMO- REVENUE AUDIENCE AUDIENCE
STATION CALL YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) FORMAT
------------ -------- ---------------- ------- -------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BATON ROUGE, LA........... 81 1 1
WYNK-FM.................. 1995 GulfStar 25-54 1 Country
WYNK-AM.................. 1995 GulfStar 25-54 16t Country
WJBO-AM.................. 1995 GulfStar M 35-64 8 News/Talk/Sports
WLSS-FM.................. 1995 GulfStar W 18-35 6t Contemporary Hits
KRVE-FM.................. 1997 McForhun W 25-54 4 Adult Contemporary
WBIU-AM.................. 1997 Livingston 65+ 16t Christian Country
WICHITA, KS............... 91 3 3
KKRD-FM.................. 1996 SFX 25-54 6 Contemporary Hits
KRZZ-FM.................. 1996 SFX 25-54 3 Classic Rock
KNSS-AM.................. 1996 SFX 35-64 11t News/Talk
JACKSON, MS............... 118 2 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 14 Adult Contemporary
SHREVEPORT, LA............ 126 2 3
KRMD-FM.................. 1996 Benchmark 25-54 1 Country
KRMD-AM.................. 1996 Benchmark 25-54 14 Country
BEAUMONT, TX.............. 127 1 1
KLVI-AM.................. 1992 GulfStar 30+ 5 News/Talk
KYKR-FM.................. 1992 GulfStar 25-54 2t Country
KKMY-FM.................. 1995 GulfStar 30-54 1 Adult Contemporary
KIOC-FM.................. 1997 GulfStar 18-34 8 Alternative
CORPUS CHRISTI, TX........ 128 1 1
KRYS-FM.................. 1996 GulfStar 25-54 2 Country
KRYS-AM.................. 1996 GulfStar 25-54 22 Country
KMXR-FM.................. 1996 GulfStar W 20-45 7 Adult Contemporary
KNCN-FM.................. 1997 GulfStar M 18-44 8 Album Rock
TYLER-LONGVIEW, TX........ 143 1 1
KNUE-FM.................. 1994 GulfStar 25-54 1 Country
KISX-FM.................. 1996 GulfStar 18-34 2 Adult Contemporary
KTYL-FM.................. 1996 GulfStar W 30-54 5 Adult Contemporary
KKTX-AM(5)............... Pending Noalmark M 30-49 NA Classic Rock
KKTX-FM(5)............... Pending Noalmark M 30-49 6t Classic Rock
KILLEEN, TX............... 149 1 1
KIIZ-FM.................. 1996 GulfStar 25-54 1 Urban
KLFX-FM(6)............... 1996 GulfStar 18-34 5 Rock
FAYETTEVILLE, AR.......... 161 1 1
KEZA-FM.................. 1996 GulfStar 25-54 2 Adult Contemporary
KKIX-FM.................. 1997 GulfStar 25-54 1 Country
KKZQ-FM.................. 1997 GulfStar 25-54 4 Classic Rock
KJEM-FM(5)............... Pending KJEM 35-64 13t Adult Standards
</TABLE>
75
<PAGE> 80
<TABLE>
<CAPTION>
TARGET COMPANY COMPANY STATION
MARKET AND DEMO- REVENUE AUDIENCE AUDIENCE
STATION CALL YEAR SOURCE MSA GRAPHIC SHARE SHARE SHARE
LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) FORMAT
------------ -------- ---------------- ------- -------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FT. SMITH, AR............. 169 1 1
KWHN-AM.................. 1997 GulfStar 35-64 8 News/Talk
KMAG-FM.................. 1997 GulfStar 25-49 2 Country
KZBB-FM(5)............... Pending Booneville 25-54 5t Album Rock
LUBBOCK, TX............... 171 1 1
KFMX-FM.................. 1996 GulfStar M 18-34 4 Album Rock
KKAM-AM.................. 1996 GulfStar 18+ 12t Talk
KZII-FM.................. 1997 GulfStar 12-34 2 Contemporary Hits
KFYO-AM.................. 1997 GulfStar 35+ 9 News/Talk/Sports
KCRM-FM.................. 1996 GulfStar W 18-49 7t Adult Contemporary
KKCL-FM.................. Pending American General 35-64 3 Oldies
WACO, TX.................. 190 1 1
KBRQ-FM.................. 1996 GulfStar M 25-54 2t Classic Rock
KKTK-AM.................. 1996 GulfStar M 18-49 6 Classic Rock
WACO-FM.................. 1996 GulfStar 25-54 1 Country
KCKR-FM.................. 1996 GulfStar 18-49 4 Country
KWTX-FM.................. 1996 GulfStar W 25-54 2t Contemporary Hits
KWTX-AM.................. 1996 GulfStar 25-54 7 News/Talk
TEXARKANA, TX............. 237 1 1
KKYR-AM.................. 1994 GulfStar 25-54 NA Country
KKYR-FM.................. 1994 GulfStar 25-54 1 Country
KLLI-FM.................. 1997 GulfStar 18-49 3 Country
KYGL-FM.................. 1997 GulfStar 35-49 4 Classic Rock
LAWTON, OK................ 243 1 1
KLAW-FM(5)............... Pending KLAW 25-54 1 Country
KZCD-FM(5)............... Pending KLAW M25-54 2t Rock
LUFKIN, TX................ NA NA NA
KYKS-FM.................. 1993 GulfStar 12+ NA Country
KAFX-FM.................. 1996 GulfStar 18-49 NA Adult Contemporary
VICTORIA, TX.............. NA NA 1
KIXS-FM.................. 1993 GulfStar 25-54 2 Country
KLUB-FM.................. 1996 GulfStar 25-49 3 Classic Rock
</TABLE>
- ---------------
NA Information not available.
t Tied with another 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 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 and station 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 or Fall 1996 for the
demographic of persons ages 25-54, listening Monday through Sunday, 6:00
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) Pending the consummation of the respective Pending Acquisitions, the Company
provides certain sales, programming and marketing services pursuant to LMAs
to stations KKTX-FM and KKTX-AM in Tyler-Longview, Texas; KJEM-FM in
Fayetteville, Arkansas; KZBB-FM in Ft. Smith, Arkansas; and KLAW-FM and
KZCD-FM in Lawton, Oklahoma.
(6) The Company provides certain sales and marketing services to station KLFX-FM
in Killeen, Texas, pursuant to a JSA.
Midwest Region (Central Star)
Upon consummation of the Pending Acquisitions, the Company's portfolio of
radio stations in the Midwest Region will include 23 radio stations (15 FM and 8
AM) located in six markets in Illinois, Iowa, Michigan and Wisconsin. The
Company's stations will comprise the leading radio station group based on
revenue share rank in two of these markets.
76
<PAGE> 81
History. The Community Pacific Acquisition provides the Company with three
stations in the Des Moines, Iowa market. In addition, the Community Pacific
Acquisition provided three stations in the Des Moines, Iowa market. The Midwest
Region will be enhanced through the completion of three Pending Acquisitions:
Patterson (11 stations); Quass (three stations); and Madison (six stations). The
Patterson Acquisition will provide the Company with four stations in the Battle
Creek-Kalamazoo, Michigan market, four stations in the Grand Rapids, Michigan
market, and three stations in the Springfield, Illinois market. The Quass
Acquisition will provide the Company with three stations in the Cedar Rapids,
Iowa market. In addition, the Madison Acquisition will provide the Company with
six stations in the Madison, Wisconsin market. As a group, the stations to be
acquired in the Madison Acquisition are ranked number one in market revenue and
audience share.
Management. The Midwest Region is being managed on an interim basis by Dex
Allen, who also serves as the president and chief executive officer of the West
Region. See "-- Regional Operating Groups -- West Region." The Midwest Region
will be managed by Mary K. Quass, the current president and chief executive
officer of Quass, who will serve as the Midwest Region's president and chief
executive officer upon consummation of the Quass Acquisition. Ms. Quass has more
than 19 years experience in the radio broadcasting industry in numerous roles,
including Vice President and General Manager of radio stations KHAK-FM and
KHAK-AM prior to Ms. Quass purchasing such radio stations in 1988. Pro forma for
the Pending Acquisitions, the Midwest Region will include 23 stations in six
markets.
Markets. Although the Company's station clusters in the Midwest Region have
leading positions based on audience share in three of the six 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 Midwest Region. The Midwest Region is
highlighted by the Madison, Wisconsin market which ranks number one in both
revenue and audience share.
The following table summarizes certain information relating to the
Company's radio stations in the Midwest Region, assuming consummation of the
Pending Acquisitions.
<TABLE>
<CAPTION>
COMPANY COMPANY STATION
TARGET REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA DEMOGRAPHIC SHARE SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
----------------------- -------- ------- ------- ----------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
GRAND RAPIDS, MI............ 66 2 3
WGRD-FM.................... 1996 Patterson 18-34 6
WRCV-AM.................... 1996 Patterson 35+ NA
WLHT-FM.................... 1996 Patterson 25-54 3
WQFN-FM.................... Pending Patterson F25-54 14
DES MOINES, IA.............. 89 4 4
KHKI-FM.................... 1995 Community Pacific 25-54 7
KGGO-FM.................... 1995 Community Pacific 25-54 5
KDMI-AM.................... 1995 Community Pacific NA NA
MADISON, WI................. 120 1 1
WIBA-AM.................... 1995 Madison 35-64 8t
WIBA-FM.................... 1995 Madison 25-54 4
WMAD-FM.................... 1995 Madison 18-34 5
WTSO-AM.................... 1997 Madison 35-64 14
WZEE-FM.................... 1997 Madison 18-49 2
WMLI-FM.................... 1997 Madison 35-64 13
SPRINGFIELD, IL............. 192 3 3
WFMB-AM.................... 1996 Patterson M35-64 9
WFMB-FM.................... 1996 Patterson 25-54 4
WCVS-FM.................... 1996 Patterson 25-54 12
<CAPTION>
MARKET AND
STATION CALL LETTERS(1) FORMAT
----------------------- ------
<S> <C>
GRAND RAPIDS, MI............
WGRD-FM.................... Modern Rock
WRCV-AM.................... Country
WLHT-FM.................... Adult Contemporary
WQFN-FM.................... Easy
DES MOINES, IA..............
KHKI-FM.................... Country
KGGO-FM.................... Album Rock
KDMI-AM.................... Religion
MADISON, WI.................
WIBA-AM.................... News/Talk
WIBA-FM.................... Classic Rock
WMAD-FM.................... Modern Rock
WTSO-AM.................... News/Talk
WZEE-FM.................... Adult Contemporary
WMLI-FM.................... Soft Hits
SPRINGFIELD, IL.............
WFMB-AM.................... News/Talk/Sports
WFMB-FM.................... Country
WCVS-FM.................... 70's Oldies
</TABLE>
77
<PAGE> 82
<TABLE>
<CAPTION>
COMPANY COMPANY STATION
TARGET REVENUE AUDIENCE AUDIENCE
MARKET AND YEAR SOURCE MSA DEMOGRAPHIC SHARE SHARE SHARE
STATION CALL LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4)
----------------------- -------- ------- ------- ----------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CEDAR RAPIDS, IA............ 197 2 1
KHAK-FM.................... 1988 Quass 25-54 1
KDAT-FM.................... 1995 Quass 25-54 2
KTOF-AM.................... 1988 Quass 25-54 9t
BATTLE CREEK/KALAMAZOO,
MI......................... 229 1 1
WBCK-AM.................... 1996 Patterson 35-64 2
WBXX-FM.................... 1996 Patterson 25-54 1
WRCC-AM.................... 1996 Patterson 45+ 4
WWKN-FM.................... 1996 Patterson 35-64 NA
<CAPTION>
MARKET AND
STATION CALL LETTERS(1) FORMAT
----------------------- ------
<S> <C>
CEDAR RAPIDS, IA............
KHAK-FM.................... Country
KDAT-FM.................... Soft Rock
KTOF-AM.................... Christian
Contemporary
BATTLE CREEK/KALAMAZOO,
MI.........................
WBCK-AM.................... News/Talk
WBXX-FM.................... Adult Contemporary
WRCC-AM.................... Adult Standards
WWKN-FM.................... Oldies
</TABLE>
- ---------------
NA Information not available.
t Tied with another 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 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 a LMA.
(3) Company revenue share rank obtained from data in BIA Publication-Radio
Analyzer, BIA's MasterAccess, version 1.7 (copyright 1996) (currently as of
February 27, 1997), based upon 1996 gross revenue for the indicated markets.
(4) Company and station audience rank share obtained from Arbitron's Radio
Market Reports, based on average quarter hour estimates for the reporting
period ending either Spring or Fall 1996, for the demographic of persons
ages 25-54, listening Monday through Sunday, 6:00 a.m. to midnight. To
account for listeners lost to other nearby markets, a radio station's
"local" audience 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.
West Region (Pacific Star)
Upon consummation of the Pending Acquisitions, the Company will own and
operate or provide services to 35 radio stations (22 FM and 13 AM) in the West
Region. These stations are located in nine markets in Alaska, Arizona,
California, Hawaii, Nevada and New Mexico. The Company's stations will comprise
the leading radio station cluster based on revenue share in one of these
markets.
History. The GulfStar Transaction provides the Company with four stations
in the Farmington, New Mexico market. In addition, the Community Pacific
Acquisition provided the Company with seven stations in the following three
markets: Stockton, California (two stations); Modesto, California (two
stations); and Anchorage, Alaska (three stations). The West Region will be
enhanced through the completion of three pending acquisitions: COMCO (six
stations); Commonwealth (three stations); and Patterson (15 stations). The COMCO
Acquisition will provide the Company with three stations in the Fairbanks,
Alaska market. In Anchorage, Alaska, the Company will create a six-station
cluster combining three stations from the COMCO Acquisition and three stations
from the Community Pacific Acquisition. This cluster will provide the Company
with the number one and number two rankings in audience share and revenue share,
respectively. All of the stations to be acquired as part of the Commonwealth
Acquisition are located in Yuma, Arizona. In addition, the Patterson Acquisition
will enhance the Company's West Region station portfolio with three new markets,
including Honolulu, Hawaii (seven stations), Fresno, California (five stations)
and Reno, Nevada (three stations).
Management. The West Region is managed by its president and chief executive
officer, Dex Allen, who has over 35 years of experience in the radio
broadcasting industry. 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. Pro forma for the
Pending Acquisitions, the West Region will include 35 stations in nine markets.
Markets. Management believes that the West Region has significant growth
potential and the current markets have substantial consolidation and add-on
capabilities. Management hopes to replicate its success in Honolulu, Hawaii,
where the Company holds the number one revenue share and number one audience
share ranks in the market. The seven stations target a broad demographic
spectrum with five different formats: Adult
78
<PAGE> 83
Contemporary, Jazz, Classic Rock, Contemporary Hits and News/Talk. Another
strong radio cluster will be formed upon consummation of two Pending
Acquisitions. The Community Pacific Acquisition and the COMCO Acquisition will
bring a six-station cluster together in Anchorage, Alaska which when combined
will form the number two radio station group in terms of revenue share and the
number one group in terms of audience share. The Company believes that both of
these markets and the other West Region markets have not fully realized the
benefits of economies of scale or revenue enhancements associated with station
consolidation. The Company expects to build on its success in Honolulu, which
ranks number one in revenue share and audience share, through continued
consolidation and economies of scale in its existing portfolio in the West
Region.
The following table summarizes certain information relating to the
Company's radio stations in the West Region, assuming consummation of the
Pending Acquisitions.
<TABLE>
<CAPTION>
COMPANY COMPANY STATION
MARKET AND TARGET REVENUE AUDIENCE AUDIENCE
STATION CALL YEAR SOURCE MSA DEMOGRAPHIC SHARE SHARE SHARE
LETTERS(1) ACQUIRED COMPANY RANK(2) GROUP RANK(3) RANK(4) RANK(4) FORMAT
------------ -------- ----------------- ------- ----------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HONOLULU, HI......... 58 1 1
KSSK-AM............ 1995 Patterson 25-54 3 Adult Contemporary
KSSK-FM............ 1995 Patterson 25-54 1 Adult Contemporary
KUCD-FM............ 1995 Patterson 35-54 12 Jazz
KHVH-AM............ 1996 Patterson 35-64 11 News/Talk
KKLV-FM............ 1996 Patterson M 35-54 8 Classic Rock
KIKI-AM............ 1996 Patterson 18-34 NA Contemporary Hits
KIKI-FM............ 1996 Patterson 18-34 4 Contemporary Hits
FRESNO, CA........... 65 2 3
KBOS-FM............ 1996 Patterson 18-34 3 Contemporary Hits
KCBL-AM............ 1996 Patterson M 18-49 NA Sports
KRZR-FM............ 1995 Patterson M 18-49 8 Album Rock
KRDU-AM............ Pending Patterson NA NA Religion
KJOI-FM............ Pending Patterson 25-54 7 Adult Contemporary
STOCKTON, CA......... 85 3 3
KVFX-FM............ 1994 Community Pacific 18-49 4 Classic Rock
KJAX-AM............ 1996 Community Pacific 35-64 6 Talk
MODESTO, CA.......... 121 2 2
KJSN-FM............ 1982 Community Pacific 25-54 3 Adult Contemporary
KFIV-AM............ 1982 Community Pacific 35-64 7t Talk
RENO, NV............. 133 4 3
KRNO-FM............ 1996 Patterson 25-54 3 Adult Contemporary
KWNZ-FM............ 1996 Patterson 18-34 2 Contemporary Hits
KCBN-AM............ 1996 Patterson 35-64 19t Middle of the Road
ANCHORAGE, AK(5)..... 165 2 1
KBFX-FM............ 1993 Community Pacific 18-49 7 Classic Rock
KASH-FM............ 1985 Community Pacific 25-54 1t Country
KENI-AM............ 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(6)..... NA NA 1
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
FARMINGTON, NM....... NA NA
KKFG-FM............ 1997 GulfStar NA 25-54 NA Country
KDAG-FM............ 1997 GulfStar M 25-54 NA Classic Rock
KCQL-AM............ 1997 GulfStar 35+ NA Oldies
KTRA-FM............ 1997 GulfStar 18-49 NA Country
YUMA, AZ............. NA NA 1
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.
79
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(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. 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 table does not include station KASH-AM in Anchorage, Alaska. The Company
expects to dispose of station KASH-AM before the consummation of the COMCO
Acquisition in order to remain in compliance with the station ownership
limitations under the Communications Act.
(6) Fairbanks, Alaska is a CSA as defined by Arbitron. Audience share and
audience share rank obtained from Arbitron's Fall 1996 CSA Market Report.
OTHER BUSINESSES
The Company operates several country music-related entertainment businesses
in Wheeling, West Virginia. The Company enhances and capitalizes on the strong
ratings of its country music stations 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 (1985-1995), local advertising revenue as a percentage of total
radio advertising revenue in a given market has ranged from approximately 75% to
80%. 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
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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,
1997, radio reaches approximately 95.1% 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 four out of five 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 82.5% 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 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
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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.
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
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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, WROV-AM, KCBL-AM, KCQL-AM, WFMB-AM, WRCC-AM, WKXI-AM, KWTX-AM, KKTX-AM,
WTCY-AM, WEEX-AM, KKAM-AM, KNSS-AM, and KCBN-AM which are local channel
stations, and WINE-AM, WPUT-AM, WKEE-AM, WWVA-AM, WHOS-AM, WESC-AM, KYAK-AM,
WTSO-AM, KHVH-AM, KENI-AM, KIKI-AM, KRDU-AM, KFYO-AM, WBIU-AM and WNTW-AM which
are clear channel stations.
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
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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.
Thomas O. Hicks, a director of the Company, is the President and a director
of HM2/Chancellor, which through Chancellor holds attributable interests in
radio stations in various markets in the States of California, Florida,
Minnesota, New York, Ohio, Arizona, Colorado, Georgia, Pennsylvania, as well as
in Washington, D.C. Upon completion of Chancellor's pending merger with
Evergreen Media Corporation, Chancellor will also hold attributable interests in
various markets in the additional states of Illinois, Massachusetts, Michigan
and Texas. Thomas O. Hicks is also the President, Chief Executive Officer and
Chief Operating Officer and 100% stockholder of HM3/Sunrise, which through STC
Broadcasting, Inc. 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 a director of the Company, the Vice President and
Secretary of HM2/Chancellor, and the Vice President of HM3/Sunrise.
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.
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If the proposed merger of Chancellor and Evergreen Media Corporation is
completed, Thomas O. Hicks, through his control of HM2/Chancellor and the
Company, will have an attributable interest in a total number of radio stations
serving the Philadelphia, Pennsylvania market which exceeds FCC multiple
ownership limitations. The FCC could require the Company to divest itself of
radio stations WJBR-FM and WJBR-AM, which serve the Wilmington, Delaware market.
The Company has entered into a binding letter of intent to contribute the
broadcasting licenses of such stations to a newly-formed company which will be
structured to satisfy FCC multiple ownership rules and cross-interest
limitations. While management of the Company believes that such arrangement will
meet FCC multiple ownership rules and cross-interest limitations as they
presently exist, there can be no assurance that the FCC will act favorably on
the proposed contribution or that the FCC will not amend its rules and policies
in an adverse manner. The Company does not believe that an unfavorable decision
by the FCC would have a material adverse effect on the financial condition of
the Company.
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 Company's
stock were directly or indirectly owned or voted by Aliens. The Company is an
indirect wholly-owned subsidiary of Capstar Broadcasting. Accordingly, Capstar
Broadcasting's Certificate of Incorporation restricts the ownership, voting and
transfer of Capstar Broadcasting's capital stock in accordance with the
Communications Act and the rules of the FCC, and prohibits ownership of more
than 25% of Capstar Broadcasting'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
Certificate of Incorporation authorizes Capstar Broadcasting's Board of
Directors to adopt such provisions as it deems necessary to enforce these
prohibitions. In addition, the Certificate of Incorporation provides that shares
of capital stock of Capstar Broadcasting determined by Capstar Broadcasting'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 Broadcasting 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.
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.
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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 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.
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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 and the Patterson Acquisition. The DOJ's
investigation with respect to the Benchmark Acquisition was closed, however,
when the DOJ granted early termination of the applicable waiting period under
the HSR Act in May 1997. The Company cannot predict the outcome of any specific
DOJ or FTC investigation, which are necessarily very fact specific. 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.
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
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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 Ameron Acquisition. The Company has filed, or intends to file, a
Notification and Report Form with the DOJ and the FTC with respect to each of
the Patterson Acquisition and the SFX Exchange. No other Pending Acquisition is
subject to the HSR Act. The DOJ has raised an issue with the Company regarding
the number of radio stations that the Company will own in the
Allentown-Bethlehem, Pennsylvania area upon completion of the Patterson
Acquisition and has issued a Second Request in connection therewith. The Company
has begun discussions with the DOJ to resolve the matter. See "The
Acquisitions -- Patterson Acquisition."
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 March 31, 1997, the Company had a staff of 600 full-time employees and
242 part-time employees. If the Osborn Add-on Transactions, the Space Coast
Acquisitions, the GulfStar Transaction, the Community Pacific Acquisition, the
Cavalier Acquisition, the Benchmark Acquisition, the GulfStar -- McForhun
Acquisition and the GulfStar -- Livingston Acquisition had been consummated as
of March 31, 1997, the Company would have had a staff of approximately 1,662
full-time employees and 679 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; Hartsdale and Brewster, New York; Asheville and Statesville, North
Carolina; Dayton, Ohio; Whitehall, Pennsylvania; Jackson, Tennessee; Huntington
and Wheeling, West Virginia; Des Moines, Iowa; and Manteca, California. The
Company also leases transmitter and antenna sites in Tuscaloosa, Alabama;
Stamford, Connecticut; Bethany Beach, Delaware; Indian River County, Cocoa and
Vero Beach, Florida; Asheville and Cool Springs, North Carolina; Bridgeport and
Dayton, Ohio; Washington Township and Bethlehem, Pennsylvania; Huntington,
Milton and Cabell County and Wheeling, West Virginia; Pawling and Bedford, New
York; Anchorage, Alaska; Modesto and Stockton, California; and Des Moines, Iowa.
The Company typically leases studio and office space, although it owns its
facilities in Gadsden and Tuscaloosa, Alabama; Brookfield, Connecticut; Port St.
Lucie and Ft. Pierce, Florida; Catlettsburg, Kentucky; Hartsdale and
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Patterson, New York; Asheville, North Carolina; Jackson, Tennessee; Huntington
and Wheeling, West Virginia; Des Moines, Iowa; Anchorage, Alaska; and Monterey,
Modesto and Stockton, California.
In addition, as a result of the completion of the GulfStar Transaction, the
Community Pacific Acquisition, the Cavalier Acquisition, the Benchmark
Acquisition, the GulfStar -- McForhun Acquisition and the GulfStar -- Livingston
Acquisition. The Company also owns transmitter and antenna sites in Ft. Smith,
Arkansas; Denham Springs, Louisiana; Jackson, Mississippi; Farmington, New
Mexico; Columbia, Garrison and Greenville, South Carolina; Waco, Beaumont,
Lubbock, Corpus Christi, Texarkana, and Victoria, Texas; and Amherst County,
Bedford County, Roanoke and Winchester, Virginia. The Company also leases
transmitter and antenna sites in Ft. Smith and Fayetteville, Arkansas; Baton
Rouge, Caddo Parish, Denham Springs and Greenwell Springs, Louisiana; Jackson
and Pelahatchi, Mississippi; Farmington, New Mexico; Waco, Beaumont, Killeen,
Lubbock, Corpus Christi, Lufkin, Orange City, Tyler, Victoria, and Texarkana,
Texas; and Boonea Mill and Winchester, Virginia. The Company owns or leases
studio and office space in Ft. Smith and Fayetteville, Arkansas; Dover,
Delaware; Denham Springs, Shreveport and Baton Rouge, Louisiana; Columbia and
Greenville, South Carolina; Beaumont, Killeen, Lubbock, Lufkin, Waco, Tyler,
Corpus Christi, Victoria, and Texarkana, Texas; and Roanoke, Virginia.
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.
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THE ACQUISITIONS
The Company owns and operates or provides services to 155 radio stations in
46 mid-sized markets. As part of the Company's overall strategy to capitalize on
the opportunities created by the Telecom Act, the Company has entered into 17
agreements to acquire or assume agreements to provide services to 85 additional
stations in 31 mid-sized markets (including seven stations in five markets for
which the Company currently provides services pursuant to an LMA) and, upon
completion of the Pending Transactions, the Company will own and operate or
provide services to 233 radio stations in 62 mid-sized markets located
throughout the United States. Any such acquisition agreements pursuant to which
Capstar Broadcasting or any subsidiary of Capstar Broadcasting (other than the
Company) is a party will be assigned or contributed to Capstar Radio upon or
prior to consummation of the acquisition. 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 any or all of the Pending Acquisitions will be consummated or
that, if completed, they will be successful.
GULFSTAR TRANSACTION
In July 1997, Capstar Broadcasting, CBC -- GulfStar Merger Sub, Inc., a
wholly-owned subsidiary of Capstar Broadcasting ("MergeCo"), merged with
GulfStar, pursuant to which (i) the separate existence of GulfStar ceased, (ii)
MergeCo survived as a wholly-owned subsidiary of Capstar Broadcasting and was
renamed "GulfStar Communications, Inc.," (iii) each issued and outstanding share
of MergeCo capital stock remained outstanding after the GulfStar Merger, (iv)
each share of common stock of GulfStar outstanding immediately prior to the
effective time (the "Effective Time") of the GulfStar Merger was converted into
the right to receive a number of shares of Common Stock as more fully described
hereinafter, and (v) each share of preferred stock of GulfStar outstanding
immediately prior to the Effective Time was converted into the right to receive
an amount in cash equal to its liquidation preference, including accumulated
dividends, immediately prior to the GulfStar Merger, which amount equalled $29.4
million in the aggregate for all outstanding shares of preferred stock. Pursuant
to the terms of the GulfStar Merger, each share of GulfStar's common stock, par
value $.01 per share ("GulfStar Common Stock"), and GulfStar's Class A Common
Stock, par value $.01 per share ("GulfStar Class A Stock"), was converted into
the right to receive 1,187.947 shares of Class A Common Stock and each share of
GulfStar's Class B Common Stock, par value $.01 per share ("GulfStar Class B
Stock"), and Class C Common Stock, par value $.01 per share ("GulfStar Class C
Stock"), was converted into the right to receive 1,187.947 shares of Class B
Common Stock, par value $.01 per share ("Class B Common Stock"), of Capstar
Broadcasting and Class C Common Stock, respectively, provided that each share of
GulfStar Class A Stock and each share of GulfStar Class C Stock held by R.
Steven Hicks or Thomas O. Hicks was converted into the right to receive
1,187.947 shares of Class C Common Stock of Capstar Broadcasting. Immediately
prior to the Effective Time, BT Capital Partners, Inc. ("BT Capital"), an
affiliate of BT Securities Corporation (an initial purchaser in the Preferred
Stock Offering and the Capstar Radio Notes Offering), exercised a warrant
previously issued by GulfStar to BT Capital, and upon such exercise received
8,098 shares of GulfStar Class B Stock. At the Effective Time, Capstar
Broadcasting assumed GulfStar's obligations under two option agreements (the
"Assumed Options") pursuant to which, subject to certain terms and conditions,
GulfStar was obligated to issue an aggregate of 1,000 shares of GulfStar Common
Stock to two employees of GulfStar. The Assumed Options are deemed to be options
to acquire an aggregate of 1,187.947 shares of Class A Common Stock at an
exercise price of $0.71 per share. Upon completion of the GulfStar Merger,
Capstar Broadcasting and the stockholders of GulfStar, except R. Steven Hicks,
entered into the GulfStar Stockholders Agreement. See "Certain
Transactions -- Stockholders Agreements."
The conversion ratio was calculated by the parties based on the relative
value of Capstar Broadcasting and GulfStar principally determined by utilizing
projected broadcast cash flows for the fiscal year ending December 31, 1998.
Thomas O. Hicks, a director of Capstar Broadcasting and the Company,
beneficially owns 100% of the outstanding capital stock of Capstar Broadcasting
and beneficially owned 87.3% of the voting power of GulfStar. In addition,
Thomas O. Hicks and R. Steven Hicks, Chairman of the Board and Chief Executive
Officer, filled
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two of the four director seats of GulfStar, and R. Steven Hicks was also the
Chief Executive Officer of GulfStar. Upon completion of the GulfStar Merger, R.
Steven Hicks became entitled to receive 11,879,470 shares of Class C Common
Stock, Thomas O. Hicks became entitled to receive 12,000,641 shares and
34,368,495 shares of Class B Common Stock and Class C Common Stock,
respectively, Eric C. Neuman, Paul D. Stone, Lawrence D. Stuart, Jr. and John D.
Cullen became entitled to receive 2,500,628 shares, 2,271,355 shares, 637,928
shares, and 3,292,989 shares, respectively, of Class A Common Stock, and BT
Capital became entitled to receive 9,619,995 shares of Class B Common Stock.
In July 1997, the advisory committee of HM Fund III approved the terms of
the GulfStar Merger.
Upon completion of the GulfStar Merger, Capstar Broadcasting contributed
GulfStar through the Company to Capstar Radio in exchange for common stock of
the Company and Capstar Radio, respectively, and as a result, GulfStar became a
wholly owned subsidiary of the Company.
AMERON ACQUISITION
On April 24, 1997, the Company agreed to acquire substantially all of the
assets of Ameron Broadcasting, Inc. ("Ameron") used or held for use in the
operation of radio stations WOWC-FM, WMJJ-FM and WERC-AM, which serve the
Birmingham, Alabama market (the "Ameron Acquisition"). The purchase price of the
Ameron Acquisition will be approximately $31.5 million payable in cash. In May
1997, the Company and Ameron filed an application with the FCC for approval to
transfer control of such radio stations to the Company, and in July 1997 the DOJ
granted early termination of the applicable waiting period under the HSR Act.
The Company anticipates that the Ameron Acquisition will be consummated in
October 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 Ameron 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 Ameron will be entitled to liquidated damages in
the amount of $1,000,000 as Ameron's exclusive remedy. Capstar Acquisition Co.
has secured its obligation to consummate the asset purchase by placing $1.0
million in cash into escrow. See "Description of Indebtedness -- Letters of
Credit."
In a related transaction, the Company agreed on May 5, 1997, to assume from
Sharepoint Management, Inc. ("Sharepoint") certain construction permits issued
to Sharepoint by the FCC to construct and operate a new FM Broadcast Station in
Columbiana, Alabama (the "Permit Agreement"). Since Sharepoint is controlled by
the president of Ameron, Ameron has agreed in an amendment to the acquisition
agreement dated May 9, 1997 to reduce the purchase price to be paid under the
acquisition agreement on a dollar-for-dollar basis by the amount of the purchase
price to be paid under the Permit Agreement, which is expected to be $75,000.
The Company and Ameron have also agreed in an amendment to the acquisition
agreement that the Company has the right to extend the closing thereunder in
exchange for increasing the purchase price payable thereunder by $65,000.
COMCO ACQUISITION
On February 3, 1997, the Company agreed to acquire substantially all of the
assets of COMCO Broadcasting, Inc. ("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, a
wholly-owned subsidiary of the Company, 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,
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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 Indebtedness -- Letters of Credit."
Upon consummation of the COMCO Acquisition, the Company would 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 will dispose of radio station
KASH-AM in Anchorage, Alaska, which was acquired in the Community Pacific
Acquisition, before the COMCO Acquisition is consummated. The Company will be in
compliance with the ownership limitations of the Communications Act in the
Anchorage, Alaska market once it disposes of KASH-AM.
COMMONWEALTH ACQUISITION
On January 27, 1997, the Company agreed to acquire substantially all of the
assets of Commonwealth Broadcasting of Arizona, L.L.C. ("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. No filing
under the HSR Act is required, and the FCC approved the Commonwealth Acquisition
in April 1997. 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 Indebtedness -- Letters of
Credit."
EMERALD CITY ACQUISITION
On March 10, 1997, the Company agreed to acquire substantially all of the
assets of Emerald City Radio Partners, L.P. ("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 the right of WNOK Acquisition Company, Inc., a subsidiary
of the Company ("WNOK Acquisition Co."), 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,
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 FCC
approved the Emerald City Acquisition in June 1997. No filing under the HSR Act
is required. The Company anticipates that the Emerald City Acquisition will be
consummated in August 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
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(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.
GRANT ACQUISITION
On June 20, 1997, the Company agreed to acquire substantially all of the
assets of Grant used or held for use in the operation of radio station WZBQ-FM
which serves the Tuscaloosa, Alabama market (the "Grant Acquisition"). The
purchase price of the Grant Acquisition will equal approximately $3.2 million
payable in cash. The Company and Grant filed an application in July 1997 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 Grant
Acquisition will be consummated in September 1997.
Under the terms of the acquisition agreement, which was entered into by
Capstar Acquisition Co., the acquisition agreement may be terminated by Grant
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 Grant will be entitled to liquidated damages in
the amount of $160,000 as Grant's exclusive remedy. Capstar Acquisition Co. has
secured its obligation to consummate the asset purchase by placing the sum of
$160,000 in cash into escrow.
GRIFFITH ACQUISITION
On May 22, 1997, the Company agreed to acquire substantially all of the
assets of Griffith Broadcasting, Inc. ("Griffith") used or held for use in the
operation of stations WTAK-FM, WXQW-FM and WWXQ-FM, which serve the Huntsville,
Alabama market (the "Griffith Acquisition"). The purchase price of the Griffith
Acquisition will equal approximately $5.4 million payable in cash. In June 1997,
the Company and Griffith 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 Griffith Acquisition will be
consummated in September 1997.
Under the terms of the acquisition agreement, which was entered into by
Capstar Acquisition Co., the acquisition agreement may be terminated by Griffith
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 Griffith will be entitled to liquidated damages
in the amount of $250,000 as Griffith'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 $250,000. See "Description of
Indebtedness -- Letters of Credit."
GULFSTAR -- AMERICAN GENERAL ACQUISITION
On June 6, 1997, GulfStar agreed to acquire substantially all of the assets
of American General Media of Texas, Inc. ("American General") used or held for
use in the operation of radio station KKCL-FM which serves the Lubbock, Texas
market (the "GulfStar -- American General Acquisition"). The purchase price of
the GulfStar -- American General Acquisition will equal approximately $3.2
million payable in cash. GulfStar and American General filed an application with
the FCC in June 1997 for approval to transfer control of the radio station to
GulfStar. No filing under the HSR Act is required. The Company anticipates that
the GulfStar -- American General Acquisition will be consummated in November
1997.
Under the terms of the acquisition agreement, which was entered into by
GulfStar Communications Lubbock, Inc., a subsidiary of GulfStar
("GulfStar -- Lubbock"), the acquisition agreement may be terminated by American
General prior to consummation of the asset purchase if all conditions to
GulfStar -- Lubbock's obligation to consummate the asset purchase (including the
condition that all of American General's representations and warranties are true
and correct and that American General has performed, satisfied and complied with
all of its covenants, agreements and conditions in the acquisition agreement)
are satisfied and GulfStar --
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Lubbock nevertheless fails to consummate the asset purchase. If the acquisition
agreement is terminated by American General due to GulfStar -- Lubbock's failure
to consummate the asset purchase even though all conditions to
GulfStar -- Lubbock's obligation to consummate the asset purchase are satisfied,
American General will be entitled to liquidated damages in the amount of
$160,000. GulfStar -- Lubbock has secured its obligation to consummate the asset
purchase by placing into escrow cash in the amount of $160,000.
GULFSTAR -- BOONEVILLE ACQUISITION
On June 1, 1997, GulfStar agreed to acquire substantially all of the assets
of Booneville Broadcasting Company and Arklahoma Communications Company
(collectively, "Booneville") used or held for use in the operation of radio
station KZBB-FM, which serves the Ft. Smith, Arkansas market (the
"GulfStar -- Booneville Acquisition"). The purchase price of the
GulfStar -- Booneville Acquisition will equal approximately $1.5 million payable
in cash. GulfStar and Booneville filed an application with the FCC in June 1997
for approval to transfer control of the radio station to GulfStar. No filing
under the HSR Act is required. GulfStar and Booneville entered into an LMA in
connection with KZBB-FM pursuant to which GulfStar provides certain sales,
programming and marketing services for the station. The Company anticipates that
the GulfStar -- Booneville Acquisition will be consummated in December 1997.
Under the terms of the acquisition agreement, which was entered into by
GulfStar Communications Arkansas, Inc., a subsidiary of GulfStar
("GulfStar -- Arkansas"), the acquisition agreement may be terminated by
Booneville prior to consummation of the asset purchase if all conditions to
GulfStar -- Arkansas' obligation to consummate the asset purchase (including the
condition that all of Booneville's representations and warranties are true and
correct and that Booneville has performed, satisfied and complied with all of
its covenants, agreements and conditions in the acquisition agreement) are
satisfied and GulfStar -- Arkansas nevertheless fails to consummate the asset
purchase. If the acquisition agreement is terminated by Booneville due to
GulfStar -- Arkansas' failure to consummate the asset purchase even though all
conditions to GulfStar -- Arkansas' obligation to consummate the asset purchase
are satisfied, Booneville will be entitled to liquidated damages in the amount
of $500,000. GulfStar -- Arkansas has secured its obligations to consummate the
asset purchase by placing into escrow cash in the amount of $500,000.
GulfStar -- Arkansas and Booneville entered into an LMA in connection with
KZBB-FM pursuant to which GulfStar provides certain sales, programming and
marketing services for KZBB-FM.
GULFSTAR -- KJEM ACQUISITION OPTION
On June 18, 1997, GulfStar acquired an option to acquire substantially all
of the assets of KJEM used or held for use in the operation of radio station
KJEM-FM which serves the Fayetteville, Arkansas market (the "GulfStar -- KJEM
Acquisition Option"). The purchase price of the KJEM-FM assets will equal
approximately $1,750,000 payable in cash, of which $750,000 (the "Option
Payment") was paid in cash on the date of the agreement. In most circumstances,
the Option Payment is not refundable. GulfStar may exercise its option, in its
sole discretion, on or before the first anniversary date of the agreement.
GulfStar and KJEM filed an application with the FCC in July 1997 for approval to
transfer control of the radio station to GulfStar. GulfStar and KJEM entered
into an LMA in connection with KJEM-FM pursuant to which GulfStar provides
certain sales, programming and marketing services for the station.
Under the terms of the option agreement, which was entered into by
GulfStar -- Arkansas, the asset purchase contemplated by the option agreement
may be terminated by KJEM prior to consummation of the asset purchase if all
conditions to GulfStar -- Arkansas' obligation to consummate the asset purchase
(including the condition that all of KJEM's representations and warranties are
true and correct and that KJEM has performed, satisfied and complied with all of
its covenants, agreements and conditions in the acquisition agreement) are
satisfied and GulfStar -- Arkansas nevertheless fails to consummate the asset
purchase If such asset purchase is terminated by KJEM due to
GulfStar -- Arkansas' failure to consummate the asset purchase even though all
conditions to GulfStar -- Arkansas' obligation to consummate the asset purchase
are satisfied, KJEM, will be entitled to liquidated damages in the amount of the
Option Payment.
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<PAGE> 99
GULFSTAR -- KLAW ACQUISITION
On June 1, 1997, GulfStar agreed to acquire substantially all of the assets
of KLAW Broadcasting, Inc., ("KLAW") used or held for use in the operation of
radio stations KLAW-FM and KZCD-FM, which serve the Lawton, Oklahoma market (the
"GulfStar -- KLAW Acquisition"). The purchase price of the GulfStar -- KLAW
Acquisition will equal approximately $2.2 million payable in cash. GulfStar and
the sellers filed an application with the FCC in June 1997 for approval to
transfer control of the radio station to GulfStar. No filing under the HSR Act
is required. GulfStar and KLAW entered into an LMA in connection with KLAW-FM
and KZCD-FM pursuant to which GulfStar provides certain sales, programming and
marketing services for the stations. The Company anticipates that the
GulfStar -- KLAW Acquisition will be consummated in November 1997.
Under the terms of the acquisition agreement, which was entered into by
GulfStar, the acquisition agreement may be terminated by KLAW prior to
consummation of the asset purchase if all conditions to GulfStar's obligation to
consummate the asset purchase (including the condition that all of KLAW's
representations and warranties are true and correct and that KLAW has performed,
satisfied and complied with all of its covenants, agreements and conditions in
the acquisition agreement) are satisfied and GulfStar fails to consummate the
asset purchase. If the acquisition agreement is terminated by KLAW due to
GulfStar's failure to consummate the asset purchase even though all conditions
to GulfStar's obligation to consummate the asset purchase are satisfied, KLAW
will be entitled to liquidated damages in the amount of $110,000. GulfStar has
secured its obligations to consummate the asset purchase by placing into escrow
cash in the amount of $110,000.
GULFSTAR -- NOALMARK ACQUISITION
On March 5, 1997, GulfStar acquired an option to acquire substantially all
of the assets of Noalmark Broadcasting Corporation ("Noalmark") used or held for
use in the operation of radio stations KKTX-FM and KKTX-AM, which serve the
Longview, Texas market (the "GulfStar -- Noalmark Acquisition Option"). The
purchase price of the Noalmark assets will equal approximately $2.4 million
payable in cash, of which $1.0 million (the "KKTX Option Payment") was paid in
cash by GulfStar on the date of the agreement. In most circumstances, the KKTX
Option Payment is not refundable. GulfStar may exercise its option, in its sole
discretion, on or before March 2000. GulfStar and Noalmark entered into an LMA
in connection with KKTX-FM and KKTX-AM pursuant to which GulfStar provides
certain sales, programming and marketing services for the stations.
Under the terms of the option agreement, which was entered into by
GulfStar, the asset purchase contemplated by the option agreement may be
terminated by Noalmark prior to consummation of the asset purchase if all
conditions to GulfStar's obligation to consummate the asset purchase (including
the condition that all of Noalmark's representations and warranties are true and
correct and that Noalmark has performed, satisfied and complied with all of its
covenants, agreements and conditions in the acquisition agreement) are satisfied
and GulfStar nevertheless fails to consummate the asset purchase. If such asset
purchase is terminated by Noalmark due to GulfStar's failure to consummate the
asset purchase even though all conditions to GulfStar's obligation to consummate
the asset purchase are satisfied, Noalmark will be entitled to liquidated
damages in the amount of the KKTX Option Payment.
KNIGHT QUALITY ACQUISITION
On June 18, 1997, the Company agreed to acquire substantially all of the
assets of Knight Quality (the "Knight Quality Acquisition"). The purchase price
of the Knight Quality Acquisition will equal approximately $60.0 million payable
in cash. Knight Quality owns and operates eight radio stations (five FM and
three AM) in five markets located in Worcester, Massachusetts, Manchester, New
Hampshire, Burlington, Vermont, Portsmouth, New Hampshire, and York Center,
Maine. The Company and Knight Quality filed an application with the FCC for
approval to transfer control of such radio stations to the Company in July 1997.
No filing under the HSR Act is required. The Company anticipates that the Knight
Quality Acquisition will be consummated in January 1998.
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Under the terms of the three acquisition agreements by Capstar Acquisition
Co. relating to the Knight Quality Acquisition, each acquisition agreement may
be terminated by Knight Quality 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 Capstar Acquisition Co.
The closing of the transactions contemplated by each of the acquisition
agreements is conditioned upon the closing of the two other acquisition
agreements. If the acquisition agreements are terminated due to a material
breach of any representation, warranty, covenant or agreement by Capstar
Acquisition Co., then Knight Quality will be entitled to liquidated damages in
the aggregate amount of $3.0 million as Knight Quality's exclusive remedy.
Capstar Acquisition Co. has secured its obligation to consummate the Knight
Quality Acquisition by placing into escrow letters of credit in the aggregate
amount of $3.0 million. See "Description of Indebtedness -- Letters of Credit."
MADISON ACQUISITION
On January 27, 1997, Point Madison Acquisition Company, Inc., a subsidiary
of the Company ("Madison Acquisition Co.") 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. The applicable waiting period under the HSR Act terminated on March
11, 1997, and the FCC approved the Madison Acquisition in 1997. The Company
anticipates that the Madison Acquisition will be consummated in August 1997.
Under the terms of the acquisition agreement, which was entered into by
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
Indebtedness -- Letters of Credit."
PATTERSON ACQUISITION
On June 12, 1997, the Company agreed to acquire all of the outstanding
preferred stock, common stock and common stock equivalents of Patterson
Broadcasting, Inc. ("Patterson") (the "Patterson Acquisition"). The purchase
price of the Patterson Acquisition will equal approximately $215.0 million
payable in cash. Patterson will own and operate or provide services to 39 radio
stations (25 FM and 14 AM) in the Savannah, Georgia, Allentown and Harrisburg,
Pennsylvania, Fresno, California, Honolulu, Hawaii, Battle Creek and Grand
Rapids, Michigan, Reno, Nevada, Springfield, Illinois, and Pensacola, Florida
markets. The Company and Patterson filed in May 1997 (i) an 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 Company
anticipates that the Patterson Acquisition will be consummated in February 1998.
Under the terms of the purchase agreement, which was entered into by
Capstar Acquisition Co., the purchase agreement may be terminated by Patterson
prior to consummation of the stock purchase under various circumstances,
including a material breach of any representation, warranty, covenant or
agreement by Capstar Acquisition Co. If the purchase agreement is terminated due
to a material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co., then Patterson will be entitled to liquidated damages
in the amount of $10.0 million as Patterson's exclusive remedy. Capstar
Acquisition Co. will secure its obligation to consummate the stock purchase by
placing into escrow a letter of credit in the amount of $10.0 million. See
"Description of Indebtedness -- Letters of Credit."
The DOJ has raised an issue with the Company regarding the number of radio
stations that the Company will own in the Allentown-Bethlehem, Pennsylvania area
upon completion of the Patterson Acquisition. The Company has recently begun
discussions with the DOJ to resolve the matter. See "Business -- Federal
Regulation of Radio Broadcasting."
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On January 29, 1997, Patterson agreed to acquire substantially all of the
assets of WMEZ, Inc. ("WMEZ") used or held for use in the operation of radio
station WMEZ-FM, which serves the Pensacola, Florida market. The purchase price
of the WMEZ assets will equal approximately $7.0 million payable by Patterson in
cash. The FCC granted approval for the acquisition in May 1997. No filing under
the HSR Act is required. The Company expects such acquisition to be completed by
Patterson prior to completion of the Patterson Acquisition.
On April 24, 1997, Patterson agreed to acquire all of the outstanding
common stock of Radio Dinuba Company ("Dinuba"), which owns and operates radio
stations KJOI-FM and KRDU-AM serving the Fresno, California market. The purchase
price will equal approximately $5.3 million payable in cash. FCC approval is
pending. No filing under the HSR Act is required. The Company expects such
acquisition to be completed by Patterson prior to completion of the Patterson
Acquisition.
On May 5, 1997, Patterson agreed to acquire substantially all of the assets
of William E. Kuiper, Jr. ("Kuiper") used or held for use in the operation of
radio station WQFN-FM, which serves the Grand Rapids, Michigan market. The
purchase price of the Kuiper assets will equal approximately $1.9 million
payable in cash. FCC approval is pending. No filing under the HSR Act is
required. The Company expects such acquisition to be completed by Patterson
prior to completion of the Patterson Acquisition.
If any of the pending acquisitions of Patterson is not completed or is
otherwise terminated prior to completion of the Patterson Acquisition, then the
purchase price for the Patterson Acquisition will be reduced by an amount to be
agreed to by the parties to the Patterson Acquisition.
QUASS ACQUISITION
On June 9, 1997, the Company agreed to acquire all of the outstanding
common stock of Quass Broadcasting Company ("Quass") (the "Quass Acquisition").
The purchase price of the Quass Acquisition will equal approximately $14.9
million payable in cash. Quass owns and operates three radio stations (two FM
and one AM) in the Cedar Rapids, Iowa market. The Company and Quass filed an
application with the FCC in July 1997 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 Quass Acquisition will be consummated in January
1998.
Under the terms of the purchase agreement, which was entered into by
Capstar Acquisition Co., the purchase agreement may be terminated by Quass prior
to consummation of the acquisition under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co. If the purchase agreement is terminated due to a
material breach of any representation, warranty, covenant or agreement by
Capstar Acquisition Co., then Quass and Quass' stockholders will be entitled to
liquidated damages in the amount of $750,000 as their exclusive remedy. Capstar
Acquisition Co. has secured its obligation to consummate the acquisition by
placing into escrow a letter of credit in the amount of $750,000. See
"Description of Indebtedness -- Letters of Credit."
Concurrently with the execution of the Quass stock purchase agreement, Mary
K. Quass, the majority stockholder of Quass, purchased 909,091 shares of common
stock of the Company, which will be subsequently exchanged for shares of Class A
Common Stock, for an aggregate purchase price of $1.0 million. Substantially all
of the purchase price was paid through the issuance of a promissory note by Mary
K. Quass to the Company, which obligation is secured by a pledge of the shares.
See "Certain Transactions -- Indebtedness of Management." Also concurrently with
the execution of the Quass stock purchase agreement, Mary K. Quass and Capstar
Acquisition Co. entered into a consulting agreement pursuant to which she agreed
to provide consulting services to Capstar Acquisition Co. on an hourly basis as
requested.
SFX EXCHANGE
On May 23, 1997, the Company agreed to exchange substantially all of the
assets used or useful in the Company's operation of three radio stations (two FM
and one AM) in the Greenville, South Carolina market for substantially all of
the assets used or useful in SFX's operation of four radio stations (three FM
and one AM) in Wichita, Kansas and Daytona Beach, Florida (the "SFX Exchange").
The three stations to be exchanged by the Company were acquired in the Benchmark
Acquisition.
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The Company and SFX intend to file in August 1997 (i) an application with
the FCC for approval to transfer control of the radio stations and (ii) a
Notification and Report Form with the DOJ and the FTC. The Company anticipates
that the SFX Exchange will be consummated in October 1997.
Under the terms of the exchange agreement, which was entered into by
Capstar Acquisition Co., the exchange may be terminated by either party prior to
consummation of the exchange agreement under various circumstances, including a
material breach of any representation, warranty, covenant or agreement by the
other party. If the exchange agreement is terminated due to a material breach of
any representation, warranty, covenant or agreement by a party, then the other
party will be entitled to liquidated damages in the amount of $2.0 million as
such party's exclusive remedy. In addition, either party may terminate the
exchange agreement in its sole and absolute discretion, if within 20 days after
receipt of the agreement's underlying schedules (which were not required to be
provided at the time the agreement was entered into), either party is not
satisfied with the information contained in the schedules provided by the other
party.
R. Steven Hicks is a party to an agreement with SFX, which, among other
things, prohibited Mr. Hicks, the Company and any affiliate of Hicks Muse in
which Mr. Hicks had an ownership interest or to which Mr. Hicks acted as an
advisor from competing with, owning any direct or indirect interest in or
providing any services to any person which was 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. Such
noncompetition provisions were terminated concurrently with the Company entering
into the exchange agreement without regard to whether the SFX Exchange is
actually consummated.
WRIS ACQUISITION
On April 11, 1997, the Company agreed to acquire substantially all of the
assets of WRIS, Inc. ("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 filed 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 September 1997.
Under the terms of the acquisition agreement, which was entered into by
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
Indebtedness -- Letters of Credit."
OTHER POSSIBLE ACQUISITIONS
The Company has entered into six 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."
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MANAGEMENT
[Need to check ages]
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. 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
William S. Banowsky, Jr.................... 36 Executive Vice President, General Counsel and
Secretary
Paul D. Stone.............................. 36 Executive Vice President and Chief Financial
Officer
Frank D. Osborn............................ 50 Acting President and Chief Executive Officer of
Southern Star (Southeast Region) and Managing
Director of Capstar Radio
James T. Shea, Jr.......................... 43 President and Chief Executive Officer of
Atlantic Star (Northeast Region)
John D. Cullen............................. 43 President and Chief Executive Officer of
GulfStar (Southwest Region)
Dex Allen.................................. 54 President and Chief Executive Officer of Pacific
Star (West Region)
Mary K. Quass(1)........................... 47 President and Chief Executive Officer of
Central Star (Midwest Region)
David J. Benjamin, III..................... 50 Managing Director of Capstar Radio
Joseph L. Mathias, IV...................... 32 Managing Director of Capstar Radio
James M. Strawn(2)......................... 55 Managing Director of Capstar Radio
Thomas O. Hicks............................ 51 Director
Eric C. Neuman............................. 53 Director
Lawrence D. Stuart, Jr..................... 53 Director
</TABLE>
- ---------------
(1) Mary K. Quass will become the president and chief executive officer of the
Midwest Region upon consummation of the Quass Acquisition.
(2) James M. Strawn will become a Managing Director of Capstar Radio upon
consummation of the Patterson Acquisition.
R. Steven Hicks has served as the Chairman of the Board, President, Chief
Executive Officer and as a director of Capstar Broadcasting and the Company
since May 1997 and October 1996, respectively. Mr. Hicks also served as Chairman
of the Board of GulfStar since January 1987 and Chief Executive Officer of
GulfStar from January 1987 to July 1997. 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.
William S. Banowsky, Jr. has served as an Executive Vice President and the
General Counsel of Capstar Broadcasting and the Company since May 1997 and
January 1997, respectively. 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.
Paul D. Stone has served as an Executive Vice President and the Chief
Financial Officer of Capstar Broadcasting and of the Company since May and
January 1997, respectively. 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 is a Certified
Public Accountant.
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Frank D. Osborn serves as the acting President and Chief Executive Officer
of Southern Star and as a Managing Director of Capstar Radio. Mr. Osborn served
as President and Chief Executive Officer of Osborn from Osborn's inception in
1984 until June 1997. 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.
James T. Shea, Jr. is the President and Chief Executive Officer of Atlantic
Star and has served in such position since June 1997. He previously served as
President of Capstar Radio from October 1996 to June 1997. Prior to serving as
President of Capstar Radio, Mr. Shea served as Chief Operating Officer of
Commodore from January 1995 to October 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.
John D. Cullen has served as the President and Chief Executive Officer of
GulfStar since consummation of the GulfStar Transaction in July 1997. From March
1996 to June 1997, Mr. Cullen served as the President and Chief Operating
Officer of GulfStar. From 1992 to February 1996, Mr. Cullen served as a regional
manager of SFX's radio stations in the Greenville-Spartanburg, Raleigh-Durham,
Charlotte and Greensboro-Winston-Salem markets. Mr. Cullen is a 16-year veteran
of the radio broadcasting industry.
Dex Allen serves as the President and Chief Executive Officer of Pacific
Star. Mr. Allen has served as the managing member of Commonwealth since 1984.
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.
Mary K. Quass has been the President and Chief Executive Officer of Quass
since 1988. From 1982 to 1988, Ms. Quass served as Vice President/General
Manager of stations KHAK-AM and KHAK-FM in Cedar Rapids, Iowa. Ms. Quass is a
19-year veteran of the radio broadcasting industry, including nine years as a
station owner. Upon consummation of the Quass Acquisition, Ms. Quass will serve
as the President and Chief Executive Officer of Central Star.
David J. Benjamin, III has served as a Managing Director of Capstar Radio
since consummation of the Community Pacific Acquisition in July 1997. From 1992
to July 1997, Mr. Benjamin served as President and Chief Executive Officer of
Community Pacific. Prior to such time, he co-founded and served since 1974 as
Chairman and Chief Executive Officer of Community Pacific's predecessor,
Community Pacific Broadcasting Corporation, which positions he 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.
Joseph L. Mathias, IV has served as a Managing Director of Capstar Radio
since consummation of the Benchmark Acquisition in July 1997. From January 1997
to July 1997, Mr. Mathias serves as a general partner of Benchmark, during which
time Mr. Mathias managed the operations of Benchmark. Prior to such time, he
held various positions in the cable television and radio broadcasting
industries. Mr. Mathias is a seven-year veteran of the radio broadcasting
industry.
James M. Strawn has served as an Executive Vice President and the Chief
Financial Officer of Patterson since 1995. From 1988 to 1995, Mr. Strawn served
as an executive vice president for Summit Communications, and from 1984 to 1988,
Mr. Strawn served as an Executive Vice President and the Chief Financial Officer
of DKM Broadcasting. Mr. Strawn served in various positions with Cox
Communications, including regional controller and assistant controller for the
broadcast corporate staff, from 1966 to 1984. Mr. Strawn is a 31-year veteran of
the radio broadcasting industry, including 13 years as a station owner. Upon
consummation of the Patterson Acquisition, Mr. Strawn will serve as a Managing
Director of Capstar Radio.
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Thomas O. Hicks has been a director of the Company and Capstar Broadcasting
since October 1996 and May 1997, respectively. 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.
Eric C. Neuman has served as a director of Capstar Broadcasting and the
Company since May 1997 and October 1996, respectively, and as an Executive Vice
President of the Company from October 1996 to June 1997. 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.
Lawrence D. Stuart, Jr. has served as a director of the Company and Capstar
Broadcasting since January 1997 and May 1997, respectively. Mr. Stuart has been
a Managing Director and Principal of Hicks Muse since 1995. Prior to joining
Hicks Muse, Mr. Stuart 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).
Upon completion of the Patterson Acquisition, James W. Wesley, Jr. will
become the Chairman of the Board of Capstar Broadcasting. Mr. Wesley has been
President and Chief Executive Officer of Patterson since it was founded in 1995.
From 1988 to 1995, Mr. Wesley served as President of Summit Communications based
in Winston-Salem, North Carolina. Prior to 1988, Mr. Wesley spent 33 years in
various positions, including President of Cox Communications in Atlanta,
Georgia. Mr. Wesley is a 42-year veteran of the radio broadcasting industry.
BOARD COMMITTEES
In June 1997, Capstar Broadcasting's Board of Directors established an
Audit Committee and a Compensation Committee and in July 1997, Capstar
Broadcasting's Board of Directors established an Executive Committee. The Audit
Committee's functions include recommending to the Board of Directors of Capstar
Broadcasting the engagement of Capstar Broadcasting'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 Capstar Broadcasting, including the independence of such
accountants. The Compensation Committee determines the compensation of executive
officers and administers the Capstar Broadcasting Stock Option Plan (as defined)
and the Stock Purchase Plan (as defined). The Executive Committee is authorized
and empowered to approve one or more agreements of the Company to acquire radio
broadcasting stations and their related assets, or persons which own and operate
or provide services to radio broadcasting stations, up to an aggregate purchase
price of $100.0 million. Lawrence D. Stuart, Jr., Eric C. Neuman and R. Gerald
Turner, a director of Capstar Broadcasting, serve on the Audit Committee. Thomas
O. Hicks, Mr. Stuart and Mr. Turner serve on the Compensation Committee. R.
Steven Hicks, Eric C. Neuman and Lawrence D. Stuart, Jr. serve on the Executive
Committee.
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EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation received or accrued by the Company's Chief Executive Officer and
its other most highly compensated executive officers (collectively, the "Named
Executive Officers") for services rendered during the fiscal year ended December
31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION($)
----------------------------------- -----------------------
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING LTIP COMPENSATION
SALARY($) BONUS($) COMPENSATION OPTIONS(#) PAYOUTS($) ($)
--------- -------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Steven Hicks..................... 135,400 -- -- 9,300,000(1) -- 7,440,000(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 Capstar Radio
Frank D. Osborn..................... 387,000 300,000 -- -- -- 1,778,375(3)
President of Southern Star
</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 Capstar Radio.
(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 $15,500 from the exercise of incentive stock options granted by
Osborn.
OPTION GRANTS IN 1996
The following table contains information about stock options and stock
purchase rights granted to the Named Executive Officers during the fiscal year
ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------------
NAME GRANTED(#) IN 1996 PER SHARE DATE 5%($) 10%($)
---- ---------- ---------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
R. Steven Hicks....... 9,300,000(2) 100% $ 1.00(2) 10-16-06 $15,748,720 $24,121,805
James T. Shea, Jr..... 720,880(3) 18.20% $ 1.00 11-26-06 $ 1,174,238 $ 1,869,777
350,000(4) 8.84% $ 1.00 12-26-96 $ 570,113 $ 907,310
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 1996 Stock Option Plan,
which have been exchanged for options granted under the Capstar Broadcasting
Stock Option Plan (as defined). See "-- Benefit Plans."
(4) Represents stock purchase rights granted pursuant to the Company's 1996
Stock Purchase Plan, which plan is no longer expected to be used.
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OPTION EXERCISES IN 1996
The following table sets forth certain information (i) with respect to the
number of shares of common stock of Capstar Partners 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 Capstar Partners 1996 Stock Option Plan (as defined)
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
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996($)(1)
ACQUIRED VALUE ---------------------------- ---------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. Steven Hicks...... -- -- 7,440,000(2) 1,860,000(2) $9,895,200 $2,473,800
James T. Shea, Jr.... -- -- -- 720,880(3) -- 958,770
350,000(4) -- -- -- -- --
Frank D. Osborn...... -- -- -- -- -- --
</TABLE>
- ---------------
(1) There is no public market for the Common Stock. Based on the per share price
of the Hicks Muse GulfStar Equity Investment and the Capstar BT Equity
Investment of $1.33.
(2) See "Certain Transactions -- Warrants."
(3) Represents options granted pursuant to the Company's 1996 Stock Option Plan.
(4) Represents stock purchase rights granted pursuant to the Company's 1996
Stock Purchase Plan.
EMPLOYMENT AGREEMENTS
R. Steven Hicks Employment Agreement. Capstar Broadcasting has entered into
an employment agreement with R. Steven Hicks pursuant to which Mr. Hicks serves
as Chairman, President and Chief Executive Officer of Capstar Broadcasting. Mr.
Hicks' employment agreement terminates on December 31, 2001, and will be
automatically renewed for successive one-year terms unless Mr. Hicks or Capstar
Broadcasting 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' base salary is $250,000 per year and is
subject to 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 Broadcasting's Board of Directors may determine. Further, Mr.
Hicks is entitled to receive stock options to purchase shares of Class A Common
Stock. If Capstar Broadcasting terminates Mr. Hicks' employment for cause or Mr.
Hicks terminates his employment for other than good reason, Capstar Broadcasting
must pay Mr. Hicks all accrued obligations and other benefits earned prior to
the date of termination. If Capstar Broadcasting 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 Capstar Broadcasting
determines that Mr. Hicks has not satisfactorily performed his obligations and
duties under the agreement, the immediate vesting of all stock options between
Capstar Broadcasting 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. Upon completion of the GulfStar Transaction,
Mr. Hicks' employment agreement with GulfStar will terminate and his employment
agreement with Capstar Broadcasting will be amended to increase Mr. Hicks'
current base salary to $500,000.
William S. Banowsky, Jr. Employment Agreement. Capstar Broadcasting has
entered into an employment agreement with William S. Banowsky, Jr. pursuant to
which Mr. Banowsky serves as an Executive Vice President and the General Counsel
of Capstar Broadcasting. Mr. Banowsky's employment agreement terminates on
December 31, 2001, and will be renewed automatically for successive one-year
terms unless Mr. Banowsky or
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Capstar Broadcasting 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 five percent of
the then current annual base salary. Mr. Banowsky is also entitled to receive
such annual bonuses as Capstar Broadcasting'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 Broadcasting terminates Mr. Banowsky's
employment for cause or Mr. Banowsky terminates his employment for other than
good reason, Capstar Broadcasting must pay Mr. Banowsky all accrued obligations
and other benefits earned prior to the date of termination. If Capstar
Broadcasting 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 Capstar Broadcasting determines that Mr. Banowsky has not
satisfactorily performed his obligations and duties under the agreement, the
immediate vesting of all stock options between Capstar Broadcasting 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.
Paul D. Stone Employment Agreement. Capstar Broadcasting 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
Broadcasting. 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 Broadcasting 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 base salary is $200,000 per year,
subject to annual increases at least equal to five percent of the then current
annual base salary. Mr. Stone is also entitled to receive such annual bonuses as
Capstar Broadcasting'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 Broadcasting terminates Mr. Stone's employment for cause or Mr. Stone
terminates his employment for other than good reason, Capstar Broadcasting must
pay Mr. Stone all accrued obligations and other benefits earned prior to the
date of termination. If Capstar Broadcasting 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 Capstar Broadcasting determines that
Mr. Stone has not satisfactorily performed his obligations and duties under the
agreement, the immediate vesting of all stock options between Capstar
Broadcasting 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.
Frank D. Osborn Employment Agreement. Southern Star has entered into an
employment agreement with Frank D. Osborn pursuant to which Mr. Osborn was
employed to serve as the President and Chief Executive Officer of Southern Star.
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. In addition, Mr. Osborn is entitled to a
guaranteed bonus of $25,000 per month for a period of 60 months after February
20, 1997 and an annual bonus as determined by Southern Star's Board of
Directors. If Mr. Osborn's employment is terminated by Southern Star for cause
or by Mr. Osborn for other than good reason, Southern Star is obligated to pay
all accrued obligations and other benefits to Mr. Osborn. If the employment
agreement is terminated by Southern Star 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 annual base 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 the remainder of the employment period after 24 months
have expired from
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the termination date, or (z) if the remainder of the employment period is more
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 24 months have
expired from the 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 Southern Star determines that Mr. Osborn has not satisfactorily
performed his obligations and duties under the agreement, the immediate vesting
of all stock options between Southern Star 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 Southern Star's employee medical benefit plan for 24
months following termination unless Southern Star fails to achieve 60% 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. The Company expects that Mr. Osborn's
employment agreement will be amended and restated to reflect, among other
things, Capstar Broadcasting and Capstar Radio as parties thereto, Mr. Osborn's
current position as a Managing Director of Capstar Radio and that Mr. Osborn is
serving on an interim basis as the President and Chief Executive Officer of
Southern Star.
James T. Shea, Jr. Employment Agreement. The Company and Capstar Radio have
entered into an employment agreement with James T. Shea, Jr. pursuant to which
Mr. Shea was employed to serve as the President of Capstar Radio. Mr. Shea's
employment agreement terminates on April 30, 1999. Mr. Shea's 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
Capstar Radio may determine, provided that the bonus shall not be less than
$150,000. In addition, the employment agreement provides for an automobile
allowance, participation in the retirement, savings, and welfare benefit plans
of Capstar Radio and a life insurance policy of $650,000. If Capstar Radio
terminates Mr. Shea's employment for cause, Capstar Radio is obligated to pay
Mr. Shea's then accrued base salary, reimbursable expenses, and any other
compensation then due and owing. In addition, Capstar Radio 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. The Company expects that Mr. Shea's
employment agreement will be replaced with an employment agreement with Atlantic
Star, Capstar Broadcasting and Capstar Radio to reflect, among other things, Mr.
Shea's new position as President and Chief Executive Officer of Atlantic Star.
