<PAGE> 1
PROSPECTUS Filed Pursuant to Rule 424(b) (3)
Registration No. 333-36771
Citadel logo Citadel Broadcasting Company
OFFER TO EXCHANGE
10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
FOR
10 1/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
AND
13 1/4% SERIES A EXCHANGEABLE PREFERRED STOCK
FOR
13 1/4% SERIES B EXCHANGEABLE PREFERRED STOCK
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JANUARY 28, 1998, UNLESS EXTENDED
- --------------------------------------------------------------------------------
Citadel Broadcasting Company, a Nevada corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letters of Transmittal (the "Exchange Offer"),
to exchange (i) its 10 1/4% Series B Senior Subordinated Notes due 2007 (the
"Series B Notes") for an equal principal amount of its 10 1/4% Senior
Subordinated Notes due 2007 (the "Series A Notes"), of which an aggregate of
$101,000,000 in principal is outstanding as of the date hereof, and (ii) shares
of its 13 1/4% Series B Exchangeable Preferred Stock (the "Series B Exchangeable
Preferred Stock") for an equal number of shares of its 13 1/4% Series A
Exchangeable Preferred Stock (the "Series A Exchangeable Preferred Stock"), of
which 1,000,000 shares are outstanding as of the date hereof and an additional
65,514 shares (the "Series A Dividend Shares") are anticipated to be issued and
become outstanding prior to the expiration of the Exchange Offer. The form and
the terms of each of the Series B Notes and the Series B Exchangeable Preferred
Stock will be the same as the form and terms of each of the Series A Notes and
the Series A Exchangeable Preferred Stock, respectively, except that (i) each of
the Series B Notes and the Series B Exchangeable Preferred Stock will bear a
"Series B" designation and will bear different CUSIP Numbers from the Series A
Notes and the Series A Exchangeable Preferred Stock, (ii) the Series B Notes and
the Series B Exchangeable Preferred Stock will have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and, therefore, will
not bear legends restricting their transfer, and (iii) holders of the Series B
Notes and the Series B Exchangeable Preferred Stock will not be entitled to
certain rights of holders of Series A Notes and Series A Exchangeable Preferred
Stock, respectively, under the Registration Rights Agreements (as defined),
which rights will terminate as to holders of the Series B Notes and Series B
Exchangeable Preferred Stock upon consummation of the Exchange Offer. Series B
Notes will evidence the same debt as the Series A Notes and will be entitled to
the benefits of the indenture (the "Notes Indenture") dated as of July 1, 1997
governing the Series A Notes and the Series B Notes. The Series A Notes and the
Series B Notes are sometimes referred to herein collectively as the "Notes." The
Series A Exchangeable Preferred Stock and the Series B Exchangeable Preferred
Stock are sometimes referred to herein collectively as the "Exchangeable
Preferred Stock." The Series A Notes and the Series A Exchangeable Preferred
Stock are sometimes referred to herein collectively as the "Series A
Securities." The Series B Notes and the Series B Exchangeable Preferred Stock
are sometimes referred to herein collectively as the "Series B Securities."
Interest on the Series B Notes will accrue from and including their
issuance date. Additionally, interest on the Series B Notes will accrue from the
last interest payment date on which interest was paid on the
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SEE "RISK FACTORS" WHICH BEGINS ON PAGE 19 OF THIS PROSPECTUS, FOR A DESCRIPTION
OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR SERIES A
SECURITIES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December 24, 1997.
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Series A Notes surrendered in exchange therefor or, if no interest has been paid
on the Series A Notes, from the date of original issuance of such Series A Notes
to but not including the issuance date of the Series B Notes. Interest on the
Notes is payable semi-annually on January 1 and July 1 of each year, commencing
January 1, 1998. The Notes are unconditionally guaranteed (the "Subsidiary Notes
Guarantees") on a senior subordinated basis by Citadel License, Inc., a wholly
owned subsidiary of the Company ("Citadel License"), and will be guaranteed by
any future Restricted Subsidiaries (as defined). The Notes are unsecured senior
subordinated obligations of the Company and are subordinated to all Senior Debt
(as defined) of the Company, including indebtedness under the Credit Facility
(as defined). As of September 30, 1997, on a pro forma basis, after giving
effect to the Recent 1997 Acquisitions (as defined) and the Pending Transactions
(as defined), the aggregate amount of Senior Debt of the Company would have been
approximately $111.1 million. The Company has not issued, and does not have any
firm arrangement to issue, any significant Debt (as defined) that would be
subordinate to the Notes, except as described below in connection with the
exchange, at the Company's option, of the Exchangeable Preferred Stock for the
Exchange Debentures (as defined).
Dividends on the Series B Exchangeable Preferred Stock will accumulate from
and including its issuance date. Additionally, dividends on the Series B
Exchangeable Preferred Stock will accumulate from the last dividend payment date
on which dividends were paid on the Series A Exchangeable Preferred Stock
surrendered in exchange therefor or, if no dividends have been paid on the
Series A Exchangeable Preferred Stock, from the date of original issuance of
such Series A Exchangeable Preferred Stock to but not including the issuance
date of the Series B Exchangeable Preferred Stock. Dividends on the Exchangeable
Preferred Stock are payable semi-annually on January 1 and July 1 of each year,
commencing January 1, 1998, at a rate per annum of 13 1/4% of the liquidation
preference per share. Dividends may be paid, at the Company's option, on any
dividend payment date occurring on or prior to July 1, 2002, either in cash or
in additional shares of Exchangeable Preferred Stock. Thereafter, all dividends
will be payable only in cash. The Company has declared a dividend payable on
January 1, 1998 to holders of record of Series A Exchangeable Preferred Stock on
December 15, 1997. Such dividend is to be paid in Series A Dividend Shares.
The Notes are redeemable, in whole or in part, at the option of the
Company, at any time on or after July 1, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to July 1, 2000, the Company may, at
its option, redeem a portion of the Notes with the net proceeds of one or more
Public Equity Offerings (as defined), at a redemption price equal to 110.25% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of redemption; provided, however, that after any such redemption there is
outstanding at least $75.0 million aggregate principal amount of the Notes. Upon
the occurrence of a Change of Control (as defined), the Company will be required
to make an offer to purchase all of the then outstanding Notes at a price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the repurchase date. See "Description of the Notes."
The Exchangeable Preferred Stock is redeemable, in whole or in part, at the
option of the Company, at any time on or after July 1, 2002, at the redemption
prices set forth herein, plus accumulated and unpaid dividends, if any, to the
date of redemption. In addition, at any time prior to July 1, 2000, the Company
may, at its option, redeem up to an aggregate of 35% of the shares of
Exchangeable Preferred Stock with the net proceeds of one or more Public Equity
Offerings, at a redemption price equal to 113.25% of the liquidation preference
thereof, plus accumulated and unpaid dividends, if any, to the date of
redemption; provided, however, that after any such redemption there is
outstanding at least $75.0 million aggregate liquidation preference of the
Exchangeable Preferred Stock. The Company is required, subject to certain
conditions, to redeem all of the Exchangeable Preferred Stock outstanding on
July 1, 2009, at a redemption price equal to 100% of the liquidation preference
thereof, plus accumulated and unpaid dividends, if any, to the date of
redemption. Upon the occurrence of a Change of Control, the Company will be
required to make an offer to purchase all of the then outstanding shares of
Exchangeable Preferred Stock at a price equal to 101% of the liquidation
preference thereof, plus accumulated and unpaid dividends, if any, to the
repurchase date.
(continued on next page)
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Subject to certain conditions, the Exchangeable Preferred Stock is
exchangeable in whole, but not in part, at the option of the Company, on any
dividend payment date, for the Company's 13 1/4% Subordinated Exchange
Debentures due 2009 (including any such securities paid in lieu of cash
interest, as described herein, the "Exchange Debentures"). Interest on the
Exchange Debentures will be payable at a rate of 13 1/4% per annum and will
accrue from the date of issuance thereof. Interest on the Exchange Debentures
will be payable semi-annually in cash or, at the option of the Company, on or
prior to July 1, 2002, in additional Exchange Debentures, on each January 1 and
July 1, commencing on the first such date after the exchange of the Exchangeable
Preferred Stock for the Exchange Debentures. The Exchange Debentures mature on
July 1, 2009, and are redeemable, in whole or in part, at the option of the
Company, at any time on or after July 1, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time prior to July 1, 2000, the Company may, at
its option, redeem up to an aggregate of 35% of the aggregate principal amount
of the Exchange Debentures with the net proceeds of one or more Public Equity
Offerings, at a redemption price equal to 113.25% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption;
provided, however, that after any such redemption there is outstanding at least
$75.0 million aggregate principal amount of the Exchange Debentures. Upon the
occurrence of a Change of Control, the Company will be required to make an offer
to purchase all of the then outstanding Exchange Debentures at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the repurchase date.
The Exchange Debentures will be unsecured subordinated obligations of the
Company and will be subordinated to all existing and future Senior Debt and
Senior Subordinated Debt (as defined), including the Notes, of the Company and
will rank pari passu with or senior to all future Debt of the Company that
expressly provides that it ranks pari passu with or junior to the Exchange
Debentures. As of September 30, 1997, on a pro forma basis, after giving effect
to the Recent 1997 Acquisitions and the Pending Transactions, the aggregate
amount of Senior Debt and Senior Subordinated Debt (including the Notes) of the
Company would have been approximately $212.1 million excluding the discount on
the Notes, and no Debt of the Company would have been pari passu with or
subordinated to the Exchange Debentures. See "Description of the Exchangeable
Preferred Stock and Exchange Debentures."
The Company will accept for exchange any and all validly tendered Series A
Securities not withdrawn prior to 5:00 p.m., New York City time, on January 28,
1998, unless extended by the Company in its sole discretion (the "Expiration
Date"). Tenders of Series A Securities may be withdrawn at any time prior to the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Series A Notes or any minimum number of shares of
Series A Exchangeable Preferred Stock being tendered for exchange. In the event
the Company terminates the Exchange Offer and does not accept for exchange any
Series A Securities, the Company will promptly return all previously tendered
Series A Securities to the holders thereof. The Exchange Offer is subject to
certain customary conditions. See "The Exchange Offer-- Conditions." The Company
has agreed to pay all expenses incident to the Exchange Offer. The Company will
not receive any proceeds from the Exchange Offer.
The Series A Securities were originally issued and sold in transactions
which were not registered under the Securities Act in reliance upon exemptions
from the registration requirements of the Securities Act. Accordingly, the
Series A Securities may not be reoffered, resold or otherwise pledged,
hypothecated or transferred in the United States unless registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. The Series B Securities are
being offered hereunder to satisfy the obligations of the Company under the
Registration Rights Agreements. See "The Exchange Offer--Purpose and Effect of
Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
that a holder of Series A Securities (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) that exchanges Series A Securities for Series B Securities pursuant to the
Exchange Offer generally may offer
(continued on next page)
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such Series B Securities for resale, resell such Series B Securities and
otherwise transfer such Series B Securities without further registration under
the Securities Act and without delivery of a prospectus that satisfies the
requirements of the Securities Act, provided that such Series B Securities are
acquired in the ordinary course of such holder's business and such holder is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in a distribution of such Series B
Securities. Eligible holders wishing to accept the Exchange Offer must represent
to the Company that such conditions have been met. Any holder of Series A
Securities using the Exchange Offer to participate in a distribution of the
Series B Securities received in exchange for Series A Securities (including a
broker-dealer that acquired Series A Securities directly from the Company, but
not as a result of market-making activities or other trading activities) cannot
rely on the position of the staff enunciated in the above-mentioned no-action
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in the absence of an exemption from such
requirements. Furthermore, each broker-dealer that receives Series B Securities
for its own account in exchange for Series A Securities where such Series A
Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities (a "Participating Broker-Dealer") may be
a statutory underwriter and must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Series B Securities. The Letters of Transmittal state that by so
acknowledging and by delivering a prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of Series B Securities received in exchange for Series A Securities. The Company
has agreed that, for a period of 120 days after the Expiration Date, it will
make this Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale. See "Plan of Distribution."
Holders of Series A Notes and Series A Exchangeable Preferred Stock whose
Series A Notes and Series A Exchangeable Preferred Stock are not tendered and
accepted in the Exchange Offer will continue to hold such Series A Notes and
Series A Exchangeable Preferred Stock and will be entitled to all the rights and
preferences and will be subject to the limitations applicable thereto under the
Notes Indenture governing the Series A Notes and the Series B Notes and the
certificate of designation governing the Series A Exchangeable Preferred Stock
and Series B Exchangeable Preferred Stock (the "Certificate of Designation"),
respectively. Following consummation of the Exchange Offer, the holders of
Series A Notes and Series A Exchangeable Preferred Stock will continue to be
subject to the existing restrictions upon transfer thereof under the Securities
Act.
There has been no previous public market for the Series A Securities or the
Series B Securities. The Company does not intend to list the Series B Securities
on any securities exchange or to seek approval for quotation through any
automated quotation system. There can be no assurance that an active market for
the Series B Securities will develop. See "Risk Factors--Lack of Established
Trading Market." Moreover, to the extent that Series A Securities are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Series A Securities could be adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SERIES A NOTES OR SERIES A EXCHANGEABLE
PREFERRED STOCK IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE
ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY
LAWS OF SUCH JURISDICTION.
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CERTAIN OF THE MATTERS DISCUSSED UNDER "PROSPECTUS SUMMARY," "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS CONTAIN
FORWARD-LOOKING STATEMENTS CONCERNING THE COMPANY'S OPERATIONS, ECONOMIC
PERFORMANCE AND FINANCIAL CONDITION, INCLUDING, AMONG OTHER THINGS, THE
COMPANY'S BUSINESS STRATEGY. THESE STATEMENTS ARE BASED ON THE COMPANY'S
EXPECTATIONS AND ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED DUE TO A NUMBER OF FACTORS,
INCLUDING THOSE IDENTIFIED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
MARKET AND STATION DATA
Unless otherwise indicated herein, (i) all metropolitan statistical area
("MSA") rank information and information concerning the number of stations and
station groups in a market have been obtained from Investing in Radio 1997
Market Report (1st ed.) (the "1997 BIA Report") published by BIA Publications,
Inc. ("BIA"); (ii) all audience share and primary demographic share and rank
information have been obtained from the Spring 1997 Radio Market Report (the
"Arbitron Reports") published by The Arbitron Company ("Arbitron"); (iii)
station and station group market revenue share and rank information for the
Albuquerque, Colorado Springs, Eugene, Modesto, Reno, Salt Lake City and Spokane
markets are given for the first six months of 1997 and have been obtained from
the June 1997 Miller, Kaplan Market Revenue Report, a publication of Miller,
Kaplan, Arase & Co., Certified Public Accountants; (iv) station and station
group market revenue share and rank information for the Allentown/Bethlehem,
Billings, Boise, Harrisburg, Little Rock, Medford, Tri-Cities,
Wilkes-Barre/Scranton and York markets are given for 1996 and have been obtained
from BIA's -- Master Access Radio Database, version 2.0 (data as of June 26,
1997); (v) station and station group market revenue share and rank information
for the Providence market is given for the first six months of 1997 and has been
obtained from the June 1997 Radio Revenue Report, a publication of Hungerford,
Aldrin, Nichols & Carter, P.C., Certified Public Accountants ("Hungerford");
(vi) market revenue is given for the period indicated and, with respect to a
particular market, has been obtained from the same source from which station
group market revenue share and rank information have been obtained for such
market, except that market revenue data for 1996 and 1995 for the Albuquerque,
Colorado Springs, Eugene, Modesto, Reno, Salt Lake City and Spokane markets and
for the Providence market have been obtained from the December 1996 Miller,
Kaplan Market Revenue Report and Hungerford's December 1996 Radio Revenue
Report, respectively; and (vii) unless otherwise noted, information concerning
the number of viable stations in a market has been obtained from Duncan's Radio
Market Guide (1997 ed.) ("Duncan's") compiled by Duncan's American Radio, Inc.
Duncan's defines "viable stations" as stations which are active and viable
competitors for advertising dollars in the market. If the total number of viable
AM or FM stations within a market was not a whole number, that number was
rounded up to the nearest whole number.
A radio station's designated market may be different from its community of
license. If a radio station's call letters have changed during the time the
Company has owned or operated the station, the station is described herein by
its call letters currently in use, unless otherwise indicated.
"Broadcast cash flow" consists of operating income (loss) before
depreciation, amortization and corporate expenses. "EBITDA" consists of
operating income (loss) before depreciation and amortization. Although broadcast
cash flow and EBITDA are not measures of performance calculated in accordance
with generally accepted accounting principles ("GAAP"), management believes that
they are useful in evaluating the Company because they are measures widely used
in the broadcast industry to evaluate a radio company's operating performance.
However, broadcast cash flow and EBITDA should not be considered in isolation or
as substitutes for net income, cash flows from operating activities and other
income or cash flow data prepared in accordance with GAAP as a measure of
liquidity or profitability.
i
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in connection with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless the context
otherwise requires, the term the "Company" refers to Citadel Broadcasting
Company and its subsidiary, and the term "Citadel Communications" refers to
Citadel Communications Corporation, the Company's parent. Unless the context
otherwise requires, the term "operate," as used in connection with the Company's
radio station activities, includes the provision of programming and the sale of
advertising pursuant to local marketing agreements ("LMA") or the sale of
advertising pursuant to joint sales agreements ("JSA"). Investors should
consider carefully the information set forth under "Risk Factors" in this
Prospectus. Certain terms used in this Prospectus are defined herein under the
caption "Glossary of Certain Defined Terms."
THE COMPANY
The Company is a radio broadcasting company that focuses on acquiring,
developing and operating radio stations in mid-sized markets. Upon completion of
the Pending Transactions (as defined), the Company will own or operate 68 FM and
31 AM radio stations in 18 markets and will have the right to construct one
additional FM station, and the Company's stations will comprise the leading
radio station group in terms of revenue share in 13 of those markets.
The Company's primary strategy is to secure and maintain a leadership
position in the markets it serves and to expand into additional mid-sized
markets where it believes a leadership position can be obtained. Upon entering a
market, the Company seeks to acquire additional stations which, when integrated
with its existing operations, allow it to reach a wider range of demographic
groups that appeal to advertisers, enhance operating performance and achieve
substantial cost savings. Since January 1, 1993, the Company has completed 25
station acquisitions in markets where it already owned stations, and it is
currently party to agreements to acquire five additional stations in markets in
which it currently owns radio stations.
The Company chooses programming formats for its stations that are intended
to maximize each station's cash flow. The Company's stations broadcast a number
of formats including country, news/talk, adult contemporary, rock and oldies,
each of which is designed to appeal to a specific audience in each market. The
Company's portfolio of stations is diversified in terms of format, target
demographics and geographic location. Because of the size of its portfolio and
its individual radio station groups, the Company believes it is not unduly
reliant upon the performance of any single station. The Company also believes
that the diversity of its portfolio of radio stations helps insulate the Company
from downturns in specific markets and changes in format preferences.
The Company believes that mid-sized markets represent attractive
opportunities because, as compared to the 50 largest markets in the United
States, they are generally characterized by (i) lower radio station purchase
prices as a multiple of broadcast cash flow, (ii) fewer sophisticated and
well-capitalized competitors, including both radio and competing advertising
media such as newspapers and television and (iii) less direct format competition
due to the smaller number of stations in any given market. The Company believes
that the attractive operating characteristics of mid-sized markets coupled with
the opportunity to establish or expand in-market radio station groups create the
potential for substantial revenue growth and cost efficiencies. As a result,
management seeks to achieve broadcast cash flow margins that are comparable to
the higher margins that historically were generally achievable only in the 50
largest markets.
STATION PORTFOLIO
The Company currently owns 59 FM and 26 AM radio stations, has the right to
construct one additional FM radio station, sells advertising on behalf of four
FM and five AM radio stations pursuant to JSAs and provides programming and
sells advertising on behalf of two FM radio stations pursuant to LMAs as well as
certain other radio stations pending their acquisition by the Company. The
Company has entered into agreements to purchase (the "Pending Acquisitions")
three FM and two AM radio stations in an existing
1
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market and four FM radio stations and one AM radio station in a new market. In
addition, the Company has entered into agreements to sell (such sales
collectively with the Pending Acquisitions, the "Pending Transactions") four FM
and three AM radio stations. Upon completion of the Pending Transactions, the
Company will own 62 FM and 26 AM radio stations in 18 mid-sized markets, operate
six FM and five AM additional radio stations in its markets pursuant to LMAs or
JSAs and have the right to construct one additional FM radio station.
The following chart sets forth certain information with respect to the
radio stations owned or operated by the Company after giving effect to the
Pending Transactions:
<TABLE>
<CAPTION>
NUMBER OF STATIONS
-------------------------------------- COMBINED
COMBINED MARKET
FM AM MARKET REVENUE
----------------- ----------------- AUDIENCE -------------
MSA RANK OWNED OPERATED OWNED OPERATED SHARE(1) SHARE RANK
-------- ----- -------- ----- -------- --------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EXISTING MARKETS(2):
Albuquerque, NM................. 71 5 -- 3 -- 38.0% 58.0% 1
Allentown/Bethlehem, PA(3)...... 65 2 -- -- -- 16.9 24.1 2
Billings, MT.................... 238 4 -- 1 -- 50.5 58.3 1
Colorado Springs, CO............ 95 3 2 -- 2 43.0 63.5 1
Eugene, OR...................... 146 2 -- 1 -- 18.7 32.4 1
Harrisburg, PA(4)............... 73 1 -- -- -- 7.4 12.2 4
Little Rock, AR(5).............. 82 8 -- 3 -- 29.9 37.9 1
Medford, OR..................... 201 4 -- 2 -- 30.9 55.3 1
Modesto, CA..................... 122 4 -- 1 -- 31.6 62.2 1
Providence, RI.................. 31 4 -- 2 -- 26.3 36.4 1
Quincy, IL...................... NA 3 -- 1 -- NA NA NA
Reno, NV........................ 131 3 -- 1 -- 36.5 47.4 1
Salt Lake City, UT.............. 35 4 -- 2 -- 20.1 22.7 1
Spokane, WA..................... 87 2 2 2 2 43.1 53.6 1
Tri-Cities, WA.................. 200 4 -- 1 -- 28.0 40.2 1
Wilkes-Barre/Scranton, PA(6).... 62 5 2 4 1 23.6 34.1 2
York, PA(4)..................... 103 1 -- 1 -- 6.9 11.1 3
-- -- -- --
TOTAL.................... 59 6 25 5
NEW MARKETS:
Boise, ID(7).................... 129 4 -- 1 -- 29.1% 39.9% 1
TOTAL.................... 4 -- 1 --
-- -- -- --
TOTAL STATIONS........... 63 6 26 5
== == == ==
</TABLE>
- ---------------
NA -- Information not available.
(1) Combined market audience share has been derived from Arbitron surveys of
persons ages 25 to 54, listening Monday through Sunday, 6:00 a.m. to 12:00
midnight.
(2) A market is not included if the Company has entered into an agreement to
sell all of its radio stations in such market.
(3) Does not include one AM radio station to be sold.
(4) Harrisburg and York are adjacent markets with numerous overlapping radio
signals.
(5) One station is not yet operational. Three of these stations serve the
surrounding communities outside of Little Rock.
(6) Includes five stations shown as owned with respect to which the Company has
entered into agreements to acquire and which, pending such acquisitions, the
Company operates under LMAs.
(7) The Company has entered into agreements to acquire all of these stations
and, pending such acquisitions, operates these stations under LMAs.
2
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OPERATING STRATEGY
In order to maximize its radio stations' appeal to advertisers, and thus
the revenue and cash flow of its stations, the Company has implemented the
following strategies:
Ownership of Strong Station Groups. The Company seeks to secure and
maintain a leadership position in the markets it serves through the ownership of
multiple stations in a market. By strategically coordinating programming,
promotional and selling strategies among a group of local stations, the Company
attempts to capture a wide range of demographic groups which appeal to
advertisers. The Company believes that the diversification of its programming
formats and its collective inventory of available advertising time strengthen
relationships with advertisers and increase the Company's ability to maximize
the value of its inventory.
The Company believes that its ability to leverage the existing programming
and sales resources of its strong station groups enables it to enhance the
growth potential of both new and underperforming stations while reducing the
risks associated with undertaking means of improving station performance,
including launching new formats. The Company also believes that operating
leading station groups allows it to attract and retain talented local management
teams, on-air personalities and sales personnel, which it believes are essential
to operating success. Furthermore, the Company seeks to achieve substantial cost
savings through the consolidation in each of its markets of facilities,
management, sales and administrative personnel and operating resources (such as
on-air talent, programming and music research) and through the reduction of
other redundant expenses. The Company believes that having multiple stations in
a market also enhances its ability to sell the advantages of radio advertising
versus other advertising media.
Aggressive Sales and Marketing. The Company seeks to maximize its share of
local advertising revenue in each of its markets by implementing and maintaining
strong sales and marketing programs. The Company provides extensive training for
its sales personnel through in-house sales and time management programs, and it
retains various independent consultants who hold frequent seminars for and are
available for consultation with the Company's sales personnel. The Company also
emphasizes regular, informal exchanges of ideas among its management and sales
personnel across its various markets. Because advertising time is perishable,
the Company seeks to maximize its revenue through the utilization of
sophisticated inventory management techniques that allow it to provide its sales
personnel with frequent price adjustments based on regional and local market
conditions. To further strengthen its relationships with advertisers, the
Company also offers and markets its ability to create customer traffic through
on-site events staged at, and broadcast from, an advertiser's business.
Targeted Programming. To maintain or improve its position in each market,
the Company combines extensive market research with an assessment of its
competitors' vulnerabilities in order to identify significant and sustainable
target audiences. The Company then tailors the programming, marketing and
promotion of each station to maximize its appeal to its target audience. Within
each market, the Company attempts to build strong franchises through (i) the
creation of distinct, highly visible profiles for its on-air personalities,
particularly those broadcasting during morning "drive time" traditionally
between 6:00 a.m. and 10:00 a.m., (ii) the formulation of recognizable "brand
names" for select stations such as the "Bull" and "Cat Country" and (iii) active
involvement in community events and charities. The Company has achieved
particular success in programming country formats and currently operates the
leading country station in ten of its 13 existing markets where it programs
country music.
Decentralized Operations. The Company believes that radio is primarily a
local business and that much of its success is the result of the efforts of
regional and local management and staff. Accordingly, the Company decentralizes
much of its operations to these levels. Each of the Company's regional and local
station groups is managed by a team of experienced broadcasters who understand
radio format trends, demographics and competitive opportunities of the
particular market. Regional and local managers are responsible for preparing
annual operating budgets, and a portion of their compensation is linked to
meeting or surpassing operating targets. Corporate management approves each
station group's annual operating budgets and imposes strict financial reporting
requirements to track station performance. Corporate management is responsible
for long range planning, establishing Company policies and serving as a resource
to local management. The Company has implemented local sales reporting systems
at each station to provide local and corporate management with daily sales
information.
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<PAGE> 10
ACQUISITION STRATEGY
As the Company has achieved a leading position in most of the markets it
currently serves, the Company expects that, in addition to acquiring additional
radio stations in existing markets, it will emphasize the acquisition of radio
stations in new markets which present opportunities for the Company to apply its
operating strategies. The Company believes that such acquisitions will enable it
to achieve, among other things, greater size and geographic diversification. The
Company anticipates that it will continue to focus on mid-sized markets rather
than attempt to expand into larger markets. Although competition among potential
purchasers for suitable radio station acquisitions is intense throughout the
United States, the Company believes that less competition exists, particularly
from the larger radio operators, in mid-sized markets as compared to larger
markets, affording the Company relatively more attractive acquisition
opportunities in these markets. There can be no assurance, however, that the
Company will be able to identify suitable and available acquisition
opportunities or that it will be able to consummate any such acquisition
opportunities.
In evaluating acquisition opportunities in new markets, the Company
assesses its potential, over time, to build leading radio station groups in
those markets. The Company believes that the creation of strong station groups
in local markets is essential to operating success and generally will not
consider entering a new market unless it believes it can acquire multiple
stations in the market. The Company also analyzes a number of additional factors
which it believes are important to its success, including the number and quality
of commercial radio signals broadcasting in the market, the nature of the
competition in the market, the Company's ability to improve the operating
performance of the radio station or stations under consideration and the general
economic conditions of the market.
The Company believes that its acquisition strategy, if properly
implemented, could have a number of benefits, including (i) diversification of
revenue and broadcast cash flow across a greater number of stations and markets,
(ii) improved broadcast cash flow margins through the consolidation of
facilities and the elimination of redundant expenses, (iii) enhanced utilization
of its senior management team, (iv) improved leverage in various key vendor
negotiations, (v) greater appeal to top industry management talent and (vi)
increased overall scale which should facilitate the Company's capital raising
activities.
CORPORATE HISTORY AND RECENTLY COMPLETED TRANSACTIONS
The Company was incorporated in Nevada in 1991, and in 1992 it acquired all
of the radio stations then owned or operated by Citadel Associates Limited
Partnership and Citadel Associates Montana Limited Partnership (collectively,
"Predecessor") and certain other radio stations. Lawrence R. Wilson, Chief
Executive Officer of the Company, was a co-founder and one of the two general
partners of Predecessor. In 1993, Citadel Communications was incorporated and
the Company was reorganized as a wholly owned subsidiary of Citadel
Communications. The Company acquired ownership of additional radio stations in
each of 1993, 1994, 1996 and 1997.
On July 3, 1997, the Company purchased all of the issued and outstanding
capital stock of Tele-Media Broadcasting Company ("Tele-Media") which owned or
operated 16 FM and ten AM radio stations in Pennsylvania, Rhode Island and
Illinois (the "Tele-Media Acquisition"). The purchase price for the Tele-Media
Acquisition was approximately $114.4 million, which included the repayment of
certain indebtedness of Tele-Media and the redemption of certain corporate bonds
and warrants of Tele-Media (collectively, the "Tele-Media Bonds"). Upon
consummation of the Tele-Media Acquisition, Tele-Media was merged with and into
the Company.
Effective as of January 1, 1997, Citadel Communications acquired Deschutes
River Broadcasting, Inc. ("Deschutes") which owned 18 radio stations in Montana,
Oregon and Washington. The total consideration paid was approximately $26.0
million. Following the acquisition, Deschutes was operated as a sister company
to the Company until June 20, 1997 when Deschutes was merged with and into the
Company (the "Subsidiary Merger").
The Company also acquired (i) two FM radio stations and one AM radio
station in Albuquerque, New Mexico and one FM radio station in Modesto,
California in four separate transactions in June 1996; (ii) one FM radio station
in Colorado Springs, Colorado and one FM radio station in Albuquerque, New
Mexico in
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<PAGE> 11
two separate transactions in October 1996; (iii) three FM radio stations and one
AM radio station in Salt Lake City, Utah in three separate transactions in
February 1997, April 1997 and October 1997; (iv) one FM radio station in Reno,
Nevada in July 1997; (v) one FM radio station in Tri-Cities, Washington in
September 1997; (vi) two FM radio stations in Providence, Rhode Island in two
separate transactions in September 1997 and November 1997; (vii) seven FM and
three AM radio stations and the right to construct one additional FM radio
station in Little Rock, Arkansas in several separate transactions in October
1997 and November 1997 (collectively, the "Little Rock Acquisitions"); and
(viii) one FM radio station in Allentown/Bethlehem, Pennsylvania in October
1997. Prior to their acquisition by the Company, 17 of these stations had been
operated by the Company under an LMA or JSA. The aggregate purchase price paid
for these stations and related assets was approximately $119.9 million,
consisting of approximately $105.7 million in cash and the balance in shares of
preferred stock of Citadel Communications. The Tele-Media Acquisition and the
other acquisitions which occurred after June 30, 1997 but before September 30,
1997 are collectively referred to herein as the "Third Quarter Acquisitions" and
the acquisitions which have occurred since September 30, 1997 are collectively
referred to herein as the "Recent 1997 Acquisitions."
The Company sold and issued the Series A Securities (other than the Series
A Dividend Shares) on July 3, 1997 (the "Original Offerings") in order to
finance acquisitions by the Company, repay certain indebtedness of the Company
and provide cash for working capital purposes.
Concurrently with the closing of the Original Offerings, the Company
entered into amendments to the Credit Facility which allow for borrowings of up
to $150.0 million (although the actual amount which may be borrowed under the
Credit Facility is limited under the Certificate of Designation, the Notes
Indenture and, if the Exchange Debentures are issued, the indenture governing
the Exchange Debentures (the "Exchange Indenture")). See "Description of
Indebtedness -- Existing Loan Agreement," "Description of the Notes" and
"Description of the Exchangeable Preferred Stock and Exchange Debentures."
THE PENDING TRANSACTIONS
The Company has entered into various agreements to purchase (collectively,
the "In-Market Acquisitions") three FM and two AM radio stations in
Wilkes-Barre/Scranton, Pennsylvania (collectively, the "In-Market Acquisition
Stations"). Pending their acquisition, the Company currently operates all of the
In-Market Acquisition Stations under LMAs. The purchase price for these stations
is approximately $6.8 million in cash.
In addition, the Company has entered into various agreements to purchase
(the "Boise Acquisition") four FM radio stations and one AM radio station in
Boise, Idaho (collectively, the "Boise Stations"). Pending their acquisition,
the Company currently operates the Boise Stations under LMAs. The purchase price
for such stations is approximately $28.5 million in cash.
The Company has entered into an agreement to sell its two FM radio stations
in Johnstown, Pennsylvania and its two FM and two AM radio stations in State
College, Pennsylvania for the aggregate sale price of approximately $8.5 million
in cash. In addition, the Company has entered into an agreement to sell one AM
radio station in Allentown/Bethlehem, Pennsylvania in connection with the
recently consummated acquisition by the Company of one FM radio station in such
market. See "The Pending Transactions."
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<PAGE> 12
THE EXCHANGE OFFER
Registration Rights
Agreement.................. The Series A Securities were originally sold by the
Company in transactions exempt from the
registration requirements of the Securities Act. On
July 3, 1997, 1,000,000 shares of Series A
Exchangeable Preferred Stock and $100,000,000
aggregate principal amount of the Series A Notes
were sold to Prudential Securities Incorporated,
NationsBanc Capital Markets, Inc. and BancBoston
Securities Inc. (collectively, the "Initial
Purchasers") pursuant to a Purchase Agreement dated
as of June 30, 1997 by and among the Company,
Citadel Communications and the Initial Purchasers
(the "Purchase Agreement"). The Initial Purchasers
subsequently sold such Series A Notes and Series A
Exchangeable Preferred Stock to qualified
institutional buyers in reliance on Rule 144A under
the Securities Act. On July 3, 1997, the Company
issued $1,000,000 aggregate principal amount of the
Series A Notes to the holders of the Tele-Media
Bonds in connection with the closing of the
Tele-Media Acquisition. It is anticipated that the
65,514 Series A Dividend Shares will be issued as
of January 1, 1998. The Company, Citadel License
and the Initial Purchasers entered into a Notes
Registration Rights Agreement dated July 3, 1997
(the "Notes Registration Rights Agreement") and a
Preferred Stock Registration Rights Agreement dated
July 3, 1997 (the "Preferred Stock Registration
Rights Agreement" and, together with the Notes
Registration Rights Agreement, the "Registration
Rights Agreements") which grants the holders of the
Series A Notes and the Series A Exchangeable
Preferred Stock, respectively, certain exchange and
registration rights. The Exchange Offer is intended
to satisfy such rights. The holders of the Series B
Securities are not entitled to any exchange or
registration rights with respect to the Series B
Securities. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer."
The Exchange Offer......... The Company is offering to exchange (i) an equal
principal amount of Series B Notes for each such
principal amount of Series A Notes that are
properly tendered and accepted and (ii) an equal
number of shares of Series B Exchangeable Preferred
Stock for shares of Series A Exchangeable Preferred
Stock that are properly tendered and accepted. The
Company will issue Series B Securities on or
promptly after the Expiration Date. As of the date
hereof, there is $101,000,000 aggregate principal
amount of Series A Notes outstanding and there are
1,000,000 shares of Series A Exchangeable Preferred
Stock outstanding. It is anticipated that the
Series A Dividend Shares will be issued and become
outstanding as of January 1, 1998. The Exchange
Offer is not conditioned upon any minimum aggregate
principal amount of Series A Notes or any minimum
number of shares of Series A Exchangeable Preferred
Stock being tendered for exchange.
Based on no-action letters issued by the staff of
the Commission to third parties, the Company
believes that a holder of Series A Securities
(other than any such holder that is an "affiliate"
of the Company within the meaning of Rule 405 under
the Securities Act) that exchanges Series A
Securities for Series B Securities pursuant to the
Exchange Offer generally may offer such Series B
Securities for resale, resell such Series B
Securities and otherwise transfer such Series B
Securities without further registration under the
Securities Act and without deliv-
6
<PAGE> 13
ery of a prospectus that satisfies the requirements
of the Securities Act, provided that such Series B
Securities are acquired in the ordinary course of
such holder's business and such holder is not
participating, does not intend to participate, and
has no arrangement or understanding with any person
to participate, in a distribution of such Series B
Securities.
Each Participating Broker-Dealer that receives
Series B Securities for its own account pursuant to
the Exchange Offer in exchange for Series A
Securities where such Series A Securities were
acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading
activities may be a statutory underwriter and must
acknowledge that it will deliver a prospectus in
connection with any resale of such Series B
Securities. The Letters of Transmittal state that
by so acknowledging and by delivering a prospectus,
a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by Participating Broker-Dealers
in connection with such resales of Series B
Securities. The Company has agreed that, for a
period of 120 days after the Expiration Date, it
will make this Prospectus available to any
Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
Any holder of Series A Securities using the
Exchange Offer to participate in a distribution of
the Series B Securities received in exchange for
Series A Securities (including a broker-dealer that
acquired Series A Securities directly from the
Company, but not as a result of market-making
activities or other trading activities) cannot rely
on the position of the staff enunciated in the
above-mentioned no-action letters and, in the
absence of an exception therefrom, must comply with
the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. Failure to comply with
such requirements in such instance may result in
such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on January 28, 1998, unless the
Exchange Offer is extended by the Company in its
reasonable discretion, in which case the term
"Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
Accrued Interest on the
Notes...................... Interest on the Series B Notes will accrue from and
including their issuance date. Additionally,
interest on the Series B Notes will accrue from the
last interest payment date on which interest was
paid on the Series A Notes surrendered in exchange
therefor or, if no interest has been paid on the
Series A Notes, from the date of original issuance
of such Series A Notes to but not including the
issuance date of the Series B Notes. Accordingly,
holders who exchange their Series A Notes will
receive the same interest payment on the next
interest payment date following the Expiration Date
(expected to be July 1, 1998) that they would have
received had they not accepted the Exchange Offer.
Accumulated Dividends on
the Exchangeable Preferred
Stock.................... Dividends on the Series B Exchangeable Preferred
Stock will accumulate from and including its
issuance date. Additionally, dividends on the
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<PAGE> 14
Series B Exchangeable Preferred Stock will
accumulate from the last dividend payment date on
which dividends were paid on the Series A
Exchangeable Preferred Stock surrendered in
exchange therefor or, if no dividends have been
paid on the Series A Exchangeable Preferred Stock,
from the date of original issuance of such Series A
Exchangeable Preferred Stock to but not including
the issuance date of the Series B Exchangeable
Preferred Stock. Accordingly, holders who exchange
their Series A Exchangeable Preferred Stock will
receive the same dividend payment on the next
dividend payment date following the Expiration Date
(expected to be July 1, 1998) that they would have
received had they not accepted the Exchange Offer,
except that if such dividend is not paid in cash,
it will be paid in shares of Series B Exchangeable
Preferred Stock instead of shares of Series A
Exchangeable Preferred Stock. The Company has
declared a dividend payable on January 1, 1998 to
holders of record of Series A Exchangeable
Preferred Stock on December 15, 1997. Such dividend
is to be paid in Series A Dividend Shares.
Conditions to the Exchange
Offer...................... The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer--Conditions."
The Company reserves the right to terminate or
amend the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such
conditions.
Procedures for Tendering
Series A Securities...... Each holder of Series A Notes and/or Series A
Exchangeable Preferred Stock wishing to accept the
Exchange Offer must complete, sign and date the
respective Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Series A Securities
and any other required documentation to the
exchange agent (the "Exchange Agent") at the
address set forth herein. A separate Letter of
Transmittal is required for the tender of Series A
Notes and Series A Exchangeable Preferred Stock.
Any holder of Series A Dividend Shares who wishes
to receive shares of Series B Exchangeable
Preferred Stock in exchange therefor must tender
such Series A Dividend Shares for exchange in the
Exchange Offer. Series A Securities may be
physically delivered, but physical delivery is not
required if a confirmation of a book-entry transfer
of such Series A Securities to the Exchange Agent's
account at The Depository Trust Company is
delivered in a timely fashion. By executing a
Letter of Transmittal, each holder will represent
to the Company that, among other things, the Series
B Securities acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of
business of the person receiving such Series B
Securities, whether or not such person is the
holder, that neither the holder nor any such other
person is engaged in, or intends to engage in, or
has an arrangement or understanding with any person
to participate in, a distribution of such Series B
Securities and that neither the holder nor any such
person is an "affiliate," as defined under Rule 405
of the Securities Act, of the Company. Each
Participating Broker-Dealer that receives Series B
Securities for its own account in exchange for
Series A Securities where such Series A Securities
were acquired by such Participating Broker-Dealer
as a result of market-making activities or other
trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale
of such Series B
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<PAGE> 15
Securities. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "Plan of
Distribution."
Special Procedures for
Beneficial Owner........... Any beneficial owner whose Series A Securities are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing a Letter of Transmittal
and delivering his Series A Securities, either make
appropriate arrangements to register ownership of
the Series A Securities in such owner's name or
obtain a properly completed bond power, in the case
of Series A Notes, or stock power, in the case of
Series A Exchangeable Preferred Stock, from the
registered holder. The Transfer of registered
ownership may take considerable time and may not be
completed prior to the Expiration Date. See "The
Exchange Offer-- Procedures for Tendering."
Guaranteed Delivery
Procedures................. Holders of Series A Securities who wish to tender
their Series A Securities and whose Series A
Securities are not immediately available or who
cannot deliver their Series A Securities, the
Letters of Transmittal or any other documents
required by the Letters of Transmittal to the
Exchange Agent prior to the Expiration Date, must
tender their Series A Securities according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Acceptance of the Series A
Securities and Delivery
of the Series B
Securities............... Subject to the satisfaction of the conditions to
the Exchange Offer, the Company will accept for
exchange any and all Series A Securities which are
properly tendered in the Exchange Offer prior to
the Expiration Date. The Series B Securities issued
pursuant to the Exchange Offer will be delivered on
the earliest practicable date following the
Expiration Date. See "The Exchange Offer--Terms of
the Exchange Offer."
Withdrawal Rights.......... Tenders of Series A Securities may be withdrawn at
any time prior to 5:00 p.m., New York City time, on
the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
Effect on Holders of the
Series A Securities........ Following the consummation of the Exchange Offer,
holders of the Series A Securities eligible to
participate in the Exchange Offer but who do not
tender their Series A Securities will not have
further exchange rights and such Series A
Securities will continue to be subject to certain
restrictions on transfer. To the extent that Series
A Securities are tendered and accepted in the
Exchange Offer, the trading market for untendered
Series A Securities could be adversely affected.
Consequences of Failure to
Exchange................. The Series A Securities that are not exchanged
pursuant to the Exchange Offer will remain
restricted securities. Accordingly, such Series A
Securities may be resold only (i) to the Company,
(ii) pursuant to Rule 144A or Rule 144 under the
Securities Act or pursuant to another exemption
under the Securities Act, (iii) outside the United
States to a
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<PAGE> 16
foreign person pursuant to the requirements of Rule
904 under the Securities Act or (iv) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
Shelf Registration
Statement.................. Under certain circumstances, including if any
holder of the Series A Securities (other than an
Initial Purchaser) is not eligible under applicable
securities laws to participate in the Exchange
Offer, and such holder has provided information
regarding such holder and the distribution of such
holder's Series A Securities to the Company for use
therein, the Company has agreed to register the
Series A Securities with a shelf registration
statement and use its best efforts to cause it to
be declared effective by the Commission. The
Company has agreed to maintain the effectiveness of
any such shelf registration statement for, under
certain circumstances, a maximum of two years, to
cover resales of the Series A Securities held by
any such holders. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer."
Exchange Agent............. The Bank of New York is serving as the Exchange
Agent in connection with the Exchange Offer. See
"The Exchange Offer--Exchange Agent."
NOTES:
General.................... The Exchange Offer applies to $101,000,000
aggregate principal amount of the Series A Notes.
The form and terms of the Series B Notes will be
the same as the form and terms of the Series A
Notes except that (i) the Series B Notes will bear
a "Series B" designation and a different CUSIP
Number from the Series A Notes, (ii) the Series B
Notes will have been registered under the
Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (iii)
holders of the Series B Notes will not be entitled
to certain rights of holders of Series A Notes
under the Notes Registration Rights Agreement which
rights will terminate as to holders of the Series B
Notes upon consummation of the Exchange Offer. The
Series B Notes will evidence the same debt as the
Series A Notes, will be entitled to the benefits of
the Notes Indenture and will be treated as a single
class thereunder with the Series A Notes. See
"Description of the Notes."
Securities Offered......... $101,000,000 in aggregate principal amount of
10 1/4% Series B Senior Subordinated Notes due
2007.
Maturity Date.............. July 1, 2007.
Interest Payment Dates..... January 1 and July 1 of each year commencing
January 1, 1998.
Optional Redemption........ The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after July 1, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. In addition, at any
time prior to July 1, 2000, the Company may, at its
option, redeem a portion of the Notes with the net
proceeds of one or more Public Equity Offerings, at
a redemption price equal to 110.25% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption;
provided, however, that after any such redemption,
there is outstanding at least $75.0 million
aggregate principal amount of the Notes.
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<PAGE> 17
Ranking.................... The Notes and the Subsidiary Notes Guarantees are
subordinated to (i) all Senior Debt of the Company
(including indebtedness under the Credit Facility)
and (ii) the guarantees of such Senior Debt. As of
September 30, 1997, after giving pro forma effect
to the Recent 1997 Acquisitions and the Pending
Transactions, the Company would have had Senior
Debt outstanding of approximately $111.1 million.
See "Risk Factors -- Substantial Leverage" and
"-- Subordination of Notes; Ranking" and
"Capitalization."
Change of Control.......... Upon a Change of Control, the Company will be
required, subject to certain conditions, to make an
offer to purchase all outstanding Notes at a
purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the repurchase date. If such an offer is
made, however, there can be no assurance that the
Company will have available funds sufficient to pay
the purchase price for all of the Notes that might
be tendered by holders of Notes seeking to accept
the Company's offer to purchase the Notes.
Certain Covenants.......... The Notes Indenture contains certain covenants
which, among other things, will restrict the
ability of the Company and its subsidiaries with
respect to: (i) the incurrence of additional debt;
(ii) restricted payments; (iii) dividend and other
payment restrictions affecting certain
subsidiaries; (iv) asset dispositions; (v) Asset
Swaps (as defined); (vi) transactions with
Affiliates (as defined); (vii) issuances and sales
of stock of certain subsidiaries; (viii) liens; and
(ix) consolidations, mergers or sales of assets.
For more complete information regarding the Notes, see "Description of the
Notes."
EXCHANGEABLE PREFERRED STOCK:
General.................... The Exchange Offer applies to the 1,000,000 shares
of Series A Exchangeable Preferred Stock
outstanding as of the date hereof and the 65,514
Series A Dividend Shares plus any additional shares
of Series A Exchangeable Preferred Stock issued as
dividends prior to the Expiration Date. The form
and terms of the Series B Exchangeable Preferred
Stock are the same as the form and terms of the
Series A Exchangeable Preferred Stock except that
(i) the Series B Exchangeable Preferred Stock will
bear a "Series B" designation and a different CUSIP
Number from the Series A Exchangeable Preferred
Stock, (ii) the shares of Series B Exchangeable
Preferred Stock will have been registered under the
Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (iii)
holders of Series B Exchangeable Preferred Stock
will not be entitled to certain rights of holders
of Series A Exchangeable Preferred Stock under the
Preferred Stock Registration Rights Agreement which
rights will terminate as to holders of the Series B
Exchangeable Preferred Stock upon consummation of
the Exchange Offer. See "Description of
Exchangeable Preferred Stock and Exchange
Debentures."
Securities Offered......... 1,065,514 shares of 13 1/4% Series B Exchangeable
Preferred Stock, no par value.
Liquidation Preference..... $100 per share, plus accumulated and unpaid
dividends.
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<PAGE> 18
Dividends.................. 13 1/4% per annum. All dividends will be payable
semi-annually on January 1 and July 1 of each year,
commencing January 1, 1998. On or prior to July 1,
2002, dividends are payable in additional shares of
Exchangeable Preferred Stock having an aggregate
liquidation preference equal to the amount of such
dividends, or, at the option of the Company, in
cash. Thereafter, all dividends will be payable
only in cash. Dividends on the Exchangeable
Preferred Stock will accumulate and be cumulative
from the date of issuance thereof. The Company has
declared a dividend payable on January 1, 1998 to
holders of record of Series A Exchangeable
Preferred Stock on December 15, 1997. Such dividend
is to be paid in Series A Dividend Shares.
Voting Rights.............. Except as required by law, or with respect to the
authorization of any new class of Senior Stock (as
defined), the holders of the Exchangeable Preferred
Stock are not entitled to any voting rights except
in the event that, after July 1, 2002, two or more
semi-annual dividends payable on the Exchangeable
Preferred Stock are in arrears and unpaid, or upon
the occurrence of certain other events (including
failure to comply with certain covenants and
failure to pay the mandatory redemption price when
due), then the holders of a majority of the then
outstanding shares of Exchangeable Preferred Stock,
voting separately as a class with the holders of
shares of any Parity Stock (as defined) having
similar voting rights, will be entitled to elect
two additional directors of the Company, who shall
serve until such time as all dividends in arrears
or any other failure, breach or default giving rise
to such voting rights is remedied or waived.
Mandatory Redemption....... The Company will be required to redeem the
Exchangeable Preferred Stock on July 1, 2009
(subject to the legal availability of funds
therefor) at a redemption price equal to the
liquidation preference thereof, plus accumulated
and unpaid dividends, if any, to the date of
redemption.
Optional Redemption........ The Exchangeable Preferred Stock is redeemable at
the option of the Company, in whole or in part, at
any time on or after July 1, 2002, at the
redemption prices set forth herein, plus
accumulated and unpaid dividends, if any, to the
date of redemption. In addition, at any time prior
to July 1, 2000, the Company may, at its option,
redeem shares of Exchangeable Preferred Stock
having an aggregate liquidation preference of up to
35% of the aggregate liquidation preference of all
shares of Exchangeable Preferred Stock issued in
the Exchangeable Preferred Stock Offering or issued
as a dividend on the Exchangeable Preferred Stock,
at a redemption price equal to 113.25% of the
liquidation preference thereof, plus accumulated
and unpaid dividends, if any, to the date of
redemption, with the net proceeds of one or more
Public Equity Offerings; provided, however, that
after any such redemption, there is outstanding at
least $75.0 million in aggregate liquidation
preference of the Exchangeable Preferred Stock.
