<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): JULY 8, 1997
---------------------
CAPSTAR BROADCASTING PARTNERS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<C> <C> <C>
DELAWARE 333-25683 75-2672663
(State or Other (Commission File Number) (I.R.S. Employer
Jurisdiction of Incorporation) Identification Number)
600 CONGRESS AVENUE 78701
SUITE 1400 (Zip code)
AUSTIN, TEXAS
(Address of principal
executive offices)
</TABLE>
Registrant's telephone number, including area code: (512) 404-6840
NOT APPLICABLE
(former address if changed since last report)
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<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
GULFSTAR COMMUNICATIONS, INC.
On July 8, 1997, Capstar Broadcasting Corporation, a Delaware corporation
("Capstar Broadcasting") acquired GulfStar Communications, Inc., a Delaware
corporation ("GulfStar"). Capstar Broadcasting is the sole stockholder of
Capstar Broadcasting Partners, Inc., a Delaware corporation ("Capstar Partners"
and the "Company"), and Capstar Partners is the sole stockholder of Capstar
Radio Broadcasting Partners, Inc. ("Capstar Radio") (formerly known as Commodore
Media, Inc.). The acquisition was effected through a merger (the "Merger") of
GulfStar with and into CBC-GulfStar Merger Sub, Inc., a wholly-owned subsidiary
of Capstar Broadcasting and a Delaware corporation ("Merger Sub"), with Merger
Sub as the surviving corporation. Concurrently with the merger: (i) the
surviving corporation was renamed GulfStar Communications, Inc., (ii) Capstar
Broadcasting contributed the outstanding stock of GulfStar to Capstar Partners,
and (iii) Capstar Partners contributed the outstanding stock of GulfStar to
Capstar Radio. As a result of the Merger and its related transactions, GulfStar
became a wholly-owned direct subsidiary of Capstar Radio.
Pursuant to the terms of the Merger each share of (i) common stock, par
value $.01 per share, of GulfStar ("GulfStar Common Stock") and Class A common
stock, par value $.01 per share, of GulfStar ("GulfStar Class A Common Stock")
was entitled to receive 1,187.947 shares of Class A common stock, par value $.01
per share, of Capstar Broadcasting ("Class A Common Stock"); (ii) Class B common
stock, par value $.01 per share, of GulfStar was entitled to receive 1,187.947
shares of Class B common stock, par value $.01 per share, of Capstar
Broadcasting ("Class B Common Stock"); and (iii) Class C common stock, par value
$.01 per share, of GulfStar ("GulfStar Class C Common Stock") was entitled to
receive 1,187.947 shares of Class C common stock, par value $.01 per share, of
Capstar Broadcasting ("Class C Common Stock"). Notwithstanding the previous
sentence, each share of GulfStar Class A Common Stock or GulfStar Class C Common
Stock held by R. Steven Hicks or Thomas O. Hicks was entitled to receive
1,187.947 shares of Class C Common Stock. In addition, 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 were 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.
The conversion ratio was determined 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 of the Company, filled two of the four director seats of GulfStar, and
R. Steven Hicks was also the Chief Executive Officer of GulfStar. Upon
completion of the 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 (a director of the Company), Paul D.
Stone (an officer of the Company), Lawrence D. Stuart, Jr. (a director of the
Company) and John D. Cullen (the President and Chief Executive Officer of
GulfStar) 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.
Concurrently with the Merger, Capstar Broadcasting (i) redeemed each share
of the outstanding preferred stock, par value $.01 per share, of GulfStar for
approximately $29.4 million and (ii) repaid in full the outstanding indebtedness
of GulfStar, including GulfStar's credit facility, of approximately $90.7
million. Capstar Broadcasting funded the redemption of GulfStar's preferred
stock and the repayment of GulfStar's outstanding indebtedness through (i) an
equity investment by an affiliate of Hicks, Muse, Tate & Furst Incorporated,
(ii) an equity investment by Capstar BT Partners L.P., and (iii) the proceeds of
an equity offering of Capstar Partner's 12% Senior Exchangeable Preferred Stock.