John D. Cullen Employment Agreement. GulfStar has entered into an
employment agreement with John D. Cullen pursuant to which Mr. Cullen serves as
the President and Chief Operating Officer of GulfStar. Mr. Cullen's employment
agreement terminates on March 31, 2001 unless sooner terminated in accordance
with the terms of the employment agreement. Mr. Cullen's base salary for fiscal
year ending April 1998 is $160,000 with incremental $10,000 increases for each
fiscal year thereafter during the term of the employment agreement. Mr. Cullen
is also entitled to receive annual bonuses of at least $35,000 if GulfStar
achieves certain broadcast cash flow projections established by the board of
directors of GulfStar. If GulfStar terminates Mr. Cullen's employment for cause
(as defined in the employment agreement) or Mr. Cullen resigns (and GulfStar has
not breached the employment agreement), GulfStar must pay Mr. Cullen all accrued
obligations and other benefits earned prior to the date of termination. If
GulfStar terminates Mr. Cullen's employment without cause or Mr. Cullen
terminates his employment due to a material breach of the employment agreement
by GulfStar (which
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breach is not cured within 30 days after receipt of notice of breach), then
GulfStar must pay Mr. Cullen his current salary (in equal monthly installments),
plus a pro rata portion of any bonuses that would otherwise have been payable to
Mr. Cullen. The Company expects that Mr. Cullen's employment agreement will be
amended and restated to reflect, among other things, Capstar Broadcasting as a
party thereto and Mr. Cullen's new position as the President and Chief Executive
Officer of GulfStar.
Dex Allen Employment Agreement. Pacific Star has entered into an employment
agreement with Dex Allen pursuant to which (i) Mr. Allen was employed to 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
percentage increase, if any, in the Consumer Price Index during the preceding
calendar year, and (iv) Mr. Allen is 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. Pacific Star 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 Capstar Broadcasting 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. The Company expects that Mr. Allen's employment agreement will be
amended and restated to reflect, among other things, Capstar Broadcasting as a
party thereto and Mr. Allen's new position as the President and Chief Executive
Officer of Pacific Star.
Mary K. Quass Employment Agreement. Upon consummation of the Quass
Acquisition, Central Star and Capstar Broadcasting will enter into an employment
agreement with Mary K. Quass pursuant to which Ms. Quass will serve as the
President and Chief Executive Officer of Central Star. Ms. Quass' employment
agreement will terminate on the fifth anniversary of the consummation of the
Quass Acquisition. Ms. Quass' 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. Ms. Quass is also entitled to
receive an annual performance bonus if certain financial goals, as determined by
the Board of Directors of Central Star, are achieved. Further, if revenues and
net income for a fiscal year of the Midwest Region equal or exceed the targets
for such revenues and net income as set forth in the Midwest Region's budget,
then, Ms. Quass will be awarded an annual bonus in the amount of at least
$50,000 with respect to such fiscal year. In addition, Ms. Quass will be
entitled to receive stock options to purchase Class A Common Stock. If Central
Star terminates Ms. Quass' employment for cause or Ms. Quass terminates her
employment for other than good reason, Central Star will pay to Ms. Quass her
accrued obligations and investments through the date of termination. If Central
Star terminates Ms. Quass' employment without cause or Ms. Quass terminates her
employment for good reason, Ms. Quass' employment agreement will provide for (A)
a lump sum cash payment equal to any accrued obligations of Central Star to Ms.
Quass, (B) a payment in regular installments of Ms. Quass' then current salary
for the one-year period commencing from the date of termination (the "Severance
Period"), (C) continued medical, dental and life insurance coverage at the
expense of Central Star until the earlier of (x) the expiration of the Severance
Period or (y) the date Ms. Quass has commenced new employment and has thereby
become eligible for comparable medical benefits, and (D) unless the Board of
Directors of Capstar Broadcasting determines that Ms. Quass has not
satisfactorily performed her obligations and duties under the agreement, the
immediate vesting of all stock options between Capstar Broadcasting and Ms.
Quass and the right to exercise those options until the earlier of (x) the
expiration date of such stock options or (y) the 90th day after Ms. Quass'
termination.
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David J. Benjamin, III Employment Agreement. Capstar Radio and Capstar
Broadcasting have entered into an employment agreement with David J. Benjamin,
III pursuant to which Mr. Benjamin serves as a Managing Director of Capstar
Radio. Mr. Benjamin's employment agreement terminates 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 Capstar Radio 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 is
$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 entitled to receive an annual bonus of $50,000 per year if certain
financial goals, as determined by the Board of Directors of Capstar Radio, are
achieved. In addition, Mr. Benjamin is entitled to receive stock options to
purchase shares of Class A Common Stock. If Capstar Radio terminates Mr.
Benjamin's employment for cause or Mr. Benjamin terminates his employment for
other than good reason, Capstar Radio is not obligated to make any further
salary payments to Mr. Benjamin except those earned prior to the date of
termination. If Capstar Radio 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 Capstar Radio 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 Capstar Radio determines that Mr.
Benjamin has not satisfactorily performed his obligations and duties under the
agreement, the immediate vesting of all stock options between Capstar Radio 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. If Mr. Benjamin's employment is terminated due to death or
disability, Capstar Radio will pay all accrued obligations and investments,
guaranteed bonuses and other benefits for 12 months after the termination date.
Joseph L. Mathias IV Employment Agreement. Upon consummation of the
Benchmark Acquisition, Capstar Radio and Capstar Broadcasting entered into an
employment agreement pursuant to which Mr. Mathias serves as a Managing Director
of Capstar Radio. Mr. Mathias' employment agreement will terminate on the third
anniversary of the consummation of the Benchmark Acquisition. Mr. Mathias' base
salary is $200,000, subject to annual increases at the discretion of the Board
of Directors of Capstar Radio. In addition, Mr. Mathias is entitled to receive
stock options to purchase Class A Common Stock. If Capstar Radio terminates Mr.
Mathias' employment for cause or Mr. Mathias terminates his employment for other
than good reason, Capstar Radio will pay to Mr. Mathias his accrued obligations
and investments through the date of termination. If Capstar Radio terminates Mr.
Mathias' employment without cause or Mr. Mathias terminates his employment for
good reason, Mr. Mathias' employment agreement provides for (A) a lump sum cash
payment equal to any accrued obligations of Capstar Radio to Mr. Mathias, (B) a
payment in regular installments of Mr. Mathias' then current salary for the
remainder of the employment period (the "Severance Period"), and (C) continued
medical, dental, and life insurance coverage at the expense of Capstar Radio
until the earlier of (x) the expiration of the Severance Period or (y) the date
Mr. Mathias has commenced new employment and has thereby become eligible for
comparable medical benefits.
James M. Strawn Employment Agreement. Upon consummation of the Patterson
Acquisition, Capstar Radio and Capstar Broadcasting will enter into an
employment agreement pursuant to which Mr. Strawn will serve as a Managing
Director of Capstar Radio. Mr. Strawn's employment agreement will terminate on
the fifth anniversary of the consummation of the Patterson Acquisition. Mr.
Strawn'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 year. Mr. Strawn will also be entitled to receive an annual
performance bonus, as determined by the Board of Directors of Capstar Radio. In
addition, Mr. Strawn will be entitled to receive stock options to purchase Class
A Common Stock. If Capstar Radio terminates Mr. Strawn's employment for cause or
Mr. Strawn terminates his employment for other than good reason, Capstar Radio
will pay to Mr. Strawn his accrued obligations and investments through
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the date of termination. If Capstar Radio terminates Mr. Strawn's employment
without cause or Mr. Strawn terminates his employment for good reason, Mr.
Strawn's employment agreement will provide for (A) a lump sum cash payment equal
to any accrued obligations of Capstar Radio to Mr. Strawn, (B) a payment in
regular installments of Mr. Strawn's then current salary for a two-year period
from the date of termination (the "Severance Period"), (C) continued medical,
dental, and life insurance coverage at the expense of Capstar Radio until the
earlier of (x) the expiration of the Severance Period or (y) the date Mr. Strawn
has commenced new employment and has thereby become eligible for comparable
medical benefits and (D) unless the Board of Directors of Capstar Radio
determines that Mr. Strawn has not satisfactorily performed his obligations and
duties under the agreement, the immediate vesting of all stock options between
Capstar Broadcasting and Mr. Strawn 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. Strawn's termination. If Mr. Strawn's employment is terminated due
to disability, Capstar Radio shall pay all accrued obligations and investments,
and a payment in regular installments of Mr. Strawn's then current salary for
six months after the termination date.
James W. Wesley Employment Agreement. Upon consummation of the Patterson
Acquisition, Capstar Broadcasting will enter into an employment agreement
pursuant to which Mr. Wesley will serve as Chairman of the Board of Capstar
Broadcasting. Mr. Wesley's employment agreement will terminate on the fifth
anniversary of the consummation of the Patterson Acquisition. Mr. Wesley's base
salary will be $300,000, subject to annual increases at least equal to the
percentage increase, if any, in the Consumer Price Index during the preceding
calendar year. Mr. Wesley is also entitled to receive an annual performance
bonus, as determined by the Board of Directors of the Company. In addition, Mr.
Wesley is entitled to receive stock options to purchase Class A Common Stock. If
Capstar Broadcasting terminates Mr. Wesley's employment for cause or Mr. Wesley
terminates his employment for other than good reason, Capstar Broadcasting will
pay to Mr. Wesley his accrued obligations and investments through the date of
termination. If Capstar Broadcasting terminates Mr. Wesley's employment without
cause or Mr. Wesley terminates his employment for good reason, Mr. Wesley's
employment agreement provides for (A) a lump sum cash payment equal to any
accrued obligations of Capstar Broadcasting to Mr. Wesley, (B) a payment in
regular installments of Mr. Wesley's then current salary for the remainder of a
two year period from the date of termination (the "Severance Period"), (C)
continued medical, dental, and life insurance coverage at the expense of Capstar
Broadcasting until the earlier of (x) the expiration of the Severance Period or
(y) the date Mr. Wesley has commenced new employment and has thereby become
eligible for comparable medical benefits and (D) unless the Board of Directors
of Capstar Broadcasting determines that Mr. Wesley has not satisfactorily
performed his obligations and duties under the agreement, the immediate vesting
of all stock options between Capstar Broadcasting and Mr. Wesley 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. Wesley's termination. If Mr. Wesley's
employment is terminated due to disability, Capstar Broadcasting shall pay all
accrued obligations and investments and a payment in regular installments of Mr.
Wesley's then current salary for a period of six months from the date of
termination.
BENEFIT PLANS
Capstar Broadcasting Stock Option Plan
Capstar Broadcasting's 1997 Stock Option Plan (the "Capstar Broadcasting
Stock Option Plan") gives certain individuals and key employees of Capstar
Broadcasting 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 Capstar Broadcasting an opportunity
to acquire a proprietary interest in Capstar Broadcasting, and thus to create in
such persons an increased interest in and a greater concern for the welfare of
Capstar Broadcasting and any Related Entities. The Capstar Broadcasting Stock
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 6,801,710
shares of Class A Common Stock have been made under the Capstar Broadcasting
Stock Option Plan.
The Capstar Broadcasting Stock Option Plan is administered by Capstar
Broadcasting's Compensation Committee, which is currently comprised of Thomas O.
Hicks, Lawrence D. Stuart, Jr. and R. Gerald Turner. The Compensation Committee
has authority, subject to the terms of the Capstar Broadcasting Stock Option
Plan
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(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 Capstar Broadcasting 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 Capstar Broadcasting Stock Option Plan, to establish
such rules and regulations as it deems necessary for the proper administration
of the Capstar Broadcasting Stock Option Plan and to make such determinations
and interpretations and to take such action in connection with the Capstar
Broadcasting Stock Option Plan and any grants and awards thereunder as it deems
necessary or advisable. The Compensation Committee's determinations and
interpretations under the Capstar Broadcasting 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 Capstar Broadcasting 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 Capstar Broadcasting 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 Capstar Broadcasting 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% 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 Capstar Broadcasting or any Related Entity which
possess more than 10% of the total combined voting power of all classes of stock
of Capstar Broadcasting or of any Related Entity may not be less than 110% 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 Capstar
Broadcasting, or any Related Entity, possessing more than 10% of the total
combined voting power of all classes of stock of Capstar Broadcasting, 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 Capstar Broadcasting, 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 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 Capstar Broadcasting together with a copy
of irrevocable instructions to a broker to deliver promptly to Capstar
Broadcasting the amount of sale or loan proceeds to pay the exercise price.
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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, Capstar Broadcasting, 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, Capstar Broadcasting 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
Capstar Broadcasting's 1997 Stock Purchase Plan (the "Stock Purchase Plan")
gives certain key employees of Capstar Broadcasting and any Related Entities who
are expected to contribute materially to the success of Capstar Broadcasting and
any Related Entities an opportunity to acquire a proprietary interest in Capstar
Broadcasting, and thus to retain such persons and create in such persons an
increased interest in and a greater concern for the welfare of Capstar
Broadcasting and any Related Entities. The Stock Purchase Plan provides for the
grant of stock purchase rights to acquire up to shares of Class A Common Stock.
To date, grants of stock purchase rights with respect to 980,000 shares of Class
A Common Stock have been made under the Stock Purchase Plan, all of which have
been exercised.
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 (the Company's President and Chief
Executive Officer), Eric C. Neuman (an Executive Vice President of the Company)
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.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's 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.
Capstar Broadcasting has entered into indemnification agreements with each
of its directors and executive officers under which Capstar Broadcasting has
agreed to indemnify the director or officer to the fullest extent permitted by
law and to 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
Capstar Broadcasting or a subsidiary of Capstar Broadcasting or another entity
at Capstar Broadcasting 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 Capstar Broadcasting occurs and if the person
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indemnified so requests, Capstar Broadcasting 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 Capstar Broadcasting's 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.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below gives effect to the acquisition by Capstar Broadcasting of
all of the issued and outstanding common stock of the Company, the Completed
Transactions and the Financing and sets forth, as if each of the foregoing had
occurred on March 31, 1997, (i) the number and percentage of outstanding shares
of each class of the capital stock of Capstar Broadcasting 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 Broadcasting, (b) each director of
Capstar Broadcasting, (c) each Named Executive Officer, (d) each executive
officer of Capstar Broadcasting, and (e) all directors and executive officers of
the Company and Capstar Broadcasting as a group and (ii) the combined percentage
of all classes of the capital stock of Capstar Broadcasting that are
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 COMMON STOCK(1) COMMON STOCK(2)
-------------------- -------------------- ---------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT PERCENT OF PERCENTAGE
OF OF OF OF OF OF ECONOMIC OF VOTING
NAME OF BENEFICIAL OWNER SHARES CLASS SHARES CLASS SHARES CLASS INTEREST POWER
------------------------ ---------- ------- ---------- ------- ----------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capstar Broadcasting Partners,
L.P.(3)......................... -- -- -- -- 178,775,505 78.4% 59.1% 77.5%
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Capstar BT Partners, L.P.(3)...... -- -- 26,559,261 55.1% -- -- 8.8% --
200 Crescent Court, Suite 1600
Dallas, Texas 75201
BT Capital Partners, Inc.(3)...... -- -- 9,619,995 20.0% -- -- 3.2% --
200 Crescent Court, Suite 1600
Dallas, Texas 75201
William R. Hicks(3)............... 3,639,870 11.3% -- -- -- -- 1.2% *
2700 E. Bypass, Suite 5000
College Station, Texas 77845
D. Geoff Armstrong(3)............. 2,969,867 12.0% -- -- -- -- 1.0% *
600 Congress Avenue, Suite 1400
Austin, Texas 78701
Capstar Boston Partners,
L.L.C.(3)....................... 2,727,272 10.4% -- -- -- -- * *
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Dex Allen(3)...................... 363,636 1.4% -- -- -- -- * *
Scott J. Bacherman(3)............. 100,000 * -- -- -- -- * *
William S. Banowsky, Jr.(3)....... 500,000 1.9% -- -- -- -- * *
David J. Benjamin, III(3)......... 363,636 1.4% -- -- -- -- * *
John D. Cullen(3)................. 3,292,989 12.5% -- -- -- -- 1.1% *
R. Steven Hicks(4)................ -- -- -- -- 25,449,986 10.7% 8.1% 10.6%
Thomas O. Hicks(5)................ 26,337,243 100.0% 48,179,897 100.0% 238,593,985 100.0% 15.4% 100.0%
Joseph L. Mathias, IV(3).......... 1,615,385 6.1% -- -- -- -- -- --
Eric C. Neuman(3)................. 2,500,628 9.5% -- -- -- -- * *
Frank D. Osborn(3)................ 1,636,361 6.2% -- -- -- -- * *
Mary K. Quass(3).................. 909,091 3.5% -- -- -- -- * *
James T. Shea, Jr.(3)............. 350,000 1.3% -- -- -- -- * *
Jay Sterin(3)..................... 250,000 1.0% -- -- -- -- * *
Paul D. Stone(3).................. 2,271,355 8.6% -- -- -- -- * *
James M. Strawn................... -- -- -- -- -- -- -- --
Lawrence D. Stuart, Jr.(3)........ 637,928 2.4% -- -- -- -- * *
James W. Wesley, Jr............... -- -- -- -- -- -- -- --
R. Gerald Turner.................. -- -- -- -- -- -- -- --
All directors and executive
officers of the Company and
Capstar Broadcasting as a group
(18 persons).................... 26,337,243 100.0% 48,179,897 100.0% 238,593,985 100.0% 100.0% 100.0%
</TABLE>
- ---------------
* Less than one percent.
(1) The holders of shares of Class B Common Stock, par value $.01 per share, of
Capstar Broadcasting ("Class B Common Stock" and, together with the Class A
Common Stock and Class C Common Stock, the "Common Stock") are not 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."
(2) The holders of the Class C Common Stock are entitled to vote with the
holders of the Class A Common Stock on all matters submitted to a vote of
stockholders of the Company, except after an IPO (as defined) with respect
to the election of Class A Directors (as defined), certain "going private"
transactions and as otherwise required by law and except under the
circumstances described under "Description
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of Capital Stock." Each share of Class C Common Stock is entitled to ten
votes per share on all matters submitted to a vote of stockholders. See
"Description of Capital Stock."
(3) Such shares are subject to a stockholders agreement as described in "Certain
Transactions -- Stockholders Agreements."
(4) The number of shares of Class C Common Stock includes (i) 100,000 shares
owned of record by R. Steven Hicks' children, (ii) 7,440,000 shares
purchasable by R. Steven Hicks pursuant to the terms of the Warrant, (iii)
2,042,546 shares purchasable by R. Steven Hicks pursuant to the terms of the
Second Warrant, and (iv) 987,970 shares purchasable by R. Steven Hicks
pursuant to the terms of the Third Warrant (as defined). 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 (as
defined). 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 (i) 2,727,272
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," (ii) 6,368,109 shares owned of record by parties to the
Management Stockholders Agreement (as defined), which shares are subject to
a voting agreement as described in "Certain Transactions -- Stockholders
Agreements -- Management Stockholders Agreement" and (iii) 17,241,862 shares
owned of record by parties to the GulfStar Stockholders Agreement (as
defined), which shares are subject to a voting agreement as described in
"Certain Transactions -- Stockholders Agreements -- GulfStar Stockholders
Agreement." The number of shares of Class B Common Stock is comprised of (i)
the 26,559,261 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" and (ii) 21,620,636 shares owned of record by parties to the
GulfStar Stockholders Agreement (as defined), which shares are subject to a
voting agreement as described in "Certain Transactions -- Stockholders
Agreements -- GulfStar Stockholders Agreement." The number of shares of
Class C Common Stock includes (i) 100,000 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) 14,879,470 shares owned of record by R. Steven
Hicks, and 7,440,000 shares, 2,042,546 shares and 987,970 shares purchasable
by R. Steven Hicks pursuant to the terms of the Warrant, the Second Warrant
and the Third Warrant, respectively, which shares are subject to a voting
agreement as described in "Certain Transactions -- Stockholders
Agreements -- Affiliate Stockholders Agreement," (iii) 178,775,505 shares
owned of record by Capstar L.P., of which the ultimate general partner is an
entity controlled by Thomas O. Hicks, and (iv) 34,368,495 shares owned of
record by parties to the GulfStar Stockholders Agreement (as defined), which
shares are subject to a voting agreement as described in "Certain
Transactions -- Stockholders Agreements -- GulfStar Stockholders Agreement."
Hicks Muse is a party to the Affiliate Stockholders Agreement, the
Management Stockholders Agreement and the GulfStar Stockholders Agreement,
which agreements require the parties to such agreements to vote their shares
(i) in favor of the election to Capstar Broadcasting'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, the Management Stockholders
Agreement and the GulfStar Stockholders Agreement. Thomas O. Hicks disclaims
beneficial ownership of the shares of Common Stock not owned by him of
record.
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CERTAIN TRANSACTIONS
MONITORING AND OVERSIGHT AGREEMENTS
Capstar Broadcasting Monitoring and Oversight Agreement. Capstar
Broadcasting has entered into a monitoring and oversight agreement (the "Capstar
Broadcasting Monitoring and Oversight Agreement") with Hicks Muse & Co.
Partners, L.P. ("Hicks Muse Partners"). Pursuant thereto, Capstar Broadcasting
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 Capstar Broadcasting for the
then-current fiscal year; provided, that such fee shall at no time be less than
$100,000 per year. Notwithstanding the calculation of the annual fee in the
preceding two sentences, the annual fee will be reduced by the amount previously
paid for such period by the Company under the Monitoring and Oversight Agreement
(as defined), and as a result, no annual fee is expected to be required to be
paid in 1997. Hicks Muse Partners is also entitled to reimbursement for any
out-of-pocket expenses incurred by it in connection with rendering services
under the Capstar Broadcasting Monitoring and Oversight Agreement. In addition,
Capstar Broadcasting 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 Capstar Broadcasting 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 Capstar
Broadcasting's operations. Any such increase will be subject to the approval of
the Board of Directors of Capstar Broadcasting, including a majority of the
disinterested directors, based on the exercise of their independent judgment.
The Capstar Broadcasting 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 Capstar Broadcasting
without the addition of personnel or the engagement of outside professional
advisors. The Capstar Broadcasting Monitoring and Oversight Agreement expires on
the earlier to occur of (i) July 1, 2007 or (ii) the date on which HM Fund III
and its affiliates cease to own beneficially, directly or indirectly, any
securities of Capstar Broadcasting or its successors.
Monitoring and Oversight Agreement. The Company has entered into a
monitoring and oversight agreement (the "Monitoring and Oversight Agreement")
with 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 $278,000. 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. The remainder of the terms of the
Monitoring and Oversight Agreement are substantially similar to the terms of the
Capstar Broadcasting Monitoring and Oversight Agreement.
FINANCIAL ADVISORY AGREEMENTS
Capstar Broadcasting Financial Advisory Agreement. Capstar Broadcasting is
a party to a financial advisory agreement (the "Capstar Broadcasting Financial
Advisory Agreement") with Hicks Muse Partners. Pursuant to the Capstar
Broadcasting Financial Advisory Agreement, Hicks Muse Partners is entitled to
receive a fee equal to 1.5% of the transaction value (as defined in the Capstar
Broadcasting Financial Advisory Agreement) for each add-on transaction (as
defined) in which Capstar Broadcasting 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 Capstar
Broadcasting 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 Capstar Broadcasting
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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 Capstar Broadcasting or any of its
subsidiaries, excluding the Company and its direct and indirect subsidiaries,
and any other person or entity. In addition, Capstar Broadcasting 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 Capstar Broadcasting Financial Advisory Agreement.
Pursuant to the Capstar Broadcasting Financial Advisory Agreement, Hicks
Muse Partners provides investment banking, financial advisory and other similar
services with respect to the add-on transactions in which Capstar Broadcasting
is involved. Such transactions require additional attention beyond that required
to monitor and advise Capstar Broadcasting on an ongoing basis and accordingly
Capstar Broadcasting pays separate Capstar Broadcasting 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 Capstar Broadcasting without the addition of personnel or the engagement of
outside professional advisors. The Capstar Broadcasting Financial Advisory
Agreement will terminate concurrently with the termination of the Capstar
Broadcasting Monitoring and Oversight Agreement.
Financial Advisory Agreement. The Company is a party to a financial
advisory agreement (the "Capstar Financial Advisory Agreement") with Hicks Muse
Partners. The terms of the Financial Advisory Agreement are substantially
similar to the terms of the Capstar Broadcasting Financial Advisory Agreement.
The Company has paid Hicks Muse Partners financial advisory fees of
approximately $12.4 million since the Company's inception in October 1996.
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 Capstar Broadcasting and Hicks Muse that provides, among other things, that
the Affiliate Stockholders may require Capstar Broadcasting, 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 Capstar
Broadcasting 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 Capstar Broadcasting'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 Capstar Broadcasting or holding not less than 3% of the
fully-diluted Common Stock of Capstar Broadcasting, the Affiliate Stockholders
Agreement provides that Mr. Hicks shall be one of such designees to serve on
Capstar Broadcasting's Board of Directors.
The Affiliate Stockholders Agreement provides that, in connection with any
transfer of Capstar Broadcasting'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% 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% 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
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conditions as the proposed transfer. If R. Steven Hicks is no longer an officer,
director or employee of Capstar Broadcasting or any of its subsidiaries or a
change of control (as defined in the Affiliate Stockholders Agreement) occurs,
Capstar Broadcasting has the option to purchase all or any portion of Capstar
Broadcasting'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 Capstar Broadcasting 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 waived his preemptive right to acquire additional shares of Common
Stock in connection with the Financing. Mr. Hicks is entitled to receive, for no
additional consideration, a warrant to acquire additional shares of Class C
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. In connection with the Hicks Muse GulfStar Equity Investment, Mr.
Hicks received a warrant to purchase 3,231,203 shares of Class C Common Stock
(the "Third Warrant"). See "-- Warrants" and "-- Management and Affiliate Equity
Investments."
Management Stockholders Agreement. Certain employees of Capstar
Broadcasting and its subsidiaries have entered into the Management Stockholders
Agreement (the "Management Stockholders Agreement") with Capstar Broadcasting
and Hicks Muse that provides, among other things, that in the event Capstar
Broadcasting 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 Capstar Broadcasting's Board of
Directors of such individuals as may be designated by Hicks Muse and its
affiliates.
The Management Stockholders Agreement provides that, in connection with any
transfer of Capstar Broadcasting'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% 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% 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 transferee. If at any time a stockholder subject to
the Management Stockholders Agreement is no longer an officer, director or
employee of Capstar Broadcasting or any of its subsidiaries or a change of
control (as defined in the Management Stockholders Agreement) of Capstar
Broadcasting occurs, Capstar Broadcasting has the option to purchase all or any
portion of Capstar Broadcasting's securities held by such stockholder.
GulfStar Stockholders Agreement. Upon completion of the GulfStar
Transaction, the stockholders of GulfStar (other than R. Steven Hicks) (the
"GulfStar Stockholders") entered into the GulfStar Stockholders Agreement with
Capstar Broadcasting and Hicks Muse that provides, among other things, that the
GulfStar Stockholders may require Capstar Broadcasting, subject to certain
registration volume limitations, to effect up to three demand registrations of
their Common Stock under the Securities Act one year following the consummation
of a Qualified IPO (as defined in the GulfStar Stockholders Agreement). The
GulfStar Stockholders Agreement also provides that in the event Capstar
Broadcasting proposes to register any shares of its Common Stock under the
Securities Act, whether or not for its own account, the GulfStar Stockholders
will be entitled, with certain exceptions, to include their shares of Common
Stock in such registration.
The GulfStar Stockholders Agreement also requires the GulfStar
Stockholders, subject to certain conditions, to vote their shares (i) in favor
of the election to Capstar Broadcasting's Board of Directors of such individuals
as
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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.
The GulfStar Stockholders Agreement provides that, in connection with any
transfer of Capstar Broadcasting'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% 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 GulfStar 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% 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 GulfStar
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 transferee. The GulfStar Stockholders Agreement
provides that (i) a GulfStar Stockholder 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) a GulfStar
Stockholder may not transfer, convey, assign or hypothecate any of his
securities (subject to the GulfStar Stockholders Agreement) to an affiliate or
any family member of such GulfStar Stockholder unless such affiliate or family
member joins in the GulfStar Stockholders Agreement.
REGISTRATION RIGHTS AGREEMENT
Frank D. Osborn is a party to a registration rights agreement with Capstar
Broadcasting which provides, among other things, that Mr. Osborn may require
Capstar Broadcasting 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 of control (both as defined in the registration rights agreement). After
receipt of a demand for registration of Common Stock by Mr. Osborn pursuant to
the registration rights agreement, Capstar Broadcasting has 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, which has been assumed by Capstar Broadcasting. Pursuant to the
terms of the Warrant, Mr. Hicks is entitled to purchase 7,440,000 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 1,860,000 shares of
Class C Common Stock. The exercise price of the Warrant is equal to a per share
price of $1.00 as increased by an annual rate of interest equal to 8% 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%,
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). See "-- Management and Affiliate
Equity Investments." The Warrant will terminate on October 16, 2006. The Warrant
and the shares of Class C Common Stock issuable thereunder are subject to the
Affiliate Stockholders Agreement.
Under the terms of the Affiliate Stockholders Agreement, the Company issued
a new warrant (the "Second Warrant") to Mr. Hicks upon completion of the Hicks
Muse Osborn Equity Investment, which has been assumed by Capstar Broadcasting.
Pursuant to the terms of the Second Warrant, Mr. Hicks is entitled to purchase
2,042,546 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 510,636 shares of Class C Common Stock. See "-- Management and
Affiliate Equity Investments." The exercise price of the Second Warrant is 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 commencing as of February 20, 1997. The Second
Warrant will terminate ten years from the date of grant. The remaining terms of
the Second Warrant are substantially similar to the terms of the Warrant.
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Under the terms of the Affiliate Stockholders Agreement, Capstar
Broadcasting issued a new warrant (the "Third Warrant" and together with the
Warrant and the Second Warrant, the "Warrants") to Mr. Hicks upon completion of
the Hicks Muse GulfStar Equity Investment. Pursuant to the terms of the Third
Warrant, Mr. Hicks is entitled to purchase 987,970 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 $75.0 million investment in
Capstar Broadcasting), may purchase an additional 2,243,233 shares of Class C
Common Stock. See "-- Management and Affiliate Equity Investments." The exercise
price of the Third Warrant is equal to a per share price of $1.33 per share as
increased by an annual rate of interest equal to 8% per year commencing as of
the date of the consummation of the GulfStar Transaction. The Third Warrant will
terminate 10 years from the date of grant. The remaining terms of the Third
Warrant are substantially similar to the terms of the Warrant.
MANAGEMENT AND AFFILIATE EQUITY INVESTMENTS
HM Fund III and its affiliates (through Capstar L.P.) have invested $233.9
million in the Common Stock, including $90.0 million for 90,000,000 shares of
Class C Common Stock in connection with the Commodore Acquisition, $34.8 million
for 31,634,527 shares of Class C Common Stock in connection with the Hicks Muse
Osborn Equity Investment, and $75.0 million for 56,390,977 shares of Class C
Common Stock in connection with the GulfStar Transaction (the "Hicks Muse
GulfStar Equity Investment"), and equity investments by Capstar BT Partners,
L.P. and Capstar Boston Partners, L.L.C. (each of which is an affiliate of HM
Fund III). HM Fund III and its affiliates have committed to invest up to an
additional $50.0 million in equity of Capstar Broadcasting and Capstar
Broadcasting has committed to issue additional equity to Capstar Broadcasting in
exchange therefor. In connection with the Osborn Acquisition, Capstar BT
Partners, L.P., an entity controlled by Hicks Muse, invested $20.0 million for
18,181,818 shares of Class B Common Stock and, in connection with the Hicks Muse
GulfStar Equity Investment and upon exercise of its preemptive rights under the
Affiliate Stockholders Agreement, Capstar BT Partners, L.P. invested an
additional $11.1 million for 8,377,443 shares of Class B Common Stock (the
"Capstar BT Equity Investment"). Capstar BT Partners, L.P. may exercise its
preemptive rights under the Affiliate Stockholders Agreement in connection with
HM Fund III's purchase of an additional $50.0 million of Common Stock pursuant
to its commitment to purchase such shares. Capstar Boston Partners, L.L.C., an
entity controlled by Hicks Muse, has invested $3.0 million for 2,727,272 shares
of Class A Common Stock.
R. Steven Hicks, the President and Chief Executive Officer of the Company,
has invested $3.1 million for 3,100,000 shares of Class C Common Stock. James T.
Shea, Jr., the chief executive officer of the Northeast Region, has invested
$350,000 for 350,000 shares of Class A Common Stock. In connection with the
Osborn Acquisition, Frank D. Osborn, the former President and Chief Executive
Officer of Osborn contributed certain shares of common stock of Osborn to the
Company in exchange for 1,636,361 shares of common stock of the Company having a
deemed value of $1.8 million (which shares have been exchanged for an equal
number of shares of Class A Common Stock). David J. Benjamin, who will serve as
a Managing Director and Dex Allen, who serves as the president and chief
executive officer of the West Region, have each invested $400,000 for 363,636
shares of Class A Common Stock. Mary K. Quass, who will serve as the president
and chief executive officer of the Midwest Region upon consummation of the Quass
Acquisition, has invested $1.0 million for 909,091 shares of Class A Common
Stock. In connection with the Benchmark Acquisition, Joseph L. Mathias IV,
received 1,615,385 shares of Class A Common Stock having a deemed value of $2.0
million in consideration of part of his ownership interest in Benchmark. The
number of shares received by Mr. Mathias may change pending completion of
certain post-closing purchase price adjustments in connection with the Benchmark
Acquisition. Certain other members of Capstar Broadcasting's management have
invested approximately $1.1 million for 1,130,000 shares of Class A Common
Stock.
INDEBTEDNESS OF MANAGEMENT
In connection with his employment, Dex Allen, the president and chief
executive officer of the West Region, purchased 363,636 shares of common stock
of the Company, which were subsequently exchanged for shares of Class A Common
Stock, in exchange for $200,000 in cash and a promissory note payable to the
Company in the principal amount of $200,000. The note is secured by the Class A
Common Stock purchased by Mr. Allen and
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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, III who serves as a Managing Director of Capstar Radio,
purchased 363,636 shares of common stock of the Company, which were subsequently
exchanged for shares of Class A Common Stock, in exchange for $3,636 in cash and
a promissory note payable to the Company in the principal amount of $400,000,
which was repaid in connection with the Community Pacific Acquisition. The note
was secured by the Class A Common Stock purchased by Mr. Benjamin and bore
interest at a rate of 9% per annum with principal and interest payments due at
maturity. Such shares are subject to the Management Stockholders Agreement. See
"-- Stockholders Agreements."
Mary K. Quass, who will serve as the president and chief executive officer
of the Midwest Region upon consummation of the Quass Acquisition, purchased
909,091 shares of common stock of the Company, which were subsequently exchanged
for shares of Class A Common Stock, in exchange for cash in the amount of $9,091
and a promissory note payable to the Company in the principal amount of
$990,909. The note is secured by the Class A Common Stock purchased by Ms. Quass
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) April 30, 1998 or (ii) consummation of the Quass Acquisition.
Capstar Broadcasting will have the right to repurchase Ms. Quass' shares of
Class A Common Stock (by forgiveness of the note) if (i) the Quass Acquisition
is not closed by April 30, 1998 or (ii) the acquisition agreement therefor is
terminated. Such shares are subject to the Management Stockholders Agreement.
See "-- Stockholders Agreements."
Each of Eric C. Neuman, Paul D. Stone, and John D. Cullen, who are members
of management of GulfStar, acquired shares of common stock of GulfStar in
exchange for non-recourse promissory notes payable and recourse promissory notes
payable to GulfStar in aggregate principal amounts of approximately $114,000,
$428,000, and $856,000, respectively. The notes were secured by the common stock
of GulfStar purchased by such persons, and upon completion of the GulfStar
Merger, will be secured by the Common Stock issued in exchange therefor. The
note of Eric C. Neuman bears interest at a rate of 9% per annum and the notes of
Paul D. Stone and John D. Cullen bear interest at 7.6% per annum, each with
principal and interest payments payable annually in arrears. Each of the notes
matures 10 years after the date of the note.
R. Gerald Turner, a director of Capstar Broadcasting, intends to acquire
75,188 shares of Class A Common Stock in exchange for a non-recourse promissory
note payable to Capstar Broadcasting in the principal amount of $75,000 and a
recourse note payable to Capstar Broadcasting in the principal amount of
$25,000. The notes, which will mature on the fifth anniversary thereof, will be
secured by the shares of Class A Common Stock purchased by Mr. Turner and bear
interest at a rate of 8.25% per annum with quarterly interest payments and
principal payable at maturity. Such shares will be subject to the Management
Stockholders Agreement. See "-- Stockholders Agreements."
GULFSTAR TRANSACTIONS
On April 16, 1996, GulfStar acquired all of the outstanding capital stock
of Sonance Communications, Inc. ("Sonance") in exchange for 542 shares of
GulfStar Class C Stock, 1,626 shares of GulfStar Class A Stock and approximately
$619,000 of cash. Total consideration for the acquisition, including acquisition
costs, was approximately $8,692,000, including assumed liabilities of
$7,627,000. Sonance's controlling stockholder is William R. Hicks, brother of
Thomas O. Hicks and R. Steven Hicks. Thomas O. Hicks was the majority
stockholder of GulfStar and Sonance. The primary assets of Sonance include
stations KKAM-AM, KFMX-FM, KIIZ-FM, KLTX-FM, WTAW-AM and KTSR-FM.
In 1996, GulfStar recorded a charge of approximately $771,000 in connection
with the write-off of a receivable from Sonance Midland, Inc. ("Sonance
Midland"). Before its sale to an unrelated third party, Sonance Midland was
owned by Thomas O. Hicks and William R. Hicks, brother of Thomas O. Hicks and R.
Steven Hicks. Sonance Midland owed GulfStar $771,000 in connection with advances
for working capital. During 1996,
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Sonance Midland was sold by William R. Hicks to a unrelated third party.
Concurrently with the sale, GulfStar wrote-off the receivable from Sonance
Midland.
Capstar Broadcasting has agreed to acquire an aggregate of 1,187,947 shares
of Class A Common Stock from William R. Hicks and Ben D. Downs for an aggregate
purchase price of $765,000 payable in cash. In connection therewith, Capstar
Broadcasting has agreed to sell (the "GulfStar -- Bryan Disposition") all of the
outstanding capital stock of BBOC, an indirect wholly-owned subsidiary of
Capstar Broadcasting that was acquired in the GulfStar Transaction, to William
R. Hicks and Ben D. Downs in exchange for cash proceeds in the amount of
$580,000. BBOC owns and operates radio stations WTAW-FM, KTSR-FM and KAGG-FM in
Bryan, Texas. FCC approval is pending. The Company anticipates that the
GulfStar -- Bryan Disposition will be completed in October 1997, and,
accordingly, Common Stock of Capstar Broadcasting (received by William R. Hicks
and Ben D. Downs in connection with the GulfStar Merger) will be exchanged for
the capital stock of BBOC.
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DESCRIPTION OF CAPITAL STOCK
THE COMPANY
The Company's authorized capital stock consists of (i) 300,000,000 shares
of Class A common stock, par value $.01 per share, of which 279,632,180 shares
were issued and outstanding upon completion of the Completed Transactions, (ii)
50,000,000 shares of Class B common stock, par value $.01 per share, none of
which were issued and outstanding upon completion of the Completed Transactions,
and (iii) 10,000,000 shares of preferred stock, par value $.01 per share, of
which 1,000,000 shares were issued and outstanding as Senior Exchangeable
Preferred Stock upon completion of the Completed Transactions. Capstar
Broadcasting owns all of the Company's outstanding Common Stock.
Preferred Stock
The Company is authorized to issue 10,000,000 shares of preferred stock.
The Board of Directors of the Company, 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 the
Company's Certificate of Incorporation, the Board of Directors of the Company 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 the Company, 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. The
Company's outstanding preferred stock consists solely of the Old Preferred
Stock. See "Description of the New Senior Exchangeable Preferred Stock and
Exchange Debentures."
CAPSTAR BROADCASTING
Capstar Broadcasting's authorized capital stock consists of (i) 75,000,000
shares of Class A Common Stock, of which 26,337,243 shares were issued and
outstanding upon completion of the Completed Transactions, (ii) 50,000,000
shares of Class B Common Stock of which 48,179,897 shares were issued and
outstanding upon completion of the Completed Transactions, and (iii) 300,000,000
shares of Class C Common Stock, of which 228,123,470 shares were issued and
outstanding upon completion of the Completed Transactions, and (iv) 50,000,000
shares of Preferred Stock, $.01 par value per share ("Preferred Stock"), none of
which were issued and outstanding upon completion of the Completed Transactions.
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 (collectively, the "Common Stock")
are 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 Broadcasting'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) after completion of an
IPO (as defined in Capstar Broadcasting's Certificate of Incorporation) 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
Broadcasting; (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 after the completion of an
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IPO (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.
After the completion of an IPO, the holders of Class A Common Stock, voting
as a separate class, will be entitled to elect two persons to Capstar
Broadcasting'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 Broadcasting or its subsidiaries, and who does
not have a relationship which, in the opinion of the Board of Directors of
Capstar Broadcasting, would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director. In addition, after the
completion of an IPO, the holders of Class A Common Stock and Class C Common
Stock, voting as a single class, are entitled to elect the remainder of the
Board of Directors, which will be divided into three classes of directors with
staggered three-year terms. 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 an IPO subject to appropriate adjustment in respect
of any subdivisions or combinations affecting Class C Common Stock and (ii) the
third anniversary date of the completion of an IPO, 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 Broadcasting that would
increase or decrease the aggregate number of authorized shares of such class,
increase or decrease the par value of the shares of 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
Broadcasting, 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 or 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 or 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 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.
Preferred Stock
Capstar Broadcasting is authorized to issue 50,000,000 shares of Preferred
Stock. The Board of Directors of Capstar Broadcasting, 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 Broadcasting's Certificate of Incorporation, the Board
of Directors of Capstar Broadcasting 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
Broadcasting, 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.
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FOREIGN OWNERSHIP
The Certificates of Incorporation of the Company and Capstar Broadcasting
restrict the ownership, voting and transfer of each entity's capital stock,
including the such entity's common stock, in accordance with the Communications
Act and the rules of the FCC, which prohibit ownership of more than 25% of such
entity'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 Certificates of Incorporation of the
Company and Capstar Broadcasting authorize each entity's respective 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 Certificates of Incorporation of each of the Company and
Capstar Broadcasting provides that shares of capital stock determined by such
entity'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 action of the such Board of Directors to the extent
necessary, in the judgment of such Board of Directors, to comply with the Alien
ownership restrictions of the Communications Act and the FCC rules and
regulations.
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 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.
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DESCRIPTION OF INDEBTEDNESS
SENIOR DISCOUNT NOTES
The 12 3/4% Senior Discount Notes due 2009 of the Company (the "Notes")
were issued under the Notes Indenture dated as of February 20, 1997, as amended,
between the Company and U.S. Trust Company of Texas, N.A., as trustee (the
"Trustee"). The Company expects to offer to exchange new notes ("New Notes") for
the Notes. The terms of the New Notes are identical in all material respects to
the Notes, except that the New Notes will have been registered under the
Securities Act and, therefor, will not bear legends restricting their transfer.
On April 23, 1997, the Company filed with the Commission a registration
statement on Form S-4 to register the New Notes. Upon the issuance of the New
Notes, the Notes Indenture will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes and the
New Notes are collectively referred to herein as the "Notes." The following
summary of certain provisions of the Notes Indenture and the Notes does not
purport to be complete, is subject to, and is qualified in its entirety by
reference to, the provisions of the Notes Indenture and the Notes and assumes
that the exchange offer has been completed.
The Notes are unsecured, senior obligations of the Company and are limited
to $277,000,000 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 Notes were
offered at a substantial discount from their principal amount at maturity.
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:
<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 (as defined in the
Notes Indenture) or major asset sales (as defined in the Notes Indenture) 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 (as defined in the Notes Indenture).
See "-- Change of Control."
Change of Control. The Notes Indenture provides 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 to purchase the Notes at a purchase price equal to (i) 101% of the
accreted value on the
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change of control payment date (as defined therein) 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.
Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries. Under the Notes Indenture, 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 (except preferred stock issued
to the Company or a wholly owned subsidiary of the Company); 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. The Notes Indenture provides that
neither the Company nor any of its subsidiaries will, directly or indirectly,
make any restricted payment (as defined in the Notes Indenture) 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 of the Notes exceeds the sum of (a) (x) 100% of the
aggregate consolidated EBITDA (as defined in the Notes Indenture) 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 (as defined in the Notes Indenture) for the same period,
plus (b) 100% of the aggregate net proceeds, 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 (as
defined in the Notes Indenture) of the Company, plus (c) without
duplication of any amount included in clause (iii)(b) above, 100% of the
aggregate net proceeds, 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 person to the
Company or any subsidiary of the Company or (ii) the redesignation of
unrestricted subsidiaries (as defined in the Notes Indenture) as
subsidiaries, 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 (as such terms are defined in the Notes
Indenture), that are held by such person at the time such person is merged
with and into the Company.
Other Restrictive Covenants. The Notes Indenture contains certain other
restrictive covenants that, among other things, impose limitations (subject to
certain exceptions) on the Company with respect to (i) sales of assets by the
Company and its subsidiaries, (ii) asset swaps and (iii) the merger or sale of
all or substantially all the assets of the Company.
Events of Default. The following events are defined in the Notes 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
Notes
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<PAGE> 130
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 (as defined in the Notes Indenture) 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 Notes
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 Credit Facility, will become due and payable upon the
first to occur of an acceleration under the Credit Facility or five business
days after receipt by the Company and the agent under the Credit Facility of
such Acceleration Notice (unless all Events of Default specified in such
Acceleration Notice have been cured or waived). For purposes of the immediately
preceding sentence, "Credit Facility" includes the Existing Credit Facility, as
it may be amended, supplemented or otherwise modified from time to time and 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 Existing Credit Facility or any
other credit agreement). 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.
EXISTING CAPSTAR RADIO NOTES
The following summary of certain terms of the Existing Capstar Radio Notes
and the Existing Capstar Radio Indenture does not purport to be complete and is
qualified in its entirety by reference to the Trust Indenture Act, and to the
full text of the Existing Capstar Radio Indenture, copies of which are available
from the Company upon request.
The Existing Capstar Radio Notes were issued pursuant to the Existing
Capstar Radio Indenture among Capstar Radio, the guarantors named therein and
IBJ Schroder Bank & Trust Company, as Trustee. The Existing Capstar Radio 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 Existing Capstar Radio Notes are general unsecured obligations of
Capstar Radio subordinated in right of payment to all senior indebtedness (as
defined in the Existing Capstar Radio Indenture) and senior in rights of payment
to any current or future indebtedness of Capstar Radio which, by its terms, is
subordinated to the Existing Capstar Radio Notes. The Existing Capstar Radio
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 Existing Capstar Radio Indenture.
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<PAGE> 131
The Existing Capstar Radio Notes are redeemable at the option of Capstar
Radio, 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, Capstar Radio may redeem in the aggregate up to one-third of the
original principal amount of the Existing Capstar Radio 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 Existing Capstar Radio 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 Existing Capstar Radio Indenture), provided,
that at least $50 million in aggregate principal amount of Existing Capstar
Radio 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 Existing Capstar Radio
Indenture, Capstar Radio will not, and will not permit any restricted subsidiary
of Capstar Radio to, directly or indirectly, incur any indebtedness (including
acquired indebtedness as such term is defined in the Existing Capstar Radio
Indenture) unless (i) after giving effect to the incurrence of such indebtedness
and the receipt and application of the proceeds thereof, the ratio of Capstar
Radio's total indebtedness to Capstar Radio's EBITDA (as defined in the Existing
Capstar Radio Indenture and as determined on a pro forma basis for the last four
fiscal quarters of Capstar Radio 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 Existing Capstar Radio Indenture) shall have occurred and be continuing at
the time of or immediately after giving effect to the incurrence of such
indebtedness.
Limitation on Restricted Payments. Subject to certain exceptions set forth
in the Existing Capstar Radio Indenture, Capstar Radio will not make, and will
not permit any of its restricted subsidiaries to, directly or indirectly, make,
any restricted payment (as defined in the Existing Capstar Radio 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,
Capstar Radio 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 Existing Capstar Radio Notes does not exceed the sum
of (a) 50% of Capstar Radio'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 Capstar Radio
from the issue or sale, after the issue date, of capital stock of Capstar Radio
(other than disqualified capital stock as such term is defined in the Existing
Capstar Radio Indenture or capital stock of Capstar Radio issued to any
subsidiary of Capstar Radio) or any indebtedness or other securities of Capstar
Radio convertible into or exercisable or exchangeable for capital stock (other
than disqualified capital stock) of Capstar Radio which has been so converted or
exercised or exchanged, as the case may be.
Change of Control. Under the Existing Capstar Radio Indenture, in the event
of a change of control (as defined therein) of Capstar Radio, Capstar Radio will
be required to make an offer to purchase the outstanding Existing Capstar Radio
Notes at a purchase price equal to 101% of their accreted value (as defined in
the Existing Capstar Radio Indenture), plus any accrued and unpaid interest, if
any, to the date of repurchase.
Other Restrictive Covenants. The Existing Capstar Radio Indenture contains
certain other restrictive covenants that, among other things, impose limitations
(subject to certain exceptions) on Capstar Radio with respect to (i) the
issuance of preferred stock by any of Capstar Radio's subsidiaries, (ii) the
sale, pledge, hypothecation or other transfer of any capital stock of a
subsidiary of Capstar Radio, (iii) the issuance of any capital stock of Capstar
Radio's subsidiaries other than to Capstar Radio or a wholly-owned subsidiary,
(iv) sales of assets by Capstar Radio and its subsidiaries, (v) transactions
with stockholders and affiliates, (vi) the existence of liens on the assets of
Capstar Radio or its subsidiaries, (vii) investments by Capstar Radio and its
subsidiaries, (viii) the creation or acquisition of subsidiaries, (ix) the
incurrence of indebtedness senior to the Existing Capstar Radio Notes and
subordinate to other indebtedness of Capstar Radio, (x) the guarantee of
indebtedness, (xi) the merger or sale of all or substantially all the assets of
Capstar Radio and (xii) limitations on assets swaps.
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Events of Default. Under the Existing Capstar Radio 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 Existing Capstar Radio Notes
when the same becomes due and payable; (ii) a default in the payment of any
interest on any Existing Capstar Radio Note when the same becomes due and
payable and the default continues for a period of 30 days; (iii) Capstar Radio
or any guarantor defaults in the observance or performance of any covenant in
the Existing Capstar Radio Notes or Existing Capstar Radio 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 Existing Capstar Radio Notes then outstanding;
(iv) Capstar Radio or any guarantor fails to pay when due principal, interest or
premium aggregating $1,000,000 or more with respect to any indebtedness of
Capstar Radio 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 Capstar Radio 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 Capstar Radio or
any of its restricted subsidiaries.
Upon the happening of any Event of Default specified in the Existing
Capstar Radio Indenture, the trustee may, and upon the request of holders of at
least 25% in principal amount of the Existing Capstar Radio Notes, shall, or the
holders of at least 25% in principal amount of outstanding Existing Capstar
Radio Notes may, declare the principal of and accrued but unpaid interest, if
any, on all of such Existing Capstar Radio Notes to be due and payable.
NEW CAPSTAR RADIO NOTES
The New Capstar Radio Notes were issued under an Indenture dated as of June
17, 1997 (the "New Capstar Radio Indenture"), between Capstar Radio and U.S.
Trust Company of Texas, N.A., as trustee (the "Capstar Radio Trustee"). Capstar
Radio expects to offer (the "Capstar Radio Exchange Offer") to exchange new
notes ("New Capstar Radio Exchange Notes") for the New Capstar Radio Notes. The
terms of the New Capstar Radio Exchange Notes are identical in all material
respects to the New Capstar Radio Notes, except that the New Capstar Radio
Exchange Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer. Upon the issuance
of the New Capstar Exchange Notes, the New Capstar Radio Indenture will be
subject to and governed by the Trust Indenture Act. The New Capstar Radio Notes
and the New Capstar Radio Exchange Notes are collectively referred to herein as
the "New Capstar Radio Notes." The following summary of certain provisions of
the New Capstar Radio Indenture and the New Capstar Radio Notes does not purport
to be complete, is subject to, and is qualified in its entirety by reference to,
the provisions of the New Capstar Radio Indenture and the New Capstar Radio
Notes and assumes that the Capstar Radio Exchange Offer has been completed.
The New Capstar Radio Notes are general unsecured obligations of Capstar
Radio subordinated in right of payment to all senior indebtedness (as defined in
the New Capstar Radio Indenture) and senior in right of payment to any current
or future indebtedness of Capstar Radio that, by its terms, is subordinated to
the New Capstar Radio Notes. The New Capstar Radio Notes are limited to $200
million aggregate principal amount and will mature on July 1, 2007. Interest
will accrue on the New Capstar Radio Notes from the date of issuance.
The New Capstar Radio 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 July 1, 2002, in whole or in part, at the
option of Capstar Radio, at the redemption prices (expressed as a percentage of
the principal amount thereof)
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set forth below, plus accrued and unpaid interest, if any, to the redemption
date, if redeemed during the 12-month period beginning July 1 of each of the
years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002...................................................... 104.625%
2003...................................................... 103.083%
2004...................................................... 101.542%
2005 and thereafter....................................... 100.000%
</TABLE>
In addition, prior to July 1, 2001, Capstar Radio may, at its option, use
the net cash proceeds of one or more public equity offerings (as defined in the
New Capstar Radio Indenture) or major asset sales (as defined in the New Capstar
Radio Indenture) to redeem New Capstar Radio Notes originally issued at a
redemption price equal to 109.25% of the aggregate principal amount of the New
Capstar Radio Notes to be redeemed, plus accrued and unpaid interest, if any,
thereon to the date of redemption; provided, however, that after any such
redemption, at least 75% of the aggregate principal amount of New Capstar Radio
Notes originally issued remains outstanding immediately after giving effect to
any such redemption. Any such redemption will be required to occur on or prior
to the date that is one year after the receipt by Capstar Radio of the proceeds
of a public equity offering or major asset sale. Capstar Radio shall effect such
redemption on a pro rata basis.
In addition, prior to July 1, 2002, Capstar Radio may, at its option,
redeem the New Capstar Radio Notes upon a Change of Control (as defined in the
New Capstar Radio Indenture).
Change of Control. The New Capstar Radio Indenture provides that, upon the
occurrence of a Change of Control, each holder will have the right to require
that Capstar Radio purchase all or a portion of such holder's New Capstar Radio
Notes at a purchase price equal to 101% of the principal amount thereof, plus,
without duplication, all accrued and unpaid interest, if any, to the purchase
date. In addition, prior to July 1, 2002, upon the occurrence of a Change of
Control, Capstar Radio will have the option to redeem the New Capstar Radio
Notes at a redemption price equal to 100% of the principal amount thereof,
together with accrued and unpaid interest to the date of redemption, plus the
applicable premium (as defined in the New Capstar Radio Indenture).
Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries. Under the New Capstar Radio Indenture, Capstar
Radio 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 Capstar
Radio's subsidiaries will not issue any preferred stock (as defined in the New
Capstar Radio Indenture), except Preferred Stock issued to Capstar Radio or a
wholly-owned subsidiary of Capstar Radio; provided, however, that Capstar Radio
and its subsidiaries may incur indebtedness and Capstar Radio's subsidiaries may
issue shares of preferred stock if, in either case, Capstar Radio'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. The New Capstar Radio Indenture provides
that neither Capstar Radio nor any of its subsidiaries will, directly or
indirectly, make any restricted payment (as defined in the New Capstar Radio
Indenture) 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) Capstar Radio 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 Capstar Radio in good faith) exceeds the sum of (a)
(x) 100% of the aggregate
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consolidated EBITDA of Capstar Radio (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 Capstar Radio, 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 Capstar Radio in
good faith, received by Capstar Radio from any person (other than a
subsidiary of Capstar Radio) from the issuance and sale on or subsequent to
the issue date of qualified capital stock of Capstar Radio (excluding (i)
any net proceeds from issuances and sales financed directly or indirectly
using funds borrowed from Capstar Radio or any subsidiary of Capstar Radio,
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
Capstar Radio 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
Capstar Radio 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 Capstar Radio 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 person to Capstar Radio or any
subsidiary of Capstar Radio 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 Capstar Radio or any
subsidiary in such unrestricted subsidiary, which amount was included in
the calculation of restricted payments; provided, however, than 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 Capstar Radio 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 Capstar Radio uses an amount equal to such net cash
proceeds to redeem or repurchase Capstar Radio's capital stock, plus (f)
$5,000,000.
Other Restrictive Covenants. The New Capstar Radio Indenture contains
certain other restrictive covenants that, among other things, impose limitations
(subject to certain exceptions) on Capstar Radio with respect to (i) sales of
assets by Capstar Radio and its subsidiaries, (ii) asset swaps and (iii) the
merger or sale of all or substantially all of the assets of Capstar Radio.
Events of Default. The following events are defined in the New Capstar
Radio Indenture as "Events of Default": (i) the failure to pay interest on the
New Capstar Radio Notes when the same becomes due and payable and the default
continues for a period of 30 days; (ii) the failure to pay the principal amount
on any New Capstar Radio Notes when such principal amount 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
New Capstar Radio Notes or the New Capstar Radio Indenture, which default
continues for a period of 30 days after Capstar Radio receives written notice
thereof specifying the default from the Capstar Radio Trustee or holders of at
least 25% in aggregate principal amount at maturity of outstanding New Capstar
Radio Notes; (iv) the failure to pay at the final stated maturity (giving effect
to any extensions thereof) the principal amount of any indebtedness of Capstar
Radio or any subsidiary of Capstar Radio, 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 $10,000,000 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 $10,000,000 (which are not covered by insurance as to which the
insurer has not disclaimed coverage) being rendered against Capstar Radio or any
of its significant subsidiaries (as defined in the New Capstar Radio Indenture)
and such judgment or judgments remain
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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 Capstar Radio or any of its significant
subsidiaries.
Upon the happening of any Event of Default specified in the New Capstar
Radio Indenture, the Capstar Radio Trustee may, and the Capstar Radio Trustee
upon the request of holders of 25% in principal amount of the outstanding New
Capstar Radio Notes shall, or the holders of at least 25% in principal amount of
outstanding New Capstar Radio Notes may, declare the principal amount of all the
New Capstar Radio Notes, together with all accrued and unpaid interest and
premium, if any, to be due and payable by notice in writing to Capstar Radio and
the Capstar Radio 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 credit facility, will become due and payable upon the
first to occur of an acceleration under the Credit Facility or five business
days after receipt by Capstar Radio and the agent under the Existing Credit
Facility of such Acceleration Notice (unless all Events of Default specified in
such Acceleration Notice have been cured or waived). For purposes of the
immediately preceding sentence, "Credit Facility" includes the Existing Credit
Facility, as it may be amended, supplemented or otherwise modified from time to
time and 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 Credit
Facility or any other credit agreement). If an Event of Default with respect to
bankruptcy proceedings relating to Capstar Radio 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 Capstar Radio Trustee or any
holder of the New Capstar Radio Notes.
EXISTING CREDIT FACILITY
Capstar Radio is a party to a credit facility (the "Existing Credit
Facility") with Bankers Trust Company, an affiliate of BT Securities
Corporation, as administrative agent (the "Agent"), and the other institutions
from time to time party thereto (the "Banks"). The Existing Credit Facility
consists of a $50.0 million revolving loan facility. The following description
of certain provisions of the Existing Credit Facility does not purport to be
complete and is qualified in its entirety by reference to the full text of the
Existing Credit Facility, a copy of which is available from the Company on
request.
Revolver
The Existing Credit Facility provides for revolving credit loans (the
"Loans") of up to $50.0 million (as reduced from time to time, the
"Commitment"). The Existing Credit Facility matures five years from the
Borrowing Date with the Loans then outstanding to be repaid in full on such
date. As of August 6, 1997, (the date on which the Benchmark Acquisition was
consummated), a principal balance of $12.2 million was outstanding under the
Existing Credit Facility and approximately $21.7 million would have been
available for borrowing thereunder.
Interest Rate
The Loans bear interest at a rate equal to, at Capstar Radio's option, (i)
the Base Rate (as defined) in effect from time to time plus the Applicable
Margin (as defined) (the "Base Rate Loans") or (ii) the Eurodollar Rate (as
defined in the Existing Credit Facility) (adjusted for maximum reserves) as
determined by the Agent for the respective interest period plus the Applicable
Margin (the "Eurodollar Loans"). The Applicable Margin for the Loans is equal to
a percentage per annum, adjusted based upon Capstar Radio's Leverage Ratio (as
defined in the Existing Credit Facility) as set forth below:
<TABLE>
<CAPTION>
APPLICABLE MARGIN
-----------------------
BASE RATE EURODOLLAR
LEVERAGE RATIO LOANS LOANS
- -------------- --------- ----------
<S> <C> <C>
Equal to or greater than 4.0 to 1 but less than 4.5 to 1.... 1.25% 2.25%
Less than 4.0 to 1.......................................... 1.00% 2.00%
</TABLE>
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<PAGE> 136
Notwithstanding the foregoing, from the date of the closing (the"Closing
Date") of the Existing Credit Facility until delivery of financial information
for the period ending June 30, 1997, the Company is obligated to pay interest at
the rate of 2.5% over LIBOR for Eurodollar Loans or 1.5% over the Base Rate for
Base Rate Loans, as the case may be.
"Base Rate" means the higher of (i) 1/2 of 1% in excess of the Federal
Reserve reported certificate of deposit rate, adjusted for reserves and (ii) the
rate that the Agent announces from time to time as its prime lending rate, as in
effect from time to time. Interest on Base Rate Loans is payable quarterly in
arrears. Interest on Eurodollar Loans is payable on the last day of the
applicable interest period and, in the case of interest periods in excess of
three months, on the applicable three-month anniversary of the related
borrowing. Interest periods of one, two, three and six months are available for
Eurodollar Loans.
Fees
Capstar Radio is required to pay commitment fees of 1/2% per annum of the
unutilized Commitment, as in effect from time to time, to the Agent for the
account of the Banks for the period commencing on the Closing Date to and
including the date of termination of the Commitment, payable quarterly in
arrears and upon the termination of the Existing Credit Facility.
Security and Guarantees
Capstar Radio has secured the Existing Credit Facility by granting a first
priority perfected pledge of the Company's assets, including, without
limitation, the capital stock of its subsidiaries. All of the direct and
indirect subsidiaries of the Company (other than the Capstar Radio) have
guaranteed the Existing Credit Facility and secured their guarantees by granting
a first priority perfected pledge of substantially all of their assets,
including, without limitation, the Company's pledge of the capital stock of
Capstar Radio.
Covenants
The Existing Credit Facility contains customary restrictive covenants,
which, among other things and with certain exceptions, limit the ability of the
Company and its subsidiaries to incur additional indebtedness and liens in
connection therewith, enter into certain transactions with affiliates, pay
dividends, consolidate, merge or effect certain asset sales, issue additional
stock, make capital expenditures and enter new lines of business. Under the
Existing Credit Facility, the Company is also required to satisfy certain
financial covenants, which require the Company to maintain specified financial
ratios and to comply with certain financial tests, such as maximum leverage
ratio, minimum consolidated EBITDA and minimum consolidated EBITDA to
consolidated net cash interest expense.
Events of Default
The Existing Credit Facility contains customary events of defaults,
including, but not limited to: (i) (x) the default in the payment when due of
any principal of any Loan or note thereunder or (y) the default, and such
default shall continue unremedied for three or more Business Days (as defined in
the Existing Credit Facility), in the payment when due of any Unpaid Drawings
(as defined in the Existing Credit Facility) or interest on any Loan or note or
fees (as defined in the Existing Credit Facility) thereunder; (ii) default in
the performance or observance of certain covenants and agreements contained in
the Existing Credit Facility; (iii) certain defaults, including payment
defaults, by the Company or its subsidiaries under other agreements relating to
indebtedness; (iv) the acceleration of certain indebtedness of the Company or
its subsidiaries prior to its stated maturity; (v) the voluntary commencement by
the Company or one of its subsidiaries of bankruptcy proceedings under Title 11
of the United States Code or an involuntary commencement of such a proceeding
not contested within 10 days or dismissed in 60 days; or the commencement of a
proceeding under similar laws not dismissed for 60 days or the appointment of a
custodian for the Company under certain circumstances or the adjudication of the
Company or any of its subsidiaries as insolvent or bankrupt or any order of
relief for the foregoing is entered; (vi) the failure to satisfy certain minimum
employee benefit funding standards; (vii) the failure of certain security
documents or guarantees under the Existing Credit Facility to be in effect;
(viii) a Change of Ownership (as defined in the
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<PAGE> 137
Existing Credit Facility); and the (ix) the entry of an unvacated judgment
against the Company or its subsidiaries in excess of an amount to be determined.
NEW CREDIT FACILITY
The Company expects to amend and restate the Existing Credit Facility in
August 1997 (the "New Credit Facility") with Capstar Radio, as borrower, the
Company and Capstar Broadcasting, as guarantors, BankBoston, N.A., as managing
agent, NationsBank of Texas, N.A., as syndication agent, The Bank of New York,
as documentation agent, and Bankers Trust Company, as administrative agent (the
"Agent"), and the other financial institutions party thereto (the "Banks"). The
New Credit Facility will consist of a $200 million revolving loan facility, and
an additional $150 million of multiple advancing term loans subject to future
commitment availability from the Banks. 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, a copy of which, when entered into, will be available from the Company
on request.
Revolving Loans
The New Credit Facility will initially provide for revolving credit loans
(the "Revolving Loans") of up to $200 million (as reduced from time to time, the
"Revolving Loan Commitment"). The New Credit Facility will mature seven years
from the initial borrowing date with the Revolving Loans then outstanding to be
repaid in full on such date. $75 million of the Revolving Loan Commitment will
be available to Capstar Radio for the issuance of letters of credit.
Term Loans
At any time on or after the Restatement Effective Date and prior to
December 31, 1998 (the "Term Loan Availability Termination Date"), with the
prior written consent of the Agent, Capstar Radio may request one or more of the
Banks or other lending institutions to assume a Term Loan Commitment and to make
Term Loans under the New Credit Facility, up to an aggregate amount equal to
$150 million in up to two advances with a minimum of $50 million for each such
advance (the "Term Loans"). The Term Loans are subject to scheduled annual
principal repayments, payable in equal quarterly installments, equal to the
product of the aggregate
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principal amount of the Term Loans outstanding on the Term Loan Availability
Termination Date and the percentages set forth in the table below:
<TABLE>
<CAPTION>
SCHEDULE REPAYMENT DATE PERCENTAGE
----------------------- ----------
<S> <C>
September 30, 1999.......................................... 3.75%
December 31, 1999........................................... 3.75%
March 31, 2000.............................................. 3.75%
June 30, 2000............................................... 3.75%
September 30, 2000.......................................... 3.75%
December 31, 2000........................................... 3.75%
March 31, 2001.............................................. 3.75%
June 30, 2001............................................... 3.75%
September 30, 2001.......................................... 5.00%
December 31, 2001........................................... 5.00%
March 31, 2002.............................................. 5.00%
June 30, 2002............................................... 5.00%
September 30, 2002.......................................... 6.25%
December 31, 2002........................................... 6.25%
March 31, 2003.............................................. 6.25%
June 30, 2003............................................... 6.25%
September 30, 2003.......................................... 6.25%
December 31, 2003........................................... 6.25%
March 31, 2004.............................................. 6.25%
Final Maturity Date......................................... 6.25%
</TABLE>
The Term Loans will mature on the seventh anniversary of the Restatement
Effective Date (as defined) of the New Credit Facility. Term Loans may not be
reborrowed after payment.
Letter of Credit
Letters of Credit will be provided under the New Credit Facility as a
portion of the Revolving Loan Commitment, subject to a limit on availability
equal to an aggregate amount of $75.0 million. The letters of credit will be
available for general corporate purposes, including, without limitation, to
provide letter of credit support in connection with the requirements of the
purchase contracts relating to Permitted Section 8.02(xiii) Acquisitions (as
defined in the New Credit Facility).
Interest Rate
The Revolving Loans and the Term Loans (the "Loans") will bear interest at
a rate equal to, at Capstar Radio's option, (i) the Base Rate (as defined below)
in effect from time to time plus the Applicable Margin (as defined below) (the
"Base Rate Loans") or (ii) the Eurodollar Rate (as defined in the New Credit
Facility) (adjusted for maximum reserves) as determined by the Agent for the
respective interest period plus the Applicable Margin (the "Eurodollar Loans").