Ranking.................... The Exchangeable Preferred Stock ranks: (i) senior
to all common stock of the Company and to all other
capital stock of the Company, the terms of which
expressly provide that it ranks junior to the
Exchangeable Preferred Stock; (ii) on a parity with
any capital stock of the Company the terms of which
expressly provide that it will rank on a parity
with the Exchangeable Preferred Stock; and (iii)
junior to all capital stock of the Company the
terms of which do not expressly provide that such
stock
12
<PAGE> 19
will rank junior to, or on a parity with, the
Exchangeable Preferred Stock. See "Risk
Factors -- Substantial Leverage," and
"-- Limitations on the Ability to Pay Dividends."
Exchange Provisions........ The Exchangeable Preferred Stock is exchangeable,
subject to certain conditions, at the option of the
Company, in whole but not in part, on any dividend
payment date, for the Exchange Debentures in an
aggregate principal amount equal to the liquidation
preference, plus accumulated and unpaid dividends,
if any, to the date of exchange.
Change of Control.......... Upon a Change of Control, the Company will be
required, subject to certain conditions, to make an
offer to purchase the shares of Exchangeable
Preferred Stock at a purchase price equal to 101%
of the liquidation preference, plus accumulated and
unpaid dividends, if any, to the repurchase date.
If such an offer is made, however, there can be no
assurance that the Company will have available
funds sufficient to pay the purchase price for all
of the Exchangeable Preferred Stock that might be
tendered by holders of Exchangeable Preferred Stock
seeking to accept the Company's offer to purchase
the Exchangeable Preferred Stock.
Certain Covenants.......... The Certificate of Designation contains certain
covenants which, among other things, will restrict
the ability of the Company and its subsidiaries
with respect to: (i) the incurrence of additional
debt; (ii) restricted payments; (iii) issuances and
sales of stock of certain subsidiaries; and (iv)
consolidations, mergers or sales of assets.
EXCHANGE DEBENTURES:
Issue...................... 13 1/4% Exchange Debentures due July 1, 2009,
issuable in exchange for the Exchangeable Preferred
Stock, in an aggregate principal amount equal to
the then effective liquidation preference of the
shares of Exchangeable Preferred Stock, plus
accumulated and unpaid dividends, if any, to the
date fixed for the exchange thereof (the "Exchange
Date"), plus any additional Exchange Debentures
issued in lieu of cash interest.
Maturity Date.............. July 1, 2009.
Interest Payment Dates..... Interest on the Exchange Debentures will be payable
semi-annually on January 1 and July 1 of each year,
commencing on the first such date after the
Exchange Date. On or prior to July 1, 2002,
interest is payable in additional Exchange
Debentures having an aggregate principal amount
equal to the amount of such interest, or, at the
option of the Company, in cash. Thereafter, all
interest will be payable in cash. Interest on the
Exchange Debentures will accrue from the date of
issuance thereof.
Optional Redemption........ The Exchange Debentures will be redeemable at the
option of the Company, in whole or in part, at any
time on or after July 1, 2002, at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. In
addition, at any time prior to July 1, 2000, the
Company may, at its option, redeem Exchange
Debentures having an aggregate principal amount of
up to 35% of the aggregate principal amount of
Exchange Debentures issued upon exchange of the
Exchangeable Preferred Stock or in payment of
interest on the Exchange Debentures, at a
redemption price equal to 113.25% of the aggregate
13
<PAGE> 20
principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption, with
the net proceeds of one or more Public Equity
Offerings; provided, however, that after any such
redemption, there is outstanding at least $75.0
million in aggregate principal amount of the
Exchange Debentures.
Ranking.................... The Exchange Debentures will be subordinated in
right of payment to the Senior Debt and Senior
Subordinated Debt (including the Notes) of the
Company. See "Risk Factors -- Substantial Leverage"
and "-- Subordination of Exchange Debentures."
Subsidiary Guarantees...... The Subsidiary Debentures Guarantees (as defined)
of the Exchange Debentures will, to the extent set
forth in the Exchange Indenture (as defined), be
subordinated in right of payment to the prior
payment in full of all Senior Debt and Senior
Subordinated Debt of the Subsidiary Debentures
Guarantors (as defined), upon terms substantially
comparable to the subordination of the Exchange
Debentures to all Senior Debt and Senior
Subordinated Debt.
Change of Control.......... Upon a Change of Control, the Company will be
required, subject to certain conditions, to make an
offer to purchase the Exchange Debentures at a
purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the repurchase date. If such an offer is
made, however, there can be no assurance that the
Company will have available funds sufficient to pay
the purchase price for all of the Exchange
Debentures that might be tendered by holders of
Exchange Debentures seeking to accept the Company's
offer to purchase the Exchange Debentures.
Certain Covenants.......... The Exchange Indenture contains certain covenants
which, among other things, will restrict the
ability of the Company and its subsidiaries with
respect to: (i) the incurrence of additional debt;
(ii) restricted payments; (iii) dividend and other
payment restrictions affecting certain
subsidiaries; (iv) asset dispositions; (v) Asset
Swaps; (vi) transactions with Affiliates; (vii)
issuances and sales of stock of certain
subsidiaries; (viii) liens; and (ix)
consolidations, mergers or sales of assets.
For more complete information regarding the Exchangeable Preferred Stock and the
Exchange Debentures, see "Description of the Exchangeable Preferred Stock and
Exchange Debentures."
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Series B Securities pursuant to the Exchange Offer.
RISK FACTORS
Investors should consider all of the information in this Prospectus before
tendering their Series A Securities in the Exchange Offer. In particular,
investors should carefully consider the factors set forth under "Risk Factors"
prior to tendering their Series A Securities in the Exchange Offer. The risks of
an investment in the Company include the Company's history of net losses and the
expectation of future net losses, substantial leverage, the restrictions imposed
by the Company's indebtedness and certain limitations on the Company's
acquisition strategy, all of which are discussed under "Risk Factors."
14
<PAGE> 21
SUMMARY HISTORICAL FINANCIAL DATA
The summary historical financial data of the Company and its Predecessor
presented below as of and for the years ended December 31, 1992, 1993, 1994,
1995 and 1996 are derived from the consolidated financial statements of the
Company and Predecessor, which consolidated financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
summary historical financial data of the Company presented below as of September
30, 1997 and for the nine months ended September 30, 1996 and 1997 are derived
from unaudited consolidated financial statements of the Company which, in the
opinion of management, contain all necessary adjustments of a normal recurring
nature to present the financial statements in conformity with GAAP. The
consolidated financial statements of the Company as of December 31, 1995 and
1996 and for each of the years in the three-year period ended December 31, 1996
and the independent auditors' report thereon, as well as the unaudited
consolidated financial statements of the Company as of September 30, 1997 and
for the nine months ended September 30, 1996 and 1997, are included elsewhere in
this Prospectus. The financial results of the Company and its Predecessor are
not comparable from year to year because of the acquisition and disposition of
various radio stations by the Company and the reorganization in July 1992 when
the Company commenced operations. The summary historical financial data below
should be read in conjunction with, and is qualified by reference to, the
Company's Consolidated Financial Statements and related notes, "Selected
Historical Financial Data," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
COMPANY
------------------------------------------------------------------------------------
NINE MONTHS ENDED
PREDECESSOR(1)
----------------- YEAR ENDED DECEMBER 31, SEPTEMBER 30,
JANUARY 1, 1992 JULY 24, 1992 TO ----------------------------------------- ------------------
TO JULY 23, 1992 DECEMBER 31, 1992 1993 1994 1995 1996 1996 1997
----------------- ----------------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............ $ 5,702 $ 7,986 $ 21,376 $32,998 $34,112 $45,413 $31,733 $60,025
Station operating
expenses............. 4,349 6,073 17,081 24,331 26,832 33,232 23,662 43,306
Depreciation and
amortization......... 344 4,050 5,245 7,435 4,891 5,158 3,263 9,458
Corporate general and
administrative....... 354 378 961 2,504 2,274 3,248 1,903 2,562
-------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss)............... 655 (2,515) (1,911) (1,272) 115 3,775 2,905 4,699
Interest expense (2)... 364 1,029 2,637 4,866 5,242 6,155 4,177 8,214
Other income, net...... 9 31 149 657 781 414 159 401
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item... 300 (3,513) (4,399) (5,481) (4,346) (1,966) (1,113) (3,114)
Extraordinary loss
(3).................. -- -- -- -- -- (1,769) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 300 $(3,513) $ (4,399) $(5,481) $(4,346) $(3,735) $(1,113) $(3,114)
======== ======== ======== ======== ======== ======== ======== ========
Dividend requirement
for Exchangeable
Preferred Stock...... -- -- -- -- -- -- -- 3,303
Net loss applicable to
common shares........ N/A (3,513) (4,399) (5,481) (4,346) (3,735) (1,113) (6,417)
Net loss per common
share................ N/A $ (88) $ (110) $ (137) $ (109) $ (93) $ (28) $ (160)
======== ======== ======== ======== ======== ======== ======== ========
Shares used in per
share calculation.... N/A 40,000 40,000 40,000 40,000 40,000 40,000 40,000
======== ======== ======== ======== ======== ======== ======== ========
Cash dividends declared
per share............ N/A $ -- $ -- $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
15
<PAGE> 22
<TABLE>
<CAPTION>
COMPANY
------------------------------------------------------------------------------------
NINE MONTHS ENDED
PREDECESSOR(1) ------------------
JANUARY 1, 1992 JULY 24, 1992 TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
TO JULY 23, 1992 DECEMBER 31, 1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Deficiency of earnings
to fixed charges
(4).................. $ -- $ 3,513 $ 4,399 $ 5,481 $ 4,346 $ 1,966 $ 1,113 $ 6,417
</TABLE>
<TABLE>
<CAPTION>
COMPANY
------------------------------------------------------------
DECEMBER 31,
------------------------------------------------------ SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- -------- -------- -------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 1,244 $ 857 $ 1,538 $ 1,005 $ 1,588 $ 26,700
Working capital (deficiency)................... 2,235 1,701 3,382 2,928 (4,195) 40,776
Intangible assets, net......................... 14,543 17,454 20,080 15,093 51,802 207,036
Total assets................................... 28,515 36,120 46,397 37,372 102,244 290,460
Long-term debt (including current portion)..... 22,026 30,468 47,805 43,046 91,072 150,469
Shareholder's equity (deficit)................. 4,870 3,492 (4,782) (9,249) 5,999 11,561
Book value per share........................... $ 122 $ 87 $ (120) $ (231) $ 150 $ 289
======= ======= ======== ======== ======== ============
</TABLE>
(1) In July 1992, the Company acquired all of the radio stations then owned or
operated by Predecessor and certain other radio stations. In 1993, Citadel
Communications was incorporated and the Company was reorganized as a wholly
owned subsidiary of Citadel Communications.
(2) Includes debt issuance costs and debt discount amortization of $0 for the
period from January 1, 1992 to July 23, 1992, $35,000 for the period from
July 24, 1992 to December 31, 1992 and $139,000, $287,000, $132,000 and
$163,000 for the years ended December 31, 1993, 1994, 1995 and 1996,
respectively, and $140,000 and $156,000 for the nine months ended September
30, 1996 and 1997, respectively.
(3) On October 9, 1996, the Company extinguished its long-term debt of $31.3
million, payable to a financial institution, and its note payable to a
related party of $7.0 million. The early retirement of the long-term debt
resulted in a $1.8 million extraordinary loss due to prepayment premiums and
the write-off of debt issuance costs.
(4) Fixed charges include interest expense on debt, amortization of financing
costs, amortization of debt discount, 33% of rent expense, and dividend
requirements with respect to the Exchangeable Preferred Stock.
16
<PAGE> 23
SUMMARY PRO FORMA FINANCIAL DATA
The following table presents summary unaudited pro forma financial data of
the Company as of and for the periods indicated. The summary pro forma operating
data reflect adjustments to the summary historical operating data of the Company
to give effect to (i) the June 1996 acquisitions of two FM radio stations and
one AM radio station in Albuquerque and one FM radio station in Modesto, the
October 1996 acquisitions of one FM radio station in Colorado Springs and one FM
station in Albuquerque, the February 1997 acquisition of one FM radio station in
Salt Lake City, the April 1997 acquisition of one FM radio station in Salt Lake
City, the Third Quarter Acquisitions, the Recent 1997 Acquisitions, the
Subsidiary Merger, the Original Offerings (collectively the "Completed
Transactions") and (ii) the Pending Transactions, as if such transactions had
occurred on January 1, 1996. The summary pro forma balance sheet data as of
September 30, 1997 give effect to the Recent 1997 Acquisitions and the Pending
Transactions, as if such transactions had occurred on that date.
The summary pro forma financial data are not necessarily indicative of
either future results of operations or the results that would have occurred if
those transactions had been consummated on the indicated dates. The following
financial information should be read in conjunction with the historical
consolidated financial statements and related notes of the Company, "Unaudited
Pro Forma Condensed Consolidated Financial Statements," "Selected Historical
Financial Data," "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
17
<PAGE> 24
SUMMARY PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------
1996 1996 1997
------------ -------- --------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATING DATA:
Net revenue............................................ $106,683 $ 74,911 $ 87,000
Station operating expenses............................. 76,103 53,980 61,223
Depreciation and amortization.......................... 25,120 18,811 19,142
Corporate general and administrative................... 3,248 1,739 2,228
-------- -------- --------
Operating expenses..................................... 104,471 74,530 82,593
-------- -------- --------
Operating income (loss)................................ 2,212 381 4,407
Interest expense....................................... 20,050 15,038 15,038
Other (income) expense, net............................ (443) (159) (435)
-------- -------- --------
Income (loss) before income taxes...................... (17,395) (14,498) (10,196)
Income taxes (benefit)................................. -- -- --
Dividend requirement for Exchangeable Preferred
Stock............................................... (13,825) (10,258) (11,662)
-------- -------- --------
Income (loss) from continuing operations applicable
to common shares.................................. $(31,220) $(24,756) $(21,858)
======== ======== ========
Pro forma income (loss) per common share............... $ (781) $ (619) $ (546)
======== ======== ========
Pro forma weighted average number of shares
outstanding......................................... 40,000 40,000 40,000
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 2,012
Working capital............................................ 16,088
Intangible assets, net..................................... 293,871
Total assets............................................... 367,520
Long-term debt (including current portion)................. 211,469
Exchangeable Preferred Stock............................... 99,583
Shareholder's equity....................................... 21,561
</TABLE>
18
<PAGE> 25
RISK FACTORS
Investors should carefully examine this entire Prospectus and should give
particular attention to the risk factors set forth below in evaluating whether
to tender their Series A Securities for Series B Securities in the Exchange
Offer.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Those statements appear in a number of places in this Prospectus
and include statements regarding the intent, belief or current expectations of
the Company, its directors or its officers with respect to, among other things:
(i) the realization of the Company's business strategy; (ii) the sufficiency of
cash flow to fund the Company's debt service requirements and working capital
needs; (iii) anticipated trends in the radio broadcasting industry; (iv)
potential acquisitions by the Company and the successful integration of both
completed and future acquisitions; and (v) government regulation.
Forward-looking statements are typically identified by the words "believe,"
"expect," "anticipate," "intend," "estimate," and similar expressions. Readers
are cautioned that any such forward looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
may differ materially from those contained in the forward looking statements as
a result of various factors. The accompanying information contained in this
Prospectus, including without limitation, the information set forth under the
headings "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and "The Pending Transactions,"
identifies important factors that could cause such differences.
SUBSTANTIAL LEVERAGE. The Company is highly leveraged. At September 30,
1997, after giving pro forma effect to the Recent 1997 Acquisitions and the
Pending Transactions, the Company would have had outstanding total debt of
approximately $214.2 million excluding the discount on the Notes, Exchangeable
Preferred Stock with an aggregate liquidation preference of $100.0 million and
shareholder's equity of approximately $21.6 million. The Company's high degree
of leverage will have important consequences for the holders of the Notes and
the Exchangeable Preferred Stock, including the following: (i) the ability of
the Company to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other
purposes, if needed, may be impaired; (ii) a substantial portion of the cash
flow of the Company will be used to pay interest expense, which will reduce the
funds which would otherwise be available to fund operations and future business
opportunities; (iii) the Company may be more highly leveraged than its
competitors which may place it at a competitive disadvantage; (iv) the Company's
high degree of leverage will make it more vulnerable to a downturn in its
business or in the economy in general and (v) certain of the Company's
borrowings will be at variable rates of interest (including the borrowings under
the Credit Facility) which will expose the Company to the risks associated with
fluctuating interest rates. See "Capitalization," "Selected Historical Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Description of Indebtedness" and the Company's Consolidated
Financial Statements and the notes thereto.
The Company's ability to satisfy its debt obligations and to pay cash
dividends on, and to satisfy the redemption obligations in respect of, the
Exchangeable Preferred Stock, will depend upon its future financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and financial, business and other factors, certain of which are
beyond its control. If the Company's cash flow and capital resources are
insufficient to fund its debt service obligations, the Company may be forced to
reduce or delay planned acquisitions and capital expenditures, sell assets,
obtain additional equity capital or restructure its debt. There can be no
assurance that the Company's operating results, cash flow and capital resources
will be sufficient for payment of its debt service and other obligations in the
future. In the absence of such operating results and resources, the Company
could face substantial liquidity problems and might be required to sell material
assets or operations to meet its debt service and other obligations, and there
can be no assurance as to the timing of such sales or the proceeds that the
Company could realize therefrom or that such sales can be effected on terms
satisfactory to the Company or at all. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Indebtedness."
SUBORDINATION OF NOTES; RANKING. The Notes will be unsecured senior
subordinated obligations of the Company and will be subordinated to all existing
and future Senior Debt of the Company, including
19
<PAGE> 26
indebtedness under the Credit Facility. The Company actively intends to pursue
additional acquisitions of radio stations. The Company would likely seek to
finance all or a portion of such additional acquisitions through the use of
existing debt capacity or additional debt financing or from the proceeds of
selective asset sales. Additional indebtedness may be incurred by the Company
subject to the limitations contained in the Credit Facility and the Notes
Indenture, and any such additional indebtedness may constitute Senior Debt. See
"Description of the Notes -- Certain Covenants." As of September 30, 1997, on a
pro forma basis after giving effect to the Recent 1997 Acquisitions and the
Pending Transactions, the Company would have had approximately $111.1 million in
Senior Debt outstanding. Upon any payment or distribution of assets of the
Company upon liquidation, dissolution, reorganization or any similar proceeding,
the holders of Senior Debt will be entitled to receive payment in full, in cash
or cash equivalents, before the holders of the Notes are entitled to receive any
payment. In addition, the Company may not pay principal of, premium, if any, or
interest on or any other amounts owing in respect of the Notes, make any deposit
pursuant to defeasance provisions or purchase, redeem or otherwise retire the
Notes, if any Specified Senior Debt (as defined in the Notes Indenture) is not
paid when due or any other default on Specified Senior Debt occurs and the
maturity of such indebtedness is accelerated in accordance with its terms
unless, in either case, such default has been cured or waived, any such
acceleration has been rescinded or such indebtedness has been repaid in full.
Moreover, under certain circumstances, if any non-payment default exists with
respect to Specified Senior Debt, the Company may not make any payments on the
Notes for a specified period of time, unless such default is cured or waived or
such indebtedness has been repaid in full.
LIMITATIONS ON THE ABILITY TO PAY DIVIDENDS. The Company is and will be
restricted under the Notes Indenture and the Credit Facility from paying
dividends or repurchasing, redeeming or otherwise acquiring any shares of
capital stock, including the Exchangeable Preferred Stock, and from
repurchasing, redeeming or otherwise acquiring for value the Exchange Debentures
unless certain financial tests are met and then only in accordance with a
formula based on cash flow and only in the absence of a default. See
"Description of the Notes," "Description of Indebtedness" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company may elect to pay dividends on the Exchangeable Preferred Stock
on any dividend payment date occurring on or before July 1, 2002 by issuing
either additional shares of Exchangeable Preferred Stock or cash. After July 1,
2002, dividends may be paid only in cash. The Company has declared a dividend
payable on January 1, 1998 to holders of record of Series A Exchangeable
Preferred Stock on December 15, 1997. Such dividend is to be paid in Series A
Dividend Shares.
In the event that, after July 1, 2002, cash dividends on the Exchangeable
Preferred Stock are in arrears and unpaid for two or more semi-annual dividend
periods (whether or not consecutive), holders of Exchangeable Preferred Stock
will be entitled to certain voting rights. See "Description of the Exchangeable
Preferred Stock and Exchange Debentures -- Exchangeable Preferred
Stock -- Voting Rights."
SUBORDINATION OF EXCHANGE DEBENTURES. The payment of principal, premium,
if any, and interest on, and any other amounts owing in respect of, the Exchange
Debentures, if issued, will be subordinated in right of payment to the prior
payment in full of all existing and future Senior Debt and Senior Subordinated
Debt (including the Notes) of the Company. Upon any payment or distribution of
assets of the Company to creditors upon any liquidation, dissolution, winding
up, reorganization, assignment for the benefit of creditors, marshalling of
assets or any bankruptcy, insolvency or similar proceedings of the Company, the
holders of all Senior Debt and Senior Subordinated Debt will first be entitled
to receive payment in full of all amounts due or to become due on or in respect
of such Senior Debt and Senior Subordinated Debt before the holders of Exchange
Debentures are entitled to receive any payment of principal of or interest on
the Exchange Debentures or on account of the purchase or redemption or other
acquisition of Exchange Debentures by the Company.
In addition, the Subsidiary Debentures Guarantees will, to the extent set
forth in the Exchange Indenture, be subordinated in right of payment to the
prior payment in full of all senior debt and senior subordinated debt of the
Subsidiary Debentures Guarantors, upon terms substantially comparable to the
subordination of the Exchange Debentures to the Notes and all Senior Debt.
20
<PAGE> 27
By reason of such subordination, in the event of insolvency, creditors of
the Company or a Subsidiary Debentures Guarantor who are not holders of Senior
Debt or Senior Subordinated Debt or the Exchange Debentures may recover less,
ratably, than the holders of Senior Debt and Senior Subordinated Debt and may
recover more, ratably, than the holders of the Exchange Debentures.
At September 30, 1997, after giving effect to the Recent 1997 Acquisitions
and the Pending Transactions, the amount of Senior Debt and Senior Subordinated
Debt (including the Notes) outstanding would have been approximately $212.1
million excluding the discount on the Notes.
NO ASSURANCE OF CONSUMMATION OF THE PENDING ACQUISITIONS. The consummation
of each of the Pending Acquisitions is subject to certain conditions, including
approval of the Federal Communications Commission (the "FCC"). Although the
Company believes these closing conditions will be satisfied in each case, there
can be no assurance thereof. See "Business -- Federal Regulation of Radio
Broadcasting" and "The Pending Transactions."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS. The Notes Indenture
contains certain restrictive covenants, including limitations which restrict the
ability of the Company to incur additional debt, incur liens, pay dividends or
make certain other restricted payments, consummate certain asset sales, enter
into certain transactions with affiliates, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of their assets. In addition, the Credit Facility contains
certain other and more restrictive covenants than those contained in the Notes
Indenture, including certain limitations on future acquisitions and capital
expenditures without lender consent. This may adversely affect the Company's
ability to pursue its acquisition strategy. The Credit Facility also requires
the Company to maintain specific financial ratios and to satisfy certain
financial condition tests. The ability of the Company to meet those financial
ratios and financial conditions can be affected by events beyond its control,
and there can be no assurance that those tests will be met. A breach of any of
these covenants could result in a default under the Credit Facility and/or the
Notes Indenture. In the event of a default under the Credit Facility, the
lenders thereunder could elect to declare all amounts outstanding thereunder,
together with accrued interest, to be immediately due and payable. In the event
of a default under the Credit Facility, if the Company were unable to repay
those amounts, the lenders thereunder could proceed against the collateral
granted to them to secure that indebtedness. If the maturity of borrowings under
the Credit Facility were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay in full such indebtedness and
other indebtedness of the Company, including the Notes. Substantially all of the
assets of the Company are pledged as collateral under the Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of
Indebtedness -- Existing Loan Agreement" and "Description of the
Notes -- Certain Covenants."
HISTORY OF NET LOSSES. The Company had a net loss of $3.7 million and $6.4
million for the year ended December 31, 1996 and the nine months ended September
30, 1997, respectively. After giving effect to the Subsidiary Merger, the
Pending Transactions, other acquisitions completed by the Company after January
1, 1996 and the Original Offerings as if they had occurred at January 1, 1996,
on a pro forma basis, the Company would have had a consolidated net loss of
approximately $31.2 million and $21.9 million for the year ended December 31,
1996 and the nine months ended September 30, 1997, respectively. Such net losses
have resulted primarily from significant charges for depreciation and
amortization relating to the acquisition of radio stations and interest charges
on outstanding debt. The Company expects to continue to experience net losses in
the foreseeable future, principally as a result of depreciation, amortization
and interest expense associated with completed and anticipated future
acquisitions, including the Pending Acquisitions. Such losses may be greater
than those experienced historically by the Company.
LIMITATIONS ON ACQUISITION STRATEGY; ANTITRUST CONSIDERATIONS. The Company
intends to pursue growth through the acquisition of radio station groups and
individual radio stations in mid-sized markets. See "Business -- Acquisition
Strategy." The Company cannot predict whether it will be successful in pursuing
such acquisition opportunities or what the consequences of any such acquisitions
would be. The Company is currently evaluating certain acquisitions; however,
other than as described in "The Pending Acquisitions," the Company currently has
no binding commitments to acquire any specific business or other material
assets.
21
<PAGE> 28
Although the Company believes that its acquisition strategies are
reasonable, there can be no assurance that it will be able to implement its
plans without delay or that, when implemented, its efforts will result in the
increased broadcast cash flow or other benefits currently anticipated by the
Company's management. In addition, there can be no assurance that the Company
will not encounter unanticipated problems or liabilities in connection with such
stations. The Company's acquisition strategy involves numerous other risks,
including difficulties in the integration of operations and systems and the
management of a large and geographically diverse group of stations, the
diversion of management's attention from other business concerns and the
potential loss of key employees of acquired stations. There can be no assurance
that the Company's management will be able to manage effectively the resulting
business or that such acquisitions will benefit the Company. Depending upon the
nature, size and timing of future acquisitions, the Company may be required to
raise additional financing. There can be no assurance that the Credit Facility,
the Notes Indenture or any other loan agreements to which the Company may become
a party or subject to will permit such additional financing or that such
additional financing will be available to the Company or Citadel Communications
on terms acceptable to its management or at all. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Company competes and will continue to compete with many other buyers
for the acquisition of radio stations. Many of those competitors have
significantly greater financial and other resources than those of the Company.
In addition, if, as management believes may happen, the prices sought by sellers
of radio stations continue to rise, the Company may find fewer acceptable
acquisition opportunities.
In addition to the risks associated with the acquisition of radio stations,
the Company also is aware that the Federal Trade Commission ("FTC") and the
United States Department of Justice ("DOJ"), which evaluate transactions to
determine whether those transactions should be challenged under the federal
antitrust laws, have been increasingly active recently in their review of radio
station acquisitions, particularly where an operator proposes to acquire
additional stations in its existing markets. There can be no assurance that the
DOJ or the FTC will not require the restructuring of future acquisitions.
The Company has received two civil investigative demands ("CIDs") from the
Antitrust Division of the DOJ. One CID addresses the Company's acquisition of
KRST-FM in Albuquerque, New Mexico, and the second CID addresses the Company's
JSA relating to stations in Spokane, Washington and Colorado Springs, Colorado.
The Company has provided the requested information in response to each CID, and,
at present, has been given no indication from the DOJ regarding its intended
future actions. If the DOJ were to proceed with and successfully challenge the
Company's acquisition of KRST-FM, the Company may be required to divest one or
more radio stations in Albuquerque and/or it may be subject to the payment of
fines. If the DOJ were to proceed with and successfully challenge the JSA, the
Company may be required to terminate the JSA and/or it may be subject to the
payment of fines. At this time, the Company is unable to quantify the effect, if
any, that such proceedings may have on the Company's business, results of
operations and financial condition. See "Business -- Legal Proceedings."
As part of its increased scrutiny of radio station acquisitions, the DOJ
has stated publicly that it believes that commencement of operations under LMAs
and other similar agreements customarily entered into in connection with radio
station transfers prior to the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), could violate the HSR Act. Since then, the DOJ has stated publicly that
it will apply its new policy prohibiting operation under LMAs in connection with
purchase agreements until the expiration or termination of the HSR waiting
period prospectively only. In connection with acquisitions subject to the
waiting period under the HSR Act, the Company will not commence operation of any
affected station to be acquired under an LMA or similar agreement until the
waiting period has expired or been terminated.
The Company is also aware that on November 7, 1996, the FCC issued a
Further Notice of Proposed Rulemaking, which, among other things, reviews the
regulations of the FCC governing the attribution of broadcast interests,
including the attribution of ownership as a result of time brokerage agreements
and LMAs. One of the FCC's rule proposals is to assign an attributable ownership
interest to non-voting stock interests under certain circumstances. If such a
rule were to be adopted, it could preclude the Company from acquiring stations
in markets where one or more of its shareholders already possesses attributable
broadcast
22
<PAGE> 29
interests. At this time, no determination can be made as to what effect, if any,
this proposed rulemaking will have on the Company. See "Business -- Federal
Regulation of Radio Broadcasting -- Proposed Changes."
DEPENDENCE ON KEY PERSONNEL. The Company's business is dependent upon the
performance of certain key individuals, particularly Lawrence R. Wilson, the
Chief Executive Officer. The loss of the services of Mr. Wilson would have a
material adverse effect on the Company, including causing an event of default
under the Credit Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Indebtedness -- Existing Loan Agreement." The
Company has entered into an employment agreement with Mr. Wilson, expiring in
June 2001. See "Management -- Employment Agreement." In addition, the Company
and Citadel Communications together have purchased key-man life insurance
covering Mr. Wilson in the amount of $5.0 million. Notwithstanding the
foregoing, should there be an event of default under the Credit Facility as a
result of the death, disability or termination of employment of Mr. Wilson
(which the lender thereunder could declare if, within 90 days after such death,
disability or employment termination, the Company has not replaced Mr. Wilson
with a person acceptable to the lender in its reasonable discretion), it is
unlikely that the proceeds of such policy would be sufficient to repay the
outstanding indebtedness under the Credit Facility. The Company employs three
regional presidents, 18 general managers, a number of sales managers, sales
personnel and program directors, and several high-profile on-air announcers,
whose services are also important to the Company. The Company sometimes enters
into employment agreements, including non-competition agreements, with its
on-air announcers. However, there can be no assurance that the Company will be
able to retain any such employees or that such non-competition agreements would
be enforceable.
IMPORTANCE OF CERTAIN MARKETS. In 1996, the Company derived 33.7% of its
net revenue and 38.8% of its broadcast cash flow from the Albuquerque market,
and 16.7% of its net revenue and 24.1% of its broadcast cash flow from the
Modesto market. On a pro forma basis after giving effect to completed
acquisitions and the Pending Transactions, such radio stations in Albuquerque
and Providence would have generated approximately 16.4% and 12.9%, respectively,
of the Company's net revenue in 1996 and approximately 20.2% and 16.0%,
respectively, of the Company's broadcast cash flow in 1996. A significant
decline in net revenue from the Company's stations in these markets, as a result
of a ratings decline or otherwise, could have a material adverse effect on the
Company's financial position and results of operations.
COMPETITIVE CONDITIONS. The financial success of each of the Company's
radio stations is dependent, to a significant degree, upon its audience ratings
and share of the overall radio advertising revenue within its geographic market.
The radio broadcasting industry is a highly competitive business. Each of the
Company's radio stations competes for audience share and revenue directly with
other AM and FM radio stations, as well as with other media, within its market,
including television, newspapers, direct mail and outdoor advertising. The
audience ratings and advertising revenue of the Company's individual stations
are subject to change. Any adverse change in a particular market affecting
advertising expenditures or an adverse change in the relative market positions
of the stations located in a particular market could have a material adverse
effect on the revenue and broadcast cash flow of the Company's stations located
in that market and on the Company's operating results as a whole. There can be
no assurance that any one of the Company's radio stations will be able to
maintain or increase its current audience ratings and radio advertising revenue
market share. See "Business -- Advertising Sales" and "-- Competition."
The radio broadcasting industry is also subject to competition from new
media technologies that may be developed or introduced, such as the delivery of
audio programming by cable television systems, the introduction of terrestrial
digital audio broadcasting services and the introduction of satellite digital
audio radio services which may provide a medium for the delivery of multiple new
audio programming formats by terrestrial and satellite means, respectively, to
local and national audiences. The Company cannot predict the effect, if any,
that any such new technologies may have in the radio broadcasting industry. See
"Business -- Competition" and "-- Federal Regulation of Radio
Broadcasting -- Proposed Changes."
Companies that operate radio stations must be alert to the possibility of
another station changing its format to compete directly for listeners and
advertisers. Typically, other well-capitalized stations compete in the same
geographic markets as the Company. Another station's decision to convert to a
format similar to that
23
<PAGE> 30
of one of the Company's radio stations in the same geographic area may result in
lower ratings and advertising revenue, increased promotion and other expenses
and, consequently, lower broadcast cash flow.
ABILITY TO FINANCE REPURCHASE IN THE EVENT OF CHANGE OF CONTROL. In the
event of a Change of Control, the Company would be required to offer to purchase
all outstanding Notes and all outstanding Exchangeable Preferred Stock or
Exchange Debentures, as the case may be, at 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the repurchase date, or
101% of the liquidation preference, plus accumulated and unpaid dividends, if
any, to the repurchase date. The source of funds for any such purchase would be
the available cash of the Company or cash generated from other sources. However,
there can be no assurance that the Company would have available funds sufficient
to pay the purchase price or that it would be able to obtain such funds through
a refinancing of the Notes or the Exchangeable Preferred Stock or, if
applicable, the Exchange Debentures, or otherwise, or that the purchase would be
permitted under the Credit Facility. The failure of the Company to make or
consummate an offer to purchase the Notes, or, if issued, the Exchange
Debentures, or to pay the applicable Change of Control purchase price when due
would result in an Event of Default (as defined) under the Notes Indenture and
the Exchange Indenture, respectively, and would give the Trustee under the Notes
Indenture and the Debentures Trustee under the Exchange Indenture the rights
described under "Description of the Notes--Events of Default" and "Description
of the Exchangeable Preferred Stock and Exchange Debentures--Exchange
Debentures--Events of Default," respectively. Any such failure of the Company
with respect to the Exchangeable Preferred Stock would give the holders of the
Exchangeable Preferred Stock the rights described under "Description of the
Exchangeable Preferred Stock and Exchange Debentures--Exchangeable Preferred
Stock--Voting Rights." See Description of the Notes--Certain Definitions" and
"Description of the Exchangeable Preferred Stock and Exchange
Debentures--Exchangeable Preferred Stock--Certain Definitions" for the
definition of "Change of Control," and see "Description of the Notes--Certain
Covenants--Purchase of Notes upon a Change and Control," and "Description of the
Exchangeable Preferred Stock and Exchange Debentures--Exchangeable Preferred
Stock--Certain Covenants--Purchase of Exchangeable Preferred Stock upon a Change
of Control" and "--Exchange Debentures--Certain Covenants--Purchase of Exchange
Debentures upon a Change of Control" for additional information concerning such
Change of Control provisions.
REPURCHASE OF CAPITAL STOCK OF CITADEL COMMUNICATIONS. Pursuant to the
terms of the Stockholders Agreement (as defined), on or after August 1, 2000,
certain shareholders of Citadel Communications have the right to require Citadel
Communications to purchase all or a portion of certain shares of capital stock
of Citadel Communications owned by them for a price determined in accordance
with the Stockholders Agreement. The source of funds for any such purchase would
be dividends or other payments from the Company or borrowings by Citadel
Communications. The use of any such available funds would diminish resources
available for business operations and could diminish Citadel Communications'
ability to borrow additional funds for other purposes. However, there can be no
assurance that sufficient funds would be available at the time of any such
tender to make any required repurchases of capital stock tendered or, if
applicable, that restrictions in the Credit Facility and/or the Notes Indenture
would permit Citadel Communications to make such required repurchases. In the
event that Citadel Communications is unable to repurchase shares tendered by or
on behalf of ABRY Broadcast Partners II, L.P. ("ABRY II") or ABRY Citadel
Investment Partners, L.P. ("ABRY/CIP"), such entities are entitled, among other
things, to solicit offers and make presentations and proposals to prospective
buyers of Citadel Communications and enter into negotiations and/or agreements
regarding the potential sale of Citadel Communications. Any resulting sale of
Citadel Communications could result in a Change of Control and a change in
management of the Company. See "Management--Compensation Committee Interlocks
and Insider Participation--Stockholders Agreement" and "Security Ownership of
Certain Beneficial Owners."
GOVERNMENT REGULATION. The broadcasting industry is subject to extensive
federal regulation that, among other things, requires approval by the FCC for
the issuance, renewal, transfer of control and assignment of broadcasting
station operating licenses and limits the number of broadcasting properties that
the Company may acquire in any market. Additionally, the Communications Act of
1934, as amended (the "Communications Act"), and FCC rules will operate to
impose limitations on alien ownership and voting of the capital stock of the
Company. The Telecommunications Act of 1996 (the "Telecommunications Act")
creates
24
<PAGE> 31
significant new opportunities for broadcasting companies but also creates
uncertainties as to how the FCC and the courts will enforce and interpret the
Telecommunications Act.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. The
interests of the Company's officers, directors and shareholders are generally
attributable to the Company. Certain of the Company's officers and directors may
acquire attributable broadcast interests, which will limit the number of radio
stations that the Company may acquire or own in any market in which such
officers or directors hold or acquire attributable broadcast interests.
In addition, the number of radio stations the Company may acquire in any
market is limited by FCC rules and may vary depending upon whether the interests
in other radio stations or certain other media properties of certain individuals
affiliated with the Company are attributable to those individuals under FCC
rules. Moreover, under the FCC's cross-interest policy, the FCC in certain
instances may prohibit one party from acquiring an attributable interest in one
media outlet and a substantial non-attributable economic interest in another
media outlet in the same market, thereby prohibiting a particular acquisition by
the Company. The FCC has under consideration proposals to change its rules so
that certain cross-interests arising from non-voting stock ownership would be
counted as attributable ownership interests. Certain interests of ABRY II and
ABRY/CIP could be attributed to the Company if this rule is adopted, possibly
precluding the Company from acquiring stations in markets where ABRY II or
ABRY/CIP already possesses attributable broadcast interests.
Citadel Communications' and the Company's Certificates of Incorporation
each contain provisions which permit restrictions on the ownership, voting and
transfer of such entity's capital stock in accordance with the Communications
Act and the rules and regulations of the FCC to prohibit the ownership or voting
of more than a certain percentage of such entity's outstanding capital stock by
or for the account of aliens or their representatives or by a foreign government
or representative thereof or by any corporation organized under the laws of a
foreign country, or by or for corporations of which any officer is an alien,
more than one-fourth of its directors are aliens, or which more than one-fourth
of its capital stock is owned of record or voted by aliens, or by any other
entity (i) that is subject to or deemed to be subject to management influence by
aliens or (ii) the equity of which is owned, controlled by, or held for the
benefit of, aliens in a manner that would cause Citadel Communications or the
Company to be in violation of the Communications Act or the FCC's regulations.
The Company's business will be dependent upon maintaining its broadcasting
licenses issued by the FCC, which are ordinarily issued for a maximum term of
eight years. Although it is rare for the FCC to deny a renewal application,
there can be no assurance that the future renewal applications of the Company
will be approved or that such renewals will not include conditions or
qualifications that could adversely affect the Company. Moreover, governmental
regulations and policies may change over time and there can be no assurance that
such changes would not have a material adverse impact upon the Company. See
"Business -- Federal Regulation of Radio Broadcasting."
CONTROL BY PRINCIPAL SHAREHOLDERS. The principal shareholders of Citadel
Communications are parties to various agreements pursuant to which the Boards of
Directors of Citadel Communications and the Company are constituted and by which
certain corporate actions are governed. See "Management -- Board Composition and
Governance Matters" and "Security Ownership of Certain Beneficial Owners."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Dividends on the Exchangeable
Preferred Stock that are paid to Non-U.S. Holders may be subject to a 30%
withholding tax. Unless a Non-U.S. Holder provides the Company with appropriate
documentation indicating its exemption from the withholding tax, in the event
any distribution is made with respect to the Exchangeable Preferred Stock in the
form of additional shares of Exchangeable Preferred Stock, such Non-U.S. Holder
will be required to pay the Company the amount of any such withholding tax and,
in the event such payment is not timely made, the Company will withhold a number
of shares of Exchangeable Preferred Stock sufficient to reimburse it for the
withholding tax obligation. For purposes of this Prospectus, a Non-U.S. Holder
is any holder that is not a "U.S. holder" as defined under "Certain Federal
Income Tax Considerations."
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<PAGE> 32
The Company does not presently have any earnings and profits (as determined
for U.S. Federal income tax purposes) and cannot predict whether or when it will
have such earnings and profits. Distributions on the Exchangeable Preferred
Stock will not be eligible for the dividends-received deduction available to
corporate holders until such time, if any, as the Company has sufficient
earnings and profits allocable to the Exchangeable Preferred Stock. See "Certain
Federal Income Tax Considerations."
LACK OF ESTABLISHED TRADING MARKET. There has not been any public market
for the Series A Securities. The Series B Securities will constitute a new issue
of securities with no established trading market. The Company does not intend to
list the Series B Securities on any securities exchange or to seek their
admission to trading in any automated quotation system. The Initial Purchasers
have advised the Company that they currently intend to make a market in the
Series B Securities, but they are not obligated to do so and may discontinue
such market-making at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and may be
limited during the Exchange Offer and at certain other times. Accordingly, no
assurance can be given that an active public or other market will develop for
the Series B Securities or as to the liquidity of the trading market for the
Series B Securities. If a trading market does not develop or is not maintained,
holders of the Series B Securities may experience difficulty in reselling the
Series B Securities or may be unable to sell them at all. If a market for the
Series B Securities develops, any such market may be discontinued at any time.
If a public trading market develops for the Series B Securities, future
trading prices of the Series B Securities will depend on many factors,
including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. Depending on prevailing
interest rates, the market for similar securities and other factors, including
the financial condition of the Company, the Series B Notes may trade at a
discount from their principal amount and shares of Series B Exchangeable
Preferred Stock may trade at a discount from their initial offering price.
FRAUDULENT TRANSFER CONSIDERATIONS. Under applicable provisions of the
United States Bankruptcy Code or comparable provisions of state fraudulent
transfer and conveyance laws, if the Company, at the time it issued the Notes,
or, if applicable, the Exchange Debentures, or a guarantor under the Notes or
the Exchange Debentures (a "Guarantor"), at the time it issued a Guarantee (a
"Guarantee"), (a) incurred such indebtedness with the actual intent to hinder,
delay or defraud creditors or (b)(i) received less than reasonably equivalent
value or fair consideration therefor and (ii)(A) was insolvent at the time of
such incurrence, (B) was rendered insolvent by reason of such incurrence (and
the application of the proceeds thereof), (C) was engaged or was about to engage
in a business or transaction for which the assets remaining with the Company or
such Guarantor, as the case may be, constituted unreasonably small capital to
carry on its business or (D) intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they mature, then, in each such
case, a court of competent jurisdiction could avoid, in whole or in part, the
Notes or, if issued, the Exchange Debentures, or such Guarantee or, in the
alternative, fashion other equitable relief such as subordinating the Notes or,
if issued, the Exchange Debentures, or such Guarantee to existing and future
indebtedness of the Company or such Guarantor. The measure of insolvency for
purposes of the foregoing would likely vary depending upon the law applied in
such case. Generally, however, the Company or such Guarantor would be considered
insolvent if the sum of its debts, including contingent liabilities, was greater
than all of its assets at a fair valuation, or if the present fair-salable value
of its assets was less than the amount that would be required to pay the
probable liabilities on its existing debts, including contingent liabilities, as
such debts become absolute and matured.
Based upon financial and other information currently available to it, the
Company believes that the Notes and the Subsidiary Notes Guarantee of Citadel
License were incurred for proper purposes and in good faith, and that, after
issuance of the Notes and the Subsidiary Notes Guarantee, the Company and
Citadel License are solvent and have sufficient capital for carrying on their
business and are able to pay their debts as they mature. However, there can be
no assurance that a court passing on such issues would agree with the
determination of the Company.
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<PAGE> 33
Any Guarantor which is a subsidiary of the Company may be released from its
Guarantee at any time upon any sale, exchange or transfer in compliance with the
provisions of the Notes Indenture by the Company of the capital stock of such
Guarantor or substantially all of the assets of such Guarantor to a
non-affiliate; provided that such Guarantor is released from its guarantees of
other Debt of the Company or any Restricted Subsidiary of the Company. See
"Description of the Notes -- Guarantees."
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES; CONSEQUENCES OF FAILURE TO EXCHANGE
Issuance of the Series B Securities in exchange for the Series A Securities
pursuant to the Exchange Offer will be made only after a timely receipt by the
Company of such Series A Securities, properly completed and duly executed
Letters of Transmittal and all other required documents. Therefore, holders of
the Series A Securities desiring to tender such Series A Securities in exchange
for Series B Securities should allow sufficient time to ensure timely delivery.
The Company is under no duty to give notification of defects or irregularities
with respect to the tenders of Series A Securities for exchange. Series A
Securities that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof and, upon consummation of the
Exchange Offer, certain registration rights under the Registration Rights
Agreements will terminate. In addition, any holder of Series A Securities who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the Series B Securities may be deemed to have received restricted securities
and, if so, will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transactions. Each holder of the Series A Securities (other than certain
specified holders) who wishes to exchange the Series A Securities for Series B
Securities in the Exchange Offer will be required to represent in the Letters of
Transmittal that (i) it is not an affiliate of the Company, (ii) the Series B
Securities to be received by it are being acquired in the ordinary course of its
business and (iii) it is not participating, does not intend to participate and
has no arrangement or understanding with any person to participate in a
distribution (within the meaning of the Securities Act) of the Series B
Securities. Each Participating Broker-Dealer that receives Series B Securities
for its own account in exchange for Series A Securities, where such Series A
Securities were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Series B
Securities. See "Plan of Distribution." To the extent that Series A Securities
are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Series A Securities could be adversely
affected. See "The Exchange Offer."
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<PAGE> 34
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreements. The Company will not
receive any cash proceeds from the issuance of the Series B Securities in the
Exchange Offer. The net proceeds to the Company from the issuance of
$100,000,000 aggregate principal amount of the Series A Notes and 1,000,000
shares of Series A Exchangeable Preferred Stock were approximately $193.1
million. Of these net proceeds $113.4 million was used to pay the cash portion
of the purchase price for the Tele-Media Acquisition, approximately $51.8
million was used to repay certain indebtedness of the Company and the balance
was used for acquisitions, including expenses related thereto, and working
capital purposes. The Company did not receive any cash proceeds from the
issuance of $1,000,000 aggregate principal amount of the Series A Notes in
connection with the Tele-Media Acquisition and it will not receive any cash
proceeds from the issuance of the Series A Dividend Shares.
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<PAGE> 35
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of September 30, 1997 (i) on an actual basis, (ii) on a pro forma basis to
give effect to the Recent 1997 Acquisitions and (iii) on a pro forma basis as
further adjusted to give effect to the Pending Transactions. This table should
be read in conjunction with the Company's Consolidated Financial Statements and
related notes, "Unaudited Pro Forma Condensed Consolidated Financial Statements"
and other information included elsewhere in this Prospectus. Dollars in the
table below are shown in thousands.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------
PRO FORMA
AS FURTHER
PRO FORMA ADJUSTED
FOR THE FOR THE
RECENT 1997 PENDING
ACTUAL ACQUISITIONS TRANSACTIONS
-------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................ $ 26,700 $ 2,827 $ 2,012
======== ========= ========
Long-term debt, including current portion:
Credit Facility........................................ $ 50,584 $ 85,084 $111,084
Other obligations...................................... 1,595 1,595 2,095
Notes(1)............................................... 101,000 101,000 101,000
-------- --------- --------
Total long-term debt..................................... 153,179 187,679 214,179
Exchangeable Preferred Stock(2).......................... 100,000 100,000 100,000
Shareholder's equity..................................... 11,561 21,561 21,561
-------- --------- --------
Total capitalization..................................... $264,740 $ 309,240 $335,740
======== ========= ========
</TABLE>
- ---------------
(1) Includes $1.0 million principal amount of Notes issued to the holders of the
Tele-Media Bonds and represents the face value of the Notes which excludes
approximately $2.7 million of unamortized discount.
(2) Represents the stated value of the Exchangeable Preferred Stock which
excludes approximately $3.1 million of unamortized discount, approximately
$3.3 million of accretion and $570,000 of issuance costs.
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<PAGE> 36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements reflect the results of operations and balance sheet of the Company
after giving effect to the Completed Transactions and the Pending Transactions.
The pro forma condensed consolidated financial statements are based on the
historical consolidated financial statements of the Company and the financial
statements of those entities acquired or to be acquired, or from which assets
were or will be acquired, in connection with the Completed Transactions and the
Pending Acquisitions, and should be read in conjunction with the financial
statements and the notes thereto of (i) the Company, (ii) Tele-Media
Broadcasting Company, (iii) Deschutes River Broadcasting, Inc., (iv) Snider
Corporation, (v) Snider Broadcasting Corporation and subsidiary and CDB
Broadcasting Corporation, (vi) Maranatha Broadcasting Company, Inc.'s, Radio
Broadcasting Division and (vii) Pacific Northwest Broadcasting Corporation and
Affiliates which are included elsewhere in this Prospectus.
In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. For pro forma purposes, the Company's
consolidated statements of operations for the year ended December 31, 1996 and
the nine months ended September 30, 1996 and 1997 have been adjusted to give
effect to the Completed Transactions and the Pending Transactions as if each
occurred on January 1, 1996. For pro forma purposes, the Company's consolidated
balance sheet as of September 30, 1997 has been adjusted to give effect to the
Recent 1997 Acquisitions and the Pending Transactions as if each had occurred on
September 30, 1997.
The unaudited pro forma information is presented for illustrative purposes
only and is not indicative of the operating results or financial position that
would have occurred if the Completed Transactions and the Pending Transactions
had been consummated on the dates indicated, nor is it indicative of future
operating results or financial position if the aforementioned transactions are
completed. The Company cannot predict whether the consummation of the Pending
Transactions will conform to the assumptions used in the preparation of the
unaudited pro forma condensed consolidated financial statements.