1
<PAGE> 3
GulfStar is a broadcasting company primarily engaged in the operation of
radio stations in mid-sized markets in the southwestern United States. On July
8, 1997, GulfStar owned and operated or provided services, through its directly
and indirectly owned subsidiaries, to 52 stations (39 FM and 13 AM). GulfStar
had pending the acquisition of nine radio stations (seven FM and two AM),
including seven stations that GulfStar provided services pursuant to a local
marketing agreement. The assets of GulfStar consist of, among other things,
broadcasting licenses granted by the Federal Communications Commission (the
"FCC"), transmitting antennae, transmitters and other broadcasting and technical
equipment, technical information and data and certain real property. GulfStar
currently intends to continue broadcasting operations and to utilize the assets
in such operations.
COMMUNITY PACIFIC BROADCASTING L.P.
On July 14, 1997, Pacific Star Communications, Inc., a Delaware corporation
("Pacific Star"), completed the acquisition of substantially all of the assets
of Community Pacific Broadcasting L.P. ("Community Pacific") for an aggregate
purchase price of approximately $35.0 million in cash (the "Purchase Price").
Community Pacific owned and operated 11 radio stations (six FM and five AM) in
four markets located in Anchorage, Alaska, Modesto and Stockton, California and
Des Moines, Iowa. The assets of Community Pacific consist of, among other
things, broadcasting licenses granted by the FCC, transmitting antennae,
transmitters and other broadcasting and technical equipment, technical
information and data and certain real property. Pacific Star currently intends
to continue the broadcasting operations of Community Pacific and to utilize the
assets of Community Pacific in such operations.
The Purchase Price was determined through arm's-length negotiations between
Pacific Star and Community Pacific. Pacific Star funded the acquisition of
Community Pacific from a portion of the proceeds of a debt offering of Capstar
Radio's 9 1/4% Senior Subordinated Notes.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
GulfStar Communications, Inc. and Subsidiaries
- Report of Independent Accountants.
- Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996
and 1995.
- 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.
- 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.
- 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.
- Notes to Consolidated Financial Statements.
Community Pacific Broadcasting Company L.P.
- Report of Independent Accountants.
- Balance Sheets as of March 31, 1997 and December 31, 1996
- Statements of Operations for the three months ended March 31, 1997 and
for the year ended December 31, 1996.
- Statements of Changes in Partners' Equity for the three months ended
March 31, 1997 and for the year ended December 31, 1996.
- Statements of Cash Flows for the three months ended March 31, 1997 and
for the year ended December 31, 1997.
- Notes to Financial Statements.
2
<PAGE> 4
(B) PRO FORMA FINANCIAL INFORMATION.
It is impracticable to provide the required pro forma financial
information for GulfStar and Community Pacific at the time of this Report
because such information is not currently available. The required pro forma
financial information will be filed as an amendment to this Report as soon
as practicable, but not later than 60 days after the date on which this
Report is required to be filed.
(C) EXHIBITS.
<TABLE>
<S> <C>
2.1 -- Agreement and Plan of Merger, dated June 16, 1997, by and
among GulfStar, Capstar Broadcasting, Merger Sub, and the
stockholders listed therein.(1)
2.2.1 -- Asset Purchase Agreement, dated December 26, 1996,
between Community Pacific and Community Acquisition
Company, Inc.(2)
2.2.2 -- Amendment No. 1 to Asset Purchase Agreement, dated May
28, 1997, between Community Pacific and Pacific Star.*
2.2.3 -- Amendment No. 2 to Asset Purchase Agreement, dated July
14, 1997, between Community Pacific and Pacific Star.*
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference to Capstar Partner's Amendment No. 1 to
Registration Statement on Form S-4, dated July 8, 1997, File No. 333-25638.