The Applicable Margin for the Loans will be equal to a percentage
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<PAGE> 139
per annum, adjusted based upon Capstar Radio's Leverage Ratio (as defined in the
New Credit Facility) as set forth below:
<TABLE>
<CAPTION>
APPLICABLE MARGIN
------------------------
BASE RATE EURODOLLAR
LEVERAGE RATIO LOANS LOANS
-------------- ---------- ----------
<S> <C> <C>
Equal to or greater than 6.5 to 1........................... 1.25% 2.25%
Equal to or greater than 6.0 to 1 but less than 6.5 to 1.... 1.00% 2.00%
Equal to or greater than 5.5 to 1 but less than 6.0 to 1.... 0.75% 1.75%
Equal to or greater than 5.0 to 1 but less than 5.5 to 1.... 0.50% 1.50%
Equal to or greater than 4.5 to 1 but less than 5.0 to 1.... 0.25% 1.25%
Equal to or greater than 4.0 to 1 but less than 4.5 to 1.... 0.00% 1.00%
Less than 4.0 to 1.......................................... 0.00% 0.75%
</TABLE>
; provided, that at any time a default or an event of default exists under the
New Credit Facility the Applicable Margin shall be 2.25% in the case of
Eurodollar Loans and 1.25% in the case of Base Rate Loans.
"Base Rate" means the higher of (i) 1/2 of 1% in excess of the Federal
Reserve reported certificate of deposit rate, adjusted for reserves, and (ii)
the rate that the Agent announces from time to time as its prime lending rate,
as in effect from time to time. Interest on Base Rate Loans will be payable
quarterly in arrears. Interest on Eurodollar Loans will be payable on the last
day of the applicable interest period and, in the case of interest periods in
excess of three months, on the applicable three-month anniversary of the related
borrowing. Interest periods of one, two, three, six, nine and twelve months will
be available for Eurodollar Loans.
Fees
Capstar Radio will be required to pay commitment fees on the combined
unutilized total Revolving Loan Commitment and total Term Loan Commitment, as in
effect from time to time, to the Agent for the account of the Banks for the
period commencing on the effective date (the "Restatement Effective Date") of
the New Credit Facility to and including the date of termination of the
Revolving Loan Commitment and the Term Loan Availability Termination Date, as
applicable, payable quarterly in arrears and upon the termination of the New
Credit Facility. The Applicable Commitment Commission Percentage will equal a
percentage per annum, adjusted based upon Capstar Radio's Leverage Ratio as
follows: (i) for the period from the Restatement Effective Date until the first
day of the first Margin Reduction Period (the date of the delivery of financial
statements of Capstar Radio in respect of the fiscal quarter ending December 31,
1997) at 0.50%, (ii) thereafter, if the Leverage Ratio is greater than 4.5:1.0
on each applicable Test Date (as defined in the New Credit Facility) at 0.50%,
and (iii) if the Leverage Ratio is equal to or less than 4.5:1.0 on each
applicable Test Date at 0.375%. In addition Capstar Radio will be required to
pay letter of credit fees equal to the remainder of the Applicable Margin from
time to time for Revolving Loans maintained as Eurodollar Loans less 1/4% per
annum on the outstanding stated amounts of letters of credit, plus a facing fee
for the account of the issuer of the letter of credit equal to 1/4% on such
outstanding stated amounts.
Security and Guarantees
Capstar Radio will secure the New Credit Facility by granting a first
priority perfected pledge of Capstar Radio's assets, including, without
limitation, the capital stock of its subsidiaries. The Company, Capstar
Broadcasting and all of the direct and indirect subsidiaries of the Company
(other than Capstar Radio) will guarantee the New Credit Facility and will
secure their guarantees by granting a first priority perfected pledge of
substantially all of their assets, including Capstar Broadcasting's pledge of
the capital stock of the Company, and the Company's pledge of the capital stock
of Capstar Radio.
Covenants
The New Credit Facility will contain customary restrictive covenants,
which, among other things and with certain exceptions, limit the ability of the
Company, Capstar Broadcasting and Capstar Radio to incur additional
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<PAGE> 140
indebtedness and liens in connection therewith, enter into certain transactions
with affiliates, pay dividends, consolidate, merge or effect certain asset
sales, issue additional stock, make capital expenditures and enter new lines of
business. The New Credit Facility limits Capstar Radio's ability to make
additional acquisitions in excess of $100,000,000 on an individual basis without
the prior consent of a majority of the Banks. Under the New Credit Facility,
Capstar Radio will also be required to satisfy certain financial covenants,
which will require Capstar Radio to maintain specified financial ratios and to
comply with certain financial tests, such as maximum leverage ratio, minimum
consolidated EBITDA and minimum consolidated EBITDA to consolidated net cash
interest expense.
Events of Default
The New Credit Facility will contain customary events of defaults,
including, but not limited to: (i) (x) the default in the payment when due of
any principal of any Loan or note thereunder or (y) the default, and such
default shall continue unremedied for three or more Business Days (as defined in
the New Credit Facility), in the payment when due of any Unpaid Drawings (as
defined in the New Credit Facility) or interest on any Loan or note or fees (as
defined in the New Credit Facility) thereunder; (ii) default in the performance
or observance of certain covenants and agreements contained in the New Credit
Facility; (iii) certain defaults, including payment defaults, by Capstar
Broadcasting or its subsidiaries under other agreements relating to
indebtedness; (iv) the acceleration of certain indebtedness of Capstar
Broadcasting or its subsidiaries prior to its stated maturity; (v) the voluntary
commencement by Capstar Broadcasting or one of its subsidiaries of bankruptcy
proceedings under Title 11 of the United States Code or an involuntary
commencement of such a proceeding not contested within 10 days or dismissed in
60 days; or the commencement of a proceeding under similar laws not dismissed
for 60 days or the appointment of a custodian for Capstar Broadcasting under
certain circumstances or the adjudication of Capstar Broadcasting or any of its
subsidiaries as insolvent or bankrupt or any order of relief for the foregoing
is entered; (vi) the failure to satisfy certain minimum employee benefit funding
standards; (vii) the failure of certain security documents or guarantees under
the New Credit Facility to be in effect; (viii) a Change of Ownership (as
defined below); and (ix) the entry of unvacated judgments against Capstar
Broadcasting or its subsidiaries that in the aggregate are in excess of
$2,500,000.
"Change of Ownership" means (i) Capstar Broadcasting shall cease to own
beneficially 100% of the capital stock (other than the Senior Exchangeable
Preferred Stock) of the Company; (ii) the Company shall cease to own
beneficially 100% of the capital stock of Capstar Radio; (iii) if the HM Group
(as defined below) shall cease to have the power, directly or indirectly, to
vote or direct the voting of securities having a majority of the ordinary voting
power for the election of directors of Capstar Broadcasting, provided, that the
occurrence of the foregoing event shall not be deemed a "Change of Ownership" if
(A) at any time prior to the consummation of an underwritten public offering of
common stock of Capstar Broadcasting pursuant to a registration statement filed
with the Commission in accordance with the Securities Act, which public equity
offering results in gross proceeds to Capstar Broadcasting of not less than a
specified dollar amount ("Initial Public Offering"), (1) the HM Group otherwise
have the right to designate (and do so designate) a majority of the board of
directors of Capstar Broadcasting or (2) the HM Group own of record and
beneficially an amount of common stock of Capstar Broadcasting equal to at least
50% of the amount of common stock of the Company (adjusted for stock splits,
stock dividends and other similar events on an equitable basis) owned by the HM
Group of record and beneficially as of the Restatement Effective Date and such
ownership of the HM Group represents the largest single block of voting
securities of Capstar Broadcasting held by any "person" or "group" for purposes
of Section 13(d) of the Exchange Act, or (B) at any time after the consummation
of an Initial Public Offering, (1) no "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act), excluding the HM Group,
shall become the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5
under the Exchange Act), directly or indirectly, of more than the greater of (x)
15% of the then outstanding Voting Stock (as defined in the New Credit Facility)
of Capstar Broadcasting and (y) the percentage of the then outstanding Voting
Stock of Capstar Broadcasting owned by the HM Group and (2) the board of
directors of Capstar Broadcasting shall consist of a majority of Continuing
Directors (as defined below); (iii) the HM Group (excluding R. Steven Hicks)
shall own beneficially fewer shares of outstanding common stock of Capstar
Broadcasting than R. Steven Hicks; or (iv) a "Change of Control" under and as
defined in the Indentures shall have occurred.
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<PAGE> 141
"HM Group" means, collectively, (i) Hicks Muse, its affiliates and R.
Steven Hicks taken as a whole, (ii) so long as Hicks Muse, its affiliates and R.
Steven Hicks taken as a whole possess sole voting right with respect to the
Voting Stock of Capstar Broadcasting held by each such individual, such
individuals who are or were employees, officers, directors or partners of Hicks
Muse or such affiliate and the family members of such individuals or trusts
created for the sole benefit of such family members and (iii) so long as Hicks
Muse, its affiliates and R. Steven Hicks taken as a whole possess sole voting
right with respect to the Voting Stock of Capstar Broadcasting held by such
person, any person not otherwise described by clause (i) or (ii) above, provided
that the aggregate number of shares held by all such persons in accordance with
this clause (iii) at any time shall not exceed 3% of the aggregate number of
shares held by the persons described in clause (i) and (ii) above at such time.
"Continuing Directors" means the directors of Capstar Broadcasting on the
date which occurs six months prior to the consummation of an Initial Public
Offering and each other director, if such director's nomination for election to
the board of directors of Capstar Broadcasting is recommended by a majority of
the then Continuing Directors or any other nominee of the HM Group.
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 in certain agreements, a breach (a material breach in the
case of certain Pending Acquisitions) of any representation or warranty, or any
breach (a material breach in the case of certain Pending Acquisitions) of any
covenant or agreement or a failure of the Company or a subsidiary thereof to
consummate an acquisition even though the seller has satisfied all conditions
precedent in the applicable acquisition agreement, by the Company or a
subsidiary thereof. The Company or a subsidiary thereof has secured its
obligation to consummate certain of the Pending Acquisitions by placing into
escrow a letter of credit in connection therewith. The letters of credit (the
"Letters of Credit") for all such Pending Acquisitions total approximately $17.9
million. If the Pending Acquisition is not consummated due to any such breach by
the Company or a subsidiary thereof, the letter of credit in connection
therewith will be released to the seller in payment of liquidated damages. In
other cases, the letter of credit will be released to the Company or a
subsidiary thereof.
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<PAGE> 142
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The shares of Old Preferred Stock were sold by the Company on June 17, 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
Preferred Stock on or prior to 90 days after the date of issuance of the Old
Preferred Stock (the "Issue Date") and, upon the effectiveness of that
registration statement, offer to the holders of the Old Preferred Stock the
opportunity to exchange their Old Preferred Stock for a like number of shares of
New Preferred Stock, 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 Preferred Stock 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
Preferred Stock 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 Preferred Stock
for its own account pursuant to the Exchange Offer should acknowledge that it
acquired the Old Preferred Stock 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 Preferred Stock 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 Preferred Stock.
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 Preferred Stock. If the holder is a broker-dealer that will receive New
Preferred Stock for its own account in exchange for Old Preferred Stock that was
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 Preferred Stock.
The Old Preferred Stock is designated for trading in the PORTAL market. To
the extent Old Preferred Stock is tendered and accepted in the Exchange Offer,
the amount of outstanding shares of Old Preferred Stock will decrease with a
resulting decrease in the liquidity in the market therefor. Following the
consummation of the Exchange Offer, holders of Old Preferred Stock who were
eligible to participate in the Exchange Offer but who did not tender their Old
Preferred Stock will not be entitled to certain rights under the Registration
Rights Agreement and such Old Preferred Stock will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
the Old Preferred Stock could be adversely affected. No assurance can be given
as to the liquidity of the trading market for either the Old Preferred Stock or
the New Preferred Stock.
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 Preferred Stock issued pursuant
to the Exchange Offer in exchange for Old Preferred Stock may be offered for
resale, resold and otherwise transferred by any person receiving the New
Preferred Stock, 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 Preferred Stock is 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
Preferred Stock, 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 Preferred Stock. Each broker-dealer that receives New Preferred Stock
for its own account in exchange for Old Preferred Stock, where those shares of
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<PAGE> 143
Old Preferred Stock 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 shares of New
Preferred Stock. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of shares of Old Preferred Stock who do not exchange their Old
Preferred Stock for New Preferred Stock pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such Old Preferred
Stock as set forth in the legend thereon as a consequence of the offer or sale
of the Old Preferred Stock 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 Preferred Stock 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 Preferred Stock 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 Preferred Stock issued pursuant to the Exchange Offer
in exchange for Old Preferred Stock 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 Preferred Stock is 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 Preferred Stock.
Each broker-dealer that receives New Preferred Stock for its own account in
exchange for Old Preferred Stock, where such Old Preferred Stock was 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 Preferred Stock. 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
Preferred Stock validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Company will issue one share of New
Preferred Stock in exchange for each share of outstanding Old Preferred Stock
accepted in the Exchange Offer. Holders may tender some or all of their shares
of Old Preferred Stock pursuant to the Exchange Offer.
The powers, preference and relative rights of the New Preferred Stock are
substantially the same as those of the Old Preferred Stock except that the
shares of New Preferred Stock have been registered under the Securities Act and
will not bear legends restricting their transfer.
As of the date of this Prospectus, 1,000,000 shares of Old Preferred Stock
were issued and outstanding and there was one registered holder, a nominee of
the DTC. 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 was one registered holder of the Old Preferred
Stock. Holders of Old Preferred Stock do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or the
Certificate of Designation 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 shares of Old
Preferred Stock 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 Preferred Stock from the
Company. If any tendered shares of Old Preferred Stock 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 shares of
Old Preferred Stock will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.
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<PAGE> 144
Holders who tender shares of Old Preferred Stock 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 Preferred Stock 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."
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 shares of
Old Preferred Stock, 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 shares of Old Preferred Stock may tender the Old Preferred
Stock 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
shares of Old Preferred Stock 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 shares of Old Preferred Stock, 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 shares of Old Preferred Stock, 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 SHARES OF OLD PREFERRED STOCK 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 SHARES OF OLD PREFERRED STOCK 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 shares of Old Preferred Stock 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 shares of Old Preferred Stock, either make appropriate arrangements to
register ownership of the shares of Old Preferred Stock in the beneficial
owner's name or obtain a properly
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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 shares of Old Preferred Stock 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").
If the Letter of Transmittal is signed by a person other than the
registered holder of any shares of Old Preferred Stock listed therein, the
shares of Old Preferred Stock 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 shares of Old Preferred Stock.
If the Letter of Transmittal or any shares of Old Preferred Stock 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 shares of Old Preferred Stock
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 shares of Old Preferred Stock not properly tendered or any shares of Old
Preferred Stock 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
shares of Old Preferred Stock. 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 shares of Old Preferred
Stock 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 shares of Old Preferred Stock, neither the Company, the Exchange
Agent nor any other person shall incur any liability for failure to give such
notification. Tenders of shares of Old Preferred Stock will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any shares of Old Preferred Stock 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 shares of Old Preferred Stock 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 shares of Old Preferred Stock 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 shares of New Preferred Stock acquired pursuant to the Exchange
Offer are being acquired in the ordinary course of business of the person
receiving such shares of New Preferred Stock, 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 shares of
New Preferred Stock, (iii) neither the holder nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such shares of New Preferred Stock, 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 shares of New Preferred Stock for
its own account in exchange for shares of Old Preferred Stock, where such shares
of Old Preferred Stock were acquired by such broker-dealer as a
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result of market-making activities or other trading activities (other than
shares of Old Preferred Stock 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 shares
of New Preferred Stock. 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, the issuance of shares of New Preferred Stock for shares of
Old Preferred Stock 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 shares of Old Preferred Stock or a timely Book-Entry
Confirmation of such shares of Old Preferred Stock 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 certificates for shares of Old
Preferred Stock are submitted for a greater number of shares than the holder
desires to exchange, such unaccepted or non-exchanged shares of Old Preferred
Stock will be returned without expense to the tendering holder thereof (or, in
the case of shares of Old Preferred Stock 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 shares of Old
Preferred Stock 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.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the shares of Old Preferred Stock 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 shares of
Old Preferred Stock being tendered by causing the Book-Entry Transfer Facility
to transfer such shares of Old Preferred Stock 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 shares of Old
Preferred Stock 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 shares of Old Preferred Stock
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 shares of Old Preferred Stock desires to
tender such shares of Old Preferred Stock and the shares of Old Preferred Stock
are not immediately available, or time will not permit such holder's shares of
Old Preferred Stock 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 shares of Old Preferred Stock and the amount of shares
of Old Preferred Stock tendered, stating that the tender is
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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 shares of Old Preferred
Stock, 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 shares of Old Preferred Stock, 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 shares of Old Preferred Stock 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 shares of Old Preferred Stock 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 shares of Old Preferred Stock to be withdrawn (the "Depositor"),
(ii) identify the shares of Old Preferred Stock to be withdrawn (including the
certificate number or numbers and number of shares of such Old Preferred Stock),
(iii) be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such shares of Old Preferred Stock were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the shares
of Old Preferred Stock register the transfer of such shares of Old Preferred
Stock into the name of the person withdrawing the tender, and (iv) specify the
name in which any such shares of Old Preferred Stock 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 shares of Old Preferred Stock so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any shares of Old Preferred Stock which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn shares of Old Preferred Stock 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 shares of New Preferred Stock
for, any shares of Old Preferred Stock, and may terminate the Exchange Offer as
provided herein before the acceptance of such shares of Old Preferred Stock, 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 shares of Old
Preferred Stock and return all tendered shares of Old Preferred Stock to the
tendering holders (or, in the case of shares of Old Preferred Stock 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
shares of Old Preferred Stock will be credited to an account maintained with
such Book-Entry Transfer Facility), (ii) extend the Exchange Offer and retain
all shares of Old Preferred Stock tendered prior
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to the expiration of the Exchange Offer, subject, however, to the rights of
holders to withdraw such shares of Old Preferred Stock (see "-- Withdrawal
Rights") or (iii) waive such unsatisfied conditions with respect to the Exchange
Offer and accept all properly tendered shares of Old Preferred Stock 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. Harris Trust and Savings Bank 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:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
P.O. Box 1010
Wall Street Station
New York, New York 10268
By Overnight Courier or by Hand:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
77 Water, 4th Floor
New York, New York 10004
By Facsimile:
(212) 701-7636
Confirm by Telephone:
(212) 701-7624
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.
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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, accounting and legal fees and printing costs, among others.
TRANSFER TAXES
Holders who tender their shares of Old Preferred Stock for exchange will
not be obligated to pay any transfer taxes in connection therewith, except that
holders who instruct the Company to register shares of New Preferred Stock in
the name of, or request that shares of Old Preferred Stock 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.
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DESCRIPTION OF THE NEW SENIOR EXCHANGEABLE PREFERRED STOCK
AND EXCHANGE DEBENTURES
NEW PREFERRED STOCK
The summary contained herein of certain provisions of the New Preferred
Stock to be issued by the Company does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all of the provisions of
the Certificate of Designation relating thereto, copies of which may be obtained
from the Company upon request. The definitions of certain capitalized terms used
in the following summary are set forth under "-- Certain Definitions" below.
Other capitalized terms used herein and not otherwise defined under "-- Certain
Definitions" below are defined in the Certificate of Designation.
GENERAL
At the consummation of the Exchange Offer, the Company will be authorized
to issue 10,000,000 shares of preferred stock, $.01 par value per share, and
there will be 1,000,000 shares of preferred stock issued and outstanding and
designated as 12% Senior Exchangeable Preferred Stock. Subject to certain
conditions, the New Preferred Stock will be exchangeable for the Exchange
Debentures at the option of the Company on any dividend payment date on or after
the Issue Date. The New Preferred Stock, when issued and paid for in accordance
with the terms of the Exchange Offer, will be fully paid and nonassessable and
the holders thereof will not have any subscription or preemptive rights in
connection therewith. The liquidation preference of the New Preferred Stock is
$100.00 per share. The Old Preferred Stock and the New Preferred Stock are
sometimes collectively referred to herein as "Senior Exchangeable Preferred
Stock."
RANKING
The Senior Exchangeable Preferred Stock will, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, rank (i) senior to
all classes of Common Stock and to each other class of Preferred Stock
established hereafter by the board of directors of the Company the terms of
which expressly provide that it ranks junior to the Senior Exchangeable
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Company (collectively referred to, together with all classes
of Common Stock of the Company, as "Junior Stock"); (ii) subject to certain
conditions, on a parity with each other class of Preferred Stock established
hereafter by the board of directors of the Company the terms of which expressly
provide that such class or series will rank on a parity with the Senior
Exchangeable Preferred Stock as to dividend rights and rights on liquidation,
winding-up and dissolution (collectively referred to as "Parity Stock"); and
(iii) subject to certain conditions, junior to each class of Preferred Stock
established after the date hereof by the board of directors of the Company the
terms of which expressly provide that such class will rank senior to the Senior
Exchangeable Preferred Stock as to dividend rights and rights upon liquidation,
winding-up and dissolution of the Company (collectively referred to as the
"Senior Stock"). The Company may not authorize any new class of Parity Stock or
Senior Stock without the approval of the holders of at least a majority of the
shares of Senior Exchangeable Preferred Stock then outstanding, voting or
consenting, as the case may be, as one class.
DIVIDENDS
Holders of the outstanding shares of Senior Exchangeable Preferred Stock
will be entitled to receive, when, as and if declared by the board of directors
of the Company, out of funds legally available therefor, cash dividends on the
Senior Exchangeable Preferred Stock at a rate per annum equal to 12% of the
liquidation preference per share of Senior Exchangeable Preferred Stock, payable
semi-annually. In the event that, after July 1, 2002, cash dividends on the
Senior Exchangeable Preferred Stock are in arrears and unpaid for three or more
semi-annual dividends periods (whether or not consecutive), holders of Senior
Exchangeable Preferred Stock will be entitled to certain voting rights. See
"-- Voting Rights" below. All dividends will be cumulative, whether or not
earned or declared, from the Issue Date and will be payable semi-annually in
arrears on January 1 and July 1 of each year (each a "Dividend Payment Date"),
commencing on January 1, 1998, to holders of record on the December 15 and June
15 immediately preceding the relevant Dividend Payment Date. The Credit Facility
(as defined in the Certificate of Designation) restricts the Company from paying
cash dividends on its Capital
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Stock, including the Senior Exchangeable Preferred Stock. The Notes Indenture
restricts the Company's ability to pay cash dividends on its Capital Stock,
including the Senior Exchangeable Preferred Stock. The Credit Facility, the
Existing Capstar Radio Indenture and the New Capstar Radio Indenture restrict
Capstar Radio's ability to pay dividends or make other restricted payments to
the Company and, accordingly, may also limit the ability of the Company to pay
cash dividends on its Capital Stock, including the Senior Exchangeable Preferred
Stock. See "Description of Indebtedness."
If any dividend payable on any Dividend Payment Date on or before July 1,
2002 is not declared or paid in full in cash on such Dividend Payment Date, the
amount payable as dividends on such Dividend Payment Date that is not paid in
cash on such Dividend Payment Date shall be paid in additional shares of the
Senior Exchangeable Preferred Stock on such Dividend Payment Date and will be
deemed paid in full and will not accumulate. All dividends paid with respect to
shares of the Senior Exchangeable Preferred Stock pursuant to the foregoing
shall be paid pro rata to the Holders entitled thereto.
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Stock for any period unless full cumulative
dividends shall have been or contemporaneously are declared and paid (or are
deemed declared and paid) in full or declared and, if payable in cash, a sum in
cash sufficient for such payment is set apart for such payment on the Senior
Exchangeable Preferred Stock. If full dividends are not so paid, the Senior
Exchangeable Preferred Stock will share dividends pro rata with the Parity
Stock. No dividends may be paid or set apart for such payment on Junior Stock
(except dividends on Junior Stock payable in additional shares of Junior Stock)
and no Junior Stock or Parity Stock may be repurchased, redeemed or otherwise
retired nor may funds be set apart for payment with respect thereto, if full
cumulative dividends have not been paid in full (or deemed paid) on the Senior
Exchangeable Preferred Stock. Dividends on account of arrears for any past
Dividend Period and dividends in connection with any optional redemption may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to holders of record on such date, not more than 45 days prior to the
payment thereof, as may be fixed by the board of directors of the Company. So
long as any shares of the Senior Exchangeable Preferred Stock are outstanding,
the Company shall not make any payment on account of, or set apart for payment
money for a sinking or other similar fund for, the purchase, redemption or other
retirement of, any of the Parity Stock or Junior Stock or any warrants, rights,
calls or options exercisable for or convertible into any of the Parity Stock or
Junior Stock, and shall not permit any corporation or other entity directly or
indirectly controlled by the Company to purchase or redeem any of the Parity
Stock or Junior Stock or any such warrants, rights, calls or options unless full
cumulative dividends determined in accordance herewith on the Senior
Exchangeable Preferred Stock have been paid (or are deemed paid) in full.
OPTIONAL REDEMPTION
The Senior Exchangeable Preferred Stock 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 July 1, 2002, in whole
or in part, at the option of the Company, at the redemption prices (expressed in
percentages of the liquidation preference thereof) set forth below, plus,
without duplication, an amount in cash equal to all accumulated and unpaid
dividends to the redemption date (including an amount in cash equal to a
prorated dividend for the period from the Dividend Payment Date immediately
prior to the redemption date to the redemption date), if redeemed during the
12-month period beginning July 1 of each of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 106.000%
2003........................................................ 104.800%
2004........................................................ 103.600%
2005........................................................ 102.400%
2006........................................................ 101.200%
2007 and thereafter......................................... 100.000%
</TABLE>
In addition, prior to July 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 the Senior Exchangeable Preferred Stock, in part, at a
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redemption price of 112.0% of the liquidation preference thereof; provided,
however, that after any such redemption, there is outstanding at least $75.0
million in aggregate liquidation preference of Senior Exchangeable Preferred
Stock. Any such redemption will be required to occur on or prior to one year
after the receipt by the Company of the proceeds of each Public Equity Offering
or Major Asset Sale. In the event of a redemption of only a portion of the then
outstanding shares of the Senior Exchangeable Preferred Stock, the Company shall
effect such redemption on a pro rata basis, except that the Company may redeem
such shares held by Holders of fewer than 100 shares (or shares held by Holders
who would hold less than 100 shares as a result of such redemption), as may be
determined by the Company.
In addition, prior to July 1, 2002, the Company may, at its option, redeem
the Senior Exchangeable Preferred Stock upon a Change of Control. See "-- Change
of Control."
The Credit Facility and the Notes Indenture restrict the ability of the
Company to redeem the Senior Exchangeable Preferred Stock. The Credit Facility,
the Existing Capstar Radio Indenture and the New Capstar Radio Indenture
restrict Capstar Radio'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 Senior Exchangeable Preferred Stock. See "Description of
Indebtedness."
MANDATORY REDEMPTION
The Senior Exchangeable Preferred Stock will also be subject to mandatory
redemption (subject to the legal availability of funds therefor) in whole on
July 1, 2009 at a price equal to 100% of the liquidation preference thereof,
plus, without duplication, all accumulated and unpaid dividends to the date of
redemption. Future agreements of the Company may restrict or prohibit the
Company from redeeming the Senior Exchangeable Preferred Stock.
PROCEDURE FOR REDEMPTION
On and after the redemption date, unless the Company defaults in the
payment of the applicable redemption price, dividends will cease to accumulate
on shares of Senior Exchangeable Preferred Stock called for redemption and all
rights of holders of such shares will terminate except for the right to receive
the redemption price, without interest; provided, however, that if a notice of
redemption shall have been given as provided in the succeeding sentence and the
funds necessary for redemption (including an amount in respect of all dividends
that will accumulate to the redemption date) shall have been segregated and
irrevocably set apart by the Company, in trust for the benefit of the holders of
the shares called for redemption, then dividends shall cease to accumulate on
the redemption date on the shares to be redeemed and, at the close of business
on the day on such funds are segregated and set apart, the holders of the shares
to be redeemed shall cease to be stockholders of the Company and shall be
entitled only to receive the redemption price for such shares. The Company will
send a written notice of redemption by first class mail to each holder of record
of shares of Senior Exchangeable Preferred Stock not fewer than 30 days nor more
than 60 days prior to the date fixed for such redemption at its registered
address. Shares of Senior Exchangeable Preferred Stock issued and reacquired
will, upon compliance with the applicable requirements of Delaware law, have the
status of authorized but unissued shares of Preferred Stock of the Company
undesignated as to series and may, with any and all other authorized but
unissued shares of Preferred Stock of the Company, be designated or redesignated
and issued or reissued, as the case may be, as part of any series of Preferred
Stock of the Company, except that any issuance or reissuance of shares of Senior
Exchangeable Preferred Stock must be in compliance with the Certificate of
Designation.
EXCHANGE
The Company may, at its option, subject to certain conditions, on any
scheduled Dividend Payment Date occurring on or after the Issue Date, exchange
the Senior Exchangeable Preferred Stock, in whole but not in part, for the
Exchange Debentures; provided that (i) on the date of such exchange there are no
accumulated and unpaid dividends on the Senior Exchangeable Preferred Stock
(including the dividend payable on such date) or other contractual impediment to
such exchange; (ii) there shall be funds legally available sufficient therefor;
and (iii) immediately after giving effect to such exchange, no Default or Event
of Default (each as defined in the
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Exchange Indenture) would exist under the Exchange Indenture and no default or
event of default would exist under the Credit Facility. After giving effect to
the Offering and the application of the net proceeds therefrom, the exchange of
the Senior Exchangeable Preferred Stock into Exchange Debentures would be
restricted by covenants contained in the Notes Indenture and the Credit
Facility, in each case, relating, among other things, to the incurrence of
indebtedness.
Upon any exchange pursuant to the preceding paragraph, holders of
outstanding shares of Senior Exchangeable Preferred Stock will be entitled to
receive, subject to the second succeeding sentence, $1.00 principal amount of
Exchange Debentures for each $1.00 liquidation preference of Senior Exchangeable
Preferred Stock held by them. The Exchange Debentures will be issued in
registered form, without coupons. Exchange Debentures issued in exchange for
Senior Exchangeable Preferred Stock will be issued in principal amounts of
$1,000 and integral multiples thereof to the extent possible and also will be
issued in principal amounts less than $1,000 so that each holder of Senior
Exchangeable Preferred Stock will receive certificates representing the entire
amount of Exchange Debentures to which such holder's shares of Senior
Exchangeable Preferred Stock entitle such holder; provided that the Company may
pay cash in lieu of issuing an Exchange Debenture in a principal amount less
than $1,000. The Company will send a written notice of exchange by mail to each
holder of record of shares of Senior Exchangeable Preferred Stock not fewer than
30 days nor more than 60 days before the date fixed for such exchange. On and
after the date of exchange, dividends will cease to accrue on the outstanding
shares of Senior Exchangeable Preferred Stock, and all rights of the holder of
Senior Exchangeable Preferred Stock (except the right to receive the Exchange
Debentures, an amount in cash, to the extent applicable, equal to the accrued
and unpaid dividends to the exchange date and, if the Company so elects, cash in
lieu of any Exchange Debenture that is in a principal amount that is not an
integral multiple of $1,000) will terminate. The person entitled to receive the
Exchange Debentures issuable upon such exchange will be treated for all purposes
as the registered holder of such Exchange Debentures. See "-- Exchange
Debentures."
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, holders of Senior Exchangeable Preferred Stock will be entitled to
be paid, out of the assets of the Company available for distribution to
stockholders, the liquidation preference per share of Senior Exchangeable
Preferred Stock, plus, without duplication, an amount in cash equal to all
accrued and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a prorated dividend for
the period from the last Dividend Payment Date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on any
Junior Stock, including, without limitation, Common Stock of the Company. If,
upon any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the Senior Exchangeable Preferred
Stock and all other Parity Stock are not paid in full, the holders of the Senior
Exchangeable Preferred Stock and the Parity Stock will share equally and ratably
in any distribution of assets of the Company in proportion to the full
liquidation preference to which each is entitled until such preferences are paid
in full, and then in proportion to their respective amounts of accrued but
unpaid dividends. After payment of the full amount of the liquidation preference
and accumulated and unpaid dividends to which they are entitled, the holders of
shares of Senior Exchangeable Preferred Stock will not be entitled to any
further participation in any distribution of assets of the Company. However,
neither the sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Company nor the consolidation or merger of the Company with one
or more entities shall be deemed to be a liquidation, dissolution or winding-up
of the Company.
The Certificate of Designation for the Senior Exchangeable Preferred Stock
does not contain any provision requiring funds to be set aside to protect the
liquidation preference of the Senior Exchangeable Preferred Stock, although such
liquidation preference will be substantially in excess of the par value of such
shares of Senior Exchangeable Preferred Stock. In addition, the Company is not
aware of any provision of Delaware law or any controlling decision of the courts
of the State of Delaware (the state of incorporation of the Company) that
requires a restriction upon the surplus of the Company solely because the
liquidation preference of the Senior Exchangeable Preferred Stock will exceed
its par value. Consequently, there is no restriction upon the surplus of the
Company solely because the liquidation preference of the Senior Exchangeable
Preferred Stock will exceed
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its par value and there are no remedies available to holders of the Senior
Exchangeable Preferred Stock before or after the payment of any dividend on any
Capital Stock, other than in connection with the liquidation of the Company,
solely by reason of the fact that such dividend would reduce the surplus of the
Company to an amount less than the difference between the liquidation preference
of the Senior Exchangeable Preferred Stock and its par value.
VOTING RIGHTS
The holders of Senior Exchangeable Preferred Stock, except as otherwise
required under Delaware law or as set forth below, shall not be entitled or
permitted to vote on any matter required or permitted to be voted upon by the
stockholders of the Company.
The Certificate of Designation provides that if (i) after July 1, 2002,
cash dividends on the Senior Exchangeable Preferred Stock are in arrears and
unpaid for three or more semi-annual dividend periods (whether or not
consecutive); (ii) the Company fails to redeem the Senior Exchangeable Preferred
Stock on July 1, 2009 or fails to otherwise discharge any redemption obligation
with respect to the Senior Exchangeable Preferred Stock; (iii) the Company fails
to make a Change of Control Offer if such offer is required by the provisions
set forth under "-- Change of Control" below or fails to purchase shares of
Senior Exchangeable Preferred Stock from holders who elect to have such shares
purchased pursuant to the Change of Control Offer (unless, in either case, the
Company has decided to effect a Change of Control Redemption in lieu of such
Change of Control Offer as discussed under "-- Change of Control" below); (iv) a
breach or violation of any of the provisions described under the caption
"-- Certain Covenants" occurs and the breach or violation continues for a period
of 30 days or more after the Company receives notice thereof specifying the
default from the holders of at least 25% of the shares of Senior Exchangeable
Preferred Stock then outstanding; or (v) the Company fails 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
final stated maturity of any such Indebtedness is accelerated, 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 $10,000,000 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, then the number of directors constituting the board
of directors will be adjusted to permit the holders of a majority of the then
outstanding shares of Senior Exchangeable Preferred Stock, voting separately and
as a class (together with the holders of any Parity Stock having similar voting
rights), to elect the lesser of two directors and that number of directors
constituting at least 25% of the members of the board of directors of the
Company. Such voting rights will continue until such time as, in the case of a
dividend default, all dividends in arrears on the Senior Exchangeable Preferred
Stock are paid in full in cash and, in all other cases, any failure, breach or
default giving rise to such voting rights is remedied or waived by the holders
of at least a majority of the shares of Senior Exchangeable Preferred Stock then
outstanding, at which time the term of any directors elected pursuant to the
provisions of this paragraph shall terminate. Each such event described in
clauses (i) through (v) above is referred to herein as a "Voting Rights
Triggering Event." The voting rights provided herein shall be the holder's
exclusive remedy at law or in equity.
The Certificate of Designation will also provide that the Company will not
authorize any class of Senior Stock or Parity Stock (other than the Exchange
Preferred Stock, plus dividends thereon payable in additional shares of Parity
Stock in lieu of cash dividends) without the affirmative vote or consent of
holders of at least a majority of the shares of Senior Exchangeable Preferred
Stock then outstanding, voting or consenting, as the case may be, as one class.
The Certificate of Designation also provides that, except as set forth above,
(a) the creation, authorization or issuance of any shares of Junior Stock,
Parity Stock or Senior Stock, including the designation of a series thereof
within the existing class of Senior Exchangeable Preferred Stock, or (b) the
increase or decrease in the amount of authorized Capital Stock of any class,
including any Preferred Stock, shall not require the consent of the holders of
Senior Exchangeable Preferred Stock and shall not be deemed to affect adversely
the rights, preferences, privileges or voting rights of shares of Senior
Exchangeable Preferred Stock.
Under Delaware law, holders of preferred stock are entitled to vote as a
class upon a proposed amendment to the certificate of incorporation, whether or
not entitled to vote thereon by the certificate of incorporation, if the
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amendment would increase or decrease the par value of the shares of such class
or alter or change the powers, preferences or special rights of the shares of
such class so as to affect them adversely.
CHANGE OF CONTROL
The Certificate of Designation 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 Senior Exchangeable Preferred Stock
in cash pursuant to the offer described below (the "Change of Control Offer"),
at a purchase price equal to 101% of the liquidation preference thereof, plus,
without duplication, all accumulated and unpaid dividends per share to the
Change of Control Payment Date (including an amount in cash equal to a prorated
dividend for the period from the Dividend Payment Date immediately prior to the
Change of Control Payment Date to the Change of Control Payment Date).
The Certificate of Designation 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 Senior Exchangeable Preferred
Stock 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
the Senior Exchangeable Preferred Stock, 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 Senior Exchangeable Preferred Stock 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 Senior
Exchangeable Preferred Stock 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 Senior Exchangeable Preferred Stock,
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 shares of Senior Exchangeable Preferred Stock purchased
pursuant to a Change of Control Offer will be required to surrender such shares
of Senior Exchangeable Preferred Stock to the paying agent and registrar for the
Senior Exchangeable Preferred Stock 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 Certificate of Designation will provide that, prior to
July 1, 2002, upon the occurrence of a Change of Control, the Company will have
the option to redeem the Senior Exchangeable Preferred Stock in whole but not in
part (a "Change of Control Redemption") at a redemption price equal to 100% of
the liquidation preference thereof together with accumulated and unpaid
dividends to the date of redemption plus the Applicable Premium. In order to
effect a Change of Control Redemption, the Company must send a notice to each
holder of Senior Exchangeable Preferred Stock, which notice shall govern the
terms of the Change of Control Redemption. Such notice must be mailed to holders
of Senior Exchangeable Preferred Stock 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 share of the Senior
Exchangeable Preferred Stock at any Change of Control Redemption Date, the
greater of (i) 1.0% of the liquidation preference of such share and (ii) the
excess of (A) the present value at such time of (1) the redemption price of such
share at July 1, 2002 (such redemption price being described under "-- Optional
Redemption") plus (2) all required dividend payments due on such share through
July 1, 2002, computed using a discount rate equal to the Treasury Rate plus 150
basis points over (B) the liquidation preference of such share.
"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 July 1, 2002;
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provided, however, that if the period from the Change of Control Redemption Date
to July 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 July 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 shares
of Senior Exchangeable Preferred Stock 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 shares of Senior Exchangeable Preferred
Stock protection in the event of certain highly leveraged transactions,
reorganizations, restructurings, mergers and other similar transactions that
might adversely affect the holders of shares of Senior Exchangeable Preferred
Stock, 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 Senior Exchangeable Preferred Stock,
but would increase the amount of indebtedness outstanding at such time. However,
the Certificate of Designation 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 shares of
Senior Exchangeable Preferred Stock that the Company might be required to
purchase. Moreover, as of the date hereof, after giving effect to the Offering
and the application of the proceeds therefrom, the Company would not have
sufficient funds available to purchase all of the outstanding shares of Senior
Exchangeable Preferred Stock pursuant to a Change of Control Offer. In the event
that the Company were required to purchase outstanding shares of Senior
Exchangeable Preferred Stock 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. In addition, the Credit Facility and the Notes
Indenture restrict the Company's ability to purchase the Senior Exchangeable
Preferred Stock, including pursuant to a Change of Control Offer. The Existing
Capstar Radio Indenture, the New Capstar Radio Indenture and the Credit Facility
restrict the ability of Capstar Radio to pay dividends and make other restricted
payments to the Company and, accordingly, may also limit the ability of the
Company to purchase the Senior Exchangeable Preferred Stock. See "Description of
Indebtedness."
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
Certificate of Designation, 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 Senior Exchangeable Preferred Stock should be subject to a Change of
Control Offer.
None of the provisions in the Certificate of Designation relating to a
purchase of Senior Exchangeable Preferred Stock upon a Change of Control is
waivable by the board of directors of the Company. Without the consent of each
holder of Senior Exchangeable Preferred Stock affected thereby, after the
mailing of the notice of a Change of Control Offer, no amendment to the
Certificate of Designation may, directly or indirectly, affect the Company's
obligation to purchase the outstanding Senior Exchangeable Preferred Stock or
amend, modify or
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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 Certificate of Designation will provide
that 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 (except
Preferred Stock issued to the Company or a Wholly Owned Subsidiary of the
Company); 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 Certificate of Designation 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) any Voting Rights Triggering Event shall have occurred and be
continuing at the time of or after giving effect of 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 clause (2) 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 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
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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) $5,000,000.
(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) payments
by the Company to repurchase Capital Stock or other securities of the Company,
Capstar Broadcasting or any corporation that, directly or indirectly, owns all
of the Common Stock of Capstar Broadcasting from employees of the Company or any
such other corporation in an aggregate amount not to exceed $5,000,000; (4)
payments to enable the Company or any such other corporation to redeem or
repurchase stock purchase or similar rights in an aggregate amount not to exceed
$500,000; (5) 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; (6) 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 (6) 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 (7) the payments of dividends on the Company's Common Stock after an
initial public offering of Common Stock of the Company, Capstar Broadcasting or
any corporation that, directly or indirectly, owns all of the Common Stock of
Capstar Broadcasting 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 (through a capital
contribution or otherwise) from shares of Common Stock sold for the account of
the Company or any such other corporation (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) and (7), no Voting Rights Triggering Event
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), (3),
(4), (5), (6) and (7) shall be included in such calculation.
Merger, Consolidation and Sale of Assets. The Certificate of Designation
will provide that, without the affirmative vote of the holders of a majority of
the issued and outstanding shares of Senior Exchangeable Preferred Stock and any
Parity Stock, voting or consenting, as the case may be, as a separate class, the
Company may not, in a single transaction or a series of related transactions,
consolidate with or merge 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 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) the Senior
Exchangeable Preferred Stock shall be converted into or exchanged for
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and shall become shares of such successor, transferee or resulting Person,
having in respect of such successor, transferee or resulting Person the same
powers, preferences and relative participating, optional or other special rights
and the qualifications, limitations or restrictions thereon, that the Senior
Exchangeable Preferred Stock had immediately prior to such transaction; (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 Voting Rights Triggering Event shall have
occurred or be continuing; and (v) the Company has delivered to the transfer
agent for the Senior Exchangeable Preferred Stock prior to consummation of the
proposed transaction an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger or transfer complies with the
Certificate of Designation and that all conditions precedent in the Certificate
of Designation 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.
Reports. The Certificate of Designation will provide that so long as any of
the Senior Exchangeable Preferred Stock is outstanding, the Company will provide
to the holders of the Senior Exchangeable Preferred Stock 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 Section 13 or 15(d) of the Exchange Act regardless of
whether the Company is then obligated to file such reports.
TRANSFER AGENT AND REGISTRAR
Harris Trust & Savings Bank will be the transfer agent and registrar for
the Senior Exchangeable Preferred Stock.
EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under the Indenture,
dated as of July 17, 1997, by and between the Company and U.S. Trust Company of
Texas, N.A., as Trustee (the "Trustee"). The following summary of certain
provisions of the Exchange Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of
the Exchange Indenture, including the definitions of certain terms therein and
those terms made a part of the Exchange Indenture by reference to the TIA as in
effect on the date of the Exchange Indenture. The definitions of certain terms
used in the following summary are set forth below under "-- Certain
Definitions." The Credit Facility and the Notes Indenture limit the Company's
ability to issue the Exchange Debentures.
The Exchange Debentures will be general unsecured obligations of the
Company and will be limited in aggregate principal amount to the liquidation
preference of the Senior Exchangeable Preferred Stock (plus any additional
Exchange Debentures issued in lieu of cash interest as described herein). The
Exchange Debentures will be issued in fully registered form only in
denominations of $1,000 and integral multiples thereof (other than as described
in "-- Senior Exchangeable Preferred Stock -- Exchange" or with respect to
additional Exchange Debentures issued in lieu of cash interest as described
herein). The Exchange Debentures will be subordinated to all existing and future
Senior Debt of the Company.
Principal of, premium, if any, and interest on the Exchange Debentures will
be payable, and the Exchange Debentures may be presented for registration of
transfer or exchange, at the office of the Paying Agent and Registrar. At the
Company's option, interest, to the extent paid in cash, may be paid by check
mailed to the
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registered address of holders of the Exchange Debentures as shown on the
register for the Exchange Debentures. The Trustee will initially act as Paying
Agent and Registrar. The Company may change any Paying Agent and Registrar
without prior notice to holders of the Exchange Debentures. Holders of the
Exchange Debentures must surrender Exchange Debentures to the Paying Agent to
collect principal payments.
The Exchange Debentures will mature on July 1, 2009. Each Exchange
Debenture will bear interest at the rate of 12% per annum from the Exchange Date
or from the most recent interest payment date to which interest has been paid or
provided for or, if no interest has been paid or provided for, from the Exchange
Date. Interest will be payable semi-annually in cash (or, on or prior to July 1,
2002, in additional Exchange Debentures, at the option of the Company) in
arrears on each January 1 and July 1 commencing with the first such date after
the Exchange Date. Interest on the Exchange Debentures will be computed on the
basis of a 360-day year comprised of twelve 30-day months and the actual number
of days elapsed.
OPTIONAL REDEMPTION
The Exchange Debentures will be redeemable, at the Company's option, in
whole at any time or in part from time to time, on and after July 1, 2002, at
the redemption prices (expressed as percentages of the principal amount thereof)
set forth below if redeemed during the 12-month period beginning on July 1 of
each of the years set forth below, plus, without duplication, in each case,
accrued and unpaid interest thereon to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 106.000%
2003........................................................ 104.800%
2004........................................................ 103.600%
2005........................................................ 102.400%
2006........................................................ 101.200%
2007 and thereafter......................................... 100.000%
</TABLE>
In addition, prior to July 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 the Exchange Debentures, in whole or in part, at a redemption price of
112.0% of the principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the date of redemption; provided, however, that after any such
redemption, the aggregate principal amount of the Exchange Debentures
outstanding must equal at least $75,000,000. Any such redemption will be
required to occur on or prior to one year after the receipt by the Company of
the proceeds of each Public Equity Offering or Major Asset Sale.
In addition, prior to July 1, 2002, the Company may, at its option, redeem
the Exchange Debentures upon a Change of Control. See "-- Change of Control."
The Credit Facility and the Notes Indenture restrict the ability of the
Company to optionally redeem the Exchange Debentures. The Credit Facility, the
Existing Capstar Radio Indenture and the New Capstar Radio Indenture restrict
the ability of Capstar Radio to pay dividends and make other restricted payments
to the Company and, accordingly, may also limit the ability of the Company to
optionally redeem the Exchange Debentures. See "Description of Indebtedness."
CHANGE OF CONTROL
The Exchange Indenture will provide that upon the occurrence of a Change of
Control, each holder will have the right to require that the Company repurchase
all or a portion of such holder's Exchange Debentures pursuant to the offer
described below (the "Debenture Change of Control Offer"), at a purchase price
equal to 101% of the principal amount thereof plus, without duplication, accrued
interest, if any, to the date of repurchase.
The Exchange 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 to (i) repay in full all Indebtedness under the Credit
Agreement (and terminate all commitments thereunder) and any other agreement
relating to Indebtedness that would prohibit the Debenture Change of Control
Offer or offer to repay in full all such Indebtedness (and terminate all such
commitments) and
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repay the Indebtedness owed to (and terminate the commitments of) each lender
that has accepted such offer or (ii) obtain the requisite consents under the
Credit Facility and any other agreement governing such other Indebtedness to
permit the repurchase of the Exchange Debentures as provided below. The Company
will first comply with the covenant in the preceding sentence before it will be
required to repurchase Exchange Debentures pursuant to the provisions described
below, provided that the Company's failure to comply with the covenant described
in the preceding sentence shall constitute an Event of Default described under
clause (iii) under "-- Events of Default" below.
Within 30 days following the date upon 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 Exchange Debentures, with a copy to
the Trustee, which notice shall govern the terms of the Debenture Change of
Control Offer. Such notice will 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 "Debenture Change of
Control Payment Date"). Holders electing to have an Exchange Debenture purchased
pursuant to a Debenture Change of Control Offer will be required to surrender
the Exchange Debenture, properly endorsed for transfer together with such other
customary documents as the Company may reasonably request, to the paying agent
at the address specified in the notice prior to the close of business on the
business day prior to the Debenture Change of Control Payment Date.
In addition, the Exchange Indenture will provide that, prior to July 1,
2002, upon the occurrence of a Change of Control, the Company will have the
option to redeem the Exchange Debentures in whole but not in part (a "Debenture
Change of Control Redemption") at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium, together with accrued and
unpaid interest to the date of redemption. In order to effect a Debenture Change
of Control Redemption, the Company must send a notice to each holder of Exchange
Debentures, which notice shall govern the terms of the Debenture Change of
Control Redemption. Such notice must be mailed to holders of Exchange Debentures
within 30 days following the date the Change of Control occurred (the "Debenture
Change in Control Redemption Date") and state that the Company is effecting a
Debenture Change of Control Redemption in lieu of a Debenture Change of Control
Offer.
"Applicable Premium" means, with respect to an Exchange Debenture at any
Debenture Change of Control Redemption Date, the greater of (i) 1.0% of the
principal amount of such Exchange Debenture and (ii) the excess of (A) the
present value at such time of (1) the redemption price of such Exchange
Debenture at July 1, 2002 (such redemption price being described under
"-- Optional Redemption") plus (2) all required interest payments due on such
Exchange Debenture through July 1, 2002, computed using a discount rate equal to
the Treasury Rate plus 150 basis points over (B) the principal amount of such
Exchange Debenture.
"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 Debenture
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 Debenture Change of Control Redemption Date to July
1, 2002; provided, however, that if the period from the Debenture Change of
Control Redemption Date to July 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 Debenture Change of Control Redemption Date to July 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
Exchange Debentures pursuant to a Debenture Change of Control Offer.
This "Change of Control" covenant will not apply in the event of (i)
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 (ii) certain transactions with Permitted Holders. In addition, this covenant
is not intended to afford
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holders of the Exchange Debentures protection in the event of certain highly
leveraged transactions, reorganizations, restructurings, mergers and other
similar transactions that might adversely affect the holders of Exchange
Debentures 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, but would
increase the amount of Indebtedness outstanding at such time. However, the
Exchange Indenture will contain limitations on the ability of the Company to
incur additional Indebtedness and to engage in certain mergers, consolidations,
sales of assets and swaps of assets, whether or not a Change of Control is
involved. See "-- Limitation on Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries," "-- Limitation on Asset Sales," "-- Limitation
on Asset Swaps" and "-- Merger, Consolidation and Sale of Assets."
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 Exchange
Debentures that the Company might be required to purchase. Moreover, as of the
date hereof, after giving effect to the Offering and the application of the
proceeds therefrom, the Company would not have sufficient funds available to
purchase all the outstanding Exchange Debentures, if they were outstanding,
pursuant to a Debenture Change of Control Offer. In the event that the Company
were required to purchase Exchange Debentures pursuant to a Debenture 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. There can be no assurance, however, that the Company would be able
to obtain such financing on favorable terms, if at all. In addition, the Notes
Indenture and the Credit Facility restrict the Company's ability to purchase the
Exchange Debentures, including pursuant to a Debenture Change of Control Offer.
The Credit Facility, the Existing Capstar Radio Indenture and the New Capstar
Radio Indenture 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 Exchange Debentures. See "Description of
Indebtedness."
With respect to the sale of assets, the phrase "all or substantially all"
as used in the Exchange Indenture 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 Exchange
Debentures should be subject to a Debenture Change of Control Offer.
None of the provisions relating to a purchase of Exchange Debentures upon a
Change of Control is waivable by the board of directors of the Company. Without
the consent of each holder of the Exchange Debentures affected thereby, after
the mailing of the notice of the Debenture Change of Control Offer, no amendment
to the Exchange Indenture may, directly or indirectly, affect the Company's
obligation to purchase the Exchange Debentures or amend, modify or change the
obligation of the Company to consummate a Debenture Change of Control Offer or
waive any default in the performance thereof or modify any of the provisions or
definitions with respect to any such offer. In addition, the Trustee may not
waive the right of any holder of the Exchange Debentures to require the
repurchase of its Exchange Debentures upon a Change of Control.
SUBORDINATION
The payment of all Obligations on the Exchange Debentures is subordinated
and junior in right of payment to the prior payment in full in cash or Cash
Equivalents (or such payment shall be duly provided for to the satisfaction of
the holders of the Senior Debt) of all Obligations on Senior Debt. Upon any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of creditors
or marshaling of assets of the Company or in a bankruptcy, reorganization,
insolvency, receivership or other similar proceeding relating to the Company or
its property, whether voluntary or involuntary, all Obligations due or to become
due upon all Senior Debt will first be paid in full in cash or Cash Equivalents
(or such payment duly provided for to the satisfaction of the holders of the
Senior Debt) before any payment or distribution of any kind or character is made
on account of any Obligations on the Exchange Debentures, or for the acquisition
of any of the Exchange Debentures for cash or property or otherwise. If any
default occurs and is continuing in the payment when due, whether at maturity,
upon any redemption, by declaration or otherwise, of any principal of, or
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interest on or any other amounts owing with respect to any Senior Debt, no
payment of any kind or character (except (i) in Qualified Capital Stock issued
by the Company to pay interest on the Exchange Debentures or issued in exchange
for the Exchange Debentures, (ii) in securities substantially identical to the
Exchange Debentures issued by the Company in payment of interest accrued thereon
or (iii) in securities issued by the Company that are subordinated to the Senior
Debt at least to the same extent as the Exchange Debentures and having a
Weighted Average Life to Maturity at least equal to the remaining Weighted
Average Life to Maturity of the Exchange Debentures (the issuance of such
subordinated securities to be consented to by the holders of at least a majority
of the outstanding amount of Senior Debt consisting of each class of Designated
Senior Debt then outstanding, which subordinated securities will be issued in
exchange for outstanding Exchange Debentures or to pay interest accrued on
outstanding Exchange Debentures)) will be made by the Company or any other
Person on behalf of the Company with respect to any obligations on the Exchange
Debentures or to acquire any of the Exchange Debentures for cash or property or
otherwise. In addition, if any other event of default occurs and is continuing
(or if such an event of default would occur upon any payment with respect to the
Exchange Debentures or would arise upon the passage of time as a result of such
payment) with respect to any Designated Senior Debt (as such event of default is
defined in the instrument creating or evidencing such Designated Senior Debt)
and such event of default permits the holders of such Designated Senior Debt
then outstanding to accelerate the maturity thereof and if the Representative
for the respective issue of Designated Senior Debt gives written notice of the
event of default to the Trustee (a "Default Notice"), then, unless and until all
such events of default have been cured or waived or have ceased to exist or the
Company and the Trustee receive notice from the Representative for the
respective issue of Designated Senior Debt terminating the Blockage Period (as
defined below), during the 180 days after the delivery of such Default Notice
(the "Blockage Period"), neither the Company nor any other Person on behalf of
the Company will make any payment of any kind or character (except (i) in
Qualified Capital Stock issued by the Company to pay interest on the Exchange
Debentures or issued in exchange for the Exchange Debentures, (ii) in securities
substantially identical to the Exchange Debentures issued by the Company in
payment of interest accrued thereon or (iii) in securities issued by the Company
that are subordinated to the Senior Debt at least to the same extent as the
Exchange Debentures and having a Weighted Average Life to Maturity at least
equal to the remaining Weighted Average Life to Maturity of the Exchange
Debentures (the issuance of such subordinated securities to be consented to by
the holders of at least a majority of the outstanding amount of Senior Debt
consisting of each class of Designated Senior Debt then outstanding, which
subordinated securities will be issued in exchange for outstanding Exchange
Debentures or to pay interest accrued on outstanding Exchange Debentures)) with
respect to any Obligations on the Exchange Debentures or to acquire any of the
Exchange Debentures for cash or property or otherwise. Notwithstanding anything
herein to the contrary, only one such Blockage Period may be commenced within
any 360 consecutive days. No event of default that existed or was continuing on
the date of the commencement of any Blockage Period with respect to the
Designated Senior Debt initiating such Blockage Period shall be, or be made, the
basis for commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default has been cured or waived for a period of not less
than 90 consecutive days (it being acknowledged that any subsequent action or
any breach of any financial covenants for a period commencing after the date of
commencement of such Blockage Period that, in either case, would give rise to an
event of default pursuant to any provision under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the holders of the Exchange Debentures, may recover less, ratably, than holders
of Senior Debt.
CERTAIN COVENANTS
The Exchange Indenture contains, among others, the following covenants. The
Company and its subsidiaries are subject to the covenants contained in the
Credit Facility, the Existing Capstar Radio Indenture, the New Capstar Radio
Indenture and the Notes Indenture. See "Description of Indebtedness."
Limitation on Incurrence of Additional Indebtedness and Issuance of
Preferred Stock of Subsidiaries. The Exchange Indenture will provide that the
Company will not, and will not permit any of its Subsidiaries to,
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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 that the Company's Subsidiaries will not issue any shares of Preferred Stock
(except Preferred Stock issued to the Company or a Wholly Owned Subsidiary of
the Company); 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 Exchange 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) any 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) or (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 as a capital contribution on or subsequent to 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 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) $5,000,000.
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(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 Exchange Debentures 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 Exchange Debentures, at least to the extent that the
Indebtedness being acquired is subordinated to the Exchange Debentures 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 Exchange Debentures at least to the extent that the Indebtedness being
acquired is subordinated to the Exchange Debentures 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 of the
Company, Capstar Broadcasting or any corporation that, directly or indirectly,
owns all of the Common Stock of Capstar Broadcasting from employees of the
Company or any such other corporation in an aggregate amount not to exceed
$5,000,000; (5) payments to enable the Company or any such other corporation 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 or any such other corporation 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 of the Company, Capstar Broadcasting or any corporation
that, directly or indirectly, owns all of the Common Stock of Capstar
Broadcasting 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 (through a capital
contribution or otherwise) from shares of Common Stock sold for the account of
the Company or any such other corporation (and not for the account of any
stockholder) in such initial public offering; provided, further, that in the
case of clauses (4), (5), (6), (7) and (8), no Default or 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.
Limitation on Asset Sales. The Exchange 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
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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 $5,000,000, 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 Exchange Debentures tendered to the Company for purchase at a
price equal to 100% of the principal amount 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 Exchange Debentures as shown on the applicable
register of holders of Exchange Debentures 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 Exchange Indenture. Upon receiving
notice of the Net Proceeds Offer, holders of Exchange Debentures may elect to
tender their Exchange Debentures in whole or in part in integral multiples of
$1,000. To the extent holders properly tender Exchange Debentures in an amount
exceeding the Net Proceeds Offer, Exchange Debentures of tendering holders will
be repurchased on a pro rata basis (based upon the principal amount tendered).
To the extent that the aggregate principal amount of Exchange Debentures
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 Exchange Debentures for any purposes otherwise permitted by the
Exchange Indenture. Upon the consummation of any Net Proceeds 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
Exchange Debentures pursuant to a Net Proceeds Offer.
Limitation on Asset Swaps. The Exchange 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 $2.0 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 $10.0 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 Exchange 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
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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 Exchange 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 or Acquired Preferred Stock, 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 Exchange Date (including the Credit Facility, the
Existing Capstar Radio Indenture and the New Capstar Radio 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 or any such other
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 or charter
provision evidencing Indebtedness or Preferred Stock permitted under the
Exchange Indenture; provided, however, that the provisions relating to such
encumbrance or restriction contained in such agreement or charter provision 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 Exchange 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 Exchange 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 $2,000,000 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 $10,000,000 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 obligation of the Company
under the 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, noncompetition or confidentiality agreement with
any officer of the 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 any acquisitions or
dispositions by the Company and its
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Subsidiaries which acquisitions and dispositions are disclosed in this Offering
Memorandum, including fees to Hicks Muse, and (8) the issuance of Capital Stock
of the Company (other than Disqualified Capital Stock).
Merger, Consolidation and Sale of Assets. The Exchange Indenture provides
that the Company may not, in a single transaction or 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 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 Exchange Debentures and the Exchange 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 Exchange Indenture and that all conditions precedent in the Exchange
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.
Reports. The Exchange Indenture will provide that so long as any of the
Exchange Debentures are outstanding, the Company will provide to the holders of
Exchange Debentures 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 Section 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 Exchange Indenture as "Events of
Default": (i) the failure to pay interest on the Exchange Debentures when the
same becomes due and payable and the Default continues for a period of 30 days;
(ii) the failure to pay the principal on any Exchange Debentures when such
principal, 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 Exchange Debentures or the Exchange
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 of outstanding Exchange
Debentures; (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 $10,000,000 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 $10,000,000
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(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 Exchange
Indenture, the Trustee may, and the Trustee upon the request of holders of 25%
in principal amount of the outstanding Exchange Debentures shall, or the holders
of at least 25% in principal amount of outstanding Exchange Debentures may,
declare the principal of all the Exchange Debentures, 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 Credit Facility, will become due and payable
upon the first to occur of an acceleration under the Credit Facility or five
Business Days after receipt by the Company and the agent under the 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 Exchange Debentures.
The Exchange Indenture provides that, at any time after a declaration of
acceleration with respect to the Exchange Debentures as described in the
preceding paragraph, the holders of a majority in principal amount of the
Exchange Debentures 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
principal 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 Exchange Debentures) 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 Event of Default has been cured or waived. The holders of a
majority in principal amount of the Exchange Debentures may waive any existing
Default or Event of Default under the Exchange Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Exchange
Debentures.
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 Exchange 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 Exchange 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 Exchange Indenture at the request or direction of any
of the holders of the Exchange Debentures 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 Exchange Indenture, the holders of a majority in
principal amount of the outstanding Exchange Debentures 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 EXCHANGE INDENTURE; DEFEASANCE
The Company may terminate its obligations under the Exchange Indenture at
any time by delivering all outstanding Exchange Debentures to the Trustee for
cancellation and paying all sums payable by it thereunder.
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The Company, at its option, (i) will be discharged from any and all obligations
with respect to the Exchange Debentures (except for certain obligations of the
Company to register the transfer or exchange of such Exchange Debentures,
replace stolen, lost or mutilated Exchange Debentures, 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 Exchange 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 Exchange Debentures on the dates
such payments are due in accordance with the terms of such Exchange Debentures
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
"IRS") to the effect that the holders of the Exchange Debentures 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 Exchange Debentures 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 Exchange Debentures, may amend or supplement the
Exchange 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 Exchange Indenture may be made with the consent of the holders
of a majority in principal amount at maturity of the then outstanding Exchange
Debentures, except that, without the consent of each holder of the Exchange
Debentures (or, prior to the Exchange Date, without the consent of each holder
of Senior Exchangeable Preferred Stock) affected thereby, no amendment may,
directly or indirectly: (i) reduce the amount of Exchange Debentures 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 Exchange
Debentures; (iii) reduce the principal of or change the fixed maturity of any
Exchange Debentures, or change the date on which any Exchange Debentures may be
subject to redemption or repurchase, or reduce the redemption or repurchase
price therefor; (iv) make any Exchange Debentures payable in money other than
that stated in the Exchange Debentures and the Exchange Indenture; (v) make any
change in provisions of the Exchange Indenture protecting the right of each
holder of an Exchange Debenture to receive payment of principal of, premium on
and interest on such Exchange Debenture 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 Exchange Debentures to waive a Default or
Event of Default; or (vi) after the Company's obligation to purchase the
Exchange Debentures arises under the Exchange Indenture, amend, modify or change
the obligation of the Company to make or consummate a Debenture 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 Exchange 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;
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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 Exchange Debentures 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 Exchange 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 Exchange Indenture at the request of any holder of Exchange
Debentures, 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
Certificate of Designation and/or the Exchange Indenture. Reference is made to
the Certificate of Designation and the Exchange Indenture, the case may be, 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.
"Acquired Preferred Stock" means Preferred Stock of any Person 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 and not issued by such
Person in connection with, or in anticipation or contemplation of, 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 $1,000,000, (b) transactions permitted under the
"Limitation on Asset Swaps" covenant or (c) transactions covered by the "Merger,
Consolidation and Sale of Assets" covenant.
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"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.
"Capstar Broadcasting" means Capstar Broadcasting Corporation, a Delaware
corporation.
"Capstar Radio" means Capstar Radio Broadcasting Partners, Inc., a Delaware
corporation and a wholly owned subsidiary of the Company.
"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 Certificate of Designation or the Exchange Indenture, as the
case may be), 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.
"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
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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.
"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 (d) 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 $1,000,000 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.
"Credit Facility" means the credit agreement dated February 20, 1997 among
the Company, Capstar Radio, 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 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 Credit Facility or any other credit agreement).
"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.
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Credit Facility and (ii) any other Indebtedness constituting Senior Debt that,
at the time of determination, has an aggregate principal amount of at least
$10,000,000 and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by the Company.
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"Discount Notes Indenture" means the indenture dated as of February 20,
1997 between the Company and U.S. Trust Company of Texas, N.A., under which the
Company's 12 3/4% Senior Discount Notes due 2009 were issued as in effect on the
Issue Date.
"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
(i) the mandatory redemption date of the Senior Exchangeable Preferred Stock, in
the case of the Senior Exchangeable Preferred Stock, or (ii) the final maturity
date of the Exchange Debentures, in the case of the Exchange Debentures.
"Exchange Date" means the date of original issuance of the Exchange
Debentures.
"Existing Capstar Radio Indenture" means the indenture dated as of April
21, 1995 by and among Capstar Radio, as Issuer, the Subsidiaries of Capstar
Radio named therein, as Guarantors, and IBJ Schroder Bank & Trust Company, as
Trustee, as in effect on the Issue Date.
"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 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 $2,000,000, 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 (subject to the
terms described in the next paragraph) plus the aggregate liquidation preference
of all outstanding
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Preferred Stock of the Company's Subsidiaries (except Preferred Stock issued to
the Company or a Wholly Owned Subsidiary of the Company) 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, (i) the amount of Indebtedness that is
issued at a discount shall be deemed to be the accreted value of such
Indebtedness at the end of the Four Quarter Period, whether or not such amount
is the amount then reflected on a balance sheet prepared in accordance with
GAAP, and (ii) 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 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.
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"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 Capstar Radio Indenture" means the indenture governing the 9 1/4%
Senior Subordinated Notes due 2007 of Capstar Radio as in effect on the Issue
Date.
"Notes" means the Company's 12 3/4% Senior Discount Notes due 2009.
"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 Holders" shall have the meaning set forth in the definition of
"Change of Control."
"Permitted Indebtedness" means, without duplication, (i) Indebtedness
outstanding on the Issue Date; (ii) Indebtedness of the Company or a Subsidiary
incurred pursuant to the Credit Facility in an aggregate principal amount at any
time outstanding not to exceed $150.0 million; (iii) Indebtedness evidenced by
or arising under the Notes and the Notes 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
$20,000,000 in principal amount outstanding at any time (which amount may, but
need not, be incurred under the 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 Exchange 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 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
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exceed $15,000,000; 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 $6,000,000 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 or Acquired Preferred Stock 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 Capital Stock of the Company,
Capstar Broadcasting or any corporation that, directly or indirectly, owns all
of the Common Stock of Capstar Broadcasting 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 $2,000,000 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, Capstar
Broadcasting or any corporation that, directly or indirectly, owns all of the
Common Stock of Capstar Broadcasting, pursuant to an effective registration
statement filed with the Commission in accordance with the Securities Act;
provided, however, that, in the case of a Public Equity Offering by Capstar
Broadcasting or any such other corporation, Capstar Broadcasting or such
corporation contributes to the capital of the Company net cash proceeds in an
amount sufficient to redeem the Senior Exchangeable Preferred Stock or the
Exchange Debentures, as the case may be, called for redemption in accordance
with the terms thereof.
"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
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Maturity of the Indebtedness being refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being refinanced.
"Restricted Payment" means the following:
(A) For purposes of the Exchange Indenture, (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
Qualified Capital Stock and other than the exchange of shares of Senior
Exchangeable Preferred Stock for the Exchange Debentures, (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 Exchange Debentures or
(iv) the making of any Investment (other than a Permitted Investment).