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<PAGE> 37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
ADJUSTMENTS FOR AS ADJUSTED FOR ADJUSTMENTS FOR
ACTUAL THE COMPLETED THE COMPLETED THE PENDING PRO FORMA
THE COMPANY TRANSACTIONS(1) TRANSACTIONS TRANSACTIONS(2) THE COMPANY
----------- --------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Net revenue................................. $45,413 $ 58,810 $ 104,223 $ 2,460 $ 106,683
Station operating expenses.................. 33,232 41,800 75,032 1,071 76,103
Depreciation and amortization............... 5,158 18,135 23,293 1,827 25,120
Corporate general and administrative........ 3,248 -- 3,248 -- 3,248
------- -------- -------- ------- --------
Operating expenses........................ 41,638 59,935 101,573 2,898 104,471
------- -------- -------- ------- --------
Operating income (loss)..................... 3,775 (1,125) 2,650 (438) 2,212
Interest expense............................ 6,155 11,632 17,787 2,263 20,050
Other (income) expense, net................. (414) (29) (443) -- (443)
------- -------- -------- ------- --------
Income (loss) before income taxes........... (1,966) (12,728) (14,694) (2,701) (17,395)
Income taxes (benefit)...................... -- -- -- -- --
Dividend requirement for Exchangeable
Preferred Stock........................... -- (13,825) (13,825) -- (13,825)
------- -------- -------- ------- --------
Income (loss) from continuing operations
applicable to common shares............... $(1,966) $ (26,553) $ (28,519) $(2,701) $ (31,220)
======= ======== ======== ======= ========
</TABLE>
31
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(1) Represents the net effect of (a) the acquisition of Deschutes, (b) the
Tele-Media Acquisition, (c) the acquisitions of KTBL-FM, KHFM-FM, KNML-AM,
and KRST-FM in Albuquerque, (d) the acquisition of KHOP-FM in Modesto, (e)
the acquisition of KKLI-FM in Colorado Springs, (f) the acquisitions of
KENZ-FM, KBER-FM, KBEE-FM and KFNZ-AM in Salt Lake City, (g) the acquisition
of KNHK-FM in Reno, (h) the acquisition of KTHK-FM in Tri-Cities, (i) the
acquisitions of WXEX-FM and WHKK-FM in Providence, (j) the Little Rock
Acquisitions, (k) the acquisition of WLEV-FM in Allentown and (l) the
consummation of the Original Offerings as if each transaction had taken
place as of January 1, 1996. Depreciation and amortization for such
acquisitions are based upon preliminary allocations of the purchase price to
property and equipment and intangible assets which will be amortized over
periods of 1-25 years. Actual depreciation and amortization may differ
depending on the final allocation of the purchase price; however, management
does not believe these differences will be material. Dollars in the table
below are shown in thousands.
<TABLE>
<CAPTION>
OTHER THE THE
LITTLE ROCK COMPLETED ORIGINAL COMPLETED
DESCHUTES(a) TELE-MEDIA(b) ACQUISITIONS(c) ALLENTOWN(d) ACQUISITIONS(e) OFFERINGS TRANSACTIONS
------------ ------------- --------------- ------------ --------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net
revenue... $ 11,442 $31,385 $ 8,364 $ 1,598 $ 6,021 $ -- $ 58,810
Station
operating
expenses... 9,443 22,720 5,638 918 3,081 -- 41,800
Depreciation
and
amortization... 1,759 7,934 2,715 1,538 4,189 -- 18,135
Corporate
general
and
administrative... 489 291 -- -- -- (780)(f) --
------- ------- ------- ------- ------- -------- --------
Operating
expenses.. 11,691 30,945 8,353 2,456 7,270 (780) 59,935
------- ------- ------- ------- ------- -------- --------
Operating
income
(loss)... (249) 440 11 (858) (1,249) 780 (1,125)
Interest
expense... 1,556 9,765 2,405 1,941 3,350 (7,385)(g) 11,632
Other
(income)
expense,
net... (29) -- -- -- -- -- (29)
------- ------- ------- ------- ------- -------- --------
Income
(loss)
before
income
taxes... (1,776) (9,325) (2,394) (2,799) (4,599) 8,165 (12,728)
Income
taxes
(benefit)... -- -- -- -- -- -- --
Dividend
requirement
for
Exchangeable
Preferred
Stock... -- -- -- -- -- (13,825)(h) (13,825)
------- ------- ------- ------- ------- -------- --------
Income
(loss)
from
continuing
operations
applicable
to
common
shares... $ (1,776) $(9,325) $(2,394) $ (2,799) $(4,599) $(5,660) $(26,553)
======= ======= ======= ======= ======= ======== ========
</TABLE>
(a) Represents the effect of the acquisition of Deschutes. Dollars in the
table below are shown in thousands.
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
PRO FORMA ACQUISITIONS AND
ADJUSTMENTS FOR DISPOSITIONS
ACTUAL DESCHUTES COMPLETED BY
DESCHUTES(I) ACQUISITION DESCHUTES(VIII) DESCHUTES
------------ --------------- ---------------- ---------
<S> <C> <C> <C> <C>
Net revenue................................ $ 8,843 $ 668(ii) $1,931 $11,442
Station operating expenses................. 7,335 601(iii) 1,507 9,443
Depreciation and amortization.............. 1,173 586(iv) -- 1,759
Corporate general and administrative....... 705 (216)(v) -- 489
------- ----- ------ -------
Operating expenses....................... 9,213 971 1,507 11,691
------- ----- ------ -------
Operating income (loss).................... (370) (303) 424 (249)
Interest expense........................... 1,144 412(vi) -- 1,556
Other (income) expense, net................ (128) 1(vii) 98 (29)
------- ----- ------ -------
Income (loss) before income taxes.......... (1,386) (716) 326 (1,776)
Income taxes (benefit)..................... -- -- -- --
------- ----- ------ -------
Income (loss) from continuing operations... $ (1,386) $ (716) $ 326 $(1,776)
======= ===== ====== =======
</TABLE>
(i) Represents the audited historical results of Deschutes for the
period from January 1, 1996 through December 31, 1996.
32
<PAGE> 39
(ii) Reflects reclassification of trade revenue from other (income)
expense, net to net revenue to conform with the presentation
of the Company.
(iii) Reflects $66,000 in lower fees, as a percentage of national
advertising sales, paid by the Company to a national
representative for national advertising sales and $667,000 in a
reclassification of trade expense from other (income) expense,
net to station operating expenses to conform with the
presentation of the Company.
(iv) Represents increased depreciation and amortization resulting from
the purchase price allocation.
(v) Reflects the elimination of management fees paid by Deschutes.
(vi) Represents increased interest expense that would have been
incurred if the acquisition of Deschutes had occurred on January
1, 1996.
(vii) Represents the net reclassification of $668,000 of trade revenue
and $667,000 of trade expense from other income and expense to
net revenues and station operating expenses to conform with the
presentation of the Company.
(viii) Gives effect to the historical operating results of stations
acquired in Medford, Eugene, Tri-Cities and Billings during 1996
and stations in Bozeman which were sold in November 1996. Prior
to the acquisition dates, Deschutes operated stations in Billings
and Tri-Cities under a JSA or LMA. Deschutes received fees for
such services. Includes net revenue and station operating
expenses for stations operated under JSAs to reflect ownership of
the stations as of January 1, 1996. Net revenue and station
expenses for stations operated under LMAs are included in the
Deschutes' historical consolidated financial statements. For
those stations operated under JSAs or LMAs and subsequently
acquired, associated fees and redundant expenses were eliminated
and estimated occupancy costs were included to adjust the results
of operations to reflect ownership of the stations as of January
1, 1996.
(b) Represents the net effect of the Tele-Media Acquisition, including
stations acquired by Tele-Media. Dollars in the table below are shown in
thousands.
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS FOR
ADJUSTMENTS FOR ACQUISITIONS
ACTUAL TELE-MEDIA COMPLETED BY
TELE-MEDIA(I) ACQUISITION TELE-MEDIA(VI) TELE-MEDIA
------------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
Net revenue............................. $26,424 $ -- $ 4,961 $ 31,385
Station operating expenses.............. 18,293 (457)(ii) 4,884 22,720
Depreciation and amortization........... 3,494 4,440(iii) -- 7,934
Corporate general and administrative.... 804 (513)(iv) -- 291
------ ------- ------ -------
Operating expenses.................... 22,591 3,470 4,884 30,945
------ ------- ------ -------
Operating income (loss)................. 3,833 (3,470) 77 440
Interest expense........................ 10,750 (985)(v) -- 9,765
------ ------- ------ -------
Income (loss) before income taxes....... (6,917) (2,485) 77 (9,325)
Income taxes (benefit).................. -- -- -- --
------ ------- ------ -------
Income (loss) from continuing
operations............................ $(6,917) $(2,485) $ 77 $ (9,325)
====== ======= ====== =======
</TABLE>
(i) Represents the audited historical results of Tele-Media for the
period January 1, 1996 through December 31, 1996.
(ii) Includes the elimination of $197,000 of expenses to reflect lower
fees, as a percentage of national advertising sales, paid by the
Company to a national representative for national advertising
sales and the elimination of $260,000 of expenses associated with
the litigation between the Company and Tele-Media. Had the
Tele-Media Acquisition occurred on January 1, 1996, these expenses
would not have been incurred.
(iii) Represents increased depreciation and amortization resulting from
the purchase price allocation.
(iv) Reflects the elimination of management fees paid to affiliates by
Tele-Media of $804,000 and the recording of corporate overhead of
$400,000 which represents the Company's estimate of the
incremental expense necessary to oversee the Tele-Media stations
and the elimination of $109,000 of expenses associated with the
litigation between the Company and Tele-Media. Had the Original
Offerings and the Tele-Media Acquisition occurred on January 1,
1996, these expenses would not have been incurred.
(v) Reflects the elimination of Tele-Media interest expense of $10.8
million and the recording of interest expense of $9.8 million that
would have been incurred if the acquisition of Tele-Media had
occurred on January 1, 1996.
(vi) Represents the historical operating results of the
Wilkes-Barre/Scranton stations acquired by Tele-Media in February
and April 1997.
(c) Gives effect to the Little Rock Acquisitions as if such transactions had
taken place on January 1, 1996.
(d) Gives effect to the acquisition of WLEV-FM in Allentown as if such
transaction had taken place on January 1, 1996.
33
<PAGE> 40
(e) Reflects adjustments for the acquisitions of KTBL-FM, KHFM-FM, KNML-AM,
and KRST-FM in Albuquerque, KHOP-FM in Modesto, KKLI-FM in Colorado
Springs, KENZ-FM, KBER-FM, KBEE-FM and KFNZ-AM in Salt Lake City,
KNHK-FM in Reno, KTHK-FM in Tri-Cities, and WXEX-FM and WHKK-FM in
Providence. Prior to acquisition dates, the Company operated KTBL-FM,
KHOP-FM, KRST-FM, KTHK-FM, KNHK-FM, KENZ-FM and KBER-FM under a JSA or
LMA. The Company receives fees for such services. Includes net revenue
and station operating expenses for stations operated under JSAs to
reflect ownership of the stations as of January 1, 1996. Net revenue and
station expenses for stations operated under LMAs are included in the
Company's historical consolidated financial statements. For those
stations operated under JSAs or LMAs and subsequently acquired,
associated fees and redundant expenses were eliminated and estimated
occupancy costs were included to adjust the results of operations to
reflect ownership of the stations as of January 1, 1996.
(f) Represents the elimination of $780,000 of professional expenses
associated with the Company's capital raising activities in 1996.
(g) Reflects the reduction of the Company's pro forma interest expense, the
recording of interest related to the Notes recording of the amortization
of deferred financing costs of $3.3 million related to the Notes.
(h) Reflects the recording of the dividends related to the Exchangeable
Preferred Stock as if the Original Offerings had taken place on January
1, 1996.
(2) Represents the net effect of (a) the Boise Acquisition, (b) the acquisition
of WEMR-AM and WEMR-FM in Wilkes-Barre/Scranton, (c) the acquisition of
WSGD-FM, WDLS-FM and WCDL-AM in Wilkes-Barre/Scranton and (d) the
disposition of WEST-AM in Allentown and the Johnstown and State College
stations, as if each transaction had taken place on January 1, 1996.
Depreciation and amortization for such acquisitions are based upon
preliminary allocations of the purchase price to property and equipment and
intangible assets which will be amortized over periods of 1-25 years. Actual
depreciation and amortization may differ depending on the final allocation
of the purchase price; however, management does not believe these
differences will be material. Dollars in the table below are shown in
thousands.
<TABLE>
<CAPTION>
BOISE OTHER PENDING
ACQUISITION(A) ACQUISITIONS(B) DISPOSITIONS(C) TRANSACTIONS
--------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Net revenue....................................... $ 4,658 $ 1,215 $ (3,413) $ 2,460
Station operating expenses........................ 2,985 1,149 (3,063) 1,071
Depreciation and amortization..................... 1,977 448 (598) 1,827
------- ------ ------- -------
Operating expenses.............................. 4,962 1,597 (3,661) 2,898
Operating income (loss)........................... (304) (382) 248 (438)
Interest expense.................................. 2,405 575 (717) 2,263
------- ------ ------- -------
Income (loss) before income taxes................. (2,709) (957) 965 (2,701)
Income taxes (benefit)............................ -- -- -- --
------- ------ ------- -------
Income (loss) from continuing operations.......... $(2,709) $ (957) $ 965 $ (2,701)
======= ====== ======= =======
</TABLE>
(a) Gives effect to the Boise Acquisition as if such transaction had taken
place on January 1, 1996.
(b) Gives effect to (i) the acquisition of WEMR-AM and WEMR-FM in
Wilkes-Barre/Scranton and (ii) the acquisition of WSGD-FM, WDLS-FM and
WCDL-AM in Wilkes-Barre/Scranton, as if each transaction had taken place
on January 1, 1996.
(c) Gives effect to the disposition of WEST-AM in Allentown and the
Johnstown and State College stations as if such transactions had taken
place on January 1, 1996.
34
<PAGE> 41
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
ADJUSTMENTS FOR AS ADJUSTED FOR ADJUSTMENTS FOR
ACTUAL THE COMPLETED THE COMPLETED THE PENDING PRO FORMA
THE COMPANY TRANSACTIONS(1) TRANSACTIONS TRANSACTIONS(2) THE COMPANY
----------- --------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Net revenue................................ $31,733 $ 41,240 $ 72,973 $ 1,938 $ 74,911
Station operating expenses................. 23,662 29,377 53,039 941 53,980
Depreciation and amortization.............. 3,263 14,179 17,442 1,369 18,811
Corporate general and administrative....... 1,903 (164) 1,739 -- 1,739
------- -------- -------- ------- --------
Operating expenses....................... 28,828 43,392 72,220 2,310 74,530
------- -------- -------- ------- --------
Operating income (loss).................... 2,905 (2,152) 753 (372) 381
Interest expense........................... 4,177 9,164 13,341 1,697 15,038
Other (income) expense, net................ (159) -- (159) -- (159)
------- -------- -------- ------- --------
Income (loss) before income taxes.......... (1,113) (11,316) (12,429) (2,069) (14,498)
Income taxes (benefit)..................... -- -- -- -- --
Dividend requirement for Exchangeable
Preferred Stock.......................... -- (10,258) (10,258) -- (10,258)
------- -------- -------- ------- --------
Income (loss) from continuing operations
applicable to common shares.............. $(1,113) $ (21,574) $(22,687) $(2,069) $ (24,756)
======= ======== ======== ======= ========
</TABLE>
35
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(1) Represents the net effect of (a) the acquisition of Deschutes, (b) the
Tele-Media Acquisition, (c) the acquisitions of KTBL-FM, KHFM-FM, KNML-AM
and KRST-FM in Albuquerque, (d) the acquisition of KHOP-FM in Modesto, (e)
the acquisition of KKLI-FM in Colorado Springs, (f) the acquisitions of
KENZ-FM, KBER-FM, KBEE-FM and KFNZ-AM in Salt Lake City, (g) the acquisition
of KNHK-FM in Reno, (h) the acquisition of KTHK-FM in Tri-Cities, (i) the
acquisitions of WXEX-FM and WHKK-FM in Providence, (j) the Little Rock
Acquisitions, (k) the acquisition of WLEV-FM in Allentown and (l) the
consummation of the Original Offerings as if each transaction had taken
place as of January 1, 1996. Depreciation and amortization for such
acquisitions are based upon preliminary allocations of the purchase price to
property and equipment and intangible assets which will be amortized over
periods of 1-25 years. Actual depreciation and amortization may differ
depending on the final allocation of the purchase price; however, management
does not believe these differences will be material. Dollars in the table
below are shown in thousands.
<TABLE>
<CAPTION>
OTHER THE THE
LITTLE ROCK COMPLETED ORIGINAL COMPLETED
DESCHUTES(A) TELE-MEDIA(B) ACQUISITIONS(C) ALLENTOWN(D) ACQUISITIONS(E) OFFERINGS TRANSACTIONS
------------- ------------- --------------- ------------ --------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net
revenue... $ 8,267 $20,601 $ 6,039 $ 1,089 $ 5,244 $ -- $ 41,240
Station
operating
expenses... 6,925 14,808 4,361 683 2,600 -- 29,377
Depreciation
and
amortization.. 1,319 5,951 2,036 1,154 3,719 -- 14,179
Corporate
general
and
administrative... 316 300 -- -- -- (780)(f) (164)
------- ------- ------- ------- ------- -------- --------
Operating
expenses... 8,560 21,059 6,397 1,837 6,319 (780) 43,392
------- ------- ------- ------- ------- -------- --------
Operating
income
(loss)... (293) (458) (358) (748) (1,075) 780 (2,152)
Interest
expense... 1,167 7,324 1,804 1,456 2,893 (5,480)(g) 9,164
------- ------- ------- ------- ------- -------- --------
Income
(loss)
before
income
taxes... (1,460) (7,782) (2,162) (2,204) (3,968) 6,260 (11,316)
Income
taxes
(benefit)... -- -- -- -- -- -- --
Dividend
requirement
for
Exchangeable
Preferred
Stock... -- -- -- -- -- (10,258)(h) (10,258)
------- ------- ------- ------- ------- -------- --------
Income
(loss)
from
continuing
operations... $(1,460) $(7,782) $(2,162) $ (2,204) $(3,968) $ (3,998) $(21,574)
======= ======= ======= ======= ======= ======== ========
</TABLE>
(a) Represents the effect of the acquisition of Deschutes. Dollars in the
table below are shown in thousands.
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
PRO FORMA ACQUISITIONS AND
ADJUSTMENTS FOR DISPOSITIONS
ACTUAL DESCHUTES COMPLETED BY
DESCHUTES(I) ACQUISITION DESCHUTES(VI) DESCHUTES
------------ --------------- ---------------- ---------
<S> <C> <C> <C> <C>
Net revenue.......................................... $6,375 $ -- $1,892 $ 8,267
Station operating expenses........................... 5,498 (51)(ii) 1,478 6,925
Depreciation and amortization........................ 720 599(iii) -- 1,319
Corporate general and administrative................. 460 (144)(iv) -- 316
------ ----- ------ -------
Operating expenses................................. 6,678 404 1,478 8,560
------ ----- ------ -------
Operating income (loss).............................. (303) (404) 414 (293)
Interest expense..................................... 695 472(v) -- 1,167
------ ----- ------ -------
Income (loss) before income taxes.................... (998) (876) 414 (1,460)
Income taxes (benefit)............................... -- -- -- --
------ ----- ------ -------
Income (loss) from continuing operations............. $ (998) $(876) $ 414 $(1,460)
====== ===== ====== =======
</TABLE>
(i) Represents the unaudited historical results of Deschutes for the
period from January 1, 1996 through September 30, 1996.
(ii) Reflects lower fees, as a percentage of national advertising
sales, paid by the Company to a national representative for
national advertising sales.
(iii) Represents increased depreciation and amortization resulting from
the purchase price allocation.
(iv) Reflects the elimination of management fees paid by Deschutes.
(v) Represents increased interest expense that would have been
incurred if the acquisition of Deschutes had occurred on January
1, 1996.
(vi) Gives effect to the historical operating results of stations
acquired in Medford, Eugene, Tri-Cities and Billings during 1996
and stations in Bozeman which were sold in November 1996. Prior to
the acquisition dates, Deschutes operated stations in Billings and
Tri-Cities under a JSA or LMA. Deschutes received fees for such
services. Includes net revenue and station operating
36
<PAGE> 43
expenses for stations operated under JSAs to reflect ownership of
the stations as of January 1, 1996. Net revenue and station
expenses for stations operated under LMAs are included in the
Deschutes' historical consolidated financial statements. For those
stations operated under JSAs or LMAs and subsequently acquired,
associated fees and redundant expenses were eliminated and
estimated occupancy costs were included to adjust the results of
operations to reflect ownership of the stations as of January 1,
1996.
(b) Represents the net effect of the Tele-Media Acquisition, including
stations acquired by Tele-Media. Dollars in the table below are in
thousands.
<TABLE>
<CAPTION>
ADJUSTMENTS
PRO FORMA FOR
ADJUSTMENTS FOR ACQUISITIONS
ACTUAL THE TELE-MEDIA COMPLETED BY
TELE-MEDIA(I) ACQUISITION TELE-MEDIA(VI) TELE-MEDIA
------------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
Net revenue......................................... $16,161 $ -- $ 4,440 $ 20,601
Station operating expenses.......................... 10,475 (137)(ii) 4,470 14,808
Depreciation and amortization....................... 2,621 3,330(iii) -- 5,951
Corporate general and administrative................ 603 (303)(iv) -- 300
------- ------- ------ -------
Operating expenses................................ 13,699 2,890 4,470 21,059
------- ------- ------ -------
Operating income (loss)............................. 2,462 (2,890) (30) (458)
Interest expense.................................... 8,063 (739)(v) -- 7,324
------- ------- ------ -------
Income (loss) before income taxes................... (5,601) (2,151) (30) (7,782)
Income taxes (benefit).............................. -- -- -- --
------- ------- ------ -------
Income (loss) from continuing operations............ $(5,601) $(2,151) $ (30) $ (7,782)
======= ======= ====== =======
</TABLE>
(i) Represents the unaudited historical results of Tele-Media for the
period from January 1, 1996 through September 30, 1996.
(ii) Includes the elimination of $137,000 of expenses to reflect lower
fees, as a percentage of national advertising sales, paid by the
Company to a national representative for national advertising
sales.
(iii) Represents increased depreciation and amortization resulting from
the purchase price allocation.
(iv) Reflects the elimination of management fees paid to affiliates by
Tele-Media of $603,000 and the recording of corporate overhead of
$300,000 which represents the Company's estimate of the
incremental expense necessary to oversee the Tele-Media stations.
(v) Reflects the elimination of Tele-Media interest expense of $8.1
million and the recording of interest expense of $7.4 million that
would have been incurred if the Tele-Media Acquisition had
occurred on January 1, 1996.
(vi) Represents the historical operating results of the
Wilkes-Barre/Scranton stations acquired by Tele-Media in February
and April 1997.
(c) Gives effect to the Little Rock Acquisitions as if such transactions had
taken place on January 1, 1996.
(d) Gives effect to the acquisition of WLEV-FM in Allentown as if such
transaction had taken place on January 1, 1996.
(e) Reflects adjustments for the acquisitions of KTBL-FM, KHFM-FM, KNML-AM
and KRST-FM in Albuquerque, KHOP-FM in Modesto, KKLI-FM in Colorado
Springs, KENZ-FM, KBER-FM, KBEE-FM and KFNZ-AM in Salt Lake City,
KNHK-FM in Reno, KTHK-FM in Tri-Cities and WXEX-FM and WHKK-FM in
Providence. Prior to acquisition dates, the Company operated KTBL-FM,
KHOP-FM, KRST-FM, KTHK-FM, KNHK-FM, KENZ-FM and KBER-FM under a JSA or
LMA. The Company receives fees for such services. Includes net revenue
and station expenses for stations operated under JSAs to reflect
ownership of the stations as of January 1, 1996. Net revenue and station
expenses for stations operated under LMAs are included in the Company's
historical consolidated financial statements. For those stations
operated under JSAs or LMAs and subsequently acquired, associated fees
and redundant expenses were eliminated and estimated occupancy costs
were included to adjust the results of operations to reflect ownership
of the stations as of January 1, 1996.
(f) Represents the elimination of $780,000 of professional expenses
associated with the Company's capital raising activities in 1996. Had
the Original Offerings and the Tele-Media Acquisition occurred on
January 1, 1996, these expenses would not have been incurred.
(g) Represents the reduction of the Company's pro forma interest expense,
the recording of interest expense related to the Notes and recording of
the amortization of deferred financing costs of $3.3 million related to
the Notes.
(h) Reflects the recording of the dividends related to the Exchangeable
Preferred Stock as if the Original Offerings had taken place on January
1, 1996.
(2) Represents the net effect of (a) the Boise Acquisition, (b) the acquisition
of WEMR-AM and WEMR-FM in Wilkes-Barre/Scranton, (c) the acquisition of
WSGD-FM, WDLS-FM and WCDL-AM in Wilkes-Barre/Scranton and (d) the
disposition of WEST-AM in Allentown and the Johnstown and State College
stations, as if each transaction had taken place on January 1, 1996.
Depreciation and amortization for such acquisitions are based upon
preliminary allocations of the purchase price to property and equipment and
intangible assets which will be amortized over periods of 1-25 years. Actual
depreciation and amortization may differ depending on the final
37
<PAGE> 44
allocation of the purchase price; however, management does not believe these
differences will be material. Dollars in the table below are shown in
thousands.
<TABLE>
<CAPTION>
BOISE OTHER PENDING
ACQUISITION(A) ACQUISITIONS(B) DISPOSITIONS(C) TRANSACTIONS
-------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Net revenue.......................................... $ 3,157 $ 727 $(1,946) $ 1,938
Station operating expenses........................... 2,056 589 (1,704) 941
Depreciation and amortization........................ 1,483 336 (450) 1,369
Corporate general and administrative................. -- -- -- --
------- ----- ------- -------
Operating expenses................................. 3,539 925 (2,154) 2,310
------- ----- ------- -------
Operating income (loss).............................. (382) (198) 208 (372)
Interest expense..................................... 1,804 431 (538) 1,697
------- ----- ------- -------
Income (loss) before income taxes.................... (2,186) (629) 746 (2,069)
Income taxes (benefit)............................... -- -- -- --
------- ----- ------- -------
Income (loss) from continuing operations............. $ (2,186) $(629) $ 746 $ (2,069)
======= ===== ======= =======
</TABLE>
(a) Gives effect to the Boise Acquisition as if such transaction had taken
place on January 1, 1996.
(b) Gives effect to (i) the acquisition of WEMR-AM and WEMR-FM in
Wilkes-Barre/Scranton and (ii) the acquisition of WSGD-FM, WDLS-FM and
WCDL-AM in Wilkes-Barre/Scranton, as if each transaction had taken place
on January 1, 1996.
(c) Gives effect to the disposition of WEST-AM in Allentown and the
Johnstown and State College stations as if such transactions had taken
place on January 1, 1996.
38
<PAGE> 45
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
ADJUSTMENTS FOR AS ADJUSTED FOR ADJUSTMENTS FOR
ACTUAL THE COMPLETED THE COMPLETED THE PENDING PRO FORMA
THE COMPANY TRANSACTIONS(1) TRANSACTIONS TRANSACTIONS(2) THE COMPANY
----------- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Net revenue.............................. $60,025 $ 24,075 $ 84,100 $ 2,900 $ 87,000
Station operating expenses............... 43,306 16,600 59,906 1,317 61,223
Depreciation and amortization............ 9,458 8,315 17,773 1,369 19,142
Corporate general and administrative..... 2,562 (334) 2,228 -- 2,228
------- -------- -------- ------- --------
Operating expenses..................... 55,326 24,581 79,907 2,686 82,593
------- -------- -------- ------- --------
Operating income (loss).................. 4,699 (506) 4,193 214 4,407
Interest expense......................... 8,214 5,127 13,341 1,697 15,038
Other (income) expense, net.............. (401) (34) (435) -- (435)
------- -------- -------- ------- --------
Income (loss) before income taxes........ (3,114) (5,599) (8,713) (1,483) (10,196)
Income taxes (benefit)................... -- -- -- -- --
Dividend requirement for Exchangeable
Preferred Stock........................ (3,303) (8,359) (11,662) -- (11,662)
------- -------- -------- ------- --------
Income (loss) from continuing operations
applicable to common shares............ $(6,417) $(13,958) $(20,375) $ (1,483) $ (21,858)
======= ======== ======== ======= ========
</TABLE>
39
<PAGE> 46
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(1) Represents the net effect of (a) the Tele-Media Acquisition, (b) the
acquisitions of KENZ-FM, KBER-FM, KBEE-FM and KFNZ-AM in Salt Lake City, (c)
the acquisition of KNHK-FM in Reno, (d) the acquisition of KTHK-FM in
Tri-Cities, (e) the acquisitions of WXEX-FM and WHKK-FM in Providence, (f)
the Little Rock Acquisitions, (g) the acquisition of WLEV-FM in Allentown
and (h) the consummation of the Original Offerings as if each transaction
had taken place as of January 1, 1996. Depreciation and amortization for
such acquisitions are based upon preliminary allocations of the purchase
price to property and equipment and intangible assets which will be
amortized over periods of 1-25 years. Actual depreciation and amortization
may differ depending on the final allocation of the purchase price; however,
management does not believe these differences will be material. Prior to
acquisition dates, the Company operated KENZ-FM and KBER-FM, KNHK-FM and
KTHK-FM under a JSA or LMA. The Company receives fees for such services.
Includes net revenue and station operating expenses for stations operated
under JSAs to reflect ownership of the stations as of January 1, 1996. Net
revenue and station expenses for stations operated under LMAs are included
in the Company's historical consolidated financial statements. For those
stations operated under JSAs or LMAs and subsequently acquired, associated
fees and redundant expenses were eliminated and estimated occupancy costs
were included to adjust the results of operations to reflect ownership of
the stations as of January 1, 1996. Dollars in the table below are shown in
thousands.
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS FOR
ACTUAL TELE-MEDIA LITTLE ROCK OTHER THE ORIGINAL THE COMPLETED
TELE-MEDIA(A) ACQUISITION ACQUISITIONS(F) ALLENTOWN(G) ACQUISITIONS(H) OFFERINGS TRANSACTIONS
------------- --------------- --------------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net
revenue... $16,241 $ -- $ 5,186 $ 1,058 $ 1,590 $ -- $ 24,075
Station
operating
expenses... 12,713 (573)(b) 3,078 666 716 -- 16,600
Depreciation
and
amortization... 2,208 1,759(c) 2,036 1,154 1,158 -- 8,315
Corporate
general
and
administrative.. 454 (788)(d) -- -- -- -- (334)
------- ------- ------ ------- ------- ------- --------
Operating
expenses... 15,375 398 5,114 1,820 1,874 -- 24,581
------- ------- ------ ------- ------- ------- --------
Operating
income
(loss)... 866 (398) 72 (762) (284) -- (506)
Interest
expense... 10,375 (5,493)(e) 591 1,456 1,078 (2,880)(i) 5,127
Other
(income)
expense,
net..... (34) -- -- -- -- -- (34)
------- ------- ------ ------- ------- ------- --------
Income
(loss)
before
income
taxes... (9,475) 5,095 (519) (2,218) (1,362) 2,880 (5,599)
Income
taxes
(benefit)... -- -- -- -- -- -- --
Dividend
requirement
for
Exchangeable
Preferred
Stock... -- -- -- -- -- (8,359)(j) (8,359)
------- ------- ------ ------- ------- ------- --------
Income
(loss)
from
continuing
operations... $(9,475) $ 5,095 $ (519) $ (2,218) $(1,362) $ (5,479) $ (13,958)
======= ======= ====== ======= ======= ======= ========
</TABLE>
(a) Represents the unaudited historical results of Tele-Media for the period
January 1, 1997 through July 3, 1997, including the historical operating
results of Wilkes-Barre/Scranton stations acquired by Tele-Media in
February and April 1997 which had been operated under LMA/JSA agreements
since August and December 1996. The operating results of Tele-Media are
included in the Company's results of operations beginning July 4, 1997,
the date of acquisition.
(b) Includes the elimination of $115,000 of expenses to reflect lower fees,
as a percentage of national advertising sales, paid by the Company to a
national representative for national advertising sales and the
elimination of $211,000 of LMA/JSA fees related to the
Wilkes-Barre/Scranton stations and $247,000 of expenses associated with
the litigation between the Company and Tele-Media. Had the Tele-Media
Acquisition occurred on January 1, 1996, these expenses would not have
been incurred.
(c) Reflects increased depreciation and amortization resulting from the
purchase price allocation.
(d) Reflects the elimination of the management fees paid to affiliates by
Tele-Media of $454,000 and the recording of corporate overhead of
$200,000 which represents the Company's estimate of the incremental
expense necessary to oversee the Tele-Media stations and the elimination
of $534,000 of expenses associated with the litigation between the
Company and Tele-Media. Had the Original Offerings and the Tele-Media
Acquisition occurred on January 1, 1996, these expenses would not have
been incurred.
(e) Reflects the elimination of Tele-Media interest expense of $10.4 million
and the recording of interest expense of $4.9 million that would have
been incurred if the acquisition of Tele-Media had occurred on January
1, 1996.
40
<PAGE> 47
(f) Gives effect to the Little Rock Acquisitions as if such transactions
had taken place on January 1, 1996.
(g) Gives effect to the acquisition of WLEV-FM in Allentown as if such
transaction had taken place on January 1, 1996.
(h) Gives effect to the acquisitions of KENZ-FM, KBER-FM, KBEE-FM and
KFNZ-AM in Salt Lake City, KNHK-FM in Reno, KTHK-FM in Tri-Cities, and
WXEX-FM and WHKK-FM in Providence as if such transactions had taken
place on January 1, 1996.
(i) Reflects the reduction of the Company's pro forma interest expense, the
recording of interest expense related to the Notes and recording of the
amortization of deferred financing costs of $3.3 million related to the
Notes.
(j) Reflects the recording of additional dividends related to the
Exchangeable Preferred Stock as if the Original Offerings had taken
place on January 1, 1996.
(2) Represents the net effect of (a) the Boise Acquisition, (b) the acquisition
of WEMR-AM and WEMR-FM in Wilkes-Barre/Scranton, (c) the acquisition of
WSGD-FM, WDLS-FM and WCDL-AM in Wilkes-Barre/Scranton and (d) the
disposition of WEST-AM in Allentown and the Johnstown and State College
stations, as if each transaction had taken place on January 1, 1996.
Depreciation and amortization for such acquisitions are based upon
preliminary allocations of the purchase price to property and equipment and
intangible assets which will be amortized over periods of 1-25 years. Actual
depreciation and amortization may differ depending on the final allocation
of the purchase price; however, management does not believe these
differences will be material. Dollars in the table below are shown in
thousands.
<TABLE>
<CAPTION>
BOISE OTHER PENDING
ACQUISITION(A) ACQUISITIONS(B) DISPOSITIONS(C) TRANSACTIONS
-------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Net revenue.......................................... $ 4,378 $ 720 $(2,198) $ 2,900
Station operating expenses........................... 2,864 561 (2,108) 1,317
Depreciation and amortization........................ 1,483 336 (450) 1,369
Corporate general and administrative................. -- -- -- --
------- ----- ------- -------
Operating expenses................................. 4,347 897 (2,558) 2,686
Operating income (loss).............................. 31 (177) 360 214
Interest expense..................................... 1,804 431 (538) 1,697
------- ----- ------- -------
Income (loss) before income taxes.................... (1,773) (608) 898 (1,483)
Income taxes (benefit)............................... -- -- -- --
------- ----- ------- -------
Income (loss) from continuing operations............. $ (1,773) $(608) $ 898 $ (1,483)
======= ===== ======= =======
</TABLE>
(a) Gives effect to the Boise Acquisition as if such transaction had taken
place on January 1, 1996.
(b) Gives effect to (i) the acquisition of WEMR-AM and WEMR-FM in
Wilkes-Barre/Scranton and (ii) the acquisition of WSGD-FM, WDLS-FM and
WCDL-AM in Wilkes-Barre/Scranton, as if such transactions had taken
place on January 1, 1996.
(c) Gives effect to the disposition of WEST-AM in Allentown and the
Johnstown and State College stations as if such transactions had taken
place on January 1, 1996.
41
<PAGE> 48
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
ADJUSTMENTS FOR AS ADJUSTED FOR ADJUSTMENTS FOR
ACTUAL THE RECENT 1997 THE RECENT 1997 THE PENDING PRO FORMA
THE COMPANY ACQUISITIONS(1) ACQUISITIONS TRANSACTIONS(2) THE COMPANY
----------- ---------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................. $ 26,700 $(23,873) $ 2,827 $ (815) $ 2,012
Accounts receivable, net.................. 22,028 -- 22,028 -- 22,028
Other current assets...................... 1,819 -- 1,819 -- 1,819
-------- -------- -------- ------- --------
Total current assets...................... 50,547 (23,873) 26,674 (815) 25,859
Property and equipment, net............... 27,621 10,066 37,687 4,847 42,534
Intangible assets, net.................... 207,036 61,007 268,043 25,828 293,871
Other assets, net......................... 5,256 -- 5,256 -- 5,256
-------- -------- -------- ------- --------
$ 290,460 $ 47,200 $ 337,660 $29,860 $ 367,520
======== ======== ======== ======= ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Total current liabilities................. $ 9,771 $ -- $ 9,771 $ -- $ 9,771
Notes payable............................. 148,874 34,500 183,374 26,000 209,374
Other long-term obligations............... 1,351 -- 1,351 500 1,851
Exchangeable preferred stock.............. 99,583 -- 99,583 -- 99,583
Deferred tax liability.................... 19,320 2,700 22,020 3,360 25,380
Shareholder's equity...................... 11,561 10,000 21,561 -- 21,561
-------- -------- -------- ------- --------
$ 290,460 $ 47,200 $ 337,660 $29,860 $ 367,520
======== ======== ======== ======= ========
</TABLE>
42
<PAGE> 49
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(1) Represents the net effect of (a) the Little Rock Acquisitions, (b) the
acquisition of WLEV-FM in Allentown, (c) the acquisition of KBEE-FM and
KFNZ-AM in Salt Lake City and (d) the acquisition of WHKK-FM in Providence,
as if each transaction had taken place on September 30, 1997. The
preliminary allocation of purchase prices is based on estimated fair values.
Dollars in the table below are shown in thousands.
<TABLE>
<CAPTION>
LITTLE ROCK OTHER THE RECENT 1997
ACQUISITIONS ALLENTOWN(B) ACQUISITIONS(C) ACQUISITIONS
------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents....................... $ (16,500) $ (7,000) $ (373) $ (23,873)
Property and equipment, net..................... 8,216 150 1,700 10,066
Intangible assets, net.......................... 32,984 22,850 5,173 61,007
-------- ------- ------ --------
$ 24,700 $ 16,000 $ 6,500 $ 47,200
======== ======= ====== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Notes payable................................... $ 12,000 $ 16,000 $ 6,500 $ 34,500
Deferred tax liability.......................... 2,700 -- -- 2,700
Shareholder's equity............................ 10,000(a) -- -- 10,000
-------- ------- ------ --------
$ 24,700 $ 16,000 $ 6,500 $ 47,200
======== ======= ====== ========
</TABLE>
(a) Represents the non-cash portion of the purchase price to be paid in
360,636 shares of a newly created series of preferred stock of Citadel
Communications, the benefit of which will be contributed to the Company.
(b) Represents the acquisition of WLEV-FM in Allentown.
(c) Represents the net effect of (i) the acquisition of KBEE-FM and KFNZ-AM
in Salt Lake City for a purchase price of $2.9 million and (ii) the
acquisition of WHKK-FM in Providence for a purchase price of $4.0
million.
(2) Represents the net effect of the Pending Transactions, and the preliminary
allocation of purchase prices, based on fair values. Dollars in the table
below are shown in thousands.
<TABLE>
<CAPTION>
BOISE OTHER PENDING
ACQUISITION ACQUISITIONS(A) DISPOSITIONS(B) TRANSACTIONS
----------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ -- $ (815) $ -- $ (815)
Property and equipment, net........................... 5,000 1,000 (1,153) 4,847
Intangible assets, net................................ 27,360 5,815 (7,347) 25,828
------- ------ ------- -------
$32,360 $ 6,000 $(8,500) $ 29,860
======= ====== ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Notes payable......................................... $28,500 $ 6,000 $(8,500) $ 26,000
Other long-term obligations, less current
maturities.......................................... 500 -- -- 500
Deferred tax liability................................ 3,360 -- -- 3,360
------- ------ ------- -------
$32,360 $ 6,000 $(8,500) $ 29,860
======= ====== ======= =======
</TABLE>
(a) Represents the net effect of (i) the acquisition of WEMR-AM and WEMR-FM
in Wilkes-Barre/Scranton for a purchase price of $815,000 and (ii) the
acquisition of WSGD-FM, WDLS-FM and WCDL-AM in Wilkes-Barre/Scranton for
a purchase price of $6.0 million.
(b) Represents the disposition of WEST-AM in Allentown and the Johnstown and
State College stations.
43
<PAGE> 50
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data of the Company and Predecessor
presented below as of and for the years ended December 31, 1992, 1993, 1994,
1995 and 1996 are derived from the consolidated financial statements of the
Company and Predecessor, which consolidated financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
selected historical financial data of the Company presented below as of
September 30, 1997 and for the nine months ended September 30, 1996 and 1997 are
derived from unaudited consolidated financial statements of the Company which,
in the opinion of management, contain all necessary adjustments of a normal
recurring nature to present the financial statements in conformity with GAAP.
The consolidated financial statements of the Company as of December 31, 1995 and
1996 and for each of the years in the three-year period ended December 31, 1996
and the independent auditors' report thereon, as well as the unaudited
consolidated financial statements of the Company as of September 30, 1997 and
for the nine months ended September 30, 1996 and 1997, are included elsewhere in
this Prospectus. The financial results of the Company and Predecessor are not
comparable from year to year because of the acquisition and disposition of
various radio stations by the Company and the reorganization in July 1992 when
the Company commenced operations. The selected historical financial data below
should be read in conjunction with, and is qualified by reference to, the
Company's Consolidated Financial Statements and related notes, "Capitalization"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
COMPANY
------------------------------------------------------------------------------------
NINE MONTHS ENDED
PREDECESSOR(1)
---------------- YEAR ENDED DECEMBER 31, SEPTEMBER 30,
JANUARY 1, 1992 JULY 24, 1992 TO ----------------------------------------- ------------------
TO JULY 23, 1992 DECEMBER 31, 1992 1993 1994 1995 1996 1996 1997
---------------- ----------------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $5,702 $ 7,986 $ 21,376 $32,998 $34,112 $45,413 $31,773 $60,025
Station operating
expenses.............. 4,349 6,073 17,081 24,331 26,832 33,232 23,662 43,306
Depreciation and
amortization.......... 344 4,050 5,245 7,435 4,891 5,158 3,263 9,458
Corporate general and
administrative........ 354 378 961 2,504 2,274 3,248 1,903 2,562
-------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................ 655 (2,515) (1,911) (1,272) 115 3,775 2,905 4,699
Interest expense (2).... 364 1,029 2,637 4,866 5,242 6,155 4,177 8,214
Other income, net....... 9 31 149 657 781 414 159 401
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item.... 300 (3,513) (4,399) (5,481) (4,346) (1,966) (1,113) (3,114)
Extraordinary loss
(3)................... -- -- -- -- -- (1,769) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 300 $(3,513) $ (4,399) $(5,481) $(4,346) $(3,735) $(1,113) $(3,114)
======== ======== ======== ======== ======== ======== ======== ========
Dividend requirement for
Exchangeable Preferred
Stock................. -- -- -- -- -- -- -- 3,303
Net loss applicable to
common shares......... N/A (3,513) (4,399) (5,481) (4,346) (3,735) (1,113) (6,417)
Net loss per common
share................. N/A $ (88) $ (110) $ (137) $ (109) $ (93) $ (28) $ (160)
======== ======== ======== ======== ======== ======== ======== ========
Shares used in per share
calculation........... N/A 40,000 40,000 40,000 40,000 40,000 40,000 40,000
======== ======== ======== ======== ======== ======== ======== ========
Cash dividends declared
per share............. N/A $ -- $ -- $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Deficiency of earnings
to fixed charges
(4)................... $ -- $ 3,513 $ 4,399 $ 5,481 $ 4,346 $ 1,966 $ 1,113 $ 6,417
</TABLE>
44
<PAGE> 51
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- -------- -------- -------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 1,244 $ 857 $ 1,538 $ 1,005 $ 1,588 $ 26,700
Working capital (deficiency)................... 2,235 1,701 3,382 2,928 (4,195) 40,776
Intangible assets, net......................... 14,543 17,454 20,080 15,093 51,802 207,036
Total assets................................... 28,515 36,120 46,397 37,372 102,244 290,460
Long-term debt (including current portion)..... 22,026 30,468 47,805 43,046 91,072 150,469
Shareholder's equity (deficit)................. 4,870 3,492 (4,782) (9,249) 5,999 11,561
Book value per share........................... $ 122 $ 87 $ (120) $ (231) $ 150 $ 289
======= ======= ======== ======== ======== ============
</TABLE>
- ---------------
(1) In July 1992, the Company acquired all of the radio stations then owned or
operated by Predecessor and certain other radio stations. In 1993, Citadel
Communications was incorporated and the Company was reorganized as a wholly
owned subsidiary of Citadel Communications.
(2) Includes debt issuance costs and debt discount amortization of $0 for the
period from January 1, 1992 to July 23, 1992, $35,000 for the period from
July 24, 1992 to December 31, 1992 and $139,000, $287,000, $132,000 and
$163,000 for the years ended December 31, 1993, 1994, 1995 and 1996,
respectively, and $140,000 and $156,000 for the nine months ended September
30, 1996 and 1997, respectively.
(3) On October 9, 1996, the Company extinguished its long-term debt of $31.3
million, payable to a financial institution, and its note payable to a
related party of $7.0 million. The early retirement of the long-term debt
resulted in a $1.8 million extraordinary loss due to prepayment premiums and
the write-off of debt issuance costs.
(4) Fixed charges include interest expense on debt, amortization of financing
costs, amortization of debt discount, 33% of rent expense, and dividend
requirements with respect to the Exchangeable Preferred Stock.
45
<PAGE> 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
Company's consolidated financial statements and notes thereto included elsewhere
in this Prospectus. This Prospectus contains forward-looking statements,
including statements regarding, among other items, (i) the realization of the
Company's business strategy, (ii) the sufficiency of cash flow to fund the
Company's debt service requirements and working capital needs, (iii) anticipated
trends in the radio broadcasting industry, (iv) potential acquisitions by the
Company and the successful integration of both completed and future acquisitions
and (v) government regulation. Forward-looking statements are typically
identified by the words "believe," "expect," "anticipate," "intend," "estimate"
and similar expressions. Readers are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
contained in the forward looking statements as a result of various factors.
The principal source of the Company's revenue is the sale of broadcasting
time on its radio stations for advertising. As a result, the Company's revenue
is affected primarily by the advertising rates its radio stations charge.
Correspondingly, the rates are based upon the station's ability to attract
audiences in the demographic groups targeted by its advertisers, as measured
principally by periodic Arbitron Radio Market Reports. The number of
advertisements that can be broadcast without jeopardizing listening levels (and
the resulting ratings) is limited in part by, among other things, the format of
a particular station. Each of the Company's stations has a general
pre-determined level of on-air inventory that it makes available for
advertising, which may be different at different times of the day and tends to
remain stable over time. Much of the Company's selling activity is based on
demand for its radio stations' on-air inventory and, in general, the Company
responds to this demand by varying prices rather than by changing the available
inventory.
In the broadcasting industry, radio stations often utilize trade (or
barter) agreements to exchange advertising time for goods or services (such as
other media advertising, travel or lodging), in lieu of cash. In order to
preserve most of its on-air inventory for cash advertising, the Company
generally enters into trade agreements only if the goods or services bartered to
the Company will be used in the Company's business. The Company has minimized
its use of trade agreements and has generally sold over 90% of its advertising
time for cash. In addition, it is the Company's general policy not to preempt
advertising spots paid for in cash with advertising spots paid for in trade.
In 1996, the Company's radio stations derived approximately 87.0% of their
net broadcasting revenue from local and regional advertising in the markets in
which they operate, and the remainder resulted principally from the sale of
national advertising. Local and regional advertising is sold primarily by each
station's sales staff. To generate national advertising sales, the Company
engages a national advertising representative firm. The Company believes that
the volume of national advertising revenue tends to adjust to shifts in a
station's audience share position more rapidly than does the volume of local and
regional advertising revenue. During the year ended December 31, 1996 and the
nine months ended September 30, 1997, no single advertiser accounted for more
than 6.9% of the net revenue of any of the Company's station groups or more than
1.8% of total net revenue of the Company.
The Company's financial results are dependent on a number of factors,
including the general strength of the local and national economies, population
growth, ability to provide popular programming, local market and regional
competition, relative efficiency of radio broadcasting compared to other
advertising media, signal strength and government regulation and policies.
The Company's quarterly revenue varies throughout the year, as is typical
in the radio broadcasting industry. The Company's first calendar quarter
typically produces the lowest revenue for the year, and the second and fourth
calendar quarters generally produce the highest revenue for the year. The
advertising revenue of the Company is typically collected within 120 days of the
date on which the related advertising is aired and its corresponding revenue is
recognized. Most accrued expenses, however, are paid within 45 to
46
<PAGE> 53
60 days. As a result of this time lag, working capital requirements have
increased as the Company has grown and will likely increase further in the
future.
The primary operating expenses incurred in the ownership and operation of
radio stations include employee salaries and commissions, programming expenses
and advertising and promotion expenses. The Company also incurs and will
continue to incur significant depreciation, amortization and interest expense as
a result of completed and future acquisitions of stations, including the Pending
Acquisitions, and due to existing and future financings, including the Notes and
the Exchangeable Preferred Stock and borrowings under the Credit Facility. The
Company's consolidated financial statements tend not to be directly comparable
from period to period due to the Company's acquisition activity.
"Broadcast cash flow" consists of operating income (loss) before
depreciation, amortization and corporate expenses. "EBITDA" consists of
operating income (loss) before depreciation and amortization. Although broadcast
cash flow and EBITDA are not measures of performance calculated in accordance
with GAAP, management believes that they are useful to an investor in evaluating
the Company because they are measures widely used in the broadcast industry to
evaluate a radio company's operating performance. However, broadcast cash flow
and EBITDA should not be considered in isolation or as substitutes for net
income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP as a measure of liquidity or
profitability.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Net Revenue. Net revenue increased approximately $28.3 million or 89.3% to
$60.0 million in the period ended September 30, 1997 from $31.7 million in the
period ended September 30, 1996. The inclusion of revenue from the acquisitions
of radio stations and revenue generated from LMAs and JSAs entered into during
1996 and 1997 provided approximately $25.6 million of the increase. For stations
owned and operated over the comparable period in 1996 and 1997, net revenue
improved approximately $2.7 million or 9.8% to $30.3 million in 1997 from $27.6
million in 1996 primarily due to increased ratings and improved selling efforts.
Station Operating Expenses. Station operating expenses increased
approximately $19.6 million or 82.7% to $43.3 million in the period ended
September 30, 1997 from $23.7 million in the period ended September 30, 1996.