(2) Incorporated by reference to Capstar Partner's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, File No. 333-25638.
3
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CAPSTAR BROADCASTING PARTNERS, INC.
(Registrant)
By:/s/ WILLIAM S. BANOWSKY, JR.
----------------------------------
Name: William S. Banowsky, Jr.
Title: Executive Vice President
and General Counsel
Date: July 23, 1997
4
<PAGE> 6
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GulfStar Communications, Inc. and Subsidiaries
Report of Independent Accountants......................... 2
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 and 1995............................. 3
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....................... 4
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........... 5
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....................... 6
Notes to Consolidated Financial Statements................ 7
Community Pacific Broadcasting Company L.P.
Report of Independent Accountants......................... 22
Balance Sheets as of March 31, 1997 and December 31,
1996................................................... 23
Statements of Operations for the three months ended March
31, 1997 and for the year ended December 31, 1996...... 24
Statements of Changes in Partners' Equity for the three
months ended March 31, 1997 and for the year ended
December 31, 1996...................................... 25
Statements of Cash Flows for the three months ended March
31, 1997 and for the year ended December 31, 1996...... 26
Notes to Financial Statements............................. 27
</TABLE>
1
<PAGE> 7
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
2
<PAGE> 8
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.
3
<PAGE> 9
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.
4
<PAGE> 10
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.
5
<PAGE> 11
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.
6
<PAGE> 12
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
7
<PAGE> 13
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
8
<PAGE> 14
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and related accrued interest 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.
9
<PAGE> 15
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.
10
<PAGE> 16
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>
11
<PAGE> 17
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>
12
<PAGE> 18
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.
13
<PAGE> 19
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%.
14
<PAGE> 20
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's reducing revolver loan provides the Company with a revolving
line of credit of up to $54,000,000, of which $206,380 is unused as of December
31, 1996.
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.
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
15
<PAGE> 21
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
16
<PAGE> 22
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 Standards ("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>
17
<PAGE> 23
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
18
<PAGE> 24
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.
19
<PAGE> 25
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.
20
<PAGE> 26
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 statements 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.
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 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;
KRVE-FM and WBIU-AM in Baton Rouge, Louisiana; 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.
21
<PAGE> 27
GULFSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
22
<PAGE> 28
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
23
<PAGE> 29
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.
24
<PAGE> 30
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.
25
<PAGE> 31
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.
26
<PAGE> 32
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.
27
<PAGE> 33
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.
28
<PAGE> 34
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.
29
<PAGE> 35
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.
30
<PAGE> 36
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.
31
<PAGE> 37
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.
32
<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated June 16, 1997, by and
among GulfStar, Capstar Broadcasting, Merger Sub, and the
stockholders listed therein.(1)
2.2.1 -- Asset Purchase Agreement, dated December 26, 1996,
between Community Pacific and Community Acquisition
Company, Inc.(2)
2.2.2 -- Amendment No. 1 to Asset Purchase Agreement, dated May
28, 1997, between Community Pacific and Pacific Star.*
2.2.3 -- Amendment No. 2 to Asset Purchase Agreement, dated July
14, 1997, between Community Pacific and Pacific Star.*
</TABLE>
- ---------------
* Filed herewith.
(1) Incorporated by reference to Capstar Partner's Amendment No. 1 to
Registration Statement on Form S-4, dated July 8, 1997, File No. 333-25638.
(2) Incorporated by reference to Capstar Partner's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, File No. 333-25638.
<PAGE> 1
EXHIBIT 2.2.2
AMENDMENT NO. 1
TO
ASSET PURCHASE AGREEMENT
BETWEEN
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
AND
PACIFIC STAR COMMUNICATIONS, INC.
DATED AS OF
MAY 28, 1997
<PAGE> 2
AMENDMENT NO. 1, dated as of May 28, 1997, to the Asset Purchase
Agreement, dated as of December 26, 1996, between Community Pacific
Broadcasting Company L.P., a Delaware limited partnership ("Seller"), and
Pacific Star Communications, Inc. (formerly named Community Acquisition
Company, Inc.), a Delaware corporation ("Buyer").