(B) For purposes of the Certificate of Designation, (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) on shares of the Company's Junior Stock, (ii) any purchase,
redemption, retirement or other acquisition for value of any Junior Stock
of the Company, or any warrants, rights or options to acquire shares of
Junior Stock of the Company, other than through the exchange of such Junior
Stock or any warrants, rights or options to acquire shares of any class of
such Junior Stock for Qualified Capital Stock or warrants, rights or
options to acquire Qualified Capital Stock or (iii) the making of any
Investment (other than a Permitted Investment).
"Senior Debt" means the principal of and premium, if any, and interest on,
and any and all other fees, expense reimbursement obligations and other amounts
due pursuant to the terms of all agreements, documents and instruments providing
for, creating, securing or evidencing or otherwise entered into in connection
with (a) all Indebtedness of the Company owed to lenders under the Credit
Facility, (b) all Indebtedness of the Company under the Notes, (c) all
obligations of the Company with respect to any Interest Swap Obligations, (d)
all obligations of the Company to reimburse any bank or other person in respect
of amounts paid under letters of credit, acceptances or other similar
instruments, (e) all other Indebtedness of the Company which does not provide
that it is to rank pari passu with or subordinate to the Exchange Debentures and
(f) all deferrals, renewals, extensions and refundings of, and amendments,
modifications and supplements to, any of the Senior Debt described above.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include (i) Indebtedness of the Company to any of its Subsidiaries, (ii)
Indebtedness represented by the Exchange Debentures, (iii) any Indebtedness
which by the express terms of the agreement or instrument creating, evidencing
or governing the same is junior or subordinate in right of payment to any item
of Senior Debt, (iv) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business, and (v)
Indebtedness incurred in violation of the Indenture.
"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.
Except as specifically otherwise provided in the Certificate of Designation or
the Exchange 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 Exchange Indenture to the
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contrary, an Unrestricted Subsidiary shall not be deemed to be a Subsidiary for
purposes of the Exchange 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 of the Company 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.
"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 shares of Old Preferred Stock for
shares of New Preferred Stock, 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 shares of New Preferred Stock. 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 SHARES OF OLD PREFERRED STOCK FOR SHARES OF
NEW PREFERRED STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL
OR FOREIGN TAX LAWS.
The exchange of shares of Old Preferred Stock for shares of New Preferred
Stock 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 shares of New Preferred
Stock as it had in the shares of Old Preferred Stock immediately before the
exchange.
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BOOK-ENTRY; DELIVERY AND FORM
The certificate representing the shares of Old Preferred Stock was issued
and the certificate representing the New Preferred Stock will be issued, in
fully registered form. The shares of Old Preferred Stock are represented by one
permanent global certificate in definitive, fully registered form for 1,000,000
shares (the "Initial Global Certificate"). Except as described in the next
paragraph, the shares of New Preferred Stock initially will be represented by a
single permanent global certificate in definitive, fully registered form (the
"Global Certificate"). The Global Certificate will be deposited on the Issue
Date with, or on behalf of, DTC and registered in the name of a nominee of DTC.
If any holder of shares of Old Preferred Stock whose interest in such shares of
Old Preferred Stock is represented by the Initial Global Certificate fails to
tender in the Exchange Offer, the Company may issue and deliver to such holder a
separate certificate representing such holder's Old Preferred Stock in
registered form.
New Preferred Stock exchanged for Old Preferred Stock originally purchased
by or transferred to (i) "foreign purchasers" or institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3), or (7) under the Securities
Act) who are not "qualified institutional buyers" (as defined in Rule 144A under
the Securities Act) ("QIBs") or (ii) 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") will be 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 will credit, on its
internal system, the number of shares of New Preferred Stock of the individual
beneficial interests represented by the Global Certificate to the respective
accounts of persons who have accounts with such depositary and (ii) ownership of
beneficial interests in the Global Certificate will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (as defined) (with respect to interests of persons other than
participants). Ownership of beneficial interests in the Global Certificate will
be 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 shares
of New Preferred Stock, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the shares of New Preferred Stock
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 the liquidation preference or redemption price and dividends 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 Transfer Agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial 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
the liquidation preference, redemption price or dividends in respect of the
Global Certificate, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the number of shares
represented by 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
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reason, including to sell shares of New Preferred Stock to persons in states
which require physical delivery of the certificate evidencing the shares of New
Preferred Stock, 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 New Preferred Stock (including the presentation of shares
of New Preferred Stock 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 shares of New Preferred
Stock 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. Neither the Company nor the transfer agent will 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.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives shares of New Preferred Stock for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such shares of New Preferred Stock.
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 shares of New Preferred
Stock received in exchange for shares of Old Preferred Stock where such shares
of Old Preferred Stock 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 shares of New Preferred Stock may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of shares of New
Preferred Stock by broker-dealers. Shares of New Preferred Stock 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 shares of New
Preferred Stock 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 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 shares of New Preferred Stock. Any broker-dealer that
resells New Preferred Stock that was received by it for its own account pursuant
to the Exchange Offer and any broker or dealer that participates in a
distribution of such shares of New Preferred Stock may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of shares of New Preferred Stock 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
shares of Old Preferred Stock) other than commissions or concessions of any
broker-dealers and will indemnify the holders of the shares of Old Preferred
Stock (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 and other matters related to the New Preferred Stock and
the Exchange Debentures 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 related 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 financial statements of Capstar Radio Broadcasting
Partners, Inc. and Subsidiaries, the Predecessor Company of Capstar Broadcasting
Partners, Inc. and Subsidiaries, and formerly known as Commodore Media, Inc. and
Subsidiaries 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 and
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Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of Southern Star Communications,
Inc., formerly known as 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 and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated balance sheets of GulfStar Communications, Inc. and
Subsidiaries 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 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 combined balance sheets of Benchmark Communications Radio Limited
Partnership 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 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 related statements of income and retained earnings,
and cash flows for the year then ended 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 related statements of operations, partner's equity
and cash flows for the year then ended 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 Community Pacific Broadcasting Company L.P. as of
December 31, 1996, and the related statements of operations, partners' equity
and cash flows for the year then ended 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 sheets of Patterson Broadcasting, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year ended December 31, 1996 and for the period from May 1, 1995 (inception)
through December 31, 1995 included in this Prospectus, have been included herein
in reliance on the report of Arthur Andersen LLP, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
The balance sheet of Ameron Broadcasting, Inc. as of December 31, 1996, and
the related statements of operations, stockholders' equity and cash flows for
the year then ended included in this Prospectus, have been included herein in
reliance on the report of Arthur Andersen LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
The combined financial statements of Knight Quality Stations as of December
31, 1996, and for the year then ended included in this Prospectus or elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto and are included herein upon the authority of the said firm as experts
in giving said reports.
The balance sheet of Quass Broadcasting Company as of December 31, 1996,
and the related statements of income, common stockholders' equity (deficit) and
cash flows for the year then ended December 31, 1996 included in this
Prospectus, have been included herein in reliance on the report of McGladrey &
Pullen, LLP, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The combined financial statements of Mountain Lakes Broadcasting, L.L.C. 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 and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report
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thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such 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., LLP, 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 LLP, 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 related
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 & Company, 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
Preferred Stock 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 Preferred Stock and Exchange Debentures 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.
The Company is required by the Certificate of Designation to furnish the
holders of the New Preferred Stock with copies of the annual reports and of the
information, documents and other reports specified in Section 13 and 15(d) of
the Exchange Act of 1934, as long as any shares of New Preferred Stock are
outstanding.
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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.
"Ameron Acquisition" means the Company's pending acquisition of
substantially all of the assets of Ameron Broadcasting, Inc. ("Ameron"), used or
useful in the operation of radio stations WMJJ-FM and WERC-AM in Birmingham,
Alabama and radio station WOWC-FM in Jasper, Alabama.
"Benchmark Acquisition" means the completed 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").
"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.
"broadcast cash flow margin" represents the percentage of net revenue which
is attributable to broadcast cash flow.
"Capstar Broadcasting" means Capstar Broadcasting Corporation.
"Capstar BT Equity Investment" means the purchase by Capstar BT Partners,
L.P. of certain shares of Class B Common Stock for $11.1 million in cash
concurrently with consummation of the GulfStar Merger.
"Capstar Radio" means Capstar Radio Broadcasting Partners, Inc.
"Capstar Radio Notes Offering" means Capstar Radio's private placement of
the New Capstar Radio Notes.
"Cavalier Acquisition" means the Company's completed acquisition of
substantially all of the assets of Cavalier Communications, L.P. ("Cavalier").
"Certificate of Designation" means the Certificate of Designation that
governs the Senior Exchangeable Preferred Stock.
"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.
"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 completed acquisition
of substantially all of the assets of Community Pacific Broadcasting Company
L.P. ("Community Pacific").
"Company" means, unless the context otherwise requires, Capstar
Broadcasting Partners, Inc. and its subsidiaries.
"Completed Transactions" collectively refers to the Commodore Acquisition,
the Osborn Transactions, the Space Coast Acquisitions, the GulfStar Transaction,
the Community Pacific Acquisition, the Cavalier Acquisition, the Benchmark
Acquisition, the GulfStar -- McForhun Acquisition, and the
GulfStar -- Livingston Acquisition.
"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
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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.
"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.
"Existing Capstar Radio Indenture" means that certain indenture, between
Capstar Radio, the guarantors named therein and IBJ Schroder Bank & Trust
Company in connection with the Existing Capstar Radio Notes.
"Existing Capstar Radio Notes" refers to Capstar Radio's 13 1/4% Senior
Subordinated Notes due 2003.
"Existing Credit Facility" means that certain credit facility between the
Company, Capstar Radio, Bankers Trust Company, as administrative agent, and the
other parties thereto.
"Financing" collectively refers to the Preferred Stock Offering, the Hicks
Muse GulfStar Equity Investment, the Capstar BT Equity Investment and the
Capstar Radio Notes Offering.
"Grant Acquisition" means the Company's pending acquisition of
substantially all of the assets of Grant Communications Company ("Grant") used
or useful in the operation of radio station WZBQ-FM in the Tuscaloosa, Alabama
market.
"Griffith Acquisition" means the Company's pending acquisition of
substantially all of the assets of Griffith Communications Corporation
("Griffith") used or useful in the operation of radio stations WTAK-FM, WXQW-FM
and WWXQ-FM in the Huntsville, Alabama market.
"GulfStar" means, prior to the GulfStar Merger, GulfStar Communications,
Inc. and, from and after the GulfStar Merger, the surviving corporation in the
GulfStar Merger.
"GulfStar Merger" means the merger of GulfStar with and into a subsidiary
of Capstar Broadcasting, pursuant to which the subsidiary was the surviving
corporation and was named GulfStar Communications, Inc.
"GulfStar Transaction" means the GulfStar Merger and Capstar Broadcasting's
contribution of GulfStar through the Company to Capstar Radio upon completion of
the GulfStar Merger.
"GulfStar -- American General Acquisition" means the Company's pending
acquisition of substantially all of the assets of American General Media
("American General") used or useful in the operation of radio station KKCL-FM in
the Lubbock, Texas market.
"GulfStar -- Booneville Acquisition" means the Company's pending
acquisition of substantially all of the assets of Booneville Broadcasting
Company and Oklahoma Communications Company (collectively, "Booneville") used or
useful in the operation of radio station KZBB-FM in the Ft. Smith, Arkansas
market.
"GulfStar -- Bryan Disposition" means the Company's pending sale of Bryan
Broadcasting Operating Company, a wholly owned subsidiary that owns three FM
stations in Bryan, Texas.
"GulfStar -- KJEM Acquisition Option" means the Company's option to acquire
substantially all of the assets of KJEM-FM, Inc. ("KJEM") used or useful in the
operation of radio station KJEM-FM in the Seligman, Missouri market.
"GulfStar -- KLAW Acquisition" means the Company's pending acquisition of
substantially all of the assets of KLAW Broadcasting, Inc. ("KLAW") used or
useful in the operation of radio stations KLAW-FM and KZCD-FM, which serves the
Lawton, Oklahoma market.
"GulfStar -- Livingston Acquisition" means the Company's completed
acquisition of substantially all of the assets Livingston Communications, Inc.
("Livingston") used or useful in the operation of radio station WBIU-AM in the
Denham Springs, Louisiana market.
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"GulfStar -- McForhun Acquisition" means the Company's completed
acquisition of substantially all of the assets of McForhun, Inc. ("McForhun")
used or useful in the operation of radio station KRVE-FM in the Brusly,
Louisiana market.
"GulfStar -- Noalmark Acquisition" means the Company's option to purchase
substantially all of the assets of Noalmark Broadcasting Corp. ("Noalmark") used
or held for use in the operation of radio stations KKTX-FM and KKTX-AM, which
serve the Longview, Texas market.
"Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated.
"Hicks Muse GulfStar Equity Investment" means the purchase by an affiliate
of Hicks Muse of certain shares of Class C Common Stock for $75.0 million in
cash concurrently with consummation of the GulfStar Merger.
"Hicks Muse Osborn 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.
"HM Fund III" means Hicks, Muse, Tate & Furst Equity Fund III, L.P.
"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 the Company.
"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.
"Knight Quality Acquisition" means the Company's pending acquisition of
substantially all of the assets of Knight Radio, Inc., Knight Communications
Corporation and Knight Broadcasting of New Hampshire, Inc. (collectively,
"Knight Quality") used or useful in the operations of eight radio stations owned
and operated by Knight Quality.
"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.
"New Capstar Radio Indenture" means that certain indenture, dated June 17,
1997, between the Company and U.S. Trust Company of Texas, N.A. in connection
with the New Capstar Radio Notes.
"New Capstar Radio Notes" means Capstar Radio's 9 1/4% Senior Subordinated
Notes due 2007.
"Notes" means the Company's 12 3/4% Senior Discount Notes due 2009.
"Notes Indenture" means that certain indenture, dated February 20, 1997
between the Company and U.S. Trust Company of Texas, N.A. in connection with the
Notes.
"Osborn Acquisition" means the Company's completed acquisition of Osborn
Communications, Inc.
"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. (the "Osborn Huntsville Acquisition") 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 (the "Osborn Tuscaloosa Acquisition").
"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.
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"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.
"Patterson Acquisition" means the Company's pending acquisition of all of
the outstanding capital stock of Patterson Broadcasting, Inc. ("Patterson").
"Pending Acquisitions" collectively refers to the Ameron Acquisition, the
COMCO Acquisition, the Commonwealth Acquisition, the Emerald City Acquisition,
the Grant Acquisition, the Griffith Acquisition, the Knight Quality Acquisition,
the Madison Acquisition, the Patterson Acquisition, the Quass Acquisition, the
SFX Exchange, the WRIS Acquisition, the GulfStar -- American General
Acquisition, the GulfStar -- Booneville Acquisition, the GulfStar -- Noalmark
Acquisition, the GulfStar -- KJEM Acquisition and the GulfStar -- KLAW
Acquisition.
"Pending Transactions" collectively refers to the Pending Acquisitions and
the GulfStar -- Bryan Disposition.
"Quass Acquisition" means the Company's pending acquisition of all of the
outstanding capital stock of Quass Broadcasting Company ("Quass").
"SFX Exchange" means the Company's pending exchange of substantially all of
the assets used or useful in the operation of three radio stations that will be
owned by the Company upon completion of the Benchmark Acquisition in the
Greenville, South Carolina market for substantially all of the assets used or
useful in the operation of four radio stations owned by SFX in Wichita, Kansas
and Daytona Beach, Florida.
"Space Coast Acquisitions" collectively refers to the Company's completed
acquisitions of substantially all of the assets of EZY Com, Inc., City
Broadcasting Co., Inc., and Roper Broadcasting, Inc.
"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
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").
184
<PAGE> 189
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS
PREDECESSOR
Report of Independent Accountants......................... F-4
Report of Independent Auditors............................ F-5
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 and 1995............................. F-6
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996, 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 Stockholders' Equity (Deficit)
for the three months ended March 31, 1997, 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
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996, 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-9
Notes to Consolidated Financial Statements................ F-10
SOUTHERN STAR COMMUNICATIONS INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
Report of Independent Auditors............................ F-37
Consolidated Balance Sheets as of December 31, 1996 and
1995................................................... F-38
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994....................... F-39
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994... F-40
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....................... F-41
Notes to Consolidated Financial Statements................ F-42
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Accountants......................... F-54
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 and 1995............................. F-55
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994....................... F-56
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 1997 and for the
years ended December 31, 1996, 1995 and 1994........... F-57
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994....................... F-58
Notes to Consolidated Financial Statements................ F-59
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
Report of Independent Accountants......................... F-75
Combined Balance Sheets as of March 31, 1997 and December
31, 1996 and 1995...................................... F-76
Combined Statements of Operations for the three months
ended March 31, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994....................... F-77
Combined Statements of Changes in Partners' Equity
(Deficit) for the three months ended March 31, 1997 and
for the years ended December 31, 1996, 1995 and 1994... F-78
Combined Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994....................... F-79
Notes to Combined Financial Statements.................... F-80
MADISON RADIO GROUP
Condensed Balance Sheet as of March 31, 1997.............. F-90
Condensed Statement of Operations for the period from
January 2, 1997 to March 31, 1997...................... F-91
Condensed Statement of Partners' Equity for the period
from January 2, 1997 to
March 31, 1997......................................... F-92
Condensed Statement of Cash Flows for the period from
January 2, 1997 to March 31, 1997...................... F-93
Notes to Financial Statements............................. F-94
</TABLE>
F-1
<PAGE> 190
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
Report of Independent Accountants......................... F-98
Balance Sheet as of December 31, 1996..................... F-99
Statement of Income and Retained Earnings for the year
ended December 31, 1996................................ F-100
Statement of Cash Flows for the year ended December 31,
1996................................................... F-101
Notes to Financial Statements............................. F-102
POINT COMMUNICATIONS LIMITED PARTNERSHIP
Report of Independent Accountants......................... F-105
Balance Sheet as of December 31, 1996..................... F-106
Statement of Operations for the year ended December 31,
1996................................................... F-107
Statement of Partners' Equity for the year ended December
31, 1996............................................... F-108
Statement of Cash Flows for the year ended December 31,
1996................................................... F-109
Notes to Financial Statements............................. F-110
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
Report of Independent Accountants......................... F-114
Balance Sheets as of March 31, 1997 and December 31,
1996................................................... F-115
Statements of Operations for the three months ended March
31, 1997 and for the year ended December 31, 1996...... F-116
Statements of Changes in Partners' Equity for the three
months ended March 31, 1997 and for the year ended
December 31, 1996...................................... F-117
Statements of Cash Flows for the three months ended March
31, 1997 and for the year ended December 31, 1996...... F-118
Notes to Financial Statements............................. F-119
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-124
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 and 1995............................. F-125
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996 and for the year ended
December 31, 1996 and the period from May 1, 1995
(inception) through December 31, 1995.................. F-126
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended March 31, 1997 and for the
year ended December 31, 1996 and the period from May 1,
1995 (inception) through December 31, 1995............. F-127
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 and for the year ended
December 31, 1996 and the period from May 1, 1995
(inception) through December 31, 1995.................. F-128
Notes to Consolidated Financial Statements................ F-129
AMERON BROADCASTING, INC.
Report of Independent Public Accountants.................. F-138
Balance Sheets as of March 31, 1997 and December 31,
1996................................................... F-139
Statements of Operations for the three months ended March
31, 1997 and for the year ended December 31, 1996...... F-140
Statements of Stockholders' Equity for the three months
ended March 31, 1997 and for the year ended December
31, 1996............................................... F-141
Statements of Cash Flows for the three months ended March
31, 1997 and for the year ended December 31, 1996...... F-142
Notes to Financial Statements............................. F-143
KNIGHT QUALITY STATIONS
Report of Independent Public Accountants.................. F-148
Combined Balance Sheets as of March 31, 1997 and December
31, 1996............................................... F-149
Combined Statements of Operations for the three months
ended March 31, 1997 and for the year ended December
31, 1996............................................... F-150
Combined Statements of Stockholders' Equity for the three
months ended March 31, 1997 and for the year ended
December 31, 1996...................................... F-151
Combined Statements of Cash Flows for the three months
ended March 31, 1997 and for the year ended December
31, 1996............................................... F-152
Notes to Combined Financial Statements.................... F-153
F-2
<PAGE> 191
QUASS BROADCASTING COMPANY
Independent Auditor's Report.............................. F-160
Balance Sheets as of December 31, 1996 and March 31,
1997................................................... F-161
Statements of Income for the year ended December 31, 1996
and for the three months ended March 31, 1996 and
1997................................................... F-162
Statements of Common Stockholders' Equity (Deficit) for
the year ended December 31, 1996 and for the three
months ended March 31, 1997............................ F-163
Statements of Cash Flows for the year ended December 31,
1996 and for the three months ended March 31, 1996 and
1997................................................... F-164
Notes to Financial Statements............................. F-165
MOUNTAIN LAKES BROADCASTING, L.L.C.
Report of Independent Auditors............................ F-169
Balance Sheets as of December 31, 1996 and 1995........... F-170
Statements of Operations and Station Equity for the years
ended December 31, 1996, 1995 and 1994................. F-171
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.................................... F-172
Notes to Financial Statements............................. F-173
Q BROADCASTING, INC.
Independent Auditors' Report.............................. F-177
Statements of Operations and Deficit for the years ended
September 30, 1995, 1994 and 1993...................... F-178
Statements of Cash Flows for the years ended September 30,
1995, 1994 and 1993.................................... F-179
Notes to Financial Statements............................. F-180
DANBURY BROADCASTING, INC.
Report of Independent Auditors............................ F-183
Statement of Operations and Accumulated Deficit for the
year ended June 30, 1995............................... F-184
Statement of Cash Flows for the year ended June 30,
1995................................................... F-185
Notes to Financial Statements............................. F-186
ADVENTURE COMMUNICATIONS -- HUNTINGTON (DIVISION OF
ADVENTURE COMMUNICATIONS, INC.)
Independent Auditors' Report.............................. F-189
Balance Sheet as of December 31, 1995..................... F-190
Statement of Operations for the year ended December 31,
1995................................................... F-191
Statement of Division's Deficit for the year ended
December 31, 1995...................................... F-192
Statement of Cash Flows for the year ended December 31,
1995................................................... F-193
Notes to Financial Statements............................. F-194
F-3
<PAGE> 192
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-4
<PAGE> 193
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Capstar Broadcasting Partners, Inc.
We have audited the accompanying consolidated balance sheet of Capstar
Radio Broadcasting Partners, Inc. and Subsidiaries, the Predecessor Company of
Capstar Broadcasting Partners, Inc. and Subsidiaries, and formerly known as
Commodore Media, Inc. and Subsidiaries 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 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. 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
Capstar Radio Broadcasting Partners, Inc. and Subsidiaries 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-5
<PAGE> 194
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
PREDECESSOR
------------
DECEMBER 31,
MARCH 31, -----------------------------
1997 1996 1995
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and short-term cash investments...................... $ 13,024,555 $ 5,028,014 $ 10,891,489
Accounts receivable, less allowance of $1,217,518 at March
31, 1997, $838,081 in 1996 and $700,336 in 1995......... 13,051,132 8,913,390 6,131,447
Note receivable........................................... 13,513,179 -- --
Prepaid expenses and other current assets................. 3,629,218 443,900 285,412
------------ ------------- ------------
Total current assets................................ 43,218,084 14,385,304 17,308,348
Property, plant and equipment, net.......................... 41,991,383 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.............. 346,234,719 229,004,546 20,767,625
Other intangible assets, net................................ 1,001,278 3,178,469 1,761,306
Deferred charges, net....................................... 9,711,614 1,800,234 3,910,582
Deposits and other assets................................... 1,943,413 931,340 982,876
------------ ------------- ------------
Total assets........................................ $444,100,491 $ 264,928,254 $ 52,810,780
============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................... $ 11,226,300 $ 3,046,883 $ 1,774,256
Accrued compensation...................................... 378,629 422,062 815,162
Accrued interest.......................................... 2,400,228 1,810,292 960,368
Accrued income taxes...................................... 1,268,418 -- 16,840
Current maturities of capital lease obligations........... 124,056 16,056 11,977
Current maturities of long-term debt...................... -- 3,750,000 --
Due to affiliate.......................................... 92,421 536,738 --
------------ ------------- ------------
Total current liabilities........................... 15,490,052 9,582,031 3,578,603
Long-term capital lease obligation.......................... 262,025 49,629 43,130
Long-term debt.............................................. 229,955,145 132,622,467 66,261,339
Noncurrent compensation..................................... 1,022,655 -- 1,482,275
Deferred income taxes....................................... 56,472,630 31,531,580 --
------------ ------------- ------------
Total liabilities................................... 303,202,507 173,785,707 71,365,347
------------ ------------- ------------
Stockholders' equity (deficit):
CAPSTAR PARTNERS:
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, 128,578,160 and 94,155,000 shares issued and
outstanding at March 31, 1997 and December 31, 1996,
respectively............................................ 1,285,782 941,550
Class B Common Stock, convertible into Class A Common
Stock, $.01 par value, 50,000,000 shares authorized,
18,181,818 issued and outstanding at March 31, 1997,
none issued and outstanding at December 31, 1996........ 181,818 -- --
Additional paid-in capital................................ 151,254,380 93,957,450
Accumulated deficit....................................... (11,227,632) (3,756,453)
CAPSTAR RADIO:
Common Stock, $.01 par value, 350,000,000 shares
authorized; 106,757,000 shares issued and outstanding in
1995.................................................... -- -- 1,067,570
Additional paid-in capital................................ -- -- 22,492,943
Accumulated deficit....................................... -- -- (42,115,080)
------------ ------------- ------------
141,494,348 91,142,547 (18,554,567)
Receivables from stockholders............................. (596,364) -- --
------------ ------------- ------------
Total stockholders' equity (deficit)................ 140,897,984 91,142,547 (18,554,567)
------------ ------------- ------------
Total liabilities and stockholders' equity
(deficit)......................................... $444,100,491 $ 264,928,254 $ 52,810,780
============ ============= ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 195
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
----------- ----------------------------------------
THREE MONTHS ENDED PERIOD ENDED
MARCH 31, --------------------------- YEAR ENDED DECEMBER 31,
-------------------------- DECEMBER 31, OCTOBER 16, -------------------------
1997 1996 1996 1996 1995 1994
------------ ----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Total revenue..................... $ 15,149,894 $ 8,047,568 $11,133,586 $ 34,826,060 $33,652,677 $28,686,381
Less agency commissions........... (1,042,534) (631,887) (830,271) (2,869,014) (2,857,912) (2,461,478)
------------ ----------- ----------- ------------ ----------- -----------
Net revenue....................... 14,107,360 7,415,681 10,303,315 31,957,046 30,794,765 26,224,903
Operating expenses:
Programming, technical and
news.......................... 2,533,691 1,513,468 1,836,667 5,906,967 5,365,686 4,601,374
Sales and promotion............. 4,015,973 2,421,153 2,935,890 9,303,914 8,796,481 7,325,549
General and administrative...... 2,767,300 1,440,612 1,511,143 6,081,262 4,870,463 4,556,515
Direct programmed music and
entertainment................. 1,039,250 -- -- -- -- --
Corporate expenses................ 1,423,892 465,684 600,532 1,756,797 2,051,181 2,109,741
Depreciation and amortization..... 2,389,250 480,210 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)........... (61,996) 1,094,554 1,343,697 (7,083,372) 5,778,154 3,306,523
Interest expense.................. 6,791,672 2,451,638 5,035,142 8,860,958 7,805,525 3,152,352
Interest income................... 127,621 115,252 34,063 221,806 420,659 266
Other expenses, net............... 100,562 167,594 99,071 1,980,908 48,796 381,550
------------ ----------- ----------- ------------ ----------- -----------
Loss before provision for income
taxes and extraordinary loss.... (6,826,609) (1,409,426) (3,756,453) (17,703,432) (1,655,508) (227,113)
Provision for income taxes........ 46,345 27,000 -- 133,000 140,634 300,000
------------ ----------- ----------- ------------ ----------- -----------
Loss before extraordinary loss.... (6,872,954) (1,436,426) (3,756,453) (17,836,432) (1,796,142) (527,113)
Extraordinary loss on
extinguishment of debt.......... (598,225) -- -- -- (443,521) --
------------ ----------- ----------- ------------ ----------- -----------
Net loss.......................... $ (7,471,179) $(1,436,426) $(3,756,453) $(17,836,432) $(2,239,663) $ (527,113)
============ =========== =========== ============ =========== ===========
Loss per common share:
Loss before extraordinary
loss.......................... $ (.05) $ (.04)
============ ===========
Extraordinary loss.............. $ (.01) $ --
============ ===========
Net loss........................ $ (.06) $ (.04)
============ ===========
Weighted average number of shares
outstanding..................... 123,446,098 93,691,842
</TABLE>
See accompanying notes.
F-7
<PAGE> 196
CAPSTAR BROADCASTING PARTNERS, INC. AND SUBSIDIARIES AND ITS PREDECESSOR
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
PAR VALUE
--------------------------
COMMON TOTAL
STOCK ADDITIONAL RECEIVABLES STOCKHOLDERS'
PAR PAID IN ACCUMULATED FROM EQUITY
VALUE CAPITAL DEFICIT STOCKHOLDERS (DEFICIT)
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR:
Balance at January 1, 1994............................. $ 1,020,597 $ 21,507,651 $(38,348,304) $ -- $(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........................... 1,020,597 20,816,991 (39,875,417) -- (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................................... 46,973 (46,873) -- -- 100
Loss for the year...................................... -- -- (2,239,663) -- (2,239,663)
----------- ------------ ------------ --------- ------------
Balance at December 31, 1995........................... 1,067,570 22,492,943 (42,115,080) -- (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 CAPSTAR RADIO ACQUISITION (NOTE 1):
Recapitalization and acquisition of common shares by
Capstar Partners..................................... 32,112,081 -- -- 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............................ $ 1,067,570 $ 54,125,332 $(59,951,512) $ -- $ (4,758,610)
=========== ============ ============ ========= ============
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
PAR VALUE ADDITIONAL RECEIVABLES STOCKHOLDERS'
------------------------ PAID IN ACCUMULATED FROM EQUITY
CLASS A CLASS B CAPITAL DEFICIT STOCKHOLDERS (DEFICIT)
---------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CAPSTAR PARTNERS:
Balance at inception (October 11, 1996)... $ -- $ -- $ -- $ -- -- $ --
---------- ----------- ------------ ------------ --------- ------------
Issuance of common stock in connection
with the Capstar Radio 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
Repurchase and cancellation of Class A
Common Stock (unaudited)................ (1,750) -- (173,250) -- -- (175,000)
Issuance of Class A Common Stock
(unaudited)............................. 345,982 -- 37,651,998 -- (596,364) 37,401,616
Issuance of Class B Common Stock
(unaudited)............................. -- 181,818 19,818,182 -- -- 20,000,000
Net loss for the period (unaudited)....... -- -- -- (7,471,179) -- (7,471,179)
---------- ----------- ------------ ------------ --------- ------------
Balance at March 31, 1997 (unaudited)..... $1,285,782 $ 181,818 $151,254,380 $(11,227,632) $(596,364) $140,897,984
========== =========== ============ ============ ========= ============
</TABLE>
See accompanying notes.
F-8
<PAGE> 197
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
------------ -----------------------------------------
THREE MONTHS ENDED PERIOD ENDED
MARCH 31, ---------------------------- YEAR ENDED DECEMBER 31,
---------------------------- DECEMBER 31, OCTOBER 16, --------------------------
1997 1996 1996 1996 1995 1994
------------- ------------ ------------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................... $ (7,471,179) $ (1,436,426) $ (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....... 598,225 -- -- -- 443,521 --
Depreciation and amortization........ 2,389,250 480,210 1,331,386 2,157,750 2,311,162 2,365,111
Noncash interest..................... 2,866,098 998,244 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............... 136,013 104,981 104,838 488,320 556,137 468,155
(Gain) loss on disposition of
assets............................. -- (44,864) -- -- 9,819 335,736
Net barter income.................... (47,953) -- -- (222,645) (184,300) (122,163)
Initial public offering and pending
merger expenses.................... -- -- -- 1,909,648 -- --
Write off of financing related
costs.............................. 1,014,000 -- -- -- -- --
Changes in assets and liabilities,
net of amounts acquired:
Increase in accounts receivable.... 735,840 1,137,320 (1,057,861) (2,351,753) (1,847,015) (1,509,195)
(Increase) decrease in prepaid
expenses and other current
assets........................... (739,337) (153,096) 91,280 (208,462) (88,787) (267,196)
Increase (decrease) in accounts
payable and accrued expenses..... 864,028 (159,141) 341,308 (337,896) (158,855) 326,251
(Decrease) increase in accrued
compensation..................... (43,794) (457,120) 110,127 (496,177) (230,645) 197,881
(Decrease) increase in accrued
interest......................... 551,757 1,452,360 (902,248) 1,752,172 582,525 351,639
(Decrease) increase in accrued
income taxes..................... -- (31,908) -- 20,952 (277,135) 261,541
Increase in due to affiliate....... (444,317) -- 536,738 -- -- --
------------- ------------ ------------- ------------ ------------ -----------
Total adjustments.............. 7,879,810 3,326,986 3,707,307 19,826,058 3,484,344 4,587,760
------------- ------------ ------------- ------------ ------------ -----------
Net cash provided by operating
activities........................... 408,631 1,890,560 (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............................ (916,350) (124,192) (807,532) (448,677) (320,980) (623,414)
Acquisition of Capstar Radio........... -- -- (125,494,171) -- -- --
Payments for acquisitions.............. (114,907,739) (14,400,000) -- (31,900,000) (3,100,000) --
Deferred acquisition costs incurred.... -- -- (1,070,262) (1,326,673) (417,020) (172,558)
Deposits on pending acquisitions....... (90,000) (915,000) -- (745,000) (525,000) --
Loans to employees..................... -- -- -- -- (315,863) (57,500)
Loan to Emerald City................... (13,475,000) -- -- -- -- --
Other investing activities, net........ -- (358,943) -- (187,528) 87,528 --
------------- ------------ ------------- ------------ ------------ -----------
Net cash used in investing
activities........................... (129,389,089) (15,798,135) (127,371,965) (34,357,503) (4,408,347) (50,454)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Capstar Radio
Notes and warrants................... -- -- -- -- 64,956,422 --
Proceeds from Existing Credit
Facility............................. -- 8,500,000 6,000,000 18,700,000 -- --
Proceeds from Existing Term Loan
Facility............................. -- -- 35,000,000 -- -- --
Proceeds from debt issuance............ 150,283,580 -- -- -- -- --
Net proceeds from issuance of preferred
stock................................ -- -- -- 9,822,520 -- --
Proceeds from issuance of common
stock................................ 55,601,616 -- 94,155,000 -- 100 --
Payment of initial public offering and
merger expenses...................... -- -- -- (1,007,297) -- --
Repayment of amounts borrowed.......... (59,700,000) -- -- -- (39,014,833) (2,738,166)
Payment of financing related costs..... (8,925,380) (393,734) (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............. (175,000) -- -- -- (25,000) --
Principal payments on capital leases... (107,817) (3,455) -- (9,812) (11,186) (12,389)
------------- ------------ ------------- ------------ ------------ -----------
Net cash provided by (used in)
financing activities................. 136,976,999 8,102,811 132,449,125 26,724,241 12,012,906 (2,854,800)
------------- ------------ ------------- ------------ ------------ -----------
Net (decrease) increase in cash and
short-term cash investments.......... 7,996,541 (5,804,764) 5,028,014 (5,643,636) 8,849,240 1,155,393
Cash and short-term cash investments at
beginning of period.................. 5,028,014 10,891,489 -- 10,891,489 2,042,249 886,856
------------- ------------ ------------- ------------ ------------ -----------
Cash and short-term cash investments at
end of period........................ $ 13,024,555 $ 5,086,725 $ 5,028,014 $ 5,247,853 $ 10,891,489 $ 2,042,249
============= ============ ============= ============ ============ ===========
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest................. $ 337,097 $ 46,738 $ 3,529,651 $ 3,793,117 $ 4,474,789 $ 2,580,522
Cash paid for income taxes............. 164,386 58,908 -- 112,049 417,769 38,209
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Asset acquisitions recorded in
connection with barter
transactions......................... $ 76,400 $ 35,599 $ -- $ 189,982 $ 112,636 $ 144,500
</TABLE>
See accompanying notes.
F-9
<PAGE> 198
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CAPSTAR RADIO ACQUISITION AND
BASIS OF PRESENTATION
The financial statements and following notes, insofar as they are
applicable to the three-month periods ended March 31, 1997 and 1996, and
transactions subsequent to February 14, 1997, the date of the Report of
Independent Accountants, are not covered by the Report of Independent
Accountants. In the opinion of management, all adjustments, consisting of only
normal recurring accruals considered necessary for a fair presentation of the
unaudited consolidated results of operations for the three-month periods ended
March 31, 1997 and 1996, have been included.
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, Capstar Radio Broadcasting Partners, Inc. and
Subsidiaries ("Capstar Radio") , the Company's predecessor, and formerly known
as Commodore Media, Inc. 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. Capstar Radio 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 Partners and its wholly-owned subsidiary, Capstar Radio, since October
16, 1996, the date of the Capstar Radio Acquisition. The Company had no
substantive operations until its acquisition of Capstar Radio and Capstar Radio
is considered the Company's predecessor for financial reporting purposes. The
accompanying consolidated financial statements include the results of operations
of Capstar Radio 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 Capstar Radio prior to the acquisition by the Company have not
been adjusted to give effect to the Capstar Radio Acquisition. All intercompany
accounts and transactions have been eliminated in consolidation.
Capstar Radio Acquisition
On October 16, 1996, the Company acquired Capstar Radio pursuant to a
merger agreement dated June 21, 1996 (the "Capstar Radio 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 Capstar Radio 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.
F-10
<PAGE> 199
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Capstar Radio Class A Common
Stock and Class B Common Stock (collectively, the "Capstar Radio 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.
Capstar Radio 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 Capstar Radio Acquisition.
As a result of the Capstar Radio Acquisition and the change of control
effected thereby, Capstar Radio 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, Capstar Radio was
required to make an offer to purchase the outstanding 13 1/4% Senior
Subordinated Notes due 2003 ("Capstar Radio 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, Capstar Radio did not proceed with its
previously announced intention to undertake an initial public equity offering
and has, therefore, withdrawn 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 Capstar Radio 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 Capstar Radio invest their excess cash in U.S.
Treasury Bills.
Income Taxes
The Company and Capstar Radio 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.
F-11
<PAGE> 200
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 Capstar
Radio to concentration of credit risk consist primarily of trade receivables.
The Company's and Capstar Radio's revenue is principally derived from local
broadcast advertisers who are impacted by the local economy.
The Company and Capstar Radio 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
Capstar Radio 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.
F-12
<PAGE> 201
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Capstar Radio 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 Capstar Radio Notes and associated warrants at December 31,
1996 were $930 per unit and $105 per warrant, respectively based on published
market prices.
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 Capstar Radio 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 Capstar Radio recognize revenue upon the airing of
advertisements.
F-13
<PAGE> 202
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Capstar Radio consider operating
results, trends and prospects of the Company's and Capstar Radio's stations, as
well as competitive comparisons. The Company and Capstar Radio also take into
consideration recent acquisition patterns within the broadcast 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
Capstar Radio.
Advertising Costs
The Company and Capstar Radio 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 Capstar Radio.
F-14
<PAGE> 203
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
----------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, OCTOBER 16, -------------------------
1996 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.
Financial Statement Presentation
Certain prior year financial statement items of Capstar Radio have been
reclassified to conform to the current year presentation.
2. THE RECAPITALIZATION TRANSACTION
On April 21, 1995, Capstar Radio completed the offering of the Capstar
Radio 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, Capstar Radio 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. Capstar Radio 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, Capstar Radio's then President and its then Chief
Operating Officer purchased 27,369 shares and 6,319 shares,
F-15
<PAGE> 204
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, of Class A from Capstar Radio. In addition, William A.M. Burden
and Company, an affiliated entity, exercised its option to acquire 27,314 shares
of Class A from Capstar Radio. 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 Capstar Radio 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,
MARCH 31, --------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Land and land improvements................... $ 6,668,092 $ 2,274,510 $ 2,813,139
Buildings.................................... 8,719,560 2,404,538 2,499,399
Furniture, fixtures and equipment............ 6,381,258 1,846,692 2,188,502
Broadcasting and technical equipment......... 20,085,626 5,548,233 5,907,905
Towers and antennas.......................... 8,927,646 3,046,783 3,401,300
Music library................................ 254,400 235,237 250,456
Leasehold improvements....................... 1,683,081 278,614 365,825
Vehicles..................................... 230,277 125,693 147,567
Property held under capital leases........... 430,261 41,399 81,497
----------- ----------- -----------
53,380,201 15,801,699 17,655,590
Less accumulated depreciation and
amortization............................... (11,388,818) (173,338) (9,575,547)
----------- ----------- -----------
Property, plant and equipment, net........... $41,991,383 $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 Capstar Radio. 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 Capstar
Radio.
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 Capstar Radio. Amortization of FCC licenses and
goodwill
F-16
<PAGE> 205
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Capstar Radio.
5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
PREDECESSOR
-----------
DECEMBER 31,
MARCH 31, ---------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <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 $ --
Capstar Radio Notes, $76,808,000 principal,
including unamortized discount of $135,533
at December 31, 1996 and unamortized
discount of $10,546,661 at December 31,
1995, due 2003............................. 77,613,740 76,672,467 66,261,339
Senior Discount Notes, $277,000,000
Principal, including unamortized discount
of 124,658,595 at March 31, 1997, due
2009....................................... $152,341,405 -- --
Former Term Loan Facility.................... -- 35,000,000 --
------------ ------------ -----------
Total debt................................... 229,955,145 136,372,467 66,261,339
Less current maturities...................... -- (3,750,000) --
------------ ------------ -----------
Long-term debt............................... $229,955,145 $132,622,467 $66,261,339
============ ============ ===========
</TABLE>
Former Credit Facility
On March 13, 1996, Capstar Radio entered into a Senior Credit Facility (the
"Former Credit Facility") with AT&T Commercial Finance Corporation ("AT&T")
pursuant to which AT&T will make available to Capstar Radio 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 Capstar Radio (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 Capstar Radio'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, Capstar Radio had additional available borrowings under the revolving and
accounts receivable loans of approximately $9,000,000 and $1,300,000,
respectively. Capstar Radio pays a commitment fee of .25% every six months on
the unused commitment.
Capstar Radio Notes
The Capstar Radio 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 Capstar Radio
Notes may be redeemed at the option of Capstar Radio at any time on or after May
1, 1999 at redemption prices specified in the indenture. The terms of the
Capstar Radio Notes contain various covenants for the benefit of the holders
that, among other things, restrict the ability of Capstar Radio 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 Capstar Radio Notes. Upon an event of default, the trustee
may or upon the request of 25% of the
F-17
<PAGE> 206
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
holders declare the principal and unpaid interest due and payable. The Capstar
Radio Notes, excluding the notes that were held for the benefit of the former
President of Capstar Radio, 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. Capstar Radio 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 Southern
Star 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, Capstar Radio issued the bank a warrant to purchase 4.99% of
the common stock of Capstar Radio, 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 Capstar Radio to
purchase the warrant at any time after January 1, 1997 up until expiration or
upon an initial public offering or a sale of Capstar Radio at a price based upon
(1) the actual proceeds received by Capstar Radio 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. Capstar Radio repurchased the warrant in March 1995 for a
negotiated price of $1,000,000.
In 1995, Capstar Radio wrote off the balance of the unamortized deferred
financing costs on its retired debt of $443,521. Inasmuch as Capstar Radio 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 Capstar Radio 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
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CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the board of directors may determine, including dividend, conversion,
redemption, and liquidation rights and preferences.
Senior Exchangeable Redeemable Preferred Stock
On May 1, 1996, Capstar Radio 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 Capstar Radio, if and when
requested by Capstar Radio, up to an aggregate liquidation value of $12,500,000
of Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per
share, of Capstar Radio in such amounts as Capstar Radio 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), Capstar
Radio 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, Capstar Radio issued to the CIBC Merchant Fund a
warrant to purchase 7,550 shares of Capstar Radio'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 Capstar Radio, converted $7.7 million of outstanding debt and accrued
interest into 10,000 shares of Capstar Radio's newly issued 8.87% cumulative
redeemable preferred stock. Capstar Radio 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, Capstar Radio 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. Capstar Radio provided programming to these stations
under an LMA effective April 1996 until the purchase date. In addition, Capstar
Radio has an option to purchase WHRD-AM in Huntington, West Virginia and
provides programming services to the station under an LMA arrangement.
On May 31, 1996, Capstar Radio 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. Capstar
Radio sold advertising time on these stations under a JSA from February 1996
until the purchase date.
On May 30, 1996, Capstar Radio 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, Capstar Radio 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
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CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Capstar Radio's existing cash and
borrowings under the AT&T Senior Credit Facility. Capstar Radio provided
programming to these stations under LMAs from October 1995 until the purchase
date.
On June 27, 1995, Capstar Radio 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 Capstar Radio Acquisition had been consummated on January
1, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 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.
The Southern Star Acquisition
On February 20, 1997, the Company acquired Southern Star Communications,
Inc., formerly known as Osborn Communications Corporation, ("Southern Star").
The purchase price of the Southern Star Acquisition was approximately $118.8
million (excluding $17.4 million in transaction fees and expenses) payable in
cash and common stock.
The purchase price includes $113.0 million for the eighteen 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 Southern Star 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 Southern Star.
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CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1997, the Company acquired substantially all the assets of Taylor
Communications Corporation ("Taylor") in Tuscaloosa, Alabama. The purchase price
of the Taylor Acquisition was approximately $1.0 million payable in cash.
In April 1997, the Company disposed of substantially all of the assets used
or held for use in connection with the operation of the Company's stations in
the Port Charlotte and Ft. Myers, Florida markets for a sale price of $11.0
million in cash.
In May 1997, the Company acquired all of the outstanding capital stock of
Dixie Broadcasting, Inc. and Radio WBHP, Inc., the owners of three radio
stations (one FM and two AM) in the Huntsville, Alabama market (the "Huntsville
Acquisition"). The purchase price of the acquisition was $24.5 million.
Community Pacific Acquisition
In July 1997, the Company acquired substantially all of the assets of
Community Pacific (the "Community Pacific Acquisition"). The purchase price of
the Community Pacific Acquisition was approximately $35.0 million. Community
Pacific owns and operates twelve 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.
Cavalier Acquisition
In July 1997, the Company acquired substantially all of the assets of
Cavalier (the "Cavalier Acquisition"). The enterprise value of the Cavalier
Acquisition was approximately $8.3 million. Cavalier owns and operates five
radio stations (four FM and one AM) in the Roanoke/Lynchburg, Virginia market.
GulfStar Merger (Unaudited)
In July 1997, Capstar Broadcasting Corporation ("Capstar Broadcasting")
executed an agreement with GulfStar Communications, Inc. ("GulfStar") whereby
Capstar Broadcasting acquired GulfStar through a merger (the "GulfStar Merger").
Capstar Broadcasting will contribute the surviving entity in the GulfStar Merger
through the Company to Capstar Radio.
McForhun and Livingston Acquisitions
In July 1997, the Company acquired substantially all of the assets of
McForhun, Inc. and Livingston Communications, Inc. for approximately $7.1
million and $250,000, respectively.
Unaudited pro forma results of the Company for the aforementioned
acquisitions which were completed during the period ended March 31, 1997 are as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Net revenue................................................. $17,684 $16,534
======= =======
Loss before extraordinary item.............................. 2,641 1,741
======= =======
Net loss.................................................... 3,239 1,741
======= =======
</TABLE>
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
F-21
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CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
affiliate of Hicks Muse, and additional sales of equity to management were used
to finance the Southern Star purchase price and certain other acquisitions and
repay certain existing indebtedness of Southern Star, Capstar Radio and the
Company. Also in February 1997 and in connection with the Southern Star
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") ("Benchmark"). The purchase price of the Benchmark
Acquisition is estimated to be approximately $176,200,000 (including $13.0
million in transaction fees and expenses). Benchmark owns and operates
twenty-eight radio stations (nineteen FM and nine 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 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 August 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).)
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 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.
F-22
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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 seven radio stations (four FM and
three 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 eighteen 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.
F-23
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CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Emerald City Acquisition (Unaudited)
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 August
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
ChannelRadio, 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 (Unaudited)
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.
Ameron Acquisition (Unaudited)
In April 1997, the Company agreed to acquire substantially all of the
assets of Ameron Broadcasting, Inc. used or held for use in the operation of
three radio stations (two FM and one AM) in the Birmingham, Alabama market (the
"Ameron Acquisition"). The purchase price of the Ameron Acquisition will equal
approximately
F-24
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CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$31.5 million payable in cash. FCC approval is pending. The Company anticipates
that the Ameron Acquisition will be consummated in October 1997.
SFX Exchange (Unaudited)
In May 1997, the Company agreed to exchange substantially all of the assets
used or useful in the Company's operation of three radio stations (two FM and
one AM) in the Greenville, South Carolina market for substantially all of the
assets used or useful in SFX's operation of four radio stations (three FM and
one AM) in Wichita, Kansas and Daytona Beach, Florida (the "SFX Exchange"). The
Company anticipates that the SFX Exchange will be consummated in September 1997.
Quass Acquisition (Unaudited)
In June 1997, the Company agreed to acquire all of the outstanding common
stock of Quass (the "Quass Acquisition"). The purchase price of the Quass
Acquisition will equal approximately $14.9 million payable in cash. Quass owns
and operates three radio stations (two FM and one AM) in the Cedar Rapids, Iowa
market. The Company anticipates that the Quass Acquisition will be consummated
in January 1998.
Patterson Acquisition (Unaudited)
In June 1997, the Company entered into an agreement to acquire all of the
outstanding preferred stock, common stock and common stock equivalents of
Patterson (the "Patterson Acquisition"). The purchase price of the Patterson
Acquisition will equal approximately $215.0 million payable in cash. Patterson
owns and operates thirty-nine radio stations (twenty-five FM and fourteen AM) in
the Savannah, Georgia; Allentown and Harrisburg, Pennsylvania; Fresno,
California; Honolulu, Hawaii; Battle Creek and Grand Rapids, Michigan; Reno,
Nevada; Springfield, Illinois; and Pensacola, Florida markets. The Company
anticipates that the Patterson Acquisition will be consummated in February 1998.
Grant Acquisition (Unaudited)
In June 1997, the Company agreed to acquire all of the assets of Grant used
or held for use in the operations of their FM radio station in the Tuscaloosa,
Alabama market (the "Grant Acquisition"). The purchase price of the Grant
Acquisition will equal approximately $3.2 million payable in cash. FCC approval
is pending. The Company anticipates the Grant Acquisition will be consummated in
September 1997.
Knight Quality (Unaudited)
In June 1997, the Company agreed to acquire all of the assets of Knight
Quality. Knight Quality owns and operates eight radio stations (five FM and
three AM) in five markets located in Worcester, Massachusetts, Manchester, New
Hampshire, Burlington, Vermont, Portsmouth, New Hampshire, and York Center, Main
(the "Knight Quality Acquisition"). The purchase price of the Knight Quality
Acquisition will equal approximately $60 million payable in cash. FCC approval
is pending. The Company anticipates the Knight Quality Acquisition will be
consummated in January 1998.
Griffith Acquisition (Unaudited)
In May 1997, the Company agreed to acquire all of the assets of Griffith
Broadcasting, Inc. used or held for use in the operation of stations WTAK-FM,
WXQW-FM and WWXQ-FM which serve the Huntsville, Alabama market (the "Griffith
Acquisition"). The purchase price of the Griffith Acquisition will equal
approximately $5.4 million payable in cash. FCC approval is pending. The Company
anticipates that the Griffith Acquisition will be consummated in September 1997.
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CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Letters of Intent (Unaudited)
The Company has entered into six 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.
7(d) LOCAL MARKETING AND JOINT SALES AGREEMENTS
The Company and Capstar Radio 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, Capstar Radio currently has LMAs or
JSAs with WKAP-AM, Allentown, PA, WPAW-FM, Vero Beach, FL and WHRD-AM in
Huntington, WV. Capstar Radio 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 Capstar Radio have recorded a provision for income taxes as
follows:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------
PERIOD PERIOD
ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, OCTOBER 16, ------------------------
1996 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 Capstar Radio 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, Capstar Radio 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. Capstar Radio 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.
Capstar Radio 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 Capstar Radio for tax purposes is approximately $12.1
million.
F-26
<PAGE> 215
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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 Capstar Radio Notes........... 54,000 959,200
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..................... 23,716,543 15,287,960
Deferred tax liabilities:
Intangibles........................................... (52,180,900) --
Depreciation.......................................... (848,080) (537,260)
Unamortized premium on Capstar Radio Notes............ -- --
Other................................................. -- (4,800)
------------ ------------
Total deferred tax liabilities................ (53,028,980) (542,060)
------------ ------------
Net deferred tax (liability) asset...................... (29,312,437) 14,745,900
Less valuation allowance................................ (2,219,143) (14,745,900)
------------ ------------
Net deferred tax liability, net of allowance............ $(31,531,580) $ --
============ ============
</TABLE>
The Company and Capstar Radio have provided valuation allowances equivalent
to their net deferred tax assets in 1995, 1994 and 1993 as the historical
results of the Company and Capstar Radio make the realization of taxable income
in the future years uncertain. During 1996, the Company and Capstar Radio 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 Capstar Radio, the utilization of
F-27
<PAGE> 216
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
net operating losses of Capstar Radio incurred through the date of acquisition,
approximately $49.2 million, are limited under Section 382 of the Internal
Revenue Code. Capstar Radio 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.
The increase in the net deferred tax liability, net of allowance, from
December 31, 1996 to March 31, 1997 relates primarily to the net tax effect of
temporary differences associated with the recording of the Osborn and Space
Coast Acquisitions (unaudited).
9. COMMITMENTS
Lease Commitments
The principal types of property leased by the Company and its subsidiaries
and Capstar Radio 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 Capstar Radio.
The minimum rental commitments of the Company, under all noncancellable
operating leases, are set forth below:
<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
Capstar Radio entered into a separation agreement with its former President
effective December 31, 1993, under which Capstar Radio 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 Capstar Radio. The
agreements generally provide for terms of employment, annual salaries, bonuses,
eligibility for option awards and severance benefits.
Effective January 1, 1994, Capstar Radio 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
F-28
<PAGE> 217
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$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, Capstar Radio paid the
then President $1.5 million in cash, issued $1.3 million principal ($1.1 million
net of discount) of Capstar Radio's Capstar Radio 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. Capstar Radio 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 Capstar
Radio.
Capstar Radio 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. Capstar Radio
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 Capstar
Radio.
As a result of the merger and the change of control effected thereby,
Capstar Radio 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. Capstar Radio'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.
F-29
<PAGE> 218
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Capstar Radio Acquisition.
Registration Rights Agreement (Unaudited)
Frank D. Osborn entered into a registration rights agreement with the
Company upon consummation of the Southern Star 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).
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.
F-30
<PAGE> 219
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-31
<PAGE> 220
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the period ended October 16, 1996 and the year ended December 31,
1995, Capstar Radio 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 Capstar Radio
$117,500 as of December 31, 1994, which was reflected in other current assets.
On April 10, 1992, Capstar Radio 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.
Capstar Radio repaid the outstanding balance of the note and redeemed the
preferred stock on April 21, 1995.
During May 1995, Capstar Radio 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 Capstar Radio 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, Capstar Radio 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.
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, Capstar Radio 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.
F-32
<PAGE> 221
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Capstar Radio 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, Capstar Radio'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.
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
F-33
<PAGE> 222
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-34
<PAGE> 223
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the stock options and warrants granted from
May 1, 1996 through May 27, 1997.
<TABLE>
<CAPTION>
OPTIONS
NUMBER
DATE OPTION PRICE OF SHARES
-------- ------------ ---------
<S> <C> <C> <C>
Nonqualified
11/26/96 $1.00 841,760
---------
Total issued as of 12/31/96..................... 841,760
2/20/97(unaudited) $1.10 2,686,365
3/31/97(unaudited) $1.00 (420,880)
---------
3,107,245
=========
Incentive
10/16/96 $1.00 685,140
11/18/96 $1.00 856,350
11/26/96 $1.00 1,354,180
---------
Total issued as of 12/31/96..................... 2,895,670
1/03/97 $1.00 (75,000)
2/03/97 $1.00 27,400
2/20/97(unaudited) $1.10 1,693,635
3/31/97(unaudited) $1.00 (300,000)
4/24/97(unaudited) $1.00 65,360
---------
4,307,065
=========
</TABLE>
<TABLE>
<CAPTION>
WARRANTS
EXERCISE NUMBER
DATE PRICE OF WARRANTS
-------- -------- -----------
<S> <C> <C> <C>
10/16/96 $1.00 7,440,000
</TABLE>
13. DEFINED CONTRIBUTION PLAN
During 1995, Capstar Radio 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. Capstar Radio 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
Capstar Radio is involved in various legal proceedings from time to time in
the normal course of business. In management's opinion, the litigation in which
Capstar Radio is currently involved, individually and in the aggregate, is not
material to Capstar Radio's financial condition or results of operations.
F-35
<PAGE> 224
CAPSTAR BROADCASTING PARTNERS, INC. AND
SUBSIDIARIES AND ITS PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS (UNAUDITED)
Stockholder's Equity
On February 20, 1997, the Company issued 31,634,527 shares of Class A
Common Stock and 18,181,818 shares of Class B Common Stock (as defined) to
affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") at a
purchase price of $1.10 per share. The proceeds were used in part to fund the
Southern Star Acquisition and retire existing indebtedness of Capstar Radio and
Southern Star. In addition, on February 20, 1997 the Company exchanged 1,636,361
shares of Class A Common Stock having a deemed value of $1.8 million for shares
of common stock of Southern Star as part of the purchase price of the Southern
Star Acquisition and contributed its interest in Southern Star to Capstar Radio.
Additionally, during the three months ended March 31, 1997, the Company issued
1,327,272 shares of Class A Common Stock to related parties in exchange for cash
and receivables totaling $1.4 million.
Extraordinary Item
On February 20, 1997, in connection with the financing of the Southern Star
Acquisition, the Company repaid the outstanding loan balance under the Former
Credit Facility of Capstar Radio with AT&T Commercial Finance Corporation and
recognized an extraordinary loss of $598,000 as a result of a prepayment
penalty. On February 20, 1997, in connection with Capstar's offering of 12 3/4%
Senior Discount Note, the Company repaid its Former Term Loan Facility.
Existing Credit Facility
On February 20, 1997, the Company entered into a credit facility (the
"Existing Credit Facility") with various banks and Bankers Trust Company, as
administrative agent, which consists of a $50,000,000 revolving loan facility.
The indebtedness under the Existing Credit Facility is secured by a first
property perfected pledge of substantially all of Capstar's assets, including,
without limitation, the capital stock of the subsidiaries of Capstar, and is
guaranteed by Capstar and all of the direct and indirect subsidiaries of Capstar
(other than the Company). Borrowings under the Existing Credit Facility bear
interest at floating rates and require interest payments on varying dates
depending on the interest rate option selected by the Company. All loans
outstanding under the Existing Credit Facility will mature in 2002.
Private Placement Financings
In June 1997, the Company commenced a private placement of $100,000,000
senior exchangeable preferred stock and Capstar Radio commenced a private
placement of $200,000,000 senior subordinated notes, the proceeds of which will
be held in escrow to finance future acquisitions.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997.
F-36
<PAGE> 225
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Southern Star Communications, Inc.
We have audited the accompanying consolidated balance sheets of Southern
Star Communications Inc., formerly known as 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
Southern Star Communications, Inc. 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-37
<PAGE> 226
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS 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 $468,597 in 1996 and $518,157 in 1995............... 5,032,903 5,759,562
Inventory................................................. 1,095,157 889,942
Prepaid expenses and other current assets................. 1,018,701 1,525,308
Assets held for sale...................................... 7,539,190 --
----------- ------------
Total current assets.............................. 17,630,156 21,169,591
Investment in affiliated companies.......................... 512,088 524,084
Property, plant and equipment, at cost, less accumulated
depreciation of $15,894,081 in 1996 and $18,624,021 in
1995...................................................... 11,676,395 15,358,070
Intangible assets, net of accumulated amortization of
$15,437,481 in 1996 and $15,238,193 in 1995............... 26,711,629 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-38
<PAGE> 227
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS 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
Other........................................... 1,200,000 -- --
----------- ------------ ------------
Total operating expenses................ 36,629,584 37,290,135 33,667,300
Operating income.................................. 585,464 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........................................ 13,521,760 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-39
<PAGE> 228
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS 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-40
<PAGE> 229
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS 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................................................ (13,521,760) (8,094,993) --
Other operating expenses.................................. 1,200,000 -- --
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-41
<PAGE> 230
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF BUSINESS AND ORGANIZATION
Southern Star Communications, Inc. (the "Company" or "Southern Star"),
formerly known as Osborn Communications Corporation, 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, Southern Star entered into an agreement and plan of
merger with a subsidiary of Capstar Radio Broadcasting Partners, Inc. ("Capstar
Radio") whereby Capstar Radio will acquire all of Southern Star's common stock
for $15.375 per share. A majority of the holders of the Southern Star's common
stock voted to approve the merger in December 1996 and the Federal
Communications Commission ("FCC") approved the transfer of Southern Star's
broadcast licenses to Capstar Radio 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 Capstar Radio to Southern Star for
Capstar Radio's failure to consummate the merger, Capstar Radio has deposited in
an escrow account an irrevocable letter of credit in favor of Southern Star for
the sum of $5.0 million. If Southern Star terminates the merger agreement by
reason of receiving an alternative proposal which is deemed more favorable to
Southern Star's stockholders, Southern Star must pay a termination fee of
$3,750,000 to Capstar Radio.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Southern Star 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.
Change of Name
The Company changed its name from Osborn Communications Corporation to
Southern Star Communications, Inc. in May 1997.
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
F-42
<PAGE> 231
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $34.7 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 Southern Star's acquisitions, and
is being amortized on a straight-line basis principally over a 40-year period.
It is Southern Star'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 Southern Star and its subsidiaries, management assesses the carrying
value of the intangible assets, if facts and circumstances suggest 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, Southern Star 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 Southern Star's entertainment
properties, sound equipment held for resale by Southern Star's Muzak franchises
and equipment held for resale by Southern Star'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 Southern Star to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
F-43
<PAGE> 232
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, Southern Star 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, Southern Star 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, Southern Star 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. Southern Star programmed
WBBD-AM/WKWK-FM pursuant to a local marketing agreement ("LMA") from March 1996
through the closing of the acquisition. In October 1996, Southern Star acquired
substantially all the assets of radio station WEGW-FM, Wheeling, West Virginia,
for $0.8 million. Southern Star already owned radio stations WWVA-AM/WOVK-FM in
Wheeling, West Virginia.
In April 1996, Southern Star 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 Southern Star'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 Southern Star
pursuant to an LMA since September 1995. Southern Star 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. Southern Star plans to dispose of
radio stations WOLZ-FM/WFSN-FM/ WKII-AM in 1997 (see Pending Transactions
below).
In May 1996, Southern Star 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 Southern Star's common stock.
Pending the closing of the acquisition, the stations were programmed by Southern
Star since January 1996 pursuant to an LMA. In December 1996, Southern Star 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, Southern Star 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, Southern Star 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, Southern Star 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.
F-44
<PAGE> 233
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1996, Southern Star 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, Southern Star 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 Southern
Star's consolidated results of operations from the respective dates of
acquisition and until the date of disposition for properties disposed.
1995
In December 1995, Southern Star 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, Southern Star received a nonrefundable cash payment of $10.0 million.
Because the cash proceeds from the option are nonrefundable, Southern Star
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, Southern Star 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, Southern Star 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 Southern Star. 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, Southern Star 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, Southern Star 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, Southern Star, 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, Southern Star acquired substantially all the assets of
radio station WYNU-FM, Jackson/ Milan, Tennessee for $3.6 million plus
transaction costs. Southern Star already owns one FM and one AM radio station in
the market.
F-45
<PAGE> 234
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1996, Southern Star 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, Southern Star 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, Southern Star is
managing the stations pursuant to an LMA.
In November 1996, Southern Star 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, Southern Star 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, Southern Star acquired, for $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. Southern Star's net investment is included in investment in affiliated
companies on the consolidated balance sheet.
In 1989, Southern Star acquired a 32% ownership interest in Northstar
Television Group, Inc. ("Northstar") for $329,000. From Northstar's inception
through May 1994, Southern Star 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, Southern Star 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 interest. Southern Star's management
agreement terminated following the restructuring. In 1995, three of Northstar's
four television stations were sold and Southern Star 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, Southern Star 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. Southern Star 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, Southern Star
receives an annual fee of $125,000, plus reimbursement of out-of-pocket expenses
and allocated overhead costs. In 1994, Southern Star received additional
management fees of $728,000 related to the sale of Fairmont's stations. Southern
Star 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.
F-46
<PAGE> 235
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Southern Star'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. Southern Star plans to focus resources on only the
more profitable product lines. In conjunction with these plans, Southern Star
has combined the Osborn Healthcare operations and Southern Star's programmed
music operations, terminating certain employees of the Osborn Healthcare
operations, and consolidating certain overhead. In the second quarter of 1996,
Southern Star accrued costs of approximately $300,000, principally severance
costs, in connection with the consolidation of operations. In addition, Southern
Star 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 operating expenses 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-47
<PAGE> 236
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS 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, Southern Star 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 Southern Star'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 Southern Star 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 Southern Star and its subsidiaries, as
well as the stock of those subsidiaries. At December 31, 1996, Southern
Star 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. Southern Star pays an annual commitment fee of 0.5% of the unused
commitment.
(B) The term loan contained covenants with respect to Southern Star's
wholly-owned subsidiary, Atlantic City Broadcasting Corp., which, among
other things, restricted cash distributions to Southern Star 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
Southern Star and its other assets. In June 1996, Southern Star sold
substantially all the assets of Atlantic City. The net proceeds were used
primarily to repay long-term debt and fund transaction costs.
F-48
<PAGE> 237
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land.................................................... $ 3,095,266 $ 4,256,414
Buildings............................................... 3,967,805 4,168,839
Equipment............................................... 20,507,405 25,556,838
------------ ------------
27,570,476 33,982,091
Less accumulated depreciation........................... (15,894,081) (18,624,021)
------------ ------------
$ 11,676,395 $ 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, Southern Star 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 Southern Star's subsidiary, Osborn
Entertainment Enterprises Corporation.
F-49
<PAGE> 238
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
Southern Star'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 valuation allowance decreased to approximately $5,941,000 from approximately
$9,089,000 during 1996.
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-50
<PAGE> 239
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS
Southern Star 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
Southern Star 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 Southern Star. 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, Southern Star adopted a non-qualified deferred compensation plan
available to certain management employees.
12. STOCK OPTION PLAN
Southern Star'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 Southern Star'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.
F-51
<PAGE> 240
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Southern Star 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, Southern Star'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, Southern Star 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, Southern Star paid $107,000 to repurchase and
subsequently retired 17,843 shares of its common stock at $6.00 per share.
In June 1994, Southern Star 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 Southern Star'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.
F-52
<PAGE> 241
SOUTHERN STAR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OSBORN COMMUNICATIONS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1994, Southern Star 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 Radio Broadcasting Partners, Inc. acquired
all of Southern Star's common stock and Southern Star was merged with Capstar
Radio.
F-53
<PAGE> 242
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
GulfStar Communications, Inc.:
We have audited the accompanying consolidated balance sheets of GulfStar
Communications, Inc. and Subsidiaries (the "Company") 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1996 and 1995 and the consolidated results of
their operations and their 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.