The increase was primarily attributable to the inclusion of station operating
expenses of the radio station acquisitions and the LMAs and JSAs entered into
during 1996 and 1997.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased approximately $8.7 million or 108.8% to $16.7 million in the
period ended September 30, 1997 from $8.0 million in the period ended September
30, 1996. As a percentage of net revenue, broadcast cash flow increased to 27.8%
in the period ended September 30, 1997 from 25.2% in the period ended September
30, 1996.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased approximately $0.7 million or 36.8% to $2.6
million in the period ended September 30, 1997 from $1.9 million in the period
ended September 30, 1996. The increase was primarily attributable to radio
station acquisitions.
EBITDA. As a result of the factors described above, EBITDA increased
approximately $8.0 million or 131.1% to $14.1 million in the period ended
September 30, 1997 from $6.1 million in the period ended September 30, 1996.
For the nine months ended September 30, 1997, net cash provided by
operations increased to $4.1 million, compared to approximately $0.4 million for
the 1996 period due to an increase in volumes as a result of recent
acquisitions.
For the nine months ended September 30, 1997, net cash used in investing
activities, primarily for station acquisitions, was $133.3 million, compared to
$32.0 million in the prior year period.
47
<PAGE> 54
For the nine months ended September 30, 1997, net cash provided by
financing activities was $154.3 million, primarily from proceeds from the
issuance of notes payable and preferred stock in such period, compared to $32.5
million in the prior year period.
Depreciation and Amortization. Depreciation and amortization expense
increased approximately $6.2 million or 187.9% to $9.5 million in the period
ended September 30, 1997 from $3.3 million in the period ended September 30,
1996, primarily due to radio station acquisitions consummated during 1996 and
1997.
Interest Expense. Interest expense increased approximately $4.0 million or
95.2% to $8.2 million in the period ended September 30, 1997 from $4.2 million
in the period ended September 30, 1996, primarily due to interest expense
associated with additional borrowings to fund acquisitions consummated during
1996 and 1997.
Net Loss. As a result of the factors described above, net loss increased
approximately $2.0 million or 181.8% to $3.1 million in the period ended
September 30, 1997 from $1.1 million in the period ended September 30, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Revenue. Net revenue increased approximately $11.3 million or 33.1% to
$45.4 million in 1996 from $34.1 million in 1995. The inclusion of revenue from
the acquisitions of radio stations and revenue generated from LMAs and JSAs
entered into during 1996 provided approximately $7.8 million of the increase.
For stations owned and operated over the comparable period in 1995 and 1996, net
revenue improved approximately $3.5 million or 11.8% to $34.2 million in 1996
from $30.6 million in 1995 primarily due to increased ratings and improved
selling efforts.
Station Operating Expenses. Station operating expenses increased
approximately $6.4 million or 23.9% to $33.2 million in 1996 from $26.8 million
in 1995. The increase was primarily attributable to the inclusion of station
operating expenses of the radio station acquisitions and the LMAs and JSAs
entered into during 1996.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow increased approximately $4.9 million or 67.1% to $12.2 million in 1996
from $7.3 million in 1995. As a percentage of net revenue, broadcast cash flow
increased to 26.9% in 1996 from 21.4% in 1995.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased approximately $0.9 million or 39.1% to $3.2
million in 1996 from $2.3 million in 1995. Substantially all of the increase was
due to professional expenses incurred in 1996 related to the Company's capital
raising activities and a lawsuit between the Company and Tele-Media and certain
of its shareholders and officers which arose in connection with Tele-Media's
decision not to consummate a sale of its radio stations to the Company pursuant
to a 1995 agreement. In connection with the Tele-Media Acquisition, the
litigation was settled and discontinued.
EBITDA. As a result of the factors described above, EBITDA increased
approximately $3.9 million or 78.0% to $8.9 million in 1996 from $5.0 million in
1995.
Net cash used in operations increased to approximately $1.4 million for the
year ended December 31, 1996 from $0.4 million in 1995. This increase resulted
primarily from the reduction in the net loss before extraordinary item and gain
on sale of property in 1996, and was partially offset by an increase in accounts
receivable.
Net cash used in investing activities for the year ended December 31, 1996,
primarily for station acquisitions and a note receivable advance, was $61.2
million, compared to net cash provided by investing activities of $4.8 million
in the prior year.
Net cash provided by financing activities for the year ended December 31,
1996 was approximately $63.1 million, due primarily to proceeds from the
issuance of notes payable and advances and a capital contribution from the
parent company, compared to net cash used in financing activities of $4.9
million in the prior year.
48
<PAGE> 55
Depreciation and Amortization. Depreciation and amortization expense increased
approximately $0.3 million or 6.1% to $5.2 million in 1996 from $4.9 million in
1995, primarily due to radio station acquisitions consummated during 1996.
Interest Expense. Interest expense increased approximately $1.0 million or
19.2% to $6.2 million in 1996 from $5.2 million in 1995, primarily due to
interest expense associated with additional borrowings to fund acquisitions
consummated during 1996.
Net Loss. As a result of the factors described above, net loss decreased
approximately $0.6 million or 12.2% to $3.7 million in 1996 from $4.3 million in
1995. Included in the net loss for 1996 is approximately $0.4 million of
interest earned on loans advanced by the Company to Deschutes prior to the
acquisition of Deschutes by Citadel Communications and a $1.8 million
extraordinary loss related to the repayment of long-term debt.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Revenue. Net revenue increased approximately $1.1 million or 3.3% to
$34.1 million in 1995 from $33.0 million in 1994. The inclusion of revenue from
the acquisitions of radio stations entered into during 1994 provided
approximately $3.5 million of the increase. This increase was offset by a
reduction of $3.5 million of revenue from the Company's Billings and Bozeman
stations that were disposed of in February 1995. For stations owned and operated
over the comparable period in 1994 and 1995, net revenue improved approximately
$1.1 million or 5.2% to $22.2 million in 1995 from $21.1 million in 1994
primarily due to increased ratings and improved selling efforts.
Station Operating Expenses. Station operating expenses increased
approximately $2.5 million or 10.3% to $26.8 million in 1995 from $24.3 million
in 1994. Approximately $1.6 million of the increase was attributable to
operating expenses incurred by the Company's Salt Lake City stations in relation
to station format and call letter changes that occurred in May 1995, while the
remainder was primarily due to the inclusion of station operating expenses of
the radio station acquisitions and the LMAs and JSAs entered into during 1994.
Broadcast Cash Flow. As a result of the factors described above, broadcast
cash flow decreased approximately $1.4 million or 16.1% to $7.3 million in 1995
from $8.7 million in 1994. As a percentage of net revenue, broadcast cash flow
decreased to 21.4% in 1995 from 26.4% in 1994.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses decreased approximately $0.2 million or 8.0% to $2.3
million in 1995 from $2.5 million in 1994. The decrease is primarily a result of
professional fees related to the Company's capital raising activities that were
incurred in 1994.
EBITDA. As a result of the factors described above, EBITDA decreased
approximately $1.2 million or 19.4% to $5.0 million in 1995 from $6.2 million in
1994.
Net cash used in operations for the year ended December 31, 1995 was
approximately $0.4 million, compared to net cash provided by operations of
approximately $0.3 million in the prior year. This decrease resulted primarily
from the reduction in the net loss, depreciation and amortization, accounts
receivable and accrued liabilities as a result of the Montana station
dispositions that occurred in February 1995.
Net cash provided by investing activities for the year ended December 31,
1995, primarily from the proceeds from the sale of the Montana stations, was
$4.8 million, compared to net cash used by investing activities, primarily for
station acquisitions, of $14.0 million in the prior year.
Net cash used by financing activities for the year ended December 31, 1995
was approximately $4.9 million, due primarily to principal payment on notes
payable from the proceeds of the sale of the Montana stations, compared to net
cash provided by financing activities of $14.4 million in the prior year, due
primarily to proceeds from the issuance of notes payable for station
acquisitions partially offset by a capital distribution to the parent company.
49
<PAGE> 56
Depreciation and Amortization. Depreciation and amortization expense
decreased approximately $2.5 million or 33.8% to $4.9 million in 1995 from $7.4
million in 1994, primarily due to the inclusion in 1994 of the amortization of
certain intangible assets, related to acquisitions consummated during 1994, with
amortizable lives of less than one year.
Interest Expense. Interest expense increased approximately $0.3 million or
6.1% to $5.2 million in 1995 from $4.9 million in 1994, primarily due to
interest expense associated with additional borrowings to fund acquisitions
consummated during 1994.
Net Loss. As a result of the factors described above, net loss decreased
approximately $1.2 million or 21.8% to $4.3 million in 1995 from $5.5 million in
1994. Included in the net loss for 1995 was an approximate $0.8 million gain
related to the dispositions of the Company's Billings and Bozeman stations.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1997, net cash provided by
operations increased to $4.1 million, compared to approximately $0.4 million for
the 1996 period due to increased depreciation and amortization charges included
in operations. Net cash used in operations increased to approximately $1.4
million for the year ended December 31, 1996 from $0.4 million in 1995. This
increase resulted primarily from the reduction in the net loss in 1996 and an
increase in accounts receivable.
For the nine months ended September 30, 1997, net cash used in investing
activities, primarily for station acquisitions, was $133.3 million, compared to
$32.0 million in the prior year period. Net cash used in investing activities
for the year ended December 31, 1996, primarily for station acquisitions, was
$61.2 million, compared to net cash provided by investing activities of $4.8
million in the prior year.
For the nine months ended September 30, 1997, net cash provided by
financing activities was $154.3 million, primarily from proceeds from the
issuance of notes payable and preferred stock in such period, compared to $32.5
million in the prior year period. Net cash provided by financing activities for
the year ended December 31, 1996 was approximately $63.1 million, due primarily
to proceeds from the issuance of notes payable, compared to net cash used in
financing activities of $4.9 million in the prior year.
The Company's acquisition strategy has required, and will continue in the
foreseeable future to require, a significant portion of the Company's capital
resources. The Company and its parent, Citadel Communications, have financed the
Company's past acquisitions through bank financing, private sales of equity and
debt securities and proceeds from asset sales. The Company frequently evaluates
potential acquisitions of stations and station groups, including station swap
opportunities. The Company expects that any required financing for acquisitions
will be provided through the incurrence of debt, the sale of equity securities,
internally generated funds or a combination of the foregoing. There can be no
assurance, however, that external financing will be available to the Company on
terms considered favorable by management or that cash flow from operations will
be sufficient to fund the Company's acquisition strategy.
The Company used the net proceeds from the Original Offerings to, among
other things, fund certain acquisitions, including related acquisition costs,
and to reduce outstanding indebtedness. See "Risk Factors -- Limitations on
Acquisition Strategy; Antitrust Considerations."
The Credit Facility, the Notes Indenture, the Certificate Of Designation
and the Exchange Indenture contain certain covenants that restrict the Company
from taking various actions, including, subject to specified exceptions, the
incurrence of additional indebtedness, the granting of additional liens, the
making of investments, the payment of dividends and other restricted payments,
mergers, acquisitions and other fundamental corporate changes, capital
expenditures and transactions with affiliates. The Credit Facility also contains
certain financial covenants that require the Company to meet certain financial
tests and minimum ratios, including a minimum interest coverage ratio and a
minimum fixed charges coverage ratio. See "Description of Indebtedness,"
"Description of the Notes" and "Description of the Exchangeable Preferred Stock
and Exchange Debenture."
50
<PAGE> 57
Management believes that the net proceeds from the Original Offerings
together with cash from operating activities and revolving loans under the
Credit Facility should be sufficient to permit the Company to meet its financial
obligations and to fund its operations for the next twelve months. In addition
to acquisitions and debt service, the Company's principal liquidity requirements
will be for working capital and general corporate purposes, including capital
expenditures, which are not expected to be material in amount. In addition to
debt service requirements under the Credit Facility, which are described under
"Description of Indebtedness -- Existing Loan Agreement," the Company is
required to pay interest on the Notes. The Exchangeable Preferred Stock does not
require cash dividends through July 1, 2002 since the Company may issue
additional shares of Exchangeable Preferred Stock in lieu of cash dividends.
Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share" ("SFAS No. 128"). This statement establishes
standards for computing and presenting earnings per share ("EPS"), and
supersedes APB Opinion No. 15. The Statement replaces primary EPS with basic EPS
and requires dual presentation of basic and diluted EPS. The Statement is
effective for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. After adoption, all prior period EPS data
shall be restated to conform to SFAS No. 128. The pro forma effect of the
Company adopting SFAS No. 128 is that both basic and diluted EPS would have been
$(137) for the year ended December 31, 1994, $(109) for the year ended December
31, 1995 and $(93) for the year ended December 31, 1996 and $(28) for the nine
months ended September 30, 1996 and $(160) for the nine months ended September
30, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes the definition of and requirements for
disclosure of comprehensive income and becomes effective for the Company for the
year ending December 31, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement establishes standards for
disclosure about operating segments in annual financial statements and selected
information in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." The new standard becomes effective for the
Company for the year ending December 31, 1998, and requires that comparative
information from earlier years be restated to conform to the requirements of
this standard.
51
<PAGE> 58
BUSINESS
GENERAL
The Company is a radio broadcasting company that focuses on acquiring,
developing and operating radio stations in mid-sized markets. Upon completion of
the Pending Transactions, the Company will own or operate 68 FM and 31 AM radio
stations in 18 markets and will have the right to construct one additional FM
station, and the Company's stations will comprise the leading radio station
group in terms of revenue share in 13 of those markets.
The Company's primary strategy is to secure and maintain a leadership
position in the markets it serves and to expand into additional mid-sized
markets where it believes a leadership position can be obtained. Upon entering a
market, the Company seeks to acquire additional stations which, when integrated
with its existing operations, allow it to reach a wider range of demographic
groups that appeal to advertisers, enhance operating performance and achieve
substantial cost savings. Since January 1, 1993, the Company has completed 25
station acquisitions in markets where it already owned stations, and it is
currently party to agreements to acquire five additional stations in markets in
which it currently owns radio stations.
The Company chooses programming formats for its stations that are intended
to maximize each station's cash flow. The Company's stations broadcast a number
of formats including country, news/talk, adult contemporary, rock and oldies,
each of which is designed to appeal to a specific audience in each local market.
The Company's portfolio of stations is diversified in terms of format, target
demographics and geographic location. Because of the size of its portfolio and
its individual radio station groups, the Company believes it is not unduly
reliant upon the performance of any single station. The Company also believes
that the diversity of its portfolio of radio stations helps insulate the Company
from downturns in specific markets and changes in format preferences.
The Company believes that mid-sized markets represent attractive
opportunities because, as compared to the 50 largest markets in the United
States, they are generally characterized by (i) lower radio station purchase
prices as a multiple of broadcast cash flow, (ii) fewer sophisticated and
well-capitalized competitors, including both radio and competing advertising
media such as newspapers and television, and (iii) less direct format
competition due to the smaller number of stations in any given market. The
Company believes that the attractive operating characteristics of mid-sized
markets coupled with the opportunity to establish or expand in-market radio
station groups create the potential for substantial revenue growth and cost
efficiencies. As a result, management seeks to achieve broadcast cash flow
margins that are comparable to the higher margins that historically were
generally achievable only in the 50 largest markets.
STATION PORTFOLIO
The Company currently owns 59 FM and 26 AM radio stations, has the right to
construct one additional FM radio station, sells advertising on behalf of four
FM and five AM radio stations pursuant to JSAs and provides programming and
sells advertising on behalf of two FM radio stations pursuant to LMAs as well as
certain other radio stations pending their acquisition by the Company. The
Company has entered into agreements to purchase the three FM and two AM
In-Market Acquisition Stations and the four FM and one AM Boise Stations. In
addition, the Company has entered into agreements to sell four FM and three AM
radio stations. Upon completion of the Pending Transactions, the Company will
own 62 FM and 26 AM radio stations in 18 mid-sized markets, operate six FM and
five AM additional radio stations in its markets pursuant to LMAs or JSAs and
have the right to construct one additional FM radio station.
52
<PAGE> 59
The following table sets forth certain information about stations owned by
or operated by the Company after giving effect to the Pending Transactions.
<TABLE>
<CAPTION>
STATION
STATION AUDIENCE RADIO
RANK IN SHARE IN GROUP RADIO GROUP
RADIO GROUP/ STATION PRIMARY PRIMARY PRIMARY MARKET RANK IN
STATION CALL MSA PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC REVENUE MARKET
LETTERS(1) RANK FORMAT TARGET(2) TARGET(3) TARGET(3) SHARE(4) REVENUE(4)
- --------------------- ---- ------------------------ ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
EXISTING MARKETS:
ALBUQUERQUE, NM...... 71 58.0% 1
Owned
KKOB-AM............ News/Talk A 25-54 4t 5.8%
KKOB-FM............ Adult Contemporary W 25-54 3t 7.2
KMGA-FM............ Adult Contemporary W 25-54 2 7.6
KHTL-AM............ News/Talk A 35-64 29t 0.4
KTBL-FM............ Country A 25-54 9t 5.3
KHFM-FM............ Classical A 25-54 11t 3.7
KNML-AM............ Sports M 25-54 19t 1.0
KRST-FM............ Country A 25-54 1 10.9
COLORADO SPRINGS,
CO................. 95 63.5% 1
Owned
KKFM-FM............ Classic Rock M 25-54 1 16.1%
KKMG-FM............ Contemporary Hits W 18-34 1 17.0
KKLI-FM............ Soft Adult Contemporary W 25-54 1 10.6
Operated
KVUU-FM(5)......... Adult Contemporary W 18-49 4t 7.9
KSPZ-FM(5)......... Oldies A 25-54 6 6.0
KVOR-AM(5)......... News/Talk A 25-54 11t 3.1
KTWK-AM(5)......... Nostalgia A 25-54 20t 0.5
MODESTO, CA(6)....... 122 62.2% 1
Owned
KATM-FM............ Country A 25-54 1 18.6%
KHKK-FM/ KDJK-
FM(7)............ Rock Oldies A 25-54 5 5.2
KBUL-AM............ Sports M 25-54 6t 1.3
KHOP-FM............ Album Oriented Rock A 18-34 2 9.7
RENO, NV............. 131 47.4% 1
Owned
KBUL-FM............ Country A 25-54 1 13.5%
KKOH-AM............ News/Talk A 25-54 5 7.8
KNEV-FM............ Adult Contemporary W 18-49 2 9.3
KNHK-FM............ Rock Oldies A 25-54 2 9.8
SALT LAKE CITY, UT... 35 22.7% 1
Owned
KFNZ-AM............ Sports M 25-54 10t 4.3%
KUBL-FM............ Country A 25-54 6 5.4
KBEE-FM............ Adult Contemporary W 18-49 3 8.4
KCNR-AM............ Children's C 4-11 -- --
KBER-FM............ Album Oriented Rock A 18-34 7t 5.0
KENZ-FM............ Rock Alternative A 18-34 4 7.7
SPOKANE, WA.......... 87 53.6% 1
Owned
KDRK-FM............ Country A 25-54 4t 8.2%
KAEP-FM............ Rock Alternative A 18-34 2 13.1
KJRB-AM............ Talk A 35-64 12t 2.4
KGA-AM............. News/Talk A 25-54 10 3.2
Operated
KKZX-FM(5)......... Classic Rock M 25-54 1 16.9
KEYF-AM/FM(5)(7) Oldies A 25-54 4t 8.2
KUDY-AM(5)......... Talk/Religion A 25-54 -- --
BILLINGS, MT......... 238 58.3% 1
Owned
KCTR-FM/
KDWG-AM(7)....... Country A 25-54 1 23.7%
KKBR-FM............ Oldies A 25-54 3 13.4
KBBB-FM............ Adult Contemporary W 25-54 5t 6.4
KMHK-FM............ Rock Oldies A 25-54 5 7.2
</TABLE>
53
<PAGE> 60
<TABLE>
<CAPTION>
STATION
STATION AUDIENCE RADIO
RANK IN SHARE IN GROUP RADIO GROUP
RADIO GROUP/ STATION PRIMARY PRIMARY PRIMARY MARKET RANK IN
STATION CALL MSA PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC REVENUE MARKET
LETTERS(1) RANK FORMAT TARGET(2) TARGET(3) TARGET(3) SHARE(4) REVENUE(4)
- --------------------- ---- ------------------------ ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
EUGENE, OR........... 146 32.4% 1
Owned
KUGN-AM............ News/Talk A 35-64 8 3.8%
KUGN-FM............ Country A 25-54 2 9.1
KEHK-FM............ Rock Oldies A 25-54 6t 6.4
MEDFORD, OR.......... 201 55.3% 1
Owned
KAKT-FM............ Country A 25-54 8 4.8%
KBOY-FM............ Classic Rock M 25-54 2 11.3
KCMX-AM............ News/Talk A 35-64 8t 3.5
KCMX-FM............ Adult Contemporary W 25-54 2t 7.8
KTMT-AM............ Sports M 25-54 10t 1.9
KTMT-FM............ Contemporary Hits W 18-34 1t 16.0
TRI-CITIES, WA....... 200 40.2% 1
Owned
KEYW-FM............ Adult Contemporary A 25-54 6t 7.0%
KFLD-AM............ Sports M 25-54 7t 4.2
KORD-FM............ Country A 25-54 4t 7.8
KXRX-FM............ Album Oriented Rock M 18-34 1 24.2
KTHK-FM............ Rock Oldies A 25-54 13t 1.6
PROVIDENCE, RI....... 31 36.4% 1
Owned
WPRO-AM............ News/Talk A 25-54 8 2.9%
WPRO-FM............ Contemporary Hits A 18-49 1 10.8
WWLI-FM............ Adult Contemporary W 25-54 1 13.1
WSKO-AM............ Sports M 25-54 18t 1.3
WXEX-FM............ Rock A 18-34 10 3.5
WHKK-FM............ Rock Oldies A 25-54 9 2.5
ALLENTOWN/ BETHLEHEM,
PA................. 65 24.1% 2
Owned
WCTO-FM............ Country A 25-54 3 12.2%
WLEV-FM............ Adult Contemporary W 25-54 4 6.9
HARRISBURG, PA....... 73 12.2% 4
Owned
WRKZ-FM............ Country A 25-54 3 7.4%
YORK, PA............. 103 11.1% 3
Owned
WQXA-FM............ Rock M 18-34 2 14.8%
WQXA-AM............ Nostalgia A 35-64 -- --
WILKES-BARRE/
SCRANTON, PA....... 62 34.1% 2
Owned
WMGS-FM............ Adult Contemporary W 25-54 2 14.0%
WARM-AM(8)......... News/Talk A 25-54 20t 1.0
WZMT-FM(8)......... Album Oriented Rock M 18-34 2 17.6
WAZL-AM............ Nostalgia A 35-64 -- --
WEMR-FM(8)(9)(10).. Contemporary Hits W 18-34 3 10.8
WSGD-FM/
WDLS-FM(7)(9)(10).. Oldies A 25-54 10t 2.4
WCDL-AM(9)(10)..... Country A 35-64 -- --
WEMR-AM(9)(10)..... Country A 35-64 -- --
Operated
WKQV-AM(11)........ Simulcast with WARM-AM
WKQV-FM(11)........ Simulcast with WZMT-FM
WBHT-FM(11)........ Simulcast with WEMR-FM
QUINCY, IL........... NA NA NA
Owned
WQCY-FM............ Country A 25-54 NA NA
WMOS-FM............ Album Oriented Rock M 18-34 NA NA
WTAD-AM............ News/Talk A 25-54 NA NA
WBRJ-FM............ News/Talk A 25-54 NA NA
</TABLE>
54
<PAGE> 61
<TABLE>
<CAPTION>
STATION
STATION AUDIENCE RADIO
RANK IN SHARE IN GROUP RADIO GROUP
RADIO GROUP/ STATION PRIMARY PRIMARY PRIMARY MARKET RANK IN
STATION CALL MSA PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC DEMOGRAPHIC REVENUE MARKET
LETTERS(1) RANK FORMAT TARGET(2) TARGET(3) TARGET(3) SHARE(4) REVENUE(4)
- --------------------- ---- ------------------------ ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
LITTLE ROCK,
AR(12)............. 82 37.9% 1
Owned
KARN-AM/ KARN-FM/
KKRN-FM/
KRNN-AM(7)....... News/Talk/Sports A 25-54 10t 3.5%
KIPR-FM............ Urban A 18-49 3 9.6
KESR-FM............ Contemporary Hits A 18-34 7 4.7
KLAL-FM............ Modern Adult A 18-49 14t 2.7
Contemporary
KAFN-FM............ NA NA NA NA
KLIH-AM............ Gospel A 25-54 19t 0.8
KURB-FM............ Adult Contemporary A 25-54 3 9.5
KVLO-FM............ Soft Adult Contemporary W 25-54 6 6.3
NEW MARKETS:
BOISE, ID(10)(13).... 129 39.9% 1
Owned(10)(13)
KIZN-FM............ Country A 25-54 1 8.7%
KZMG-FM............ Contemporary Hits W 18-34 3 12.3%
KKGL-FM............ Classic Rock M 25-54 -- --
KQFC-FM............ Country A 25-54 3 7.7%
KBOI-AM............ News/Talk A 35-64 2t 10.1%
</TABLE>
- ---------------
t -- Tied with one or more other radio stations.
NA -- Information not available.
(1) Does not include information for stations under contract to be sold by the
Company or for a market if the Company has entered into an agreement to
sell all of its stations in such market.
(2) The letter "A" designates adults, the letter "W" designates women, the
letter "M" designates men and the letter "C" designates children. The
numbers following each letter designate the range of ages included within
the demographic group.
(3) The generally accepted method of measuring the relative size of a radio
station's audience is by reference to total persons, within specific
demographic groups, Monday - Sunday, 6:00 a.m. - 12:00 midnight Average
Quarter Hour ("AQH") shares, as published by Arbitron. Arbitron
periodically samples radio listeners in defined market areas, principally
through the use of diaries returned by selected listeners. A station's AQH
share is a percentage computed by dividing the average number of persons
listening to a particular station for at least five minutes during an
average quarter hour in a given time period by the average number of such
persons for all stations in the market area. Station Rank by Primary
Demographic Target is the ranking of a station among all stations in its
target demographic group based upon the station's AQH shares. Arbitron
compiles ratings data for various demographic groups. All information
concerning ratings and audience listening information used in this
Prospectus is given pursuant to the method described above and derived from
the Arbitron Reports.
(4) Radio Group Market Revenue Share was derived for each radio group by
summing the market share of revenue of each station included within the
group. Radio Group Rank in Market Revenue is the ranking, by radio group
market revenue, of each of the Company's radio groups in its market among
all other radio groups in such market.
(5) The Company sells advertising on behalf of the listed stations under a JSA.
(6) KBUL-AM, KHKK-FM/KDJK-FM, KHOP-FM and KATM-FM also broadcast in the
adjacent Stockton, California market where, in the Spring 1997 Arbitron
Report, they ranked 13, 5, 2 and 1 in their primary demographic targets,
respectively.
(7) Combined stations are simulcast. Rank and audience share information is
given on a combined basis.
(8) WARM-AM is simulcast with WKQV-AM. WZMT-FM is simulcast with WKQV-FM.
WEMR-FM is simulcast with WBHT-FM. Rank and audience share information is
given on a combined basis.
(9) The listed stations are In-Market Acquisition Stations. Pending their
acquisition by the Company, the Company currently operates all of the
In-Market Acquisition Stations under LMAs.
(10) The consummation of each of the Pending Acquisitions is subject to certain
conditions, including FCC approval. Although the Company believes these
closing conditions are customary for transactions of this type and will be
satisfied, there can be no assurance that such closing conditions will be
satisfied.
(11) WKQV-FM, WKQV-AM and WBHT-FM in Wilkes-Barre/Scranton are operated pursuant
to an LMA or a JSA, and the Company has the option to purchase these
stations.
(12) KAFN-FM is not yet operational. Three of the stations serve the surrounding
communities outside of Little Rock.
(13) Pending their acquisition by the Company, the Company currently operates
all of the Boise Stations under LMA's.
55
<PAGE> 62
CORPORATE HISTORY
The Company was incorporated in Nevada in 1991, and in 1992 it acquired all
of the radio stations then owned or operated by Predecessor and certain other
radio stations. Lawrence R. Wilson, Chief Executive Officer of the Company, was
a co-founder and one of the two general partners of Predecessor. In 1993,
Citadel Communications was incorporated and the Company was reorganized as a
wholly owned subsidiary of Citadel Communications. The Company acquired
ownership of additional radio stations in each of 1993, 1994, 1996 and 1997.
Effective as of January 1, 1997, Citadel Communications acquired Deschutes,
which was operated as a sister company to the Company until June 20, 1997 when
Deschutes was merged with and into the Company in the Subsidiary Merger. Upon
consummation of the Tele-Media Acquisition, Tele-Media was merged with and into
the Company. Citadel License holds the Company's radio broadcast licenses and
does not conduct any independent business operations.
The Company's principal executive offices are located at 1256 E. Dines
Point Road, Greenbank, Washington 98253, and its telephone number is (360)
678-1212.
OPERATING STRATEGY
In order to maximize its radio stations' appeal to advertisers, and thus
the revenue and cash flow of its stations, the Company has implemented the
following strategies:
Ownership of Strong Station Groups. The Company seeks to secure and
maintain a leadership position in the markets it serves through ownership of
multiple stations in a market. By strategically coordinating programming,
promotional and selling strategies among a group of local stations, the Company
attempts to capture a wide range of demographic groups which appeal to
advertisers. The Company believes that the diversification of its programming
formats and its collective inventory of available advertising time strengthen
relationships with advertisers and increase the Company's ability to maximize
the value of its inventory.
The Company believes that its ability to leverage the existing programming
and sales resources of its strong station groups enables it to enhance the
growth potential of both new and underperforming stations while reducing the
risks associated with undertaking means of improving station performance,
including launching new formats. The Company also believes that operating
leading station groups allows it to attract and retain talented local management
teams, on-air personalities and sales personnel, which it believes are essential
to operating success. Furthermore, the Company seeks to achieve substantial cost
savings through the consolidation in each of its markets of facilities,
management, sales and administrative personnel and operating resources (such as
on-air talent, programming and music research) and through the reduction of
other redundant expenses. The Company believes that having multiple stations in
a market also enhances its ability to sell the advantages of radio advertising
versus other advertising media.
Aggressive Sales and Marketing. The Company seeks to maximize its share of
local advertising revenue in each of its markets by implementing and maintaining
strong sales and marketing programs. The Company provides extensive training for
its sales personnel through in-house sales and time management programs, and it
retains various independent consultants who hold frequent seminars for and are
available for consultation with the Company's sales personnel. The Company also
emphasizes regular, informal exchanges of ideas among its management and sales
personnel across its various markets. Because advertising time is perishable,
the Company seeks to maximize its revenue through the utilization of
sophisticated inventory management techniques that allow it to provide its sales
personnel with frequent price adjustments based on regional and local market
conditions. To further strengthen its relationship with advertisers, the Company
also offers and markets its ability to create customer traffic through on-site
events staged at, and broadcast from, an advertiser's business.
Targeted Programming. To maintain or improve its position in each market,
the Company combines extensive market research with an assessment of its
competitors' vulnerabilities in order to identify significant and sustainable
target audiences. The Company then tailors the programming, marketing and
promotion of each station to maximize its appeal to its target audience. Within
each market, the Company attempts to build strong franchises through (i) the
creation of distinct, highly visible profiles for its on-air personalities,
particularly those broadcasting during morning "drive time" traditionally
between 6:00 a.m. and 10:00 a.m.,
56
<PAGE> 63
(ii) the formulation of recognizable "brand names" for select stations such as
the "Bull" and "Cat Country" and (iii) active involvement in community events
and charities. The Company has achieved particular success in programming
country formats and currently operates the leading country station in ten of its
13 existing markets where it programs country music.
Decentralized Operations. The Company believes that radio is primarily a
local business and that much of its success is the result of the efforts of
regional and local management and staff. Accordingly, the Company decentralizes
much of its operations to those levels. Each of the Company's regional and local
station groups is managed by a team of experienced broadcasters who understand
the musical tastes, demographics and competitive opportunities of the particular
market. Regional and local managers are responsible for preparing annual
operating budgets, and a portion of their compensation is linked to meeting or
surpassing operating targets. Corporate management approves each station group's
annual operating budget and imposes strict financial reporting requirements to
track station performance. Corporate management is responsible for long range
planning, establishing Company policies and serving as a resource to local
management. The Company has implemented local sales reporting systems at each
station to provide local and corporate management with daily sales information.
ACQUISITION STRATEGY
In February 1996, as a result of the passage of the Telecommunications Act,
radio broadcasting companies were permitted to increase their ownership of
stations within a single market from four to a maximum of between five and eight
stations, depending on market size. The Telecommunications Act also eliminated
the national ownership restriction that generally had limited companies to the
ownership of no more than 40 stations (20 AM and 20 FM) throughout the United
States. As the Company has achieved a leading position in most of the markets it
currently serves, the Company expects that, in addition to acquiring additional
radio stations in existing markets as permitted by the Telecommunications Act,
it will emphasize the acquisition of additional radio stations in new markets
which present opportunities for the Company to apply its operating strategies.
The Company believes that such acquisitions will enable it to achieve, among
other things, greater size and geographic diversification. The Company
anticipates that it will continue to focus on mid-sized markets rather than
attempt to expand into larger markets. Although competition among potential
purchasers for suitable radio station acquisitions is intense throughout the
United States, the Company believes that less competition exists, particularly
from the larger radio operators, in mid-sized markets as compared to larger
markets, affording the Company relatively more attractive acquisition
opportunities in these markets. There can be no assurance, however, that the
Company will be able to identify suitable and available acquisition
opportunities or that it will be able to consummate any such acquisition
opportunities.
In evaluating acquisition opportunities in new markets, the Company
assesses its potential, over time, to build leading radio station groups in
those markets. The Company believes that the creation of strong station groups
in local markets is essential to operating success and generally will not
consider entering a new market unless it believes it can acquire multiple
stations in the market. The Company also analyzes a number of additional factors
which it believes are important to its success, including the number and quality
of commercial radio signals broadcasting in the market, the nature of the
competition in the market, the Company's ability to improve the operating
performance of the radio station or stations under consideration and the general
economic conditions of the market.
The Company believes that its acquisition strategy, if properly
implemented, could have a number of benefits, including (i) diversification of
revenue and broadcast cash flow across a greater number of stations and markets,
(ii) improved broadcast cash flow margins through the consolidation of
facilities and the elimination of redundant expenses, (iii) enhanced utilization
of its senior management team, (iv) improved leverage in various key vendor
negotiations, (v) greater appeal to top industry management talent and (vi)
increased overall scale which should facilitate the Company's capital raising
activities.
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<PAGE> 64
RADIO INDUSTRY OVERVIEW
Radio stations generate the majority of their revenue from the sale of
advertising time to local and national spot advertisers and national network
advertisers. Radio serves primarily as a medium for local advertising. During
the past decade, local advertising revenue as a percentage of total radio
advertising revenue has ranged from approximately 74% to 78%. The growth in
total radio advertising revenue tends to be fairly stable and has generally
grown at a rate faster than the Gross Domestic Product (the "GDP"). Total radio
advertising revenue in 1996 of $12.4 billion represented an 8.2% increase over
1995, as reported by the Radio Advertising Bureau ("RAB").
Radio is considered an efficient means of reaching specifically identified
demographic groups. Stations are typically classified by their on-air format,
such as country, adult contemporary, oldies or news/talk. A station's format and
style of presentation enable it to target certain demographic and psychographic
groups. By capturing a specific listening audience share of a market's radio
audience, with particular concentration in a targeted demographic group, a
station is able to market its broadcasting time to advertisers seeking to reach
a specific audience. Advertisers and stations utilize data published by audience
measuring services, such as Arbitron, to estimate how many people within
particular geographical markets and demographic groups listen to specific
stations.
Stations determine the number of advertisements broadcast hourly that will
maximize available revenue dollars without jeopardizing listening levels.
Although the number of advertisements broadcast during a given time period may
vary, the total number of advertisements broadcast on a particular station
generally does not vary significantly from year to year.
A station's local sales staff generates the majority of its local and
regional advertising sales through direct solicitations of local advertising
agencies and businesses. To generate national advertising sales, a station will
engage a firm that specializes in soliciting radio advertising sales on a
national level. National sales representatives obtain advertising principally
from advertising agencies located outside the station's market and receive
commissions based on the revenue from the advertising obtained.
According to the RAB's Radio Marketing Guide and Fact Book for Advertisers,
1997, radio reaches approximately 95% of all Americans over the age of 12 each
week. More than one-half of all radio listening is done outside the home, in
contrast to other advertising mediums, and three out of four adults are reached
by car radio each week. The average listener spends approximately three hours
and 20 minutes per day listening to radio. The highest portion of radio
listenership occurs during the morning, particularly between the time a listener
wakes up and the time the listener reaches work. This morning "drive time"
period reaches more than 80% of people over 12 years of age and, as a result,
radio advertising sold during this period achieves premium advertising rates.
Radio listeners have gradually shifted over the years from AM (amplitude
modulation) to FM (frequency modulation) stations. FM reception, as compared to
AM, is generally clearer and provides greater tonal range and higher fidelity.
FM's listener share is now in excess of 75%, despite the fact that the number of
AM and FM commercial stations in the United States is approximately equal.
STATION PORTFOLIO
The following is a description of each of the radio stations currently
owned or operated by the Company, the In-Market Acquisition Stations and the
Boise Stations and the markets they serve. The stations owned by the Company
include those acquired in January 1997 when Deschutes was acquired by Citadel
Communications and those acquired in July 1997 when Tele-Media was acquired by
the Company. Information is not given for stations under contract to be sold by
the Company or for a market if the Company has entered into an agreement to sell
all of its stations in such market. Market revenue information is given for the
first six months of 1997 where available.
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<PAGE> 65
CURRENTLY OWNED OR OPERATED STATIONS AND THE IN-MARKET ACQUISITION STATIONS
Albuquerque, New Mexico. The Company owns five FM and three AM radio
stations in Albuquerque.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED/LMA TARGET TARGET
- ------------------------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
KKOB-AM........................ News/Talk 1994 A 25-54 4(tie)
KKOB-FM........................ A/C 1994 W 25-54 3(tie)
KMGA-FM........................ A/C 1994 W 25-54 2
KHTL-AM........................ News/Talk 1994 A 35-64 29(tie)
KHFM-FM........................ Classical 1996 A 25-54 11(tie)
KNML-AM........................ Sports 1996 M 25-54 19(tie)
KRST-FM........................ Country 1996/1996 A 25-54 1
KTBL-FM........................ Country 1996/1995(JSA) A 25-54 9(tie)
</TABLE>
Albuquerque has an MSA rank of 71, and had market revenue of approximately
$28.7 million in 1996 and approximately $15.9 million in the first six months of
1997, an approximate 9.4% and 10.5% increase over 1995 and the first six months
of 1996, respectively. There are 36 stations in the Albuquerque market, 29 of
which are owned by multiple station owners. There are 17 viable FM and four
viable AM stations in this market. The eight stations owned by the Company rank
first in the market in terms of their combined gross revenue, with approximately
58.0% of the market revenue in the first six months of 1997.
The Company entered the Albuquerque market in May 1994 with the purchase of
KKOB-FM, KKOB-AM, KHTL-AM and KMGA-FM. At the time of purchase, the KKOB-AM
format included news/ talk with a mix of adult contemporary ("A/C") music. After
the acquisition, the Company eliminated music from the station making it
exclusively news/talk. Larry Ahrens, the morning talk show host, has been on the
air with KKOB-AM for 17 years and has been the number one host in the market for
over 10 years. KKOB-AM features the University of New Mexico men's football and
basketball games, as well as Dallas Cowboys football games. In April 1997,
KKOB-AM celebrated its 75th anniversary on the air. KKOB-FM celebrated 30 years
on the air in the summer of 1997. KKOB-FM is the heritage A/C station in the
market and has a veteran morning team, "John and the Bean," which has been on
the air with the station for more than six years. Use of the term "heritage"
refers to a station or on-air show that is firmly established in its format and
market and has been so for many years.
In 1996, the Company expanded its ownership in the Albuquerque market with
the purchase of KHFM-FM, KNML-AM, KRST-FM and KTBL-FM. KNML-AM had an all
Associated Press news format at the time of acquisition which was changed to an
all sports format in October 1996. The station carries the Albuquerque Dukes
baseball games. KRST-FM is the heritage country station in the market, and has
achieved double digit market revenue shares since 1989. The Company received a
CID from the DOJ in connection with the acquisition of KRST-FM. See "-- Legal
Proceedings."
Colorado Springs, Colorado. The Company owns three FM radio stations and
sells advertising on behalf of two FM and two AM radio stations under a JSA in
Colorado Springs.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED/LMA TARGET TARGET
- ------------------------------- ------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C>
KKFM-FM........................ Classic Rock 1986 M 25-54 1
KKMG-FM........................ CHR 1994/1990 W 18-34 1
KKLI-FM........................ Soft A/C 1996 W 25-54 1
KVUU-FM........................ A/C 1996 (JSA) W 18-49 4(tie)
KSPZ-FM........................ Oldies 1996 (JSA) A 25-54 6
KVOR-AM........................ News/Talk 1996 (JSA) A 25-54 11(tie)
KTWK-AM........................ Nostalgia 1996 (JSA) A 25-54 20(tie)
</TABLE>
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<PAGE> 66
Colorado Springs has an MSA rank of 95, and had market revenue of
approximately $14.8 million in 1996 and approximately $7.9 million in the first
six months of 1997, an approximate 8.7% and 17.4% increase over 1995 and the
first six months of 1996, respectively. There are 21 stations in the Colorado
Springs market, 15 of which are owned by multiple station owners. There are 11
viable FM and three viable AM stations in this market. The three stations owned
by the Company plus the four stations marketed under a JSA, rank first in the
market in terms of their combined gross revenue, with approximately 63.5% of the
market revenue in the first six months of 1997.
Predecessor entered the Colorado Springs market in January 1986 with the
purchase of KKFM-FM. At the time of purchase, KKFM-FM had a nominal share of
market advertising revenue and audience and, prior to the Company's purchase,
operated with negative broadcast cash flow. After purchasing KKFM-FM, the
Company changed the format to the current classic rock format and revamped the
sales and management staff. KKFM-FM is currently the number one station in its
primary demographic target of men ages 25-54, as well as adults ages 25-54.
KKFM-FM is the only classic rock station in the market and has the heritage
morning show, "The Mark Brothers," who have been on the air with the station for
over six years.
In December 1990, the Company began programming and selling the available
advertising time for KKMG-FM, "Magic," pursuant to an LMA. In May 1994, the
Company established an FM duopoly in the market when it purchased KKMG-FM, which
is currently the leading station in its primary demographic target of women ages
18-34. KKMG-FM, which is the only station in the market with a contemporary hit
radio ("CHR") format, together with KKFM-FM, permit the Company to appeal to a
wide spectrum of advertisers in the market.
In January 1996, the Company began to sell all of the advertising time for
two additional FM and two additional AM radio stations in Colorado Springs under
a JSA. KSPZ-FM broadcasts oldies, KVUU-FM broadcasts A/C, KVOR-AM carries a
news/talk format and KTWK-AM broadcasts a nostalgia format. The Company received
a civil investigative demand from the DOJ in connection with the JSA relating to
these stations. See "-- Legal Proceedings." The Company's 1996 acquisition of
KKLI-FM, which has an A/C format, helped to fill out an already well-covered
market, particularly among women listeners.
Modesto, California. The Company owns four FM radio stations and one AM
radio station in Modesto.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED/LMA TARGET TARGET
- --------------------------------- ------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
KATM-FM.......................... Country 1992 A 25-54 1
KBUL-AM.......................... Sports 1992 M 25-54 16 (tie)
KDJK-FM.......................... Rock Oldies 1993 A 25-54 Simulcast with
KHKK-FM
KHKK-FM.......................... Rock Oldies 1993/1993 A 25-54 5
KHOP-FM.......................... AOR 1996 A 18-34 2
</TABLE>
Modesto has an MSA rank of 122, and had market revenue of approximately
$13.7 million in 1996 and approximately $6.8 million in the first six months of
1997, an approximate 13.1% and 2.3% increase over 1995 and the first six months
of 1996, respectively. There are 22 stations in the Modesto market, 14 of which
are owned by multiple station owners. There are nine viable FM and two viable AM
stations in this market. The five stations owned by the Company rank first in
the market in terms of their combined gross revenue, with approximately 62.2% of
the market revenue in the first six months of 1997.
The Company owns three stations serving the Modesto market (KATM-FM,
KHKK-FM and KHOP-FM) with sufficiently strong signals to attract additional
advertising revenue from advertisers that desire coverage of other markets in
California's central valley region. To further increase the operating
performance of such stations, the Company changed several formats and call
letters during 1996 in an effort to place the most popular formats on its
strongest signals.
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<PAGE> 67
The Company entered the Modesto market in July 1992 with the purchase of
KATM-FM, "Cat Country," and KBUL-AM. Promptly after purchasing KATM-FM, the
Company switched its easy listening format to the current contemporary country
format, and it has ranked number one in the market among persons 12 and older
since the switch. The Company recently switched the format of KBUL-AM to its
current sports format. In April 1993, the Company began programming and selling
the advertising time for KHKK-FM pursuant to an LMA. The Company established an
FM duopoly in the market when it purchased KHKK-FM in October 1993. The purchase
included KDJK-FM, licensed to Mariposa, an area adjacent to Modesto, which
simulcasts with KHKK-FM. KHKK-FM/KDJK-FM began broadcasting an album-oriented
rock ("AOR") format in October 1992. In April 1996, the Company moved KHKK-FM's
AOR format to KHOP-FM, a 1996 acquisition.
Reno, Nevada. The Company owns three FM radio stations and one AM radio
station in Reno.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED/LMA TARGET TARGET
- ---------------------------------- ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C>
KBUL-FM........................... Country 1992 A 25-54 1
KKOH-AM........................... News/Talk 1992 A 25-54 5
KNEV-FM........................... A/C 1993/1993 W 18-49 2
KNHK-FM........................... Rock Oldies 1997/1997 A 25-54 2
</TABLE>
Reno has an MSA rank of 131, and had market revenue of approximately $14.0
million in 1996 and approximately $7.3 million in the first six months of 1997,
an approximate 8.8% and 13.1% increase over 1995 and the first six months of
1996, respectively. There are 26 stations in the Reno market, 20 of which are
owned by multiple station owners. There are 13 viable FM and two viable AM
stations in this market. The four stations owned by the Company rank first in
the market in terms of their combined gross revenue, with approximately 47.4% of
the market revenue in the first six months of 1997.
The Company entered the Reno market in April 1992 with the purchase of
KBUL-FM. KBUL-FM is the heritage country station in the market and is currently
the only station with a country format. J.J. Christy, the morning show
personality, celebrated ten years with the station in September 1997. In July
1992, the Company purchased KKOH-AM, and began programming and selling the
available advertising time for KNEV-FM, "Magic," under an LMA for a brief period
before purchasing it in May 1993. In March 1994, with the acquisition of the
news/talk format and certain other assets of a competing station in Reno, the
Company began broadcasting the acquired format on KKOH-AM. KKOH-AM will
celebrate its 69th year in 1997 and has a heritage morning show host, Ross
Mitchell. The station carries sports broadcasting for the University of Nevada,
Reno, and San Francisco 49ers football. In fall 1992, the Company changed the
format of KNEV-FM to its current A/C format.
In July 1997, the Company acquired KNHK-FM which had been off the air until
the fourth quarter of 1996, at which time it began broadcasting a mixed music
format. In January 1997, the Company began broadcasting a rock oldies format on
the station pursuant to an LMA.
Salt Lake City, Utah. The Company owns four FM and two AM radio stations
in Salt Lake City.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED/LMA TARGET TARGET
- ----------------------- ----------------- ------------------- ----------- ---------------
<S> <C> <C> <C> <C>
KCNR-AM................ Children's 1988 C 4-11 --
KUBL-FM................ Country 1988 A 25-54 6
KBEE-FM................ A/C 1997/1992 W 18-49 3
KFNZ-AM................ Sports 1997/1992 M 25-54 10 (tie)
KBER-FM................ AOR 1997/1996 A 18-34 7 (tie)
KENZ-FM................ Rock Alternative 1997/1996 (JSA) A 18-34 4
</TABLE>
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<PAGE> 68
Salt Lake City has an MSA rank of 35, and had market revenue of
approximately $52.5 million in 1996 and approximately $27.3 million in the first
six months of 1997, an approximate 18.4% and 16.1% increase over 1995 and the
first six months of 1996, respectively. There are 43 stations in the Salt Lake
City market, 26 of which are owned by multiple station owners. There are 16
viable FM and five viable AM stations in this market. The six stations owned by
the Company rank first in the market in terms of their combined gross revenue,
with approximately 22.7% of the market revenue in the first six months of 1997.
Predecessor entered the Salt Lake City market in March 1988 with the
purchase of KCNR-AM and KUBL-FM. Until August of 1990, KCNR-AM simulcast the
programming of KUBL-FM. At that time, an all news format was programmed. KCNR-AM
eventually moved to an all talk format and, in November 1996, it became an
affiliate of Disney Radio and began broadcasting programming for children. Its
primary target demographic is children ages 4-11 with a secondary target
audience of women ages 25-34. At the time of purchase, KUBL-FM had nominal
shares of market advertising revenue and audience and, prior to the Company's
purchase, operated with negative broadcast cash flow. After purchasing the
station, the Company changed its format. In rebuilding the station, the Company
brought in new management, bolstered the sales staff and hired a popular morning
team. In February 1994, another station in the market changed its format to
compete directly with KUBL-FM for listeners and advertisers, causing a decrease
in KUBL-FM's Arbitron station audience share. The Company responded by changing
the station's format to country in May 1995. The Spring 1997 Arbitron Report
rated KUBL-FM the number one country station in the market.
In April 1992, the Company began programming and selling the available
advertising time pursuant to an LMA for KFNZ-AM and KBEE-FM. The Company
exercised its option under the LMA to purchase KBEE-FM and KFNZ-AM for a total
purchase price of approximately $2.9 million. KFNZ-AM has a sports format and
carries all of the professional sports teams in the market including Utah Jazz
basketball, Utah Grizzlies hockey and Salt Lake City Buzz baseball. KBEE-FM has
a strong presence in the market with its morning personality, Mick MacKay, who
has been with the station for eight years and is part of the "Wake Up Club"
morning show.
The Company believes the 1997 acquisitions of KBER-FM, the heritage rock
station in the market, and of KENZ-FM will give the Company an increased
presence, and, therefore, a greater ability to compete in the Salt Lake City
market.
Spokane, Washington. The Company owns two FM and two AM radio stations and
sells advertising on behalf of two FM and two AM radio stations under a JSA in
Spokane.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED/LMA TARGET TARGET
- ------------------------------- ----------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
KDRK-FM........................ Country 1992 A 25-54 4 (tie)
KGA-AM......................... News/Talk 1992 A 25-54 10
KAEP-FM........................ Rock 1993 A 18-34 2
Alternative......