RECITALS
A. On December 26, 1996, Buyer and Seller entered into an Asset
Purchase Agreement (the "Agreement") providing, among other things, for the
sale by the Seller to the Buyer of substantially all the assets used or useful
in the operation of the stations listed on Annex A to the Agreement.
B. Buyer and Seller desire to amend the Agreement in accordance
with the provisions of Section 12.3 of the Agreement to change, among other
things, the anticipated closing date of such sale, to change the date relating
to the deposit of the Substitute Letter of Credit referred to in the Agreement,
to correct certain inadvertent omissions to the Agreement, to amend or replace
certain schedules to the Agreement, and to replace the forms of Employment
Agreement and Local Marketing Agreement which appears as Exhibit D and Exhibit
H, respectively, to the Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the agreements contained herein and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. SECTION 2.7(b). Section 2.7(b) of the Agreement is hereby
amended in its entirety to read as follows:
(b) No later than April 1, 1997, Buyer shall deposit the
Substitute Deposit Letter of Credit in such escrow account with the Escrow
Agent to be held in escrow in accordance with the Deposit Escrow Agreement and,
effective upon such deposit, the Original Deposit Letter of Credit shall be
returned to Buyer for cancellation.
2. SECTION 9.1. The first sentence of Section 9.1 of the
Agreement is hereby amended by deleting the phrase "October 31, 1997" contained
therein and substituting therefor the phrase "November 7, 1997".
3. SECTION 9.2(b). Section 9.2(b) of the Agreement is hereby
amended as follows:
(a) clause (xii) of Section 9.2(b) is amended by deleting
the word "and" appearing as the last word of such clause;
(b) clause (xiii) of Section 9.2(b) is amended by adding
the word "and" after the semi-colon appearing at the end of such clause;
and
<PAGE> 3
(c) the following is added as a new clause (xiv) to Section
9.2(b):
(xiv) Lien Terminations.UCC termination
statements or other appropriate releases evidencing the
release of the liens described in Schedule 3.1(l) and
Schedule 3.1(m).
4. Section 10.1(b)(v). Clause (v) of Section 10.1(b) of the
Agreement is hereby amended by deleting the phrase "October 31, 1997" contained
therein and substituting therefor the phrase "November 7, 1997".
5. Section 10.2(a). The last sentence of Section 10.2(a) of the
Agreement is hereby deleted in its entirety and the following sentence
substituted therefor:
"If this Agreement is terminated (i) by Buyer and Seller
pursuant to the provisions of Section 10.1(a), (ii) by Buyer
pursuant to Section 10.1(b)(i), (iii) by either party pursuant
to any provision of Section 10.1(b)(ii), (iii) or (iv),(iv)
pursuant to the provisions of Section 10.1(b)(v) and the
failure to close by the date specified in Section 10.1(b)(v) is
not a result of a breach of any representation, warranty,
covenant or agreement on the part of Buyer, or (v) by Buyer
pursuant to the provisions of Section 10.1(c), Buyer and Seller
shall instruct the Escrow Agent to release the Deposit Letter
of Credit to Buyer."
6. SECTION 11.6(c). Clause (ii) of Section 11.6(c) of the
Agreement is hereby amended by deleting the phrase "October 31, 1998" contained
therein and substituting therefor the phrase "November 7, 1998".
7. SECTION 12.1. The second sentence of Section 12.1 of the
Agreement is hereby amended by deleting the phrase "October 31, 1998",
appearing in clause (b) of such sentence and substituting therefor the phrase
"November 7, 1998".
8. SCHEDULE 3.1(l). Schedule 3.1(l) to the Agreement is hereby
amended by adding the following sentence to such Schedule:
"The Personal Property is subject to Liens in favor of Union Bank of
California (fka The Bank of California, N.A.) ("Union") as Agent for Union and
PNC, National Association, which Liens will be removed at Closing."