Austin, Texas
April 4, 1997
F-54
<PAGE> 243
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1997 1996 1995
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 5,978,752 $ 4,792,847 $ 220,049
Accounts receivable, net of allowance for doubtful
accounts of $410,910, $328,753 and $136,206,
respectively............................................ 8,232,489 8,336,005 3,560,050
Refundable income taxes................................... 1,111,940 1,111,940 --
Cash held in escrow....................................... -- 2,100,000 10,000
Prepaid expenses and other................................ 423,827 156,306 120,359
------------ ----------- -----------
Total current assets 15,747,008 16,497,098 3,910,458
Property and equipment, net................................. 17,484,782 13,697,163 6,086,683
Intangible assets, net...................................... 79,207,856 60,369,684 33,048,036
Deferred station acquisition costs.......................... 2,696,134 68,144 3,100,776
Deferred financing costs, net............................... 2,271,701 229,528 2,113,617
Other assets................................................ 629,045 468,315 740,587
------------ ----------- -----------
Total assets....................................... $118,036,526 $91,329,932 $49,000,157
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,098,443 $ 2,428,048 $ 1,137,230
Accrued liabilities....................................... 2,288,430 2,739,576 2,142,055
Accrued interest.......................................... 308,964 36,390 513,232
Current portion of long-term debt......................... 213,683 90,667 2,107,390
Current portion of capital lease obligations.............. 123,921 79,594 36,886
------------ ----------- -----------
Total current liabilities.......................... 5,033,441 5,374,275 5,936,793
Long-term debt, net of current portion...................... 82,346,102 54,393,419 35,192,650
Capital lease obligations................................... 342,107 168,457 89,608
Deferred income taxes....................................... 5,597,176 5,702,283 4,460,652
------------ ----------- -----------
Total liabilities.................................. 93,318,826 65,638,434 45,679,703
------------ ----------- -----------
Commitments and contingencies (Notes 13 and 14)
Redeemable preferred stocks, aggregate liquidation
preference of $27,000,000, $27,052,500 and $757,500,
respectively.............................................. 23,080,611 23,097,788 757,500
------------ ----------- -----------
Stockholders' equity:
Common stock, voting, $0.01 par value, 100,000, 100,000
and 2,000,000 shares authorized, 11,342, 10,986 and
10,151 shares issued and outstanding at March 31, 1997
and at December 31, 1996 and 1995, respectively......... 113 109 101
Common stock, Class A, nonvoting, $0.01 par value, 60,000,
60,000 and 600,000 shares authorized, 10,000, 49,033 and
37,500 shares issued and outstanding at March 31, 1997
and at December 31, 1996 and 1995, respectively......... 100 490 375
Common stock, Class B, nonvoting, $0.01 par value, 10,000,
10,000 and 600,000 shares authorized, no shares issued
and outstanding at March 31, 1997 and at December 31,
1996, respectively and 6,081 at December 31, 1995....... -- -- 61
Common stock, Class C, voting, $0.01 par value, 100,000
shares authorized, 42,205 and 3,172 shares issued and
outstanding at March 31, 1997 and at December 31, 1996,
respectively............................................ 421 31 --
Additional paid-in capital................................ 15,006,417 11,871,525 366,091
Stock subscriptions receivable............................ (2,414,365) (2,090,024) (333,525)
Retained earnings (accumulated deficit)................... (8,319,221) (5,670,301) 2,529,851
Unearned compensation..................................... (2,636,376) (1,518,120) --
------------ ----------- -----------
Total stockholders' equity......................... 1,637,089 2,593,710 2,562,954
------------ ----------- -----------
Total liabilities and stockholders' equity..... $118,036,526 $91,329,932 $49,000,157
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-55
<PAGE> 244
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------
1997 1996 1996 1995 1994
----------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross broadcasting revenues....... $12,030,130 $5,082,621 $36,066,561 $17,321,673 $10,639,226
Less agency commissions........... 1,035,526 487,838 3,503,610 1,525,088 805,332
----------- ---------- ----------- ----------- -----------
Net revenues...................... 10,994,604 4,594,783 32,562,951 15,796,585 9,833,894
----------- ---------- ----------- ----------- -----------
Operating expenses:
Programming, technical and
news......................... 2,784,013 1,217,956 7,534,906 2,873,677 2,122,044
Sales and promotion............. 2,720,534 1,313,343 9,871,778 4,638,142 2,470,962
General and administrative...... 2,442,706 1,072,519 6,892,971 4,225,281 2,069,388
Depreciation and amortization... 1,001,150 676,940 2,809,677 1,133,901 711,622
Corporate expenses.............. 517,926 170,765 1,922,744 513,153 338,799
Non-cash compensation expense... 2,469,162 272,644 5,431,880 -- --
----------- ---------- ----------- ----------- -----------
Total operating
expenses.............. 11,935,491 4,724,167 34,463,956 13,384,154 7,712,815
----------- ---------- ----------- ----------- -----------
Gain on sale of broadcasting
property........................ -- -- -- 2,389,567 --
----------- ---------- ----------- ----------- -----------
Income (loss) from operations..... (940,887) (129,384) (1,901,005) 4,801,998 2,121,079
Other expense (income):
Interest expense................ 1,846,320 851,171 4,604,115 2,146,151 964,638
Other........................... (36,256) (4,044) 829,544 53,590 42,344
----------- ---------- ----------- ----------- -----------
Income (loss) before provision
(benefit) for income taxes and
extraordinary loss.............. (2,750,951) (976,511) (7,334,664) 2,602,257 1,114,097
Provision (benefit) for income
taxes........................... (101,892) (190,889) (322,330) 1,032,476 469,526
----------- ---------- ----------- ----------- -----------
Income (loss) before extraordinary
loss............................ (2,649,059) (785,622) (7,012,334) 1,569,781 644,571
Extraordinary charge, net of tax
benefit of $707,535............. -- -- 1,187,818 -- --
----------- ---------- ----------- ----------- -----------
Net income (loss)................. (2,649,059) (785,622) (8,200,152) 1,569,781 644,571
Dividends and accretion on
preferred stocks................ 793,697 -- 1,350,115 7,500 --
----------- ---------- ----------- ----------- -----------
Net income (loss) attributable to
common stock.................... $(3,442,756) $ (785,622) $(9,550,267) $ 1,562,281 $ 644,571
=========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-56
<PAGE> 245
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK
--------------------- --------------------- ---------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994...................... -- $ -- -- $ -- -- $ --
Issuance of voting common stock.............. 10,000 100 -- -- -- --
Issuance of Class A common stock............. -- -- 40,000 400 -- --
Net income................................... -- -- -- -- -- --
------- ----- ------- ------- ------- ---
Balance, December 31, 1994................... 10,000 100 40,000 400 -- --
Shares of Class A common stock contributed to
the Company by a stockholder............... -- -- (2,500) (25) -- --
Issuance of voting common.................... 151 1 -- -- -- --
Issuance of Class B common stock............. -- -- -- -- 6,081 61
Accrued interest on subscriptions
receivable................................. -- -- -- -- -- --
Dividends on preferred stock................. -- -- -- -- -- --
Net income................................... -- -- -- -- -- --
------- ----- ------- ------- ------- ---
Balance, December 31, 1995.................... 10,151 101 37,500 375 6,081 61
Issuance of common stock..................... 4,504 45 -- -- -- --
Issuance of Class A common stock............. -- -- 1,626 16 -- --
Issuance of Class B common stock............. -- -- -- -- 157 1
Issuance of Class C common stock............. -- -- -- -- -- --
Conversion of common stock to Class A common
stock...................................... (10,151) (101) 10,151 101 -- --
Conversion of Class A and B common stock to
common stock............................... 6,482 64 (244) (2) (6,238) (62)
Issuance of preferred stock.................. -- -- -- -- -- --
Accrued interest on subscriptions
receivable................................. -- -- -- -- -- --
Dividends and accretion on preferred
stocks..................................... -- -- -- -- -- --
Unearned compensation -- stock issued for
nonrecourse notes.......................... -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- --
------- ----- ------- ------- ------- ---
Balance, December 31, 1996.................... 10,986 109 49,033 490 -- --
Issuance of common stock (unaudited)......... 356 4 -- -- -- --
Conversion of Class A common stock to Class C
common stock (unaudited)................... -- -- (39,033) (390) -- --
Payment received on subscribed stock
(unaudited)................................ -- -- -- -- -- --
Accrued interest on subscriptions receivable
(unaudited)................................ -- -- -- -- -- --
Dividends and accretion on preferred stocks
(unaudited)................................ -- -- -- -- -- --
Unearned compensation-stock issued for
nonrecourse notes (unaudited).............. -- -- -- -- -- --
Net loss (unaudited)......................... -- -- -- -- -- --
------- ----- ------- ------- ------- ---
Balance, March 31, 1997 (unaudited)........... 11,342 $ 113 10,000 $ 100 0 $ 0
======= ===== ======= ======= ======= ===
<CAPTION>
CLASS C
COMMON STOCK RETAINED
--------------------- ADDITIONAL STOCK EARNINGS
NUMBER OF PAID-IN SUBSCRIPTIONS (ACCUMULATED UNEARNED
SHARES PAR VALUE CAPITAL RECEIVABLE DEFICIT) COMPENSATION
--------- --------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994...................... -- $ -- $ -- $ -- $ 322,999 $ --
Issuance of voting common stock.............. -- -- 300 -- -- --
Issuance of Class A common stock............. -- -- 1,200 -- -- --
Net income................................... -- -- -- -- 644,571 --
------ --- ----------- ----------- ----------- -----------
Balance, December 31, 1994................... -- -- 1,500 -- 967,570 --
Shares of Class A common stock contributed to
the Company by a stockholder............... -- -- 25 -- -- --
Issuance of voting common.................... -- -- 8,530 (4,265) -- --
Issuance of Class B common stock............. -- -- 330,637 (303,861) -- --
Accrued interest on subscriptions
receivable................................. -- -- 25,399 (25,399) -- --
Dividends on preferred stock................. -- -- -- -- (7,500) --
Net income................................... -- -- -- -- 1,569,781 --
------ --- ----------- ----------- ----------- -----------
Balance, December 31, 1995.................... -- -- 366,091 (333,525) 2,529,851 --
Issuance of common stock..................... -- -- 1,378,840 (1,390,385) -- --
Issuance of Class A common stock............. -- -- 183,722 -- -- --
Issuance of Class B common stock............. -- -- 31,399 -- -- --
Issuance of Class C common stock............. 3,172 31 358,405 (297,190) -- --
Conversion of common stock to Class A common
stock...................................... -- -- -- -- -- --
Conversion of Class A and B common stock to
common stock............................... -- -- -- -- -- --
Issuance of preferred stock.................. -- -- 3,884,259 -- -- --
Accrued interest on subscriptions
receivable................................. -- -- 68,924 (68,924) -- --
Dividends and accretion on preferred
stocks..................................... -- -- (1,350,115) -- -- --
Unearned compensation -- stock issued for
nonrecourse notes.......................... -- -- 6,950,000 -- -- (1,518,120)
Net loss..................................... -- -- -- -- (8,200,152) --
------ --- ----------- ----------- ----------- -----------
Balance, December 31, 1996.................... 3,172 31 11,871,525 (2,090,024) (5,670,301) (1,518,120)
Issuance of common stock (unaudited)......... -- -- 299,621 (299,625) -- --
Conversion of Class A common stock to Class C
common stock (unaudited)................... 39,033 390 -- -- -- --
Payment received on subscribed stock
(unaudited)................................ -- -- -- 16,973 -- --
Accrued interest on subscriptions receivable
(unaudited)................................ -- -- 41,689 (41,689) -- --
Dividends and accretion on preferred stocks
(unaudited)................................ -- -- (793,836) -- 139 --
Unearned compensation-stock issued for
nonrecourse notes (unaudited).............. -- -- 3,587,418 -- -- (1,118,256)
Net loss (unaudited)......................... -- -- -- -- (2,649,059) --
------ --- ----------- ----------- ----------- -----------
Balance, March 31, 1997 (unaudited)........... 42,205 $421 $15,006,417 $(2,414,365) $(8,319,221) $(2,636,376)
====== === =========== =========== =========== ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, January 1, 1994...................... $ 322,999
Issuance of voting common stock.............. 400
Issuance of Class A common stock............. 1,600
Net income................................... 644,571
-----------
Balance, December 31, 1994................... 969,570
Shares of Class A common stock contributed to
the Company by a stockholder............... --
Issuance of voting common.................... 4,266
Issuance of Class B common stock............. 26,837
Accrued interest on subscriptions
receivable................................. --
Dividends on preferred stock................. (7,500)
Net income................................... 1,569,781
-----------
Balance, December 31, 1995.................... 2,562,954
Issuance of common stock..................... (11,500)
Issuance of Class A common stock............. 183,738
Issuance of Class B common stock............. 31,400
Issuance of Class C common stock............. 61,246
Conversion of common stock to Class A common
stock...................................... --
Conversion of Class A and B common stock to
common stock............................... --
Issuance of preferred stock.................. 3,884,259
Accrued interest on subscriptions
receivable................................. --
Dividends and accretion on preferred
stocks..................................... (1,350,115)
Unearned compensation -- stock issued for
nonrecourse notes.......................... 5,431,880
Net loss..................................... (8,200,152)
-----------
Balance, December 31, 1996.................... 2,593,710
Issuance of common stock (unaudited)......... --
Conversion of Class A common stock to Class C
common stock (unaudited)................... --
Payment received on subscribed stock
(unaudited)................................ 16,973
Accrued interest on subscriptions receivable
(unaudited)................................ --
Dividends and accretion on preferred stocks
(unaudited)................................ (793,697)
Unearned compensation-stock issued for
nonrecourse notes (unaudited).............. 2,469,162
Net loss (unaudited)......................... (2,649,059)
-----------
Balance, March 31, 1997 (unaudited)........... $ 1,637,089
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-57
<PAGE> 246
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ------------------------------------------
1997 1996 1996 1995 1994
------------ ---------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ (2,649,059) $ (785,622) $ (8,200,152) $ 1,569,781 $ 644,571
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 1,001,150 676,940 2,809,677 1,133,901 711,622
Provision for doubtful accounts.............. 86,614 68,737 555,765 194,572 105,381
Deferred income taxes........................ (105,107) -- 546,754 (63,928) 261,197
Gain (loss) on sale of assets................ -- -- -- (2,389,567) --
Noncash interest expense..................... -- -- 218,264 247,625 204,070
Noncash compensation expense................. 2,469,162 272,644 5,431,880 -- --
Interest expense financed through long-term
borrowing.................................. 54,228 108,440 -- 75,971 41,198
Extraordinary loss........................... -- -- 1,187,818 -- --
Write-off of deferred acquisition costs...... -- -- 104,182 -- --
Other........................................ -- -- -- -- 2,744
Changes in assets and liabilities, net of
affects of acquired businesses:
Accounts receivable........................ 16,902 30,517 (4,272,007) (1,689,985) (479,903)
Refundable income taxes.................... -- (190,889) (1,111,940) -- --
Prepaid expenses and other................. (267,522) (85,582) 18,744 159,791 (22,271)
Accounts payable........................... (329,605) (222,807) 1,181,671 932,228 31,047
Accrued liabilities........................ (178,555) (28,352) (760,928) 1,088,809 333,447
------------ ---------- ------------ ------------ ------------
Net cash provided by (used in) operating
activities............................. 98,208 (155,974) (2,290,272) 1,259,198 1,833,103
------------ ---------- ------------ ------------ ------------
Cash flows from investing activities:
Purchases of broadcasting properties........... (14,735,669) -- (24,118,028) (20,217,242) (9,205,860)
Transfers to escrow accounts for broadcasting
property acquisition......................... -- -- (2,100,000) (10,000) (1,041,000)
Purchases of property, equipment and
intangibles.................................. (763,043) (426,001) (1,669,587) (494,651) (1,192,497)
Payments for pending broadcasting property
acquisitions................................. (2,628,005) -- (172,326) (1,968,203) (91,573)
Proceeds from sale of broadcasting property.... -- -- -- 3,650,000 --
Increase in other assets....................... (160,730) (403,125) (147,037) (608,300) --
------------ ---------- ------------ ------------ ------------
Net cash used in investing activities.... (18,287,447) (829,126) (28,206,978) (19,648,396) (11,530,930)
------------ ---------- ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from term loan........................ -- -- -- 6,000,000 12,708,415
Proceeds from borrowings under revolving debt
facility..................................... 22,300,000 800,000 23,647,309 30,145,561 --
Repayment of term loan......................... -- -- (6,000,000) (17,500,000) (770,750)
Repayment of notes payable and debt assumed in
acquisitions................................. (14,301) -- (7,158,327) -- --
Proceeds from issuance of common and preferred
stocks, net.................................. 16,973 -- 24,862,932 31,103 2,000
Payments for redemption of preferred stock..... (811,014) -- -- -- --
Repayment of capital lease obligations......... (20,113) (7,285) (52,338) (83,595) (30,624)
Payment of financing costs..................... (2,096,401) -- (229,528) (897,000) (1,584,000)
------------ ---------- ------------ ------------ ------------
Net cash provided by financing
activities............................. 19,375,144 792,715 35,070,048 17,696,069 10,325,041
------------ ---------- ------------ ------------ ------------
Net increase (decrease) in cash.................. 1,185,905 (192,385) 4,572,798 (693,129) 627,214
Cash and cash equivalents, at beginning of
period......................................... 4,792,847 220,049 220,049 913,178 285,964
------------ ---------- ------------ ------------ ------------
Cash and cash equivalents, at end of period...... $ 5,978,752 $ 27,664 $ 4,792,847 $ 220,049 $ 913,178
============ ========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-58
<PAGE> 247
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 1997 AND 1996 ARE UNAUDITED)
1. BUSINESS AND ORGANIZATION:
The consolidated financial statements and following notes, insofar as they
are applicable to the three-month periods ended March 31, 1997 and 1996, and
transactions subsequent to April 4, 1997, the date of the Report of Independent
Accountants, are not covered by the Report of Independent Accountants. In the
opinion of management, all adjustments, consisting of only normal recurring
accruals considered necessary for a fair presentation of the unaudited
consolidated results of operations for the three-month periods ended March 31,
1997 and 1996, have been included.
The consolidated results of operations for the three months ended March 31,
1997 are not necessarily indicative of the results to be expected for the entire
year.
GulfStar Communications, Inc. (the "Company") was incorporated as a
Delaware corporation to own and operate radio stations. Effective April 18,
1994, the Company's stockholders contributed to the Company, their interests in
GulfStar Broadcasting L.C., a Texas limited liability company wholly-owned by
the Company's stockholders. For financial reporting purposes, this transaction
was treated in a manner similar to a pooling-of-interests. Consequently, the
historical cost and income statement data of the separate enterprises have been
combined for presentation of the Company's consolidated financial statements for
1994.
At December 31, 1996, the Company operated thirty radio stations that it
owns and twelve radio stations that it manages under time brokerage agreements.
From time to time, the Company enters into time brokerage agreements with radio
stations which it intends to acquire. Under these agreements, the Company is
responsible for fixed, monthly payments for the use of the owners' broadcast
rights and for the operating expenses of the stations. The Company classifies
the payments as interest expense to the extent interest is imputed based on the
purchase price of the radio station. These payments are expensed as incurred.
The radio stations are located in the following markets: Beaumont, Tyler,
Texarkana, Waco, Lufkin, Victoria, Corpus Christi, Lubbock, Killeen, Bryan,
Texas; Baton Rouge, Louisiana; and Fayetteville, Fort Smith, Arkansas. The
Company extends credit to its customers in the ordinary course of business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
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.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flow, the Company
considers highly liquid investments with original maturities of three months or
less to be cash equivalents.
Risks and 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
F-59
<PAGE> 248
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Federal
Communications Commission 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.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Equipment under capital lease obligations is recorded at the
lower of cost or fair market value at the inception of the lease. Depreciation
is determined using the straight-line method over the estimated useful lives of
the various classes of assets, which range from three to twenty years. Leasehold
improvements are amortized over the shorter of their useful lives or the terms
of the related leases. Costs of ordinary repairs and maintenance are charged to
operations as incurred; betterments which increase the value or materially
extend the life of the related asset are capitalized. Upon sale or disposal, the
asset cost and accumulated depreciation and amortization are removed and any
gain or loss is recognized in earnings.
Intangible Assets
FCC licenses represent the excess of cost over the fair values of the
identifiable tangible and other intangible net assets acquired and is being
amortized using the straight-line method over 40 years. Other intangible assets
comprise amounts paid for agreements not to compete, favorable tower and
facility leases and organization costs incurred in the incorporation of the
Company. Other intangibles are being amortized using the straight-line method
over their estimated useful lives ranging from three to 14 years.
The Company evaluates intangible assets for potential impairment by
analyzing the operating results, future cash flows on an undiscounted basis,
trends and prospects of the Company's stations, as well as by comparing them to
their competitors. The Company also takes into consideration recent acquisition
patterns within the broadcast industry, the impact of recently enacted or
potential FCC rules and regulations and any other events or circumstances which
might indicate potential impairment.
Deferred Station Acquisition Costs
Costs incurred by the Company for acquisitions of radio stations expected
to be consummated upon approval by the FCC are included as deferred station
acquisition costs in the accompanying consolidated financial statements. Such
costs are not being amortized and will be included as acquisition costs upon
consummation of the transaction to acquire the station.
Deferred Financing Costs
Costs associated with obtaining debt financing are capitalized and
amortized using the interest method over the term of the related debt.
Stock subscriptions Receivable
Stock subscriptions receivable represent promissory notes issued in
connection with the purchase of capital stock. Capital stock issued in
connection with such promissory notes is reported as issued and outstanding and
included in capital stock and additional paid-in capital in the accompanying
consolidated financial statements in the amount of the related promissory note
plus accrued interest. The promissory notes and related accrued interest
F-60
<PAGE> 249
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
receivable are classified as stock subscriptions receivable and included as a
reduction of consolidated stockholders' equity.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
Advertising Costs
The Company incurs various marketing and promotional costs to add and
maintain listenership. These costs are expensed as incurred and totaled
approximately $2,387,000, $575,000 and $345,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
Concentration of Credit Risk
As of December 31, 1996, the Company had cash deposits with financial
institutions of $3,223,369 in excess of the amount insured by the Federal
Deposit Insurance Corporation. Management believes that credit risk in these
deposits is minimal.
The Company's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast areas.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. Credit
losses have been within management's expectations and adequate allowances for
any uncollectible trade receivables are maintained.
Fair Value of Financial Instruments
The carrying values of cash, receivables, payables, and accrued liabilities
approximate the fair values of these instruments because of their short-term
maturities. The carrying value of the Company's debt also approximates fair
value as interest rates on the Company's existing debt approximates market.
Redeemable preferred stock is not traded in the open market and as such, a
market price is not readily available.
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 the Company are included in accounts payable and accounts receivable,
respectively.
Financial Statement Presentation
Certain prior year financial statement items of Capstar Radio have been
reclassified to conform to the current year presentation.
F-61
<PAGE> 250
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DEPRECIABLE DECEMBER 31,
LIFE MARCH 31, -------------------------
(YEARS) 1997 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Land................................... -- $ 1,273,391 $ 1,203,022 $ 358,958
Building and building improvements..... 5 to 20 3,185,731 2,128,101 994,998
Broadcast and other equipment.......... 3 to 20 16,191,879 13,259,746 6,458,201
Equipment under capital lease
obligations.......................... 3 to 5 605,730 358,944 171,138
----------- ----------- -----------
21,256,731 16,949,813 7,983,295
Less accumulated depreciation and
amortization......................... (3,771,949) (3,252,650) (1,896,612)
----------- ----------- -----------
$17,484,782 $13,697,163 $ 6,086,683
=========== =========== ===========
</TABLE>
Depreciation expense for the three-month periods ended March 31, 1997 and
1996 and the years ended December 31, 1996, 1995 and 1994 was $519,299,
$370,549, $1,361,564, $580,336 and $393,871, respectively.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Noncompete agreements......................... $ 2,735,000 $ 1,335,000 $ 1,085,000
FCC licenses.................................. 78,972,867 61,052,844 32,499,190
Favorable tower and facility leases........... 406,817 406,817 406,817
Organization and start-up costs............... 360,718 360,718 360,718
----------- ----------- -----------
82,475,402 63,155,379 34,351,725
Less accumulated amortization................. (3,267,546) (2,785,695) (1,303,689)
----------- ----------- -----------
$79,207,856 $60,369,684 $33,048,036
=========== =========== ===========
</TABLE>
The significant change in intangible assets between periods is due to
acquisitions of broadcast properties.
Amortization expense for intangible assets for the three-month periods
ended March 31, 1997 and 1996 and the years ended December 31, 1996, 1995 and
1994 was $481,851, $306,391, $1,448,113, $553,565 and $317,751, respectively.
5. DISPOSITIONS OF BROADCASTING PROPERTIES:
Effective June 1, 1992, the Company entered into a broadcast time brokerage
agreement for a period of five years to lease the KLTN-FM station in Port
Arthur, Texas, to another broadcasting company. Under the terms of the
agreement, the time broker had the option to purchase the FCC license and
broadcast facilities for a price which escalated from $3,375,000 to $4,500,000.
On June 16, 1995, the time broker exercised the option to purchase the KLTN-FM
station in Port Arthur, Texas, for cash in the amount of $3,650,000, resulting
in a gain of $2,389,567. In connection with this transaction, the purchaser also
assumed the Company's obligation for a tower lease. The Company recorded time
brokerage revenues prior to the sale of the KLTN-FM station of approximately
$275,000 and $630,000 for the years ended December 31, 1995 and 1994,
respectively.
F-62
<PAGE> 251
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1996, the Company entered into an agreement to exchange KLTX-FM
and $1.3 million in cash, including acquisition costs, for KCKR-FM. The exchange
has been accounted for using the fair values of the assets exchanged plus the
$1.3 million of additional cash, including acquisition costs, and was allocated
to the net assets acquired based upon their estimated fair market values.
6. ACQUISITIONS OF BROADCASTING PROPERTIES:
During the three months ended March 31, 1997 and the years ended December
31, 1996, 1995 and 1994, the Company acquired numerous broadcasting properties,
all of which have been accounted for as purchases and, accordingly, the results
of operations associated with the acquired properties have been included in the
accompanying consolidated financial statements from the dates of acquisition.
Acquisition activity during the periods is as follows:
<TABLE>
<CAPTION>
DATE OF
PROPERTY ACQUIRED ACQUISITION PURCHASE OF COST
----------------- -------------- ------------ -----------
<S> <C> <C> <C>
1997 (Unaudited):
KNCN-FM....................................... January 1997 Assets $ 2,289,873
KFYO-FM, KZII-FM.............................. February 1997 Assets 3,209,375
KTRA-FM, KDAG-FM, KCQL-AM, KKFG-FM............ March 1997 Assets 5,407,469
KKIX-FM, KKZQ-FM.............................. March 1997 Assets 11,478,952
-----------
$22,385,669
===========
</TABLE>
Unaudited proforma results of the Company for the aforementioned
acquisitions which were completed during the three months ended March 31, 1997,
which were accounted for using the purchase method of accounting, and the
aforementioned disposition as if they were purchased or sold on January 1, 1996
are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net revenue................................................. $11,364 $9,118
======= ======
Operating income (loss)..................................... $ (845) $ 551
======= ======
Net loss.................................................... $(2,553) $ (105)
======= ======
</TABLE>
F-63
<PAGE> 252
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DATE OF
PROPERTY ACQUIRED ACQUISITION PURCHASE OF COST
----------------- -------------- ------------ -----------
<S> <C> <C> <C>
1996:
KKAM-AM, KFMX-FM, KRLB-FM, KBRQ-FM,
KIIZ-FM, KLTX-FM, WTAW-AM, KTSR-FM......... April 1996 Common stock $ 1,064,581
WACO-AM, WACO-FM.............................. July 1996 Assets 4,037,165
KRYS-AM, KRYS-FM, KMXR-FM..................... July 1996 Assets 6,305,256
KLUB-FM....................................... July 1996 Assets 315,399
KAFX-FM....................................... August 1996 Assets 728,243
KTYL-FM....................................... August 1996 Assets 2,061,477
KISX-FM....................................... September 1996 Assets 1,551,393
KCKR-FM....................................... September 1996 Assets 1,812,164
KWTX-AM, KWTX-FM.............................. November 1996 Assets 4,171,647
KEZA-FM....................................... December 1996 Assets 6,384,402
-----------
$28,431,727
===========
1995:
WJBO-AM, WLSS-FM.............................. November 1995 Common stock $ 8,025,288
WYNK-AM, WYNK-FM.............................. November 1995 Assets 11,908,067
KKMY-FM....................................... November 1995 Assets 1,586,167
-----------
$21,519,522
===========
1994:
KNUE-FM, KKYR-FM.............................. September 1994 Common stock $ 9,843,679
===========
</TABLE>
F-64
<PAGE> 253
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisitions are summarized in the aggregate by period as follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Consideration:
Cash and notes................. $21,350,000 $25,639,099 $19,628,631 $ 9,361,000
Common stock (2,325 shares).... -- 276,384 -- --
Preferred stock (7,500
shares)..................... -- -- 750,000 --
Acquisition costs.............. 1,035,669 2,045,938 1,140,891 482,679
Exchange of assets............. -- 470,306 -- --
----------- ----------- ----------- -----------
Total.................. $22,385,669 $28,431,727 $21,519,522 $ 9,843,679
=========== =========== =========== ===========
Assets acquired and liabilities
assumed:
Cash........................... $ -- $ 45,104 $ -- $ 637,819
Accounts receivable............ -- 1,059,713 28,297 745,521
Prepaid expenses and other..... -- 54,691 152,296 33,197
Property and equipment......... 3,065,646 7,127,228 3,352,602 817,098
Intangible assets.............. 19,320,023 29,144,077 21,088,284 9,224,333
Other assets................... -- 121,703 -- --
Accounts payable............... -- (109,147) -- --
Accrued liabilities............ -- (881,607) (249,692) (205,723)
Long-term debt................. -- (6,695,064) -- --
Capital lease obligations...... -- (32,559) (44,321) --
Deferred income taxes.......... -- (1,402,412) (2,807,944) (1,408,566)
----------- ----------- ----------- -----------
Total acquisition...... $22,385,669 $28,431,727 $21,519,522 $ 9,843,679
=========== =========== =========== ===========
</TABLE>
The following summarizes the unaudited consolidated pro forma data for the
years ended December 31, 1996 and 1995, as though these acquisitions had
occurred as of the beginning of 1995:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- -------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues..................... $32,562,951 $38,918,951 $15,796,585 $34,363,585
Income (loss) before
extraordinary
loss........................... $(7,012,334) $(7,936,252) $ 1,569,781 $ (208,043)
Net income (loss)................ $(8,200,152) $(9,124,070) $ 1,569,781 $ (208,043)
</TABLE>
For purposes of the pro forma disclosures, dividends on preferred stock,
used to finance certain of the acquisitions, have been included in the pro forma
amounts as interest expense.
F-65
<PAGE> 254
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Term loan from a bank, bearing variable
interest as indicated below, interest
payments are due quarterly on prime rate
based loans or at the earlier of the
expiration of the applicable London
Interbank Offered Rate (LIBOR) period, or
in the case of a six-month LIBOR rate,
quarterly, principal due September 30,
1997, collateralized by substantially all
assets of the Company and common stock of
one of the Company's subsidiaries......... $ -- $ -- $ 6,000,000
Reducing revolver loan from a bank expiring
December 31, 1996, bearing variable
interest as indicated below (8.7% at
December 31, 1996), interest payments are
due quarterly on prime rate based loans or
at the earlier of the expiration of the
applicable LIBOR period, or in the case of
a six-month LIBOR rate, quarterly,
collateralized by substantially all assets
of the Company and common stock of one of
the Company's subsidiaries................ 76,093,620 53,793,620 30,146,311
Note payable in connection with acquisition,
9.5%, principal and interest payable at
date of closing........................... 5,820,666 -- --
Note payable to a stockholder, bearing interest
at 6.87%, interest accretes into the note
quarterly, principal and interest due
January 1, 2002, collateralized by certain
assets of the Company..................... -- -- 1,153,729
Note payable, 8%, principal and interest
payable monthly through November 2008,
collateralized by certain assets of the
Company................................... 570,667 573,325 --
Other notes payable at various interest
rates..................................... 74,832 117,141 --
----------- ----------- -----------
82,559,785 54,484,086 37,300,040
Less current portion, as adjusted for
refinancing subsequent to December 31,
1996...................................... (213,683) (90,667) (2,107,390)
----------- ----------- -----------
$82,346,102 $54,393,419 $35,192,650
=========== =========== ===========
</TABLE>
Interest on the term loan and reducing revolver loan is calculated at the
Company's option of (1) the bank's prime rate plus a margin of 2% or (2) a one,
two, three, or six-month LIBOR rate plus a margin of 3.25%.
During 1996, the Company significantly modified the terms of its existing
reducing revolver loan and accelerated the maturity date from March 31, 2003 to
December 31, 1996. In connection with this modification, the Company recognized
an extraordinary charge in 1996 relating to the write off of approximately
$1,895,000 of unamortized deferred financing costs.
F-66
<PAGE> 255
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to December 31, 1996, the Company entered into a financing
agreement with a syndicate of banks that permits the Company to borrow at any
time through March 31, 1998 up to $100,000,000 at variable rates (depending on
the Company's leverage ratio) ranging from the lesser of the bank's prime rate
plus .25% or LIBOR plus 1.5% to the lesser of the bank's prime rate plus 1.625%
or LIBOR plus 2.875%. The Company must pay an annual commitment fee of one-half
percent of the unused commitment. Borrowings under the financing agreement
mature ratably on a quarterly basis beginning June 30, 1998 and finishing June
30, 2004. Among other things, the agreement limits the level of capital
expenditures and operating leases and places the maintenance of certain leverage
ratios based on pro forma operating cash flow. In January 1997, the Company
borrowed amounts under the agreement sufficient to replace the reducing revolver
loan, and accordingly, amounts outstanding under the reducing revolver loan at
December 31, 1996 have been classified as long-term in the accompanying
consolidated financial statements.
Scheduled debt maturities for each of the next five calendar years and
thereafter are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 90,667
1998........................................................ 79,733
1999........................................................ 43,267
2000........................................................ 38,745
2001........................................................ 6,334,709
Thereafter.................................................. 47,896,965
-----------
$54,484,086
===========
</TABLE>
The reducing revolver loan contains certain covenants, including, among
others, limitations on the incurrence of additional debt, requirements to
maintain certain financial ratios, and restrictions on the payment of dividends.
8. REDEEMABLE PREFERRED STOCKS:
The Company has authorized 507,500 shares of $.01 par value per share
preferred stock. During 1995, 7,500 shares were designated 6% redeemable
convertible preferred shares and issued in connection with the acquisition of
broadcast properties. During 1996, 500,000 shares were designated 12% redeemable
preferred shares and issued for cash. The relevant preferences and terms of each
designation are described below.
6% Redeemable Convertible Preferred Stock
Holders of the Company's 6% redeemable convertible preferred stock are
entitled to receive annual cumulative dividends on October 31 of each year equal
to 6% of the liquidation value of $100 per share prior and in preference to any
dividend on common stock. Dividends are payable when and as declared by the
Company. Interest accrues on unpaid dividends at a rate of 5% per annum. Holders
are also entitled to a liquidation preference of $100 per share plus unpaid
dividends and interest. Holders may convert their shares into common shares of
the Company at any time. The conversion ratio is calculated by dividing the
liquidation value of $100 per share by the then fair market value per share of
the Company's common stock. The Company may at its option convert the preferred
shares to common shares upon the occurrence of certain events. Preferences of
the 6% redeemable convertible preferred stock are subordinate to those of the
Company's 12% redeemable preferred shares.
The Company may at its option any time after October 31, 1999, redeem the
6% redeemable convertible preferred shares for $100 per share. The Company has
also entered into a Put Rights Agreement whereby the Company has agreed to
redeem the shares at any time through October 31, 1999 upon notice of the
current holders at a rate of $100 per share plus unpaid dividends and accrued
interest.
F-67
<PAGE> 256
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The liquidation preference of the 6% redeemable convertible preferred
shares at December 31, 1996 amounted to $802,500 including accrued dividends.
Subsequent to December 31, 1996, the Company redeemed its 6% redeemable
convertible preferred stock for its then liquidation preference of $811,013.
12% Redeemable Preferred Stock
Holders of the Company's 12% redeemable preferred stock are entitled to
receive quarterly cumulative dividends equal to 12% of the liquidation value of
$50 per share per annum prior and in preference to any dividend on common stock
or other preferred shares. Dividends are payable when and as declared by the
Company. No interest accrues with respect to unpaid dividends. Any dividends due
on or before July 31, 2001 which are not declared and paid shall be added to the
liquidation preference and shall be deemed paid and not accumulate. Holders are
also entitled to a liquidation preference of $50 per share plus unpaid
dividends. Preferences of the 12% redeemable preferred stock are senior to those
of any other shares of capital stock of the Company.
The Company is required to redeem the preferred shares on July 31, 2006, at
the then liquidation preference of $50 per share plus unpaid dividends. The
Company may at its option redeem the preferred shares at any time at $50 per
share plus (1) a 6% premium through July 31, 1998; (2) a 4% premium through July
31, 2000, and (3) no premium thereafter, in all cases plus unpaid dividends.
The liquidation preference of the 12% redeemable preferred shares at
December 31, 1996 amounted to $26,250,000 including accrued dividends.
The preferred stock agreement contains certain restrictions which limit the
incurrence of additional debt, prohibit certain transactions and restrict
certain payments under certain conditions.
In connection with issuance of the 12% redeemable preferred shares, the
Company granted, to the holders of the preferred shares, warrants for the
purchase of 8,098 shares of the Company's common stock at a rate of $.01 per
share. Such warrants may be exercised at any time during the earlier to occur of
(1) the period beginning on January 31, 2003 and ending on July 31, 2003 or (2)
in the event of a sale of the Company or initial public offering of the
Company's capital stock.
Of the proceeds received from issuance of the preferred shares, $4,009,827
was assigned to the warrants and credited to additional paid-in capital in the
accompanying consolidated financial statements. Such value is being accreted to
redeemable preferred stock using the interest method over the period from
issuance to mandatory redemption.
9. COMMON STOCK
The Common Stock has one vote per share; the Class A and Class B Common
Stock have no voting rights; and the Class C Common Stock has ten votes per
share. The Common Stock may be converted at any time into shares of Class B
Common Stock. The Class B and Class C Common Stock may be converted at any time
into shares of Common Stock. The Class A Common Stock may be converted at any
time into shares of Common Stock or Class C Common Stock. The Company is
required to reserve and keep available out of its authorized but unissued Common
Stock such number of shares that will be deliverable upon the conversion of all
the then outstanding shares of Class A, Class B, Class C or Preferred Stock, and
issue additional shares of Common Stock as may be necessary upon such
conversion.
F-68
<PAGE> 257
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock subscriptions receivable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- --------
<S> <C> <C>
Promissory notes bearing interest at 9% per annum,
compounded annually; principal and accrued interest due
December 30, 2004, with accelerated payments required
under certain conditions; collateralized by certain
shares of stock of the Company........................... $ 277,023 $277,023
Promissory notes bearing interest at 9% per annum,
compounded annually; principal and accrued interest due
September 29, 2000, with accelerated payments required
under certain conditions; collateralized by certain
shares of stock of the Company........................... 31,103 31,103
Promissory notes bearing interest at 9% per annum,
compounded annually; principal and accrued interest due
April 16, 2006, with accelerated payments required under
certain conditions; collateralized by certain shares of
the Company.............................................. 297,190 --
Promissory notes bearing interest at 7.6% per annum,
compounded annually; principal and accrued interest due
October 15, 2006, with accelerated payments required
under certain conditions; collateralized by certain
shares of the Company.................................... 1,390,385 --
Accrued interest receivable related to these promissory
notes.................................................... 94,323 25,399
---------- --------
Total stock subscriptions receivable....................... $2,090,024 $333,525
========== ========
</TABLE>
In connection with these notes, the Company has issued 7,134, 1,101 and 5,131
shares of common stock in 1996, 1995 and 1994, respectively, for prices ranging
from $28 to $309 per share. In each case, the Company received recourse and
nonrecourse notes for 25% and 75% of the purchase price, respectively.
The Company has applied Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for the stock issued.
The compensation cost that has been charged against income for its stock plan
was approximately $5,432,000 for 1996. For certain of the sales to employees
during 1996, compensation expense is considered unearned until the Company's
rights to repurchase the shares expire in accordance with the terms of
underlying securities purchase agreement. Such rights expire five years from the
date of the sale. Unearned compensation totaled $1,518,000 at December 31, 1996.
Had compensation cost for the Company's stock awards been determined based on
the fair value at the grant dates for awards under those plans using Statement
of Financial Accounting Statements ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", the Company's net loss would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<S> <C>
Net loss -- as reported..................................... $8,200,152
Net loss -- pro forma....................................... $3,065,072
</TABLE>
F-69
<PAGE> 258
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES:
All of the Company's revenues were generated in the United States. The
components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
----------- ---------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $(1,111,940) $ 998,605 $189,746
State............................................ 242,856 97,799 18,583
Deferred:
Federal.......................................... 502,889 (58,226) 237,898
State............................................ 43,865 (5,702) 23,299
----------- ---------- --------
Total provision (benefit).......................... $ (322,330) $1,032,476 $469,526
=========== ========== ========
</TABLE>
$707,535 of benefit for income taxes was allocated to an extraordinary
item, loss on early extinguishment of debt, in the consolidated statement of
operations for the year ended December 31, 1996. For purposes of the foregoing
components of provision (benefit) for income taxes, such intra-period allocation
is treated to have affected the deferred components.
Income tax expense (benefit) differs from the amount computed by applying
the federal statutory income tax rate of 34% to income (loss) before income
taxes and extraordinary items for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
----------- ---------- --------
<S> <C> <C> <C>
U.S. federal income tax at statutory rate.......... $(2,493,785) $ 884,767 $378,793
State income taxes, net of federal benefit......... 189,236 60,784 27,642
Nondeductible compensation expense................. 1,846,839 -- --
Other items, primarily nondeductible expenses and
deferred tax adjustments......................... 135,380 86,925 63,091
----------- ---------- --------
$ (322,330) $1,032,476 $469,526
=========== ========== ========
</TABLE>
The net deferred tax liability consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment and intangible basis differences
and related depreciation and amortization.............. $6,727,822 $4,629,610
---------- ----------
Total deferred tax liabilities.................... 6,727,822 4,629,610
---------- ----------
Deferred tax assets:
Miscellaneous............................................. 181,750 168,958
Net operating loss carryforwards.......................... 1,293,977 --
---------- ----------
Total deferred tax assets......................... 1,475,727 168,958
Valuation allowance for deferred tax assets............... (450,188) --
---------- ----------
Net deferred tax assets........................... 1,025,539 168,958
---------- ----------
Net deferred tax liabilities...................... $5,702,283 $4,460,652
========== ==========
</TABLE>
The Company has net operating loss carryforwards for U.S. tax purposes of
$2,205,000, which expire in 2011. Additionally, the Company acquired
approximately $1,200,000 of net operating loss carryforwards in
F-70
<PAGE> 259
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connection with the acquisition of certain subsidiaries. Such net operating loss
carryforwards expire in 2009 and 2010. The acquired net operating loss
carryforwards are SRLY to the acquired subsidiaries which generated the losses.
Due to the level of uncertainty regarding the ability of these subsidiaries to
generate sufficient taxable income to fully utilize these carryforwards, a
valuation allowance has been recorded related to such carryforwards. To the
extent such carryforwards are realized in the future, the recognized benefits
will be allocated to reduce intangible assets related to the acquired
subsidiaries. Management believes that it is more likely than not that the
Company will generate taxable income sufficient to realize the tax benefit
associated with future deductible temporary differences and the non-SRLY NOL
carryforwards prior to their expiration.
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the period for:
Interest........................................ $4,862,693 $1,394,317 $ 643,835
Income taxes.................................... $ 998,989 $ 199,782 $ 56,751
Noncash investing and financing activities:
Liabilities assumed in connection with
acquisition of broadcasting properties....... $9,120,789 $3,101,957 $1,614,289
Issuance of capital stock in connection with
broadcasting property acquisitions........... $ 276,384 $ 750,000 $ --
Note receivable taken in connection with
broadcasting property acquisition............ $ -- $ -- $ 100,000
Financed property and equipment purchases....... $ 88,812 $ -- $ 110,669
Book value of assets exchanged in connection
with broadcast property acquisition.......... $ 470,306 $ -- $ --
Dividends and accretion on preferred stock...... $1,350,115 $ 7,500 $ --
Notes receivable and accrued interest taken in
connection with subscribed stock............. $1,744,999 $ 333,525 $ --
</TABLE>
12. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) Savings Plan (the "Plan"), whereby substantially
all employees with three months of service may contribute a percentage of their
compensation on a tax deferred basis. The Company matches employee contributions
at a rate of 50%, to an annual maximum of $200 per employee. Company expense
under the Plan was $22,283 and $12,528 for the years ended December 31, 1996 and
1995, respectively. No contributions under the Plan were made for the year ended
December 31, 1994.
13. COMMITMENTS:
The Company has acquired, under long-term capital lease obligations,
broadcast and other equipment with capitalized cost of $358,944 and $270,132 at
December 31, 1996 and 1995, respectively. The leases are noncancelable, with
options to purchase the equipment at the expiration of the lease. The capital
lease obligations bear interest at 9.4% to 15.2% with principal and interest due
in monthly installments through 2002.
The Company leases real property, office space, broadcasting equipment and
office equipment under various noncancelable operating leases. Certain of the
Company's leases contain escalation clauses, renewal options and/or purchase
options.
F-71
<PAGE> 260
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under capital and noncancelable operating lease
agreements are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
1997........................................................ $107,132 $1,214,870
1998........................................................ 102,147 916,530
1999........................................................ 79,064 747,625
2000........................................................ 5,633 539,494
2001........................................................ 5,633 292,241
Thereafter.................................................. 469 1,101,400
-------- ----------
Total minimum lease payments................................ 300,078 $4,812,160
==========
Less amounts representing interest.......................... (52,027)
--------
Present value of future minimum lease payments, included as
current ($79,594) and noncurrent ($168,457) capital lease
obligations............................................... $248,051
========
</TABLE>
Rent expense was approximately $500,000, $290,000 and $216,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
14. CONTINGENCIES:
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not have a material
impact on the consolidated financial position or results of operations or cash
flows of the Company.
The Company is partially self-insured for employee medical insurance risks,
subject to specific retention levels. Self-insurance costs are accrued based
upon the aggregate of the estimated liability for reported claims and estimated
liabilities for claims incurred but not reported.
15. RELATED PARTY TRANSACTIONS:
On April 16, 1996, the Company acquired all of the outstanding capital
stock of Sonance Communications, Inc. ("Sonance") in exchange for 542 shares of
the Company's Class C Common Stock, 1,626 shares of the Company's Class A Common
Stock and approximately $619,000 of cash. Total consideration for the
acquisition, including acquisition costs, was approximately $1,065,000. The
primary assets of Sonance include broadcasting properties KKAM-AM, KFMX-FM,
KIIZ-FM, KLTX-FM, WTAW-AM and KTSR-FM. Liabilities of Sonance assumed by the
Company in connection with the acquisition approximated $7,627,000. The
controlling stockholder of the Company is a family member of the controlling
stockholder of Sonance. The majority stockholder of the Company, who is a family
member of both the controlling stockholder of the Company and the controlling
stockholder of Sonance was also the majority stockholder of Sonance.
The Company disbursed $178,500 and $132,624 to an affiliated entity during
the years ended December 31, 1995 and 1994, respectively, related to services
rendered in connection with the acquisition of various radio stations and for
certain administrative expenses.
Broker fees of $125,000 and consulting fees of $60,000 were disbursed to
affiliated entities in connection with the disposal of KLTN-FM on June 16, 1995.
As of December 31, 1996, the Company had made advances to an affiliated
company in the amount of approximately $277,000 which is included in accounts
receivable.
F-72
<PAGE> 261
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded a charge of approximately $771,000 during 1996 in
connection with the write-off of a receivable from an entity owned by a family
member of the controlling stockholder of the Company. The charge is included in
other expense in the accompanying consolidated statement of operations.
16. SUBSEQUENT EVENTS:
As more fully described in Note 7, the Company's borrowing facility was
refinanced subsequent to December 31, 1996.
Subsequent to December 31, 1996, the Company acquired several broadcast
properties (KNCN, KZII, KFYO, KKIX, KKZQ, KTRA, KDAG, KCQL, KKFG) for aggregate
consideration of approximately $22,000,000. The Company previously operated five
of these stations under time brokerage agreements during 1996.
Subsequent to December 31, 1996, the Company entered into other agreements
for acquisition of three additional broadcast properties for aggregate
consideration of approximately $13.7 million. The Company currently operates all
of these broadcast properties under time brokerage agreements.
Subsequent to December 31, 1996, the Company reached an agreement to
dispose of two of its broadcast properties (WTAW-AM and KTSR-FM), previously
acquired through the acquisition of Sonance (Note 15), in exchange for 1,000
shares of the Company's Class C Common Stock. The stockholder to receive the
broadcast properties is a family member of the majority stockholder of the
Company. The related aggregate net assets of the broadcast properties
approximated $800,000 at December 31, 1996. The Company recorded revenues
related to these broadcast properties of approximately $1,703,000 during 1996.
On February 24, 1997, Thomas O. Hicks converted the 39,033 shares of Class
A Nonvoting Common Stock of GulfStar held by him to 39,033 shares of Class C
Voting Common Stock of GulfStar.
On March 4, 1997, GulfStar repurchased the 7,500 shares of GulfStar
Convertible Preferred Stock for an amount equal to the initial liquidation or
redemption value of $100 per share, plus dividends accrued to the date of
purchase in the amount of $8.135 per share, or an aggregate of $811,013. As a
result of this repurchase the 7,500 shares were retired and are no longer
authorized, resulting in only 500,000 authorized preferred shares, consisting of
500,000 outstanding shares of 12% Redeemable Preferred Stock.
17. SUBSEQUENT EVENTS (UNAUDITED):
Transactions (Unaudited)
On July 8, 1997, the Company entered into an agreement with Capstar
Broadcasting Corporation ("Capstar Broadcasting") whereby Capstar Broadcasting
acquired the Company through a merger (the "GulfStar Merger"). Capstar
Broadcasting then contributed the surviving entity in the GulfStar Merger
through Capstar Broadcasting Partners, Inc. to Capstar Radio Broadcasting
Partners, Inc. In conjunction with the GulfStar Merger, Capstar Broadcasting
paid the outstanding balance of the Company's financing agreement.
On July 3, 1997, the Company acquired KIOC in Beaumont, Texas for aggregate
consideration of approximately $2,700,000. The Company previously operated this
station under a time brokerage agreement during 1996.
On August 1, 1997, the Company acquired WBIU and KRVE in Baton Rouge,
Louisiana for aggregate consideration of approximately $7,300,000. The Company
previously operated these stations under time brokerage agreements during 1996.
Subsequent to March 31, 1997, the Company entered into various Local
Marketing Agreements ("LMA's") and contracts, pending FCC approval. While each
agreement is unique in its terms and conditions, generally under an LMA the
brokering station purchases substantially all of the commercial time available
on the brokered
F-73
<PAGE> 262
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
station and provides promotional and sales related services. The brokering
station may also provide 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. The Company currently has LMA's or contracts pending FCC approval
with KZBB-FM in Ft. Smith, Arkansas; KLAW-FM and KZCD-FM in Lawton, Oklahoma;
KKCL-FM in Lubbock, Texas; KJEM-FM in Fayetteville, Arkansas; and KKTX-FM/AM in
Longview, Texas. The Company provided programming to and sold advertising time
on various stations that were under contract to purchase under LMA's.
Subsequent to March 31, 1997, the Company acquired several broadcast
properties (KIOC, KWHN, KMAG, KLLI, KYGL) for aggregate consideration of
approximately $10.0 million. The Company previously operated all of these
stations under time brokerage agreements.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997.
F-74
<PAGE> 263
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-75
<PAGE> 264
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
MARCH 31, --------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash.............................................. $ 4,020,802 $11,029,177 $ 825,403
Escrow deposit.................................... 330,393 150,000 --
Accounts receivable, net of allowance for doubtful
accounts of $323,369, $324,719 and $280,366,
respectively................................... 4,563,340 4,731,405 4,016,421
Due from related entities......................... 545,921 23,753 10,884
Prepaid expenses and other current assets......... 355,514 244,784 354,211
----------- ----------- -----------
Total current assets...................... 9,815,970 16,179,119 5,206,919
Property and equipment, net......................... 14,055,253 13,721,546 14,156,177
Investment in limited partnership................... 66,331 66,331 82,721
Intangible assets, net.............................. 46,041,437 43,788,173 30,204,762
Deferred acquisition costs.......................... 113,014 375,882 --
----------- ----------- -----------
Total assets.............................. $70,092,005 $74,131,051 $49,650,579
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses............. $ 2,491,703 $ 2,900,204 $ 1,645,018
Due to related entities........................... 1,564,493 2,865,164 65,345
Current portion of long-term debt................. 14,223,007 14,219,155 12,846,733
Obligations under capital leases, current
portion........................................ 55,868 78,984 114,451
----------- ----------- -----------
Total current liabilities................. 18,335,071 20,063,507 14,671,547
Long-term debt...................................... 29,849,426 29,841,341 14,127,693
Obligations under capital leases, net of current
portion........................................... 55,750 78,820 220,058
----------- ----------- -----------
Total liabilities................................. 48,240,247 49,983,668 29,019,298
----------- ----------- -----------
Commitments (Note 8)
Partners' capital................................... 21,851,758 24,147,383 20,631,281
----------- ----------- -----------
Total liabilities and partners' capital... $70,092,005 $74,131,051 $49,650,579
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-76
<PAGE> 265
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross broadcast revenue......... $ 6,999,900 $ 6,760,055 $29,697,028 $25,198,304 $17,621,955
Less agency commissions......... 555,850 542,832 2,441,800 2,051,455 1,449,843
----------- ----------- ----------- ----------- -----------
Net revenue................... 6,444,050 6,217,223 27,255,228 23,146,849 16,172,112
----------- ----------- ----------- ----------- -----------
Operating expenses:
Programming, technical and
news....................... 1,400,341 1,523,647 6,760,363 5,210,641 3,804,695
Sales and promotion........... 2,423,220 2,104,382 9,233,843 8,245,763 5,787,235
General and administrative.... 1,514,043 1,336,624 5,257,968 4,823,394 3,383,768
Depreciation and
amortization............... 1,336,402 1,329,982 5,320,258 5,005,245 4,149,542
Corporate expenses............ 265,076 818,671 1,513,438 1,271,455 569,480
----------- ----------- ----------- ----------- -----------
6,939,082 7,113,306 28,085,870 24,556,498 17,694,720
----------- ----------- ----------- ----------- -----------
Loss from
operations.......... (495,032) (896,083) (830,642) (1,409,649) (1,522,608)
Other income (expense):
Interest expense.............. (936,552) (646,212) (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.................... 60,660 58,092 678,636 (414,561) 96,920
----------- ----------- ----------- ----------- -----------
Net income (loss)............. $(1,370,924) $(1,484,203) $ 6,076,102 $(4,343,788) $(1,787,040)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-77
<PAGE> 266
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
Capital distributions to partners (unaudited)...... (83,542) (841,159) (924,701)
Net income (loss) (unaudited)...................... (199,087) (1,171,837) (1,370,924)
----------- ----------- -----------
Balance, March 31, 1997 (unaudited).................. $ (492,291) $22,344,049 $$21,851,758
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-78
<PAGE> 267
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(1,370,924) $(1,484,203) $ 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........................ 1,336,402 1,329,982 5,320,258 5,005,245 4,149,542
Provision for doubtful accounts...................... 77,504 -- 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............. (105,399) (188,863) (83,433) 197,335 35,795
Changes in assets and liabilities, net of the effects
of acquired broadcasting properties:
Accounts receivable................................ 89,572 (62,959) (996,735) (1,528,818) (569,941)
Due from/due to related entities, net.............. (1,822,839) (417,397) 2,786,950 (332,505) 167,622
Prepaid expenses and other current assets.......... (110,730) (128,012) (109,427) (277,703) 42,261
Accounts payable and accrued expenses.............. (302,113) 456,846 1,375,292 635,184 (227,408)
----------- ----------- ------------ ------------ -----------
Net cash flows provided by (used in) operating
activities..................................... (2,208,527) (494,606) 5,105,488 (361,675) 722,966
----------- ----------- ------------ ------------ -----------
Cash flows from investing activities:
Purchases of property and equipment.................... (69,617) (82,618) (1,133,074) (1,140,417) (542,749)
Purchases of broadcasting properties................... (3,771,281) (7,754,829) (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..................................... (3,840,898) (7,837,447) (9,235,200) (17,675,615) 3,034,647
----------- ----------- ------------ ------------ -----------
Cash flows from financing activities:
Repayments of notes payable and capital leases......... (34,249) (122,006) (6,903,389) (9,341,629) (5,363,989)
Proceeds from borrowing under notes payable and
promissory notes..................................... -- 8,022,516 23,846,875 15,652,627 1,755,000
Distributions to partners.............................. (924,701) (24,299) (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..................................... (958,950) 7,876,211 14,333,486 13,141,745 1,420,698
----------- ----------- ------------ ------------ -----------
Net increase (decrease) in cash.......................... (7,008,375) (455,842) 10,203,774 (4,895,545) 5,178,311
Cash, at beginning of period............................. 11,029,177 825,403 825,403 5,720,948 542,637
----------- ----------- ------------ ------------ -----------
Cash, at end of period................................... $ 4,020,802 $ 369,561 $ 11,029,177 $ 825,403 $ 5,720,948
=========== =========== ============ ============ ===========
Supplementary information:
Cash paid for interest................................. $ 946,455 $ 533,102 $ 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-79
<PAGE> 268
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DATA WITH REGARD TO MARCH 31, 1997 AND FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 1997 AND 1996 ARE UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The financial statements and following notes, insofar as they are
applicable to the three-month periods ended March 31, 1997 and 1996, and
transactions subsequent to February 8, 1997, the date of the Report of
Independent Accountants, are not covered by the Report of Independent
Accountants. In the opinion of management, all adjustments, consisting of only
normal recurring accruals considered necessary for a fair presentation of the
unaudited consolidated results of operations for the three-month periods ended
March 31, 1997 and 1996, have been included.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the entire year.
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.
F-80
<PAGE> 269
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-81
<PAGE> 270
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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-82
<PAGE> 271
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>
<CAPTION>
<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.
F-83
<PAGE> 272
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 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>
UNAUDITED
On March 11, 1997, BRAF IV purchased substantially all the assets of
WSCQ-FM in the Columbia, South Carolina market for approximately $4.1 million,
including acquisition costs. 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.
F-84
<PAGE> 273
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment.................................... $ 736
Goodwill and other intangibles............................ 3,364
------
Purchase price.............................................. $4,100
======
</TABLE>
The following table presents the operating results of Benchmark for the
three months ended March 31, 1997 and 1996, compared to pro forma operating
results for such periods, reflecting the acquisition of WSCQ-FM. The unaudited
pro forma information presents combined operating results as though the
acquisition of WSCQ-FM and acquisitions completed during 1996 had occurred at
the beginning of the period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
------------------- -------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------ --------- ------ ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue............................... $6,440 $6,647 $6,217 $6,525
Net loss.................................. $1,371 $1,457 $1,484 $1,520
</TABLE>
The following summarizes the combined historical and unaudited 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, in November 1996,
acquired the assets of KRMD-AM/FM valued at $7.5 million. BRAF IV recorded a
gain of $9.6 million.
F-85
<PAGE> 274
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 --
</TABLE>
F-86
<PAGE> 275
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
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>
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.
F-87
<PAGE> 276
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-88
<PAGE> 277
BENCHMARK COMMUNICATIONS RADIO LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENDING SALE OF BENCHMARK AND OTHER TRANSACTIONS (UNAUDITED):
On December 9, 1996, Benchmark agreed to be acquired by Capstar Radio
Broadcasting Partners, Inc. (Capstar Radio), a Delaware corporation, through an
acquisition affiliate, Fund III Acquisition Sub. In June, 1997, the FCC approved
the sale. The purchase price will equal approximately $176.2 million and is
subject to adjustment. The sale is expected to be completed in August 1997. In
connection with the sale, a general partner will receive 1,538,461 shares of
Capstar Class A Common Stock in lieu of cash, in consideration of a portion of
his ownership interest in Benchmark. In the event the acquisition is terminated
by Capstar or its affiliates, Benchmark could be entitled to certain liquidation
damages up to approximately $8.2 million. 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. The acquisition was completed in April 1997.
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 Capstar Radio 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-89
<PAGE> 278
MADISON RADIO GROUP
CONDENSED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 347,800
Certificate of deposit.................................... 93,441
Accounts receivable, net of $17,000 allowance for doubtful
accounts............................................... 1,310,973
Accounts receivable, related party........................ 103,688
Prepaid expenses.......................................... 39,139
-----------
Total current assets.............................. 1,895,041
Property and equipment, net................................. 2,738,963
Intangible assets, net...................................... 12,833,288
Other....................................................... 18,665
-----------
Total assets...................................... $17,485,957
===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 250,000
Accounts payable.......................................... 317,004
Accounts payable, related party........................... 232,026
Accrued expenses.......................................... 210,143
Trade payable, net........................................ 31,260
-----------
Total current liabilities......................... 1,040,433
Long-term debt.............................................. 13,250,000
Partners' equity............................................ 3,195,524
-----------
Total liabilities and partners' equity............ $17,485,957
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE> 279
MADISON RADIO GROUP
CONDENSED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 2, 1997 TO MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Broadcasting revenue:
Gross revenue............................................. $2,269,996
Less agency commissions................................... 241,570
----------
Net broadcasting revenue.......................... 2,028,426
Operating expenses:
Sales and promotion....................................... 417,186
Programming, engineering and news......................... 613,666
General and administrative................................ 214,863
Depreciation and amortization............................. 376,204
Management fees and other expenses........................ 47,160
----------
1,669,079
----------
Operating income.................................. 359,347
Interest expense............................................ (347,906)
----------
Net income........................................ $ 11,441
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE> 280
MADISON RADIO GROUP
CONDENSED STATEMENT OF PARTNERS' EQUITY
FOR THE PERIOD FROM JANUARY 2, 1997 TO MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Partners' initial capital contributions, January 2, 1997.... $ 7,146,583
Distribution to partner..................................... (3,962,500)
Net income for the period from January 2, 1997 to March 31,
1997...................................................... 11,441
-----------
Partners' equity, March 31, 1997............................ $ 3,195,524
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-92
<PAGE> 281
MADISON RADIO GROUP
CONDENSED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 2, 1997 TO MARCH 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Cash from operating activities:
Net income................................................ $ 11,441
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization.......................... 376,204
Changes in operating assets and liabilities:
Accounts receivable.................................. (1,310,973)
Prepaid expenses..................................... 19,466
Accounts payable and accrued expenses................ 562,282
Trade payable, net................................... 3,269
-----------
Net cash used in operating activities............. (338,311)
-----------
Cash flows from investing activities:
Advances to related party................................. (103,688)
Purchases of property and equipment....................... (36,381)
Capstar Broadcasting Partners, Inc. related costs......... (18,665)
-----------
Net cash used in investing activities............. (158,734)
-----------
Cash flows from financing activities:
Proceeds from term loan................................... 3,962,500
Distribution to partner................................... (3,962,500)
Proceeds from capital contributions....................... 612,819
Advances from related party............................... 232,026
-----------
Net cash provided by financing activities......... 844,845
-----------
Net increase in cash and cash equivalents......... 347,800
Cash and cash equivalents, beginning of period.............. --
-----------
Cash and cash equivalents, end of period.................... $ 347,800
===========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 347,906
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE> 282
MADISON RADIO GROUP
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Organization and Basis of Presentation: Madison Radio Group (the
"Company"), a general partnership, was formed on January 2, 1997, to own and
operate radio stations WIBA-AM, WIBA-FM, WMAD-FM, WZEE-FM, WMLI-FM and WTSO-AM,
servicing the Madison, Wisconsin area. At Madison Radio Group's inception, Point
Communications Limited Partnership ("Point") exchanged its broadcasting and real
estate assets of stations WIBA-AM, WIBA-FM, and WMAD-FM and $400,000 cash,
subject to its long-term debt, for a 50% partnership interest in the Company and
$3,962,500 cash (which was financed by Madison Radio Group borrowings).
Simultaneously, Midcontinent Broadcasting Company of Wisconsin, Inc.
("Midcontinent") 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 the Company. The broadcasting and real estate assets exchanged were
recorded at the transferors' cost basis by the Company.
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. Cash Equivalents: For purposes of the Statement of Cash Flows, the
Company 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 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.
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 March
31, 1997 was $205,992.
Other intangibles -- 5-15 years. Accumulated amortization as of March 31,
1997 was $7,290.
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 15-40 years. Accumulated amortization as of March
31, 1997, was $5,746.
Deferred financing costs -- loan term. Accumulated amortization as of March
31, 1997 was $12,737.
Organization costs -- 5 years. Accumulated amortization as of March 31,
1997 was $5,155.
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.
e. 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
F-94
<PAGE> 283
MADISON RADIO GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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 $42,000 for the
period from January 2, 1997 to March 31, 1997.
f. Revenue Recognition: Revenue from the sale of air-time is recognized at
the time the related program or advertisement is broadcast.
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 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.
h. Allocations and Distributions: The profits and losses of the Company 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 tax returns.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at March 31, 1997:
<TABLE>
<S> <C>
Land and improvements....................................... $277,058
Buildings................................................... 830,738
Tower and antennae.......................................... 833,199
Equipment................................................... 849,762
Other....................................................... 87,490
----------
2,878,247
Less accumulated depreciation............................... 139,284
----------
$2,738,963
==========
</TABLE>
Depreciation expense was $139,284 for the period from January 2, 1997 to
March 31, 1997.
3. INTANGIBLE ASSETS:
Intangible assets consisted of the following at March 31, 1997:
<TABLE>
<S> <C>
FCC broadcast licenses...................................... $11,210,008
Other intangibles........................................... 850,277
Goodwill.................................................... 720,010
Deferred financing costs.................................... 186,816
Organization costs.......................................... 103,097
-----------
13,070,208
Less accumulated amortization............................... 236,920
-----------
$12,833,288
===========
</TABLE>
F-95
<PAGE> 284
MADISON RADIO GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4. LONG-TERM DEBT:
Long-term debt consisted of the following at March 31, 1997:
<TABLE>
<S> <C>
Term loan payable in quarterly installments of $250,000 to
$400,000 beginning January, 1998, with a balloon payment
of remaining balance due October 1, 2001.................. $13,500,000
Less current portion........................................ 250,000
-----------
$13,250,000
===========
</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 Company. The term loan bears interest at the
bank's reference rate plus 1.25%-2.50% subject to operating cash flow results
(the reference rate was 8.50% at March 31, 1997).
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 is as follows:
<TABLE>
<S> <C>
April 1, 1997 to December 31, 1997.......................... $ --
1998........................................................ 1,000,000
1999........................................................ 1,250,000
2000........................................................ 1,400,000
2001........................................................ 9,850,000
-----------
$13,500,000
===========
</TABLE>
5. OPERATING LEASES:
The Company leases vehicles, office equipment, office space and a tower
site under operating leases with future minimum rental payments as follows:
<TABLE>
<S> <C>
April 1, 1997 to December 31, 1997.......................... $ 62,924
1998........................................................ 67,512
1999........................................................ 67,512
2000........................................................ 67,512
2001........................................................ 38,707
Thereafter.................................................. 331,000
--------
$635,167
========
</TABLE>
Rental expense charged to operations was $27,230 for the period from
January 2, 1997 to March 31, 1997.
6. LETTER OF CREDIT:
At March 31, 1997, the Company had a letter of credit outstanding for
$90,000. The letter of credit can be drawn upon if the Company fails to make
payments due under the terms and conditions of a network agreement which expires
in May 1997. The Company has pledged a certificate of deposit as collateral for
the letter of credit.
F-96
<PAGE> 285
MADISON RADIO GROUP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
7. SALE TO CAPSTAR RADIO BROADCASTING PARTNERS, INC.:
On February 4, 1997, the Company entered into an agreement to sell
substantially all the assets of its stations to Capstar Radio 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.
During the period from January 2, 1997 to March 31, 1997, the Company
incurred $18,665 of costs directly related to the pending sale to Capstar Radio
Broadcasting Partners, Inc., which are included in other assets in the
accompanying balance sheet.
F-97
<PAGE> 286
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Capstar Radio 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-98
<PAGE> 287
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
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-99
<PAGE> 288
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-100
<PAGE> 289
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-101
<PAGE> 290
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.
F-102
<PAGE> 291
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, "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>
F-103
<PAGE> 292
MIDCONTINENT BROADCASTING CO. OF WISCONSIN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
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 $3,962,500 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-104
<PAGE> 293
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-105
<PAGE> 294
POINT COMMUNICATIONS LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
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-106
<PAGE> 295
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-107
<PAGE> 296
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-108
<PAGE> 297
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-109
<PAGE> 298
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-110
<PAGE> 299
POINT COMMUNICATIONS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
f. Revenue Recognition: Revenue from the sale of air-time is recognized at
the time the related program or advertisement is broadcast.