KJRB-AM........................ Talk 1993/1993 A 35-64 12 (tie)
KKZX-FM........................ Classic Rock 1996 (JSA) M 25-54 1
KEYF-FM........................ Oldies 1996 (JSA) A 25-54 4 (tie)
KEYF-AM........................ Oldies 1996 (JSA) A 25-54 Simulcast with
KEYF-FM
KUDY-AM........................ Talk/Religion 1996 (JSA) A 25-54 --
</TABLE>
Spokane has an MSA rank of 87, and had market revenue of approximately
$13.7 million in 1996 and approximately $6.9 million in the first six months of
1997, an approximate 3.2% and 7.7% increase over 1995 and the first six months
of 1996, respectively. There are 25 stations in the Spokane market, 20 of which
are owned by multiple station owners. There are 12 viable FM and five viable AM
stations in this market. The four stations owned by the Company plus the four
stations marketed under a JSA rank first in the market in terms of their
combined gross revenue, with approximately 53.6% of the market revenue in the
first six months of 1997.
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<PAGE> 69
The Company entered the market in July 1992 with the purchase of KDRK-FM,
"Cat Country," and KGA-AM. KDRK-FM is the heritage country station in the
market, broadcasting a country format since 1979. KGA-AM is the flagship station
for the Spokane Chiefs hockey team. In May 1993, the Company purchased KAEP-FM
and in July 1993 began programming and selling the available advertising time
for KJRB-AM under an LMA for a brief period before purchasing it in October
1993. KAEP-FM is the only station with an adult alternative format in the
market. KJRB-AM is the flagship station for the Spokane Indians, a
semi-professional baseball team.
Pursuant to a JSA, in January 1996, the Company began selling all of the
advertising time for two additional FM and two additional AM radio stations in
Spokane. KEYF-FM/AM simulcasts an oldies format, KUDY-AM is a talk/religion
station and KKZX-FM carries a classic rock format. The Company received a CID
from the DOJ in connection with the JSA relating to these stations. See
"-- Legal Proceedings."
Billings, Montana. As a result of the acquisition of Deschutes and the
Subsidiary Merger, the Company owns four FM radio stations and one AM radio
station in Billings.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED TARGET TARGET
- ------------------------------------- ------------ --------- ----------- ---------------
<S> <C> <C> <C> <C>
KCTR-FM.............................. Country 1997 A 25-54 1
KDWG-AM.............................. Country 1997 A 25-54 Simulcast with
KCTR-FM
KKBR-FM.............................. Oldies 1997 A 25-54 3
KBBB-FM.............................. A/C 1997 W 25-54 5 (tie)
KMHK-FM.............................. Rock Oldies 1997 A 25-54 5
</TABLE>
Billings has an MSA rank of 238, and had market revenue of approximately
$5.8 million in 1996, an approximate 7.4% increase over 1995. There are 14
stations in the Billings market, ten of which are owned by multiple station
owners. There are seven viable FM and three viable AM stations in this market.
The five stations owned by the Company rank first in the market in terms of
their combined gross revenue, with approximately 58.3% of the market revenue in
1996.
Deschutes entered the Billings market in 1995 when it acquired KCTR-FM,
KDWG-AM and KKBR-FM from the Company. The Company had owned the stations since
1988, 1988 and 1993, respectively. KCTR-FM and KDWG-AM, which simulcast a
country format, "Cat Country," are currently the leaders in the Billings market.
KKBR-FM is the number three station in the Billings market in its primary
demographic target of adults ages 25-54.
In September 1996, Deschutes acquired KMHK-FM. At the time of the
acquisition, KMHK-FM broadcast an AOR format. However, after the acquisition,
the format was changed to rock oldies. This change in format established KMHK-FM
as the only rock oldies station in the Billings market.
In November 1996, Deschutes acquired KBBB-FM. At the time of the
acquisition, KBBB-FM broadcast a country music format. Deschutes converted the
station to an A/C format. The station is the only A/C station in Billings and
complements the Company's country franchise.
Eugene, Oregon. As a result of the acquisition of Deschutes and the
Subsidiary Merger, the Company owns two FM radio stations and one AM radio
station in Eugene.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED TARGET TARGET
- ----------------------------------- ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C>
KEHK-FM............................ Rock Oldies 1997 A 25-54 6 (tie)
KUGN-AM............................ News/Talk 1997 A 35-64 8
KUGN-FM............................ Country 1997 A 25-54 2
</TABLE>
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<PAGE> 70
Eugene has an MSA rank of 146, and had market revenue of approximately
$10.1 million in 1996 and approximately $4.2 million in the first six months of
1997, an approximate 3.5% increase over 1995 and an approximate 9.6% decrease
from the first six months of 1996. There are 19 stations in the Eugene market,
14 of which are owned by multiple station owners. There are eight viable FM and
three viable AM stations in this market. The three stations owned by the Company
rank first in the market in terms of their combined gross revenue, with
approximately 32.4% of the market revenue in the first six months of 1997.
Deschutes acquired KUGN-AM/FM and KEHK-FM in September 1996. KUGN-AM/FM
have been the heritage radio stations in Eugene for the last 20 years. KUGN-AM
has been the leading news/talk station over much of this time, but ratings
gradually declined over the last six years when the station lost an important
sports contract with the University of Oregon. The station regained the contract
in the fall of 1995 and hired a high profile personality from a competitor (the
"voice of University of Oregon sports") to give it increased visibility in the
Eugene market.
KUGN-FM is the heritage country radio station in Eugene and was the only
country station in the market until 1993, when a competitor switched formats to
program country music. Less than six months after the acquisition of the
station, Deschutes modified its programming and KUGN-FM has been consistently
ranked in the top three among persons ages 12 and over and 25-54. KEHK-FM was a
"new-age" alternative music station targeted at adults ages 35-49. However, due
to unsatisfactory results in the spring 1996 ratings period, Deschutes changed
the station's format to a rock oldies format. The new format contributed to an
increase in the station's audience share to 6.4% based on the Spring 1997
Arbitron Report.
Medford, Oregon. As a result of the acquisition of Deschutes and the
Subsidiary Merger, the Company owns four FM and two AM radio stations in
Medford.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED TARGET TARGET
- ---------------------------- ------------------ ------------- ----------- ----------------
<S> <C> <C> <C> <C>
KAKT-FM..................... Country 1997 A 25-54 8
KBOY-FM..................... Classic Rock 1997 M 25-54 2
KCMX-AM..................... News/Talk 1997 A 35-64 8 (tie)
KCMX-FM..................... A/C 1997 W 25-54 2 (tie)
KTMT-AM..................... Sports 1997 M 25-54 10 (tie)
KTMT-FM..................... CHR 1997 W 18-34 1 (tie)
</TABLE>
Medford has an MSA rank of 201, and had market revenue of approximately
$5.7 million in 1996, an approximate 5.6% increase over 1995. There are 17
stations in the Medford market, 11 of which are owned by multiple station
owners. According to the 1997 BIA Report, there are six viable FM stations in
this market. The six stations owned by the Company rank first in the market in
terms of their combined gross revenue, with approximately 55.3% of the market
revenue in 1996.
Deschutes entered the Medford market in 1995 when it acquired KBOY-FM and
KAKT-FM. KBOY-FM is the heritage classic rock station in the market and is the
number two station among men ages 25-54. KAKT-FM had broadcast a
satellite-delivered hot A/C format; however, in January 1996, Deschutes changed
the station's format to country, "Cat Country," to compete directly with the
market leader.
Deschutes acquired four additional stations in the Medford market in July
1996. KTMT-FM is the only CHR format station in the market, KCMX-FM broadcasts
an A/C format, KCMX-AM broadcasts a news/talk format and KTMT-AM broadcasts a
sports/talk format that includes University of Oregon football and basketball,
Oakland A's baseball and San Francisco 49ers football games. Two of these four
stations are ranked in the top seven in the Medford market among persons ages
25-54. The programming of all of these stations has been adjusted to improve
their audience appeal. In addition, the Company believes opportunities exist to
modify the programming of certain stations to reduce their competitive overlap
with other Company stations and thereby increase the Company's aggregate
audience share.
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<PAGE> 71
Tri-Cities, Washington. As a result of the acquisition of Deschutes, the
Subsidiary Merger and the September 1997 acquisition of KTHK-FM, the Company
owns four FM radio stations and one AM radio station in Tri-Cities.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED/LMA TARGET TARGET
- ----------------------------- ------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
KFLD-AM...................... Sports 1997 M 25-54 7 (tie)
KORD-FM...................... Country 1997 A 25-54 4 (tie)
KXRX-FM...................... AOR 1997 M 18-34 1
KEYW-FM...................... A/C 1997 A 25-54 6 (tie)
KTHK-FM...................... Rock Oldies 1997/1997 A 25-54 13 (tie)
</TABLE>
Tri-Cities (includes the communities of Richland, Kennewick and Pasco,
Washington) has an MSA rank of 200, and had market revenue of approximately $5.4
million in 1996, an approximate 1.9% increase over 1995. There are 16 stations
in the Tri-Cities market, 12 of which are owned by multiple station owners.
According to the 1997 BIA Report, there are six viable FM stations in this
market. The five stations owned by the Company rank first in the market in terms
of their combined gross revenue, with approximately 40.2% of the market revenue
in 1996.
Deschutes entered the Tri-Cities market in 1994 when it acquired KORD-FM,
KFLD-AM and KXRX-FM in two separate transactions. KORD is the heritage country
station in the market. KFLD broadcasts a sports format, which includes Seattle
Mariners and Seattle SuperSonics games.
When Deschutes acquired KXRX, it had been a country music station. Shortly
after the acquisition, Deschutes changed the station's format from country to
AOR, so it would not compete with KORD. Branded "97 Rock," the station became
the number two ranked in the market among persons ages 18-34 in less than six
months.
Deschutes further increased its presence in the market with the October
1996 acquisition of KEYW-FM, a hot A/C station. Previously, this station was not
a significant performer in the market. According to the Spring 1997 Arbitron
Report, the station was ranked number three among persons ages 12 and over and
tied for number two among persons ages 18-34.
Providence, Rhode Island. As a result of the Tele-Media Acquisition, the
September 1997 acquisition of WXEX-FM and the November 1997 acquisition of
WHKK-FM, the Company owns four FM and two AM radio stations in Providence.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED/LMA TARGET TARGET
- ----------------------------- ------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
WSKO-AM...................... Sports 1997 M 25-54 18 (tie)
WWLI-FM...................... A/C 1997 W 25-54 1
WPRO-AM...................... News/Talk 1997 A 25-54 8
WPRO-FM...................... CHR 1997 A 18-49 1
WXEX-FM...................... Rock 1997 A 18-34 10
WHKK-FM...................... Rock Oldies 1997/1997 A 25-54 9
</TABLE>
Providence has an MSA rank of 31, and had market revenue of approximately
$37.9 million in 1996 and approximately $18.8 million in the first six months of
1997, an approximate 8.6% and 6.0% increase over 1995 and the first six months
of 1996, respectively. There are 37 stations in the Providence market, 24 of
which are owned by multiple station owners. There are 10 viable FM and three
viable AM stations in this market. The six stations owned by the Company in this
market rank first in the market in terms of their combined gross revenue, with
approximately 36.4% of the market revenue in the first six months of 1997.
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<PAGE> 72
WPRO-AM and WPRO-FM are heritage stations in the Providence market. WPRO-AM
carries Rush Limbaugh, as well as many of the local sports franchises including
the Boston Red Sox, the Boston Bruins and Providence College sports. WPRO-FM is
a heritage CHR station with a long running morning show and several airstaff
members that have been at the station for more than 15 years. WPRO-AM has
averaged just less than a 5% share over the past three years of persons ages 12
and over, and WPRO-FM has averaged a 7% share of persons ages 12 and over in the
past several years.
WXEX-FM began broadcasting in 1995 with an alternative rock format. In
April 1997, the station added the syndicated Mancow morning show and in November
1997, it began broadcasting a rock format. WHKK-FM broadcast a jazz format until
May 1996 when it began simulcasting the programming of WXEX-FM. In February
1997, the station changed to a rhythmic A/C format and in November 1997, it
changed to a rock oldies format. Both stations are class A FM radio stations
covering most of the Providence metro area.
Allentown/Bethlehem, Pennsylvania. As a result of the Tele-Media
Acquisition and the October 1997 acquisition of WLEV-FM, the Company owns two FM
radio stations and one AM radio station in Allentown. The Company has entered
into an agreement to sell WEST-AM, which is not included in the chart below.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED TARGET TARGET
- ----------------------- ------------------ ------------------ ------------- -----------------
<S> <C> <C> <C> <C>
WCTO-FM................ Country 1997 A 25-54 3
WLEV-FM................ Lite A/C 1997/1997 W 25-54 4
</TABLE>
Allentown/Bethlehem has an MSA rank of 65, and had market revenue of
approximately $22.0 million in 1996, an approximate 2.8% increase over 1995.
There are 19 stations in the Allentown market, 12 of which are owned by multiple
station owners. There are six viable FM and three viable AM stations in this
market. WLEV-FM and WCTO-FM rank second in the market in terms of their combined
gross revenue, with approximately 24.1% of market revenue in 1996.
Because of the small number of viable stations in this market, most are
format-exclusive and, therefore, have no direct competitors in the market.
WCTO-FM broadcast an A/C format until July 1997 when the Company began
programming the market's only country format on the station. WLEV has been an
Allentown mainstay for approximately 30 years. The station had historically
broadcast an easy listening format targeting adults ages 45 and over with a
mostly instrumental music mix. In 1991, the format was changed slightly to
include more vocals in the mix.
Harrisburg, Pennsylvania and York, Pennsylvania. As a result of the
Tele-Media Acquisition, the Company owns one FM radio station in Harrisburg and
one FM radio station and one AM radio station in York. Harrisburg and York are
adjacent markets with numerous overlapping radio signals. The Company intends to
operate these stations as a single station group.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED TARGET TARGET
- --------------------------- ------------------ -------------- ------------- -----------------
<S> <C> <C> <C> <C>
WRKZ-FM (Harrisburg)....... Country 1997 A 25-54 3
WQXA-FM (York)............. Rock 1997 M 18-34 2
WQXA-AM (York)............. Nostalgia 1997 A 35-64 --
</TABLE>
Harrisburg has an MSA rank of 73, and had market revenue of approximately
$23.8 million in 1996, an approximate 3% increase over 1995. There are 23
stations in the Harrisburg market, 14 of which are owned by multiple station
owners. There are eight viable FM and three viable AM stations in this market.
WRKZ-FM ranks fourth in the market in terms of gross revenue, with approximately
12.2% of the market revenue in 1996.
York has an MSA rank of 103, and had market revenue of approximately $15.8
million in 1996, an approximate 6% increase over 1995. There are 15 stations in
the York market, 13 of which are owned by
66
<PAGE> 73
multiple station owners. There are seven viable FM stations and one viable AM
station in this market. The two stations owned by the Company rank third in the
market in terms of their combined gross revenue, with approximately 11.1% of the
market revenue in 1996.
Both WRKZ-FM and WQXA-FM have strong signals in the Harrisburg and York
markets and in the adjacent Lancaster market. WQXA-FM has four years remaining
on a five year contract with Howard Stern for the morning show. The Company
believes that WRKZ-FM and WQXA-FM have a competitive advantage in the Harrisburg
and York markets because they comprise two of the only three signals that have
good coverage of each of Harrisburg, York and Lancaster.
Wilkes-Barre/Scranton, Pennsylvania. As a result of the Tele-Media
Acquisition, the Company owns two FM and two AM radio stations and operates two
FM radio stations and one AM radio station under an LMA and a JSA in
Wilkes-Barre/Scranton, respectively. The Company also operates three FM and two
AM In-Market Acquisition Stations pursuant to LMAs.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED/LMA TARGET TARGET
- --------------------------- ------------------ -------------- ------------- -----------------
<S> <C> <C> <C> <C>
WMGS-FM.................... A/C 1997 W 25-54 2
WARM-AM.................... News/Talk 1997 A 25-54 20 (tie)
WZMT-FM.................... AOR 1997 M 18-34 2
WAZL-AM.................... Nostalgia 1997 A 35-64 --
WBHT-FM.................... CHR 1997(LMA) W 18-34 3
WKQV-FM.................... AOR 1997(LMA) M 18-34 Simulcast with
WZMT-FM
WKQV-AM.................... News/Talk 1997(JSA) A 25-54 Simulcast with
WARM-AM
WSGD-FM.................... Oldies Pending/1997 A 25-54 11
WDLS-FM.................... Oldies Pending/1997 A 25-54 Simulcast with
WSGD-FM
WCDL-AM.................... Country Pending/1997 A 35-64 --
WEMR-FM.................... CHR Pending/1997 W 18-34 Simulcast with
WBHT-FM
WEMR-AM.................... Country Pending/1997 A 35-64 --
</TABLE>
Wilkes-Barre/Scranton has an MSA rank of 62, and had market revenue of
approximately $23.3 million in 1996, an approximate 5.9% increase over 1995.
There are 40 stations in the Wilkes-Barre/Scranton market, 29 of which are owned
by multiple station owners. There are 10 viable FM and four viable AM stations
in this market. The seven stations owned or operated by the Company combined
with the five In-Market Acquisition Stations in this market rank second in the
market in terms of their combined gross revenue, with approximately 34.1% of
market revenue in 1996.
The Company believes that WMGS-FM, which carries a traditional A/C format,
has one of the three strongest signals in the market. Tele-Media changed the
format on WZMT-FM from classic rock to AOR when it started operating the station
under an LMA in August 1996, and also added Howard Stern to the morning drive
show. WZMT-FM's format is simulcast on WKQV-FM, which extends WZMT-FM's coverage
of the Wilkes-Barre/Scranton area. WBHT-FM broadcasts a CHR format which the
Company recently began simulcasting on WEMR-FM to extend WBHT-FM's coverage to
the northern portion of the market. WARM-AM carries broadcasts for several
significant sports franchises, including the Philadelphia Phillies and the
Philadelphia Eagles. WDLS-FM and WSGD-FM simulcast an oldies format called
"Oldies 94."
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<PAGE> 74
Quincy, Illinois. As a result of the Tele-Media Acquisition, the Company
owns three FM radio stations and one AM radio station in Quincy.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED TARGET TARGET
- --------------------------- ------------------ -------------- ------------- -----------------
<S> <C> <C> <C> <C>
WQCY-FM.................... Country 1997 A 25-54 NA
WTAD-AM.................... News/Talk 1997 A 25-54 NA
WMOS-FM.................... AOR 1997 M 18-34 NA
WBRJ-FM.................... News/Talk 1997 A 25-54 NA
</TABLE>
MSA rank, market revenue, station ownership and viable station data are not
available for the Quincy market.
WTAD-AM has a strong AM signal. The station has a full-time farm
programming director serving this agriculturally-oriented community. WMOS-FM was
off the air at the time Tele-Media purchased the station. In March 1995, the
station was put back on the air with new call letters and an AOR format.
As a result of the Little Rock Acquisitions, the Company owns seven FM and
three AM radio stations in Little Rock and has the right to construct and
operate one additional FM radio station in Little Rock.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED/LMA TARGET TARGET
- ------------------------ ----------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
KARN-AM................. News/Talk/Sports 1997/1997 A 25-54 10 (tie)
KARN-FM................. News/Talk/Sports 1997/1997 A 25-54 Simulcast with
KARN-AM
KKRN-FM................. News/Talk/Sports 1997/1997 A 25-54 Simulcast with
KARN-AM
KRNN-AM................. News/Talk/Sports 1997/1997 A 25-54 Simulcast with
KARN-AM
KIPR-FM................. Urban 1997/1997 A 18-49 3
KESR-FM................. CHR 1997/1997 A 18-34 7
KLAL-FM................. Modern A/C 1997 A 18-49 14 (tie)
KLIH-AM................. Gospel 1997 A 25-54 19 (tie)
KURB-FM................. A/C 1997 A 25-54 3
KVLO-FM................. Soft A/C 1997 W 25-54 6
KAFN-FM................. Not Applicable... 1997 Not Applicable Not Applicable
</TABLE>
Little Rock has an MSA rank of 82, and had market revenue of approximately
$19.7 million in 1996, an approximate 2.1% increase over 1995. There are 32
stations in the Little Rock market, 20 of which are owned by multiple station
owners. There are 13 viable FM and two viable AM stations in this market. The
ten operating stations owned by the Company in this market rank first in the
market in terms of their combined gross revenue, with approximately 37.9% of
market revenue in 1996.
KARN-AM broadcasts a news/talk/sports format and has affiliations with the
CBS Radio Network and the Arkansas Radio Network. The station has one of the
largest radio news staffs in Arkansas. Each of KARN-FM, KKRN-FM and KRNN-AM
serve the surrounding communities outside of Little Rock and currently simulcast
the programming of KARN-AM. KIPR-FM, "Power 92," broadcasts the market's only
urban format, and KESR-FM targets the demographic group of adults ages 18 to 34
with its "Star 102" CHR format. KURB-FM broadcasts an A/C format. KVLO-FM
complements KURB-FM with a lite A/C format. Management believes that KVLO-FM is
an underdeveloped station and that there is potential to increase station
performance. KLIH-AM began broadcasting a gospel format in November 1997.
KAFN-FM has not yet commenced broadcasting. The Company holds a permit to
construct such station.
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<PAGE> 75
The Company also owns the Arkansas Radio Network, which was established in
1968 and is a state-wide news network with affiliates in nearly every county in
Arkansas. The Arkansas Radio Network feeds hourly newscasts in addition to
agricultural programs, market reports, weather and special events.
THE BOISE STATIONS
Upon consummation of the Boise Acquisition, the Company will own four FM
radio stations and one AM radio station in Boise.
<TABLE>
<CAPTION>
STATION RANK IN
STATION PRIMARY PRIMARY
PROGRAMMING YEAR DEMOGRAPHIC DEMOGRAPHIC
STATION CALL LETTERS FORMAT ACQUIRED/LMA TARGET TARGET
- ------------------------ ----------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
KIZN-FM................. Country Pending/1997 A 25 - 54 1
KZMG-FM................. CHR Pending/1997 W 18 - 34 3
KKGL-FM................. Classic Rock Pending/1997 M 25 - 54 --
KQFC-FM................. Country Pending/1997 A 25 - 54 3
KBOI-AM................. News/Talk Pending/1997 A 35 - 64 2 (tie)
</TABLE>
Boise has an MSA rank of 129, and had market revenue of approximately $14.3
million in 1996, an approximate 10.0% increase over 1995. There are 24 stations
in the Boise market, 18 of which are owned by multiple station owners. There are
11 viable FM and three viable AM stations in this market. The five Boise
Stations rank first in the market in terms of their combined gross revenue, with
approximately 39.9% of market revenue in 1996.
KBOI-AM has a 50,000 watt signal for its News/Talk format and has been
coined "The Station To Depend On." The station is also the Boise State
University sports station. KQFC-FM also has a strong signal and has consistently
been the number one rated country station in the market. KKGL-FM, known as "The
Eagle," broadcasts a classic rock format.
ADVERTISING SALES
Virtually all of the Company's revenue is generated from the sale of local,
regional and national advertising for broadcast on its radio stations. In 1996,
approximately 87.0% of the Company's net broadcasting revenue was generated from
the sale of local and regional advertising. Additional broadcasting revenue is
generated from the sale of national advertising, network compensation payments
and other miscellaneous transactions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- General." The major
categories of the Company's advertisers include telephone companies,
restaurants, fast food, automotive and grocery. Each station's local sales staff
solicits advertising either directly from the local advertiser or indirectly
through an advertising agency. The Company pays a higher commission rate to the
sales staff for generating direct sales because the Company believes that
through direct advertiser relationships it can better understand the
advertiser's business needs and more effectively design an advertising campaign
to help the advertiser sell its product. The Company employs personnel in each
of its markets to produce commercials for the advertisers. National sales are
made by a firm specializing in radio advertising sales on the national level in
exchange for a commission from the Company that is based on the Company's gross
revenue from the advertising obtained. Regional sales, which the Company defines
as sales in regions surrounding the Company's markets to companies that
advertise in the Company's markets, are generally made by the Company's local
sales staff.
Depending on the programming format of a particular station, the Company
estimates the optimum number of advertisements available for sale. The number of
advertisements that can be broadcast without jeopardizing listening levels (and
the resulting ratings) is limited in part by the format of a particular station.
The Company's stations strive to maximize revenue by managing their on-air
inventory of advertising time and adjusting prices based on local market
conditions and on the Company's ability, through its marketing efforts, to
provide advertisers with an effective means of reaching a targeted demographic
group. Each of the Company's stations has a general target level of on-air
inventory that it makes available for advertising. This target level of
inventory for sale may be different at different times of the day but tends to
remain stable over
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<PAGE> 76
time. Much of the Company's selling activity is based on demand for its radio
stations' on-air inventory and, in general, the Company responds to this demand
by varying prices rather than by varying its target inventory level for a
particular station. Therefore, most changes in revenue are explained by
demand-driven pricing changes rather than by changes in the available inventory.
The Company believes that radio is one of the most efficient and
cost-effective means for advertisers to reach specific demographic groups.
Advertising rates charged by radio stations are based primarily on (i) a
station's share of audiences in the demographic groups targeted by advertisers
(as measured by ratings surveys estimating the number of listeners tuned to the
station at various times), (ii) the number of stations in the market competing
for the same demographic groups, (iii) the supply of and demand for radio
advertising time and (iv) certain qualitative factors. Rates are generally
highest during morning and afternoon commuting hours.
A station's listenership is reflected in ratings surveys that estimate the
number of listeners tuned to the station and the time they spend listening. Each
station's ratings are used by its advertisers and advertising representatives to
consider advertising with the station and are used by the Company to chart
audience growth, set advertising rates and adjust programming. The radio
broadcast industry's principal ratings service is Arbitron, which publishes
periodic ratings surveys for significant domestic radio markets. These surveys
are the Company's primary source of ratings data.
COMPETITION
The radio broadcasting industry is highly competitive. The success of each
of the Company's stations depends largely upon its audience ratings and its
share of the overall advertising revenue within its market. The Company's
audience ratings and advertising revenue are subject to change, and any adverse
change in a particular market affecting advertising expenditures or an adverse
change in the relative market positions of the stations located in a particular
market could have a material adverse effect on the revenue of the Company's
radio stations located in that market. There can be no assurance that any one of
the Company's radio stations will be able to maintain or increase its current
audience ratings or advertising revenue market share.
The Company's stations compete for listeners and advertising revenue
directly with other radio stations within their respective markets. Radio
stations compete for listeners primarily on the basis of program content that
appeals to a particular demographic group. By building a strong listener base
consisting of a specific demographic group in each of its markets, the Company
is able to attract advertisers seeking to reach those listeners. Companies that
operate radio stations must be alert to the possibility of another station
changing its format to compete directly for listeners and advertisers. Another
station's decision to convert to a format similar to that of one of the
Company's radio stations in the same geographic area may result in lower ratings
and advertising revenue, increased promotion and other expenses and,
consequently, lower broadcast cash flow for the Company.
Factors that are material to a radio station's competitive position include
management experience, the station's local audience rank in its market,
transmitter power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other radio stations in the
market area. The Company attempts to improve its competitive position in each
market by extensively researching its stations' programming, by implementing
advertising campaigns aimed at the demographic groups for which its stations
program and by managing its sales efforts to attract a larger share of
advertising dollars. However, the Company competes with some organizations that
have greater financial resources than the Company.
Recent changes in the FCC's policies and rules permit increased ownership
and operation of multiple local radio stations. Management believes that radio
stations that elect to take advantage of joint arrangements such as LMAs or JSAs
may in certain circumstances have lower operating costs and may be able to offer
advertisers more attractive rates and services. Although the Company currently
operates multiple stations in each of its markets and intends to pursue the
creation of additional multiple station groups, the Company's competitors in
certain markets include operators of multiple stations or operators who already
have entered into LMAs or JSAs. The Company also competes with other radio
station groups to purchase additional
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stations. Some of these groups are owned or operated by companies that have
substantially greater financial and other resources than the Company.
Although the radio broadcasting industry is highly competitive, some
barriers to entry exist (which can be mitigated to some extent by changing
existing radio station formats and upgrading power, among other actions). The
operation of a radio broadcast station requires a license from the FCC, and the
number of radio stations that can operate in a given market is limited by the
availability of FM and AM radio frequencies allotted by the FCC to communities
in that market, as well as by the FCC's multiple ownership rules regulating the
number of stations that may be owned and controlled by a single entity. The
FCC's multiple ownership rules have changed significantly as a result of the
Telecommunications Act. For a discussion of FCC regulation and the provisions of
the Telecommunications Act, see " -- Federal Regulation of Radio Broadcasting."
The Company's stations also compete for advertising revenue with other
media, including newspapers, broadcast television, cable television, magazines,
direct mail, coupons and outdoor advertising. In addition, the radio
broadcasting industry is subject to competition from new media technologies that
are being developed or introduced, such as the delivery of audio programming by
cable television systems, by satellite and by digital audio broadcasting
("DAB"). DAB may deliver by satellite to nationwide and regional audiences,
multi-channel, multi-format, digital radio services with sound quality
equivalent to compact discs. The delivery of information through the presently
unregulated Internet also could create a new form of competition. The radio
broadcasting industry historically has grown despite the introduction of new
technologies for the delivery of entertainment and information, such as
television broadcasting, cable television, audio tapes and compact disks. A
growing population and greater availability of radios, particularly car and
portable radios, have contributed to this growth. There can be no assurance,
however, that the development or introduction in the future of any new media
technology will not have an adverse effect on the radio broadcasting industry.
The FCC has recently authorized spectrum for the use of a new technology,
satellite digital audio radio services ("DARS"), to deliver audio programming.
DARS may provide a medium for the delivery by satellite or terrestrial means of
multiple new audio programming formats to local and national audiences. It is
not known at this time whether this digital technology also may be used in the
future by existing radio broadcast stations either on existing or alternate
broadcasting frequencies.
The Company cannot predict what other matters might be considered in the
future by the FCC, nor can it assess in advance what impact, if any, the
implementation of any of these proposals or changes might have on its business.
See "-- Federal Regulation of Radio Broadcasting."
FEDERAL REGULATION OF RADIO BROADCASTING
Introduction. The ownership, operation and sale of broadcast stations,
including those licensed to the Company, are subject to the jurisdiction of the
FCC, which acts under authority derived from the Communications Act. The
Communications Act was amended in 1996 by the Telecommunications Act to make
changes in several broadcast laws. Among other things, the FCC assigns frequency
bands for broadcasting; determines whether to approve changes in ownership or
control of station licenses; regulates equipment used by stations; adopts and
implements regulations and policies that directly or indirectly affect the
ownership, operation and employment practices of stations; and has the power to
impose penalties for violations of its rules under the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Failure to
observe these or other rules and policies can result in the imposition of
various sanctions, including monetary forfeitures, the grant of "short" (less
than the maximum) license renewal terms or, for particularly egregious
violations, the denial of a license renewal application, the revocation of a
license or the denial of FCC consent to acquire additional broadcast properties.
Reference should be made to the Communications Act, FCC rules and the public
notices and rulings of the FCC for further information concerning the nature and
extent of federal regulation of broadcast stations.
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License Grant and Renewal. Until recently, radio broadcast licenses were
granted for maximum terms of seven years, but acting under the authority of the
Telecommunications Act, the FCC recently revised its rules to extend the maximum
term for future renewals to eight years. Licenses may be renewed through an
application to the FCC. Prior to the Telecommunications Act, during certain
periods when a renewal application was pending, competing applicants could file
for the radio frequency being used by the renewal applicant. The
Telecommunications Act prohibits the FCC from considering such competing
applications if the FCC finds that the station has served the public interest,
convenience and necessity, that there have been no serious violations by the
licensee of the Communications Act or the rules and regulations of the FCC, and
that there have been no other violations by the licensee of the Communications
Act or the rules and regulations of the FCC that, when taken together, would
constitute a pattern of abuse.
Petitions to deny license renewals can be filed by interested parties,
including members of the public. Such petitions may raise various issues before
the FCC. The FCC is required to hold hearings on renewal applications if the FCC
is unable to determine that renewal of a license would serve the public
interest, convenience and necessity, or if a petition to deny raises a
"substantial and material question of fact" as to whether the grant of the
renewal application would be prima facie inconsistent with the public interest,
convenience and necessity. Also, during certain periods when a renewal
application is pending, the transferability of the applicant's license is
restricted. The Company is not currently aware of any facts that would prevent
the timely renewal of its licenses to operate its radio stations, although there
can be no assurance that the Company's licenses will be renewed.
The FCC classifies each AM and FM station. An AM station operates on either
a clear channel, regional channel or local channel. A clear channel is one on
which AM stations are assigned to serve wide areas. Clear channel AM stations
are classified as either: Class A stations, which operate on an unlimited time
basis and are designated to render primary and secondary service over an
extended area; Class B stations, which operate on an unlimited time basis and
are designed to render service only over a primary service area; and Class D
stations, which operate either during daytime hours only, during limited times
only or on an unlimited time basis with low nighttime power. A regional channel
is one on which Class B and Class D AM stations may operate and serve primarily
a principal center of population and the rural areas contiguous to it. A local
channel is one on which AM stations operate on an unlimited time basis and serve
primarily a community and the suburban and rural areas immediately contiguous
thereto. Class C AM stations operate on a local channel and are designed to
render service only over a primary service area that may be reduced as a
consequence of interference.
The minimum and maximum facilities requirements for an FM station are
determined by its class. FM class designations depend upon the geographic zone
in which the transmitter of the FM station is located. In general, commercial FM
stations are classified as follows, in order of increasing power and antenna
height: Class A, B1, C3, B, C2, C1 and C.
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The following table sets forth the market, call letters, FCC license
classification, antenna height above average terrain (HAAT), power and frequency
of each of the stations owned or operated by the Company, assuming the
consummation of the Pending Transactions, and the date on which each station's
FCC license expires. License renewal applications have been filed for the listed
stations showing a license expiration date of October 1, 1997, February 1, 1998
or April 1, 1998, and the expiration of the licenses is stayed during the
pendency of such proceedings.
<TABLE>
<CAPTION>
HAAT EXPIRATION
FCC IN POWER IN DATE OF
MARKET(1) STATION CLASS METERS KILOWATTS(2) FREQUENCY FCC LICENSE
- ------------------------ ------- ----- ------ ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Albuquerque, NM......... KKOB-AM B NA 50.0 770 kHz 10-01-97
KKOB-FM C 1265 20.2 93.3 MHz 10-01-97
KHTL-AM B NA 1.0/0.5 920 kHz 10-01-97
KMGA-FM C 1259 22.5 99.5 MHz 10-01-97
KTBL-FM C 1276 20.4 103.3 MHz 10-01-97
KHFM-FM C 1260 20.0 96.3 MHz 10-01-97
KRST-FM C 1268 22.0 92.3 MHz 10-01-97
KNML-AM B NA 1.0/0.5 1050 kHz 10-01-05
Colorado Springs, CO.... KKFM-FM C 698 71.0 98.1 MHz 04-01-05
KKMG-FM C 695 57.0 98.9 MHz 04-01-05
KKLI-FM C2 678 1.6 106.3 MHz 04-01-05
KVUU-FM(3) C 610 68.0 99.9 MHz 04-01-05
KSPZ-FM(3) C 649 72.0 92.9 MHz 04-01-05
KVOR-AM(3) B NA 5.0/1.0 1300 kHz 04-01-05
KTWK-AM(3) B NA 3.3/1.5 740 kHz 04-01-05
Modesto, CA............. KBUL-AM B NA 1.0 970 kHz 12-01-05
KATM-FM B 152 50.0 103.3 MHz 12-01-05
KHKK-FM B 152 50.0 104.1 MHz 12-01-05
KDJK-FM A 624 0.071 103.9 MHz 12-01-05
KHOP-FM B 193 29.5 95.1 MHz 12-01-05
Reno, NV................ KKOH-AM B NA 50.0 780 kHz 10-01-05
KNEV-FM C 695 60.0 95.5 MHz 10-01-05
KBUL-FM C 699 72.0 98.1 MHz 10-01-05
KNHK-FM C 809 44.7 92.9 MHz 10-01-05
Salt Lake City, UT...... KCNR-AM B NA 10.0/0.195 860 kHz 10-01-97
KUBL-FM C 1140 26.0 93.3 MHz 10-01-97
KENZ-FM C 869 45.0 107.5 MHz 10-01-97
KBER-FM C 1140 25.0 101.1 MHz 10-01-97
KFNZ-AM B NA 5.0 1320 kHz 10-01-05
KBEE-FM C 894 40.0 98.7 MHz 10-01-05
Spokane, WA............. KGA-AM A NA 50.0 1510 kHz 02-01-98
KDRK-FM C 725 56.0 93.7 MHz 02-01-98
KJRB-AM B NA 5.0 790 kHz 02-01-98
KAEP-FM C 582 100.0 105.7 MHz 02-01-98
KKZX-FM(3) C 492 100.0 98.9 MHz 02-01-98
KEYF-AM(3) B NA 5.0 1050 kHz 02-01-98
KEYF-FM(3) C 490 100.0 101.1 MHz 02-01-98
KUDY-AM(3) B NA 5.0 1280 kHz 02-01-98
Billings, MT............ KDWG-AM B NA 5.0 970 kHz 04-01-05
KCTR-FM C1 152 100.0 102.9 MHz 04-01-05
KKBR-FM C2 122 28.0 97.1 MHz 04-01-05
KBBB-FM C1 146 100.0 103.7 MHz 04-01-05
KMHK-FM C 300 100.0 95.5 MHz 04-01-05
Eugene, OR.............. KUGN-AM B NA 5.0/1.0 590 kHz 02-01-98
KUGN-FM C 308 100.0 97.9 MHz 02-01-98
KEHK-FM C1 301 95.0 102.3 MHz 02-01-98
</TABLE>
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<TABLE>
<CAPTION>
HAAT EXPIRATION
FCC IN POWER IN DATE OF
MARKET(1) STATION CLASS METERS KILOWATTS(2) FREQUENCY FCC LICENSE
- ------------------------ ------- ----- ------ ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Medford, OR............. KTMT-AM B NA 1.0 880 kHz 02-01-98
KTMT-FM C 994 31.0 93.7 MHz 02-01-98
KBOY-FM C1 299 60.0 95.7 MHz 02-01-98
KCMX-AM B NA 1.0 580 kHz 02-01-98
KCMX-FM C1 435 31.6 101.9 MHz 02-01-98
KAKT-FM C1 166 51.7 105.1 MHz 02-01-98
Pasco (Tri-Cities),
WA.................... KFLD-AM B NA 10.0/0.25 870 kHz 02-01-98
KEYW-FM A 59 3.0 98.3 MHz 02-01-98
KORD-FM C 335 100.0 102.7 MHz 02-01-98
KXRX-FM C 408 50.0 97.1 MHz 02-01-98
KTHK-FM C2 339 8.0 97.9 MHz 02-01-98
Providence, RI.......... WPRO-AM B NA 5.0 630 kHz 04-01-98
WPRO-FM B 168 39.0 92.3 MHz 04-01-98
WSKO-AM B NA 5.0 790 kHz 04-01-98
WWLI-FM B 152 50.0 105.1 MHz 04-01-98
WXEX-FM A 163 2.3 99.7 MHz 04-01-98
WHKK-FM A 90 4.2 100.3 MHz 04-01-98
Allentown/ Bethlehem,
PA.................... WCTO-FM B 152 50.0 96.1 MHz 08-01-98
WLEV-FM B 327 10.9 100.7 MHz 08-01-98
Harrisburg/York, PA..... WRKZ-FM B 283 14.1 106.7 MHz 08-01-98
WQXA-AM B NA 1.0 1250 kHz 08-01-98
WQXA-FM B 215 25.1 105.7 MHz 08-01-98
Wilkes-Barre/ Scranton,
PA.................... WAZL-AM C NA 1.0 1490 kHz 08-01-98
WZMT-FM B 222 19.5 97.9 MHz 08-01-98
WARM-AM B NA 5.0 590 kHz 08-01-98
WMGS-FM B 422 5.3 92.9 MHz 08-01-98
WBHT-FM(3) A 336 0.50 97.1 MHz 08-01-98
WKQV-AM(3) B NA 10.0/0.5 1550 kHz 08-01-98
WKQV-FM(3) A 308 0.30 95.7 kHz 08-01-98
WSGD-FM(3) A 235 0.52 94.3 MHz 08-01-98
WDLS-FM(3) A 207 1.45 93.7 MHz 08-01-98
WCDL-AM(3) B NA 5.0/.037 1440 kHz 08-01-98
WEMR-AM(3) B NA 5.0/1.0 1460 kHz 08-01-98
WEMR-FM(3) A 354 0.24 107.7 MHz 08-01-98
Quincy, IL.............. WTAD-AM B NA 5.0/1.0 930 kHz 12-01-04
WQCY-FM B 229 27.0 99.5 MHz 12-01-04
WMOS-FM A 88 3.0 103.9 MHz 12-01-04
WBRJ-FM B1 100 25.0 106.7 MHz 12-01-04
Little Rock, AR......... KARN-FM A 100 3.0 102.5 MHz 06-01-04
KARN-AM B NA 5.0 920 kHz 06-01-04
KKRN-FM A 100 6.0 101.7 MHz 06-01-04
KRNN-AM B NA 5.0/2.5 1380 kHz 06-01-04
KIPR-FM C1 286 100.0 92.3 MHz 06-01-04
KESR-FM A 118 4.10 102.1 MHz 06-01-04
KLAL-FM C2 95 50.0 107.7 MHz 06-01-04
KAFN-FM(4) A 100 6.0 102.5 MHz 06-01-04
KLIH-AM B NA 2.0/1.2 1250 kHz 06-01-04
KURB-FM C 392 100.0 98.5 MHz 06-01-04
KVLO-FM C2 150 50.0 102.9 MHz 06-01-04
Boise, ID............... KIZN-FM(3) C 762 44.0 92.3 MHz 10-01-97
KZMG-FM(3) C 802 50.0 93.1 MHz 10-01-97
KKGL-FM(3) C 768 44.0 96.9 MHz 10-01-97
KQFC-FM(3) C 762 47.0 97.9 MHz 10-01-97
KBOI-AM(3) B NA 50.0 960 kHz 10-01-05
</TABLE>
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- ---------------
(1) Actual city of license may be different from the metropolitan market served.
(2) Pursuant to FCC rules and regulations, many AM radio stations are licensed
to operate at a reduced power during nighttime broadcasting hours, which
results in reducing the radio station's coverage during those hours of
operation. Both power ratings are shown, where applicable.
(3) The Company provides certain sales and marketing services to stations
KVUU-FM, KSPZ-FM, KVOR-AM and KTWK-AM in Colorado Springs, Colorado,
stations KKZX-FM, KEYF-AM, KEYF-FM and KUDY-AM in Spokane, Washington and
station WKQV-AM in Wilkes-Barre/Scranton, Pennsylvania, pursuant to JSAs.
The Company provides certain sales, programming and marketing services to
stations WBHT-FM and WKQV-FM in Wilkes Barre/Scranton, Pennsylvania, and,
pending their acquisition by the Company, stations WSGD-FM, WDLS-FM,
WDCL-AM, WEMR-FM and WEMR-AM in Wilkes-Barre/Scranton, Pennsylvania and
stations KIZN-FM, KZMG-FM, KKGL-FM, KQFC-FM and KBOI-AM in Boise Idaho,
pursuant to an LMA.
(4) KAFN-FM is under construction and has not yet commenced operations.
Ownership Matters. The Communications Act prohibits the assignment of a
broadcast license or the transfer of control of a broadcast license without the
prior approval of the FCC. In determining whether to assign, transfer, grant or
renew a broadcast license, the FCC considers a number of factors pertaining to
the licensee, including compliance with various rules limiting common ownership
of media properties, the "character" of the licensee and those persons holding
"attributable" interests therein, and compliance with the Communications Act's
limitation on alien ownership, as well as compliance with other FCC policies,
including equal employment opportunity requirements.
Once a station purchase agreement has been signed, an application for FCC
consent to assignment of license or transfer of control (depending upon whether
the underlying transaction is an asset purchase or stock acquisition) is filed
with the FCC. Approximately 10 to 15 days after this filing, the FCC publishes a
notice assigning a file number to the application and advising that the
application has been "accepted for filing." This notice begins a 30-day
statutory waiting period, which provides the opportunity for third parties to
file formal petitions to deny the transaction; informal objections may be filed
any time prior to grant of an application. The FCC staff will normally review
the application in this period and seek further information and amendments to
the application if it has questions.
Once the 30-day public notice period ends, the staff will complete its
processing, assuming that no petitions or informal objections were received and
that the application is otherwise consistent with FCC rules. The staff often
grants the application by delegated authority approximately 10 days after the
public notice period ends. At this point, the parties are legally authorized to
close the purchase, although the FCC action is not legally a "final order." If
there is a backlog of applications, the 10-day period can extend to 30 days or
more.
Public notice of the FCC staff grant is usually issued about a week after
the grant is made, stating that the grant was effective when the staff made the
grant. On the date of this notice, another 30-day period begins, within which
time interested parties can file petitions seeking either staff reconsideration
or full FCC review of the staff action. During this time the grant can still be
modified, set aside or stayed, and is not a "final order." In the absence of a
stay, however, the seller and buyer are not prevented from closing despite the
absence of a final order. Also, within 40 days after the public notice of the
grant, the full FCC can review and reconsider the staff's grant on its own
motion. Thus, during the additional 10 days beyond the 30-day period available
to third parties, the grant is still not "final." In the event that review by
the full FCC is requested and the FCC subsequently affirms the staff's grant of
the application, interested parties may thereafter seek judicial review in the
United States Court of Appeals for the District of Columbia Circuit within
thirty days of public notice of the full FCC's action. In the event the Court
affirms the FCC's action, further judicial review may be sought by seeking
rehearing en banc from the Court of Appeals or by certiorari from the United
States Supreme Court.
In the absence of the submission of a timely request for reconsideration,
administrative review or judicial review, the FCC staff's grant of an
application becomes final by operation of law. Upon the occurrence of that
event, counsel is able to deliver an opinion that the FCC's grant is no longer
subject to administrative or judicial review, although such action can
nevertheless be set aside in rare circumstances, such as fraud on the agency by
a party to the application.
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The pendency of a license renewal application will alter the aforementioned
timetables because the FCC will not issue an unconditional assignment grant if
the station's license renewal is pending.
Under the Communications Act, a broadcast license may not be granted to or
held by a corporation that has more than one-fifth of its capital stock owned or
voted by aliens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations. Under the Communications Act, a
broadcast license also may not be granted to or held by any corporation that is
controlled, directly or indirectly, by any other corporation more than
one-fourth of whose capital stock is owned or voted by aliens or their
representatives, by foreign governments or their representatives, or by non-U.S.
corporations. These restrictions apply in modified form to other forms of
business organizations, including partnerships. Each of Citadel Communications,
which serves as a holding company for its direct and indirect radio station
subsidiaries, and the Company therefore may be restricted from having more than
one-fourth of its stock owned or voted by aliens, foreign governments or
non-U.S. corporations. The Certificate of Incorporation of Citadel
Communications and the Certificate of Incorporation of the Company contain
provisions which permit Citadel Communications and the Company to prohibit alien
ownership and control consistent with the prohibitions contained in the
Communications Act.
The Communications Act and FCC rules also generally restrict the common
ownership, operation or control of radio broadcast stations serving the same
local market, of a radio broadcast station and a television broadcast station
serving the same local market, and of a radio broadcast station and a daily
newspaper serving the same local market. Under these "cross-ownership" rules,
absent waivers, neither Citadel Communications nor the Company would be
permitted to acquire any daily newspaper or television broadcast station (other
than low power television) in a local market where it then owned any radio
broadcast station. The FCC's rules provide for the liberal grant of a waiver of
the rule prohibiting common ownership of radio and television stations in the
same geographic market in the top 25 television markets if certain conditions
are satisfied. The Telecommunications Act extends this waiver policy to stations
in the top 50 television markets, although the FCC has not yet implemented this
change.
In response to the Telecommunications Act, the FCC amended its multiple
ownership rules to eliminate the national limits on ownership of AM and FM
stations. The FCC's broadcast multiple ownership rules restrict the number of
radio stations one person or entity may own, operate or control on a local
level. These limits are:
(i) in a market with 45 or more commercial radio stations, an entity
may own up to eight commercial radio stations, not more than five of which
are in the same service (FM or AM);
(ii) in a market with between 30 and 44 (inclusive) commercial radio
stations, an entity may own up to seven commercial radio stations, not more
than four of which are in the same service;
(iii) in a market with between 15 and 29 (inclusive) commercial radio
stations, an entity may own up to six commercial radio stations, not more
than four of which are in the same service;
(iv) in a market with 14 or fewer commercial radio stations, an entity
may own up to five commercial radio stations, not more than three of which
are in the same service, except that an entity may not own more than 50% of
the stations in such market.
None of these multiple ownership rules requires any change in the Company's
current ownership of radio broadcast stations or precludes consummation of the
Pending Acquisitions. However, these rules will limit the number of additional
stations which the Company may acquire in the future in certain of its markets.
Because of these multiple and cross-ownership rules, a purchaser of voting
stock of either Citadel Communications or the Company which acquires an
"attributable" interest in Citadel Communications or the Company may violate the
FCC's rule if it also has an attributable interest in other television or radio
stations, or in daily newspapers, depending on the number and location of those
radio or television stations or daily newspapers. Such a purchaser also may be
restricted in the companies in which it may invest, to the extent that these
investments give rise to an attributable interest. If an attributable
shareholder of Citadel Communications or the Company violates any of these
ownership rules, Citadel Communications or the
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Company may be unable to obtain from the FCC one or more authorizations needed
to conduct its radio station business and may be unable to obtain FCC consents
for certain future acquisitions.
The FCC generally applies its television/radio/newspaper cross-ownership
rules and its broadcast multiple ownership rules by considering the
"attributable," or cognizable interests held by a person or entity. A person or
entity can have an interest in a radio station, television station or daily
newspaper by being an officer, director, partner or shareholder of a company
that owns that station or newspaper. Whether that interest is cognizable under
the FCC's ownership rules is determined by the FCC's attribution rules. If an
interest is attributable, the FCC treats the person or entity who holds that
interest as the "owner" of the radio station, television station or daily
newspaper in question, and therefore subject to the FCC's ownership rules.
With respect to a corporation, officers and directors and persons or
entities that directly or indirectly can vote 5% or more of the corporation's
stock (10% or more of such stock in the case of insurance companies, investment
companies, bank trust departments and certain other "passive investors" that
hold such stock for investment purposes only) generally are attributed with
ownership of whatever radio stations, television stations and daily newspapers
the corporation owns.
With respect to a partnership, the interest of a general partner is
attributable, as is the interest of any limited partner who is "materially
involved" in the media-related activities of the partnership. Debt instruments,
nonvoting stock, options and warrants for voting stock that have not yet been
exercised, limited partnership interests where the limited partner is not
"materially involved" in the media-related activities of the partnership, and
minority (under 5%) voting stock, generally do not subject their holders to
attribution. However, the FCC is currently reviewing its rules on attribution of
broadcast interests, and it may adopt stricter criteria. See "-- Proposed
Changes" below.