9. SCHEDULE 3.1(m). Schedule 3.1(m) to the Agreement is hereby
amended by adding the following sentence to such Schedule:
"All of the Assets and the Personal Property are subject to
Liens in favor of Union Bank of California (fka The Bank of
California, N.A.) ("Union") as Agent for Union and PNC, National
Association, which Liens will be removed at Closing."
-2-
<PAGE> 4
10. FORM OF EMPLOYMENT AGREEMENT. The form of Employment Agreement
between Buyer and David J. Benjamin, III appearing as Exhibit D to the
Agreement is hereby deleted in its entirety and the form of Employment
Agreement appearing as Annex I to this Amendment is substituted therefor as a
new Exhibit D to the Agreement.
11. FORM OF INDEMNIFICATION ESCROW AGREEMENT. The first sentence
of Section 6 of the form of Indemnification Escrow Agreement appearing as
Exhibit G to the Agreement is hereby amended by deleting the phrase"October 31,
1998" contained therein and substituting therefor the phrase "November 7,
1998".
12. FORM OF LOCAL MARKETING AGREEMENT. The form of Local Marketing
Agreement between Seller and Buyer appearing as Exhibit H to the Agreement is
hereby deleted in its entirety and the form of Local Marketing Agreement
appearing as Annex II to this Amendment is substituted therefor as a new
Exhibit H to the Agreement.
13. GENERAL. This Amendment (a) may be executed and delivered
(including by facsimile transmission) in two or more counterparts, each of
which will be deemed an original, but all of which shall constitute one and the
same instrument, and (b) shall be governed by the laws of the State of
Delaware. The captions of this Amendment shall not affect its interpretation
in any respect. Except to the extent herein amended, the Agreement is in all
respects hereby ratified, confirmed and approved. Whenever reference is made
to the Agreement in any certificate, letter, notice or other instrument, such
reference shall be interpreted as being a reference to the Agreement as amended
by this Amendment and by any subsequent amendment entered into pursuant to the
applicable provisions of the Agreement.
-3-
<PAGE> 5
IN WITNESS WHEREOF, Seller and Buyer have caused this Amendment to be
signed, all as of the date first written above.
SELLER:
COMMUNITY PACIFIC BROADCASTING
COMPANY L.P.
By: Broadcast Management Corporation,
its general partner
/s/ DAVID J. BENJAMIN, III
---------------------------------------
By: David J. Benjamin, III
Its: President
BUYER:
PACIFIC STAR COMMUNICATIONS, INC.
/s/ WILLIAM S. BANOWSKY, JR.
---------------------------------------
By: William S. Banowsky, Jr.
Its: Vice President
-4-
<PAGE> 1
EXHIBIT 2.2.3
AMENDMENT NO. 2
TO
ASSET PURCHASE AGREEMENT
BETWEEN
COMMUNITY PACIFIC BROADCASTING COMPANY L.P.
AND
PACIFIC STAR COMMUNICATIONS, INC.
DATED AS OF
JULY 14, 1997
<PAGE> 2
AMENDMENT NO. 2, dated as of July 14, 1997, to the Asset Purchase
Agreement, dated as of December 26, 1996, as amended by an Amendment No. 1,
dated as of May 28, 1997, between Community Pacific Broadcasting Company L.P.,
a Delaware limited partnership ("Seller"), and Pacific Star Communications,
Inc. (formerly named Community Acquisition Company, Inc.), a Delaware
corporation ("Buyer").
RECITALS
A. On December 26, 1996, Buyer and Seller entered into an Asset
Purchase Agreement (the "Agreement") providing, among other things, for the
sale by the Seller to the Buyer of substantially all the assets used or useful
in the operation of the stations listed on Annex A to such Asset Purchase
Agreement. Such Asset Purchase Agreement was amended by an Amendment No.1,
dated as of May 28, 1997, and such Asset Purchase Agreement as so amended is
referred to herein as the "Agreement".