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-111
<PAGE> 300
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-112
<PAGE> 301
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 $3,962,500 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 Radio 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-113
<PAGE> 302
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-114
<PAGE> 303
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 330,770 $ 38,532
Accounts receivable, net of allowance for doubtful
accounts of $58,982 and $70,525, respectively.......... 745,638 1,708,213
Prepaid expenses and other current assets................. 144,731 97,239
----------- -----------
Total current assets.............................. 1,221,139 1,843,984
Property and equipment, net................................. 3,806,144 3,843,508
Intangible assets, net...................................... 12,595,121 12,817,337
Other assets................................................ 100,661 125,453
----------- -----------
Total assets........................................... $17,723,065 $18,630,282
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 68,679 $ 237,996
Accrued liabilities....................................... 189,477 483,065
Due to Pacific Star....................................... 72,026 --
Current portion of long-term debt......................... 1,437,500.. 1,175,125
----------- -----------
Total current liabilities......................... 1,767,682 1,896,186
Long-term debt, net of current portion...................... 8,337,500 8,696,875
----------- -----------
Total liabilities................................. 10,105,182 10,593,061
----------- -----------
Commitments (Note 9)
Partners' equity............................................ 7,617,883 8,037,221
----------- -----------
Total liabilities and partners' equity............ $17,723,065 $18,630,282
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-115
<PAGE> 304
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Broadcasting revenue...................................... $1,849,044 $12,318,547
Less agency commissions................................... 168,049 1,119,613
---------- -----------
Net revenue....................................... 1,680,995 11,198,934
---------- -----------
Station operating expenses:
Programming and technical expense......................... 623,566 3,935,571
Selling and promotion expense............................. 331,592 2,981,563
General and administrative expense........................ 354,878 1,998,698
---------- -----------
Total station operating expenses.................. 1,310,036 8,915,832
Corporate expenses.......................................... 197,220 760,150
Depreciation and amortization............................... 350,270 1,416,077
---------- -----------
Operating income (loss)................................... (176,531) 106,875
Other expense, net.......................................... (2,424) (8,438)
Loss on disposal of assets.................................. -- (10,611)
Interest expense............................................ (237,774) (933,315)
---------- -----------
Net loss.......................................... $ (416,729) $ (845,489)
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-116
<PAGE> 305
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
<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
Capital distributions to partners (unaudited)......... (800) (1,809) (2,609)
Net loss (unaudited).................................. (86,971) (329,758) (416,729)
--------- ----------- -----------
Balances as of March 31, 1997 (unaudited)............... $ 27,827 $ 7,590,056 $ 7,617,883
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-117
<PAGE> 306
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(416,729) $ (845,489)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 350,270 1,416,077
Loss on sale of fixed assets........................... -- 10,611
Changes in operating assets and liabilities:
Accounts receivable, net............................. 962,575 116,834
Prepaid expenses and other current assets............ (47,492) 41,643
Other assets......................................... 24,792 --
Accounts payable..................................... (169,317) (345,207)
Accrued liabilities.................................. (293,588) (108,490)
Due to Pacific Star.................................. 72,026 --
--------- -----------
Net cash provided by operating activities......... 482,537 285,979
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment, net of acquisition.... (90,690) (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............. (90,690) (976,785)
--------- -----------
Cash flows from financing activities:
Proceeds from notes payable............................... 190,500 1,408,000
Repayment of notes payable................................ (287,500) (1,650,000)
Capital contributions from partners....................... -- 3,092,954
Capital distributions to partners......................... (2,609) (2,209,658)
--------- -----------
Net cash (used in) provided by financing
activities...................................... (99,609) 641,296
--------- -----------
Net increase (decrease) in cash............................. 292,238 (49,510)
Cash, beginning of year..................................... 38,532 88,042
--------- -----------
Cash, end of year........................................... $ 330,770 $ 38,532
========= ===========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 991,233
===========
Supplemental disclosure of noncash activities:
Revenue related to barter transactions.................... $ 322,837 $ 2,171,006
========= ===========
Advances from partners converted into equity.............. $ -- $ 427,046
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-118
<PAGE> 307
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:
- Modesto, California -- KFIV-AM, KJSN-FM, KVFX-FM and KJAX-AM
- Anchorage, Alaska -- KASH-AM, KASH-FM, KENI-AM and KBFX-FM
- Des Moines, Iowa -- KGGO-FM, KDMI-AM, and KHKI-FM
Effective March 1, 1997, the Partnership entered into an LMA with Pacific
Star in connection with the Partnership's radio stations pursuant to which
Pacific Star provides certain sales, programming and marketing services for the
Partnership's radio stations (unaudited).
Interim Periods
The balance sheet as of March 31, 1997 and the statements of operations,
partners' equity and cash flows for the three month period ended March 31, 1997
are unaudited. However, in the opinion of management, all adjustments necessary
(consisting only of normal recurring adjustments) for a fair presentation of
such financial statements have been included. Interim results are not
necessarily indicative of results for a full year.
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-119
<PAGE> 308
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-120
<PAGE> 309
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-121
<PAGE> 310
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>
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 pre-tax 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-122
<PAGE> 311
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
Radio 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.
12. SUBSEQUENT EVENTS (UNAUDITED):
In July 1997, Capstar Radio Broadcasting Partners, Inc. acquired
substantially all of the assets of the Partnership for approximately $35.0
million.
F-123
<PAGE> 312
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Patterson Broadcasting, Inc.:
We have audited the accompanying consolidated balance sheets of Patterson
Broadcasting, Inc. and subsidiaries (a Delaware corporation) as of December 31,
1996 and 1995 and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the year ended December 31, 1996 and
for the period from May 1, 1995 (inception) through 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 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 financial position of Patterson
Broadcasting, Inc. and subsidiaries at December 31, 1996 and 1995 and the
results of their operations and cash flows for the year ended December 31, 1996
and for the period from May 1, 1995 (inception) through December 31, 1995 in
conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, the Company has given
effect to a change in accounting principle for redeemable warrants.
ARTHUR ANDERSEN LLP
New York, New York
February 28, 1997 (except with respect to the matter
discussed in Note 13, as to which the date is April 16, 1997)
F-124
<PAGE> 313
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------
1997 1996 1995
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,177,000 $ 3,046,000 $ 214,000
Accounts receivable, less allowances for doubtful accounts
of $452,000 at March 31, 1997, $402,000 at December 31,
1996 and $32,000 at December 31, 1995................... 8,171,000 9,426,000 2,498,000
Prepaid expenses and other current assets................. 1,231,000 932,000 497,000
Deferred income taxes (Note 6)............................ 658,000 458,000 --
------------ ------------ -----------
Total current assets............................... 11,237,000 13,862,000 3,209,000
------------ ------------ -----------
PROPERTY, PLANT, AND EQUIPMENT:
Land and land improvements................................ 1,265,000 1,261,000 387,000
Buildings and leasehold improvements...................... 3,379,000 3,362,000 1,836,000
Equipment................................................. 16,140,000 15,809,000 5,510,000
------------ ------------ -----------
20,784,000 20,432,000 7,733,000
Less accumulated depreciation............................. (1,670,000) (1,305,000) (166,000)
------------ ------------ -----------
Total property, plant, and equipment -- net........ 19,114,000 19,127,000 7,567,000
------------ ------------ -----------
INTANGIBLE AND OTHER ASSETS -- Net:
Cost of purchased businesses in excess of net tangible
assets
acquired (Note 2)....................................... 108,768,000 109,089,000 29,795,000
Deposits (Note 2)......................................... 290,000 40,000 2,916,000
Other assets (Note 2)..................................... 4,073,000 4,315,000 2,575,000
Deferred income taxes (Note 6)............................ 4,957,000 2,258,000 --
------------ ------------ -----------
Total intangible and other assets -- net........... 118,088,000 115,702,000 35,286,000
------------ ------------ -----------
$148,439,000 $148,691,000 $46,062,000
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 2,898,000 $ 3,503,000 $ 1,947,000
Accrued interest.......................................... 383,000 393,000 34,000
Accrued dividends......................................... 250,000 250,000 --
Note payable (Note 2)..................................... -- 600,000 --
Accrued income taxes...................................... 211,000 173,000 --
------------ ------------ -----------
Total current liabilities.......................... 3,742,000 4,919,000 1,981,000
------------ ------------ -----------
LONG-TERM DEBT (Note 3)..................................... 66,500,000 67,000,000 10,000,000
------------ ------------ -----------
OTHER LIABILITIES........................................... 87,000 97,000 58,000
------------ ------------ -----------
REDEEMABLE PREFERRED STOCK, $1.00 par value, 100,000 shares
authorized, 2,775, 2,700 and -0- issued and outstanding at
March 31, 1997 and December 31, 1996 and 1995,
respectively (Note 4)..................................... 20,747,000 19,816,000 --
------------ ------------ -----------
REDEEMABLE WARRANTS (Note 4)................................ 17,803,000 11,921,000 --
------------ ------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 5):
Class A Common Stock, $.01 par value, 200,000 shares
authorized, 70,571.91, 70,571.91 and 50,140.91 issued
and outstanding at March 31, 1997 and December 31, 1996
and 1995, respectively.................................. 1,000 1,000 1,000
Class B Common Stock, $.01 par value, 200,000 shares
authorized, 4,227, 4,227 and -0- issued and outstanding
at March 31, 1997 and December 31, 1996 and 1995,
respectively............................................ --
Additional paid-in capital................................ 52,562,000 52,137,000 35,099,000
Accumulated deficit....................................... (13,003,000) (7,200,000) (1,077,000)
------------ ------------ -----------
Total stockholders' equity......................... 39,560,000 44,938,000 34,023,000
------------ ------------ -----------
$148,439,000 $148,691,000 $46,062,000
============ ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-125
<PAGE> 314
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
(INCEPTION)
QUARTER ENDED MARCH 31, YEAR ENDED THROUGH
------------------------ DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
----------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Revenues................................ $10,727,000 $6,097,000 $ 41,369,000 $ 4,613,000
Operating Expenses, excluding Depreciation
and Amortization.......................... 8,319,000 5,144,000 29,725,000 3,623,000
LMA Fee..................................... -- -- 500,000 --
Corporate Expense........................... 1,088,000 513,000 2,374,000 1,217,000
Regional Expense............................ 233,000 -- 143,000 --
Patterson Planning Management Fee........... 63,000 63,000 250,000 146,000
Depreciation and Amortization............... 1,162,000 522,000 3,537,000 391,000
----------- ---------- ------------ -----------
Income (Loss) From Operations............... (138,000) (145,000) 4,840,000 (764,000)
----------- ---------- ------------ -----------
Other Income (Expense):
Interest expense.......................... (1,716,000) (821,000) (5,052,000) (458,000)
Increase in fair value of redeemable
warrants (Note 4)...................... (5,882,000) -- (5,499,000) --
Interest income........................... 1,000 55,000 70,000 148,000
Other - net............................... 2,000 -- (33,000) (3,000)
----------- ---------- ------------ -----------
Total other income (expense)...... (7,595,000) (766,000) (10,514,000) (313,000)
----------- ---------- ------------ -----------
Loss Before Income Taxes.................... (7,733,000) (911,000) (5,674,000) (1,077,000)
Income Tax Benefit (Note 6)................. 2,861,000 -- 2,344,000 --
----------- ---------- ------------ -----------
Net Loss.................................... $(4,872,000) $ (911,000) $ (3,330,000) $(1,077,000)
=========== ========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-126
<PAGE> 315
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT
------ ----------- ------------
<S> <C> <C> <C>
BALANCE, May 1, 1995 (inception)........................ $ -- $ -- $ --
Equity contribution................................... 1,000 35,099,000 --
Net loss.............................................. -- -- (1,077,000)
------ ----------- ------------
BALANCE, December 31, 1995 1,000 35,099,000 (1,077,000)
Equity contribution, net of issuance costs of
$462,000........................................... -- 17,038,000 --
Accretion of redeemable preferred stock............... -- -- (543,000)
Dividends declared on redeemable preferred stock...... -- -- (2,250,000)
Net loss.............................................. -- -- (3,330,000)
------ ----------- ------------
BALANCE, December 31, 1996.............................. 1,000 52,137,000 (7,200,000)
Accretion of redeemable preferred stock (unaudited)... -- -- (181,000)
Dividends declared on redeemable preferred stock
(unaudited)........................................ -- -- (750,000)
Contingent award of common stock pursuant to
compensation plan (unaudited)...................... -- 425,000 --
Net loss (unaudited).................................. -- -- (4,872,000)
------ ----------- ------------
BALANCE, March 31, 1997 (unaudited)..................... $1,000 $52,562,000 $(13,003,000)
====== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-127
<PAGE> 316
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
QUARTER ENDED (INCEPTION)
MARCH 31, YEAR ENDED THROUGH
------------------------- DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................ $(4,872,000) $ (911,000) $ (3,330,000) $ (1,077,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation................................. 366,000 188,000 1,175,000 166,000
Amortization................................. 796,000 334,000 2,362,000 225,000
Deferred financing costs..................... 159,000 56,000 429,000 --
Increase in fair value of redeemable
warrants................................... 5,882,000 -- 5,499,000 --
Loss on sale of property, plant, and
equipment.................................. -- -- 31,000 --
Provision for contingent stock
compensation............................... 425,000 -- -- --
Changes in assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable........................ 1,255,000 (1,186,000) (5,243,000) (2,492,000)
Prepaid expenses and other current
assets.................................. (299,000) (40,000) (53,000) (279,000)
Accounts payable and accrued expenses...... (605,000) (120,000) 955,000 1,219,000
Accrued interest........................... (10,000) 116,000 359,000 34,000
Accrued income taxes....................... 38,000 -- 173,000 --
Deferred income taxes...................... (2,899,000) -- (2,517,000) --
Other...................................... (11,000) 15,000 35,000 (28,000)
----------- ----------- ------------ ------------
Net cash provided by (used in) operating
activities............................ 225,000 (1,548,000) (125,000) (2,232,000)
----------- ----------- ------------ ------------
INVESTING ACTIVITIES:
Purchases of media properties, net of cash
acquired..................................... (600,000) (60,309,000) (92,915,000) (36,923,000)
Purchases of property, plant, and equipment..... (279,000) (296,000) (1,036,000) (107,000)
Disposal of property, plant, and equipment...... -- -- 21,000 --
Deposits in escrow.............................. (250,000) -- -- (2,900,000)
Net proceeds on disposal of media property...... -- 2,100,000 2,100,000 --
Deferred acquisition costs...................... (465,000) (587,000) (84,000) (768,000)
Other........................................... -- -- -- (156,000)
----------- ----------- ------------ ------------
Net cash used in investing activities... (1,594,000) (59,092,000) (91,914,000) (40,854,000)
----------- ----------- ------------ ------------
FINANCING ACTIVITIES:
Equity contributions............................ -- 8,125,000 17,500,000 35,100,000
Issuance of redeemable preferred stock and
warrants..................................... -- -- 25,000,000 --
Borrowings under bank credit facility........... 2,000,000 62,500,000 86,500,000 10,000,000
Repayment of borrowings under bank credit
facility..................................... (2,500,000) (7,500,000) (29,500,000) --
Financing and issuance costs.................... -- (224,000) (4,629,000) (1,800,000)
----------- ----------- ------------ ------------
Net cash provided by (used in) financing
activities............................ (500,000) 62,901,000 94,871,000 43,300,000
----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH................... (1,869,000) 2,261,000 2,832,000 214,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 3,046,000 214,000 214,000 --
----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD................................ $ 1,177,000 $ 2,475,000 $ 3,046,000 $ 214,000
=========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-128
<PAGE> 317
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Patterson Broadcasting, Inc. was organized in May 1995 for the purpose of
owning and operating radio stations. At December 31, 1996, the Company owned and
operated radio stations in Savannah, Georgia; Allentown, Pennsylvania; Honolulu,
Hawaii; Fresno, California; Grand Rapids, Michigan; Battle Creek, Michigan;
Reno, Nevada; Harrisburg, Pennsylvania; Pensacola, Florida; and Springfield,
Illinois.
Of the 70,572 issued shares of Class A common stock, 65.9% are held by The
Dyson-Kissner-Moran Corporation ("DKM").
Change in Accounting Principle -- In order to conform the Company's
accounting principles with the accounting requirements of the Securities and
Exchange Commission, the accompanying financial statements reflect a change in
accounting principle for the redeemable warrants. Previously issued financial
statements presented the redeemable warrants as equity. The warrant value was
being accreted to its earliest potential put value, with the accretion included
in stockholders' equity. The accompanying financial statements present the
warrants as liabilities, measured at their fair value, with changes in the fair
value included in earnings, in conformity with EITF 96-13, Accounting For Sales
Of Call Options Or Warrants On Issuer's Stock With Various Forms Of Settlement,
which is only applicable to public companies.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Patterson Broadcasting, Inc. and its wholly-owned
subsidiaries (the "Company"). All significant intercompany accounts and
transactions are eliminated in consolidation.
Revenue Recognition -- Radio advertising revenues are recognized when the
related advertisements are broadcast and are recorded net of advertising agency
commissions. Exchanges of advertising time for products and services are
recorded at the estimated fair value of the products or services received.
Cash and Cash Equivalents -- Cash and cash equivalents consist of cash,
money market funds, overnight deposits, and investments with maturities of three
months or less when purchased.
Property, Plant, and Equipment -- Property, plant, and equipment is stated
at cost. Depreciation is computed by the straight-line method using estimated
useful lives of the individual assets which range from 5 to 40 years.
Deferred Financing Costs -- Costs associated with obtaining debt financing
are capitalized and amortized over the term of the related debt.
Intangible and Other Assets -- Costs of purchased businesses in excess of
net tangible assets acquired are stated at cost less accumulated amortization
and primarily consist of FCC broadcast licenses and goodwill. These costs are
being amortized using the straight-line method over periods not exceeding 40
years. Accumulated amortization at December 31, 1996 and 1995 was $2,575,000 and
$225,000, respectively.
On a continuing basis, the Company reviews the financial statement carrying
amounts of its operating units for impairment. Specifically, this process
includes a comparison of the carrying amounts of the operating units to their
estimated fair values, an analysis of estimated future cash flows and an
evaluation as to whether an operating unit might be sold in the near future. If
this process concludes that the carrying amount of an operating unit's assets
will not be recovered from either future operations or sale, a write down of the
operating unit's assets is recognized through a charge to operations.
Incomes Taxes -- Deferred income taxes are recorded using Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
SFAS No. 109 requires the Company to compute deferred income taxes based on
the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
F-129
<PAGE> 318
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
Unaudited Interim Financial Statements -- In the opinion of management,
interim unaudited financial statements reflect all adjustments, consisting of
normal recurring accruals, necessary to present fairly the financial position,
the results of operations and the cash flows for the periods presented. Results
for the interim periods are not necessarily indicative of results to be expected
for the full year.
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and note disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to those rules and regulations, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading.
2. ACQUISITION, DISPOSITIONS AND PRO FORMA FINANCIAL INFORMATION
In July 1995, the Company purchased radio stations WCHY-AM/FM in Savannah,
Georgia, for $5,200,000 in cash. In September 1995, the Company purchased radio
stations WEEX-AM and WODE-FM in Allentown, Pennsylvania, radio stations KRZR-FM
and KTHT-FM in Fresno, California, and radio stations KSSK-AM/FM and KUCD-FM in
Honolulu, Hawaii for $30,590,000 in cash.
In January 1996, the Company purchased radio stations WLHT-FM, WGRD-FM, and
WRCV-AM in Grand Rapids, Michigan and radio stations WBCK-AM, WBXX-FM, WRCC-AM
and WWKN-FM in Battle Creek, Michigan for $21,400,000 in cash.
In January 1996, the Company purchased stations KCBN-AM, KRNO-FM, KWNZ-FM
in Reno, Nevada for $4,100,000 in cash.
In January 1996, the Company purchased radio stations KCBL-AM and KBOS-FM
in Fresno, California for $6,250,000 in cash.
In January 1996, the Company sold radio station KTHT-FM in Fresno,
California for $2,200,000 in cash.
In March 1996, the Company purchased radio stations WTCY-AM, WNNK-FM in
Harrisburg, Pennsylvania and radio station WXBM-FM in Pensacola, Florida for
$31,200,000 in cash, including accounts receivable.
In April 1996, the Company purchased radio station WYKZ-FM in Savannah,
Georgia for $1,500,000 in cash.
In August 1996, the Company purchased radio stations WFMB-AM/FM, WCVS-FM in
Springfield, Illinois for $7,000,000 in cash.
In November 1996, the Company purchased radio stations KIKI-AM/FM, KKLV-FM,
KHVH-AM in Honolulu, Hawaii for $9,100,000 in cash, of which $600,000 was paid
in January 1997. Such amount is recorded as a note payable at December 31, 1996.
In November 1996, the Company purchased radio stations WAEV-FM, WLVH-FM,
WSOK-AM in Savannah, Georgia for $11,000,000 in cash, including accounts
receivable.
In November 1996, the Company purchased radio station WWSF-FM in Pensacola,
Florida for $1,820,000 in cash, including accounts receivable.
F-130
<PAGE> 319
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisitions have been accounted for using the purchase method of
accounting. The consolidated statements of operations include the operations of
the acquired businesses since their respective date of acquisition.
The following unaudited pro forma financial information gives effect to the
above acquisitions and disposition as if such transactions had occurred on
January 1, 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -------------------------
1997 1996 1996 1995
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues...................... $10,727,000 $9,930,000 $48,615,000 $44,750,000
Income (loss) from operations..... (138,000) 357,000 6,560,000 5,762,000
Net loss.......................... (1,166,000) (875,000) (503,000) (1,105,000)
</TABLE>
The pro forma information also reflects adjustments to interest expense and
income taxes resulting from the transactions, and is not necessarily indicative
of the results of operations that would have been achieved if such transactions
had occurred at the beginning of the periods presented or of future results of
operations.
The Company has operated stations under time brokerage agreements ("TBAs")
or local marketing agreements ("LMAs") whereby the Company agreed to purchase
from the broadcast station licensee certain broadcast time on the station and to
provide programming to and sell advertising on the station during the purchased
time. Accordingly, the Company received all the revenue derived from the
advertising sold during the purchased time, paid certain expenses of the station
and performed other functions. The broadcast station licensee retains
responsibility for ultimate control of the station in accordance with FCC
policies. At December 31, 1996, the Company had acquired all stations operated
under LMAs during 1996.
At December 31, 1996 and 1995, the Company had deferred $84,000 and
$768,000, respectively, in acquisition costs, primarily legal, related to future
acquisitions. The Company had placed $2,900,000 of deposits in escrow related to
future acquisitions at December 31, 1995. The $2,900,000 deposits in escrow were
utilized in the 1996 acquisitions outlined above. At December 31, 1996, there
were no deposits in escrow. The deferred acquisition costs and deposits in
escrow are included in other assets and deposits, respectively, in the
accompanying consolidated balance sheets.
3. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Bank Credit Facility................................ $67,000,000 $10,000,000
</TABLE>
On June 20, 1996, the Company amended and restated its variable rate loan
agreement (the "Credit Facility"). The agreement was amended to increase the
available credit up to $150,000,000 by adding new lenders and amending certain
other provisions. The interest rate on the Credit Facility floats with the prime
rate established by the agent but can be fixed by the Company for up to six
months based upon a Eurodollar rate. The interest rate includes a borrowing
premium which varies from 1/4% to 3 1/4% depending on the Company's ratio of
total indebtedness to annualized operating cash flow for revolving credit loans,
as defined in the Credit Facility, and based on the interest rate option
selected. The Credit Facility also includes a commitment fee of 1/2% on the
unused portion of the Credit Facility. The Company may incur borrowings under
the Credit Facility until June 30, 2003; however, commitment reductions begin
December 31, 1997 with a final commitment reduction date of June 30, 2003. In
addition, beginning in 1998, the Company is required to prepay outstanding
borrowings to the extent of any excess of any cash flow, as defined. The Credit
Facility is secured by a pledge of the stock of and is guaranteed by all
subsidiaries of the Company and contains certain restrictive covenants,
including the
F-131
<PAGE> 320
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maintenance of cash flow ratios and limitations on additional borrowings,
mergers, acquisitions, dispositions, and certain restricted payments.
Of long-term debt outstanding at December 31, 1996, $43,000,000 matures in
2003 and $24,000,000 matures in 2004.
4. REDEEMABLE PREFERRED STOCK AND WARRANTS
In April 1996, the Company issued 2,500 shares of Series A Cumulative
Redeemable Preferred Stock (the "Preferred Stock") along with warrants for total
proceeds of $25,000,000. The Preferred Stock carries a 12% per annum cumulative
dividend rate and is redeemable April 2005 at $25,000,000 plus accrued and
unpaid dividends. The proceeds were allocated between the Preferred Stock and
warrants based on their estimated fair values. The Preferred Stock is being
increased to its redemption price during the period from date of issuance until
April 2005. The dividends are payable in cash or at the option of the Company in
additional shares of Preferred Stock at a rate of 3/100 of one share for $300 of
such dividends paid. The dividend payment date is each March 1, June 1,
September 1 and December 1, beginning June 1, 1996. During 1996, the Company
paid $2,000,000 in dividends by issuing 200 additional shares. In addition, the
shares of Preferred Stock are subject to mandatory redemption upon the
occurrence of certain specified events and are subject to optional redemption by
the Company at any time and upon the occurrence of certain specified events, in
each case at specified redemption prices based upon the date of any such event.
There are no redemption requirements for the next five years.
The warrants, which are exercisable upon issuance, entitle the holder to
receive 12,177 shares of Class A Common Stock at an exercise price of $.01 per
share. The warrants expire April 2006. In addition, subject to certain
conditions, the warrants (and any shares of Common Stock issued upon the
exercise thereof) may be put to the Company at any one time after April 1, 2001
and may be called at the option of the Company after April 1, 2002. The warrants
are measured at their fair value at December 31, 1996 and, as a result, a change
in the fair value of $5,499,000 was recorded as other expense during 1996.
5. STOCKHOLDERS' EQUITY
In February 1996, the Company reclassified the initial Common Stock to
Class A Common Stock and increased the authorized shares to 200,000, $.01 par
value per share. The Company also created a new class of non-voting Common Stock
known as Class B Common Stock, with 200,000 shares authorized, $.01 par value
per share.
The Company issued Class A Common Stock of 7,221.25 shares for $5,125,000
in February 1996, 3,452.16 shares for $2,450,000 in July 1996, and 9,757.59
shares for $6,925,000 in October 1996. The Company also issued 4,227 shares of
Class B Common Stock for $3,000,000 in February 1996.
One of the shareholders has the right to purchase up to 1,160 additional
shares of Class A Common Stock at a price of $.01 per share, on the earlier of
the occurrence of certain specified events or February 27, 1999.
F-132
<PAGE> 321
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31,
1996 1995
------------ -------------------
<S> <C> <C>
Current:
Federal..................................................... $ -- $ --
State....................................................... 173,000 --
----------- ---------
Total....................................................... 173,000 --
----------- ---------
Deferred:
Federal..................................................... (1,791,000) (374,000)
State....................................................... (306,000) (46,000)
Change in valuation allowance............................... (420,000) 420,000
----------- ---------
Total....................................................... (2,517,000) --
----------- ---------
Income tax expense (benefit)................................ $(2,344,000) $ --
=========== =========
</TABLE>
Income tax expense (benefit) computed using the federal statutory tax rate
is reconciled to the reported income tax expense (benefit) as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1995
YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
<S> <C> <C> <C> <C>
Federal statutory tax rate................. $(1,986,000) (35%) $(377,000) (35%)
State income taxes, net of federal tax
benefit.................................. (183,000) (3%) (46,000) (4%)
Change in valuation allowance.............. (420,000) (7%) 420,000 39%
Nondeductible amortization................. 131,000 2% -- 0%
Nondeductible meals and entertainment...... 59,000 1% -- 0%
Other -- net............................... 55,000 1% 3,000 0%
----------- ---------
Total...................................... $(2,344,000) (41%) $ -- 0%
=========== =========
</TABLE>
F-133
<PAGE> 322
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves not currently deductible........... $ 374,000 $ 289,000
Compensation accruals not currently deductible........... 84,000 --
Increase in fair value of redeemable warrants............ 2,062,000 --
Operating loss carryforward.............................. 4,053,000 466,000
Other.................................................... 5,000 --
----------- ---------
Total deferred tax assets........................ 6,578,000 755,000
Deferred tax liabilities:
Difference in book and tax basis of property............. (1,503,000) (335,000)
Difference in book and tax basis of intangible assets.... (913,000) --
----------- ---------
Total deferred tax liabilities................... (2,416,000) (335,000)
Valuation Allowance........................................ (1,446,000) (420,000)
----------- ---------
Net deferred tax asset..................................... $ 2,716,000 $ --
=========== =========
</TABLE>
For 1995, the Company was included in the consolidated federal income tax
return of DKM. Effective February 27, 1996, the Company was no longer included
in DKM's consolidated federal income tax return. This deconsolidation resulted
from additional equity contributions which lowered DKM's stock ownership below
eighty percent.
The Company and DKM have a tax sharing agreement addressing the utilization
of the Company's net operating losses in DKM's consolidated federal tax return.
Per this agreement, the Company computed its tax liability as if it filed a
separate tax return. DKM will reimburse the Company when the Company would have
utilized the net operating loss carryforward generated through February 27, 1996
on a stand alone basis. DKM's obligation to reimburse remains in effect although
the Company no longer files a consolidated return with DKM.
At February 27, 1996, the net operating loss carryforward included in DKM's
consolidated federal income tax return was estimated at $2,180,000. This net
operating loss carryforward is subject to separate return limitations as the
result of the deconsolidation discussed above.
At December 31, 1996 and 1995, the Company had approximately $10,509,000
and $1,222,000, respectively, in net operating loss carryforwards for federal
income tax purposes. Such amounts include the portion attributable to losses
included in DKM's consolidated return. These loss carryforwards, unless
utilized, will expire between 2008 and 2011. At December 31, 1996, $3,982,000 of
these loss carryforwards result from an acquisition and are subject to separate
return limitations as well as certain limitations under Section 382 described
below. Limitations imposed by Section 382 of the Internal Revenue Code, after a
change of control, will limit the amount of net operating loss which will be
available to offset future taxable income. At December 31, 1996, the Company has
a valuation allowance against such restricted net operating loss for the excess
of the net operating loss over the amount of taxable temporary differences which
will reverse during the permitted carryover period.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities, transmitter sites, and various items
of equipment under noncancelable operating leases. Many of these lease
agreements contain renewal options. Total rental expense was $1,062,000 and
$179,000, for the year ended December 31, 1996 and for the period from May 1,
1995 through December 31, 1995, respectively.
F-134
<PAGE> 323
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary sets forth annual commitments under noncancelable
leases, net of sublease rentals of $129,000, $135,000, $125,000, $62,000, and
$28,000 for the years ending December 31, 1997, 1998, 1999, 2000, and 2001,
respectively.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1997................................................... $ 1,003,000
1998................................................... 1,014,000
1999................................................... 782,000
2000................................................... 538,000
2001................................................... 308,000
Thereafter............................................. 6,494,000
-----------
$10,139,000
===========
</TABLE>
The Company has employment agreements with its two top executive officers.
Pursuant to the agreements, which expire in 2000, the executives receive an
aggregate annual salary of $500,000 plus beginning in 1996, an incentive bonus
based upon the Company achieving certain operating objectives. Bonus amounts for
1995 were determined at the discretion of the Board of Directors of the Company.
At December 31, 1996 and 1995, amounts accrued under these agreements were
$294,000 and $120,000, respectively.
The Company from time to time is involved in litigation incidental to the
conduct of its business. The Company is not a party to any lawsuit or legal
proceedings that, in the opinion of management, is likely to have a material
adverse effect on the Company's financial position or results of operations.
8. STATEMENTS OF CASH FLOWS, SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS ENDED MAY 1, 1995
MARCH 31, YEAR ENDED (INCEPTION) THROUGH
---------------------- DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
---------- -------- ------------ -------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash paid for interest........ $1,548,000 $628,000 $4,264,000 $313,000
Cash paid for income taxes.... -- -- -- --
</TABLE>
Net cash used for purchases of media properties, net of cash acquired, was
allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Purchase price in excess of the net tangible assets
acquired.............................................. $81,353,000 $29,864,000
Property, plant and equipment........................... 12,426,000 7,628,000
Other assets............................................ 1,200,000 --
Working capital, net.................................... (1,464,000) (505,000)
Other liabilities....................................... (600,000) (64,000)
----------- -----------
Net cash used for purchases of media properties......... $92,915,000 $36,923,000
=========== ===========
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company is a party to a management agreement with an affiliate of DKM.
Under the agreement, the Company pays an annual fee of $250,000 for various
financial services. This amount is deemed to be reflective of the fair value of
such services.
As discussed in Note 6, the Company has a tax sharing agreement with DKM.
F-135
<PAGE> 324
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1995, the Company received a 5 1/2% promissory note, payable on
demand, from DKM, representing a portion of DKM's initial capital contribution.
This note was repaid in October 1995. The Company recorded $107,000 in interest
income related to this note for the period from May 1, 1995 (inception) through
December 31, 1995.
10. STOCK-BASED COMPENSATION
Pursuant to the formation of the Company, certain members of the Company's
management were granted the right to receive up to a total of 2,840 additional
shares of Common Stock, on the earlier of the occurrence of certain events or
May 3, 2000. The number of shares to be granted is based upon the appreciation
in the fair value of the Company. As of December 31, 1996, no compensation
expense has been recorded due to the uncertainty associated with estimating the
total ultimate value of the shares to be granted.
Based upon the pending sale transaction (Note 13), for the three months
ended March 31, 1997, the Company recorded $425,000 of compensation expense
based on an estimate of the total ultimate number of shares to be granted. This
amount is included in corporate expense.
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS No. 123, the Company
has applied APB Opinion 25 and related interpretations in accounting for its
stock compensation plans. If the Company had elected to recognize compensation
cost based on the fair value of the options granted at grant date as prescribed
by SFAS No. 123, there would have been no impact on net income for the year and
period ended December 31, 1996 and 1995, respectively.
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents............... $ 3,046,000 $ 3,046,000 $ 214,000 $ 214,000
Liabilities:
Long-term debt.......................... 67,000,00 67,000,000 10,000,000 10,000,000
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents -- The carrying amount approximates fair value
because of the short maturity of those instruments.
Long-term Debt -- The fair value of long-term debt is estimated based
on financial instruments with similar terms, credit characteristics, and
expected maturities.
The fair value estimates presented herein are based on pertinent
information available to the Company as of December 31, 1996 and 1995. Although
the Company is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
reevaluated for purposes of these
F-136
<PAGE> 325
PATTERSON BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statements since that date, and current estimates of fair value may
differ significantly from the amounts presented herein.
12. SUBSEQUENT EVENT -- 401(k) PLAN
Effective January 1, 1997, the Company sponsors a 401(k) Plan for the
benefit of eligible employees. The Company matches 25% of the first 6% of each
participant's salary contributed to the plan.
13. SUBSEQUENT EVENT -- SALE TRANSACTION
In April 1997, the Company and its stockholders signed a letter of intent
pursuant to which all of the outstanding common stock and common stock
equivalents will be sold to Capstar Radio Broadcasting Partners, Inc. for
$220,000,000 subject to certain conditions. Completion of the transaction, which
is subject to the execution of a definitive agreement, FCC approval and other
closing conditions, is expected to occur by the end of the first quarter of
1998.
14. PENDING ACQUISITIONS
In January 1997, the Company signed an agreement to purchase radio station
WMEZ-FM in Pensacola, Florida for $7,000,000 in cash.
In April 1997, the Company signed an agreement to purchase radio stations
KJOI-FM and KRDU-AM in Fresno, California for $6,000,000 in cash. The Company
signed a letter of credit for $500,000 in connection with this transaction.
In May 1997, the Company signed an agreement to purchase radio station
WQFN-FM in Grand Rapids, Michigan for $1,900,000 in cash.
The Company began to operate KJOI-FM and KRDU-AM in Fresno, California and
WQFN-FM in Grand Rapids, Michigan under LMA agreements in April 1997 and May
1997, respectively.
F-137
<PAGE> 326
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Ameron Broadcasting, Inc.:
We have audited the accompanying balance sheet of Ameron Broadcasting, Inc.
(a Missouri corporation) as of December 31, 1996, and the related statements of
operations, stockholders' equity 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 Ameron Broadcasting, 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.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
May 14, 1997
F-138
<PAGE> 327
AMERON BROADCASTING, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 90,108 $ 54,237
Accounts receivable, net of allowance for doubtful
accounts of $75,000 and $115,697, respectively......... 1,405,017 1,758,295
Prepaid assets and other.................................. 205,761 158,131
----------- -----------
Total current assets.............................. 1,700,886 1,970,663
----------- -----------
PROPERTY, PLANT AND EQUIPMENT............................... 3,950,470 3,949,846
ACCUMULATED DEPRECIATION.................................... (2,033,595) (1,962,993)
----------- -----------
Net property, plant and equipment................. 1,916,875 1,986,853
----------- -----------
INTANGIBLE ASSETS:
Federal Communications Commission licenses................ 7,130,104 7,182,920
Goodwill.................................................. 5,876,425 5,919,954
----------- -----------
Total intangible assets........................... 13,006,529 13,102,874
----------- -----------
Total assets...................................... $16,624,290 $17,060,390
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to related party............................. $ 4,200,000 $ 4,320,000
Current maturities of long-term debt...................... 1,000,000 1,000,000
Accounts payable and accrued liabilities.................. 761,495 677,154
----------- -----------
Total current liabilities......................... 5,961,495 5,997,154
LONG-TERM DEBT.............................................. 4,562,500 4,812,500
----------- -----------
Total liabilities................................. 10,523,995 10,809,654
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 1,410,000 shares authorized,
1,316,502 shares issued and outstanding................ 1,316,502 1,316,502
Additional paid-in capital................................ 12,433,654 12,433,654
Accumulated deficit....................................... (7,649,861) (7,499,420)
----------- -----------
Total stockholders' equity........................ 6,100,295 6,250,736
----------- -----------
Total liabilities and stockholders' equity........ $16,624,290 $17,060,390
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-139
<PAGE> 328
AMERON BROADCASTING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
REVENUE..................................................... $2,087,508 $ 9,123,212
LESS Agency commissions..................................... 231,988 992,249
---------- -----------
Total net revenue................................. 1,855,520 8,130,963
---------- -----------
OPERATING EXPENSES:
Engineering and programming............................... 705,628 2,581,547
Selling, general and administrative....................... 910,090 3,276,141
Depreciation and amortization............................. 166,947 662,903
---------- -----------
Total operating expenses.......................... 1,782,665 6,520,591
---------- -----------
Income from operations............................ 72,855 1,610,372
---------- -----------
OTHER EXPENSE (INCOME):
Interest expense.......................................... 218,288 842,881
Interest income........................................... (3,825) (6,810)
Other, net................................................ 8,833 83,446
---------- -----------
Other expense, net................................ 223,296 919,517
---------- -----------
Net income (loss)................................. $ (150,441) $ 690,855
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-140
<PAGE> 329
AMERON BROADCASTING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995................ $1,316,002 $12,426,559 $(8,190,275) $5,552,286
Net income.............................. -- -- 690,855 690,855
Issuance of 500 shares of common
stock................................ 500 7,095 -- 7,595
---------- ----------- ----------- ----------
BALANCE, December 31, 1996................ 1,316,502 12,433,654 (7,499,420) 6,250,736
Net loss (unaudited).................... -- -- -- (150,441)
---------- ----------- ----------- ----------
BALANCE, March 31, 1997 (unaudited)....... $1,316,502 $12,433,654 $(7,499,420) $6,100,295
========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-141
<PAGE> 330
AMERON BROADCASTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(150,441) $ 690,855
Adjustments to reconcile net income (loss) to cash
provided by operating activities --
Depreciation and amortization.......................... 166,947 663,106
Loss on sale of fixed assets........................... -- 592
Changes in net assets and liabilities --
Accounts receivable.................................... 353,278 (372,472)
Prepaid and other assets............................... (47,630) (41,068)
Accounts payable and accrued liabilities............... 84,341 (54,011)
--------- -----------
Net cash provided by operating activities......... 406,495 887,002
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (624) (177,444)
Proceeds from sale of fixed assets........................ -- 4,900
--------- -----------
Net cash used in investing activities............. (624) (172,544)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on note payable to related party........... (120,000) 390,000
Payments on long-term debt................................ (250,000) (1,000,000)
Decrease in outstanding check liability................... -- (57,916)
Proceeds from issuance of common stock.................... -- 7,595
--------- -----------
Net cash used in financing activities............. (370,000) (660,321)
--------- -----------
Net increase in cash.............................. 35,871 54,137
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD............... 54,237 100
--------- -----------
CASH AND CASH EQUIVALENTS END OF PERIOD..................... $ 90,108 $ 54,237
========= ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE INFORMATION -- Cash paid
during the period for interest............................ $ 301,928 $ 776,618
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-142
<PAGE> 331
AMERON BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Ameron Broadcasting, Inc. (the Company), a Missouri corporation, operates
three radio stations in the Birmingham, Alabama, market. The Company operates in
a highly competitive market and revenues may fluctuate significantly based on
programming ratings of the stations within the market.
Unaudited Interim Financial Statements
The financial statements and notes, in so far as they are applicable to the
three-month period ended March 31, 1997, are not covered by the Report of
Independent Accountants. The unaudited interim financial statements reflect all
adjustments consisting of only normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of financial position
and results of operations. Operating results for the three months ended March
31, 1997, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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
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 may 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 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 indeterminable.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and other investments with
original maturities of three months or less.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets as follows:
<TABLE>
<CAPTION>
ASSET
LIFE
-----
<S> <C>
Buildings................................................... 30
Towers and transmitters..................................... 10
Leasehold improvements...................................... 10
Studio equipment............................................ 5-10
Office furniture............................................ 5
Automobiles................................................. 2-5
</TABLE>
F-143
<PAGE> 332
AMERON BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Property, plant and equipment consists of the following as of December 31,
1996:
<TABLE>
<S> <C>
Land........................................................ $ 465,370
Buildings and equipment..................................... 1,035,595
Towers and transmitters..................................... 1,673,707
Furniture and fixtures...................................... 512,593
Leasehold improvements and other............................ 262,581
----------
$3,949,846
==========
</TABLE>
Intangible Assets
Intangible assets are being amortized on a straight-line basis over the
life of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal Communications Commission licenses.................. 40
Goodwill.................................................... 40
</TABLE>
Amortization expense on intangible assets totaled approximately $385,000
for the year ended December 31, 1996. Accumulated amortization aggregated
$2,106,649 at December 31, 1996.
Revenue Recognition
Broadcasting revenue is recognized when commercials are aired.
Concentration of Credit Risk
The Company's revenue and accounts receivable primarily relate to
advertising of products and services within the radio stations' broadcast areas.
The Company performs ongoing credit evaluation 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.
Barter Transactions
The Company enters into barter agreements involving the exchange of
advertising time for products or services. In accordance with industry
standards, all barter transactions are valued at the estimated fair value of the
products or goods received. Barter revenue is recorded when the advertisement is
broadcast and barter expenses are recorded when the products or services are
used.
Income Taxes
The Company has made an election to be treated as an S Corporation under
the provisions of the Internal Revenue Code. All income and losses flow through
to the stockholders who are responsible for all applicable income taxes.
Accordingly, no provision or credit is reflected in the financial statements for
federal and state income taxes.
F-144
<PAGE> 333
AMERON BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The accounting methods used by the Company are substantially the same for
financial reporting and tax purposes with the exception of accounting for
depreciation and amortization expenses and the allowance for doubtful accounts.
The following summarizes the significant differences between the financial
reporting basis and federal income tax basis of certain assets and liabilities:
<TABLE>
<S> <C>
Assets:
FCC licenses and other intangible assets.................. $ 992,000
Accrued expenses.......................................... 28,000
Reserve for bad debts..................................... 13,000
----------
$1,033,000
==========
Liabilities:
Property, plant and equipment............................. $ (282,000)
==========
</TABLE>
3. LONG-TERM DEBT:
Long-term debt at December 31, 1996, consists of a term loan payable to
SouthTrust Bank of Alabama, N.A. (the "Bank") maturing on June 30, 2000.
Interest on this loan is at the Bank's base rate or LIBOR plus 1.75%, as elected
by the Company. In 1996, the Company changed its election from the Bank's base
rate to LIBOR plus 1.75%. At December 31, 1996, LIBOR plus 1.75% was 7.10%. The
term loan is secured by securities pledged by the primary stockholder of the
Company.
Long-term debt maturities as of December 31, 1996, are summarized as
follows:
<TABLE>
<S> <C>
1997........................................................ $1,000,000
1998........................................................ 1,000,000
1999........................................................ 1,000,000
2000........................................................ 2,812,500
2001........................................................ --
----------
Total debt........................................ 5,812,500
Less -- Current maturities.................................. 1,000,000
----------
Long-term debt.................................... $4,812,500
==========
</TABLE>
The carrying amount of the Company's debt approximates market value.
4. COMMITMENTS AND CONTINGENCIES:
The Company has entered into operating leases related to the stations'
corporate offices, tower and the studio facilities. Future minimum lease
payments excluding amounts payable for common area maintenance as of December
31, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 90,007
1998........................................................ 90,007
1999........................................................ 90,007
2000........................................................ 67,506
2001........................................................ --
--------
$337,527
========
</TABLE>
F-145
<PAGE> 334
AMERON BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Rent expense excluding amounts related to common area maintenance for the
year ended December 31, 1996, was approximately $76,000. The Company recognizes
rent expense on a straight-line method over the lease term. As of December 31,
1996, cumulative rent expense in excess of rent payments totaled $51,000 and is
included in accounts payable and accrued liabilities in the accompanying balance
sheet.
The Company is involved in certain legal proceedings and other claims
arising in the ordinary course of business. The Company's management believes
the final resolution of these matters will not have a material impact on the
financial statements.
5. BENEFIT PLANS:
The Company has a defined contribution plan which covers substantially all
full-time employees. The plan is a combined 401(k) plan with companies
affiliated by common ownership. Under the plan, employees are permitted to defer
receipt of a portion of their compensation. The Company's matching rate is
discretionary, with a current rate of 65% of each employee's contribution up to
6% of compensation. Additionally, the Company can make additional discretionary
contributions. Total matching contributions were $47,000 for the year ended
December 31, 1996. There were no additional discretionary contributions made in
1996.
6. RELATED-PARTY TRANSACTIONS:
The Company has a $4,320,000 short-term note payable due to Ameron Fund,
Inc., an entity related by common ownership. The note is a revolving line of
credit which is due upon demand and expires July 1999. Under the agreement,
borrowings up to $4,500,000 are available. Interest is payable monthly based on
the prime rate. The prime interest rate was 8.25% at December 31, 1996. The
Company paid approximately $403,000 in interest to Ameron Fund, Inc. during
1996. The carrying amount of the related party debt approximates market value.
The Company has a management agreement with a company owned by the
Company's principal stockholder. Management services include general management,
employee benefits administration, banking and financing services. The management
fee is based on a set agreement and totaled $40,000 in 1996. Management fees
payable to the management company totaled $10,000 at December 31, 1996, and are
included in accounts payable and accrued liabilities in the accompanying balance
sheet.
7. STOCK OPTIONS:
The Company has a stock option plan for key executives and certain board
members. The Company, at its discretion, offers the participant the option to
purchase a number of shares of common stock. The option expires 60 days after
the option date. With the exercise of these options, the participant receives
four additional options which are immediately exercisable, and expire seven
years from the issuance date or upon the participant's termination. All options
are exercisable at prices based upon a formula as defined in the agreement.
In addition, the Company has a stock agreement with an officer which allows
the officer to earn options to purchase up to 7% of the Company's outstanding
common stock at $1 per share based upon the Company achieving specified levels
of operating profits. As of December 31, 1996, 10,460 options have been earned
under the plan. The agreement also contains provisions allowing the Company and
the major stockholder a right of first refusal for any prospective sale of stock
earned under the agreement. In the event of the officer's employment
termination, he has the right to require the Company to repurchase all shares
purchased under the agreement and the Company has the right to require the
officer to sell all shares purchased under the agreement at a selling price
based on the appraised market value of the shares. Neither the officer nor the
Company may exercise these rights under the earlier of the sale of the
corporation to a third party or five years from the date of the agreement.
F-146
<PAGE> 335
AMERON BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCK OPTIONS (CONTINUED):
No compensation expense has been recorded since inception of the stock
option plans described above as the amount was not material to the financial
statements. During 1996, the Company adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date for awards in 1996
consistent with the provisions of this statement, the Company's net income would
have been reduced by approximately $33,000 to arrive at pro forma net income for
December 31, 1996.
The fair value of each option has been estimated on the date of grant using
the estimated fair value of the Company divided by the total number of shares of
stock and options outstanding as of December 31, 1996. The fair value of the
Company is based upon the estimated prospective selling price of the Company's
assets net of reserves and other liabilities.
A summary of the combined activity and balances for the Company's stock
options for the two plans as of December 31, 1996, and changes during the year
ended on that date is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Options outstanding, beginning of year...................... 40,680 $10.37
Options granted............................................. 2,500 12.15
Options exercised........................................... (500) 15.19
Options canceled............................................ -- --
------
Options outstanding, end of year............................ 42,680 10.60
======
Options exercisable at year-end............................. 42,680 10.60
Weighted average fair value of options granted during the
year...................................................... $13.40
======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1996 LIFE PRICE 1996 PRICE
--------------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 1.00 to $ 4.36..................... 19,132 48.2 months $ 2.23 19,132 $ 2.23
$10.06 to $14.10..................... 6,672 36.2 months 12.24 6,672 12.24
$15.19 to $20.00..................... 16,876 36.6 months 19.43 16,876 19.43
------ ------
42,680 $10.60 42,680 $10.60
====== ======
</TABLE>
8. SUBSEQUENT EVENT:
On April 24, 1997, a contract was signed with another broadcast company for
the sale of the Company. The sale is expected to close in August 1997 pending
FCC approval.
F-147
<PAGE> 336
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Knight Quality Stations:
We have audited the accompanying combined balance sheet of Knight Quality
Stations as of December 31, 1996, and the related combined statements of
operations, stockholders' equity 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 Knight Quality Stations 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.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 8, 1997
F-148
<PAGE> 337
KNIGHT QUALITY STATIONS
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 1,752,647 $ 2,419,314
Short-term investments.................................... -- 78,298
Accounts receivable, net of reserves of approximately
$472,000 at December 31, 1996 and March 31, 1997....... 3,298,155 2,631,480
Prepaids and other current assets......................... 387,046 385,397
----------- -----------
Total current assets.............................. 5,437,848 5,514,489
----------- -----------
Property, Land and Equipment:
Land...................................................... 416,223 416,223
Buildings and improvements................................ 5,106,227 5,106,227
Furniture and fixtures.................................... 1,182,935 1,182,935
Equipment................................................. 8,388,183 8,439,431
Motor vehicles............................................ 538,222 534,222
----------- -----------
15,631,790 15,679,038
Less -- Accumulated depreciation and amortization......... 10,721,314 10,895,570
----------- -----------
4,910,476 4,783,468
----------- -----------
Other Assets:
Goodwill, net of accumulated amortization of approximately
$2,473,000 and $2,481,000 at December 31, 1996 and
March 31, 1997, respectively........................... 238,576 230,689
Other..................................................... 470,151 445,548
----------- -----------
$11,057,051 $10,974,194
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable.......................... $ 683,332 $ 848,332
Accrued expenses and accounts payable..................... 1,132,622 1,219,213
----------- -----------
Total current liabilities......................... 1,815,954 2,067,545
----------- -----------
Notes Payable, net of current portion....................... 8,081,228 7,772,893
----------- -----------
Commitments (Note 5)
Stockholders' Equity:
Common stock, no par value
Authorized -- 2,200 shares;
Issued and outstanding -- 2,200 shares................. 36,000 36,000
Retained earnings......................................... 1,123,869 1,097,756
----------- -----------
Total stockholders' equity........................ 1,159,869 1,133,756
----------- -----------
$11,057,051 $10,974,194
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-149
<PAGE> 338
KNIGHT QUALITY STATIONS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1996 MARCH 31, 1997
------------ --------------
(UNAUDITED)
<S> <C> <C>
Broadcast Revenues.......................................... $18,452,001 $ 4,061,302
Less -- Agency commissions.................................. (1,855,089) (398,619)
----------- -----------
Net revenues...................................... 16,596,912 3,662,683
----------- -----------
National Commissions........................................ 1,242,505 293,045
Operating Expenses:
Technical................................................. 660,265 149,741
Program................................................... 3,041,634 784,504
Selling................................................... 6,051,723 1,287,469
General and administrative................................ 3,899,553 820,919
Depreciation and Amortization Expense....................... 1,005,427 205,580
----------- -----------
Income from operations............................ 695,805 121,425
Interest Expense, net....................................... (709,923) (165,281)
Realty Expense, net......................................... (102,221) (22,624)
Nonbroadcast Revenue........................................ 162,721 57,820
Gain on Sale of Property and Equipment...................... 567,762 6,414
----------- -----------
Net income (loss) before provision for state
income taxes.................................... 614,144 (2,246)
Provision for State Income Taxes............................ 76,660 23,867
----------- -----------
Net income (loss)................................. $ 537,484 $ (26,113)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-150
<PAGE> 339
KNIGHT QUALITY STATIONS
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------- ---------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 (unaudited).......... 2,200 $36,000 $1,230,643 $1,266,643
Net income.................................... -- -- 537,484 537,484
Distributions to stockholders................. -- -- (644,258) (644,258)
----- ------- ---------- ----------
Balance, December 31, 1996...................... 2,200 36,000 1,123,869 1,159,869
Net loss (unaudited).......................... -- -- (26,113) (26,113)
----- ------- ---------- ----------
Balance, March 31, 1997 (unaudited)............. 2,200 $36,000 $1,097,756 $1,133,756
===== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-151
<PAGE> 340
KNIGHT QUALITY STATIONS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................................... $ 537,484 $ (26,113)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities --
Depreciation and amortization.......................... 1,024,774 205,580
Gain on sale of real estate............................ (567,762) (6,414)
Write-off of uncollectible note receivable............. 600,000 --
Changes in current assets and current liabilities --
Accounts receivable.................................. (617,810) 666,675
Prepaids and other current assets.................... (29,751) (198,351)
Accrued expenses and accounts payable................ 258,251 86,591
----------- ----------
Net cash provided by operating activities......... 1,205,186 727,968
----------- ----------
Cash Flows from Investing Activities:
Purchase of available-for-sale investments................ -- (78,298)
Purchase of property, land and equipment.................. (1,227,815) (67,003)
Proceeds from the sale of property and equipment.......... 818,905 14,000
(Issuance) repayment of notes receivable.................. (300,000) 200,000
Increase in other assets.................................. (5,454) --
----------- ----------
Net cash (used in) provided by investing
activities...................................... (714,364) 68,699
----------- ----------
Cash Flows from Financing Activities:
Distributions to stockholders............................. (644,258) --
Repayment of debt......................................... (5,015,202) (130,000)
Proceeds from issuance of debt............................ 4,850,000 --
----------- ----------
Net cash used in financing activities............. (809,460) (130,000)
----------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents........ (318,638) 666,667
Cash and Cash Equivalents, beginning of period.............. 2,071,285 1,752,647
----------- ----------
Cash and Cash Equivalents, end of period.................... $ 1,752,647 $2,419,314
=========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for --
Interest............................................... $ 733,187 $ 173,220
=========== ==========
State income taxes..................................... $ 33,484 $ 23,867
=========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-152
<PAGE> 341
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(INCLUDED DATA APPLICABLE TO UNAUDITED PERIODS)
(1) BACKGROUND INFORMATION
Knight Quality Stations (the Company) is the operating name of the
following entities' combined operations:
- Knight Broadcasting of New Hampshire, Inc. (KBNH) (a New Hampshire
corporation) operates the following radio stations:
-- WHEB-FM (Portsmouth, New Hampshire), which operates on a frequency of
100.3 MHz, utilizing a rock format.
-- WXHT-FM (Portsmouth, New Hampshire) formerly WCQL-FM, which operates
on a frequency of 95.3 MHz, utilizing a modern adult contemporary
format.
-- WTMN-AM (Portsmouth, New Hampshire) formerly WCQL-AM, which operates
on a frequency of 1380 kc, utilizing an all sports format.
- Knight Radio, Inc. (KRI) (a New Hampshire corporation) operates the
following stations:
-- WGIR-AM/FM (Manchester, New Hampshire), which operates on a frequency
of 610 kc and 101.1 MHz, utilizing a news, talk and sports format on
WGIR-AM and a rock format on WGIR-FM.
-- WEZF-FM (Burlington, Vermont), which operates on a frequency of 92.9
MHz, utilizing an adult contemporary format.
- Knight Communications Corporation (KCC) (a Massachusetts corporation)
operates the following stations:
-- WSRS-FM (Worcester, Massachusetts), which operates on a frequency of
96.1 MHz, utilizing a soft adult contemporary format.
-- WTAG-AM (Worcester, Massachusetts), which operates on a frequency of
580 kc, utilizing a news, talk and sports format.
In addition to its broadcast radio operations, the Company holds certain
real estate and properties for business purposes.
In February 1996, KCC sold certain real estate, for which the Company
received net proceeds of approximately $770,000 and realized a gain on the sale
of approximately $530,000, which is included in the accompanying combined
statements of operations for the year ended December 31, 1996.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Combination
The accompanying combined financial statements for the year ended December
31, 1996 and for the three months ended March 31, 1997 include the combined
operating results of the entities referred to in Note 1, as they are entities
under common control and common management. All material intercompany accounts
and transactions have been eliminated in the combination.
(b) Interim Financial Statements
The accompanying combined balance sheet as of March 31, 1997, the combined
statements of operations, cash flows and stockholders' equity for the three
months ended March 31, 1997 are unaudited, but in the opinion
F-153
<PAGE> 342
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of management, include all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation of the results for those interim
periods. The results of operations for the three months ended March 31, 1997 are
not necessarily indicative of results to be expected for the entire year.
(c) Management 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
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.
(d) Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with a remaining
maturity of 90 days or less from the date of purchase to be cash equivalents.
The Company accounts for its cash equivalents and short-term investments in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No.
115, investments that the Company has the positive intent and ability to hold to
maturity are reported at amortized cost, which approximates fair market value,
and are classified as held-to-maturity. As of December 31, 1996 and March 31,
1997, the Company had approximately $1,073,000 and $882,000, respectively,
invested in repurchase agreements collateralized by government securities, which
the Company has deemed to be held-to-maturity investments and are included as
cash equivalents in the accompanying combined balance sheets. Short-term
investments have maturities of greater than three months and consist of equity
securities at March 31, 1997. These investments were purchased to be held for
indefinite periods of time and were not intended at the time of purchase to be
held to maturity; therefore, they are classified as available-for-sale. These
investments are carried at cost, which approximates fair market value.
(e) Depreciation and Amortization
The Company provides for depreciation and amortization on property and
equipment using both the straight-line and declining-balance methods by charges
to operations in amounts that allocate the cost of the assets over their
estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
ASSET CLASSIFICATION LIFE
-------------------- ----------------
<S> <C>
Buildings and improvements.................................. 18 - 39 years
Furniture and fixtures...................................... 5 - 7 years
Equipment................................................... 5 - 15 years
Motor vehicles.............................................. 5 - 7 years
</TABLE>
(f) Revenue Recognition
The Company recognizes broadcast revenues and records the related
commission during the period that the advertising is aired.
F-154
<PAGE> 343
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(g) Trade and Barter Transactions
Gross revenues and operating expenses include trade and barter transactions
at the fair market value of the product or service received. These transactions
represent the exchange of advertising time for merchandise and services. Trade
and barter transactions charged to operations were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
<S> <C> <C>
Trade revenues............................................. $ 1,613,192 $ 401,430
Trade expenses............................................. (1,664,042) (313,773)
----------- ---------
Net barter transactions.......................... $ (50,850) $ 87,657
=========== =========
</TABLE>
(h) Prepaids and Other Current Assets
At December 31, 1996 and March 31, 1997, other current assets included
$300,000 and $100,000, respectively, of a note receivable bearing interest at 9%
which is payable monthly, and the note receivable matures in June 1997.
(i) Goodwill
Goodwill represents the excess of acquisition costs over the fair market
value of the assets acquired and is being amortized over 10 years. For the year
ended December 31, 1996 and for the three months ended March 31, 1997,
approximately $99,000 and $8,000, respectively, was charged to operations for
goodwill amortization and is included in depreciation and amortization expense
in the accompanying combined statements of operations. The Company assesses the
realizability of its long-lived assets, including goodwill, using the
undiscounted cash flows method, in accordance with SFAS No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. As
of December 31, 1996 and March 31, 1997, the Company believes that the carrying
values have not been impaired.
(j) Other Assets
Other assets include the following:
- A noncompete agreement related to the acquisition of WEZF. In connection
with the acquisition of the station, the Company entered into a
noncompete agreement with the former owner. Total payments under this
agreement totaled $80,000 and $20,000 for the year ended December 31,
1996 and for the three months ended March 31, 1997, respectively.
- Approximately $433,000 related to Federal Communications Commission (FCC)
licenses acquired through the purchase of WCQL-AM/FM, which is being
amortized over 10 years. For the year ended December 31, 1996 and for the
three months ended March 31, 1997, approximately $44,000 and $11,000,
respectively, of amortization was charged to operations. As of December
31, 1996 and March 31, 1997, accumulated amortization totaled
approximately $97,000 and $108,000, respectively.
In 1996, the Company held a $600,000 note receivable from the owner of WEIM
for the purchase of station WEIM-AM in Fitchburg, Massachusetts, in July 1987.
In September 1996, management deemed this note to be uncollectible and charged
the balance of the note to operations. The write-off is included in general and
administrative expenses in the accompanying combined statement of operations.
F-155
<PAGE> 344
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, investments, accounts receivable, accounts payable and notes
payable. The carrying amount of these financial instruments approximates their
fair value.
(l) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. Financial instruments, which potentially subject the Company to
concentrations of credit risk, are principally cash and cash equivalents,
investments, and accounts receivable. The company places its cash and
investments in highly rated institutions. No single customer accounted for
greater than 10% of revenues in any of the periods presented.
(m) Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued SFAS No.
129, Disclosure of Information About Capital Structure, which established
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-156
<PAGE> 345
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) NOTES PAYABLE
The following are the Company's outstanding notes payable as of December
31, 1996 and March 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
<S> <C> <C>
WSRS --
Note payable to USTrust to borrow up to $4,550,000,
bearing interest at the bank's prime rate (8.50% at March
31, 1997), with principal payments of $65,000 plus
interest due monthly beginning in July 1997, secured by
the personal guarantee of all stockholders............... $4,030,000 $3,900,000
WHEB --
Note payable to The Bank of New Hampshire to borrow up to
$3,600,000, bearing interest at the bank's prime rate
(8.50% at March 31, 1997), with principal payments of
$90,000 plus interest due quarterly, secured by the real
estate of KBNH and the personal guarantee of a
stockholder.............................................. 3,330,000 3,330,000
WGIR --
Note payable to The Bank of New Hampshire to borrow up to
$1,500,000, bearing interest at the bank's prime rate
(8.50% at March 31, 1997), with principal payments of
$75,000 plus interest due quarterly, secured by the real
estate of KRI............................................ 975,000 975,000
Demand note payable to The Bank of New Hampshire to
borrow $300,000, bearing interest at the bank's prime
rate (8.50% at March 31, 1997), payable upon demand with
interest payable monthly and guaranteed by a
stockholder.............................................. 300,000 300,000
WEZF --
Obligation related to a noncompete agreement with the
former owner of WEZF, with quarterly payments of $20,000
due through June 1999.................................... 129,560 116,225
---------- ----------
Total Notes Payable.............................. 8,764,560 8,621,225
Less -- Current portion of notes payable................. 683,332 848,332
---------- ----------
Notes Payable, net of current portion............ $8,081,228 $7,772,893
========== ==========
</TABLE>
In accordance with certain debt agreements, the Company is required to
maintain certain financial and operating covenants. The combined financial
statements and the following table summarize approximate scheduled principal
payments required on the notes payable as of December 31, 1996:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ----------
<S> <C>
1997..................................................... $ 683,000
1998..................................................... 1,364,000
1999..................................................... 1,463,000
2000..................................................... 1,365,000
2001..................................................... 1,140,000
Thereafter............................................... 2,750,000
----------
$8,765,000
==========
</TABLE>
F-157
<PAGE> 346
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. The Company has not recorded a deferred tax asset
in any period presented, as it was insignificant.
Each of the entities has elected to be taxed as an S corporation pursuant
to Section 1362(a) of the Internal Revenue Code for federal income tax purposes.
Therefore, taxable income and federal tax credits of the Company are included in
the tax returns of its stockholders.
During 1987, the Commonwealth of Massachusetts adopted legislation that
modified S corporation status for the Company on a combined basis after fiscal
1988, requiring it to pay ceratin taxes at a corporate level. In addition, New
Hampshire, New York and Vermont do not recognize S corporation status, and
therefore, taxes are paid at the corporate level in all of these states. For the
year ended December 31, 1996 and for the three months ended March 31, 1997, a
current state income tax provision of approximately $77,000 and $24,000,
respectively, has been recognized for certain corporate taxes for financial
reporting purposes.
(5) COMMITMENTS
The Company owns most of its buildings, land, towers and equipment, with
the exception of a radio tower in Vermont and certain office equipment, which
are leased. The Company's future minimum lease payments under operating leases
as of December 31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- --------
<S> <C>
1997...................................................... $111,000
1998...................................................... 28,000
1999...................................................... 4,000
--------
$143,000
========
</TABLE>
Payments under these leases totaled approximately $63,000 and $23,000 for
the year ended December 31, 1996 and for the three months ended March 31, 1997,
respectively.
(6) RELATED PARTY TRANSACTIONS
In January 1995, a new entity, KQS Radio Sales, LLC (KQS Sales), was
established by employees and stockholders of the Company to represent the
Company and other stations for national sales. For the year ended December 31,
1996 and for the three months ended March 31, 1997, the Company paid commissions
to KQS Sales of approximately $556,000 and $173,000, respectively, related to
national sales, which is included as commissions on the accompanying combined
statements of operations.
In 1996, these same employees and stockholders formed Knight Communications
of the Virgin Islands (KCVI). During the three months ended March 31, 1997, the
Company advanced $100,000 to KCVI, interest free. This advance is expected to be
repaid within twelve months and has been included in other current assets in the
accompanying combined balance sheet as of March 31, 1997.
(7) RETIREMENT PLAN
During 1996, the Company adopted a defined contribution retirement plan
(the Plan) under Section 401(k) of the Internal Revenue Code. The Plan provides
for a discretionary matching contributions by the Company. There were no
contributions made by the Company for the year ended December 31, 1996 or for
the three months ended March 31, 1997.
F-158
<PAGE> 347
KNIGHT QUALITY STATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) ACCRUED EXPENSES AND ACCOUNTS PAYABLE
Accrued expenses and accounts payable in the accompanying combined balance
sheets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
<S> <C> <C>
Accounts payable........................................... $ 359,135 $ 361,184
Accrued taxes.............................................. 99,561 99,561
Accrued payroll and payroll-related........................ 420,475 641,125
Other accrued expenses..................................... 253,451 117,343
---------- ----------
$1,132,622 $1,219,213
========== ==========
</TABLE>
(9) SUBSEQUENT EVENT
Subsequent to year-end, the Company entered into an asset purchase
agreement with Capstar Acquisition Company, Inc. ("Capstar"), whereby the
Company agreed to sell substantially all of its assets to Capstar in exchange
for approximately $55.0 million.
F-159
<PAGE> 348
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Quass Broadcasting Company
Cedar Rapids, Iowa
We have audited the accompanying balance sheet of Quass Broadcasting
Company as of December 31, 1996 and the related statements of income, common
stockholders' equity (deficit), 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 Quass Broadcasting Company
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.