In addition, the FCC has a "cross-interest" policy that under certain
circumstances could prohibit a person or entity with an attributable interest in
a broadcast station or daily newspaper from having a "meaningful"
nonattributable interest in another broadcast station or daily newspaper in the
same local market. Among other things, "meaningful" interests could include
significant equity interests (including non-voting stock, voting stock and
limited partnership interests) and significant employment positions. This policy
may limit the permissible investments a purchaser of Citadel Communications' or
the Company's voting stock may make or hold.
Programming and Operation. The Communications Act requires broadcasters to
serve the "public interest." Since 1981, the FCC gradually has relaxed or
eliminated many of the more formalized procedures it developed to promote the
broadcast of certain types of programming responsive to the needs of a station's
community of license. However, licensees continue to be required to present
programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming will be considered by the FCC when
it evaluates the licensee's renewal application, but such complaints may be
filed and considered at any time.
Stations also must pay regulatory and application fees and follow various
FCC rules that regulate, among other things, political advertising, the
broadcast of obscene or indecent programming, sponsorship identification and
technical operations (including limits on radio frequency radiation). In
addition, licensees must develop and implement programs designed to promote
equal employment opportunities and must submit reports to the FCC on these
matters annually and in connection with a renewal application. The broadcast of
contests and lotteries is regulated by FCC rules.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
"short" (less than the maximum) renewal terms or, for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.
In 1985, the FCC adopted rules regarding human exposures to levels of radio
frequency ("RF") radiation. These rules require applicants for new broadcast
stations, renewals of broadcast licenses or modifications of existing licenses
to inform the FCC at the time of filing such applications whether a new or
existing broadcast facility would expose people to RF radiation in excess of
certain guidelines. In August 1996, the FCC adopted more restrictive radiation
limits. These limits will become effective on September 1, 1997
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and will govern applications filed after that date. The Company anticipates that
such regulations will not have a material effect on its business.
Local Marketing Agreements. Over the past five years, a number of radio
stations, including certain of the Company's stations, have entered into what
commonly are referred to as "local marketing agreements" (LMAs) or "time
brokerage agreements." These agreements take various forms. Separately-owned and
licensed stations may agree to function cooperatively in terms of programming,
advertising sales and other matters, subject to compliance with the antitrust
laws and the FCC's rules and policies, including the requirement that the
licensee of each station maintains independent control over the programming and
other operations of its own station. For example, pursuant to the Company's LMA
with radio station WBHT-FM, the Company agreed to purchase a substantial amount
of the air time for a negotiated fee. The Company retains all revenue generated.
The owner of these stations is entitled to preempt the programming provided by
the Company. The FCC has held that such agreements do not violate the
Communications Act as long as the licensee of the station that is being
substantially programmed by another entity maintains complete responsibility
for, and control over, operations of its broadcast stations and otherwise
ensures compliance with applicable FCC rules and policies.
A station that brokers substantial time on another station in its market or
engages in an LMA with a station in the same market will be considered to have
an attributable ownership interest in the brokered station for purposes of the
FCC's ownership rules, discussed above. As a result, a broadcast station may not
enter into an LMA that allows it to program more than 15% of the broadcast time,
on a weekly basis, of another local station that it could not own under the
FCC's local multiple ownership rules. FCC rules also prohibit the broadcast
licensee from simulcasting more than 25% of its programming on another station
in the same broadcast service (i.e., AM-AM or FM-FM) where the two stations
serve substantially the same geographic area, whether the licensee owns the
stations or owns one and programs the other through an LMA arrangement.
Another example of a cooperative agreement between differently owned radio
stations in the same market is a joint sales agreement (JSA), whereby one
station sells advertising time in combination, both on itself and on a station
under separate ownership. In the past, the FCC has determined that issues of
joint advertising sales should be left to antitrust enforcement. The Company has
entered into several JSAs whereby it sells time on behalf of other local
stations. Currently, JSAs are not deemed by the FCC to be attributable. However,
the FCC has outstanding a notice of proposed rulemaking, which, if adopted,
would require the Company to terminate any JSA it might have with a radio
station with which the Company could not have an LMA. Currently, the only
Company group that would be so affected would be its group in Colorado Springs.
See "-- General" and "-- Station Portfolio."
Proposed Changes. In December, 1994, the FCC initiated a proceeding to
solicit comment on whether it should revise its radio and television ownership
"attribution" rules by among other proposals (i) raising the basic benchmark for
attributing ownership in a corporate licensee from 5% to 10% of the licensee's
voting stock, (ii) increasing from 10% to 20% of the licensee's voting stock the
attribution benchmark for "passive investors" in corporate licensees, (iii)
restricting the availability of the attribution exemption when a single party
controls more than 50% of the voting stock; and (iv) considering LMAs, JSAs,
debt and non-voting stock interests to be attributable under certain
circumstances. No decision has been made by the FCC in these matters. At this
time, no determination can be made as to what effect, if any, this proposed
rulemaking will have on the Company.
The Congress and the FCC from time to time have under consideration, and
may in the future consider and adopt, new laws, regulations and policies
regarding a wide variety of matters that could, directly or indirectly, affect
the operation, ownership and profitability of the Company's radio stations,
result in the loss of audience share and advertising revenues for the Company's
radio stations, and affect the ability of the Company to acquire additional
radio stations or finance such acquisitions. Such matters include: proposals to
impose spectrum use or other fees on FCC licensees; the FCC's equal employment
opportunity rules and matters relating to political broadcasting; technical and
frequency allocation matters; proposals to restrict or prohibit the advertising
of beer, wine and other alcoholic beverages on radio; changes in the FCC's
cross-
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interest, multiple ownership and cross-ownership policies; changes to broadcast
technical requirements; proposals to allow telephone or cable television
companies to deliver audio and video programming to the home through existing
phone lines; proposals to limit the tax deductibility of advertising expenses by
advertisers; and proposals to auction the right to use the radio broadcast
spectrum to the highest bidder, instead of granting FCC licenses and subsequent
license renewals without such bidding.
The FCC, on April 2, 1997, awarded two licenses for the provision of
satellite digital audio radio services ("DARS"). Under rules adopted for this
service, licensees must begin construction of their space stations within one
year, begin operating within four years, and be operating their entire system
within six years. The Company cannot predict whether the service will be
subscription or advertiser supported. Digital technology also may be used in the
future by terrestrial radio broadcast stations either on existing or alternate
broadcasting frequencies, and the FCC has stated that it will consider making
changes to its rules to permit AM and FM radio stations to offer digital sound
following industry analysis of technical standards. In addition, the FCC has
authorized an additional 100 kHz of bandwidth for the AM band and on March 17,
1997, adopted an allotment plan for the expanded band which identified the 88 AM
radio stations selected to move into the band. At the end of a five-year
transition period, those licensees will be required to return to the FCC either
the license for their existing AM band station or the license for the expanded
AM band station.
The Company cannot predict whether any proposed changes will be adopted or
what other matters might be considered in the future, nor can it judge in
advance what impact, if any, the implementation of any of these proposals or
changes might have on its business.
The foregoing is a brief summary of certain provisions of the
Communications Act and of specific FCC rules and policies. This description does
not purport to be comprehensive and reference should be made to the
Communications Act, the FCC's rules and the public notices and rulings of the
FCC for further information concerning the nature and extent of federal
regulation of radio broadcast stations.
Federal Antitrust Considerations. The Company is aware that the FTC and
the DOJ, which evaluate transactions to determine whether those transactions
should be challenged under the federal antitrust laws, have been increasingly
active recently in their review of radio station acquisitions, particularly
where an operator proposes to acquire additional stations in its existing
markets.
For an acquisition meeting certain size thresholds, the HSR Act and the
rules promulgated thereunder require the parties to file Notification and Report
Forms with the FTC and the DOJ and to observe specified waiting period
requirements before consummating the acquisition. During the initial 30 day
period after the filing, the agencies decide which of them will investigate the
transaction. If the investigating agency determines that the transaction does
not raise significant antitrust issues, then it will either terminate the
waiting period or allow it to expire after the initial 30 days. On the other
hand, if the agency determines that the transaction requires a more detailed
investigation, then at the conclusion of the initial 30 day period, it will
issue a formal request for additional information ("Second Request"). The
issuance of a Second Request extends the waiting period until the twentieth
calendar day after the date of substantial compliance by all parties to the
acquisition. Thereafter, such waiting period may only be extended by court order
or with the consent of the parties. In practice, complying with a Second Request
can take a significant amount of time. In addition, if the investigating agency
raises substantive issues in connection with a proposed transaction, then the
parties frequently engage in lengthy discussions or negotiations with the
investigating agency concerning possible means of addressing those issues,
including but not limited to persuading the agency that the proposed acquisition
would not violate the antitrust laws, restructuring the proposed acquisition,
divestiture of other assets of one or more parties, or abandonment of the
transaction. Such discussions and negotiations can be timeconsuming, and the
parties may agree to delay consummation of the acquisition during their
pendency.
At any time before or after the consummation of a proposed acquisition, the
FTC or the DOJ could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
acquisition or seeking divestiture of the business acquired or other assets of
the Company. Acquisitions that are not required to be reported under the HSR Act
may be investigated by the FTC or the DOJ under the antitrust laws before or
after consummation. In addition, private parties may under certain circumstances
bring legal action to challenge an acquisition under the antitrust laws.
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The Company does not believe that any of the Pending Transactions will be
adversely affected in any material respect by review under the HSR Act. The
Company has received notification of early termination of the applicable waiting
period under the HSR Act in regard to the Boise Acquisition. No other Pending
Acquisition is subject to the HSR Act.
As part of its increased scrutiny of radio station acquisitions, the DOJ
has stated publicly that it believes that commencement of operations under LMAs,
JSAs and other similar agreements customarily entered into in connection with
radio station transfers prior to the expiration of the waiting period under the
HSR Act could violate the HSR Act. In connection with acquisitions subject to
the waiting period under the HSR Act, the Company will not commence operation of
any affected station to be acquired under an LMA or similar agreement until the
waiting period has expired or been terminated.
The Company has received two civil investigative demands from the Antitrust
Division of the DOJ. One CID addresses the Company's acquisition of KRST-FM in
Albuquerque, New Mexico, and the second CID addresses the Company's JSA relating
to stations in Spokane, Washington and Colorado Springs, Colorado. The Company
has provided the requested information in response to each CID, and, at present,
has been given no indication from the DOJ regarding its intended future actions.
See "-- Legal Proceedings."
SEASONALITY
Seasonal revenue fluctuations are common in the radio broadcasting industry
and are primarily the result of fluctuations in advertising expenditures by
retailers. The Company's revenue is typically lowest in the first quarter and
highest in the second and fourth quarters.
TRADEMARKS
The Company owns a number of trademarks and service marks, including the
federally registered marks "Cat Country," "KHOP," "Supertalk" and the Cat
Country logo. The Company also owns a number of marks registered in various
states. The Company considers such trademarks and service marks to be important
to its business. See "-- Operating Strategy -- Targeted Programming."
EMPLOYEES
At August 1, 1997, the Company employed approximately 1,300 persons. None
of such employees are covered by collective bargaining agreements, and the
Company considers its relations with its employees to be good.
The Company employs several on-air personalities with large loyal audiences
in their respective markets. The Company generally enters into employment
agreements with these personalities to protect their interests in those
relationships that it believes to be valuable. The loss of one of these
personalities could result in a short-term loss of audience share, but the
Company does not believe that any such loss would have a material adverse effect
on the Company's financial condition or results of operations.
PROPERTIES AND FACILITIES
The types of properties required to support each of the Company's radio
stations include offices, studios, transmitter sites and antenna sites. A
station's studios are generally housed with its offices in business districts.
The transmitter sites and antenna sites are generally located so as to provide
maximum market coverage.
The Company currently owns studio facilities in Spokane, Washington;
Billings, Montana; Tri-Cities, Washington; East Providence, Rhode Island; Little
Rock, Arkansas; and Patton Township (State College), Lower Yoder Township
(Johnstown) and Williams Township (Allentown), Pennsylvania, and it owns
transmitter and antenna sites in Reno, Nevada; Salt Lake City, Utah; Spokane and
Tri-Cities, Washington; Tracy (Modesto), California; Billings, Montana; Santa Fe
and Albuquerque, New Mexico; Medford, Oregon; East Providence and Johnston,
Rhode Island; Township One (Quincy), Illinois; Little Rock, Arkansas; and Patton
Township (State College), Croyle Township (Johnstown), Mt. Joy Township
(Harrisburg/York), Williams Township and Salisbury Township (Allentown) and
Hanover Township (Wilkes-Barre/Scranton),
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Pennsylvania, and expects to acquire additional facilities and dispose of
certain existing facilities in connection with the Pending Transactions. The
Company leases its remaining studio and office facilities, including office
space in Tempe, Arizona which is not related to the operations of a particular
station, and it leases its remaining transmitter and antenna sites. The Company
does not anticipate any difficulties in renewing any facility leases or in
leasing alternative or additional space, if required. The Company owns
substantially all of its other equipment, consisting principally of transmitting
antennae, transmitters, studio equipment and general office equipment.
Substantially all of the Company's properties and equipment serve as
collateral for the Company's obligations under the Credit Facility.
No one property is material to the Company's operations. The Company
believes that its properties are generally in good condition and suitable for
its operations; however, the Company continually looks for opportunities to
upgrade its properties and intends to upgrade studios, office space and
transmission facilities in certain markets.
LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business, but the Company is not a party to any
lawsuit or proceeding which, in the opinion of the Company, is likely to have a
material adverse effect on the Company.
The Company has received two CIDs from the DOJ pursuant to which the DOJ
has requested information from the Company to determine whether the Company has
violated certain antitrust laws. The first CID was issued on September 27, 1996
and concerns the Company's acquisition of all of the assets of KRST-FM in
Albuquerque, New Mexico on October 9, 1996 (the "KRST Acquisition"). The CID
requested written answers to interrogatories and the production of certain
documents concerning the radio station market in Albuquerque, in general, and
the KRST Acquisition, in particular, to enable the DOJ to determine, among other
things, whether the KRST Acquisition would result in excessive concentration in
the market. The Company has responded to the CID. The DOJ requested supplemental
information on January 27, 1997, to which the Company also responded. There have
been no communications since that time and, at present, the Company has been
given no indication from the DOJ regarding its intended future actions. If the
DOJ were to proceed with and successfully challenge the KRST Acquisition, the
Company may be required to divest one or more radio stations in Albuquerque
and/or it may be subject to the payment of fines.
The second CID was issued on October 9, 1996 and concerned the Company's
JSA relating to a total of eight radio stations in Spokane, Washington and
Colorado Springs, Colorado and which became effective in January 1996. Pursuant
to such CID, the DOJ has requested information to determine whether the JSAs
constituted a de facto merger, resulting in a combination or contract in
restraint of trade. The Company responded to the CID, and the DOJ is proceeding
with discovery in this matter. If the DOJ were to proceed with and successfully
challenge the JSA, the Company may be required to terminate the JSA and/or it
may be subject to the payment of fines.
At this time, the Company cannot predict the impact on the Company, if any,
of these proceedings or any future DOJ demands.
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THE PENDING TRANSACTIONS
There are several transactions currently pending which, if consummated,
would result in the Company (i) acquiring ownership of 10 additional radio
stations and (ii) selling seven radio stations.
THE IN-MARKET ACQUISITIONS
The Company has entered into agreements to purchase three FM and two AM
radio stations in Wilkes-Barre/Scranton, Pennsylvania, all of which the Company
currently operates under LMAs.
WEMR-AM and WEMR-FM, Wilkes-Barre/Scranton, Pennsylvania. On September 11,
1997, the Company entered into an Asset Purchase Agreement with Endless Mountain
Broadcasting, Inc. ("Endless Mountain") pursuant to which the Company has agreed
to acquire from Endless Mountain substantially all of the assets of radio
stations WEMR-AM and WEMR-FM in Wilkes-Barre/Scranton for the aggregate purchase
price of approximately $815,000 in cash. Pending the acquisition, on September
25, 1997, the Company began operating WEMR-AM and WEMR-FM pursuant to an LMA.
The asset purchase agreement contains customary representations and
warranties of the parties, and consummation of the acquisition of WEMR-AM and
WEMR-FM is subject to certain conditions including (i) the receipt of FCC
consent to the assignment of the station licenses to the Company and (ii) the
receipt of consents to the assignment to the Company of certain contracts
relating to the stations. An application seeking FCC approval was filed with the
FCC on September 17, 1997. The Company received a grant of the application on
November 4, 1997, and it anticipates that the acquisition of WEMR-AM and WEMR-FM
will close in early 1998.
WSGD-FM, WDLS-FM and WCDL-AM, Wilkes-Barre/Scranton, Pennsylvania. On
September 26, 1997, the Company entered into an Asset Purchase Agreement with
S&P Broadcasting Limited Partnership I, S&P Broadcasting Limited Partnership III
and Swanson Holdings, Ltd. (collectively, "S&P Broadcasting") pursuant to which
the Company has agreed to acquire from S&P Broadcasting substantially all of the
assets of radio stations WSGD-FM, WDLS-FM and WCDL-AM in Wilkes-Barre/Scranton
for the aggregate purchase price of approximately $6.0 million in cash. Pending
the acquisition, on October 1, 1997, the Company began operating WSGD-FM,
WDLS-FM and WCDL-AM pursuant to an LMA.
The asset purchase agreement contains customary representations and
warranties of the parties, and consummation of the acquisition of WSGD-FM,
WDLS-FM and WCDL-AM is subject to certain conditions including (i) the receipt
of FCC consent to the assignment of the station licenses to the Company and (ii)
the receipt of consents to the assignment to the Company of certain contracts
relating to the stations. An application seeking FCC approval was filed with the
FCC on October 10, 1997. The Company anticipates that the acquisition of
WSGD-FM, WDLS-FM and WCDL-AM will close in early 1998.
THE BOISE ACQUISITION
KKGL-FM, KQFC-FM, KBOI-AM, KIZN-FM and KZMG-FM, Boise, Idaho. On September
29, 1997, the Company entered into various agreements relating to three
transactions with various individuals and entities pursuant to which the Company
has agreed to acquire four FM radio stations and one AM radio station and
certain real estate associated with station operations.
The first transaction involves the purchase of all of the issued and
outstanding capital stock of Pacific Northwest Broadcasting Corporation
("Pacific Broadcasting") which owns radio stations KKGL-FM, KQFC-FM and KBOI-AM.
The aggregate purchase price for this transaction is approximately $13.2 million
in cash. At the time this transaction is consummated, Pacific Broadcasting will
be merged with and into the Company. The Company has deposited $500,000 into
escrow to secure its obligations under the acquisition agreement. The second
related transaction involves the purchase by the Company from the principals of
Pacific Broadcasting of real estate used in connection with the stations for the
purchase price of approximately $1.2 million in cash.
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The third transaction involves the purchase by the Company of substantially
all of the assets of radio stations KIZN-FM and KZMG-FM from Wilson Group, LLC
("Wilson Group") for the aggregate purchase price of approximately $14.1 million
in cash. The Company has delivered a letter of credit in the amount of $500,000
to secure its obligations under the acquisition agreement. Wilson Group is not
affiliated with Lawrence R. Wilson, a director and executive officer of the
Company.
The Company has also entered into an LMA with each of Pacific Broadcasting
and Wilson Group pursuant to which the Company markets commercial advertising
time and provides programming for the Boise Stations pending their acquisition
by the Company. The Company has received notification of early termination of
the applicable waiting periods under the HSR Act. The Company will also enter
into a five-year consulting agreement with the principal of Pacific Broadcasting
and Wilson Group.
The various acquisition agreements contain customary representations and
warranties of the parties. Consummation of the various transactions is subject
to certain conditions including (i) the receipt of FCC consent to the transfer
of control of Pacific Broadcasting to the Company, (ii) the receipt of FCC
consent to the assignment of the KIZN-FM and KZMG-FM licenses to the Company,
(iii) the expiration or termination of the applicable waiting periods under the
HSR Act and (iv) certain other customary conditions for the type of transactions
involved. An application seeking FCC approval was filed with the FCC on October
20, 1997. The Company anticipates that the acquisition of Pacific Broadcasting
will close in February 1998, and that the acquisition of KIZN-FM and KZMG-FM
will close in April 1998. Consummation of the acquisition of KIZN-FM and KZMG-FM
is contingent upon the consummation of the acquisition of Pacific Broadcasting.
Upon consummation of the various acquisitions, the Company will own four FM
radio stations and one AM radio station in Boise.
THE JOHNSTOWN/STATE COLLEGE AND ALLENTOWN DISPOSITIONS
WQKK-FM and WGLU-FM, Johnstown, Pennsylvania and WRSC-AM, WQWK-FM, WBLF-AM
and WIKN-FM, State College, Pennsylvania. On September 29, 1997, the Company
entered into an Asset Purchase Agreement with Talleyrand Broadcasting, Inc.
("Talleyrand") pursuant to which Talleyrand has agreed to purchase substantially
all of the assets of radio stations WQKK-FM and WGLU-FM in Johnstown,
Pennsylvania and radio stations WRSC-AM, WQWK-FM, WBLF-AM and WIKN-FM in State
College, Pennsylvania for the aggregate purchase price of approximately $8.5
million in cash. In addition to the stations it owns in Johnstown and State
College, the Company will also sell to Talleyrand its right of first refusal to
purchase two additional radio stations in Johnstown.
The asset purchase agreement contains customary representations and
warranties of the parties, and consummation of the sale of WQKK-FM, WGLU-FM,
WRSC-AM, WQWK-FM, WBLF-AM and WIKN-FM is subject to certain conditions including
(i) the receipt of FCC consent to the assignment of the station licenses to
Talleyrand and (ii) the receipt of consents to the assignment to Talleyrand of
certain contracts relating to the stations. An application seeking FCC approval
was filed with the FCC on October 10, 1997. The Company anticipates that the
sale of WQKK-FM, WGLU-FM, WRSC-AM, WQWK-FM, WBLF-AM and WIKN-FM will close in
early 1998. The Company does not own any other radio stations in either
Johnstown or State College.
WEST-AM, Allentown/Bethlehem, Pennsylvania. On July 15, 1997, the Company
entered into an Asset Purchase Agreement with Maranatha Broadcasting Company,
Inc. ("Maranatha") pursuant to which Maranatha has agreed to acquire from the
Company certain of the assets used in the operation of radio station WEST-AM in
Allentown/Bethlehem. In October 1997, the Company acquired radio station WLEV-FM
from Maranatha, and the assets of WEST-AM constitute a portion of the purchase
price for WLEV-FM.
The asset purchase agreement contains customary representations and
warranties of the parties, and consummation of the sale of WEST-AM is subject to
certain conditions including (i) the receipt of FCC consent to the assignment of
the WEST-AM license to Maranatha and (ii) the receipt of consents to the
assignment to Maranatha of certain contracts relating to WEST-AM. An application
seeking FCC approval was filed on August 21, 1997. The Company anticipates that
the sale of WEST-AM will close in early 1998. Upon consummation of such sale,
the Company will own two FM radio stations in Allentown/Bethlehem.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------ --- --------------------------------------------
<S> <C> <C>
Lawrence R. Wilson............ 52 Chief Executive Officer, President and
Chairman of the Board of Directors
Donna L. Heffner.............. 38 Vice President, Chief Financial Officer,
Treasurer and Secretary
Stuart R. Stanek.............. 41 Vice President; President of East Region
Edward T. Hardy............... 49 Vice President; President of West Region
D. Robert Proffitt............ 45 Vice President; President of Central Region
Patricia Diaz Dennis.......... 51 Director
Scott E. Smith................ 42 Director
John E. von Schlegell......... 43 Director
Ted L. Snider, Sr............. 68 Director
</TABLE>
- ---------------
Each director of the Company holds office until the next annual meeting of
shareholders and until his or her successor has been elected and qualified.
Officers are elected by the Board of Directors and serve at its discretion.
Lawrence R. Wilson co-founded and was a general partner of Predecessor from
1984 to July 1992 and has been the Chief Executive Officer, President and
Chairman of the Board of the Company since it was incorporated in August 1991
and of Citadel Communications since it was incorporated in May 1993. From 1974
to 1979, Mr. Wilson was Executive Vice President and General Counsel of Combined
Communications Corporation, a national media company, where he handled all
acquisitions and mergers and oversaw the broadcast, newspaper and outdoor
billboard divisions as a part of a five person management committee. From 1979
to 1986, he was engaged in the private practice of law.
Donna L. Heffner joined Predecessor in 1988 as its Controller. Ms. Heffner
has served as Treasurer and Secretary of the Company since it was incorporated
in August 1991 and of Citadel Communications since it was incorporated in May
1993. She has served as Chief Financial Officer of the Company and Citadel
Communications since July 1992 and May 1993, respectively. In January 1997, Ms.
Heffner became Vice President of Citadel Communications and the Company. Ms.
Heffner also served as a director of the Company from 1992 to 1993 and as a
director of Citadel Communications for several months in 1993. From 1982 to 1985
and in 1987, she was employed by Price Waterhouse, and in 1986, she was employed
by Lowrimore, Warwick & Company as an accountant.
Stuart R. Stanek joined Predecessor in 1986 as a General Manager of KKFM-FM
in Colorado Springs. In 1988, he became General Manager of KCNR-AM/KUBL-FM in
Salt Lake City, in 1991, he was appointed Vice President of the Company, in 1992
he was elected to the Board of Directors of the Company and in 1993, he was
appointed Vice President and elected to the Board of Citadel Communications. He
served as a Director of Citadel Communications and the Company until August
1996. Mr. Stanek became President of East Region for the Company in June 1997.
Edward T. Hardy founded and was elected President and Chief Executive
Officer of Deschutes in 1994. Mr. Hardy joined Citadel Communications in January
1997 as President of Deschutes following Citadel Communications' acquisition of
Deschutes. Mr. Hardy became President of West Region for the Company and Vice
President of Citadel Communications and the Company in June 1997. From 1984 to
1993, Mr. Hardy was Vice President -- General Manager of KUPL AM/FM in Portland.
D. Robert Proffitt joined Predecessor in 1988 as Vice President -- General
Manager of KKFM-FM in Colorado Springs. In 1991, he was appointed Vice President
of the Company, and in 1993, he was appointed
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Vice President of Citadel Communications. Mr. Proffitt took over as General
Manager of the Company's Albuquerque operations in 1994. Mr. Proffitt became
President of Central Region for the Company in June 1997.
Patricia Diaz Dennis became a director of the Company and Citadel
Communications in November 1997. Since September 1995, Ms. Dennis has served as
Senior Vice President and Assistant General Counsel for regulation and law of
SBC Communications Inc., a company which provides telecommunications products
and services. From March 1993 until joining SBC Communications Inc., Ms. Dennis
served as special counsel for communications matters for the law firm of
Sullivan & Cromwell. Ms. Dennis served as a commissioner of the FCC from June
1986 to September 1989 and as Assistant Secretary of State for Human Rights and
Humanitarian Affairs in the United States Department of State from August 1992
to January 1993. Ms. Dennis also serves as director for various entities,
including Massachusetts Mutual Life Insurance Company and National Public Radio.
Scott E. Smith has served as a member of the Board of Directors of the
Company since 1992 and of Citadel Communications since 1993. He is an Executive
Vice President of Baker, Fentress & Company ("Baker Fentress"). Since 1989, Mr.
Smith has managed the private placement portfolio of Baker Fentress.
John E. von Schlegell has served as a member of the Board of Directors of
the Company and Citadel Communications since January 1997. He co-founded and,
since 1991, has managed, Endeavour Capital Fund Limited Partnership ("Endeavour
Capital"), a firm that invests equity capital in privately held businesses
throughout the northwest. Since January 1994, Mr. von Schlegell has been the
President and a shareholder of DVS Management, Inc. ("DVS"), the general partner
of Endeavour Capital. From January 1991 until January 1994, Mr. von Schlegell
was a general partner of DVS Associates, the then general partner of Endeavour
Capital.
Ted L. Snider, Sr. became a director of the Company and Citadel
Communications in November 1997 following the Company's October 1997 acquisition
of Snider Corporation. Mr. Snider had been Chairman of Snider Corporation since
its incorporation in 1971. Snider Corporation owned two FM and two AM radio
stations, the right to construct an additional FM radio station and the Arkansas
Radio Network.
Members of the Board of Directors, other than Ms. Dennis, are not currently
compensated for their services as Board members. Each nonemployee director is
reimbursed for travel and related expenses for attendance at Board and Committee
meetings, and Ms. Dennis is entitled to receive an annual fee of $20,000 for
services as a Board member. In addition, on November 25, 1997, Ms. Dennis was
granted an immediately exercisable option to purchase 2,500 shares of Class A
Common Stock, par value $0.001 per share, of Citadel Communications (the "Class
A Common Stock") at an exercise price of $30.00 per share.
BOARD COMPOSITION AND GOVERNANCE MATTERS
Pursuant to the Fourth Amended and Restated Voting Agreement dated as of
October 15, 1997 (the "Voting Agreement"), by and among Citadel Communications,
Harlan Levy, as Trustee under the Amended and Restated Voting Trust Agreement
dated October 15, 1997 (the "Voting Trust Agreement"), Baker Fentress, FINOVA
Capital Corporation ("FINOVA Capital"), Oppenheimer & Co., Inc. ("Oppenheimer"),
Endeavour Capital, Edward T. Hardy, Ted L. Snider, Sr., Lawrence R. Wilson and
certain other parties, certain parties to the Voting Agreement have the right to
designate the directors of Citadel Communications and the Company as follows:
Baker Fentress has the right to designate one director, and has initially
designated Scott E. Smith; Lawrence R. Wilson has the right to designate one
director, and has initially designated himself; Endeavour Capital has the right
to designate one director, and has initially designated John von Schlegell; the
Trustee under the Voting Trust Agreement has the right to designate one
director, subject to certain restrictions, and has initially designated Patricia
Diaz Dennis; and the persons who received shares of preferred stock of Citadel
Communications in connection with the Little Rock Acquisitions have the right to
designate one director, and have initially designated Ted L. Snider, Sr.
Pursuant to the Voting Trust Agreement, the Trustee votes the shares of ABRY II,
and ABRY/CIP in accordance with the relevant provisions of the Voting Agreement.
See "Security Ownership of Certain Beneficial Owners."
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The rights and obligations of a shareholder or group of shareholders under
the Voting Agreement terminate in relevant part either upon consummation of a
sale of Citadel Communications' common stock, par value $0.001 per share (the
"Common Stock"), in an underwritten public offering which, among other things,
results in net cash proceeds to Citadel Communications of at least $25 million,
or automatically upon the fifteenth anniversary date of the Voting Agreement,
unless extended. The Voting Trust Agreement continues in effect until terminated
upon written agreement of Citadel Communications and the holders of voting trust
certificates which represent a majority of the shares held in the voting trust.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid to the Company's Chief Executive Officer and each of the other two persons
who were executive officers of the Company during 1996 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
----------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ----------------------------- ---- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence R. Wilson........... 1996 $325,000 $81,250(1) $3,404(2) 150,000 $411,423(3)
Chief Executive Officer and
President
Stuart R. Stanek............. 1996 $165,000 $35,000(1) $2,627(2) 24,000 $ 2,553(4)
Vice President and
President of East Region
Donna L. Heffner............. 1996 $120,000 $20,000(1) $1,364(2) 22,000 $ 2,505(5)
Vice President and Chief
Financial Officer
</TABLE>
- ---------------
(1) Bonuses were earned in 1996, but paid in 1997. Does not reflect bonuses
earned in 1995, but paid in 1996.
(2) Represents amount for personal use of Company-provided vehicle and for goods
and services received through the Company's trade agreements.
(3) Represents the Company's contribution of $2,708 to the Company's 401(k)
Plan, which contribution vests over five years, the Company's payment of $78
of premiums for term life insurance, and the forgiveness of $408,637 of
indebtedness. See "Certain Transactions."
(4) Represents the Company's contribution of $2,475 to the Company's 401(k)
Plan, which contribution vests over five years, and the Company's payment of
$78 of premiums for term life insurance.
(5) Represents the Company's contribution of $2,427 to the Company's 401(k)
Plan, which contribution vests over five years, and the Company's payment of
$78 of premiums for term life insurance.
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<PAGE> 93
Stock Options. The following table summarizes individual grants of options
to purchase shares of Class A Common Stock to the Named Executives during the
year ended December 31, 1996:
OPTIONS GRANTED IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS EXERCISE STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED IN 1996 ($/SH) DATE 5%($) 10%($)
- -------------------------------- --------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Lawrence R. Wilson(2)........... 25,628 8.3% $17.17 6/28/01 $ 70,548 $ 204,257
124,372 40.1 17.17 6/28/06 1,026,945 2,900,146
Stuart R. Stanek(3)............. 2,000 0.6 12.00 1/05/06 26,854 38,250
22,000 7.1 17.17 6/28/06 181,655 513,003
Donna L. Heffner(3)............. 22,000 7.1 17.17 6/28/06 181,655 513,003
</TABLE>
- ---------------
(1) The potential realizable value is based on the term of the option at the
time of grant. An assumed stock price appreciation of 5% and 10% is used
pursuant to rules promulgated by the Commission. The potential realizable
value is calculated by assuming (i) that the stock price on the date of
grant was equal to $12.00 for the option to purchase 2,000 shares granted to
Mr. Stanek on January 5, 1996 and $15.61 for the remaining options which
were granted on June 28, 1996, which represent Citadel Communications'
estimate of fair market value on such dates, and (ii) that such price
appreciates at the indicated rate, compounded annually, for the entire term
of the option and that the option is exercised and sold on the last day of
its term at this appreciated stock price. The gains shown are net of the
option exercise price, but do not include deductions for taxes or other
expenses associated with the exercise of the option or the sale of the
underlying shares. The potential realizable value is not intended to
forecast the future appreciation of the Class A Common Stock.
(2) Pursuant to his employment agreement with the Company, Mr. Wilson was
granted options under Citadel Communications' 1996 Equity Incentive Plan to
purchase 25,628 and 124,372 shares of Citadel Communications' Class A Common
Stock at an exercise price of $17.17 (110% of the fair market value on the
date of grant) per share. The option to purchase 25,628 shares vests 25% on
each of the first through fourth anniversaries of the date of the grant, and
the option to purchase 124,372 shares vests 20% on each of the first through
fifth anniversaries of the date of grant. Vesting accelerates in the event
of a change in control of Citadel Communications (as provided for in the
relevant option agreements), but only to the extent that such acceleration
does not result in Citadel Communications incurring compensation expense
under section 280G of the Internal Revenue Code of 1986, as amended.
(3) Options vest 20% on each of the first through fifth anniversaries of the
date of grant. Vesting accelerates in the event of a change in control of
Citadel Communications (as provided for in the relevant option agreements).
The following table shows the number and value of unexercised stock options
to purchase shares of Class A Common Stock held by the Named Executives as of
December 31, 1996. No options were exercised by the Named Executives in 1996.
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS(1)
------------------------- -------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------- -------------------------
<S> <C> <C>
Lawrence R. Wilson........... 62,942/150,000 $ 729,086/$0
Stuart R. Stanek............. 18,671/ 52,007 $207,724/$284,486
Donna L. Heffner............. 18,807/ 50,211 $209,451/$279,857
</TABLE>
- ---------------
(1) Assumes that the fair market value of each share of Class A Common Stock
into which the options are exercisable is $15.61 which represents Citadel
Communications' estimate of fair market value on December 31, 1996.
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<PAGE> 94
In October 1993, Mr. Wilson was granted performance options to acquire up
to an aggregate of 85,935 shares of Class A Common Stock at an exercise price
per share of $2.91, which represented Citadel Communications' estimate of the
fair market value of the shares on the date of grant. The options can be earned
(17,187 shares per year) over a five-year period following the date of grant and
expire on the earlier of ten years from the date granted or termination of
employment. Vesting is dependent upon Citadel Communications achieving certain
annual operating results. At December 31, 1996, the option was exercisable with
respect to 34,374 shares, and, on January 1, 1997, the option vested with
respect to an additional 17,187 shares. In December 1994, Mr. Wilson was granted
an immediately exercisable option to acquire an aggregate of 28,568 shares of
Class A Common Stock at an exercise price of $5.37 per share.
EMPLOYMENT AGREEMENT
In June 1996, the Company entered into an employment agreement with
Lawrence R. Wilson which has an initial term ending in June 2001. Mr. Wilson's
current annual base salary under the agreement is $341,250 which is to be
increased by 5% in January of each year during the term of the agreement. The
agreement also provides for an annual bonus calculated as a percentage of Mr.
Wilson's base salary in effect at the end of the year and based on certain
annual performance criteria of the Company.
Mr. Wilson's employment with the Company will terminate upon Mr. Wilson's
becoming permanently disabled or upon (i) a liquidation or dissolution of
Citadel Communications, (ii) a sale, transfer or other disposition of all of the
assets of the Company on a consolidated basis or (iii) any transaction or series
of transactions whereby any person or entity other than ABRY II or its
affiliates or affiliates of the Company, becomes the direct or indirect
beneficial owner of securities of Citadel Communications or the Company
representing 50% or more of the combined voting power of Citadel Communications'
or the Company's then outstanding securities. In such event, Mr. Wilson or his
beneficiary will be entitled to receive Mr. Wilson's then base salary through
the end of the month in which the termination occurs. In addition, upon the
affirmative vote or written consent of not less than 66 2/3% of the members of
the Board of Directors of Citadel Communications (the "Citadel Board"), Mr.
Wilson's employment may be terminated with or without cause. If any such
termination is without cause, Mr. Wilson will be entitled to receive his then
current base salary through the end of the then term of the employment
agreement.
1996 EQUITY INCENTIVE PLAN
Citadel Communications has adopted the 1996 Equity Incentive Plan (the
"Plan") pursuant to which all employees of the Company are eligible to receive
awards in the form of non-qualified options and incentive options to purchase
Class A Common Stock, stock appreciation rights, restricted securities and other
stock-based awards as determined by the Citadel Board. The Plan is administered
by the Citadel Board, which determines the price and type of awards granted and
the key managerial employees eligible to receive awards and the terms thereof,
including vesting, all in a manner consistent with the Plan. The Citadel Board
may delegate responsibility for administration of the Plan to a committee of the
Citadel Board. The total number of shares of Class A Common Stock reserved and
available for awards under the Plan (or which may be used to provide a basis of
measurement for an award) is 526,824 shares. Shares subject to any option which
terminates or expires unexercised will be available for subsequent grants. The
exercise price of incentive stock options granted under the Plan is to be at
least 100% of the fair market value of the Class A Common Stock on the date of
grant (110% of the fair market value of the Class A Common Stock in the case of
an incentive stock option to an individual who at the time of the grant owns
more than 10% of the combined voting power of Citadel Communications' capital
stock). The Citadel Board may provide that an optionee may pay for shares upon
exercise of an option in cash or by check or by such other medium or by any
combination of media as authorized by the Citadel Board. The grant of an option
may be accompanied by a reload option, which gives an optionee who pays the
exercise price of an option with shares of Class A Common Stock an additional
option to acquire the same number of shares that was used to pay for the
original option at an exercise price of not less than the fair market value of
Class A Common Stock as of the reload option grant date. An unexercised option
normally expires upon termination of employment, provided that the Citadel Board
may permit the holder of the option to exercise it during the 90 days following
termination. Under certain
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<PAGE> 95
circumstances, including termination of employment upon retirement, disability
or death, the option may be exercised during an extended period. In the event of
termination of employment under certain circumstances following certain change
in control events, an option generally may be exercised in full during the 90
days following termination. The Plan also provides for the grant of performance
units and shares of restricted stock.
401(K) PLAN
Effective in 1993, the Company adopted a 401(k) Savings Plan ("Retirement
Plan") for the purpose of providing, at the option of the employee, retirement
benefits to full-time employees of the Company and its subsidiaries who have
been employed for a period of one year or longer. Contributions to the
Retirement Plan are made by the employee and, on a voluntary basis, by the
Company. The Company currently matches 100% of that part of the employee's
deferred compensation which does not exceed 2% of such employee's salary.
A contribution to the Retirement Plan of $144,256 was made during the year
ended December 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, Scott E. Smith and former directors Mark A. Leavitt, William
P. Sutter, Jr. and Royce Yudkoff were members of the Compensation Committee of
the Citadel Board, which determines compensation matters for the Company. Such
persons are or were also directors of the Company. Mr. Yudkoff is President of
ABRY Holdings, Inc., the general partner of ABRY Capital, L.P., the general
partner of ABRY II and ABRY/CIP.
Investment Banking Relationships. Mark A. Leavitt, a director of the
Company from 1992 to November 1997, is a Managing Director of Prudential
Securities Incorporated, which has provided since 1996, and may in the future
provide, investment banking services to the Company. Such services have been
provided on terms customary in the industry. Prudential Securities Incorporated
was an Initial Purchaser in the Original Offerings. In each of 1994, 1995 and
1996, Oppenheimer provided investment banking services to the Company and
Citadel Communications. During such years, Mr. Leavitt was a Managing Director
of Oppenheimer. Such services were provided on terms customary in the industry.
Oppenheimer is also a party to the Voting Agreement, the Securities Purchase and
Exchange Agreement (as defined), the Stockholders Agreement and the Registration
Rights Agreement (as defined).
Repayment of Certain Indebtedness. In October 1996, the Company repaid its
indebtedness to Baker Fentress, which consisted of $7.0 million in principal
amount and $20,534 in accrued and unpaid interest. The Company also paid Baker
Fentress a $420,000 prepayment penalty. Baker Fentress beneficially owns all of
the outstanding shares of Series A Preferred Stock (as defined) of Citadel
Communications which is convertible into shares of Class A Common Stock. See
"Security Ownership of Certain Beneficial Owners." Scott E. Smith, a director of
the Company, is an Executive Vice President of Baker Fentress.
Registration Rights Agreement. Citadel Communications is a party to a
Registration Rights Agreement, dated June 28, 1996, as amended (the
"Registration Rights Agreement"), with Lawrence R. Wilson, ABRY II, ABRY/CIP,
Baker Fentress, Bank of America National Trust and Savings Association ("Bank of
America") (and certain of its employees and its affiliates), Oppenheimer, Edward
T. Hardy, Endeavour Capital, Ted L. Snider, Sr. and others, which requires
Citadel Communications, upon a one-time demand by such shareholders on or after
the earlier of (i) the consummation of an initial public offering of Citadel
Communications' Common Stock which is registered pursuant to the Securities Act
or (ii) August 1, 2000, to register their shares of Common Stock of Citadel
Communications under the Securities Act for offer and sale to the public
(including by way of an underwritten public offering), and which entitles such
parties to join in any registration of equity securities of Citadel
Communications.
Securities Purchase and Exchange Agreement. Pursuant to a Securities
Purchase and Exchange Agreement dated June 28, 1996, as amended (the "Securities
Purchase and Exchange Agreement"), among Citadel Communications, the Company,
ABRY II, ABRY/CIP, Baker Fentress, Oppenheimer, Endeavor Capital, Edward T.
Hardy, Bank of America, Ted L. Snider, Sr. and certain other parties, Citadel
Communications redeemed outstanding preferred stock held by Bank of America and
certain other parties,
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<PAGE> 96
repaid the $2.0 million principal balance and the $17,500 in accrued interest on
Citadel Communications' Junior Subordinated Convertible Note Due 1996 dated May
24, 1996 issued to ABRY II, financed four radio station acquisitions, and paid
certain working capital requirements. The transactions were financed by Citadel
Communications' issuance of approximately 1,473,857 shares of its Series C
Preferred Stock (as defined), and approximately 1,346,422 shares of its Series D
Preferred Stock to ABRY II, and of approximately 182,162 shares of Series C
Preferred Stock, and approximately 166,411 shares of Series D Preferred Stock to
ABRY/CIP, all for approximately $15.61 per share for a total consideration of
approximately $49.5 million, and through borrowings under a $20.0 million
revolving line of credit with ABRY II and ABRY/CIP. See "Security Ownership of
Certain Beneficial Owners." Simultaneously, four then existing series of capital
stock of Citadel Communications held by ABRY II, ABRY/CIP, Baker Fentress,
Oppenheimer, Bank of America and certain other parties were reclassified. The
consummation of these transactions was conditioned upon, among other things, the
entry of various parties into, and the effectiveness as of the time of closing
of, the Registration Rights Agreement, the Stockholders Agreement, the Voting
Agreement, and the Management and Consulting Services Agreement (as defined).
The Securities Purchase and Exchange Agreement established a commitment
(the "Facility A Commitment") by ABRY II and ABRY/CIP in favor of Citadel
Communications for a revolving line of credit in the aggregate principal amount
of $20.0 million and against which ABRY II and ABRY/CIP made pro rata advances
(the "Facility A Advances"). At June 30, 1997, there were four Facility A
Advances outstanding, the aggregate principal balance of which was approximately
$12.8 million. Contemporaneously with the consummation of the Original
Offerings, a portion of the proceeds was used to repay advances made to the
Company by Citadel Communications with the proceeds of the Facility A Advances.
Citadel Communications repaid the Facility A Advances concurrently with the
closing of the Original Offerings. Thereafter, the Facility A Commitment
terminated and ABRY II and ABRY/CIP have no further obligation to make Facility
A Advances.
The Securities Purchase and Exchange Agreement provides that Citadel
Communications and, to the extent applicable, its subsidiaries, including the
Company, must enter into an agreement with each of its employees who owns
Citadel Communications equity securities providing (i) that any employee
transfer of these equity securities (except for any made by Mr. Wilson) is
subject to a Citadel Communications right of first refusal to purchase these
equity securities at a price determined by a formula and (ii) that any payment
or other consideration received by such employee in connection with any
transaction resulting in a change of control of Citadel Communications or the
Company including (a) certain employment agreements or consulting agreements,
(b) noncompetition agreements, (c) licenses or (d) forbearances of any kind,
unless such payment does not exceed the price per share of Common Stock paid to
non-employee holders of Common Stock, shall be deemed additional payment to
Citadel Communications in the case of sale of the assets of Citadel
Communications, or shall be payable to all holders of equity securities of
Citadel Communications in the case of a merger or sale of part or all of the
equity securities of Citadel Communications.
Voting Trust Agreement. In 1997, the Company paid ABRY II (for the account
of ABRY II and ABRY/CIP) $75,000 to defray the fees and expenses associated with
the Voting Trust, including fees payable to the Trustee and the back-up
trustees. Each of Christopher P. Hall, J. Walter Corcoran and Harlan A. Levy,
former directors of the Company, has served as either Trustee or a back-up
trustee in 1997. For additional information concerning the Voting Trust
Agreement, see "Management -- Board Composition and Governance Matters" and
"Security Ownership of Certain Beneficial Owners."
Management and Consulting Services Agreement. In June 1996, the Company
entered into a Management Services and Consulting Agreement with ABRY Partners,
Inc. (the "Management and Consulting Services Agreement") which was terminated
in March 1997. Pursuant to the agreement, ABRY Partners, Inc. provided
consultation to the Company's Board of Directors and management on business and
financial matters. The Company paid $37,500 and $62,500 to ABRY Partners, Inc.
under this agreement in 1996 and 1997, respectively, and reimbursed ABRY
Partners, Inc. for reasonable out-of-pocket costs and expenses. ABRY Partners,
Inc. is an affiliate of ABRY II and ABRY/CIP.
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Stockholders Agreement. Citadel Communications is a party to a Second
Amended and Restated Stockholders Agreement, dated June 28, 1996, as amended
(the "Stockholders Agreement"), with ABRY II, ABRY/CIP, Baker Fentress,
Oppenheimer, Bank of America, FINOVA Capital, Endeavour Capital, Lawrence R.
Wilson, Claire Wilson, Edward T. Hardy, Ted L. Snider, Sr. and certain other
shareholders of Citadel Communications (collectively, the "Shareholder
Parties"). Pursuant to the Stockholders Agreement, the Shareholder Parties have
the right of first refusal to purchase any equity securities issued by Citadel
Communications or any of its subsidiaries, including the Company, other than
Class A Common Stock or options to purchase Class A Common Stock issued to
employees or directors pursuant to certain compensation plans, equity securities
issued upon conversion of another class of equity securities or Common Stock
issued in a registered public offering. Subject to certain exceptions, the
Shareholder Parties, other than Lawrence and Claire Wilson, also have (i) the
right of first refusal with respect to the shares of capital stock of Citadel
Communications proposed to be transferred by the Wilsons, or (ii) the right to
participate in any such transfer. Certain of the Shareholder Parties, including
ABRY II, ABRY/CIP, Bank of America, Endeavour Capital, Mr. Hardy and Mr. Snider,
have the right, under certain circumstances, to require Citadel Communications
to purchase all or a portion of their shares of capital stock of Citadel
Communications for a price determined in accordance with the Stockholders
Agreement. In the event that Citadel Communications is unable to repurchase
shares tendered by or on behalf of ABRY II or ABRY/CIP, such entities are
entitled, among other things, to solicit offers and make presentations and
proposals to prospective buyers of Citadel Communications and enter into
negotiations and/or agreements regarding the potential sale of Citadel
Communications. Citadel Communications also has the right, at its option, at any
time commencing on August 1, 2000, to repurchase outstanding shares of Preferred
Stock (as defined) and the warrants held by Bank of America to purchase shares
of Class B Common Stock (as defined), and, under certain circumstances, shares
of Class A Common Stock, held by certain Shareholder Parties, for a price
determined in accordance with the Stockholders Agreement. The foregoing
provisions of the Stockholders Agreement terminate upon the consummation of a
sale of Citadel Communications' Common Stock in an underwritten public offering
which, among other things, results in receipt by Citadel Communications of net
cash proceeds of at least $25.0 million.
Donna L. Heffner, Stuart R. Stanek and D. Robert Proffitt, executive
officers of the Company, and Michael J. Ahearn, a former director of the
Company, have joined as parties with respect to certain provisions of the
Stockholders Agreement.
Stock Repurchase. In June 1996, Citadel Communications repurchased shares
of capital stock of Citadel Communications then held by Mesirow Capital Partners
VI ("Mesirow VI") for an aggregate amount of approximately $10.7 million.
Mesirow VI had acquired such shares in 1993. William P. Sutter, Jr., a former
director of the Company, was an officer of the general partner of Mesirow VI.
Mesirow VI had been a party to the Registration Rights Agreement, the Voting
Agreement and the Stockholders Agreement.
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CERTAIN TRANSACTIONS
CERTAIN LOAN TRANSACTIONS
Lawrence R. Wilson, an executive officer and director of the Company, was
indebted to the Company in the amount of $394,297 (including accrued interest of
$46,440) as of December 31, 1995 (the "Principal Shareholder Loan").
Approximately $70,000 of the principal amount of the Principal Shareholder Loan
was advanced by Predecessor to Mr. Wilson in June 1992 for personal purposes,
approximately $27,860 of the Principal Shareholder Loan was advanced by
Predecessor to Mr. Wilson in April 1993 to finance Mr. Wilson's purchase of
capital stock of the Company from a former shareholder and approximately
$250,000 was advanced by the Company to Mr. Wilson in 1994 for personal
purposes. The Principal Shareholder Loan, which bore interest at the rate of
8.5% per annum, was forgiven in June 1996, at which time an aggregate of
$408,637 principal and accrued interest was outstanding. Mr. Wilson's
indebtedness under the Principal Shareholder Loan was secured by certain shares
of capital stock of Citadel Communications owned by Mr. Wilson.