B. Buyer and Seller desire to amend the Agreement in accordance
with the provisions of Section 12.3 of the Agreement to change, among other
things, the amount of the Purchase Price referred to therein, and to replace
the forms of Employment Agreement and Indemnification Escrow Agreement which
appears as Exhibit D and Exhibit G, respectively, to the Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the agreements contained herein
and other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. SECTION 2.3. Section 2.3 of the Agreement is hereby amended
in its entirety to read as follows:
2.3 PURCHASE PRICE. Subject to the adjustments set forth
in Section 2.4 and 2.5(b), the Purchase Price for the Assets
is the sum of (a) Thirty-Four Million Dollars ($34,000,000),
and (b) the product obtained by multiplying the number of days
from but not including, June 30, 1997 to and including the
Closing Date by Eight Thousand Three Hundred Thirty-three
Dollars and Thirty-three cents ($8,333.33).
2. FORM OF EMPLOYMENT AGREEMENT. The form of Employment
Agreement between Buyer and David J. Benjamin, III appearing as Exhibit D to
the Agreement is hereby deleted in its entirety and the form of Employment
Agreement appearing as Annex I to this Amendment is substituted therefor as a
new Exhibit D to the Agreement.
3. FORM OF INDEMNIFICATION ESCROW AGREEMENT. The form of
Indemnification Escrow Agreement appearing as Exhibit G to the Agreement is
hereby deleted in its entirety and the form of Indemnification Escrow Agreement
appearing as Annex II to this Amendment is substituted therefor as a new
Exhibit G to the Agreement.
<PAGE> 3
4. SCHEDULES. Schedule 3.1(k) and Schedule 3.1(p) to the
Agreement are hereby deleted in their entirety and the Schedule 3.1(k) and
3.1(p) attached hereto are substituted therefor.
5. LOCAL MARKETING AGREEMENT. In accordance with the provisions
of Section 3 of the Local Marketing Agreement, dated February 28, 1997 (the
"LMA"), between Seller and Buyer, the LMA shall terminate on the Closing Date.
As provided in the LMA, the Operating Expense Payment and the LMA Fee Payment
referred to in the LMA shall be prorated on a daily basis during the month in
which the Closing Date occurs. On the Closing Date, Seller shall reimburse
Buyer for any portion of the LMA Fee Payment previously paid for such month in
excess of the pro-rated amount that shall have accrued for such month on or
prior to the Closing Date. An adjustment for any previously paid Operating
Expense Payment for such month shall be made when the adjustments and
prorations contemplated by Section 2.4 of the Agreement are made.
6. GENERAL. This Amendment (a) may be executed and delivered
(including by facsimile transmission) in two or more counterparts, each of
which will be deemed an original, but all of which shall constitute one and the
same instrument, and (b) shall be governed by the laws of the State of
Delaware. The captions of this Amendment shall not affect its interpretation
in any respect. Except to the extent herein amended, the Agreement is in all
respects hereby ratified, confirmed and approved. Whenever reference is made
to the Agreement in any certificate, letter, notice or other instrument, such
reference shall be interpreted as being a reference to the Agreement as amended
by this Amendment and by any subsequent amendment entered into pursuant to the
applicable provisions of the Agreement.
-2-
<PAGE> 4
IN WITNESS WHEREOF, Seller and Buyer have caused this Amendment to be
signed, all as of the date first written above.
SELLER:
COMMUNITY PACIFIC BROADCASTING
COMPANY L.P.
By: Broadcast Management Corporation,
its general partner
/s/ DAVID J. BENJAMIN, III
---------------------------------------------
By: David J. Benjamin, III
Its: President
BUYER:
PACIFIC STAR COMMUNICATIONS, INC.
/s/ WILLIAM S. BANOWSKY, JR.
---------------------------------------------
By: William S. Banowsky, Jr.
Its: Vice President
-3-