McGLADREY & PULLEN, LLP
Cedar Rapids, Iowa
February 20, 1997, except for Note 6,
as to which the date is June 12, 1997
F-160
<PAGE> 349
QUASS BROADCASTING COMPANY
BALANCE SHEETS
ASSETS (Note 2)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current Assets
Cash and cash equivalents................................. $ 608,643 $ 54,530
Accounts receivable, less allowance for doubtful accounts
1996 $75,996; 1997 $37,568............................. 642,549 532,484
Inventories............................................... 3,636 3,687
Prepaid expenses.......................................... 41,476 28,787
Deferred income taxes (Note 4)............................ 35,000 35,000
---------- ----------
Total current assets.............................. 1,331,304 654,488
---------- ----------
Property and Equipment
Land...................................................... 241,786 241,786
Buildings and building improvements....................... 68,664 68,664
Transmitting equipment.................................... 851,754 851,754
Studio technical equipment................................ 604,065 604,065
Furniture and fixtures.................................... 111,058 111,058
Office and shop equipment................................. 156,793 159,248
---------- ----------
2,034,120 2,036,575
Less accumulated depreciation............................. 811,691 854,285
---------- ----------
1,222,429 1,182,290
---------- ----------
Intangibles
Broadcast rights, at cost, less accumulated amortization
1996 $227,097; 1997 $244,581........................... 2,122,392 2,104,908
Other intangibles, at cost, less accumulated amortization
1996 $298,852; 1997 $312,070........................... 281,201 267,983
---------- ----------
2,403,593 2,372,891
---------- ----------
$4,957,326 $4,209,669
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt (Note 2)............. $ 250,000 $ 250,000
Accounts payable.......................................... 53,764 37,897
Accrued payroll and payroll related expenses.............. 101,410 57,480
Other accrued liabilities................................. 51,419 43,454
Income taxes payable...................................... 13,766 30,097
---------- ----------
Total current liabilities......................... 470,359 418,928
---------- ----------
Long-Term Debt, including $100,000 due to stockholder (Note
2)........................................................ 4,155,000 3,417,500
---------- ----------
Deferred Income Taxes (Note 4).............................. 203,000 203,000
---------- ----------
Commitments (Note 3)
Redeemable Preferred Stock, $7.50 par value; 20,000 shares
authorized; 12% cumulative dividends; none issued......... -- --
---------- ----------
Stockholders' Equity (Notes 2 and 6)
Capital stock, common, no par or stated value; 80,000
shares authorized; issued and outstanding 17,000
shares................................................. 17,000 17,000
Additional paid-in capital................................ 133,000 133,000
Retained earnings (deficit)............................... (21,033) 20,241
---------- ----------
128,967 170,241
---------- ----------
$4,957,326 $4,209,669
========== ==========
</TABLE>
See Notes to Financial Statements.
F-161
<PAGE> 350
QUASS BROADCASTING COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------------
1996 1996 1997
------------ --------- --------
(UNAUDITED)
<S> <C> <C> <C>
Broadcasting revenue...................................... $4,037,270 $ 894,066 $920,915
Operating expenses:
Broadcasting expenses................................... 3,272,713 707,665 688,961
Depreciation and amortization........................... 293,069 68,889 73,296
---------- --------- --------
Total operating expenses........................ 3,565,782 776,554 762,257
---------- --------- --------
Operating income, broadcasting.................. 471,488 117,512 158,658
---------- --------- --------
Net sales, signage........................................ 151,105 32,562 29,236
Cost of sales............................................. 79,009 20,071 17,721
Operating expenses........................................ 41,484 10,266 13,112
---------- --------- --------
Operating income (loss), signage................ 30,612 2,225 (1,597)
---------- --------- --------
Operating income................................ 502,100 119,737 157,061
Financial income (expense):
Interest expense........................................ (428,436) (103,377) (86,026)
Interest income......................................... 26,125 7,069 220
---------- --------- --------
Income before income taxes...................... 99,789 23,429 71,255
Federal and state income taxes (Note 4)................... 38,826 10,850 29,981
---------- --------- --------
Net income...................................... $ 60,963 $ 12,579 $ 41,274
========== ========= ========
Net income attributable to common stockholders............ $ 58,694 $ 10,310 $ 41,274
========== ========= ========
Earnings per common share................................. $ 3.45 $ 0.61 $ 2.43
========== ========= ========
Weighted average common shares outstanding................ 17,000 17,000 17,000
========== ========= ========
</TABLE>
See Notes to Financial Statements.
F-162
<PAGE> 351
QUASS BROADCASTING COMPANY
STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 2)
YEAR ENDED DECEMBER 31, 1996 AND THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL ADDITIONAL RETAINED
STOCK, PAID-IN EARNINGS
COMMON CAPITAL (DEFICIT) TOTAL
------- ---------- --------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1995........................... $17,000 $133,000 $(79,727) $ 70,273
Dividends on preferred stock, $.11 per share....... -- -- (2,269) (2,269)
Net income......................................... -- -- 60,963 60,963
------- -------- -------- --------
Balance, December 31, 1996........................... 17,000 133,000 (21,033) 128,967
Net income (unaudited)............................. -- -- 41,274 41,274
------- -------- -------- --------
Balance, March 31, 1997 (unaudited).................. $17,000 $133,000 $ 20,241 $170,241
======= ======== ======== ========
</TABLE>
See Notes to Financial Statements.
F-163
<PAGE> 352
QUASS BROADCASTING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED MARCH 31,
DECEMBER 31, ---------------------
1996 1996 1997
------------ --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income.............................................. $ 60,963 $ 12,579 $ 41,274
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation......................................... 170,374 38,215 42,594
Amortization......................................... 122,695 30,674 30,702
Provision for doubtful accounts...................... 63,889 7,756 (21,070)
Deferred income taxes................................ 25,000 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable......... (164,944) (7,507) 131,135
(Increase) decrease in inventories................. 1,889 960 (51)
Decrease in prepaid expense........................ 10,425 13,986 12,689
(Increase) decrease in accounts payable............ 30,963 6,776 (15,867)
(Decrease) in accrued expenses..................... (10,223) (39,867) (51,895)
Increase in income taxes payable................... 13,766 10,850 16,331
--------- --------- ---------
Net cash provided by operating activities....... 324,797 74,422 185,842
--------- --------- ---------
Cash Flows from Investing Activities, purchase of property
and equipment........................................... (222,106) (142,553) (2,455)
--------- --------- ---------
Cash Flows from Financing Activities
Proceeds from long-term debt............................ -- -- 100,000
Repayments of long-term debt............................ (50,000) (12,500) (837,500)
Dividends paid.......................................... (2,269) (2,269) --
Redemption of preferred stock........................... (150,000) (150,000) --
--------- --------- ---------
Net cash (used in) financing activities......... (202,269) (164,769) (737,500)
--------- --------- ---------
(Decrease) in cash and cash equivalents......... (99,578) (232,900) (554,113)
Cash and cash equivalents, beginning...................... 708,221 708,221 608,643
--------- --------- ---------
Cash and cash equivalents, ending......................... $ 608,643 $ 475,321 $ 54,530
========= ========= =========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest............................................. $ 431,919 $ 107,322 $ 90,355
Income taxes......................................... -- -- 13,650
</TABLE>
See Notes to Financial Statements.
F-164
<PAGE> 353
QUASS BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: The Company's primary business is the operation of
radio stations in Cedar Rapids, Iowa. The radio stations operated are KHAK-FM,
KDAT-FM and KTOF-AM. The Company also manufactures, produces and sells
multimedia signage, excluding neon, billboards and electric signs.
Accounting estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and 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.
The following is a summary of the Company's significant accounting
policies:
Cash and cash equivalents: For purposes of reporting cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
Inventories: Inventories, which are related to the sign business, are
valued at the lower of cost (first-in, first-out method) or market.
Property and equipment and depreciation: Property and equipment is carried
at cost. Depreciation of property and equipment for book purposes is computed by
the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and building improvements......................... 31 1/2
Transmitting equipment...................................... 10-20
Studio technical equipment.................................. 10
Furniture and fixtures...................................... 10
Office and shop equipment................................... 5-10
</TABLE>
Intangibles: The intangibles are being amortized by the straight-line
method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Broadcast rights............................................ 32-40
Other, primarily goodwill................................... 4-40
</TABLE>
Intangible assets are periodically reviewed for impairment based upon an
assessment of future operations to ensure that they are appropriately valued.
Revenue recognition: Revenue from the sale of time slots is recognized upon
airing of the slot.
Revenue from the sale of signage is recognized upon delivery.
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Earnings per common share: Earnings per common share are determined by
dividing net income less dividends on preferred stock by the weighted average
number of common shares outstanding during each of the periods presented.
F-165
<PAGE> 354
QUASS BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments: The carrying amount of long-term debt
approximates fair value because these obligations bear interest at current
rates.
Interim financial information (unaudited): The financial statements and
notes related thereto as of March 31, 1997 and for the three-month periods ended
March 31, 1996 and 1997 are unaudited, but in the opinion of management include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and results of operations. The
operating results for the interim periods are not indicative of the operating
results to be expected for a full year or for other interim periods. Not all
disclosures required by generally accepted accounting principles necessary for a
complete presentation have been included.
Recently issued accounting standards: In February 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128), and SFAS No. 129,
"Disclosure of Information about Capital Structure" (SFAS 129). SFAS 128
specifies the computation, presentation and disclosure requirements for earnings
per share for entities with publicly-held common stock. Its objective is to
simplify the computation of earnings per share and to make the U.S. standard for
computing earnings per share more compatible with the standards of other
countries and with that of the International Accounting Standards Committee.
SFAS 129 incorporates related disclosure requirements from APB Opinion No. 10,
"Disclosure of Long-Term Obligations," and SFAS No. 47, "Disclosure of Long-Term
Obligations," for entities that were subject to the requirements for those
standards. Both statements are effective for fiscal years beginning after
December 15, 1997. The Company will adopt the statements effective December 31,
1997 and does not expect adoption of the statements to have a significant impact
on its current earnings per share calculation and disclosures.
NOTE 2. PLEDGED ASSETS AND LONG-TERM DEBT
Long-term debt at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Line of credit agreement(A)................................. $2,350,000
Subordinated debenture(B)................................... 100,000
Note payable to an individual(C)............................ 977,500
Note payable to an individual(C)............................ 977,500
----------
4,405,000
Less current maturities..................................... 250,000
----------
$4,155,000
==========
</TABLE>
- ---------------
(A) On December 24, 1996, the Company amended its note payable agreement with a
bank to provide for a variable balance line of credit agreement. Under this
agreement, the original loan balance of $2,350,000 is reduced by scheduled
principal payments through December 1999. The amount available to be
borrowed under this agreement will be reduced during the term of the
agreement by the scheduled principal payments. This agreement is
collateralized by substantially all of the Company's assets, an assignment
of the proceeds of a term life insurance policy on a stockholder, a second
lien on the assets of KTOF-AM and is guaranteed by one of the stockholders
of the Company. This stockholder has also pledged 11,000 shares of common
stock as additional collateral. All borrowings under this agreement bear
interest at 9.5% and will be due in varying quarterly installments through
December 1999. The agreement contains various restrictions, including, among
others, restrictions on the payment of any dividends other than preferred
dividends as well as maintaining various financial ratios. Every other year,
the Company is also required to provide to the bank an updated appraisal of
the Company. The Company was in compliance with these covenants at December
31, 1996 and March 31, 1997.
F-166
<PAGE> 355
QUASS BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(B) The subordinated debenture payable is due to a stockholder, is unsecured,
bears interest at 12% and is due December 1999.
(C) These notes payable are collateralized by substantially all of the assets of
KTOF-AM and the assignment of the proceeds of a term life insurance policy
on a stockholder. The loans bear interest at 9.5% and require interest only
total payments of $15,477 per month through December 1997 and total
principal and interest payments of $17,000 per month through November 2004
with the balances due December 2004. The agreements contain various
restrictions, including, among others, restrictions on the payment of any
dividends other than preferred dividends as well as maintaining various
financial ratios. The Company was in compliance with these covenants at
December 31, 1996 and March 31, 1997.
Aggregate maturities required on long-term debt at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997........................................................ $ 250,000
1998........................................................ 319,324
1999........................................................ 1,921,010
2000........................................................ 23,096
2001........................................................ 25,388
Thereafter.................................................. 1,866,182
----------
$4,405,000
==========
</TABLE>
NOTE 3. LEASE COMMITMENT AND TOTAL RENT EXPENSE
The Company leases its offices and studio space under various agreements
which expire between June 30, 1997 and January 31, 1998 and require that the
lessee pay property taxes plus various annual rentals.
The total minimum rental commitment at December 31, 1996 under the leases
mentioned above is $24,296 which is due as follows:
During the year ending December 31:
<TABLE>
<S> <C>
1997........................................................ $23,396
1998........................................................ 900
-------
$24,296
=======
</TABLE>
The total rental expense included in the income statement for the year
ended December 31, 1996 is $87,432.
NOTE 4. INCOME TAX MATTERS
Net deferred tax liabilities consist of the following components as of
December 31, 1996:
<TABLE>
<S> <C>
Deferred tax liabilities:
Property and equipment.................................... $ 24,000
Broadcasting rights....................................... 189,000
--------
213,000
--------
Deferred tax assets:
Accrued expenses.......................................... 5,000
Receivable allowances..................................... 30,000
Noncompete agreement...................................... 10,000
--------
45,000
--------
$168,000
========
</TABLE>
F-167
<PAGE> 356
QUASS BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheet as of December 31, 1996 as follows:
<TABLE>
<S> <C>
Noncurrent liabilities...................................... $203,000
Current asset............................................... (35,000)
--------
$168,000
========
</TABLE>
The provision for income taxes charged to operations for the year ended
December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Current income tax expense.................................. $ 13,826
Deferred income tax expense................................. 25,000
--------
$ 38,826
========
</TABLE>
The income tax provision differs from the amount of income tax determined
by applying the U. S. Federal income tax rate to pretax income from continuing
operations for the year ended December 31, 1996 due to the following:
<TABLE>
<S> <C>
Computed "expected" tax expense............................. $ 34,900
Increase (decrease) in income taxes resulting from:
Nondeductible items....................................... 3,400
State taxes net of federal benefit........................ 3,000
Other..................................................... (2,474)
--------
$ 38,826
========
</TABLE>
NOTE 5. PROFIT-SHARING PLAN
The Company has a profit-sharing plan that includes 401(k) provisions.
Under the terms of the plan, participants may elect to defer from 2% to 15% of
their compensation and matching contributions, equal to 50% of the deferred
compensation of all eligible participants, which will be made by the employer up
to 2% of each participant's compensation. The Company may also make
discretionary contributions. The Company's contribution for the year ended
December 31, 1996 was $35,000.
NOTE 6. EVENTS SUBSEQUENT TO DECEMBER 31, 1996
On June 12, 1997, all of the outstanding shares of stock of the Company
were acquired by Capstar Broadcasting Partners, Inc. pursuant to a stock
purchase agreement.
F-168
<PAGE> 357
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Mountain Lakes Broadcasting, L.L.C.
We have audited the accompanying balance sheets of Mountain Lakes
Broadcasting, L.L.C. as of December 31, 1996 and 1995, and the related
statements of operations and members 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 financial statements referred to above present fairly,
in all material respects, the financial position of Mountain Lakes Broadcasting,
L.L.C. at December 31, 1996 and 1995, and the results of their operations and
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 16, 1997
F-169
<PAGE> 358
MOUNTAIN LAKES BROADCASTING, L.L.C.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 217,151 $ 164,941
Accounts receivable, net of allowance for doubtful
accounts of $69,410 in 1996 and $13,012 in 1995........ 873,871 828,595
Prepaid expenses and other current assets................. 5,035 8,212
---------- ----------
Total current assets........................................ 1,096,057 1,001,748
Property and equipment, net, at cost........................ 214,200 274,777
Intangible assets, net, at cost............................. 1,352,815 1,723,606
Other asset................................................. 30,575 30,575
Total assets................................................ $2,693,647 $3,030,706
LIABILITIES AND STATION EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 231,036 $ 173,095
Current portion of noncompete payable..................... 394,646 370,791
Current portion of note payable........................... 122,000 122,000
Payable to affiliates..................................... 333,994 333,994
---------- ----------
Total current liabilities................................... 1,081,676 999,880
Long-term portion of noncompete payable..................... 958,169 1,352,815
Long-term portion of note payable........................... 138,885 260,885
Members equity.............................................. 514,917 417,126
---------- ----------
Total liabilities and station equity........................ $2,693,647 $3,030,706
========== ==========
</TABLE>
See accompanying notes.
F-170
<PAGE> 359
MOUNTAIN LAKES BROADCASTING, L.L.C.
STATEMENTS OF OPERATIONS AND STATION EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Gross advertising revenue............... $4,940,677 $4,580,139 $4,949,866
Less agency commission.................. 458,740 484,690 512,577
---------- ---------- ----------
Net broadcast revenue................... 4,481,937 4,095,449 4,437,289
Operating expenses:
Programming........................... 660,308 582,386 698,737
Technical............................. 94,165 105,443 102,410
Sales................................. 1,385,449 1,403,044 1,482,176
General and administrative............ 992,931 934,676 972,096
Depreciation and amortization......... 443,721 440,618 423,509
---------- ---------- ----------
Income from operations.................. 905,363 629,282 758,361
Other income (expense):
Interest income....................... 11,619 17,364 7,643
Interest expense...................... (136,660) (171,660) (189,958)
Other expense......................... (38,866) (39,830) (35,100)
---------- ---------- ----------
Net income.............................. 741,456 435,156 540,946
Members equity, beginning of the year... 417,126 361,970 281,024
Distributions to members................ (643,665) (380,000) (460,000)
---------- ---------- ----------
Members equity, end of the year......... $ 514,917 $ 417,126 $ 361,970
========== ========== ==========
</TABLE>
See accompanying notes.
F-171
<PAGE> 360
MOUNTAIN LAKES BROADCASTING, L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................. $ 741,456 $ 435,156 $ 540,946
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 443,721 440,618 423,509
Gain on sale of equipment............. (1,800) (170) (4,900)
Change in current assets and
liabilities:
(Increase) decrease in accounts
receivable....................... (45,276) 19,635 (28,071)
Decrease in prepaid expenses and
other current assets............. 3,177 3,195 8,166
Increase (decrease) in accounts
payable and accrued expenses..... 57,941 (15,484) (46,683)
---------- --------- ---------
Total adjustments....................... 457,763 447,794 352,021
---------- --------- ---------
Net cash provided by operating
activities............................ 1,199,219 882,950 892,967
INVESTMENT ACTIVITIES
Payments to noncompete payable.......... (370,791) (348,477) (327,598)
Proceeds from the sale of property and
equipment............................. 1,800 1,049 4,898
Purchase of property and equipment...... (12,353) (54,863) (115,332)
Increase in other assets................ -- (30,000) (575)
---------- --------- ---------
Net cash used in investing activities... (381,344) (432,291) (438,607)
FINANCING ACTIVITIES
Payment of notes payable................ (122,000) (106,634) (101,840)
Increase in payable to affiliate........ -- 5,585 58,518
Distributions to members................ (643,665) (380,000) (460,000)
---------- --------- ---------
Net cash used in financing activities... (765,665) (481,049) (503,322)
Net increase (decrease) in cash......... 52,210 (30,390) (48,962)
Cash, beginning of year................. 164,941 195,331 244,293
---------- --------- ---------
Cash, end of year....................... $ 217,151 $ 164,941 $ 195,331
========== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................. $ 136,660 $ 171,660 $ 189,958
========== ========= =========
</TABLE>
See accompanying notes.
F-172
<PAGE> 361
MOUNTAIN LAKES BROADCASTING, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF BUSINESS AND ORGANIZATION
Mountain Lakes Broadcasting, L.L.C. (the "Company") is a limited liability
company incorporated under the laws of the State of Alabama. The Company's sole
members, each representing a 50% ownership interest in the Company, are Dixie
Broadcasting, Inc. ("Dixie") and Radio WBHP, Inc. ("WBHP"). The Company was
established for the primary purpose of owning and operating radio stations
WDRM-FM, WBHP-AM and WHOS-AM in Huntsville, Alabama ( collectively, the
"Stations").
On November 20, 1996, both Dixie and WBHP entered into a Stock Purchase
Agreement for the sale of all of their issued and outstanding shares of common
stock and the assignment of the licenses, permits and other authorizations
issued to the Company by the Federal Communications Commission ("FCC") for the
purposes of operating the Stations and the assets utilized in connection with
the operation of the Stations to Osborn Communications Corporation ("Osborn")
for approximately $24.5 million (see Note 8).
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company's primary source of revenue is the sale of airtime to
advertisers. Revenue is recorded when the advertisements are broadcast.
Property and Equipment
Building, furniture and fixtures, vehicles, and studio and technical
equipment are recorded at cost and depreciated using a modified accelerated
method over their estimated useful lives varying from five to thirty years.
Leasehold improvements are recorded at cost and depreciated over the shorter of
their lease term or estimated useful life. Expenditures for maintenance and
repairs are charged to operations as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for
the years ended December 31, 1996, 1995 and 1994 was approximately $146,000,
$251,000 and $252,000, respectively.
Intangible Assets
Intangible assets consist of noncompete agreements incurred in connection
with the acquisitions of the Stations which are being amortized on a
straight-line basis over the term of the related noncompete agreement (five or
ten years). Noncompete payable represents commitments due under the noncompete
agreements. Payments are due in monthly installments over the terms of the
noncompete agreements. The present value discount reduced this obligation by
$263,221 and $373,602 at December 31, 1996 and 1995, respectively. Interest
incurred from present valuing the salary obligation outstanding for the years
ended December 31, 1996, 1995 and 1994 was $110,380, $132,694 and $153,573,
respectively.
It is the Company's policy to account for the intangible assets at the
lower of amortized cost or fair value. As part of an ongoing review of the
valuation and amortization of the intangible assets, management assesses the
carrying value of the Company's intangible assets if facts and circumstances
suggest that there may be impairment. If this review indicates that the
intangibles will not be recoverable as determined by an undiscounted cash flow
analysis of the Company over the remaining amortization period, the carrying
value of the Company's intangible asset would be reduced to its estimated
realizable value.
During 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
("FAS 121") which established standards for the recognition
F-173
<PAGE> 362
MOUNTAIN LAKES BROADCASTING, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
and measurement of impairment losses on long-lived assets, certain intangible
assets and goodwill. The adoption of FAS 121 did not have a material effect on
the Company's combined financial statements.
Income Taxes
The Company has elected to be taxed as an "S Corporation" for federal
income tax purposes. All items of income, losses and credits are reported by the
S Corporation shareholders on their respective personal income tax returns.
Accordingly, current and deferred federal corporate income taxes have not been
provided in the accompanying financial statements.
Risks and Uncertainties
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
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.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company's revenue is principally derived from broadcast advertisers within the
Huntsville/Decatur area who are impacted by the local economy.
The Company routinely assesses the financial strength of its customers and
does not require collateral or other security to support customer receivables.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Land........................................................ $ 75,389 $ 75,389
Building.................................................... 14,032 14,032
Furniture and fixtures...................................... 113,142 111,562
Vehicles.................................................... 20,841 28,425
Studio and technical equipment.............................. 529,922 519,148
Leasehold improvements...................................... 21,915 21,915
--------- ---------
775,241 770,471
Less accumulated depreciation and amortization.............. (561,041) (495,694)
--------- ---------
$ 214,200 $ 274,777
========= =========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1996, 1995 and 1994 was approximately $73,000, $92,000 and $96,000,
respectively.
F-174
<PAGE> 363
MOUNTAIN LAKES BROADCASTING, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Noncompete agreements..................................... $ 2,710,008 $ 2,710,008
Less accumulated amortization............................. (1,357,193) (986,402)
----------- -----------
$ 1,352,815 $ 1,723,606
=========== ===========
</TABLE>
5. LEASES
The Company is committed to two non-cancelable operating lease covering its
antenna towers located in Harvest, AL and Decatur, AL which expire on April 30,
2000 and November 1, 2001, respectively. The Decatur, AL lease can be renewed
for an additional 5 years.
The Company incurred rental charges of approximately $91,000, $90,000 and
$83,000, during the years ended December 31, 1996, 1995 and 1994 respectively.
Future minimum rental commitments for noncancellable operating leases of
premises and equipment are as follows for the year ended December 31:
<TABLE>
<S> <C>
1997.............................................. $ 89,640
1998.............................................. 82,140
1999.............................................. 44,640
2000.............................................. 30,640
2001.............................................. 21,670
--------
$268,730
========
</TABLE>
6. NOTE PAYABLE
Note payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Note payable to the First Alabama Bank...................... $260,885 $382,885
Less current portion........................................ 122,000 122,000
-------- --------
$138,885 $260,885
======== ========
</TABLE>
The note is being repaid in monthly installments of $12,440 less the
applicable interest at a commercial base rate with the last payment due on
October 27, 1998. The interest rate was 8.25% at December 31, 1996. The average
interest rates accrued during 1996, 1995 and 1994 were 8.46%, 8.93% and 7.01%,
respectively. The note is collateralized by a 100% membership interest in the
Company.
7. PAYABLE TO AFFILIATES
The Company has amounts payable to Dixie and WBHP representing amounts
transferred to the Company at the time the Stations were acquired. The payable
to affiliates is due upon demand and does not accrue interest. The payable to
affiliates was $333,994 at December 31, 1996 and 1995.
F-175
<PAGE> 364
MOUNTAIN LAKES BROADCASTING, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SUBSEQUENT EVENT (UNAUDITED)
In May 1997 both Dixie and WBHP completed a Stock Purchase Agreement
whereby they sold all of their issued and outstanding shares of common stock and
assigned the licenses, permits and other authorizations issued to the Company by
the FCC for the purposes of operating the Stations and the assets utilized in
connection with the operation of the Stations for approximately $24.5 million to
Osborn. No adjustments to the carrying value of the Company's assets and
liabilities have been made to the financial statements of the Company as of
December 31, 1996 in connection with the Stock Purchase Agreement.
F-176
<PAGE> 365
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-177
<PAGE> 366
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-178
<PAGE> 367
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-179
<PAGE> 368
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. 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.
F-180
<PAGE> 369
Q BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-181
<PAGE> 370
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:
<TABLE>
<S> <C>
Fiscal Year
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:
<TABLE>
<S> <C>
Year Ending September 30,
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 Capstar
Radio Broadcasting Partners Inc., formerly Commodore Media, Inc. 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-182
<PAGE> 371
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 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 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-183
<PAGE> 372
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-184
<PAGE> 373
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-185
<PAGE> 374
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.
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>
F-186
<PAGE> 375
DANBURY BROADCASTING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-187
<PAGE> 376
DANBURY BROADCASTING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-188
<PAGE> 377
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-189
<PAGE> 378
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-190
<PAGE> 379
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-191
<PAGE> 380
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-192
<PAGE> 381
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
CASH FLOWS 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 FLOWS 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 FLOWS 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-193
<PAGE> 382
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-194
<PAGE> 383
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (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-195
<PAGE> 384
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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)
=========
</TABLE>
Income tax expense differs from the statutory federal rate of 34% as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
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.
F-196
<PAGE> 385
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-197
<PAGE> 386
ADVENTURE COMMUNICATIONS -- HUNTINGTON
(DIVISION OF ADVENTURE COMMUNICATIONS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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:
<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-198
<PAGE> 387
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
WEEX-AM IV 1230 kHz 08-01-98
WODE-FM A 99.9 MHz 08-01-98
</TABLE>
Wilmington, DE
WJBR-AM D 1290 kHz 08-01-98
WJBR-FM B 99.5 MHz 08-01-98
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 10-01-03
WJJS-FM A 106.1 MHz 10-01-03
WJLM-FM(3) A 93.5 MHz 10-01-03
Worcester, MA
WTAG-AM III 580 kHz 04-01-98
WSRS-FM B 96.1 MHz 04-01-98
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
WPUT-AM D 1510 kHz 06-01-98
WAXB-FM A 105.5 MHz 06-01-98
Portsmouth-Rochester, NH
WHEB-FM B 100.3 MHz 04-01-98
WXHT-FM A 95.3 MHz 04-01-98
WTMN-AM III 1380 kHz 04-01-98
Huntington, WV-Ashland, KY
WTCR-AM B 1420 kHz 10-01-02
WTCR-FM B 103.3 MHz 10-01-02
WIRO-AM C 1230 kHz 10-01-02
WHRD-AM(3) D 1470 kHz 10-01-02
WZZW-AM D 1600 kHz 10-01-02
WKEE-AM D 800 kHz 10-01-02
WKEE-FM A 100.5 MHz 10-01-02
WAMX-FM A 106.3 MHz 10-01-02
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 10-01-02
WOSC-FM B1 95.9 MHz 08-01-98
Manchester, NH
WGIR-AM III 610 kHz 04-01-98
WGIR-FM B 101.1 MHz 04-01-98
A-1
<PAGE> 388
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
--------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C>
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 10-01-03
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
Burlington, VT
WEZF-FM C 92.9 MHz 04-01-98
Harrisburg-Lebanon-Carlisle, PA
WTCY-AM C 1400 kHz 08-01-98
WNNK-FM B 104.1 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
Westchester-Putnam Counties, NY
WFAS-AM C 1230 kHz 06-01-98
WFAS-FM A 103.9 MHz 06-01-98
WZZN-FM A 106.3 MHz 06-01-98
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
SOUTHEAST REGION
Birmingham, AL
WMJJ-FM C 96.5 MHz 04-01-04
WERC-AM B 960 kHz 04-01-04
WOWC-FM C 102.5 MHz 04-01-04
Greenville, SC
WJMZ-FM C 107.3 MHz 12-01-02
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
Daytona Beach, FL
WGNE-FM C1 98.1 MHz 02/01/04
Melbourne-Titusville-Cocoa, FL
WMMB-AM C 1240 kHz 02-01-04
WBVD-FM A 95.1 MHz 02-01-04
WMMV-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
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
WTAK-FM(3) C3 106.1 MHz 04-01-04
WXQW-FM(3) A 94.1 MHz 04-01-04
WWXQ-FM(3) A 92.5 MHz 04-01-04
</TABLE>
A-2
<PAGE> 389
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
--------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C>
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
Pensacola, FL
WMEZ-FM C 94.1 MHz 02-01-04
WXBM-FM C 102.7 MHz 02-01-04
WWSF-FM C1 98.1 MHz 04-01-04
Montgomery, AL
WZHT-FM C 105.7 MHz 04-01-04
WMCZ-FM A 97.1 MHz 04-01-04
WMHS-FM A 104.3 MHz 04-01-04
Savannah, GA
WCHY-AM D 1290 kHz 04-01-04
WCHY-FM C 94.1 MHz 04-01-04
WYKZ-FM C1 98.7 MHz 04-01-04
WAEV-FM C 97.3 MHz 04-01-04
WSOK-AM C 1230 kHz 04-01-04
WLVH-FM C2 101.1 MHz 12-01-03
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
WZBQ-FM(3) C 94.1 MHz 04-01-04
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
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
SOUTHWEST REGION
Baton Rouge, LA
WYNK-FM C 101.5 MHz 06-01-04
WYNK-AM B 1380 kHz 06-01-04
WJBO-AM B 1150 kHz 06-01-04
WLSS-FM C 102.5 MHz 06-01-04
KRVE-FM C2 96.1 MHz 06-01-04
WBIU-AM B 1210 kHz 06-01-04
Wichita, KS
KKRD-FM C1 107.3 MHz 06-01-05
KRZZ-FM C2 96.3 MHz 06-01-05
KNSS-AM C 1240 KHz 06-01-05
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
</TABLE>
A-3
<PAGE> 390
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
--------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C>
Beaumont, TX
KLVI-AM B 560 kHz 08-01-97
KYKR-FM C1 95.1 MHz 08-01-97
KKMY-FM C 104.5 MHz 08-01-97
KIOC-FM C 106.1 MHz 08-01-97
Corpus Christi, TX
KRYS-FM C1 99.1 MHz 08-01-97
KRYS-AM B 1360 kHz 08-01-97
KMXR-FM C1 93.9 MHz 08-01-97
KNCN-FM C1 101.3 MHz 08-01-97
Tyler-Longview, TX
KNUE-FM C 101.5 MHz 08-01-97
KISX-FM C2 107.3 MHz 08-01-97
KTYL-FM C1 93.1 MHz 08-01-97
KKTX-AM(3) IV 1240 kHz 08-01-97
KKTX-FM(3) C2 96.1 MHz 08-01-97
Killeen, TX
KIIZ-FM A 92.3 MHz 08-01-97
KLFX-FM(3) A 107.3 MHz 08-01-97
Fayetteville, AR
KEZA-FM C 107.9 MHz 06-01-04
KKIX-FM C1 103.9 MHz 06-01-04
KKZQ-FM C2 101.9 MHz 06-01-04
KJEM-FM(3) C1 93.3 MHz 06-01-04
Ft. Smith, AR
KWHN-AM B 1320 kHz 06-01-04
KMAG-FM C 99.1 MHz 06-01-04
KZBB-FM(3) C 97.9 MHz 06-01-04
Lubbock, TX
KFMX-FM C1 94.5 MHz 08-01-97
KKAM-AM C 1340 kHz 08-01-97
KZII-FM C1 102.5 MHz 08-01-97
KFYO-AM B 790 kHz 08-01-97
KRLB-FM C1 99.5 MHz 08-01-97
KKCL-FM
(3) C2 98.1 MHz 08-01-97
Waco, TX
KBRQ-FM C1 102.5 MHz 08-01-97
KKTK-AM B 1460 kHz 08-01-97
WACO-FM C 99.9 MHz 08-01-97
KCKR-FM C1 90.5 MHz 08-01-97
KWTX-FM C 97.5 MHz 08-01-97
KWTX-AM C 1230 kHz 08-01-97
Texarkana, TX
KKYR-AM B 790 kHz 06-01-04
KKYR-FM C1 102.5 MHz 08-01-97
KLLI-FM C2 95.9 MHz 08-01-97
KYGL-FM C1 106.3 MHz 06-01-04
Lawton, OK
KLAW-FM
(3) C1 101.5 MHz 06-01-05
KZCD-FM
(3) C2 94.1 MHz 06-01-05
Lufkin, TX
KYKS-FM C1 105.1 MHz 08-01-97
KAFX-FM C1 95.5 MHz 08-01-97
Victoria, TX
KIXS-FM C1 107.9 MHz 08-01-97
KLUB-FM C3 106.9 MHz 08-01-97
</TABLE>
A-4
<PAGE> 391
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
--------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C>
MIDWEST REGION
Grand Rapids, MI
WGRD-FM B 97.9 MHz 10-01-04
WRCV-AM B 1410 kHz 10-01-04
WLHT-FM B 95.7 MHz 10-01-04
WQFN-FM A 100.5 MHz 10-01-04
Des Moines, IA
KHKI-FM C1 97.3 MHz 02-01-05
KGGO-FM C 94.9 MHz 02-01-05
KDMI-AM 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
Springfield, IL
WFMB-AM C 1450 kHz 12-01-04
WFMB-FM B 104.5 MHz 12-01-04
WCVS-FM A 96.7 MHz 12-01-04
Cedar Rapids, IA
KHAK-FM C1 98.1 MHz 02-01-05
KDAT-FM C1 104.5 MHz 02-01-05
KTOF-AM B 1360 kHz 02-01-05
Battle Creek-Kalamazoo, MI
WBCK-AM B 930 kHz 10-01-04
WBXX-FM A 95.3 MHz 10-01-04
WRCC-AM C 1400 kHz 10-01-04
WWKN-FM A 104.9 MHz 10-01-04
WEST REGION
Honolulu, HI
KSSK-AM B 590 kHz 02-01-98
KSSK-FM C 92.3 MHz 02-01-98
KUCD-FM C 101.9 MHz 02-01-98
KHVH-AM B 830 kHz 02-01-98
KKLV-FM C1 98.5 MHz 02-01-98
KIKI-AM B 990 kHz 02-01-98
KIKI-FM C1 93.9 MHz 02-01-98
Fresno, CA
KBOS-FM B 94.9 MHz 12-01-97
KCBL-AM C 1340 kHz 12-01-97
KRZR-FM B 103.7 MHz 12-01-97
KRDU-AM B 1130 kHz 12-01-97
KJOI-FM B 98.9 MHz 12-01-97
Stockton, CA
KVFX-FM A 96.7 MHz 12-01-97
KJAX-AM B 1280 kHz 12-01-97
Modesto, CA
KJSN-FM A 102.3 MHz 12-01-97
KFIV-AM B 1360 kHz 12-01-97
Reno, NV
KRNO-FM C 106.9 MHz 10-01-97
KWNZ-FM C 97.3 MHz 10-01-97
KCBN-AM IV 1230 kHz 10-01-97
</TABLE>
A-5
<PAGE> 392
<TABLE>
<CAPTION>
EXPIRATION
FCC DATE OF
MARKET(1) STATION(2) CLASS FREQUENCY LICENSE
--------- ---------- ----- --------- ----------
<S> <C> <C> <C> <C>
Anchorage, AK
KBFX-FM C3 100.5 MHz 02-01-98
KENI-AM A 650 kHz 02-01-98
KYAK-AM C2 101.3 MHz 02-01-98
KGOT-FM C1 98.9 MHz 02-01-98
KYMG-FM C1 107.5 MHz 02-01-98
KASH-FM B 550 kHz 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
Farmington, NM
KKFG-FM C 104.5 MHz 10-01-97
KDAG-FM C 96.9 MHz 10-01-97
KCQL-AM C 1340 kHz 10-01-97
KTRA-FM C 102.1 MHz 10-01-97
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.
(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 KASH-AM
in Anchorage, Alaska, which the Company will own upon consummation of the
Community Pacific Acquisition, but expects to dispose of subsequent thereto
to remain in compliance with the station ownership limitations under the
Communications Act, and (iii) stations WESC-FM, WFNQ-FM, and WESC-AM which
will be exchanged for stations owned by SFX in the SFX Exchange. See "The
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, WEEL-FM in Wheeling, West Virginia and KLFX-FM in Killeen,
Texas pursuant to JSAs. The Company provides certain sales, programming and
marketing services to station WHRD-AM in Huntington, West Virginia; and
pending the consummation of the respective acquisitions, to stations
WTAK-FM, WXQW-FM and WWXQ-FM in Huntsville, Alabama, WZBQ-FM in Tuscaloosa,
Alabama, KKTX-AM and KKTX-FM in Tyler-Longview, Texas, KZBB-FM in Ft.
Smith, Arkansas, KJEM-FM in Fayetteville, Arkansas, KLAW-FM and KZCD-FM in
Lawton, Oklahoma and WJLM-FM in Roanoke, Virginia pursuant to LMAs.
A-6
<PAGE> 393
======================================================
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 PREFERRED STOCK. 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.......................................... 1
Summary Historical Financial Data........................... 16
Summary Pro Forma Financial Data............................ 17
Risk Factors................................................ 19
Use of Proceeds............................................. 26
Capitalization.............................................. 27
Unaudited Pro Forma Financial Information................... 28
Selected Historical Financial Data.......................... 50
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 52
Business.................................................... 63
The Acquisitions............................................ 90
Management.................................................. 99
Security Ownership of Certain Beneficial Owners............. 112
Certain Transactions........................................ 114
Description of Capital Stock................................ 121
Description of Indebtedness................................. 124
The Exchange Offer.......................................... 138
Description of the New Senior Exchangeable Preferred Stock
and Exchange Debentures................................... 146
Certain United States Federal Income Tax Considerations..... 175
Book-Entry; Delivery & Form................................. 176
Plan of Distribution........................................ 178
Legal Matters............................................... 178
Experts..................................................... 178
Available Information....................................... 180
Glossary of Certain Terms and Market and Industry Data...... 181
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 NEW PREFERRED STOCK 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.
======================================================
======================================================
[CAPSTAR LOGO]
1,000,000 SHARES
CAPSTAR BROADCASTING
PARTNERS, INC.
12% SENIOR EXCHANGEABLE
PREFERRED STOCK
PROSPECTUS
, 1997
======================================================
<PAGE> 394
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
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
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)
3.1.1 -- Certificate of Incorporation of Capstar Broadcasting
Partners, Inc. (the "Company").(11)
3.1.2 -- Certificate of Amendment to Certificate of Incorporation of
the Company.(13)
3.2 -- By-Laws of the Company.(11)
4.1 -- Registration Rights Agreement, dated June 17, 1997 by and
between the Company and BT Securities Corporation.*
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 -- Form of First Supplemental Indenture between the Company and
U.S. Trust Company of Texas, N.A.(14)
4.3.1 -- Indenture, dated as of April 21, 1995, among Capstar Radio
Broadcasting Partners, Inc. ("Capstar Radio"), IBJ Schroder
Bank & Trust Company, as Trustee, and the Guarantors named
therein, governing the Existing Capstar Radio's Notes (the
"Existing Capstar Radio Indenture").(4)
4.3.2 -- Amendment No. 1 to Existing Capstar Radio Indenture.(4)
4.3.3 -- Amendment No. 2 to Existing Capstar Radio Indenture.(5)
4.3.4 -- Amendment No. 3 to Existing Capstar Radio Indenture.(5)
</TABLE>
II-1
<PAGE> 395
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
4.3.5 -- Amendment No. 4 to Existing Capstar Radio Indenture.(6)
4.3.6 -- Amendment No. 5 to Existing Capstar Radio Indenture.(7)
4.3.7 -- Amendment No. 6 to Existing Capstar Radio Indenture.(3)
4.3.8 -- Amendment No. 7 to Existing Capstar Radio Indenture.(12)
4.3.9 -- Amendment No. 8 to Existing Capstar Radio Indenture.(13)
4.3.10 -- Amendment No. 9 to Existing Capstar Radio Indenture.(14)
4.4 -- Indenture, dated June 17, 1997, between Capstar Radio and
U.S. Trust Company of Texas, N.A., governing the Company's
outstanding 9 1/4% Senior Subordinated Notes due 2007.(13)
4.5 -- Indenture, dated June 17, 1997, between the Company and U.S.
Trust Company of Texas, N.A., governing the Company's 12%
Subordinated Exchange Debentures due 2009.(13)
4.6 -- Certificate of Designation of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights
of 12% Senior Exchangeable Preferred Stock and
Qualifications, Limitations and Restrictions Thereof of the
Company, dated June 17, 1997.(13)
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").(11)
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.(11)
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.(11)
10.1.4 -- Letter Agreement amending Benchmark Merger Agreement, dated
April 8, 1997, by and among Benchmark Communications Radio
Limited Partnership, Benchmark Acquisition, Inc., BCR
Holding, Inc., and the Company.(11)
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.(11)
10.3.1 -- Asset Purchase Agreement, dated as of December 26, 1996,
between Community Pacific Broadcasting Company L.P.
("Community Pacific") and Community Acquisition Company,
Inc.(11)
10.3.2 -- Amendment No. 1 to Asset Purchase Agreement, dated May 28,
1997, between Community Pacific and Pacific Star
Communications, Inc. ("Pacific Star").(15)
10.3.3 -- Amendment No. 2 to Asset Purchase Agreement, dated July 14,
1997, between Community Pacific and Pacific Star.(15)
10.4 -- Credit Agreement, dated February 20, 1997, among Capstar
Radio, as borrower, the Company, as guarantor, various
banks, and Bankers Trust Company, as administrative
agent.(8)
10.5 -- Intentionally omitted.
10.6.1 -- Financial Advisory Agreement, dated as of October 16, 1996,
between the Company and Hicks, Muse & Co. Partners, L.P.
("HMCo").(3)
10.6.2 -- Financial Advisory Agreement, dated July 1, 1997, between
Capstar Broadcasting Corporation ("Capstar Broadcasting")
and HMCo.(13)
10.7.1 -- Monitoring and Oversight Agreement, dated as of October 16,
1996, between the Company and HMCo.(3)
10.7.2 -- Monitoring and Oversight Agreement, dated July 1, 1997,
between Capstar Broadcasting and HMCo.(13)
</TABLE>
II-2
<PAGE> 396
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
10.8 -- Form of Indemnification Agreement between Capstar
Broadcasting and each of its directors and officers.(13)
10.9.1 -- Employment Agreement, dated February 14, 1997, between the
Company and R. Steven Hicks.(3)
10.9.2 -- First Amendment to Employment Agreement, dated July 8, 1997,
between R. Steven Hicks, the Company, and Capstar
Broadcasting.(14)
10.10 -- Employment Agreement, dated July 1, 1997, between Capstar
Broadcasting and Paul D. Stone.(13)
10.11 -- Employment Agreement, dated July 1, 1997, between Capstar
Broadcasting and William S. Banowsky, Jr.(13)
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 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 Frank
D. Osborn and Southern Star Communications, Inc.(7)
10.16 -- Employment Agreement between Capstar Radio, Capstar
Broadcasting and David J. Benjamin, III.(14)
10.17 -- 1997 Stock Option Plan of Capstar Broadcasting.(13)
10.18.1 -- Form of Incentive Stock Option Agreement.(13)
10.18.2 -- Form of Non-Qualified Stock Option Agreement for
Employees.(13)
10.18.3 -- Form of Non-Qualified Stock Option Agreement for
Non-Employees.(14)
10.19 -- 1997 Stock Purchase Plan of Capstar Broadcasting.(13)
10.20.1 -- Affiliate Stockholders Agreement, dated October 16, 1996,
among the Company, 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 Affiliate Stockholders
Agreement, dated January 27, 1997, by and among the Company,
the securityholders listed therein and Hicks Muse.(3)
10.20.3 -- Second Amendment to Affiliate Stockholders Agreement, dated
February 20, 1997, by and among the Company, the security
holders listed therein and Hicks Muse.(11)
10.20.4 -- Third Amendment to Affiliate Stockholders Agreement, dated
June 20, 1997, by and among Capstar Broadcasting, the
Company, the security holders listed therein and Hicks
Muse.(13)
10.21.1 -- Management Stockholders Agreement, dated November 26, 1996,
among the Company, the securityholders listed therein and
Hicks Muse.(3)
10.21.2 -- First Amendment to Management Stockholders Agreement, dated
January 27, 1997, by and among the Company and the
securityholders listed therein.(3)
10.21.3 -- Second Amendment to Management Stockholders Agreement, dated
June 20, 1997, by and among Capstar Broadcasting, the
Company, the security holders listed therein and Hicks
Muse.(13)
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)
</TABLE>
II-3
<PAGE> 397
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
10.24 -- Mandatory Buyback Agreement, dated February 20, 1997,
between David J. Benjamin, III and the Company.(3)
10.25.1 -- Registration Rights Agreement, dated February 20, 1997,
between the Company and Frank D. Osborn.(3)
10.25.2 -- First Amendment to Registration Rights Agreement, dated July
1, 1997, between the Company, Capstar Broadcasting, and
Frank D. Osborn.(13)
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)
10.28 -- Stock Purchase Agreement, dated June 5, 1997, by and among
Capstar Acquisition Company, Inc., Quass Broadcasting
Company and the selling stockholders named therein.(13)
10.29.1 -- Asset Purchase Agreement, dated April 24, 1997, between
Ameron Broadcasting, Inc. and Capstar Acquisition Company,
Inc., a wholly-owned subsidiary of Capstar Radio.(12)
10.29.2 -- Letter Agreement, dated April 25, 1997, between Ameron
Broadcasting, Inc. and Capstar Acquisition Company, Inc.(12)
10.29.3 -- Letter Agreement, dated May 9, 1997, between Ameron
Broadcasting, Inc. and Capstar Acquisition Company, Inc.(13)
10.29.4 -- Amendment to Asset Purchase Agreement, dated May 9, 1997,
between Ameron Broadcasting, Inc. and Capstar Acquisition
Company, Inc.(13)
10.30.1 -- Stock Purchase Agreement, dated June 12, 1997, by and among
Capstar Acquisition Company, Inc., the Company, Patterson
Broadcasting, Inc. and the selling stockholders name
therein.(13)
10.30.2 -- First Amendment to Stock Purchase Agreement, dated July 2,
1997, by and among Patterson Broadcasting, Inc., Capstar
Acquisition Company, Inc. and Dyson-Kissner-Moran
Corporation, as representative of the selling stockholders
named therein.(14)
10.31.1 -- Asset Purchase Agreement, dated June 18, 1997, between
Knight Radio, Inc. and Capstar Acquisition Company, Inc.(13)
10.31.2 -- Asset Purchase Agreement, dated June 18, 1997, between
Knight Broadcasting of New Hampshire, Inc. and Capstar
Acquisition Company, Inc.(13)
10.31.3 -- Asset Purchase Agreement, dated June 18, 1997, between
Knight Communications Corp. and Capstar Acquisition Company,
Inc.(13)
10.32 -- Exchange Agreement, dated May 23, 1997, between SFX
Broadcasting, Inc., SFX Broadcasting of Kansas, Inc., SFXKS
Limited Partnership, SFX Broadcasting of Florida, Inc.,
Southern Starr Limited Partnership, and Capstar Acquisition
Company, Inc.(13)
10.33 -- Agreement and Plan of Merger, dated June 16, 1997, by and
among GulfStar Communications, Inc., Capstar Broadcasting,
CBC-GulfStar Merger Sub, Inc. and the stockholders listed
therein.(13)
10.34 -- Employment Agreement between GulfStar Communications, Inc.
and John D. Cullen.(14)
10.35 -- Form of Employment Agreement to be entered into among
Central Star Communications, Inc., Capstar Broadcasting, and
Mary K. Quass.(14)
10.36 -- Employment Agreement among Capstar Radio, Capstar
Broadcasting and Joseph L. Mathias IV.(14)
10.37 -- Form of Employment Agreement to be entered into among
Capstar Radio, Capstar Broadcasting and James M. Strawn.(14)
10.38 -- Form of Employment Agreement to be entered into between
Capstar Broadcasting and James W. Wesley.(14)
10.39 -- GulfStar Stockholders Agreement, dated July 8, 1997, by and
among Capstar Broadcasting, the security holders listed
therein, and Hicks Muse.(14)
10.40 -- Warrant, dated July 8, 1997, issued to R. Steven Hicks.(14)
12.1 -- Deficiency of Earnings to Fixed Charges.(14)
12.2 -- Pro Forma Deficiency of Earnings to Fixed Charges.(14)
21.1 -- List of Subsidiaries.(14)
</TABLE>
II-4
<PAGE> 398
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
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. -- GulfStar
Communications, Inc.*
23.5 -- Consent of Coopers & Lybrand L.L.P. -- Benchmark
Communications Radio Limited Partnership.*
23.6 -- Consent of Coopers & Lybrand L.L.P. -- Midcontinent
Broadcasting Co.*
23.7 -- Consent of Coopers & Lybrand L.L.P. -- Point Communications
Limited Partnership.*
23.8 -- Consent of Coopers & Lybrand L.L.P. -- Community Pacific
Broadcasting Company, L.P.*
23.9 -- Consent of Arthur Andersen LLP -- Patterson Broadcasting,
Inc.*
23.10 -- Consent of Arthur Andersen LLP -- Ameron Broadcasting, Inc.*
23.11 -- Consent of Arthur Andersen LLP -- Knight Quality Stations.*
23.12 -- Consent of McGladrey & Pullen, LLP.*
23.13 -- Consent of Holtz Rubenstein & Co., LLP.*
23.14 -- Consent of Paneth, Haber & Zimmerman, LLP.*
23.15 -- 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 of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
</TABLE>
- ---------------
* 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, dated April 16, 1997, File No. 333-25263.
(4) Incorporated by reference to Commodore's Registration Statement on Form
S-4, dated July 26, 1995, File No. 33-92732.
(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.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, File No. 333-25638.
(12) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, File No. 33-92732.
(13) Incorporated by reference to the Company's Amendment No. 1 to Registration
Statement on Form S-4, dated July 8, 1997, File No. 333-25638.
(14) Incorporated by reference to the Company's Amendment No. 2 to Registration
Statement on Form S-4, dated August 5, 1997, File No. 333-25638.
II-5
<PAGE> 399
(15) Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 23, 1997, File No. 333-25638.
(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-6
<PAGE> 400
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 6th day of August, 1997.
CAPSTAR BROADCASTING PARTNERS, INC.
By: /s/ WILLIAM S. BANOWSKY, JR.
----------------------------------
William S. Banowsky, Jr.,
Executive Vice President and
General Counsel
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
--------- -------- ----
<C> <S> <C>
/s/ R. STEVEN HICKS Chairman of the Board, August 6, 1997
- ----------------------------------------------------- President, Chief Executive
R. Steven Hicks Officer (Principal Executive
Officer)
/s/ PAUL D. STONE Executive Vice President and August 6, 1997
- ----------------------------------------------------- Chief Financial Officer
Paul D. Stone (Principal Financial and
Accounting Officer)
/s/ ERIC C. NEUMAN Executive Vice President and August 6, 1997
- ----------------------------------------------------- Director
Eric C. Neuman
/s/ THOMAS O. HICKS Director August 6, 1997
- -----------------------------------------------------
Thomas O. Hicks
/s/ LAWRENCE D. STUART, JR. Director August 6, 1997
- -----------------------------------------------------
Lawrence D. Stuart, Jr.
</TABLE>
II-7
<PAGE> 401
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> 402
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Capstar Broadcasting Partners, Inc.
We have audited the consolidated balance sheet of Capstar Radio
Broadcasting Partners, Inc. and Subsidiaries, the Predecessor Company of Capstar
Broadcasting Partners, Inc., and Subsidiaries, and formerly known as Commodore
Media, Inc. and Subsidiaries, 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> 403
CAPSTAR BROADCASTING PARTNERS, INC.
PARENT COMPANY CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<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> 404
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> 405
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> 406
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> 407
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> 408
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....... 700,336 487,488 -- (325,547) 862,277
CAPSTAR:
Allowance for
doubtful
accounts
12/31/96....... 862,277 105,670 -- (129,866) 838,081
</TABLE>
S-8
<PAGE> 409
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
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)
3.1.1 -- Certificate of Incorporation of Capstar Broadcasting
Partners, Inc. (the "Company").(11)
3.1.2 -- Certificate of Amendment to Certificate of Incorporation of
the Company.(13)
3.2 -- By-Laws of the Company.(11)
4.1 -- Registration Rights Agreement, dated June 17, 1997 by and
between the Company and BT Securities Corporation.*
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 -- Form of First Supplemental Indenture between the Company and
U.S. Trust Company of Texas, N.A.(14)
4.3.1 -- Indenture, dated as of April 21, 1995, among Capstar Radio
Broadcasting Partners, Inc. ("Capstar Radio"), IBJ Schroder
Bank & Trust Company, as Trustee, and the Guarantors named
therein, governing the Existing Capstar Radio's Notes (the
"Existing Capstar Radio Indenture").(4)
4.3.2 -- Amendment No. 1 to Existing Capstar Radio Indenture.(4)
4.3.3 -- Amendment No. 2 to Existing Capstar Radio Indenture.(5)
4.3.4 -- Amendment No. 3 to Existing Capstar Radio Indenture.(5)
4.3.5 -- Amendment No. 4 to Existing Capstar Radio Indenture.(6)
4.3.6 -- Amendment No. 5 to Existing Capstar Radio Indenture.(7)
4.3.7 -- Amendment No. 6 to Existing Capstar Radio Indenture.(3)
4.3.8 -- Amendment No. 7 to Existing Capstar Radio Indenture.(12)
4.3.9 -- Amendment No. 8 to Existing Capstar Radio Indenture.(13)
4.3.10 -- Amendment No. 9 to Existing Capstar Radio Indenture.(14)
4.4 -- Indenture, dated June 17, 1997, between Capstar Radio and
U.S. Trust Company of Texas, N.A., governing the Company's
outstanding 9 1/4% Senior Subordinated Notes due 2007.(13)
4.5 -- Indenture, dated June 17, 1997, between the Company and U.S.
Trust Company of Texas, N.A., governing the Company's 12%
Subordinated Exchange Debentures due 2009.(13)
4.6 -- Certificate of Designation of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights
of 12% Senior Exchangeable Preferred Stock and
Qualifications, Limitations and Restrictions Thereof of the
Company, dated June 17, 1997.(13)
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").(11)
</TABLE>
<PAGE> 410
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
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.(11)
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.(11)
10.1.4 -- Letter Agreement amending Benchmark Merger Agreement, dated
April 8, 1997, by and among Benchmark Communications Radio
Limited Partnership, Benchmark Acquisition, Inc., BCR
Holding, Inc., and the Company.(11)
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.(11)
10.3.1 -- Asset Purchase Agreement, dated as of December 26, 1996,
between Community Pacific Broadcasting Company L.P.
("Community Pacific") and Community Acquisition Company,
Inc.(11)
10.3.2 -- Amendment No. 1 to Asset Purchase Agreement, dated May 28,
1997, between Community Pacific and Pacific Star
Communications, Inc. ("Pacific Star").(15)
10.3.3 -- Amendment No. 2 to Asset Purchase Agreement, dated July 14,
1997, between Community Pacific and Pacific Star.(15)
10.4 -- Credit Agreement, dated February 20, 1997, among Capstar
Radio, as borrower, the Company, as guarantor, various
banks, and Bankers Trust Company, as administrative
agent.(8)
10.5 -- Intentionally omitted.
10.6.1 -- Financial Advisory Agreement, dated as of October 16, 1996,
between the Company and Hicks, Muse & Co. Partners, L.P.
("HMCo").(3)
10.6.2 -- Financial Advisory Agreement, dated July 1, 1997, between
Capstar Broadcasting Corporation ("Capstar Broadcasting")
and HMCo.(13)
10.7.1 -- Monitoring and Oversight Agreement, dated as of October 16,
1996, between the Company and HMCo.(3)
10.7.2 -- Monitoring and Oversight Agreement, dated July 1, 1997,
between Capstar Broadcasting and HMCo.(13)
10.8 -- Form of Indemnification Agreement between Capstar
Broadcasting and each of its directors and officers.(13)
10.9.1 -- Employment Agreement, dated February 14, 1997, between the
Company and R. Steven Hicks.(3)
10.9.2 -- First Amendment to Employment Agreement, dated July 8, 1997,
between R. Steven Hicks, the Company, and Capstar
Broadcasting.(14)
10.10 -- Employment Agreement, dated July 1, 1997, between Capstar
Broadcasting and Paul D. Stone.(13)
10.11 -- Employment Agreement, dated July 1, 1997, between Capstar
Broadcasting and William S. Banowsky, Jr.(13)
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 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)
</TABLE>
<PAGE> 411
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
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 Frank
D. Osborn and Southern Star Communications, Inc.(7)
10.16 -- Employment Agreement between Capstar Radio, Capstar
Broadcasting and David J. Benjamin, III.(14)
10.17 -- 1997 Stock Option Plan of Capstar Broadcasting.(13)
10.18.1 -- Form of Incentive Stock Option Agreement.(13)
10.18.2 -- Form of Non-Qualified Stock Option Agreement for
Employees.(13)
10.18.3 -- Form of Non-Qualified Stock Option Agreement for
Non-Employees.(14)
10.19 -- 1997 Stock Purchase Plan of Capstar Broadcasting.(13)
10.20.1 -- Affiliate Stockholders Agreement, dated October 16, 1996,
among the Company, 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 Affiliate Stockholders
Agreement, dated January 27, 1997, by and among the Company,
the securityholders listed therein and Hicks Muse.(3)
10.20.3 -- Second Amendment to Affiliate Stockholders Agreement, dated
February 20, 1997, by and among the Company, the security
holders listed therein and Hicks Muse.(11)
10.20.4 -- Third Amendment to Affiliate Stockholders Agreement, dated
June 20, 1997, by and among Capstar Broadcasting, the
Company, the security holders listed therein and Hicks
Muse.(13)
10.21.1 -- Management Stockholders Agreement, dated November 26, 1996,
among the Company, the securityholders listed therein and
Hicks Muse.(3)
10.21.2 -- First Amendment to Management Stockholders Agreement, dated
January 27, 1997, by and among the Company and the
securityholders listed therein.(3)
10.21.3 -- Second Amendment to Management Stockholders Agreement, dated
June 20, 1997, by and among Capstar Broadcasting, the
Company, the security holders listed therein and Hicks
Muse.(13)
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)
10.25.1 -- Registration Rights Agreement, dated February 20, 1997,
between the Company and Frank D. Osborn.(3)
10.25.2 -- First Amendment to Registration Rights Agreement, dated July
1, 1997, between the Company, Capstar Broadcasting, and
Frank D. Osborn.(13)
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)
10.28 -- Stock Purchase Agreement, dated June 5, 1997, by and among
Capstar Acquisition Company, Inc., Quass Broadcasting
Company and the selling stockholders named therein.(13)
10.29.1 -- Asset Purchase Agreement, dated April 24, 1997, between
Ameron Broadcasting, Inc. and Capstar Acquisition Company,
Inc., a wholly-owned subsidiary of Capstar Radio.(12)
</TABLE>
<PAGE> 412
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
10.29.2 -- Letter Agreement, dated April 25, 1997, between Ameron
Broadcasting, Inc. and Capstar Acquisition Company, Inc.(12)
10.29.3 -- Letter Agreement, dated May 9, 1997, between Ameron
Broadcasting, Inc. and Capstar Acquisition Company, Inc.(13)
10.29.4 -- Amendment to Asset Purchase Agreement, dated May 9, 1997,
between Ameron Broadcasting, Inc. and Capstar Acquisition
Company, Inc.(13)
10.30.1 -- Stock Purchase Agreement, dated June 12, 1997, by and among
Capstar Acquisition Company, Inc., the Company, Patterson
Broadcasting, Inc. and the selling stockholders name
therein.(13)
10.30.2 -- First Amendment to Stock Purchase Agreement, dated July 2,
1997, by and among Patterson Broadcasting, Inc., Capstar
Acquisition Company, Inc. and Dyson-Kissner-Moran
Corporation, as representative of the selling stockholders
named therein.(14)
10.31.1 -- Asset Purchase Agreement, dated June 18, 1997, between
Knight Radio, Inc. and Capstar Acquisition Company, Inc.(13)
10.31.2 -- Asset Purchase Agreement, dated June 18, 1997, between
Knight Broadcasting of New Hampshire, Inc. and Capstar
Acquisition Company, Inc.(13)
10.31.3 -- Asset Purchase Agreement, dated June 18, 1997, between
Knight Communications Corp. and Capstar Acquisition Company,
Inc.(13)
10.32 -- Exchange Agreement, dated May 23, 1997, between SFX
Broadcasting, Inc., SFX Broadcasting of Kansas, Inc., SFXKS
Limited Partnership, SFX Broadcasting of Florida, Inc.,
Southern Starr Limited Partnership, and Capstar Acquisition
Company, Inc.(13)
10.33 -- Agreement and Plan of Merger, dated June 16, 1997, by and
among GulfStar Communications, Inc., Capstar Broadcasting,
CBC-GulfStar Merger Sub, Inc. and the stockholders listed
therein.(13)
10.34 -- Employment Agreement between GulfStar Communications, Inc.
and John D. Cullen.(14)
10.35 -- Form of Employment Agreement to be entered into among
Central Star Communications, Inc., Capstar Broadcasting, and
Mary K. Quass.(14)
10.36 -- Employment Agreement among Capstar Radio, Capstar
Broadcasting and Joseph L. Mathias IV.(14)
10.37 -- Form of Employment Agreement to be entered into among
Capstar Radio, Capstar Broadcasting and James M. Strawn.(14)
10.38 -- Form of Employment Agreement to be entered into between
Capstar Broadcasting and James W. Wesley.(14)
10.39 -- GulfStar Stockholders Agreement, dated July 8, 1997, by and
among Capstar Broadcasting, the security holders listed
therein, and Hicks Muse.(14)
10.40 -- Warrant, dated July 8, 1997, issued to R. Steven Hicks.(14)
12.1 -- Deficiency of Earnings to Fixed Charges.(14)
12.2 -- Pro Forma Deficiency of Earnings to Fixed Charges.(14)
21.1 -- List of Subsidiaries.(14)
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. -- GulfStar
Communications, Inc.*
23.5 -- Consent of Coopers & Lybrand L.L.P. -- Benchmark
Communications Radio Limited Partnership.*
23.6 -- Consent of Coopers & Lybrand L.L.P. -- Midcontinent
Broadcasting Co.*
23.7 -- Consent of Coopers & Lybrand L.L.P. -- Point Communications
Limited Partnership.*
</TABLE>
<PAGE> 413
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
23.8 -- Consent of Coopers & Lybrand L.L.P. -- Community Pacific
Broadcasting Company, L.P.*
23.9 -- Consent of Arthur Andersen LLP -- Patterson Broadcasting,
Inc.*
23.10 -- Consent of Arthur Andersen LLP -- Ameron Broadcasting, Inc.*
23.11 -- Consent of Arthur Andersen LLP -- Knight Quality Stations.*
23.12 -- Consent of McGladrey & Pullen, LLP.*
23.13 -- Consent of Holtz Rubenstein & Co., LLP.*
23.14 -- Consent of Paneth, Haber & Zimmerman, LLP.*
23.15 -- 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 of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
</TABLE>
- ---------------
* 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, dated April 16, 1997, File No. 333-25263.
(4) Incorporated by reference to Commodore's Registration Statement on Form
S-4, dated July 26, 1995, File No. 33-92732.
(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.
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, File No. 333-25638.
(12) Incorporated by reference to Commodore's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997, File No. 33-92732.
(13) Incorporated by reference to the Company's Amendment No. 1 to Registration
Statement on Form S-4, dated July 8, 1997, File No. 333-25638.
(14) Incorporated by reference to the Company's Amendment No. 2 to Registration
Statement on Form S-4, dated August 5, 1997, File No. 333-25638.
(15) Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 23, 1997, File No. 333-25638.
<PAGE> 1
EXHIBIT 4.1
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of June 17, 1997
between
CAPSTAR BROADCASTING PARTNERS, INC.
as Issuer
and
BT SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON CORPORATION
as Initial Purchasers
================================================================================
12% Senior Exchangeable Preferred Stock
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Definitions................................................. 1
2. Exchange Offer.............................................. 5
3. Shelf Registration.......................................... 9
4. Additional Dividends........................................ 11
5. Registration Procedures..................................... 11
6. Registration Expenses....................................... 22
7. Indemnification............................................. 23
8. Rules 144 and 144A.......................................... 27
9. Underwritten Registrations.................................. 28
10. Registration of Transfers and Exchanges..................... 28
11. Miscellaneous............................................... 34
(a) No Inconsistent Agreements............................ 34
(b) Adjustments Affecting Registrable
Preferred Stock..................................... 34
(c) Amendments and Waivers................................ 35
(d) Notices............................................... 35
(e) Successors and Assigns................................ 37
(f) Counterparts.......................................... 37
(g) Headings.............................................. 37
(h) Governing Law......................................... 37
(i) Severability.......................................... 37
(j) Securities Held by the Company
or Its Affiliates................................... 38
(k) Third Party Beneficiaries............................. 38
(l) Entire Agreement...................................... 38
</TABLE>
-i-
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
June 17, 1997, among Capstar Broadcasting Partners, Inc., a Delaware
corporation (the "Company"), and BT Securities Corporation and Credit Suisse
First Boston Corporation (together, the "Initial Purchasers").
This Agreement is entered into in connection with the Purchase
Agreement, dated June 10, 1997, among the Company and the Initial Purchasers
(the "Purchase Agreement"), which provides for the issuance and sale by the
Company to the Initial Purchasers of the Company's 12% Senior Exchangeable
Preferred Stock (the "Preferred Stock"). In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement for the benefit of
the Initial Purchasers and their direct and indirect transferees and assigns.
The execution and delivery of this Agreement is a condition to the Initial
Purchasers' obligation to purchase the Preferred Stock under the Purchase
Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Additional Dividends: See Section 4 hereof.
Advice: See Section 5 hereof.
Agreement: See the introductory paragraphs hereto.
Applicable Period: See Section 2 hereof.
Certificate of Designation: The Certificate of Designation
governing the Preferred Stock, as filed with the Secretary of State of the
State of Delaware, as amended from time to time.
Certificated Shares: See Section 10 hereof.
Closing Date: The Closing Date as defined in the
Purchase Agreement.
<PAGE> 4
-2-
Company: See the introductory paragraphs hereto.
Depositary: The Depository Trust Company until a
successor is appointed by the Company and the Transfer Agent.
Effectiveness Date: The 180th day after the Issue
Date.
Effectiveness Period: See Section 3 hereof.
Event Date: See Section 4 hereof.
Exchange Act: The Securities Exchange Act of 1934,
as amended, and the rules and regulations of the SEC
promulgated thereunder.
Exchange Offer: See Section 2 hereof.
Exchange Preferred Stock: See Section 2 hereof.
Exchange Registration Statement: See Section 2
hereof.
Filing Date: Within 90 days after the Issue Date.
Global Certificate: See Section 10 hereof.
Holder: Any holder of Registrable Preferred Stock.
Indemnified Person: See Section 7(c) hereof.
Indemnifying Person: See Section 7(c) hereof.
Initial Purchasers: See the introductory paragraphs
hereto.
Initial Shelf Registration: See Section 3(a) hereof.
Inspectors: See Section 5(o) hereof.
Issue Date: The date on which the original Preferred
Stock was issued and sold to the Initial Purchasers pursuant to
the Purchase Agreement.
NASD: See Section 5(r) hereof.
Participant: See Section 7(a) hereof.
<PAGE> 5
-3-
Participating Broker-Dealer: See Section 2 hereof.
Person: An individual, partnership, corporation, limited liability
company, unincorporated association, trust or joint venture, or a governmental
agency or political subdivision thereof.