In 1995, Mr. Wilson made a short-term unsecured loan of $365,000 to the
Company at an annual interest rate of 10%. The Company repaid such loan in full
in 1996.
SALE AND LEASEBACK OF AIRPLANE
In December 1995, the Company sold to Wilson Aviation, L.L.C., a company
owned by Mr. Wilson and his spouse, an airplane formerly owned by the Company,
for a cash purchase price of approximately $1.3 million. Contemporaneously with
the sale of the airplane, the Company entered into an agreement to lease the
airplane from Wilson Aviation, L.L.C. from December 29, 1995 to December 31,
2001. Under the terms of the lease, the Company is required to pay monthly rent
in the amount of $17,250 and, in addition, to bear all of the costs of the
maintenance, repair and operation of the airplane during the term of the lease.
The sale and leaseback were not independently established in an arm's length
transaction; however, the transaction was reviewed and approved by the Company's
senior lender and the Company believes, based upon such review, that the terms
of the transaction are reasonable.
REAL ESTATE PURCHASE IN CONNECTION WITH ACQUISITION
In order to facilitate the Company's acquisition of KKLI-FM from Tippie
Communications, Inc. ("Tippie") in 1996, Mr. Wilson purchased from a shareholder
of Tippie certain associated real estate located in Colorado Springs, Colorado,
which the Company did not desire to acquire. The purchase price for the real
estate was $350,000. The purchase price and terms of the transaction were
negotiated between Mr. Wilson and the seller of the real estate, and neither the
Company nor Mr. Wilson obtained an independent appraisal of such real estate. In
acquiring the real estate involved, Mr. Wilson did not obtain funds directly or
indirectly from the Company to purchase such property. The Company believes that
its acquisition of KKLI-FM, in the context of the acquisition of the real estate
by Mr. Wilson, was fair to the Company.
DESCHUTES TRANSACTIONS
In connection with the acquisition of Deschutes, Edward T. Hardy, an
officer, director and shareholder of Deschutes prior to its acquisition by
Citadel Communications and currently an executive officer of the Company, and
Endeavour Capital, a shareholder of Deschutes prior to its acquisition by
Citadel Communications and currently a shareholder of Citadel Communications,
each received merger consideration consisting of shares of capital stock of
Citadel Communications valued at approximately $206,500 and approximately $7.2
million, respectively. John E. von Schlegell, a director of the Company, is
President and a shareholder of the general partner of Endeavour Capital. Mr.
Hardy also received immediately exercisable options to purchase 22,918 shares of
Class A Common Stock at an exercise price of $4.91 per share and 8,045 shares of
Class A Common Stock at an exercise price of $17.17 per share in exchange for
options to acquire shares of Deschutes capital stock. Following the Deschutes
merger, he was granted options to purchase an aggregate of 37,000 shares of
Class A Common Stock at an exercise price of $17.17 per share, which options
vest 20% per year beginning with the first anniversary of the date of the grant.
In contemplation of the proposed acquisition
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of Deschutes, during 1996, the Company made advances to Deschutes to enable
Deschutes to acquire various radio stations and pay-off existing debt. At
December 31, 1996, an aggregate of approximately $18.3 million was due under
these advances, which was credited against the cash portion of the purchase
price for Deschutes.
In connection with the acquisition of Deschutes, Citadel Communications
entered into an Agreement Not to Compete with DVS, the general partner of
Endeavour Capital, a shareholder of Deschutes prior to its acquisition by
Citadel Communications, pursuant to which DVS has agreed not to compete in radio
broadcasting in any geographic area or market served or competed in by one or
more of the Company's stations. In consideration for such agreement not to
compete with the Company's stations, Citadel Communications is obligated to pay
DVS an aggregate of $200,000 in 1997 and 1998.
In February 1995, the Company sold the assets of six radio stations located
in Montana to Deschutes for the aggregate purchase price of $5.4 million. At the
time of the transaction, Mr. Hardy was a director, executive officer and
shareholder of Deschutes and Endeavour Capital was a shareholder of Deschutes.
LITTLE ROCK AND PROVIDENCE ACQUISITIONS
Ted L. Snider, Sr., who became a director of the Company in November 1997,
and his spouse were the shareholders of Snider Corporation and, in connection
with the Company's acquisition of Snider Corporation and certain other assets
from Mr. Snider and his spouse in October 1997, Mr. Snider and his spouse
received approximately $7.4 million in cash and approximately $4.5 million in
shares of a newly created series of preferred stock of Citadel Communications.
Mr. Snider's son and nephew, Calvin Arnold, were principal shareholders of
Snider Broadcasting Corporation ("Snider Broadcasting") and of CDB Broadcasting
Corporation ("CDB") and, in connection with the Company's acquisition of Snider
Broadcasting and certain assets from CDB in October 1997, they received
approximately $5.5 million in shares of a newly created series of preferred
stock of Citadel Communications. In addition, the Company repaid approximately
$2.6 million of indebtedness of Snider Broadcasting and CDB received
approximately $4.9 million in cash. Mr. Arnold is employed by the Company as
General Manager of the Company's radio stations in the Little Rock area.
Prior to its acquisition by the Company, Snider Corporation transferred to
Mr. Snider and his spouse its rights to operate under an LMA an FM radio station
under construction. Accordingly, the cash portion of the purchase price for
Snider Corporation was reduced by $100,000. In the event a designated third
party does not take an assignment and assume the Sniders' rights under the LMA,
the Sniders have the right to require the Company to accept an assignment of the
LMA and pay the Sniders $100,000.
Effective June 2, 1997, the Company began operating the radio stations
formerly owned by Snider Corporation, Snider Broadcasting and CDB under LMAs
under which an aggregate of approximately $823,000 was paid by the Company to
such entities.
Philip Urso and Phillip Norton, each of whom acquired ownership of more
than 5% of the outstanding shares of Series F Preferred Stock of the Company in
connection with the Company's September 1997 acquisition of WXEX-FM and related
assets in Providence, Rhode Island, are employed by the Company as General
Manager and Director of Sales, respectively, for the Company's Providence
stations. Mr. Urso and certain of his family members were shareholders of Bear
Broadcasting Company ("Bear"), which sold WHKK-FM to the Company in November
1997 for approximately $4.0 million in cash. From September 15, 1997 until the
acquisition of WHKK-FM, the Company operated WHKK-FM under an LMA pursuant to
which the Company reimbursed Bear an aggregate of approximately $17,000 for
certain costs and expenses of station operation.
CONSULTING ARRANGEMENT
During the fiscal year ended December 31, 1996, Michael J. Ahearn, a former
director of the Company, provided financial consulting services to the Company
for which he was paid $83,520. On June 28, 1996, Mr. Ahearn was also granted an
option to purchase 4,000 shares of Class A Common Stock at an exercise price of
$17.17 per share. Such option is fully vested.
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LEGAL SERVICES
During each of the fiscal years ended December 31, 1994, 1995 and 1996, the
Company retained the law firm of Gallagher & Kennedy, P.A. to represent the
Company on various matters. Michael J. Ahearn was a shareholder of such firm and
a director of the Company in such years.
PREPAYMENT AND REDEMPTION
On June 28, 1996, pursuant to the Securities Purchase and Exchange
Agreement, the Company prepaid certain Senior Subordinated Notes in the
principal amount of $4.0 million, and funded Citadel Communications' redemption
of a portion of the stock purchase warrants, issued under a Senior Subordinated
Note and Warrant Purchase Agreement dated as of October 1, 1993. These Senior
Subordinated Notes and warrants were held, in part, by Bank of America. Bank of
America now holds, and as of June 28, 1996 held, warrants to purchase 138,101
shares of Class B Common Stock (nonvoting). Class B Common Stock is convertible
into Class A Common Stock (voting) upon the occurrence of certain events, and
such a conversion would result in Bank of America owning in excess of 5% of the
outstanding shares of Class A Common Stock on an undiluted basis. See "Security
Ownership of Certain Beneficial Owners."
See also "Management -- Compensation Committee Interlocks and Insider
Participation."
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Citadel Communications owns all of the currently issued and outstanding
common stock of the Company and has pledged such common stock to secure its
guaranty of indebtedness under the Credit Facility. See "Description of
Indebtedness -- Existing Loan Agreement" and "Description of Other Capital
Stock."
Citadel Communications is authorized to issue up to 53,831,234 shares of
capital stock, par value $0.001 per share, consisting of 15,910,471 shares of
Class A Common Stock, 156,933 shares of Class B Common Stock, 12,000,000 shares
of Class C Common Stock (the "Class C Common Stock" and collectively with the
Class A and Class B Common Stock, the "Common Stock") and 25,763,830 shares of
preferred stock (the "Preferred Stock"), of which seven classes have been
designated. There are currently issued and outstanding 1,070,447 shares of
Common Stock and the following shares of Preferred Stock: 746,412 shares of
Series A Convertible Redeemable Preferred, having a liquidation value of
approximately $2.49 per share (the "Series A Preferred Stock"); 17,201 shares of
Series B Convertible Redeemable Preferred Stock, having a liquidation value of
approximately $2.91 per share (the "Series B Preferred Stock"); 2,130,587 shares
of Series C Convertible Redeemable Preferred Stock, having a liquidation value
of approximately $15.61 per share (the "Series C Preferred Stock"); 1,038,267
shares of Series D Convertible Redeemable Preferred Stock, having a liquidation
value of approximately $15.61 per share (the "Series D Preferred Stock");
482,729 shares of Series E Convertible Redeemable Preferred Stock, having a
liquidation value of approximately $15.61 per share (the "Series E Preferred
Stock"); 153,264 shares of Series F Convertible Redeemable Preferred Stock
having a liquidation value of approximately $27.73 per share (the "Series F
Preferred Stock") and 360,636 shares of Series G Convertible Redeemable
Preferred Stock having a liquidation value of $27.73 per share (the "Series G
Preferred Stock"). The Class A Common Stock, the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series E Preferred
Stock, the Series F Preferred Stock and the Series G Preferred Stock are
presently the only voting securities of Citadel Communications.
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The following table sets forth certain information as to the beneficial
ownership of Citadel Communications' Series A, B, C, D, E, F and G Preferred
Stock, as to the actual ownership of its Class C Common Stock and as to the
actual and beneficial ownership of its Class A Common Stock, as of November 25,
1997, by (i) each person or group who is known to Citadel Communications to own
beneficially more than 5% of any class of voting security of Citadel
Communications, (ii) each director of the Company, (iii) each Named Executive
and (iv) all directors and executive officers of the Company as a group. Except
as indicated below, the persons named have sole voting and investment power with
respect to all shares shown as being beneficially owned by them. The numbers of
shares shown are rounded to the nearest whole share, and percentages are rounded
to the nearest tenth of a percent.
<TABLE>
<CAPTION>
COMMON STOCK CLASS A
PREFERRED STOCK ACTUAL OWNERSHIP COMMON STOCK
BENEFICIAL OWNERSHIP ----------------------------- BENEFICIAL OWNERSHIP
---------------------------------- CLASS -----------------------
SERIES OF NO. OF PERCENT OF OF NO. OF PERCENT OF NO. OF PERCENT OF
NAME PREFERRED SHARES CLASS COMMON SHARES CLASS SHARES(A) CLASS(A)
- -------------------------------- --------- --------- ---------- ------ ------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence R. Wilson(b)(c)(d)..... -- -- -- A 756,225 77.4% 867,635 79.7%
1256 E. Dines Point Road
Greenbank, WA 98253
Edward T. Hardy(c)(d)(e)........ E 12,029 2.5% A 364 * 50,756 5.0
Stuart R. Stanek(d)(f).......... -- -- -- A 21,358 2.2% 54,565 5.4%
D. Robert Proffitt(d)(g)........ -- -- -- A 23,441 2.4% 48,246 4.8%
Donna L. Heffner(d)(h).......... -- -- -- A 12,184 1.3% 44,795 4.4%
Patricia Diaz Dennis............ -- -- -- -- -- -- 2,500 *
Scott E. Smith(i)............... A 746,412 100% -- -- -- 746,412 43.3%
John E. von Schlegell(j)........ E 482,729 100% -- -- -- 482,729 33.1%
Ted L. Snider, Sr.(c)(d)(k)..... G 116,417 32.3% -- -- -- 116,417 10.7%
FINOVA Capital
Corporation(c)(d)............... -- -- -- C 74,488 100% 74,488 7.1%
Dial Tower
Dial Corporate Center
Phoenix, AZ 85077
Baker, Fentress &
Company(c)(d)................. A 746,412 100% -- -- -- 746,412 43.3%
200 West Madison
Suite 3510
Chicago, IL 60602
Mark A. Leavitt(l).............. B 1,505 8.7% -- -- -- 1,505 *
Oppenheimer & Co.,
Inc.(c)(d)(m)................... B 17,201 100% -- -- -- 17,201 1.7%
Oppenheimer Tower
World Financial Center
New York, NY 10281
Harlan A. Levy(n)(o)............ C 2,630,021(p) 100% -- -- -- 2,630,021(p) 72.9%
D 1,038,267 100%
ABRY Broadcast Partners II,
L.P.(c)(d)...................... C 2,340,719(p) 89% -- -- -- 2,340,719(p) 70.6%
18 Newbury Street D 924,057 89%
Boston, MA 02116
ABRY/Citadel Investment
Partners, L.P.(c)(d)............ C 289,302(p) 11% -- -- -- 289,302 (p) 22.8%
18 Newbury Street D 114,209 11%
Boston, MA 02116
The Endeavour Capital Fund
Limited Partnership(c)(d)(q).... E 482,729 100% -- -- -- 482,729 33.1%
4380 SW Macadam
Suite 460
Portland, OR 97201
Joseph P. Tennant(c)(d)(r)...... E 32,700 6.8% -- -- -- 32,700 3.2%
Philip J. Urso(c)(d)(s)......... F 153,264 100% -- -- -- 153,264 13.6%
Phillip Norton(c)(d)(t)......... F 21,297 13.9% -- -- -- 21,277 2.1%
Jane J. Snider(c)(d)............ G 40,571 11.3% -- -- -- 40,571 4.0%
Ted L. Snider, Jr.(c)(d)........ G 109,370 30.3% -- -- -- 109,370 10.1%
Calvin G. Arnold(c)(d).......... G 89,257 24.7% -- -- -- 89,257 8.4%
Bank of America National Trust
and Savings Association(d).... -- -- -- -- -- -- 156,933 (u) 13.8%
All directors and............... A 746,412 100% A 813,572 83.3% 2,402,026 93.6%
executive officers as a group,
including E 482,729 100%
persons named above (9
persons)(v) G 116,417 32.3%
</TABLE>
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<PAGE> 103
- ---------------
* Less than 1%
(a) The number of shares and percentages are calculated in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), on a shareholder by shareholder basis, assuming that each
shareholder converted all securities owned by such shareholder that are
convertible into Class A Common Stock, and that no other shareholder so
converts. Accordingly, the number of shares and percentage figures assume
the conversion of all Class B Common Stock and of all Series A, B, E, F and
G Preferred Stock owned by such shareholder. This conversion is at the
option of the holder within 60 days; provided, however, that the right of a
holder to convert Class B Common Stock is subject to the occurrence of
certain events. The number of shares and percentage figures also assume
conversion of all Class C Common Stock and of all Series C and Series D
Preferred Stock owned by such shareholder, to the full extent of such
shareholder's right of conversion consistent with the limitations set forth
in the Securities Purchase and Exchange Agreement. This conversion is at
the option of the holder within 60 days, except for limitations on the
exercise of conversion rights by certain shareholders owing to the terms of
the Securities Purchase and Exchange Agreement. The effect of those
limitations on the conversion rights of certain shareholders is discussed
in footnote (o). The number of shares and percentage figures also include
shares covered by options that are currently exercisable or that are
exercisable within 60 days of November 25, 1997. The numbers and
percentages of shares owned assume that such outstanding options have been
exercised by such respective shareholders as follows (rounded to the
nearest whole share): Patricia Diaz Dennis -- 2,500 shares; Edward T.
Hardy -- 38,363 shares; Donna L. Heffner -- 32,611 shares; D. Robert
Proffitt -- 24,805 shares; Stuart R. Stanek -- 33,207 shares; Lawrence R.
Wilson -- 111,410 shares; and all directors and executive officers as a
group -- 242,896 shares.
(b) Mr. Wilson's shares are jointly owned by Mr. Wilson and his spouse. Does
not include 17,187 shares of Class A Common Stock underlying an option
which may, depending on Citadel Communications' 1997 financial results,
vest on January 1, 1998.
(c) Represents shares subject to the Voting Agreement. See "Management -- Board
Composition and Governance Matters." An aggregate of 756,589 actual shares
of Class A Common Stock, and 5,377,376 shares of Class A Common Stock as
calculated in accordance with Rule 13d-3 under the Exchange Act, as more
fully described in footnote (a) above, are subject to the Voting Agreement.
(d) Represents shares subject to the Stockholders Agreement. See
"Management -- Compensation Committee Interlocks and Insider
Participation -- Stockholders Agreement."
(e) The shares of Series E Preferred Stock owned by Mr. Hardy are subject to
the Security Holder Agreement discussed in footnote (q).
(f) Mr. Stanek's shares are jointly owned by Mr. Stanek and his spouse.
(g) Mr. Proffitt's shares are jointly owned by Mr. Proffitt and his spouse.
(h) Ms. Heffner's shares are jointly owned by Ms. Heffner and her spouse.
(i) Represents shares held by Baker Fentress, as described in the table and in
footnotes (c) and (d). Mr. Smith is an Executive Vice President of Baker
Fentress, and since 1989, has managed its private placement portfolio.
(j) Represents shares held by Endeavour Capital, as described in the table and
in footnotes (c), (d) and (q). Mr. von Schlegell is the Managing Partner
of Endeavour Capital.
(k) Does not include 40,571 shares of Series G Preferred Stock owned by Mr.
Snider's spouse.
(l) Represents shares held of record by Oppenheimer for the benefit of Mr.
Leavitt.
(m) Includes 1,505 shares held for the benefit of Mark A. Leavitt, as described
in the table and footnote (l).
(n) Represents shares of Series C and Series D Preferred Stock held by Mr. Levy
as Trustee under the Voting Trust Agreement. See footnote (o).
(o) The number of shares of Series C Preferred Stock assumes the conversion of
444,497 shares and 54,937 shares of Series D Preferred Stock into the same
number of shares of Series C Preferred Stock by ABRY II and ABRY/CIP,
respectively, such that ABRY II and ABRY/CIP collectively own 49% of the
voting securities of Citadel Communications on an undiluted basis. The
Securities Purchase and Exchange Agreement provides, subject to certain
exceptions, that ABRY II and ABRY/CIP may hold in the aggregate no more
than 49% of the voting securities of Citadel Communications on an undiluted
basis. These shareholders currently hold an aggregate of approximately 44%
of the voting securities of Citadel Communications on an undiluted basis,
and 89% and 11%, respectively, of the Series C and the
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<PAGE> 104
Series D Preferred Stock. The Series C and Series D Preferred Stock of
these shareholders is held pursuant to the Voting Trust Agreement. By its
terms, the Voting Trust Agreement shall continue in effect until terminated
upon the written agreement of Citadel Communications and the holders of
voting trust certificates which represent a majority of the shares held in
the voting trust as determined in accordance with the Voting Trust
Agreement.
During the term of the Voting Trust Agreement, the Trustee has the right to
vote the shares of stock subject to that Agreement (the "Voting Trust
Shares"), and to take part in any shareholders' meetings, including the
right to vote the Voting Trust Shares for the election of directors of
Citadel Communications; provided, however, that the Trustee shall vote the
Voting Trust Shares in the manner required by the Voting Agreement with
respect to the matters covered by that Voting Agreement. The Trustee may
assign his rights and delegate his obligations to a successor Trustee, who
shall be appointed in the manner provided under the terms of the Voting
Trust Agreement.
(p) Represents shares issuable upon conversion of shares of Series C and Series
D Preferred Stock, assuming a current conversion ratio of 1-to-1. Such
conversion is limited by the terms of the Securities Purchase and Exchange
Agreement. See footnote (o).
(q) Includes 64,117 shares of Series E Preferred Stock held by various persons
who, with Citadel Communications and Endeavour Capital, are parties to a
Security Holder Agreement dated December 31, 1996. Pursuant to this
Agreement, (i) Endeavour Capital is the sole and exclusive agent of these
persons to act in any and all matters relating to the voting of such shares
in any manner not inconsistent with the provisions of the Stockholders
Agreement and the Voting Agreement, and (ii) Endeavour Capital has the sole
and exclusive power and authority to exercise all rights and remedies on
behalf of these persons under the Stockholders Agreement, the Voting
Agreement, and the Registration Rights Agreement.
(r) The shares of Series E Preferred Stock owned by Mr. Tennant are subject to
the Security Holder Agreement discussed in footnote (q).
(s) Includes 32,907 shares of Series F Preferred Stock held by various persons
who, with Citadel Communications and Mr. Urso, are parties to a Security
Holders Agreement dated September 26, 1997. Pursuant to this Agreement, (i)
Mr. Urso is the sole and exclusive agent of these persons to act in any and
all matters relating to the voting of such shares in any manner not
inconsistent with the provisions of the Stockholders Agreement and the
Voting Agreement, and (ii) Mr. Urso has the sole and exclusive power and
authority to exercise all rights and remedies on behalf of these persons
under the Stockholders Agreement, the Voting Agreement and the Registration
Rights Agreement. Also includes 118,103 shares of Series F Preferred Stock
transferred by Mr. Urso subsequent to November 25, 1997 to a trust of which
Mr. Urso and his spouse are beneficiaries.
(t) The shares of Series F Preferred Stock owned by Mr. Norton are subject to
the Security Holder Agreement discussed in footnote (s).
(u) Represents 138,101 shares of Class B Common Stock issuable upon the
exercise of certain warrants issued pursuant to the Senior Subordinated
Note and Warrant Purchase Agreement dated as of October 1, 1993 among
Citadel Communications, the Company, Bank of America and certain other
parties. Also includes 18,832 shares of Class B Common Stock held by
various individuals who, with Citadel Communications, the Company and Bank
of America, are parties to a Second Amended and Restated Security Holder
Agreement dated June 28, 1996. Pursuant to this Agreement, (i) Bank of
America is the sole and exclusive agent of such individuals to act in any
and all matters relating to the voting of such shares in any manner not
inconsistent with the provisions of the Stockholders Agreement and the
Voting Agreement and (ii) Bank of America has the sole and exclusive power
and authority to exercise all rights and remedies on behalf of these
individuals under the Stockholders Agreement, the Voting Agreement, and the
Registration Rights Agreement.
(v) Includes the shares discussed in footnotes (i), (j) and (q).
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DESCRIPTION OF INDEBTEDNESS
EXISTING LOAN AGREEMENT
On October 9, 1996, the Company, Deschutes f/k/a Deschutes Acquisition
Corporation (now merged into the Citadel Broadcasting pursuant to the Subsidiary
Merger), Citadel License and Deschutes License, Inc. (now merged into Citadel
License) (collectively, the "Borrowers") entered into a loan agreement (as
thereafter amended, the "Credit Facility") with FINOVA Capital Corporation, as
administrative agent (the "Agent"), and other lending institutions party thereto
(the "Lenders").
On July 3, 1997, the Borrowers, the Agent and the Lenders entered into
amendments to the Credit Facility which permitted the issuance of the Notes and
the Exchangeable Preferred Stock subject to certain limitations and restrictions
regarding, among other things, redemption of or payment prior to maturity of
principal on the Notes or the Exchange Debentures, if issued, the redemption of
or exchange of the Exchangeable Preferred Stock and the payment of cash
dividends on the Exchangeable Preferred Stock. The amendments to the Credit
Facility provide for a $150.0 million revolving loan (the "Revolving Loan")
which includes a $5.0 million letter of credit facility (the "L/C Facility"). A
portion of the proceeds of the Original Offerings was used to repay a portion of
Borrowers' indebtedness under the Credit Facility.
Revolving Loan
As of December 1, 1997, the outstanding principal amount of the revolving
loan under the Credit Facility was approximately $85.1 million, and there was no
interest accrued thereon. The Revolving Loan will be due on September 30, 2003
(the "Maturity Date") and it may be drawn upon, subject to certain conditions,
for certain acquisitions, working capital and other permitted uses. On the last
business day of each quarter commencing with the last quarter of 1997, the
Revolving Loan commitment is to be reduced by an amount increasing from $2.5
million at December 31, 1997 to approximately $8.1 million at June 30, 2003. The
Credit Facility also provides for certain additional mandatory reductions in the
Revolving Loan commitment. The Borrowers will be required to pay any amount by
which the outstanding principal balance exceeds the Revolving Loan commitment,
as adjusted. The remaining principal balance of the Revolving Loan shall be due
and payable on the Maturity Date. At the Borrowers' election (a) any portion of
the Revolving Loan which has been prepaid or repaid may be reborrowed and (b)
the maximum amount of the Revolving Loan commitment may be permanently reduced.
The Lenders' obligation to make additional loans under the Credit Facility
or issue letters of credit under the L/C Facility is subject to certain
conditions, including, without limitation, that the Adjusted Total Leverage
Ratio shall not exceed the Applicable Ratio as calculated on the last day of the
most recent month preceding the applicable date for funding or letter of credit
issuance. The Adjusted Total Leverage Ratio is the ratio as of the end of any
month, of the Total Debt (as defined in the Credit Facility) as of such date to
the Adjusted Operating Cash Flow (as defined in the Credit Facility) for the
twelve month period ending on such date. The Applicable Ratio for each month
during the period of December 1997 to May 1998 is 6.5. For each six-month period
thereafter through maturity, the Applicable Ratio shall decrease by .25.
L/C Facility
The L/C Facility provides for, subject to certain limitations, the issuance
of letters of credit to be used by Borrowers as security for the obligations of
Borrowers under agreements entered into in connection with certain radio station
acquisitions and for such other purposes as may be approved by the Agent
("Permitted Letters of Credit"). The Borrowers will be required to pay a
quarterly fee equal to 1.25% of the amount of each Permitted Letter of Credit
from time to time outstanding. As of September 1, 1997, approximately $4.0
million of letters of credit had been issued but not drawn in connection with
certain of the Pending Acquisitions.
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Prepayments
Voluntary prepayments of the amended Credit Facility are permitted without
premium or penalty. Mandatory prepayment of the Credit Facility will be
required, commencing in 1997, if the Total Leverage Ratio (as defined in the
Credit Facility) as of the end of each year is 4.5 or greater. The amount of the
mandatory prepayment shall be the lesser of (a)(i) 66 2/3% of the Excess Cash
Flow (as defined in the Credit Facility) if the Total Leverage Ratio as of the
end of such year exceeds 5.5 and (ii) 50% of the Excess Cash Flow if the Total
Leverage Ratio as of the end of each such year is 4.5 to 5.5, inclusive, or (b)
an amount by which Cash Equivalents (as defined in the Credit Facility), as of
the last day of March in which the Borrowers are required to deliver financial
statements, exceeds $5.0 million. Notwithstanding the foregoing, upon retirement
of the Credit Facility, the Company will be required to pay a fee in the maximum
amount of $803,000 as of December 1, 1997, which amount will decline quarterly
based on the amount of outstanding borrowings under the amended Credit Facility.
Interest Rates
The Credit Facility bears interest at a rate equal to the applicable Base
Rate (as defined in the Credit Facility) in effect from time to time plus the
Applicable Margin (as defined in the Credit Facility) or, at the written
election of the Borrowers, at a rate equal to the applicable LIBOR Rate (as
defined in the amended Credit Facility) in effect from time to time as
determined by the Agent for the respective Interest Period (as defined in the
Credit Facility), plus the Applicable Margin. The Borrowers' right to elect a
LIBOR Rate will be subject to certain limitations. The Applicable Margins for
the Credit Facility are expected to range between .50% and 1.75% for the Base
Rate and 1.50% and 2.75% for the LIBOR Rate, depending on the Total Leverage
Ratio from time to time. Except as otherwise provided with respect to voluntary
and mandatory prepayments, interest on the Credit Facility is payable quarterly
in arrears on the last business day of each quarter. At December 1, 1997, the
interest rate under the Credit Facility was 8.41%.
Other Fees
The Borrowers are required to pay to the Agent an unused commitment fee on
the last business day of each quarter, which equals the product of the Maximum
Revolving Loan Commitment (as defined in the Credit Facility) for the preceding
quarter minus the average outstanding principal balance of the Revolving Loan
during such preceding quarter, multiplied by .125%. This multiplier will be
reduced to .09375% if the Total Leverage Ratio calculated as of the last day of
the quarter preceding such quarter was less than 4.5. Borrowers are required to
pay an annual agency fee of $50,000 in October of each year.
Security and Guarantee
Subject to certain permitted liens, the Credit Facility is secured by (a) a
first priority pledge on all of the Borrowers' capital stock other than the
Exchangeable Preferred Stock, (b) a first priority security interest in all the
existing and after acquired property of the Borrowers, including, without
limitation, accounts, machinery, equipment, inventory, general intangibles,
investment property and insurance on the life of Lawrence R. Wilson and (c) all
proceeds of the foregoing. The Credit Facility is also guaranteed by Citadel
Communications pursuant to a guaranty (the "Guaranty").
Change of Control
The Credit Facility provides that a change in control or ownership will be
an Event of Default. A change in control or ownership shall occur if (a) Citadel
Communications shall cease to own all of the capital stock of the Company, (b)
the Company shall cease to own or control all of the capital stock of its
subsidiaries, (c) any person (including entities) or affiliates of such person,
except Mr. Wilson or ABRY II or their respective affiliates, own capital stock
possessing more than 35% of the voting power of all voting stock of Citadel
Communications or (d) Mr. Wilson shall die, become permanently disabled or
cease, for a period in excess of 60 days, to devote his full business time to
the operation of the Borrowers' broadcasting business,
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unless Mr. Wilson is replaced by a person reasonably acceptable to certain
Lenders within 90 days after the occurrence of any such event.
Covenants
The Credit Facility contains customary restrictive covenants, which, among
other things, and with certain exceptions, limit the ability of the Borrowers to
incur additional indebtedness and liens in connection therewith, enter into
certain transactions with affiliates, pay dividends, consolidate, merge or
affect certain asset sales, issue additional stock, make certain capital or
overhead expenditures, make certain investments, loans or prepayments and change
the nature of their business. The Borrowers are also required to satisfy certain
financial covenants, which require the Borrowers to maintain specified financial
ratios and to comply with certain financial tests, such as ratios for maximum
leverage, minimum interest coverage and minimum fixed charges. The maximum
leverage test requires that the Borrowers not permit the ratio of Total Debt as
of the last day of any month to the Adjusted Operating Cash Flow for the twelve
month period ending as of the last day of such month to be greater than the
Applicable Ratio on such day. The senior debt leverage test requires that the
Borrowers not permit the ratio of the unpaid principal balance of the Credit
Facility or any specified portion thereof outstanding from time to time as of
the last day of any month to the Adjusted Operating Cash Flow for the twelve
month period ending on such date to be greater than 5.0 for the period of
December 1997 through May 1998. For each six month period thereafter through
maturity, such maximum ratio shall decrease by .25. The minimum interest
coverage test requires that the Borrowers shall not permit the ratio of their
consolidated Operating Cash Flow (as defined in the Credit Facility) for a
specified four quarter period to Interest Expense (as defined in the Credit
Facility) and cash dividends on the Exchangeable Preferred Stock for the same
four quarter period to be less than 1.75 for the quarter ending December 1997.
Said maximum ratio shall decrease by .25 for each quarter (March, June,
September and December) ending in 1998 and by an additional .25 for each quarter
ending thereafter through maturity. The minimum fixed charges test requires that
the Borrowers not permit the ratio of their consolidated Operating Cash Flow for
any specified four quarter period to Fixed Charges (as defined in the Credit
Facility) for the same four quarter period to be less than 1.1 to 1.
Events of Default
The Credit Facility contains customary Events of Default, including without
limitation: (a) failure of Borrowers to pay all or any portion of the principal
balance of the amended Credit Facility when due or to pay any other of the
Borrowers' Obligations (as defined in the amended Credit Facility) within five
days after becoming due and payable; (b) failure of Borrowers to observe or
perform certain affirmative covenants or agreements, specifically those
pertaining to legal existence, good standing, insurance, environmental matters,
the interest hedge contract and all negative covenants; (c) failure of Borrowers
or Citadel Communications to observe or perform any other covenant or agreement
contained in the amended Credit Facility or related documents which is not
remedied within 30 days of written notice; (d) breach of warranty or
representation and/or false or misleading statements by Borrowers or the Company
made in connection with the amended Credit Facility or related documents; (e)
certain defaults, including payment defaults, by Borrowers, under other
agreements relating to indebtedness; (f) failure of Borrowers or the Company to
generally pay debts as they become due or to be adjudicated insolvent; (g)
Borrowers' or Citadel Communications' filing, or consent to the filing against
it, of a petition for relief or reorganization or arrangement or any other
petition in bankruptcy or insolvency under the law of any jurisdiction or making
of an assignment for the benefit of creditors, or the appointment of a
custodian, receiver or trustee for the Borrowers or Citadel Communications under
certain circumstances; (h) failure of the Borrowers or the Company to discharge
certain judgments and awards against any of them; (i) revocation, termination,
suspension or adverse modification of any license which is material to the
continuation of the Borrowers' broadcasting business; (j) seizure or failure to
maintain any item of collateral provided as security under the amended Credit
Facility; (k) complete interruption of on-air broadcast operations in two or
more markets at any time for more than 72 hours during any consecutive ten-day
period; (l) existence of certain conditions which result in actual or potential
liability to Borrower or any ERISA affiliate for its pension plan which creates
a material adverse effect in the opinion of certain Lenders; (m) a change of
ownership or control; (n) failure of the Guaranty to remain in full force and
effect;
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and (o) Citadel Communications' denial or disaffirmance of obligations under the
Guaranty or its failure to make payment when due.
Upon the occurrence of an Event of Default, with several limitations, the
Borrowers' obligations under the Credit Facility which are at that time
outstanding may become automatically accelerated.
OTHER INDEBTEDNESS
In connection with the Tele-Media Acquisition, the Company incurred a $1.0
million contingent payment obligation which accrues interest at 5% per year. The
Company will be obligated to make such payment to the former holders of the
Tele-Media Bonds only if a particular $2.0 million payment relating to the
Company's Providence, Rhode Island operations is received from a third party.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Series A Securities were originally sold by the Company in transactions
exempt from the registration requirements of the Securities Act. On July 3,
1997, 1,000,000 shares of the Series A Exchangeable Preferred Stock and
$100,000,000 aggregate principal amount of the Series A Notes were sold to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold such Series A Securities to qualified institutional buyers
in reliance on Rule 144A under the Securities Act. On July 3, 1997, the Company
issued $1,000,000 aggregate principal amount of the Series A Notes to the
holders of the Tele-Media Bonds in connection with the closing of the Tele-Media
Acquisition. It is anticipated that the 65,514 Series A Dividend Shares will be
issued as of January 1, 1998. The Company, Citadel License and the Initial
Purchasers entered into the Registration Rights Agreements pursuant to which the
Company and Citadel License agreed, for the benefit of the holders, that it
would, at its own cost, (i) use their best efforts to file, within 90 days after
July 3, 1997, the original issue date of the Series A Securities (the "Issue
Date"), a registration statement (the "Exchange Offer Registration Statement")
with the Commission with respect to the Exchange Offer for the Series B
Securities and (ii) use their best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
180 days after the Issue Date. Upon the Exchange Offer Registration Statement
being declared effective, the Company will offer the Series B Securities in
exchange for surrender of the Series A Securities. The Company will keep the
Exchange Offer open for not less than 30 days (or longer if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
holders of the Series A Securities. For each of the Series A Notes surrendered
pursuant to the Exchange Offer, the holder who surrendered such Series A Note
will receive a Series B Note having a principal amount equal to that of the
surrendered Series A Note. For each share of Series A Exchangeable Preferred
Stock surrendered pursuant to the Exchange Offer, the holder who surrendered
such share will receive a share of Series B Exchangeable Preferred Stock. Based
on no-action letters issued by the staff of the Commission to third parties, the
Company believes that a holder of Series A Securities (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) that exchanges Series A Securities for Series B
Securities pursuant to the Exchange Offer generally may offer such Series B
Securities for resale, sell such Series B Securities and otherwise transfer such
Series B Securities without further registration under the Securities Act and
without delivery of a prospectus that satisfies the requirements of Section 10
of the Securities Act, provided that such Series B Securities are acquired in
the ordinary course of such holder's business and such holder is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in a distribution of such Series B
Securities. Any holder of Series A Securities using the Exchange Offer to
participate in a distribution of Series B Securities received in exchange for
Series A Securities (including a broker-dealer that acquired Series A Securities
directly from the Company, but not as a result of market-making activities or
other trading activities) cannot rely on the position of the staff of the
Commission enunciated in such no-action letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in the
absence of an exemption from such requirements. Furthermore, each Participating
Broker-Dealer may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with the resale of Series B Securities received in exchange for
Series A Securities. The Letters of Transmittal state that by so acknowledging
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Series B
Securities received in exchange for Series A Securities. The Company has agreed
that, for a period of 120 days after the Expiration Date, it will make this
Prospectus available to any Participating Broker-Dealer in connection with any
such resale. See "Plan of Distribution."
Each holder of Series A Securities that wishes to exchange Series A
Securities for Series B Securities in the Exchange Offer will be required to
represent and acknowledge, for itself and for each beneficial owner of such
Series A Securities, whether or not such beneficial owner is the holder
("Beneficial Owner"), in the Letters of Transmittal that (i) the Series B
Securities to be acquired by the holder and each Beneficial Owner,
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if any, are being acquired in the ordinary course of business, (ii) neither the
holder nor any Beneficial Owner is an "affiliate," as defined in Rule 405 under
the Securities Act, of the Company or any of its subsidiaries, (iii) any person
participating in the Exchange Offer with the intention or purpose of
distributing Series B Securities received in exchange for Series A Securities
(including a broker-dealer that acquired Series A Securities directly from the
Company, but not as a result of market-making activities or other trading
activities) cannot rely on the position of the staff of the Commission
enunciated in the no-action letters referred to above and must comply with the
registration and prospectus delivery requirements of the Securities Act in the
absence of an exemption from such requirements, (iv) if the holder is not a
broker-dealer, the holder and each Beneficial Owner, if any, are not
participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in any distribution of the Series
B Securities received in exchange for Series A Securities, and (v) if the holder
is a broker-dealer that will receive Series B Securities for its own account in
exchange for Series A Securities, the Series A Securities to be exchanged for
Series B Securities were acquired by it as a result of market-making activities
or other trading activities and it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such Series
B Securities (however by so representing and acknowledging and by delivering a
prospectus, the holder will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act). Under the Registration Rights
Agreements, the Company is required to allow Participating Broker-Dealers to use
this Prospectus in connection with the resale of such Series B Securities. See
"Plan of Distribution."
In the event that (i) applicable law or interpretations of the staff of the
Commission do not permit the Company to effect such an Exchange Offer, (ii) the
Exchange Offer is not consummated within 210 days after the Issue Date or (iii)
any holder of Series A Securities (other than an Initial Purchaser) is not
eligible to participate in the Exchange Offer, the Company and Citadel License
will, at their cost, (a) file, as promptly as practicable and, in any event,
within 90 days after such obligation arises, a shelf registration statement
covering resales of the Series A Securities (the "Shelf Registration
Statement"), (b) use their best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act on or prior to 45
days after the filing occurs and (c) use their best efforts to keep effective
the Shelf Registration Statement until the earlier of two years after its
effective date, such time as all of the applicable Series A Securities have been
sold thereunder and such time as all of the applicable Series A Securities
become eligible for resale pursuant to Rule 144 under the Securities Act without
volume restrictions. The Company will, in the event of the filing of the Shelf
Registration Statement, provide to each holder of the Series A Securities copies
of the prospectus which is a part of the Shelf Registration Statement, notify
each such holder when the Shelf Registration Statement has become effective and
take certain other actions as are required to permit unrestricted resales of the
applicable Series A Securities. A holder that sells its Series A Securities
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling security-holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreements which are
applicable to such a holder (including certain indemnification obligations). In
addition, each holder of Series A Securities will be required to deliver certain
information to be used in connection with the Shelf Registration Statement in
order to have its Series A Securities included in the Shelf Registration
Statement.
In the event that (i) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to the 90th calendar day following the
Issue Date, (ii) the Exchange Offer is not consummated or a Shelf Registration
Statement is not declared effective on or prior to the 210th calendar day
following the Issue Date or (iii) either (A) the Exchange Offer Registration
Statement ceases to be effective at any time prior to the time that the Exchange
Offer is consummated or (B) if applicable, the shelf Registration Statement has
been declared effective and such Shelf Registration Statement ceases to be
effective at any time prior to the second anniversary of its effective date, the
interest rate borne by the Series A Notes and the dividend rate borne by the
Series A Exchangeable Preferred Stock will be increased by one-quarter of one
percent (0.25%) per annum following such 90-day period in the case of clause (i)
above, following such 210-day period in the case of clause (ii) above, or
immediately in the case of clause (iii) above, which rate will be increased by
an additional one-quarter of one percent (0.25%) per annum for each 30-day
period that any such additional interest continues to accrue or dividends
continue to accumulate in the case of clause (i) above or for each
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90-day period that any such additional interest continues to accrue or dividends
continue to accumulate in the case of clauses (ii) and (iii) above; provided,
however, that in no event will the interest rate borne by the Series A Notes or
the dividend rate borne by the Series A Exchangeable Preferred Stock be
increased by more than one and one-half percent (1.5%). Upon (x) the filing of
the Exchange Offer Registration Statement after the 90-day period described in
clause (i) above, (y) consummation of the Exchange Offer or the effectiveness of
a Shelf Registration Statement, as the case may be, after the 210-day period
described in clause (ii) above, or (z) the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement following an event
described in clause (iii) above, the interest rate borne by the Series A Notes
and the dividend rate borne by the Series A Exchangeable Preferred Stock from
the date of such filing, consummation or effectiveness, as the case may be, will
be reduced to the original interest rate or dividend rate if the Company is
otherwise in compliance with the above; provided, however, that, if after any
such reduction in interest rate or dividend rate, a different event specified in
clause (i), (ii) or (iii) above occurs, the interest rate or dividend rate may
again be increased and thereafter reduced pursuant to the foregoing provisions.
If applicable, in the event that the Shelf Registration Statement ceases to
be usable for a period in excess of 30 days, whether or not consecutive, in any
given year, then the interest rate borne by the Series A Notes and the dividend
rate borne by the Series A Exchangeable Preferred Stock will be increased by
one-quarter of one percent (0.25%) per annum on the 31st day in the applicable
year such Shelf Registration Statement ceases to be usable. Such interest rate
and dividend rate will increase by an additional one-quarter of one percent
(0.25%) per annum for each additional 90 days that such Shelf Registration
Statement is not usable, subject to the same aggregate maximum increase in the
interest or dividend rate of one and one-half percent (1.5%) per annum referred
to above. Upon the Company declaring that the Shelf Registration Statement is
usable after the interest rate or dividend rate has been so increased, the
interest rate borne by the Series A Notes and the dividend rate borne by the
Series A Exchangeable Preferred Stock will be reduced to the original interest
rate or dividend rate if the Company is otherwise in compliance with the above;
provided, however, that, if after any such reduction in interest rate or
dividend rate, the Shelf Registration Statement again ceases to be usable beyond
the period permitted above, the interest rate or dividend rate may again be
increased and thereafter reduced pursuant to the foregoing provisions.
Any amounts of additional interest or dividends due, as the case may be, as
described above will be payable in cash on the same interest payments dates and
dividend payment dates, respectively, as the Notes and the Exchangeable
Preferred Stock, respectively; provided, however, that on any dividend payment
date occurring on or prior to July 1, 2002, dividends on the Exchangeable
Preferred Stock may be paid, at the Company's option, in additional shares of
Exchangeable Preferred Stock.
The summary herein of certain provisions of the Registration Rights
Agreements does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreements,
copies of which are filed as exhibits to the Exchange Offer Registration
Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of Series A
Securities who were eligible to participate in the Exchange Offer but who did
not tender their Series A Securities will not have any further registration
rights, and such Series A Securities will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for such
Series A Securities could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letters of Transmittal, the Company will accept any and all Series A
Securities validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue an equal principal amount
of Series B Notes in exchange for such principal amount of outstanding Series A
Notes accepted in the Exchange Offer and an equal number of shares of its Series
B Exchangeable Preferred Stock in exchange for such number of shares of Series A
Exchangeable Preferred Stock accepted in the Exchange Offer. Holders may tender
some or all of their Series A Securities pursuant to the Exchange Offer. Series
A Notes may be tendered only in integral multiples of $1,000; provided, however,
that a holder holding any Series A Note in a
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denomination of other than an integral multiple of $1,000 may tender the
principal amount of such Series A Note that is not an integral multiple of
$1,000 in addition to tendering, in integral multiples of $1,000, the remaining
principal amount, if any, of such Series A Note. The Company has declared a
dividend payable on January 1, 1998 to holders of record of Series A
Exchangeable Preferred Stock on December 15, 1997. Such dividend is to be paid
in Series A Dividend Shares. Any holder of Series A Dividend Shares who wishes
to receive shares of Series B Exchangeable Preferred Stock in exchange therefor
must tender such Series A Dividend Shares for exchange in the Exchange Offer.
The form and terms of the Series B Notes are the same as the form and terms
of the Series A Notes and the form and terms of the Series B Exchangeable
Preferred Stock are the same as the form and terms of the Series A Exchangeable
Preferred Stock except that (i) the Series B Notes and the Series B Exchangeable
Preferred Stock will bear a "Series B" designation and different CUSIP Numbers
from the Series A Securities, (ii) the Series B Notes and the Series B
Exchangeable Preferred Stock will have been registered under the Securities Act
and hence will not bear legends restricting the transfer thereof and (iii) the
holders of the Series B Notes and the Series B Exchangeable Preferred Stock will
not be entitled to certain rights of holders of Series A Notes and Series A
Exchangeable Preferred Stock under the Registration Rights Agreements, which
rights will terminate as to holders of the Series B Securities when the Exchange
Offer is consummated. The Series B Notes will evidence the same debt as the
Series A Notes and will be entitled to the benefits of the Notes Indenture.
As of the date of this Prospectus, $101,000,000 aggregate principal amount
of Series A Notes are outstanding and 1,000,000 shares of Series A Exchangeable
Preferred Stock are outstanding. It is anticipated that the 65,514 Series A
Dividend Shares will be issued and become outstanding as of January 1, 1998. The
Company has fixed the close of business on December 15, 1997 as the date for
purposes of determining the persons to whom this Prospectus and the Letters of
Transmittal will be mailed initially.
In connection with the Exchange Offer, holders of Series A Notes do not
have any appraisal or dissenters' rights under the Notes Indenture or the
General Corporation Law of Nevada and holders of Series A Exchangeable Preferred
Stock do not have any appraisal or dissenters' rights under the Certificate of
Designation or the General Corporation Law of Nevada. The Company intends to
conduct the Exchange Offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Series A
Securities when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Series B Securities from the Company.
If any tendered Series A Securities are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Series A Securities will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Series A Securities in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letters of Transmittal, transfer taxes with respect to the exchange of
Series A Securities pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
January 28, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by written notice and will mail to the registered holders
an announcement thereof, each prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
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The Company reserves the right, in its sole discretion, (i) to delay
accepting any Series A Securities, to extend the Exchange Offer or to terminate
the Exchange Offer if any of the conditions set forth below under "--
Conditions" shall not have been satisfied, by giving written notice of such
delay, extension or termination to the Exchange Agent or (ii) to amend the terms
of the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by written
notice thereof to the registered holders.
INTEREST ON THE SERIES B SECURITIES
Interest on the Series B Notes will accrue from and including their
issuance date. Additionally, interest on the Series B Notes will accrue from the
last interest payment date on which interest was paid on the Series A Notes
surrendered in exchange therefor or, if no interest has been paid on the Series
A Notes, from the date of original issuance of the Series A Notes to but not
including the issuance date of the Series B Notes. Holders whose Series A Notes
are accepted for exchange will be deemed to have waived the right to receive
interest accrued on such Series A Notes. Accordingly, holders who exchange their
Series A Notes will receive the same interest payment on the next interest
payment date following the Expiration Date (expected to be July 1, 1998) that
they would have received had they not accepted the Exchange Offer. Interest on
the Notes is payable semi-annually on each January 1 and July 1 commencing on
January 1, 1998.
Dividends on the Series B Exchangeable Preferred Stock will accumulate from
and including its issuance date. Additionally, dividends on the Series B
Exchangeable Preferred Stock will accumulate from the last dividend payment date
on which dividends were paid on the Series A Exchangeable Preferred Stock
surrendered in exchange therefor or, if no dividends have been paid on the
Series A Exchangeable Preferred Stock, from the date of original issuance of the
Series A Exchangeable Preferred Stock to but not including the issuance date of
the Series B Exchangeable Preferred Stock. Holders whose Series A Exchangeable
Preferred Stock is accepted for exchange will be deemed to have waived the right
to receive dividends accumulated on such Series A Exchangeable Preferred Stock.
Accordingly, holders who exchange their Series A Exchangeable Preferred Stock
will receive the same dividend payment on the next dividend payment date
following the Expiration Date (expected to be July 1, 1998) that they would have
received had they not accepted the Exchange Offer, except that if such dividend
is not paid in cash, it will be paid in shares of Series B Exchangeable
Preferred Stock instead of shares of Series A Exchangeable Preferred Stock.
Dividends on the Exchangeable Preferred Stock are payable semiannually on each
January 1 and July 1 commencing January 1, 1998. The Company has declared a
dividend payable on January 1, 1998 to holders of record of Series A
Exchangeable Preferred Stock on December 15, 1997. Such dividend is to be paid
in Series A Dividend Shares.
PROCEDURES FOR TENDERING
Only a holder of Series A Securities may tender such Series A Securities in
the Exchange Offer. To tender in the Exchange Offer, a holder must complete,
sign and date the appropriate Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal
and mail or otherwise deliver such Letter of Transmittal, or such facsimile,
together with the Series A Securities and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. A
separate Letter of Transmittal is required for the tender of Series A Notes and
for the tender of Series A Exchangeable Preferred Stock. Any holder of Series A
Dividend Shares who wishes to receive shares of Series B Exchangeable Preferred
Stock in exchange therefor must tender such Series A Dividend Shares for
exchange in the Exchange Offer.
To be tendered effectively, the Series A Securities, Letters of Transmittal
and other required documents must be completed and received by the Exchange
Agent at the address set forth below under "-- Exchange Agent" prior to 5:00
p.m., New York City time, on the Expiration Date. Delivery of the Series A
Securities may be made by book-entry transfer in accordance with the procedures
described below. Confirmation of such book-entry transfer must be received by
the Exchange Agent prior to the Expiration Date.
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By executing a Letter of Transmittal, each holder will make to the Company
the representations set forth above in the second paragraph under the heading
"-- Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute the agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letters of
Transmittal.