Private Exchange: See Section 2 hereof.
Private Exchange Certificate: See Section 2 hereof.
Private Exchange Preferred Stock: See Section 2
hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs
hereto.
Records: See Section 5(o) hereof.
Registrable Preferred Stock: Each share of Preferred Stock upon
original issuance thereof and at all times subsequent thereto, each share of
Exchange Preferred Stock as to which Section 2(c)(vi) hereof is applicable upon
original issuance and at all times subsequent thereto and each share of Private
Exchange Preferred Stock upon original issuance thereof and at all times
subsequent thereto, until in the case of any such shares of Preferred Stock,
Exchange Preferred Stock or Private Exchange Preferred Stock, as the case may
be, the earliest to occur of (i) in the case of any share, the date on which
such share has been exchanged for a freely transferable share in the Exchange
Offer, (ii) in the case of any share, the date on which such share has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) the date on which such Preferred
Stock, Exchange Preferred Stock and Private Exchange Preferred Stock are
distributed to the public pursuant to Rule
<PAGE> 6
-4-
144 under the Securities Act or are saleable pursuant to Rule 144(k) under the
Securities Act.
Registration Statement: Any registration statement of the Company,
including, but not limited to, the Exchange Registration Statement, filed with
the SEC pursuant to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such registration statement, including
post-effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated
thereunder.
Shelf Notice: See Section 2 hereof.
Shelf Registration: See Section 3(b) hereof.
Subsequent Shelf Registration: See Section 3(b)
hereof.
Transfer Agent: The Transfer Agent for the Preferred
Stock, the Exchange Preferred Stock and/or the Private Exchange
Preferred Stock, as the context may require.
<PAGE> 7
-5-
Underwritten registration or underwritten offering: A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
2. Exchange Offer
(a) The Company shall file with the SEC, no later than the Filing
Date, a registration statement on Form S-1 or S-4, if the use of such forms is
then available, or other such appropriate form (the "Exchange Registration
Statement") relating to a registered exchange (the "Exchange Offer") for any
and all shares of the Preferred Stock for a like number of shares (with a
liquidation preference equal to that of the surrendered shares of the Preferred
Stock) of another series of preferred stock of the Company that will have terms
identical in all material respects to the Preferred Stock (the "Exchange
Preferred Stock"), except that (i) the Exchange Preferred Stock shall have been
registered pursuant to an effective Registration Statement under the Securities
Act and the Certificate thereof shall contain no restrictive legend thereon and
(ii) the certificate of designation governing such Exchange Preferred Stock
does not need to contain the provisions set forth in the Certificate of
Designation concerning Additional Dividends. The Exchange Offer shall comply
with all applicable tender offer rules and regulations under the Exchange Act.
The Company agrees to use its reasonable best efforts to (x) cause the Exchange
Registration Statement to be declared effective under the Securities Act on or
before the Effectiveness Date; (y) keep the Exchange Offer open for at least 20
business days (or longer if required by applicable law) after the date that
notice of the Exchange Offer is mailed to Holders; and (z) consummate the
Exchange Offer on or prior to the 225th day following the Issue Date. If, after
such Exchange Registration Statement is initially declared effective by the
SEC, the Exchange Offer or the issuance of the Exchange Preferred Stock
thereunder is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such Exchange
Registration Statement shall be deemed not to have become effective for
purposes of this Agreement. Each Holder who wishes to exchange shares of
Preferred Stock for shares of Exchange Preferred Stock in the Exchange Offer
will be required to represent to the Company that (i) any Exchange Preferred
Stock 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 Preferred Stock and (iii) it is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Company, or
<PAGE> 8
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if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable. Upon
consummation of the Exchange Offer in accordance with this Section 2, the
provisions of this Agreement shall continue to apply, mutatis mutandis, solely
with respect to Registrable Preferred Stock that is Private Exchange Preferred
Stock and Exchange Preferred Stock held by Participating Broker-Dealers, and
the Company shall have no further obligation to register Registrable Preferred
Stock (other than Private Exchange Preferred Stock and other than in respect of
any Exchange Preferred Stock as to which clause 2(c)(v) hereof applies)
pursuant to Section 3 hereof. No securities other than the Exchange Preferred
Stock shall be included in the Exchange Registration Statement.
(b) The Company shall include within the Prospectus contained in
the Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchasers, that shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Preferred Stock received by such broker-dealer (a "Participating Broker-
Dealer") in the Exchange Offer (other than with respect to any Preferred Stock
acquired by it and having the status of an unsold allotment in the initial
distribution), whether such positions or policies have been publicly
disseminated by the Staff of the SEC or such positions or policies, in the
judgment of the Initial Purchasers, represent the prevailing views of the Staff
of the SEC. Such "Plan of Distribution" section shall also expressly permit the
use of the Prospectus by all Persons subject to the prospectus delivery
requirements of the Securities Act, including all Participating Broker-Dealers,
and include a statement describing the means by which Participating
Broker-Dealers may resell the Exchange Preferred Stock.
The Company shall use its reasonable best efforts to keep the
Exchange Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as is necessary to comply with
applicable law in connection with any resale of the Exchange Preferred Stock;
provided, however, that such period shall not exceed 90 days after the
consummation of the Exchange Offer (or
<PAGE> 9
-7-
such longer period if extended pursuant to the last paragraph of Section 5
hereof) (the "Applicable Period").
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Preferred Stock acquired by them and having the status of
an unsold allotment in the initial distribution, the Company shall, upon the
request of the Initial Purchasers simultaneously with the delivery of the
Exchange Preferred Stock in the Exchange Offer, issue and deliver to the
Initial Purchasers in exchange (the "Private Exchange") for such shares of
Preferred Stock held by the Initial Purchasers preferred stock having a
liquidation preference equal to that of the surrendered shares of Preferred
Stock and having terms identical in all material respects to the Preferred
Stock (the "Private Exchange Preferred Stock"), except for the placement of a
restrictive legend on such Private Exchange Preferred Stock; provided, however,
that the certificate of designation governing such Private Exchange Preferred
Stock (the "Private Exchange Certificate") shall provide that Additional
Dividends with respect thereto shall be paid, if required, through the issuance
of additional shares of Private Exchange Preferred Stock.
Dividends on the Exchange Preferred Stock and the Private Exchange
Preferred Stock will accumulate from the last dividend payment date on which
dividends were paid (or deemed to have been paid in accordance with the terms
of the Certificate of Designation) on the Preferred Stock surrendered in
exchange therefor or, if no interest has been paid on the Preferred Stock, from
the Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the Prospectus forming part of
the Exchange Registration Statement, together with an appropriate letter
of transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer
with an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Preferred Stock at any time
prior to the close of business, New York time, on the last business day
on which the Exchange Offer shall remain open; and
<PAGE> 10
-8-
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Company shall:
(1) accept for exchange all shares of Preferred Stock tendered and
not validly withdrawn pursuant to the Exchange Offer or the Private
Exchange;
(2) deliver to the Transfer Agent for cancellation
and retirement certificates representing all shares of
Preferred Stock so accepted for exchange; and
(3) cause the Transfer Agent to countersign and deliver promptly to
each Holder of shares of Preferred Stock, certificates representing
Exchange Preferred Stock or Private Exchange Preferred Stock, as the case
may be, equal in liquidation preference to the shares of Preferred Stock
of such Holder so accepted for exchange.
The certificate of designation for each of the Exchange Preferred
Stock and the Private Preferred Stock, if any, shall provide that the Exchange
Preferred Stock, the Private Exchange Preferred Stock and the Preferred Stock
shall vote and consent together on all matters as one class and that neither
the Exchange Preferred Stock, the Private Exchange Preferred Stock nor the
Preferred Stock will have the right to vote or consent as a separate class on
any matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company is not permitted to effect
an Exchange Offer, (ii) any Holder either is not eligible to participate in the
Exchange Offer or participates in the Exchange Offer, and does not receive
shares of Exchange Preferred Stock in exchange for tendered shares of Preferred
Stock (in each case under this clause (ii) other than as a result of applicable
interpretations of the staff of the SEC or applicable law then in effect as of
the Issue Date), (iii) the Exchange Offer is not consummated within 225 days of
the date of original issuance of the Preferred Stock, (iv) any holder of
Private Exchange Preferred Stock so requests at any time after the consummation
of the Private Exchange, (v) the Holders of not less than a majority of
Registrable Preferred Stock reasonably determine that the interests of the
Holders would be adversely affected by consummation of
<PAGE> 11
-9-
the Exchange Offer or (vi) in the case of any Holder that participates in the
Exchange Offer, such Holder does not receive shares of Exchange Preferred Stock
on the date of the exchange that may be sold without restriction under state
and federal securities laws (other than due solely to the status of such Holder
as an affiliate of the Company within the meaning of the Securities Act or any
prospectus delivery requirement applicable to such Holder), in the case of each
of clauses (i) to and including (vi) of this sentence, then the Company shall
promptly deliver to the Holders written notice thereof (the "Shelf Notice") and
shall file a Shelf Registration pursuant to Section 3 hereof.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c)
hereof, then:
(a) Shelf Registration. The Company shall as promptly as reasonably
practicable file with the SEC a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 covering all of the Registrable
Preferred Stock (the "Initial Shelf Registration"). If the Company shall not
have yet filed an Exchange Registration Statement, the Company shall use its
reasonable best efforts to file with the SEC the Initial Shelf Registration on
or prior to the Filing Date. Otherwise, the Company shall use its best efforts
to file with the SEC the Initial Shelf Registration within 30 days of the
delivery of the Shelf Notice. The Initial Shelf Registration shall be on Form
S-1 or another appropriate form permitting registration of such Registrable
Preferred Stock for resale by Holders in the manner or manners designated by
them (including, without limitation, one underwritten offering). The Company
shall not permit any securities other than the Registrable Preferred Stock to
be included in the Initial Shelf Registration or any Subsequent Shelf
Registration (as defined below).
The Company shall use its reasonable best efforts to cause the
Initial Shelf Registration to be declared effective under the Securities Act on
or prior to the Effectiveness Date and to keep the Initial Shelf Registration
continuously effective under the Securities Act until the date that is 24
months from the Issue Date, subject to extension pursuant to the last paragraph
of Section 5 hereof (the "Effectiveness Period"), or such shorter period ending
when (i) all Registrable Preferred Stock covered by the Initial Shelf
Registration have been sold
<PAGE> 12
-10-
in the manner set forth and as contemplated in the Initial Shelf Registration,
(ii) a Subsequent Shelf Registration covering all of the Registrable Preferred
Stock has been declared effective under the Securities Act or (iii) there is no
longer any Registrable Preferred Stock outstanding.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for
any reason at any time during the Effectiveness Period (other than because of
the sale of all of the securities registered thereunder), the Company shall use
its reasonable best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof, and in any event shall within 45 days of
such cessation of effectiveness amend the Initial Shelf Registration in a
manner to obtain the withdrawal of the order suspending the effectiveness
thereof, or file an additional "shelf" Registration Statement pursuant to Rule
415 covering all of the Registrable Preferred Stock (a "Subsequent Shelf
Registration"). If a Subsequent Shelf Registration is filed, the Company shall
use its reasonable best efforts to cause the Subsequent Shelf Registration to
be declared effective under the Securities Act as soon as practicable after
such filing and to keep such Registration Statement continuously effective for
a period equal to the number of days in the Effectiveness Period less the
aggregate number of days during which the Initial Shelf Registration or any
Subsequent Shelf Registration was previously continuously effective. As used
herein the term "Shelf Registration" means the Initial Shelf Registration and
any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Company shall use all
reasonable efforts to supplement and amend the Shelf Registration if required
by the rules, regulations or instructions applicable to the registration form
used for such Shelf Registration, if required by the Securities Act, or if
reasonably requested by the Holders of a majority of shares of the Registrable
Preferred Stock covered by such Registration Statement or by any underwriter of
such Registrable Preferred Stock.
(d) Suspension of Shelf Registration. The Company's obligation to
keep the Shelf Registration effective and usable for offers and sales of the
Preferred Stock and Exchange Preferred Stock may be suspended by the Company in
good faith for valid business reasons, including, without limitation, a pending
acquisition or divestiture of assets. Any such period during which the Company
fails to keep the Shelf Registration effective and usable for offers and sales
of Preferred Stock
<PAGE> 13
-11-
and Exchange Preferred Stock is referred to as a "Suspension Period." A
Suspension Period shall commence on and include the date that the Company gives
notice that the Shelf Registration is no longer effective or the prospectus
included therein is no longer usable for offers and sales of Preferred Stock
and Exchange Preferred Stock and shall end on the date when each Holder of
Preferred Stock and Exchange Preferred Stock covered by such registration
statement either receives the copies of the supplemented or amended prospectus
contemplated by Section 3(c) hereof or is advised in writing by the Company
that use of the prospectus may be resumed; provided that no Suspension Period
shall exceed 90 days in any period of 365 consecutive days.
4. Additional Dividends
The Company and the Initial Purchasers agree that the Holders of
Preferred Stock will suffer damages if the Company fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay, as liquidated damages, additional dividends on the
Preferred Stock or the Private Exchange Preferred Stock (in either case,
"Additional Dividends") under the circumstances and to the extent set forth in
the Certificate of Designation and the Private Exchange Certificate,
respectively. The Company shall notify the Transfer Agent within one business
day after each and every date on which an event occurs in respect of which
Additional Dividends are required to be paid (an "Event Date"). Any Additional
Dividends will be payable in accordance with the terms of the Certificate of
Designation and the Private Exchange Certificate on the next following dividend
payment date. The Company agrees to make available to the Transfer Agent
certificates representing additional shares of Private Exchange Preferred Stock
to be paid as Additional Dividends on or prior to the dividend payment date.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Company shall effect such registrations
to permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Company hereunder the
Company shall:
<PAGE> 14
-12-
(a) Prepare and file with the SEC prior to the Filing Date, a
Registration Statement or Registration Statements as prescribed by Sections 2
or 3 hereof, and use its reasonable best efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein; provided, however, that, if (1) such filing is pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, before filing any Registration
Statement or Prospectus or any amendments or supplements thereto, the Company
shall furnish to and afford the Holders of the Registrable Preferred Stock
covered by such Registration Statement or each such Participating Broker-
Dealer, as the case may be, their counsel and the managing underwriters, if
any, a reasonable opportunity to review copies of all such documents (including
copies of any documents to be incorporated by reference therein and all
exhibits thereto) proposed to be filed (in each case at least five business
days prior to such filing). The Company shall not file any Registration
Statement or Prospectus or any amendments or supplements thereto if the Holders
of a majority of shares of Registrable Preferred Stock covered by such
Registration Statement, or any such Participating Broker-Dealer, as the case
may be, their counsel, or the managing underwriters, if any, shall reasonably
object. Notwithstanding anything to the contrary contained in this Agreement,
the Company shall not be required to engage in more than one underwritten
offering pursuant to this Agreement.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or Exchange Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period or the Applicable
Period, as the case may be; cause the related Prospectus to be supplemented by
any Prospectus supplement required by applicable law, and as so supplemented to
be filed pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; and comply with the provisions of the
Securities Act and the Exchange Act applicable to it with respect to the
disposition of all securities covered by such Registration Statement as so
amended or in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus. The Company shall be deemed not to have used
its reasonable best efforts to keep a Registration
<PAGE> 15
-13-
Statement effective during the Applicable Period if it voluntarily takes any
action that would result in selling Holders of the Registrable Preferred Stock
covered thereby or Participating Broker-Dealers seeking to sell Exchange
Preferred Stock not being able to sell such Registrable Preferred Stock or such
Exchange Preferred Stock during that period unless such action is required by
applicable law or unless the Company complies with this Agreement, including
without limitation, the provisions of paragraphs 3(d) and 5(k) hereof and the
last paragraph of this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, notify the selling Holders of
Registrable Preferred Stock, or each such Participating Broker-Dealer, as the
case may be, their counsel and the managing underwriters, if any, promptly (but
in any event within two business days), and confirm such notice in writing, (i)
when a Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective under the Securities Act
(including in such notice a written statement that any Holder may, upon
request, obtain, at the sole expense of the Company, one conformed copy of such
Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated
by reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when a
prospectus is required by the Securities Act to be delivered in connection with
sales of the Registrable Preferred Stock or resales of Exchange Preferred Stock
by Participating Broker-Dealers the representations and warranties of the
Company contained in any agreement (including any underwriting agreement),
contemplated by Section 5(m) hereof cease to be true and correct, (iv) of the
receipt by the Company of any notification with respect to the suspension of
the qualification or exemption from qualification of a Registration Statement
or any of the Registrable Preferred Stock or the Exchange Preferred Stock to be
sold by any Participating Broker-Dealer for offer or sale in any jurisdiction,
or the initiation or threatening of any proceeding for
<PAGE> 16
-14-
such purpose, (v) of the happening of any event, the existence of any condition
or any information becoming known that makes any statement made in such
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in or amendments or supplements to
such Registration Statement, Prospectus or documents so that, in the case of
the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the
case of the Prospectus, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading and (vi) of the Company's
determination that a post-effective amendment to a Registration Statement would
be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, use its reasonable best efforts
to prevent the issuance of any order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of a
Prospectus or suspending the qualification (or exemption from qualification) of
any of the Registrable Preferred Stock or the Exchange Preferred Stock to be
sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if
any such order is issued, to use its reasonable best efforts to obtain the
withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or underwriters (if any), or the Holders
of a majority of shares of Registrable Preferred Stock being sold in connection
with an underwritten offering or any Participating Broker-Dealer, (i) promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters (if any), such Holders,
any Participating Broker-Dealer or counsel for any of them determine is
reasonably necessary to be included therein, (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
practicable after the Company
<PAGE> 17
-15-
has received notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment and (iii) supplement or make amendments
to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, furnish to each selling Holder of
Registrable Preferred Stock and to each such Participating Broker-Dealer who so
requests and to counsel and each managing underwriter, if any, at the sole
expense of the Company, one conformed copy of the Registration Statement or
Registration Statements and each post-effective amendment thereto, including
financial statements and schedules, and, if requested, all documents
incorporated or deemed to be incorporated therein by reference and all
exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, deliver to each selling Holder of
Registrable Preferred Stock, or each such Participating Broker-Dealer, as the
case may be, their respective counsel, and the underwriters, if any, at the
sole expense of the Company, as many copies of the Prospectus (including each
form of preliminary prospectus) and each amendment or supplement thereto and
any documents incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders of Registrable Preferred Stock or each
such Participating Broker-Dealer, as the case may be, and the underwriters or
agents, if any, and dealers (if any), in connection with the offering and sale
of the Registrable Preferred Stock covered by, or the sale by Participating
Broker-Dealers of the Exchange Preferred Stock pursuant to, such Prospectus and
any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Preferred Stock or
any delivery of a Prospectus contained in the Exchange Registration Statement
by any Participating Broker-
<PAGE> 18
-16-
Dealer who seeks to sell Exchange Preferred Stock during the Applicable Period,
to use its reasonable best efforts to register or qualify, and to cooperate
with the selling Holders of Registrable Preferred Stock or each such
Participating Broker-Dealer, as the case may be, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Preferred Stock for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder, Participating Broker-Dealer, or the managing underwriter or
underwriters reasonably request; provided, however, that where Exchange
Preferred Stock held by Participating Broker-Dealers or Registrable Preferred
Stock offered other than through an underwritten offering, the Company agrees
to cause the Company's counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this Section
5(h); keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be kept
effective and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of the Exchange
Preferred Stock held by Participating Broker-Dealers or the Registrable
Preferred Stock covered by the applicable Registration Statement; provided,
however, that the Company shall not be required to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction or be subject to taxation in any jurisdiction in which it is not
so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Preferred Stock and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Preferred
Stock to be sold, which certificates shall not bear any restrictive legends and
shall be in a form eligible for deposit with The Depository Trust Company; and
enable such Registrable Preferred Stock to be in such denominations and
registered in such names as the managing underwriter or underwriters, if any,
or Holders may reasonably request.
(j) Use its reasonable best efforts to cause the Registrable
Preferred Stock covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriter or underwriters,
<PAGE> 19
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if any, to consummate the disposition of such Registrable Preferred Stock
except as may be required solely as a consequence of the nature of such selling
Holder's business, in which case the Company will cooperate in all reasonable
respects with the filing of such Registration Statement and the granting of
such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as
practicable prepare and (subject to Sections 3(d) and 5(a) hereof) file with
the SEC, at the sole expense of the Company, a supplement or post-effective
amendment to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Preferred Stock being sold thereunder or
to the purchasers of the Exchange Preferred Stock to whom such Prospectus will
be delivered by a Participating Broker-Dealer, any such Prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Preferred Stock, (i) provide the Transfer Agent
with certificates for the Registrable Preferred Stock in a form eligible for
deposit with The Depository Trust Company and (ii) provide a CUSIP number
for the Registrable Preferred Stock.
(m) In connection with any underwritten offering of
Registrable Preferred Stock pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary in underwritten offerings of securities
similar to the Preferred Stock and take all such other actions as are
reasonably requested by the managing underwriter or underwriters in order to
expedite or facilitate the registration or the disposition of such Registrable
Preferred Stock and, in such connection, (i) make such representations and
warranties to, and covenants with, the underwriters with respect to the
business of the Company and its subsidiaries (including any acquired business,
properties
<PAGE> 20
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or entity, if applicable) and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by issuers to underwriters in
underwritten offerings of securities similar to the Preferred Stock, and
confirm the same in writing if and when requested; (ii) obtain the written
opinion of counsel to the Company and written updates thereof in form, scope
and substance reasonably satisfactory to the managing underwriter or
underwriters, addressed to the underwriters covering the matters customarily
covered in opinions requested in underwritten offerings of securities similar
to the Preferred Stock and such other matters as may be reasonably requested by
the managing underwriter or underwriters; (iii) obtain "cold comfort" letters
and updates thereof in form, scope and substance reasonably satisfactory to the
managing underwriter or underwriters from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data are, or are
required to be, included or incorporated by reference in the Registration
Statement), addressed to each of the underwriters, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings of securities
similar to the Preferred Stock and such other matters as reasonably requested
by the managing underwriter or underwriters; and (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions
and procedures no less favorable than those set forth in Section 7 hereof (or
such other provisions and procedures acceptable to Holders of a majority of
shares of Registrable Preferred Stock covered by such Registration Statement
and the managing underwriter or underwriters or agents) with respect to all
parties to be indemnified pursuant to said Section. The above shall be done at
each closing under such underwriting agreement, or as and to the extent
required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Preferred Stock during the Applicable Period, make available for inspection by
any selling Holder of such Registrable Preferred Stock being sold, or each such
Participating Broker- Dealer, as the case may be, any underwriter participating
in any such
<PAGE> 21
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disposition of Registrable Preferred Stock, if any, and any attorney,
accountant or other agent retained by any such selling Holder or each such
Participating Broker-Dealer, as the case may be, or underwriter (collectively,
the "Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
and instruments of the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise any
applicable due diligence responsibilities, and cause the officers, directors
and employees of the Company and its subsidiaries to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Records that the Company determines, in good faith, to be
confidential and any Records that it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court of competent jurisdiction, (iii)
disclosure of such information is, in the reasonable opinion of counsel for any
Inspector, necessary or advisable in connection with any action, claim, suit or
proceeding, directly or indirectly, involving or potentially involving such
Inspector and arising out of, based upon, relating to, or involving this
Agreement or any transactions contemplated hereby or arising hereunder or (iv)
the information in such Records has been made generally available to the public
(other than as a result of an impermissible disclosure or failure to safeguard
by the Inspectors). Each selling holder of such Registrable Preferred Stock and
each such Participating Broker-Dealer will be required to agree that
information obtained by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company unless and until such information
is generally available to the public (other than as a result of an
impermissible disclosure or failure to safeguard by such person). Each selling
Holder of such Registrable Preferred Stock and each such Participating
Broker-Dealer will be required to further agree that it will, upon learning
that disclosure of such Records is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company to undertake appropriate
action to prevent disclosure of the Records deemed confidential at the
Company's sole expense.
(o) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders
<PAGE> 22
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earning statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 45 days after the end of any 12-month period (or
90 days after the end of any 12-month period if such period is a fiscal year)
(i) commencing at the end of any fiscal quarter in which Registrable Preferred
Stock is sold to underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an offering, commencing
on the first day of the first fiscal quarter of the Company after the effective
date of a Registration Statement, which statements shall cover said 12-month
periods.
(p) Upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company, in a form customary for
underwritten transactions, addressed to the Transfer Agent for the benefit of
all Holders of Registrable Preferred Stock participating in the Exchange Offer
or the Private Exchange, as the case may be, that the Exchange Preferred Stock
or Private Exchange Preferred Stock, as the case may be, is duly authorized,
validly issued, fully paid and nonassessable.
(q) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of Registrable Preferred Stock by Holders to the
Company (or to such other Person as directed by the Company) in exchange for
Exchange Preferred Stock or Private Exchange Preferred Stock, as the case may
be, the Company shall mark, or cause to be marked, on the certificates
representing such shares of Registrable Preferred Stock that such shares of
Registrable Preferred Stock are being cancelled in exchange for the Exchange
Preferred Stock or the Private Exchange Preferred Stock, as the case may be.
(r) Cooperate with each seller of Registrable Preferred Stock
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Preferred Stock and their
respective counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD").
(s) Provide an indenture trustee for the Exchange Indenture (as
defined in the Purchase Agreement) and cause the Exchange Indenture to be
qualified under the TIA not later than the effective date of the Exchange Offer
or the first Registration Statement relating to the Registrable Preferred
Stock; and in connection therewith, cooperate with the trustee under the
<PAGE> 23
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Exchange Indenture and the Holders of the Registrable Preferred Stock to effect
such changes to such indenture as may be required for such indenture to be so
qualified in accordance with the terms of the TIA; and execute, and use its
reasonable best efforts to cause such trustee to execute, all documents as may
be required to effect such changes, and all other forms and documents required
to be filed with the SEC to enable the Exchange Indenture to be so qualified in
a timely manner.
(t) Use its reasonable best efforts to cause the Registrable
Preferred Stock covered by a Registration Statement or the Exchange Preferred
Stock, as the case may be, to be rated with the appropriate rating agencies, if
so requested by the Holders of a majority of shares of Registrable Preferred
Stock covered by such Registration Statement or the Exchange Preferred Stock,
as the case may be, or the managing underwriter or underwriters, if any.
(u) Use its reasonable best efforts to take all other steps
necessary or advisable to effect the registration of the Exchange Preferred
Stock and/or Registrable Preferred Stock covered by a Registration Statement
contemplated hereby.
The Company may require each seller of Registrable Preferred Stock
as to which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable
Preferred Stock as the Company may, from time to time, reasonably request. The
Company may exclude from such registration the Registrable Preferred Stock of
any seller who unreasonably fails to furnish such information within a
reasonable time after receiving such request. Each seller as to which any Shelf
Registration is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information
previously furnished to the Company by such seller not materially misleading.
Each Holder of Registrable Preferred Stock and each Participating
Broker-Dealer agrees by acquisition of such Registrable Preferred Stock or
Exchange Preferred Stock to be sold by such Participating Broker-Dealer, as the
case may be, that, upon actual receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv),
5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition
of such Registrable Preferred Stock covered by such Registration Statement or
Prospectus or Exchange Preferred Stock to be sold by such Holder or
<PAGE> 24
-22-
Participating Broker-Dealer, as the case may be, until such Holder's or
Participating Broker-Dealer's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(k) hereof, or until it is advised
in writing (the "Advice") by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any amendments or
supplements thereto. In the event the Company shall give any such notice, each
of the Effectiveness Period and the Applicable Period shall be extended by the
number of days during such periods from and including the date of the giving of
such notice to and including the date when each seller of Registrable Preferred
Stock covered by such Registration Statement or Exchange Preferred Stock to be
sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of counsel in connection
with Blue Sky qualifications of the Registrable Preferred Stock or Exchange
Preferred Stock), (ii) printing expenses, including, without limitation,
expenses of printing certificates for Registrable Preferred Stock or Exchange
Preferred Stock in a form eligible for deposit with The Depository Trust
Company and of printing prospectuses if the printing of prospectuses is
requested by the managing underwriter or underwriters, if any, (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and fees and disbursements of special counsel for the sellers of
Registrable Preferred Stock (subject to the provisions of Section 6(b) hereof),
(v) fees and disbursements of all independent certified public accountants
referred to in Section 5(m)(iii) hereof (including, without limitation, the
expenses of any special audit and "cold comfort" letters required by or
incident to such performance), (vi) rating agency fees, (vii) Securities Act
liability insurance, if the Company desires such insurance, (viii) fees and
expenses of all
<PAGE> 25
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other Persons retained by the Company, (ix) internal expenses of the Company
(including, without limitation, all salaries and expenses of officers and
employees of the Company performing legal or accounting duties), (x) the
expense of any annual audit, (xi) the fees and expenses incurred in connection
with the listing of the securities to be registered on any securities exchange,
if applicable, and (xii) the expenses relating to printing, word processing and
distributing all Registration Statements, underwriting agreements, securities
sales agreements, indentures and any other documents necessary in order to
comply with this Agreement. Notwithstanding the foregoing, the Holders of any
shares of Preferred Stock being registered shall pay all underwriting
discounts, commissions and placement agent fees attributable to the sale of
such Transfer Restricted Securities.
(b) The Company shall reimburse the Holders of the Registrable
Preferred Stock being registered in a Shelf Registration for the reasonable
fees and disbursements of not more than one counsel (in addition to appropriate
local counsel) chosen by the Holders of a majority of the shares of Registrable
Preferred Stock to be included in such Registration Statement.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each Holder
of shares of Registrable Preferred Stock and each Participating Broker-Dealer
selling Exchange Preferred Stock during the Applicable Period, the officers and
directors of each such Person, and each Person, if any, who controls any such
Person within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act (each, a "Participant"), from and against any and all
losses, claims, damages and liabilities (including, without limitation, the
reasonable legal fees and other expenses actually incurred in connection with
any suit, action or proceeding or any claim asserted) caused by, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement (or any amendment thereto) or
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or caused by,
arising out of or based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except insofar as such
<PAGE> 26
-24-
losses, claims, damages or liabilities are caused by any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to any Participant furnished to the
Company in writing by such Participant expressly for use therein; provided,
however, that the Company will not be required to indemnify a Participant if
such untrue statement or omission or alleged untrue statement or omission was
contained or made in any preliminary prospectus and corrected in the Prospectus
or any amendment or supplement thereto and it is established in the related
proceeding that such Participant failed to deliver or provide a copy of the
Prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Registrable Preferred Stock or Exchange
Preferred Stock sold to such Person if required by applicable law, unless such
failure to deliver or provide a copy of the Prospectus (as amended or
supplemented) was a result of noncompliance by the Company with Section 5 of
this Agreement; provided further that the foregoing proviso shall not limit the
Company's obligation to indemnify a Participant for any other untrue statement
or omission or alleged untrue statement or omission of a material fact in the
Prospectus that was the subject matter of the related proceeding.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors and officers who sign
the Registration Statement and each Person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
to the same extent as the foregoing indemnity from the Company to each
Participant, but only (i) with reference to information relating to such
Participant furnished to the Company in writing by such Participant expressly
for use in any Registration Statement or Prospectus, any amendment or
supplement thereto, or any preliminary prospectus or (ii) with respect to any
untrue statement or representation made by such Participant in writing to the
Company. The liability of any Participant under this paragraph shall in no
event exceed the proceeds received by such Participant from sales of
Registrable Preferred Stock or Exchange Preferred Stock giving rise to such
obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of
the two preceding paragraphs, such Person (the "Indemnified Person")
<PAGE> 27
-25-
shall promptly notify the Person against whom such indemnity may be sought (the
"Indemnifying Person") in writing, and the Indemnifying Person, upon request of
the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
Indemnifying Person shall not relieve it of any obligation or liability which
it may have hereunder or otherwise (unless and to the extent that it did not
otherwise learn of such action or claim and such omission results in the
forfeiture by the Indemnifying Person of substantial rights and defenses). In
any such proceeding, any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Person unless (i) the Indemnifying Person and the
Indemnified Person shall have mutually agreed in writing to the contrary, (ii)
the Indemnifying Person has failed to retain counsel reasonably satisfactory to
the Indemnified Person or (iii) the named parties in any such proceeding
(including any impleaded parties) include both the Indemnifying Person and the
Indemnified Person and the Indemnified Person shall have been advised by
counsel that representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct due to
differing interests between them. It is understood that, unless there exists a
conflict among Indemnified Persons, the Indemnifying Person shall not, in
connection with any one such proceeding or separate but substantially similar
related proceeding in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed promptly as
they are incurred. Any such separate firm for the Participants and such control
Persons of Participants shall be designated in writing by Participants who sold
a majority of shares of Registrable Preferred Stock and Exchange Preferred
Stock sold by all such Participants and any such separate firm for the Company,
its directors, its officers and such control Persons of the Company shall be
designated in writing by the Company. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its prior written
consent (which consent shall not be unreasonably withheld or delayed), but if
settled with such consent or if there be a final non-appealable judgment for
the plaintiff for which the Indemnified Person is
<PAGE> 28
-26-
entitled to indemnification pursuant to this Agreement, the Indemnifying Person
agrees to indemnify and hold harmless each Indemnified Person from and against
any loss or liability by reason of such settlement or judgment. No Indemnifying
Person shall, without the prior written consent of the Indemnified Person,
effect any settlement or compromise of any pending or threatened proceeding in
respect of which any Indemnified Person is or could have been a party, or
indemnity could have been sought hereunder by such Indemnified Person, unless
such settlement (A) includes an unconditional written release of such
Indemnified Person, in form and substance reasonably satisfactory to such
Indemnified Person, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or insufficient
to hold harmless, an Indemnified Person in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Person under
such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and
in order to provide for just and equitable contribution, shall contribute to
the amount paid or payable by such Indemnified Person as a result of such
losses, claims, damages or liabilities in such proportion as is appropriate to
reflect (i) the relative benefits received by the Indemnifying Person or
Persons on the one hand and the Indemnified Person or Persons on the other from
the offering of the Preferred Stock or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by applicable law, not only such relative
benefits but also the relative fault of the Indemnifying Person or Persons on
the one hand and the Indemnified Person or Persons on the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof) as well as any other relevant equitable considerations. The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Participant or such other
Indemnified Person, as the case may be, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
<PAGE> 29
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such statement or omission, and any other equitable considerations appropriate
in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
reasonable legal or other expenses actually incurred by such Indemnified Person
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Preferred
Stock or Exchange Preferred Stock, as the case may be, exceeds the amount of
any damages that such Participant has otherwise been required to pay or has
paid by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability that the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner in accordance with
the requirements of the Securities Act and the Exchange Act and, if at any time
the Company is not required to file such reports, it will, upon the request of
any Holder of Registrable Preferred Stock, make publicly available annual
reports and such information, documents and other reports of the type specified
in Sections 13 and 15(d) of the Exchange Act. The Company further covenants for
so long as any Registrable Preferred Stock remain outstanding, to make
available to any Holder or beneficial
<PAGE> 30
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owner of Registrable Preferred Stock in connection with any sale thereof and
any prospective purchaser of such Registrable Preferred Stock from such Holder
or beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Preferred Stock
pursuant to Rule 144A.
9. Underwritten Registrations
If any of the Registrable Preferred Stock covered by any Shelf
Registration is to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering
will be selected by the Holders of a majority of such Registrable Preferred
Stock included in such offering and reasonably acceptable to the Company.
No Holder of Registrable Preferred Stock may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Preferred Stock on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
10. Registration of Transfers and Exchanges
(a) Transfer and Exchange of Certificated Shares.
When shares of Preferred Stock or Private Exchange Preferred
Stock that are represented by definitive certificates ("Certificated Shares")
are presented to the Transfer Agent with a request:
(i) to register the transfer of the Certificated Shares;
or
(ii) to exchange such Certificated Shares for an equal
number of Certificated Shares,
the Holders hereby acknowledge that the Transfer Agent shall register the
transfer or make the exchange as requested if the requirements under this
Section 10(a) hereof for such transactions are met; provided, however, that the
Certificated Shares presented or surrendered for registration of transfer or
exchange:
<PAGE> 31
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(x) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Company and the Transfer
Agent, duly executed by the holder thereof or by his attorney, duly
authorized in writing; and
(y) in the case of Registrable Preferred Stock, such shares shall be
accompanied by the following additional information and documents,
as applicable:
(A) if such shares are being delivered to the Transfer Agent by a
Holder for registration in the name of such Holder, without
transfer, a certification from such Holder to that effect (in
substantially the form of Exhibit A hereto); or
(B) if such shares are being transferred to a
qualified institutional buyer (as defined in
Rule 144A under the Securities Act, a "QIB") in
accordance with Rule 144A under the Securities
Act or pursuant to an exemption from
registration in accordance with Rule 144 or
Regulation S under the Securities Act, a
certification to that effect (in substantially
the form of Exhibit A hereto); or
(C) if such shares are being transferred to an institutional
"accredited investor" within the meaning of subparagraph
(a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the
Securities Act, delivery of a Certificate of Transfer in the
form of Exhibit B hereto and an opinion of counsel and/or
other information satisfactory to the Company to the effect
that such transfer is in compliance with the Securities Act;
or
(D) if such shares are being transferred in reliance
on another exemption from the registration
requirements of the Securities Act, a
certification to that effect (in substantially
the form of Exhibit A hereto) and an opinion of
counsel reasonably acceptable to the Company to
the effect that such transfer is in compliance
with the Securities Act.
(b) Restrictions on Transfer of Certificated Shares for a
Beneficial Interest in Global Shares. Certificated
<PAGE> 32
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Shares may not be exchanged for a beneficial interest in one or more global
certificates representing all shares of Registrable Preferred Stock held by the
Depositary (the "Global Certificates") except upon satisfaction of the
requirements set forth below. Upon receipt by the Transfer Agent of
Certificated Shares, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Transfer Agent, together with:
(A) certification, substantially in the form of Exhibit A hereto,
that such Certificated Shares are being transferred to a QIB
in accordance with Rule 144A under the Securities Act; and
(B) written instructions directing the Transfer Agent to make, or
to direct the Depositary to make, an endorsement on the
Global Certificate to reflect an increase in the aggregate
number of shares of Registrable Preferred Stock represented
by the Global Certificate,
then the Transfer Agent shall cancel the certificate representing such
Certificated Shares and cause, or direct the Depositary to cause, in accordance
with the standing instructions and procedures existing between the Depositary
and the Transfer Agent, the number of shares of Registrable Preferred Stock
represented by the Global Certificates to be increased accordingly. If no
Global Certificate is then outstanding, the Company shall issue and the
Transfer Agent shall authenticate a new Global Certificate in the appropriate
amount.
(c) Transfer and Exchange of Global Certificates. The transfer and
exchange of Global Certificates or beneficial interests therein shall be
effected through the Depositary, in accordance with the procedures of the
Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Certificate for
Certificated Shares.
(i) Any person having a beneficial interest in a Global Certificate may
upon request exchange such beneficial interest for Certificated
Shares. Upon receipt by the
<PAGE> 33
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Transfer Agent of written instructions or such other form of
instructions as is customary for the Depositary from the Depositary
or its nominee on behalf of any person having a beneficial interest
in a Global Certificate and upon receipt by the Transfer Agent of a
written order or such other form of instructions as is customary
for the Depositary or the person designated by the Depositary as
having such a beneficial interest containing registration
instructions and, in the case of any such transfer or exchange of
Registrable Preferred Stock, the following additional information
and documents:
(A) if such beneficial interest is being transferred to the
person designated by the Depositary as being the beneficial
owner, a certification from such person to that effect (in
substantially the form of Exhibit A hereto); or
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act or
pursuant to an exemption from registration in accordance with
Rule 144 or Regulation S under the Securities Act, a
certification to that effect (in substantially the form of
Exhibit A hereto); or
(C) if such beneficial interest is being transferred to an
institutional "accredited investor" within the meaning of
subparagraphs (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501
under the Securities Act, delivery of a Certificate of
Transfer in the form of Exhibit B hereto and an opinion of
counsel and/or other information satisfactory to the Company
to the effect that such transfer is in compliance with the
Securities Act; or
(D) if such beneficial interest is being transferred
in reliance on another exemption from the
registration requirements of the Securities Act,
a certification to that effect (in substantially
the form of Exhibit A hereto) and an opinion of
counsel from the transferee or transferor
reasonably acceptable to the Company to the
effect that such transfer is in compliance with
the Securities Act,
then the Transfer Agent will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Transfer Agent, the aggregate number of shares of Registrable
Preferred Stock represented by the Global Certificates
<PAGE> 34
-32-
to be reduced and, following such reduction, the Company will
execute and, upon receipt of an authentication order in the form of
an Officers' Certificate, the Transfer Agent will authenticate and
deliver to the transferee a certificate representing such
Certificated Shares.
(ii) Certificated Shares issued in exchange for a beneficial interest in
a Global Certificate pursuant to this Section 10(d) shall be
registered in such names and for such number of shares of
Registrable Preferred Stock as the Depositary, pursuant to
instructions from its direct or indirect participants or otherwise,
shall instruct the Transfer Agent in writing. The Transfer Agent
shall deliver such Certificated Shares to the persons in whose
names such shares of Registrable Preferred Stock are so registered.
(e) Restrictions on Transfer and Exchange of Global Certificates. A
Global Certificate may not be transferred as a whole except by the Depositary
to a nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary.
(f) Authentication of Certificated Shares in Absence
of Depositary. If at any time:
(i) the Depositary for the shares of Registrable Preferred Stock
notifies the Company that the Depositary is unwilling or unable to
continue as Depositary for the Global Certificates and a successor
Depositary for the Global Certificates is not appointed by the
Company within 90 days after delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the Transfer Agent
in writing that it elects to cause the issuance of Certificated
Shares,
then the Company will execute, and the Transfer Agent, upon receipt of an
Officers' Certificate requesting the authentication and delivery of
Certificated Shares, will authenticate and deliver certificates representing
Certificated Shares, in an aggregate number equal to the aggregate number of
certificates
<PAGE> 35
-33-
representing Certificated Shares represented by the Global Certificates, in
exchange for such Global Certificates.
(g) Legends.
(i) Except as permitted by the following paragraph (ii), each Global
Certificate and each certificate representing Certificated Shares
shall bear a legend substantially in the form attached hereto as
Exhibit C.
(ii) Upon the shares of Private Exchange Preferred Stock
ceasing to be Registrable Preferred Stock:
(A) in the case of any certificate that represents
Certificated Shares, the Transfer Agent shall
permit the holder thereof to exchange such
certificate for a certificate representing such
Certificated Shares that does not bear the first
paragraph of the legend referred to above and
rescind any related restriction on the transfer;
and
(B) any such shares represented by a Global Certificate shall not
be subject to the provisions set forth in (i) above (such
sales or transfers being subject only to the provisions
of Section 10(c) hereof).
(h) Cancellation and/or Adjustment of a Global Certificate. At such
time as all beneficial interests in a Global Certificate have either been
exchanged for certificates representing Certificated Shares, redeemed,
repurchased or cancelled, such Global Certificates shall be returned to or
retained and cancelled by the Transfer Agent. At any time prior to such
cancellation, if any beneficial interest in a Global Certificate is exchanged
for certificates representing Certificated Shares, redeemed, repurchased or
cancelled, the number of shares represented by such Global Certificates shall
be reduced and an endorsement shall be made on such Global Certificates, by the
Transfer Agent to reflect such reduction.
(i) Obligations with Respect to Transfers and
Exchanges of Certificated Shares.
(i) To permit registrations of transfers and exchanges, the Company
shall execute, at the Transfer Agent's request, and the Transfer
Agent shall authenticate
<PAGE> 36
-34-
certificates representing Certificated Shares and Global
Certificates.
(ii) All certificates representing Certificated Shares and Global
Certificates issued upon any registration, transfer or exchange of
certificates representing Certificated Shares or Global
Certificates shall be the valid obligations of the Company,
entitled to the same benefits as the shares surrendered upon the
registration of transfer or exchange.
(iii) Prior to due presentment for registration of transfer of any shares
of Registrable Preferred Stock, the Transfer Agent and the Company
may deem and treat the person in whose name any such shares are
registered as the absolute owner of such shares, and neither the
Transfer Agent nor the Company shall be affected by notice to the
contrary.
11. Miscellaneous
(a) No Inconsistent Agreements. The Company has not, as of the
date hereof, and the Company shall not, after the date of this Agreement, enter
into any agreement with respect to any of its securities that is inconsistent
with the rights granted to the Holders of Registrable Preferred Stock in this
Agreement or otherwise conflicts with the provisions hereof. The Company has
not entered and will not enter into any agreement with respect to any of its
securities that will grant to any Person piggy-back registration rights with
respect to a Registration Statement.
(b) Adjustments Affecting Registrable Preferred Stock. The Company
shall not, directly or indirectly, take any action with respect to the
Registrable Preferred Stock as a class that would adversely affect the ability
of the Holders of Registrable Preferred Stock to include such Registrable
Preferred Stock in a registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, otherwise than with the prior
written consent of (A) the Holders of not less than a majority of the then
outstanding shares of Registrable Preferred Stock and (B) in circumstances that
would adversely affect the Participating
<PAGE> 37
-35-
Broker-Dealers, the Participating Broker-Dealers holding not less than a
majority of shares of Exchange Preferred Stock held by all Participating
Broker-Dealers; provided, however, that Section 7 and this Section 10(c) may
not be amended, modified or supplemented without the prior written consent of
each Holder and each Participating Broker-Dealer (including any person who was
a Holder or Participating Broker-Dealer of Registrable Preferred Stock or
Exchange Preferred Stock, as the case may be, disposed of pursuant to any
Registration Statement). Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders of Registrable Preferred Stock whose
securities are being sold pursuant to a Registration Statement and that does
not directly or indirectly affect, impair, limit or compromise the rights of
other Holders of Registrable Preferred Stock may be given by Holders of at
least a majority of shares of the Registrable Preferred Stock being sold by
such Holders pursuant to such Registration Statement; provided, however, that
the provisions of this sentence may not be amended, modified or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(d) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Preferred Stock or any
Participating Broker-Dealer, at the most current address of such Holder
or Participating Broker-Dealer, as the case may be, on the stock books of
the Company with a copy in like manner to the Initial Purchasers as
follows:
BT Securities Corporation
Credit Suisse First Boston Corporation
c/o BT Securities Corporation
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Facsimile No: (212) 250-72001
Attention: Corporate Finance
Department
<PAGE> 38
-36-
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No: (212) 269-5420
Attention: Helene R. Banks, Esq.
2. if to the Initial Purchasers, at the
addresses specified in Section 11(d)(1);
3. if to the Company, at the addresses as
follows:
Capstar Broadcasting Partners, Inc.
600 Congress Avenue
Suite 1400
Austin, Texas 75243
Facsimile No: (512) 477-7388
Attention: R. Steven Hicks
with copies to:
Vinson & Elkins LLP
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201-2975
Facsimile No: (214) 220-7716
Attention: Michael D. Wortley, Esq.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties hereto, including the Holders; provided, however, that this Agreement
shall not inure to the benefit of or be binding upon a successor or assign of a
Holder unless and to the extent such successor or assign holds Registrable
Preferred Stock.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in
<PAGE> 39
-37-
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
(g) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable best efforts to find and employ
an alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.
(j) Securities Held by the Company or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of shares of
Registrable Preferred Stock is required hereunder, Registrable Preferred Stock
held by the Company or its affiliates (as such term is defined in Rule 405
under the Securities Act) shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registrable Preferred
Stock and Participating Broker-Dealers are intended third party beneficiaries
of this Agreement and this Agreement may be enforced by such Persons.
<PAGE> 40
-38-
(l) Entire Agreement. This Agreement, together with the Purchase
Agreement, is intended by the parties as a final and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein and any and all prior oral or written
agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Initial Purchasers on
the one hand and the Company on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof
are merged herein and replaced hereby.
<PAGE> 41
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
CAPSTAR BROADCASTING PARTNERS, INC.
By: /s/ WILLIAM S. BANOWSKY, JR.
-------------------------------------------
Name: William S. Banowsky, Jr.
-------------------------------------
Title: Executive Vice President
------------------------------------
BT SECURITIES CORPORATION
By: /s/ DAVID F. JACOBS
-------------------------------------------
Name: David F. Jacobs
-------------------------------------
Title: Associate
------------------------------------
CREDIT SUISSE FIRST BOSTON
CORPORATION
By: /s/ KRISTEN M. ALLEN
-------------------------------------------
Name: Kristen M. Allen
-------------------------------------
Title: Managing Director
------------------------------------
<PAGE> 42
EXHIBIT A
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF REGISTRABLE PREFERRED STOCK
Re: Shares of Senior Exchangeable Preferred Stock
(the "Shares") of Capstar Broadcasting Partners, Inc.
This Certificate relates to ____ Shares held in* ___ book-entry or*
_______ certificated form by ______ (the "Transferor").
The Transferor:*
[ ] has requested the Transfer Agent by written order to deliver in
exchange for its beneficial interest in the Global Certificate held by the
Depositary one or more certificates in definitive, registered form an aggregate
number equal to its beneficial interest in such Global Certificate (or the
portion thereof indicated above); or
[ ] has requested the Transfer Agent by written order to exchange or
register the transfer of one or more certificates representing Shares.
In connection with such request and in respect of each such Share,
the Transferor does hereby certify that Transferor is familiar with the
Registration Rights Agreement relating to the above captioned Shares and the
restrictions on transfers thereof as provided in Section 10 of such
Registration Rights Agreement, and that the transfer of these Shares does not
require registration under the Securities Act of 1933, as amended (the
"Securities Act") because*:
[ ] Such Shares are being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 10 (a)(y)(A) or Section
10(d)(i)(A) of the Registration Rights
Agreement).
[ ] Such Shares are being transferred to a qualified institutional buyer
(as defined in Rule 144A under the Securities Act), in reliance on Rule 144A or
in accordance with Regulation S under the Securities Act.
[ ] Such Shares are being transferred in accordance with Rule 144 under
the Securities Act.
<PAGE> 43
-2-
[ ] Such Shares are being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Securities Act,
other than Rule 144A or Rule 144 or Regulation S under the Securities Act. An
opinion of counsel to the effect that such transfer does not require
registration under the Securities Act accompanies this Certificate.
-------------------------------
[INSERT NAME OF TRANSFEROR]
By:
----------------------------
Date:
---------------------
*Check applicable box.
<PAGE> 44
EXHIBIT B
Certificate of Transfer
Capstar Broadcasting Partners, Inc.
600 Congress Avenue
Suite 1400
Austin, Texas 78701
Ladies and Gentlemen:
In connection with our proposed purchase of shares of Senior
Exchangeable Preferred Stock, par value $.01 per share (the "Securities"), of
Capstar Broadcasting Partners, Inc. (the "Company"), we confirm that:
1. We understand that the Securities have not been registered under
the Securities Act of 1933, as amended (the "Securities Act") and, unless
so registered, may not be sold except as permitted in the following
sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Securities to offer, sell or
otherwise transfer such Securities while they are Registrable Preferred
Stock within the meaning of the Registration Rights Agreement to which
this certificate is an exhibit only (a) to the Company or any of its
subsidiaries, (b) pursuant to a registration statement which has been
declared effective under the Securities Act, (c) so long as the
Securities are eligible for resale pursuant to Rule 144A, under the
Securities Act, to a person we reasonably believe is a "qualified
institutional buyer" under Rule 144A (a "QIB") that purchases for its own
account or for the account of a QIB and to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) pursuant to offers
and sales that occur outside the United States within the meaning of
Regulation S under the Securities Act, (e) to an institutional
"accredited investor" within the meaning of subparagraphs (a)(1), (2),
(3) or (7) of Rule 501 under the Securities Act that is purchasing for
his own account or for the account of such an institutional "accredited
investor," or (f) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our
property or the property of such investor account or accounts be at all
times within our or their control and to compliance with any applicable
state securities laws. The foregoing restrictions on resale will
<PAGE> 45
-2-
not apply after the Securities are no longer Registrable Preferred Stock.
We understand that the Securities purchased by us will bear a legend to
the foregoing effect.
2. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
and we are acquiring the Securities for investment purposes and not with
a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act and we have such knowledge and experience
in financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Securities, and we and any
accounts for which we are acting are each able to bear the economic risk
of our or its investment for an indefinite period.
3. We are acquiring the Securities purchased by us for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
4. You and your counsel are entitled to rely upon this letter and
you are irrevocably authorized to produce this letter or a copy hereof to
any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
--------------------------------------
(Name of Purchaser)
By:
----------------------------------
Date:
--------------------------------
Upon transfer the Securities would be registered in the name of the
new beneficial owner as follows:
Name:
------------------------------
Address:
---------------------------
Taxpayer ID Number:
----------------
<PAGE> 46
EXHIBIT C
[LEGENDS]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO CAPSTAR BROADCASTING PARTNERS, INC. (THE "ISSUER"),
OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN
THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND
THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT
TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE
CASE OF THE FOREGOING CAUSE (E), A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE ISSUER AND THE TRANSFER AGENT, THIS LEGEND WILL BE REMOVED
UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE THE BENEFITS OF A
REGISTRATION RIGHTS AGREEMENT DATED AS OF JUNE 17,
<PAGE> 47
-2-
1997 AMONG THE COMPANY, BT SECURITIES CORPORATION AND CS FIRST BOSTON
CORPORATION, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. NO
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE
WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.
[THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE REGISTRATION
RIGHTS AGREEMENT AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF
A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS
NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE REGISTRATION
RIGHTS AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF
THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY
A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE REGISTRATION RIGHTS AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.](1)
- -------------------------
(1) This paragraph is to be included only if the certificate
is in global form.
<PAGE> 1
EXHIBIT 5.1
Vinson & Elkins
ATTORNEYS AT LAW
VINSON & ELKINS L.L.P.
3700 TRAMMELL CROW CENTER
2001 ROSS AVENUE
DALLAS, TEXAS 75201-2975
TELEPHONE (214) 220-7700
August 6, 1997
Capstar Broadcasting Partners, Inc.
600 Congress Avenue, Suite 1400
Austin, Texas 78701
Ladies and Gentlemen:
We have acted as counsel for Capstar Broadcasting Partners, Inc., a
Delaware corporation (the "Company"), in connection with the registration of
1,806,719 shares of the Company's 12% Senior Exchangeable Preferred Stock, par
value $.01 per share (the "Preferred Stock") and $180,672,000 aggregate
principal amount of the Company's 12% Exchange Debentures due 2009 (the
"Exchange Debentures"), under the Securities Act of 1933 (the "Securities Act")
on a Registration Statement on Form S-4 (the "Registration Statement").
In reaching the opinions set forth in this letter, we have reviewed
originals or copies of the Registration Statement, the Certificate of
Designation, dated June 17, 1997 (the "Certificate of Designation"), relating
to the Preferred Stock, the Exchange Indenture, dated as of June 17, 1997,
between the Company and U.S. Trust Company of Texas, N.A., as trustee (the
"Exchange Indenture"), relating to the Exchange Debentures, and such other
agreements, certificates of public officials, certificates of officers of the
Company, certificates of other persons, records, documents and matters of law
as we deemed relevant.
Based on and subject to the foregoing and subject further to the
assumptions, exceptions and qualifications hereinafter stated, we express the
opinion that, subject to compliance with applicable federal and state
securities laws (as to which we express no opinion):
1. The shares of Preferred Stock to be exchanged for shares of
Old Preferred Stock in the Exchange Offer (as such terms are defined in the
Registration Statement), when issued and delivered in accordance with the terms
of the Certificate of Designation and delivered in exchange for the shares of
Old Preferred Stock, will be duly authorized, validly issued, fully paid and
nonassessable. The shares of Preferred Stock, to be issued as dividends on the
Preferred Stock, when issued and delivered in accordance with the terms of the
Certificate of Designation, will be duly authorized, validly issued, fully paid
and nonassessable.
<PAGE> 2
Capstar Broadcasting Partners, Inc.
August 6, 1997
Page 2
2. The Exchange Debentures to be issued in exchange for the
Preferred Stock, when executed, authenticated, issued and delivered in
accordance with the terms of the Exchange Indenture, will constitute legally
binding obligations of the Company. The Exchange Debentures to be issued as
interest on the Exchange Debentures, when executed, authenticated, issued and
delivered in accordance with the terms of the Exchange Indenture, will
constitute legally binding obligations of the Company.
The opinions expressed above are subject to the following assumptions,
exceptions and qualifications:
(a) We have assumed that a)
all information contained in all documents reviewed by us is true and correct,
(ii) all signatures on all documents reviewed by us are genuine, (iii) all
documents submitted to us as originals are true and complete, (iv) all
documents submitted to us as copies are true and complete copies of the
originals thereof, (v) each natural person signing any document reviewed by us
had the legal capacity to do so, (vi) each natural person signing in a
representative capacity any document reviewed by us had authority to sign in
such capacity, and (vii) the laws of any jurisdiction other than Texas that
govern any of the documents reviewed by us (other than the Company's
certificate of incorporation and bylaws) do not modify the terms that appear in
any such document.
(b) The opinions expressed in this letter are limited to the laws
of the State of Texas, the General Corporation Law of the State of Delaware,
and the federal laws of the United States of America. You should be aware that
we are not admitted to the practice of law in the State of Delaware.
(c) We note that the Exchange Indenture provides that it is
governed by the laws of the State of New York. While we express no opinion
with respect to the laws of the State of New York, we have assumed that the
internal laws of the State of New York are the same as the internal laws of the
State of Texas. We have made no investigation to confirm whether such
assumption is correct.
(d) The opinion in paragraph 2 is subject to laws relating to
bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization,
moratorium and other laws of general applicability relating to or affecting
creditors' rights and to general equitable principles.
This opinion may be filed as an exhibit to the Registration Statement.
Consent is also given to the reference to this firm under the caption "Legal
Matters" in the Prospectus included in the Registration Statement as having
passed on certain legal matters in connection with the shares of New Preferred
Stock and the Exchange Debentures. In giving this consent we do not admit that
we come within the category of persons whose consent is required under Section
7 of the Securities Act or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
<PAGE> 3
Capstar Broadcasting Partners, Inc.
August 6, 1997
Page 3
This opinion speaks as of the date hereof, and we disclaim any duty to
advise you regarding any changes subsequent to the date hereof in, or to
otherwise communicate with you with respect to, the matters addressed herein.
Very truly yours,
/S/ VINSON & ELKINS L.L.P.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 14, 1997, on our audits of the consolidated financial
statements and financial statement schedules of Capstar Broadcasting Partners,
Inc. We also consent to the references to our firm under the captions "Experts."
COOPERS & LYBRAND L.L.P.
Austin, Texas
August 5, 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 Capstar Radio Broadcasting Partners, Inc.
and Subsidiaries, the Predecessor Company of Capstar Broadcasting Partners, Inc.
and Subsidiaries, and formerly known as Commodore Media, Inc. and Subsidiaries,
(ii) February 3, 1997 with respect to the consolidated financial statements of
Southern Star Communications, Inc., formerly known as Osborn Communications
Corporation, and (iii) February 16, 1997 with respect to the combined financial
statements of Mountain Lakes Broadcasting, L.L.C., all included in the
Registration Statement (Form S-4) and related Prospectus of Capstar Broadcasting
Partners, Inc. for the registration of 1,000,000 shares of 12% Senior
Exchangeable Preferred Stock.
ERNST & YOUNG LLP
New York, New York
August 5, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated April 4, 1997, on our audits of the consolidated financial
statements and financial statement schedules of GulfStar Communications, Inc. We
also consent to the references to our firm under the captions "Experts."
COOPERS & LYBRAND L.L.P.
Austin, Texas
August 5, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 8, 1997, on our audits of the consolidated financial
statements and financial statement schedules of Benchmark Communications Radio
Limited Partnership. We also consent to the references to our firm under the
captions "Experts."
COOPERS & LYBRAND L.L.P.
Dallas, Texas
August 5, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 3, 1997, on our audit of the consolidated financial
statements of Midcontinent Broadcasting Co. of Wisconsin, Inc. We also consent
to the references to our firm under the captions "Experts."
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
August 4, 1997
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 3, 1997, on our audit of the consolidated financial
statements of Point Communications Limited Partnership. We also consent to the
references to our firm under the captions "Experts."
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
August 5, 1997
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 13, 1997, on our audit of the consolidated financial
statements of Community Pacific Broadcasting Company L.P. We also consent to the
references to our firm under the captions "Experts."
COOPERS & LYBRAND L.L.P.
San Jose, California
August 5, 1997
<PAGE> 1
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 28, 1997 (except with respect to the matter discussed in
Note 13, as to which the date is April 16, 1997) on the consolidated financial
statements of Patterson Broadcasting, Inc. (and to all references to our Firm)
included in or made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
New York, New York
August 4, 1997
<PAGE> 1
EXHIBIT 23.10
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of this
registration statement dated May 14, 1997, on the Financial Statements of Ameron
Broadcasting, Inc.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
August 4, 1997
<PAGE> 1
EXHIBIT 23.11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated May 8, 1997 on the combined financial statements of Knight Quality
Stations included in or made a part of this registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 4, 1997
<PAGE> 1
EXHIBIT 23.12
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this registration statement on Form S-4 of
our report dated February 20, 1997, except for Note 6, as to which the date is
June 12, 1997, relating to the financial statements of Quass Broadcasting
Company, and to the reference to our Firm under the caption "Experts" in the
Prospectus.
McGLADREY & PULLEN, LLP
Cedar Rapids, Iowa
August 4, 1997
<PAGE> 1
EXHIBIT 23.13
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 12, 1996 on our audits of the consolidated financial
statements of Q Broadcasting, Inc. We also consent to the references to our firm
under the captions "Experts."
Holtz Rubenstein & Co., LLP
Melville, New York
August 4, 1997
<PAGE> 1
EXHIBIT 23.14
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated August 18, 1995 on our audit of the Statements of Operations
and Accumulated Deficit and Cash Flows of Danbury Broadcasting, Inc. We also
consent to the references to our firm under the captions "Experts."
Paneth, Haber & Zimmerman LLP
New York, NY
August 4, 1997
<PAGE> 1
EXHIBIT 23.15
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 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 references to our firm under the captions
"Experts."
Brown, Edwards & Company LLP
Bluefield, West Virginia
August 5, 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% Subordinated Exchange Debentures 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 July 24, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Col A. Col B.
- -------------------------------------------------------------------------------
Title of Class Amount Outstanding
- -------------------------------------------------------------------------------
<S> <C>
Capital Stock - par value $100 per share 5,000 shares
</TABLE>
4. Trusteeships under Other Indentures.
Capstar Broadcasting Partners, Inc. 12 3/4% Senior Discount Notes Due 2009
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 July 24, 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
19,296,927 shares of $1 par value Common Stock as of July 24, 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
24th day of July, 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 Capstar Broadcasting
Partners, Inc. 12% Subordinated Exchange Debentures 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> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER
OUTSTANDING 12% SENIOR EXCHANGEABLE PREFERRED STOCK
of
CAPSTAR BROADCASTING PARTNERS, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED AUGUST ____, 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:
HARRIS TRUST & SAVINGS BANK
By Registered or Certified Mail:
Harris Trust & Savings Bank
c/o Harris Trust Company of
New York
P.O. Box 1010
Wall Street Station
New York, New York 10268
By Overnight Courier or by Hand:
Harris Trust & Savings Bank
c/o Harris Trust Company of New York
77 Water Street
4th Floor
New York, New York 10004
By Facsimile:
(212) 701-7636
Confirm by Telephone:
(212) 701-7624
(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 SHARES OF 12% SENIOR
EXCHANGEABLE PREFERRED STOCK (THE "OLD PREFERRED STOCK") FOR AN EQUAL NUMBER OF
SHARES OF NEW 12% SENIOR EXCHANGEABLE PREFERRED STOCK PURSUANT TO THE EXCHANGE
OFFER, YOU MUST VALIDLY TENDER SHARES OF (AND NOT WITHDRAW) OLD PREFERRED STOCK
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 PREFERRED STOCK
<TABLE>
<CAPTION>
===============================================================================
Name(s) and Address(es) of Registered Owner(s) Certificate Number of Shares
(Please fill in, if blank) Number(s) Tendered
- -------------------------------------------------------------------------------
<S> <C>
-----------------------------
-----------------------------
-----------------------------
-----------------------------
Total Number of
Shares Tendered
===============================================================================
</TABLE>
2
<PAGE> 3
LADIES AND GENTLEMEN:
1. The undersigned hereby tenders to Capstar Broadcasting Partners, Inc.,
a Delaware corporation (the "Company"), the shares of Old Preferred Stock
described above pursuant to the Company's offer of each share of 12% Senior
Exchangeable Preferred Stock (the "New Preferred Stock") in exchange for each
share of the Old Preferred Stock, upon the terms and subject to the conditions
contained in the Prospectus dated August ____, 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 shares of Old Preferred
Stock.
3. The undersigned understands that the tender of the shares of Old
Preferred Stock 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 shares of New Preferred Stock 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 shares of New
Preferred Stock;
(c) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in
the distribution of such shares of New Preferred Stock; 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 shares of Old Preferred Stock 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 shares of New Preferred
Stock in the name of the undersigned.
3
<PAGE> 4
===============================================================================
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the shares of New Preferred Stock 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 shares of Old Preferred Stock. 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. Unless the box titled "Special Delivery
Instructions" above has not been completed or the shares of Old Preferred Stock
described above are tendered for the account of an Eligible Institution,
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").
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES OF OLD PREFERRED
STOCK. The shares of Old Preferred Stock, 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 SHARES OF OLD PREFERRED STOCK 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 SHARES OF OLD PREFERRED
STOCK 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, STOCK POWERS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by a person other than a registered
holder of any shares of Old Preferred Stock, such shares of Old Preferred Stock
must be endorsed or accompanied by appropriate stock powers, signed by such
registered holder exactly as such registered holder's name appears on such
shares of Old Preferred Stock.
If this Letter of Transmittal or any shares of Old Preferred Stock or
stock 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 shares of
Old Preferred Stock 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 shares of Old Preferred Stock not properly
tendered or any shares of Old Preferred Stock 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 shares of Old Preferred Stock. 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 shares of
Old Preferred Stock 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 shares of
Old Preferred Stock will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any shares of Old Preferred Stock
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.
7
<PAGE> 8
- -------------------------------------------------------------------------------
SUBSTITUTE PART I - PLEASE PROVIDE YOUR Social Security Number
TAXPAYER IDENTIFICATION
FORM W-9 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
INTERNAL REVENUE SERVICE WITHHOLDING, SEE "TAX INFORMATION AND GUIDELINES"
PAYER'S REQUEST FOR TAXPAYER ABOVE FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER (TIN) IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
ENCLOSED HEREWITH AND 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:
- -------------------------------------------------------------------------------
8
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
TO TENDER
OUTSTANDING 12% SENIOR EXCHANGEABLE PREFERRED STOCK
OF
CAPSTAR BROADCASTING PARTNERS, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED AUGUST ____, 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 shares of 12%
Senior Exchangeable Preferred Stock (the "Old Preferred Stock") of Capstar
Broadcasting Partners, Inc. are not immediately available or time will not
permit a holder's shares of Old Preferred Stock 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 AUGUST ____,1997 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE
OFFER IS EXTENDED BY THE COMPANY.
===============================================================================
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
HARRIS TRUST & SAVINGS BANK
By Registered or Certified Mail:
Harris Trust & Savings Bank
c/o Harris Trust Company of New York
P.O. Box 1010
Wall Street Station
New York, New York 10268
By Overnight Courier or by Hand:
Harris Trust & Savings Bank
c/o Harris Trust Company of New York
77 Water Street
4th Floor
New York, New York 10004
By Facsimile:
(212) 701-7636
Confirm by Telephone:
(212) 701-7624
(Originalsof 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
August ____, 1997 (the "Prospectus"), and in the accompanying Letter of
Transmittal, receipt of which is hereby acknowledged, shares of Old Preferred
Stock 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 Preferred Stock (if available):
--------------------------------------------
Number of Shares of Old
Preferred Stock:
---------------------------------------------------------------
Signature of Registered Holder(s):
---------------------------------------------
Dated:
-------------------------------------------------------------------------
[ ] The Depository Trust Company
(Check if shares of Old Preferred Stock 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 shares of Old Preferred Stock 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 shares of Old Preferred Stock complies with Rule
14e-4, and (c) to deliver to the Exchange Agent the certificates representing
the shares of Old Preferred Stock tendered hereby or confirmation of book-entry
transfer of such shares of Old Preferred Stock 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 SHARES OF OLD PREFERRED STOCK WITH THIS FORM. SHARES OF OLD
PREFERRED STOCK SHOULD BE SENT ONLY WITH A LETTER OF TRANSMITTAL.
3