THE METHOD OF DELIVERY OF SERIES A SECURITIES AND THE LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR SERIES A SECURITIES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Series A Securities are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letters of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
the Series A Securities tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantee must be by a member firm of the Medallion System (an "Eligible
Institution").
If a Letter of Transmittal is signed by a person other than the registered
holder of any Series A Securities listed therein, such Series A Securities must
be endorsed or accompanied by a properly completed bond power, in the case of
the Series A Notes, or stock power, in the case of the Series A Exchangeable
Preferred Stock, signed by such registered holder as such registered holder's
name appears on such Series A Securities with the signature thereon guaranteed
by an Eligible Institution.
If a Letter of Transmittal or any Series A Securities or bond or stock
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Series A Securities at the book-entry transfer facility, The Depository
Trust Company (the "Book-Entry Transfer Facility"), for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Series A Securities by causing
such Book-Entry Transfer Facility to transfer such Series A Securities into the
Exchange Agent's account with respect to the Series A Securities in accordance
with the Book-Entry Transfer Facility's procedures for such transfer. Although
delivery of the Series A Securities may be effected through book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility, an
appropriate Letter of Transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
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All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Series A Securities and withdrawal of
tendered Series A Securities will be determined by the Company in its sole
discretion, which determination will be final and binding. The Company reserves
the absolute right to reject any and all Series A Securities not properly
tendered or any Series A Securities the Company's acceptance of which would, in
the opinion of counsel for the Company, be unlawful. The Company also reserves
the right in its sole discretion to waive any defects, irregularities or
conditions of tender as to particular Series A Securities. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letters of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Series A Securities must be cured within such time as the Company shall
determine. Although the Company intends to notify holders of defects or
irregularities with respect to tenders of Series A Securities, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Series A Securities will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Series A Securities received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letters of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Securities and (i) whose Series A
Securities are not immediately available, (ii) who cannot deliver their Series A
Securities, the Letters of Transmittal or any other required documents to the
Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such Series A Securities and the
principal amount of Series A Notes and/or number of shares of
Series A Exchangeable Preferred Stock tendered, stating that the
tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date,
the Letters of Transmittal (or facsimiles thereof) together with
the certificate(s) representing the Series A Securities (or a
confirmation of book-entry transfer of such Series A Securities
into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letters of
Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letters of Transmittal (or
facsimiles thereof), as well as the certificate(s) representing
all tendered Series A Securities in proper form for transfer (or a
confirmation of book-entry transfer of such Series A Securities
into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letters of
Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Series A Securities according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Securities may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Series A Securities in the Exchange Offer, a letter
or facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the
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person having deposited the Series A Securities to be withdrawn (the
"Depositor"), (ii) identify the Series A Securities to be withdrawn (including
the certificate number(s) and principal amount of Series A Notes and/ or number
of shares of Series A Exchangeable Preferred Stock, or, in the case of Series A
Securities transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed by
the holder in the same manner as the original signature on the Letters of
Transmittal by which such Series A Securities were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Series A Notes or the
Transfer Agent with respect to the Series A Exchangeable Preferred Stock
register the transfer of such Series A Securities into the name of the person
withdrawing the tender and (iv) specify the name in which any such Series A
Securities are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Series A Securities so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer, and
no Series B Securities will be issued with respect thereto unless the Series A
Securities so withdrawn are validly retendered. Any Series A Securities which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Series A Securities may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Series B Securities for, any
Series A Securities, and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Series A Securities, if the Exchange Offer,
or the making of any exchange by a holder of Series A Securities, violates
applicable law or any applicable interpretation of the staff of the Commission.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letters of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
For Information by Telephone:
(212) 815-2742
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery Service:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
(7 East) Corporate Trust Services Window
New York, New York 10286 Ground Level
Attention: Reorganization Section New York, New York 10286
Attention: Reorganization Section, 7 East
</TABLE>
By Facsimile Transmission:
(212) 815-6339
(Facsimile Confirmation)
(212) 815-2742
Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.
Delivery to an address or transmission of instructions via facsimile other than
as set forth above will not constitute a valid delivery.
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The Bank of New York also acts as Trustee under the Notes Indenture and as
Transfer Agent for the Exchangeable Preferred Stock.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses includes fees and expenses of the Exchange
Agent, Trustee and Transfer Agent, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Series B Notes and the Series B Exchangeable Preferred Stock will be
recorded at the same carrying value as the Series A Notes and the Series A
Exchangeable Preferred Stock as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
amortized over the term of the Notes and Exchangeable Preferred Stock.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Series A Securities that are not exchanged for Series B Securities
pursuant to the Exchange Offer will remain restricted securities. Accordingly,
such Series A Securities may be resold only (i) to the Company (upon redemption
thereof or otherwise), (ii) so long as the Series A Securities are eligible for
resale pursuant to Rule 144A under the Securities Act, to a person inside the
United States whom the seller reasonably believes is a qualified institutional
buyer within the meaning of Rule 144A in a transaction meeting the requirements
of Rule 144A, (iii) in accordance with Rule 144 under the Securities Act, or
pursuant to another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel reasonably acceptable to
the Company), (iv) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 904 under the Securities Act or (v)
pursuant to an effective registration statement under the Securities Act, in
each case in accordance with any applicable securities laws of any state of the
United States.
RESALE OF THE SERIES B SECURITIES
With respect to resales of Series B Securities, based on no-action letters
issued by the staff of the Commission to third parties, the Company believes
that a holder of Series A Securities (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) that exchanges Series A Securities for Series B Securities pursuant to the
Exchange Offer generally may offer such Series B Securities for resale, sell
such Series B Securities and otherwise transfer such Series B Securities without
further registration under the Securities Act and without delivery of a
prospectus that satisfies the requirements of Section 10 of the Securities Act,
provided that such Series B Securities are acquired in the ordinary course of
such holder's business and such holder is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in a distribution of such Series B Securities. Any holder of Series
A Securities using the Exchange Offer to participate in a distribution of Series
B Securities received in exchange for Series A Securities (including a
broker-dealer that acquired Series A Securities directly from the Company, but
not as a result of market-making activities or other trading activities) cannot
rely on the position of the staff of the Commission enunciated in such no-action
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in the absence of
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<PAGE> 118
an exemption from such requirements. Furthermore, each Participating
Broker-Dealer may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with the resale of Series B Securities received in exchange for
Series A Securities. The Letters of Transmittal state that by so acknowledging
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Series B
Securities received in exchange for Series A Securities. The Company has agreed
that, for a period of 120 days after the Expiration Date, it will make this
Prospectus available to any Participating Broker-Dealer in connection with any
such resale. See "Plan of Distribution."
As contemplated by these no-action letters and the Registration Rights
Agreements, each holder of Series A Securities that wishes to exchange Series A
Securities for Series B Securities in the Exchange Offer will be required to
represent and acknowledge, for itself and for each Beneficial Owner of such
Series A Securities, whether or not such Beneficial Owner is the holder, in the
Letters of Transmittal that (i) the Series B Securities to be acquired by the
holder and each Beneficial Owner, if any, are being acquired in the ordinary
course of business, (ii) neither the holder nor any Beneficial Owner is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company or
any of its subsidiaries, (iii) any person participating in the Exchange Offer
with the intention or purpose of distributing Series B Securities received in
exchange for Series A Securities (including a broker-dealer that acquired Series
A Securities directly from the Company, but not as a result of market-making
activities or other trading activities) cannot rely on the position of the staff
of the Commission enunciated in the no-action letters referred to above and must
comply with the registration and prospectus delivery requirements of the
Securities Act in the absence of an exemption from such requirements, (iv) if
the holder is not a broker-dealer, the holder and each Beneficial Owner, if any,
are not participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in any distribution of the Series
B Securities received in exchange for Series A Securities, and (v) if the holder
is a broker-dealer that will receive Series B Securities for its own account in
exchange for Series A Securities, the Series A Securities to be exchanged for
Series B Securities were acquired by it as a result of market-making activities
or other trading activities and it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such Series
B Securities (however by so representing and acknowledging and by delivering a
prospectus, the holder will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act). As indicated above, each
Participating Broker-Dealer that receives Series B Securities for its own
account in exchange for Series A Securities must acknowledge that it will
deliver a prospectus in connection with any resale of such Series B Securities.
For a description of the procedures for such resales by Participating
Broker-Dealers, see "Plan of Distribution."
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DESCRIPTION OF THE NOTES
The Series A Notes were, and the Series B Notes will be, issued under an
indenture dated as of July 1, 1997, (the "Notes Indenture") between the Company,
the initial Subsidiary Notes Guarantor referred to below and The Bank of New
York, trustee (the "Trustee"), a copy of which is available from the Company.
Upon the effectiveness of the Exchange Offer Registration Statement, the Notes
Indenture will be subject to and governed by the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). As used in this "Description of the Notes"
section, the term "Company" refers to Citadel Broadcasting Company, but not any
current or future subsidiary (unless the context otherwise requires). The
following summary of the material provisions of the Notes Indenture does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the Notes Indenture, including the definitions
of certain terms contained therein and those terms made part of the Notes
Indenture by reference to the Trust Indenture Act. For definitions of certain
capitalized terms used in the following summary, see "-- Certain Definitions"
below.
GENERAL
The Notes will mature on July 1, 2007, are limited to $101,000,000
aggregate principal amount and are subordinate and junior in right of payment to
all existing and future Senior Debt of the Company. Each Note bears interest at
the rate of 10 1/4% per annum. Interest on the Series B Notes will accrue from
and including their issuance date. Additionally, interest on the Series B Notes
will accrue from the last interest payment date on which interest was paid on
the Series A Notes surrendered in exchange therefor, or, if no interest has been
paid on the Series A Notes, from July 3, 1997, the date of original issuance of
the Series A Notes, to but not including the issuance date of the Series B
Notes. Holders whose Series A Notes are accepted for exchange will be deemed to
have waived the right to receive interest accrued on such Series A Notes.
Accordingly, holders who exchange their Series A Notes will receive the same
interest payment on the next interest payment date following the Expiration Date
(expected to be July 1, 1998) that they would have received had they not
accepted the Exchange Offer. Interest on the Notes is payable semi-annually on
January 1 and July 1 in each year, commencing January 1, 1998, until the
principal thereof is paid or duly provided for, to the person in whose name the
Note (or any predecessor Note) is registered at the close of business on the
December 15 or June 15 next preceding such interest payment date. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
The principal of and premium, if any, and interest on the Notes is payable,
and the Notes are exchangeable and transferable, at the office or agency of the
Company in the City of New York maintained for such purposes (which initially
will be the office of the Trustee located at 101 Barclay Street, New York, New
York 10286); provided, however, that, at the option of the Company, interest may
be paid by check mailed to the address of the person entitled thereto as such
address appears in the security register for the Notes. The Notes will be issued
only in registered form without coupons and only in denominations of $1,000 and
any integral multiple thereof (unless the Company otherwise directs). No service
charge will be made for any registration of transfer or exchange or redemption
of Notes, but the Company may require payment in certain circumstances of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith.
As of the date hereof, the Company's only Subsidiary is a Restricted
Subsidiary and a Subsidiary Notes Guarantor. However, under certain
circumstances, the Company will be able to designate future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to any
of the restrictive covenants set forth in the Notes Indenture. The circumstances
in which the Company may designate a Subsidiary as an Unrestricted Subsidiary
are described below under the "Unrestricted Subsidiaries" covenant.
Any Series A Notes that remain outstanding after consummation of the
Exchange Offer and any Series B Notes issued in connection with the Exchange
Offer will be treated as a single class of securities under the Notes Indenture.
The Notes will not be entitled to the benefit of any sinking fund.
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GUARANTEES
Payment of the principal of (and premium, if any, on) and interest on the
Notes, when and as the same become due and payable, is unconditionally
guaranteed, jointly and severally, on a senior subordinated basis by the
Subsidiary Notes Guarantors. The obligations of each Subsidiary Notes Guarantor
under its Subsidiary Notes Guarantee will be limited so as not to constitute a
fraudulent conveyance under applicable law. See "Risk Factors -- Fraudulent
Transfer Considerations."
The Notes Indenture requires that each Wholly Owned Restricted Subsidiary
be a Subsidiary Notes Guarantor, as well as each other Restricted Subsidiary
that guarantees any other Debt of the Company.
The Notes Indenture provides that no Subsidiary Notes Guarantor may
consolidate with or merge with or into any other person (other than the Company
or another Subsidiary Notes Guarantor) or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets in one or more
related transactions to another person unless: (a) subject to the provisions of
the following paragraph, the person formed by or surviving such consolidation or
merger or to which all or substantially all of such assets are disposed (if
other than the Company or a Subsidiary Notes Guarantor) assumes all of the
obligations of such Subsidiary Notes Guarantor under the Notes Indenture and its
Subsidiary Notes Guarantee, pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee and (b) immediately after
giving effect to such transaction, no Default or Event of Default has occurred
and is continuing.
The Notes Indenture provides that, in the event of (a) a sale, transfer or
other disposition of all of the Capital Stock of a Subsidiary Notes Guarantor to
a person that is not an Affiliate of the Company, (b) a sale, transfer or other
disposition of all or substantially all of the assets of a Subsidiary Notes
Guarantor to a person that is not an Affiliate of the Company or (c) the
designation of such Subsidiary Notes Guarantor as an Unrestricted Subsidiary, in
any such case in compliance with the terms of the Notes Indenture, then such
Subsidiary Notes Guarantor will be deemed automatically and unconditionally
released and discharged from all of its obligations under the Notes Indenture
and its Subsidiary Notes Guarantee without any further action on the part of the
Trustee or any holder of the Notes; provided that the Net Cash Proceeds of any
such sale, transfer or other disposition are applied in accordance with the
"Limitation on Certain Asset Sales" covenant.
SUBORDINATION
The Notes are, to the extent set forth in the Notes Indenture, subordinate
in right of payment to the prior payment in full of all Senior Debt. Upon any
payment or distribution of assets of the Company to creditors upon any
liquidation, dissolution, winding-up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency or similar
proceedings of the Company (except in connection with the consolidation or
merger of the Company or its liquidation or dissolution following the
conveyance, transfer or lease of its properties and assets substantially as an
entirety, upon the terms and conditions described under "Consolidation, Merger
and Sale of Assets"), the holders of Senior Debt will first be entitled to
receive payment in full, in cash or cash equivalents, of all amounts due or to
become due on or in respect of such Senior Debt before the holders of Notes are
entitled to receive any payment of principal of (or premium, if any) or interest
on the Notes or on account of the purchase or redemption or other acquisition of
Notes by the Company or any Subsidiary of the Company. In the event that,
notwithstanding the foregoing, the Trustee or the holder of any Note receives
any payment or distribution of assets of the Company of any kind or character
(excluding equity or subordinated securities of the Company provided for in a
plan of reorganization or readjustment that, in the case of subordinated
securities, are subordinated in right of payment to all Senior Debt to at least
the same extent as the Notes are so subordinated), before all the Senior Debt is
paid in full, then such payment or distribution will be held in trust for the
holders of Senior Debt and will be required to be paid over or delivered
forthwith to the trustee in bankruptcy or other person making payment or
distribution of assets of the Company for application to the payment of all
Senior Debt remaining unpaid, to the extent necessary to pay the Senior Debt in
full.
The Company may not make any payments on account of the Notes or on account
of the purchase or redemption or other acquisition of Notes if a default in the
payment when due of principal of (or premium, if any) or interest on Specified
Senior Debt has occurred and is continuing or a default in the payment when due
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of commitment, facility or other fees, letter of credit fees or agency fees
under the Credit Facility, or a default in payments when due with respect to
letter of credit reimbursement arrangements with the Credit Facility Agent has
occurred and is continuing (a "Senior Payment Default"). In addition, if any
default (other than a Senior Payment Default) with respect to any Specified
Senior Debt permitting the holders thereof (or a trustee or agent on behalf
thereof) to accelerate the maturity thereof (a "Senior Nonmonetary Default") has
occurred and is continuing and the Company and the Trustee have received written
notice thereof from the Credit Facility Agent or from an authorized person on
behalf of any holder of Specified Senior Debt, then the Company may not make any
payments on account of the Notes or on account of the purchase or redemption or
other acquisition of Notes for a period (a "blockage period") commencing on the
date the Company and the Trustee receive such written notice (a "Blockage
Notice") and ending on the earliest of (x) 179 days after such date (the
"Initial Period"), (y) the date, if any, on which the Specified Senior Debt to
which such default relates is discharged or such default is waived or otherwise
cured and (z) the date, if any, on which such blockage period has been
terminated by written notice to the Company or the Trustee from the Credit
Facility Agent or from the person who gave the Blockage Notice. Any number of
additional payment blockage periods may be commenced during the Initial Period;
provided, however, that no such additional payment blockage periods shall extend
beyond the Initial Period. After the expiration of the Initial Period, no
payment blockage period may be commenced until at least 181 consecutive days
shall have elapsed from the last day of the Initial Period. No Senior
Nonmonetary Default that existed or was continuing on the date of the
commencement of any blockage period with respect to the Specified Senior Debt
initiating such blockage period will be, or can be, made the basis for the
commencement of a subsequent blockage period, unless such default has been cured
or waived for a period of not less than 90 consecutive days. In the event that,
notwithstanding the foregoing, the Company makes any payment to the Trustee or
the holder of any Note prohibited by these blockage provisions, then such
payment will be held in trust for the holders of Senior Debt and will be
required to be paid over and delivered forthwith to the holders of the Senior
Debt remaining unpaid, to the extent necessary to pay in full all the Senior
Debt.
The Subsidiary Notes Guarantees are, to the extent set forth in the Notes
Indenture, subordinated in right of payment to the prior payment in full of all
senior debt of the Subsidiary Notes Guarantors, upon terms substantially
comparable to the subordination of the Notes to all Senior Debt.
By reason of such subordination, in the event of insolvency, creditors of
the Company or a Subsidiary Notes Guarantor who are not holders of Senior Debt
or the Notes may recover less, ratably, than holders of Senior Debt and may
recover more, ratably, than the holders of the Notes.
The subordination provisions described above will cease to be applicable to
the Notes and the Subsidiary Notes Guarantees upon any defeasance or covenant
defeasance of the Notes as described under "-- Defeasance or Covenant Defeasance
of Notes Indenture."
As used herein, the term "Specified Senior Debt" means (i) all Senior Debt
under the Credit Facility and (ii) any other issue of Senior Debt having a
principal amount of at least $10,000,000.
At September 30, 1997, on a pro forma basis, after giving effect to the
Recent 1997 Acquisitions and the Pending Transactions, the aggregate principal
amount of Senior Debt outstanding would have been approximately $111.1 million.
The Company may from time to time hereafter incur additional Debt constituting
Senior Debt under the Credit Facility or otherwise, subject to the "Limitation
on Debt" covenant described below.
OPTIONAL REDEMPTION
The Notes are redeemable (subject to contractual and other restrictions
with respect thereto and to the legal availability of funds therefor) at the
election of the Company, as a whole or from time to time in part, at any time on
or after July 1, 2002 on not less than 30 nor more than 60 days' prior notice,
at the redemption prices (expressed as percentages of the principal amount
thereof) set forth below, together with accrued and unpaid interest, if any, to
the redemption date, if redeemed during the 12-month period beginning on July 1
of
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the years indicated below (subject to the right of holders of record on the
relevant record date to receive interest due on an interest payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
--------------------------------------------- ----------------
<S> <C>
2002......................................... 105.125%
2003......................................... 104.100
2004......................................... 103.075
2005......................................... 102.050
2006......................................... 101.025
</TABLE>
In addition, at any time and from time to time prior to July 1, 2000, the
Company may at its option redeem Notes with the net proceeds of one or more
Public Equity Offerings at a redemption price equal to 110.25% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the
redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on an interest payment date); provided that,
immediately after giving effect to any such redemption, at least $75,000,000
aggregate principal amount of the Notes remains outstanding. Any such redemption
must be made within 90 days of the related Public Equity Offering.
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date by
the Trustee by such method as the Trustee deems fair and appropriate.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Notes Indenture. Reference is made to the full definition of all such terms as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means Debt of a person (a) existing at the time such person
is merged with or into the Company or becomes a Subsidiary, (b) assumed in
connection with the acquisition of assets from such person or (c) secured by a
Lien encumbering assets acquired from such person.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control," when used with respect to any specified person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer") by the Company or a
Restricted Subsidiary, directly or indirectly, in one or a series of related
transactions, to any person other than the Company or a Restricted Subsidiary of
(a) any Capital Stock of any of its Restricted Subsidiaries, (b) all or
substantially all of the properties and assets of the Company and its Restricted
Subsidiaries representing a division or line of business or (c) any other
properties or assets of the Company or any of its Restricted Subsidiaries, other
than in the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" does not include any transfer of properties or assets (a)
that is governed by the provisions of the Notes Indenture described under (i)
"Consolidation, Merger and Sale of Assets" or (ii) "Limitation on Asset Swaps,"
(b) between or among the Company and any of its Restricted Subsidiaries pursuant
to transactions that do not violate any other provision of the Notes Indenture,
(c) to an Unrestricted Subsidiary, if permitted under the "Limitation on
Restricted Payments" covenant, (d) representing obsolete or permanently retired
equipment, (e) the gross proceeds of which (exclusive of indemnities) do not
exceed $100,000 for any particular item or $500,000 in the aggregate for any
fiscal year or (f) the transfer of up to $500,000 of property and assets,
including cash, to a joint venture in which the Company or a Restricted
Subsidiary has an equity interest, which joint venture is engaged in the
internet service provider business.
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"Asset Swap" means the execution of one or more definitive agreements,
subject only to FCC approval, if applicable, and other customary closing
conditions, which the Company in good faith believes will be satisfied, for a
substantially concurrent purchase and sale, or exchange, or "deferred exchange"
(for no more than 180 days) under section 1031(a)(3) of the Internal Revenue
Code of 1986, as amended (the "Code"), of assets used in the broadcast or
related businesses between the Company or any of its Restricted Subsidiaries and
one or more other persons or groups of affiliated persons; provided that any
amendment to or waiver of any closing conditions that individually or in the
aggregate are material to the Asset Swap will be deemed to be a new Asset Swap.
"Banks" means the banks and other financial institutions that from time to
time are lenders under the Credit Facility.
"Capital Stock" of any person means any and all shares, interests,
partnership interests, participations, rights in or other equivalents (however
designated) of such person's equity (however designated).
"Capitalized Lease Obligation" means, with respect to any person, an
obligation incurred or assumed under or in connection with any capital lease of
real or personal property that, in accordance with GAAP, has been recorded as a
capitalized lease on the balance sheet of such person.
"Change of Control" means the occurrence of any of the following events:
(a) Any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than Lawrence R. Wilson, Scott E.
Smith, John E. von Schlegell, Baker, Fentress & Company, ABRY Broadcast
Partners II, L.P., ABRY/Citadel Investment Partners, L.P., The Endeavour
Capital Fund Limited Partnership and any trustee, in its capacity as
trustee under the Voting Trust Agreement ("Permitted Holders") or Citadel
Communications, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person will be deemed
to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than a majority
of the voting power of all classes of Voting Stock of the Company;
(b) During any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Company, was
approved by a vote of at least 66 2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the
Company then in office; or
(c) The Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution.
"Closing Date" means July 3, 1997, the date on which the Series A Notes
were originally issued under the Notes Indenture.
"Consolidated Adjusted Net Income" means, for any period, the net income
(or net loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, (c) the portion of net income (or
loss) of any person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any of its
Restricted Subsidiaries has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Company or any
of its Restricted Subsidiaries in cash during such period, (d) the net income
(or loss) of any person combined with the Company or any of its Restricted
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination, and (e) the net income (but not the net loss) of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary is at the date of
determination restricted, directly or indirectly, except to the extent that such
net income could be paid to the Company or a Restricted Subsidiary thereof;
provided that, if any Restricted Subsidiary is not a
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Wholly Owned Restricted Subsidiary, Consolidated Adjusted Net Income will be
reduced (to the extent not otherwise reduced in accordance with GAAP) by an
amount equal to (A) the amount of the Consolidated Adjusted Net Income otherwise
attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1)
the number of shares of outstanding common stock of such Restricted Subsidiary
not owned on the last day of such period by the Company or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding common
stock of such Restricted Subsidiary on the last day of such period.
"Consolidated Cash Flow" means, for any period, the sum of, without
duplication, Consolidated Adjusted Net Income for such period, plus (or, in the
case of clause (d) below, plus or minus) the following items to the extent
included in computing Consolidated Adjusted Net Income for such period: (a) the
aggregate interest expense and preferred stock dividends of the Company and its
Restricted Subsidiaries for such period, plus (b) the provision for federal,
state, local and foreign income taxes of the Company and its Restricted
Subsidiaries for such period, plus (c) the aggregate depreciation and
amortization expense of the Company and any of its Restricted Subsidiaries for
such period, plus (d) any other non-cash charges for such period, and minus
non-cash credits for such period, other than non-cash charges or credits
resulting from changes in prepaid assets or accrued liabilities in the ordinary
course of business; provided that income tax expense, interest expense and
preferred stock dividends, depreciation and amortization expense, and non-cash
charges and credits of a Restricted Subsidiary will be included in Consolidated
Cash Flow only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Adjusted Net
Income for such period. Solely for purposes of determining whether the Company
could incur Debt pursuant to the first paragraph of the "Limitation on Debt"
covenant, if the Company is permitted to give pro forma effect to an In-Market
Acquisition of a radio station pursuant to clause (iii) of the second paragraph
of such covenant, such calculation may also give pro forma effect to projected
quantifiable improvements in operating results of such radio station due to cost
reductions calculated in good faith by the Company and certified by an officers'
certificate filed with the Trustee. As used in the preceding sentence, the term
"In-Market Acquisition" means the acquisition of a radio station or group of
radio stations serving an MSA in which the Company or its Subsidiaries has
owned, or has operated under a LMA, one or more radio stations for at least the
preceding six months.
"Consolidated Cash Flow Ratio" means, at any date, the ratio of (i) the
aggregate amount of Debt of the Company and its Restricted Subsidiaries on a
consolidated basis as of the end of the immediately preceding four fiscal
quarters for which internal financial statements of the Company are available
(the "Reference Period") to (ii) the aggregate amount of Consolidated Cash Flow
for such Reference Period.
"Consolidated Fixed Charges" means, for any period, without duplication,
the sum of (a) the amount which, in conformity with GAAP, would be set forth
opposite the caption "interest expense" (or any like caption) on a consolidated
statement of operations of the Company and its Restricted Subsidiaries for such
period, including, without limitation, (i) amortization of debt discount, (ii)
the net cost of interest rate contracts (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation, (iv) amortization
of debt issuance costs, (v) the interest component of Capitalized Lease
Obligations of the Company and any of its Restricted Subsidiaries, and (vi) the
portion of any rental obligation of the Company and any of its Restricted
Subsidiaries in respect of any sale and leaseback transaction allocable during
such period to interest expense (determined as if it were treated as a
Capitalized Lease Obligation) plus (b) all interest on any Debt of any other
person guaranteed by the Company or any of its Restricted Subsidiaries;
provided, however, that Consolidated Fixed Charges will not include any gain or
loss from extinguishment of debt, including any write-off of debt issuance
costs.
"Credit Facility" means the loan agreement dated October 9, 1996, among the
Company, the Banks and the Credit Facility Agent, as amended, and as such
agreement may be amended, restated, supplemented, replaced or refinanced or
otherwise modified from time to time.
"Credit Facility Agent" means the then acting Agent as defined in and under
the Credit Facility or any successor thereto.
"Debt" means (without duplication), with respect to any person, whether
recourse is to all or a portion of the assets of such person and whether or not
contingent, (a) every obligation of such person for money
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borrowed, (b) every obligation of such person evidenced by bonds, debentures,
notes or other similar instruments, (c) every reimbursement obligation of such
person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such person, (d) every obligation of such
person issued or assumed as the deferred purchase price of property or services,
(e) every Capitalized Lease Obligation of such person, (f) all Disqualified
Stock of such person valued at its maximum fixed repurchase price, plus
accumulated and unpaid dividends, (g) all Hedging Obligations of such person,
and (h) every obligation of the types referred to in clauses (a) through (g) of
another person and all dividends of another person (i) the payment of which, in
either case, such person has guaranteed or (ii) which is secured by any Lien on
any property or asset of such person, the amount of such Debt being deemed to be
the lesser of the actual amount of the guarantee or the value of such property
or asset subject to such Lien, as the case may be, and the amount of the Debt so
guaranteed or secured, as the case may be. For purposes of this definition, the
"maximum fixed repurchase price" of any Disqualified Stock that does not have a
fixed repurchase price will be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date on
which Debt is required to be determined pursuant to the Notes Indenture, and if
such price is based upon, or measured by, the fair market value of such
Disqualified Stock, such fair market value will be determined reasonably and in
good faith by the board of directors of the issuer of such Disqualified Stock.
Notwithstanding the foregoing, trade accounts payable and accrued liabilities
arising in the ordinary course of business, any liability for federal, state or
local taxes or other taxes owed by such person and the Exchangeable Preferred
Stock will not be considered Debt for purposes of this definition. The amount
outstanding at any time of any Debt issued with original issue discount is the
aggregate principal amount at maturity of such Debt, less the remaining
unamortized portion of the original issue discount of such Debt at such time, as
determined in accordance with GAAP.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors, to make a finding or otherwise
take action under the Notes Indenture, a member of the Board of Directors who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of transactions.
"Disqualified Stock" means any class or series of Capital Stock that,
either by its terms or by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, (a) is, or upon the happening of an
event or passage of time would be, required to be redeemed prior to one year
after the final Stated Maturity of the Notes, (b) is redeemable at the option of
the holder thereof at any time prior to one year after such final Stated
Maturity or (c) at the option of the holder thereof, is convertible into or
exchangeable for debt securities at any time prior to one year after such final
Stated Maturity; provided that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to cause the issuer thereof to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to one year
after the Stated Maturity of the Notes will not constitute Disqualified Stock if
the "asset sale" or "change of control" provisions applicable to such Capital
Stock are no more favorable to the holders of such Capital Stock than the
provisions contained in the "Limitation on Certain Asset Sales" and "Purchase of
Notes upon a Change of Control" covenants described below and such Capital Stock
specifically provides that the issuer will not repurchase or redeem any such
Capital Stock pursuant to such provision prior to the Company's repurchase of
such Notes as are required to be repurchased pursuant to the "Limitation on
Certain Asset Sales" and "Purchase of Notes upon a Change of Control" covenants
described below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the Closing Date.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the
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practical effect of which is to assure in any way the payment or performance (or
payment of damages in the event of non-performance) of all or any part of such
obligation, including, without limitation, the payment of amounts drawn down
under letters of credit.
"Hedging Obligations" means the obligations of any person under (a)
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements and (b) other agreements or arrangements designed to protect
such person against fluctuations in interest rates or the value of foreign
currencies.
"Investment" (in any person) means (a) directly or indirectly, any advance,
loan or other extension of credit (including, without limitation, by way of
guarantee or similar arrangement) or capital contribution to any person, the
purchase or other acquisition of any stock, bonds, notes, debentures or other
securities issued by such person or the acquisition (by purchase or otherwise)
of all or substantially all of the business or assets of such person or the
making of any investment in such person, (b) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary and (c) the transfer of any assets or
properties from the Company or a Restricted Subsidiary to any Unrestricted
Subsidiary, other than the transfer of assets or properties made in the ordinary
course of business. Investments will exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"License Subsidiary" means Citadel License, Inc.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim,
preference, priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A person will be deemed to own subject to a Lien any property that
such person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or cash equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any of its
Restricted Subsidiaries), net of (a) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (b) provisions for all taxes payable as a result of
such Asset Sale, (c) payments made to retire Debt where payment of such Debt is
secured by the assets that are the subject of such Asset Sale, (d) amounts
required to be paid to any person (other than the Company or any of its
Restricted Subsidiaries) owning a beneficial interest in the assets that are
subject to the Asset Sale and (e) appropriate amounts to be provided by the
Company or any of its Restricted Subsidiaries, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the seller after such Asset Sale, including pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale.
"Pari Passu Debt" means Debt of the Company that ranks pari passu in right
of payment with the Notes.
"Permitted Investments" means any of the following:
(a) Investments in (i) securities with a maturity of one year or less
issued or directly and fully guaranteed or insured by the United States or
any agency or instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support thereof); (ii)
certificates of deposit, time deposits, overnight bank deposits or bankers'
acceptances with a maturity of 270 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus of not less than $500,000,000; and (iii) commercial
paper with a maturity of 270 days or less issued by a corporation that is
not an Affiliate of the Company and is organized under the laws of any
state of the United States or the District of Columbia and having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard
& Poor's Ratings Services.
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(b) Investments by the Company or any of its Restricted Subsidiaries
in another person, if as a result of such Investment (i) such other person
becomes a Restricted Subsidiary that is a Subsidiary Notes Guarantor or
(ii) such other person is merged or consolidated with or into, or transfers
or conveys all or substantially all of its assets to, the Company or a
Restricted Subsidiary that is a Subsidiary Notes Guarantor.
(c) Investments by the Company or any of its Restricted Subsidiaries
in a Subsidiary Notes Guarantor and Investments by any Restricted
Subsidiary in the Company.
(d) Investments in assets owned or used in the ordinary course of
business.
(e) Investments in existence on the Closing Date.
(f) Promissory notes received as a result of Asset Sales permitted
under the "Limitation on Certain Asset Sales" covenant.
(g) Direct or indirect loans to employees, or to a trustee for the
benefit of such employees, of the Company or any of its Restricted
Subsidiaries in an aggregate amount outstanding at any time not exceeding
$1,000,000.
(h) Investments by the Company or any of its Restricted Subsidiaries
in a joint venture that is engaged in the internet service provider
business in an aggregate amount outstanding at any time not exceeding
$500,000.
(i) Other Investments that do not exceed $2,000,000 at any one time
outstanding.
"Public Equity Offering" means an underwritten public offering of Qualified
Equity Interests of either (a) the Company or (b) Citadel Communications the net
proceeds from which (after deducting any underwriting discounts and commissions)
are used by Citadel Communications to purchase Qualified Equity Interests of the
Company; provided that, in either case, such net proceeds exceed $10,000,000.
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any person means any and all Capital Stock of such
person, other than Disqualified Stock.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Senior Debt" means the principal of and premium, if any, and interest on
(including interest accruing after the filing of a petition initiating any
proceeding pursuant to any bankruptcy law, whether or not allowed) and other
amounts due on or in connection with any Debt of the Company (other than the
Notes or Pari Passu Debt), whether outstanding on the Closing Date or thereafter
incurred, unless, in the case of any particular Debt, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Debt will be subordinate in right of payment to any Debt or
other general unsecured obligations of the Company. Without limiting the
generality of the foregoing, "Senior Debt" includes the principal of and
premium, if any, fees and interest (including interest accruing after the
occurrence of an event of default or after the filing of a petition initiating
any proceeding pursuant to any bankruptcy law, whether or not allowed) on all
obligations of every nature of the Company from time to time owed to the Banks
under the Credit Facility. Notwithstanding the foregoing, "Senior Debt" will not
include (a) Debt that is Disqualified Stock, (b) Debt consisting of trade
payables, (c) Debt of the Company to a Subsidiary or any other Affiliate of the
Company or any of such Affiliate's Subsidiaries and (d) that portion of any Debt
that, at the time of the incurrence, is incurred by the Company in violation of
the Notes Indenture other than any Debt incurred under the Credit Facility not
in excess of $150,000,000 (less any amounts applied to the permanent reduction
of such Debt pursuant to the "Limitation on Certain Asset Sales" covenant under
the Notes Indenture) if the Company has certified to the Credit Facility Agent,
at the time such Debt is incurred, that the Company is permitted to incur such
Debt under the Notes Indenture.
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"Significant Subsidiary" means any Restricted Subsidiary of the Company
that, together with its Subsidiaries, (a) for the most recent fiscal year of the
Company, accounted for more than 10% of the consolidated net sales of the
Company and its Restricted Subsidiaries, (b) as of the end of such fiscal year,
was the owner of more than 10% of the consolidated assets of the Company and its
Restricted Subsidiaries, in the case of either (a) or (b), as set forth on the
most recently available consolidated financial statements of the Company for
such fiscal year, (c) was organized or acquired after the beginning of such
fiscal year and would have been a Significant Subsidiary if it had been owned
during the entire fiscal year or (d) holds one or more licenses material to the
Company's business.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Debt, means the date
specified in the instrument governing such Debt as the fixed date on which the
principal of such Debt or any installment of interest thereon is due and
payable.
"Subordinated Debt" means Debt of the Company that is subordinated in right
of payment to the Notes.
"Subsidiary" means any person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company
and/or one or more other Subsidiaries of the Company.
"Subsidiary Notes Guarantee" means a guarantee of the Notes by a Restricted
Subsidiary in accordance with the provisions of the Notes Indenture.
"Subsidiary Notes Guarantor" means the License Subsidiary and each other
Restricted Subsidiary that issues a Subsidiary Notes Guarantee as described
under the "Subsidiary Notes Guarantees" covenant.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by
the Board of Directors of the Company as an Unrestricted Subsidiary in
accordance with the "Unrestricted Subsidiaries" covenant and (b) any Subsidiary
of an Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any person (irrespective of whether or not, at the time, stock of
any other class or classes has, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life" means, as of the date of determination with respect
to any Debt or Disqualified Stock, the quotient obtained by dividing (a) the sum
of the products of (i) the number of years from the date of determination to the
date or dates of each successive scheduled principal or liquidation value
payment of such Debt or Disqualified Stock, respectively, multiplied by (ii) the
amount of each such principal or liquidation value payment by (b) the sum of all
such principal or liquidation value payments.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary, all
of the outstanding voting securities (other than directors' qualifying shares or
an immaterial number of shares required to be owned by other persons pursuant to
applicable law) of which are owned, directly or indirectly, by the Company.
CERTAIN COVENANTS
The Notes Indenture contains, among others, the following covenants:
LIMITATION ON DEBT. (a) The Company will not, and will not permit any of
its Restricted Subsidiaries to, create, issue, assume, guarantee or in any
manner become directly or indirectly liable for the payment of, or otherwise
incur (collectively, "incur"), any Debt (including Acquired Debt and the
issuance of Disqualified Stock), except that the Company or a Subsidiary Notes
Guarantor may incur Debt or issue Disqualified Stock if, at the time of such
event, the Consolidated Cash Flow Ratio would have been less than 7.0 to 1.0.
In making the foregoing calculation, pro forma effect will be given to: (i)
the incurrence of such Debt and (if applicable) the application of the net
proceeds therefrom, including to refinance other Debt, as if such Debt had been
incurred and the application of proceeds therefrom occurred on the first day of
the four-fiscal quarter period used to calculate the Consolidated Cash Flow
Ratio, (ii) the incurrence, repayment or
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retirement of any other Debt by the Company or any of its Restricted
Subsidiaries since the first day of such four-quarter period as if such Debt was
incurred, repaid or retired at the beginning of such four-quarter period and
(iii) the acquisition (whether by purchase, merger or otherwise) or disposition
(whether by sale, merger or otherwise) of any company, entity or business
acquired or disposed of by the Company or any of its Restricted Subsidiaries, as
the case may be, since the first day of such four-quarter period, as if such
acquisition or disposition occurred at the beginning of such four-quarter
period. In making a computation under the foregoing clause (i) or (ii), the
amount of Debt under a revolving credit facility will be computed based upon the
average daily balance of such Debt during such four-quarter period.
(b) Notwithstanding the foregoing, the Company may, and may, to the extent
expressly permitted below, permit any of its Restricted Subsidiaries to, incur
any of the following Debt ("Permitted Debt"):
(i) Debt of the Company or any Subsidiary Notes Guarantor under the
Credit Facility (including guarantees thereof by the Subsidiaries) in an
aggregate principal amount at any one time outstanding not to exceed
$110,000,000 less any amounts applied to the permanent reduction of such
Debt pursuant to the "Limitation on Certain Asset Sales" covenant.
(ii) Debt of the Company or any of its Restricted Subsidiaries
outstanding on the Closing Date, other than Debt described under clause (i)
above.
(iii) Debt owed by the Company to any of its Restricted Subsidiaries
or owed by any Subsidiary to the Company or a Restricted Subsidiary
(provided that such Debt is Subordinated Debt and is held by the Company or
such Restricted Subsidiary) or owed to the Company or a Subsidiary Notes
Guarantor by a Restricted Subsidiary that is not a Subsidiary Notes
Guarantor, provided the incurrence of such Debt did not violate the
"Limitation on Restricted Payments" covenant.
(iv) Debt represented by the Notes and the Subsidiary Notes
Guarantees.
(v) Hedging Obligations of the Company or any of its Restricted
Subsidiaries incurred in the ordinary course of business.
(vi) Capitalized Lease Obligations of the Company or any of its
Restricted Subsidiaries in an aggregate amount not exceeding $3,000,000 at
any one time outstanding.
(vii) Debt under purchase money mortgages or secured by purchase money
security interests so long as (x) such Debt is not secured by any property
or assets of the Company or any of its Restricted Subsidiaries other than
the property or assets so acquired and (y) such Debt is created within 60
days of the acquisition of the related property; provided that the
aggregate principal amount of Debt under this clause (vii) does not exceed
$2,000,000 at any one time outstanding.
(viii) Debt of the Company or any Subsidiary Notes Guarantor, not
permitted by any other clause of this definition, in an aggregate principal
amount not to exceed $5,000,000 at any one time outstanding.
(ix) Debt of the Company or any of its Restricted Subsidiaries
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments in connection with the acquisition or disposition of
assets, including, without limitation, shares of Capital Stock.
(x) Acquired Debt of a person, other than Debt incurred in connection
with, or in contemplation of, such person becoming a Restricted Subsidiary
or the acquisition of assets from such person, as the case may be, provided
that the Company on a pro forma basis could incur $1.00 of additional Debt
(other than Permitted Debt) pursuant to the first paragraph of this
covenant.
(xi) Any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by the
Company or any Restricted Subsidiary of any outstanding Debt of the Company
or such Restricted Subsidiary, other than Debt incurred pursuant to clause
(i), (v), (vi), (vii), (viii) or (ix) of this definition, including any
successive refinancings thereof, so long as (A) any such new Debt is in a
principal amount that does not exceed the principal amount so refinanced,
plus the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Debt refinanced or the amount of
any premium reasonably determined by the Company as necessary to
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accomplish such refinancing, plus the amount of expenses of the Company
incurred in connection with such refinancing, (B) in the case of any
refinancing of Subordinated Debt, such new Debt is made subordinate to the
Notes at least to the same extent as the Debt being refinanced, (C) in the
case of any refinancing of the Notes or any Pari Passu Debt, such Debt is
Pari Passu Debt or Subordinated Debt and (D) such refinancing Debt does not
have a Weighted Average Life less than the Weighted Average Life of the
Debt being refinanced and does not have a final scheduled maturity earlier
than the final scheduled maturity, or permit redemption at the option of
the holder earlier than the earliest date of redemption at the option of
the holder, of the Debt being refinanced.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, take any
of the following actions:
(a) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company or any of its
Restricted Subsidiaries, other than (i) dividends or distributions payable
solely in Qualified Equity Interests of the issuer of such shares of
Capital Stock, (ii) dividends or distributions by a Restricted Subsidiary
payable to the Company or another Restricted Subsidiary or (iii) pro rata
dividends or distributions on common stock of a Restricted Subsidiary held
by minority stockholders, provided that such dividends do not in the
aggregate exceed the minority stockholders' pro rata share of such
Restricted Subsidiary's net income from the first day of the Company's
fiscal quarter during which the Closing Date occurs;
(b) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock (or any options,
warrants or other rights to acquire shares of Capital Stock) of (i) the
Company or any of its Unrestricted Subsidiaries or (ii) any Restricted
Subsidiary that are held by any Affiliate of the Company (other than, in
either case, any such Capital Stock owned by the Company or any of its
Restricted Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Debt; and
(d) make any Investment (other than a Permitted Investment) in any
person
(such payments or other actions described in (but not excluded from) clauses (a)
through (d) being referred to as "Restricted Payments"), unless at the time of,
and immediately after giving effect to, the proposed Restricted Payment:
(i) no Default or Event of Default has occurred and is continuing,
(ii) the Company could incur at least $1.00 of additional Debt
(other than Permitted Debt) pursuant to the first paragraph of the
"Limitation on Debt" covenant, and
(iii) the aggregate amount of all Restricted Payments declared or
made after the Closing Date does not exceed the sum of:
(A) the remainder of (x) 100% of the aggregate Consolidated Cash
Flow for the period beginning on the first day of the Company's
fiscal quarter during which the Closing Date occurs and ending on the
last day of the Company's most recent fiscal quarter for which
internal financial statements are available ending prior to the date
of such proposed Restricted Payment (the "Computation Period") minus
(y) the product of 1.4 times the sum of (i) Consolidated Fixed
Charges for the Computation Period and (ii) all dividends or other
distributions paid in cash by the Company or any of its Restricted
Subsidiaries on any Disqualified Stock of the Company or any of its
Restricted Subsidiaries for the Computation Period; plus
(B) the aggregate net proceeds received by the Company after the
Closing Date (including the fair market value of property other than
cash as determined by the Company's Board of Directors, whose good
faith determination will be conclusive) from the issuance or sale
(other than to a Subsidiary) of Qualified Equity Interests of the
Company (excluding from
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this computation any net proceeds of a Public Equity Offering
received by the Company that are used by it to redeem the Notes, as
discussed above); plus
(C) the aggregate net proceeds received by the Company after the
Closing Date (including the fair market value of property other than
cash as determined by the Company's Board of Directors, whose good
faith determination will be conclusive) from the issuance or sale
(other than to a Subsidiary) of debt securities or Disqualified Stock
that have been converted into or exchanged for Qualified Stock of the
Company, together with the aggregate net cash proceeds received by
the Company at the time of such conversion or exchange; plus
(D) without duplication, the Net Cash Proceeds received by the
Company or a Wholly Owned Restricted Subsidiary upon the sale of any
of its Unrestricted Subsidiaries; plus
(E) $5,000,000.
Notwithstanding the foregoing, the Company and any of its Restricted
Subsidiaries may take any of the following actions, so long as (with respect to
clauses (f) and (g) below) no Default or Event of Default has occurred and is
continuing or would occur:
(a) The payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would not have
been prohibited by the foregoing provision.
(b) The repurchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Subsidiary) of, Qualified Equity Interests of the
Company.
(c) The purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Debt in exchange for, or out of the
net cash proceeds of a substantially concurrent issuance and sale (other
than to a Restricted Subsidiary) of shares of, Qualified Stock of the
Company.
(d) The purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Debt in exchange for, or out of the
net cash proceeds of a substantially concurrent issuance or sale (other
than to a Subsidiary) of, Subordinated Debt, so long as the Company or a
Restricted Subsidiary would be permitted to refinance such original
Subordinated Debt with such new Subordinated Debt pursuant to clause (xi)
of the definition of Permitted Debt.
(e) The repurchase of any Subordinated Debt at a purchase price not
greater than 101% of the principal amount of such Subordinated Debt in the
event of a "change of control" in accordance with provisions similar to the
"Purchase of Notes upon a Change of Control" covenant; provided that, prior
to such repurchase, the Company has made the Change of Control Offer as
provided in such covenant with respect to the Notes and has repurchased all
Notes validly tendered for payment in connection with such Change of
Control Offer.
(f) The payment by the Company to Citadel Communications for the
purpose of the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of Citadel Communications,
options on any such shares or related stock appreciation rights or similar
securities held by officers or employees or former officers or employees
(or their estates or beneficiaries under their estates) or by any employee
benefit plan, upon death, disability, retirement or termination of
employment or pursuant to the terms of any employee benefit plan or any
other agreement under which such shares of stock or related rights were
issued; provided that the aggregate cash consideration paid for such
purchase, redemption, acquisition, cancellation or other retirement of such
shares of Capital Stock after the date of the Closing Date does not exceed
$1,000,000 in any fiscal year.
(g) Loans or advances to officers, directors and employees of Citadel
Communications, the Company or any of its Restricted Subsidiaries made in
the ordinary course of business after the Closing Date in an aggregate
principal amount not to exceed $1,000,000 at any one time outstanding.
(h) Payments to or on behalf of Citadel Communications to pay its
operating and administrative expenses attributable to the Company
including, without limitation, legal and audit expenses, directors'
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fees, fees payable in respect of the trustee and back-up trustees under the
Voting Trust Agreement, and Commission compliance expenses, in an amount
not to exceed the greater of $1,000,000 per fiscal year and 1% of the net
revenues of the Company for the preceding fiscal year.
The payments described in clauses (b), (c), (e), (f) and (g) of this paragraph
will be Restricted Payments that will be permitted to be taken in accordance
with this paragraph but will reduce the amount that would otherwise be available
for Restricted Payments under the foregoing clause (iii), and the payments
described in clauses (a), (d) and (h) of this paragraph will be Restricted
Payments that will be permitted to be taken in accordance with this paragraph
and will not reduce the amount that would otherwise be available for Restricted
Payments under the foregoing clause (iii).
For the purpose of making any calculations under the Notes Indenture (i) if
a Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company
will be deemed to have made an Investment in an amount equal to the fair market
value of the net assets of such Restricted Subsidiary at the time of such
designation as determined by the Board of Directors of the Company, whose good
faith determination will be conclusive, (ii) any property transferred to or from
an Unrestricted Subsidiary will be valued at fair market value at the time of
such transfer, as determined by the Board of Directors of the Company, whose
good faith determination will be conclusive and (iii) subject to the foregoing,
the amount of any Restricted Payment, if other than cash, will be determined by
the Board of Directors of the Company, whose good faith determination will be
conclusive.
If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment in an Unrestricted Subsidiary or
other person that thereafter becomes a Restricted Subsidiary, such Investment
will no longer be counted as a Restricted Payment for purposes of calculating
the aggregate amount of Restricted Payments.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise), to the extent such net reduction is not included in
Consolidated Adjusted Net Income; provided that the total amount by which the
aggregate amount of all Restricted Payments may be reduced may not exceed the
lesser of (x) the cash proceeds received by the Company and any of its
Restricted Subsidiaries in connection with such net reduction and (y) the
initial amount of such Investment.
In computing Consolidated Adjusted Net Income for purposes of the foregoing
clause (iii)(A), (i) the Company may use audited financial statements for the
portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (ii) the Company will be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment that, at the time of
the making of such Restricted Payment, would in the good faith determination of
the Company be permitted under the requirements of the Notes Indenture, such
Restricted Payment will be deemed to have been made in compliance with the Notes
Indenture notwithstanding any subsequent adjustments made in good faith to the
Company's financial statements affecting Consolidated Adjusted Net Income of the
Company for any period.
PURCHASE OF NOTES UPON A CHANGE OF CONTROL. If a Change of Control occurs
at any time, then each holder of Notes will have the right to require that the
Company purchase such holder's Notes, in whole or in part in integral multiples
of $1,000, at a purchase price in cash equal to 101% of the principal amount of
such Notes, plus accrued and unpaid interest, if any, to the date of purchase,
pursuant to the offer described below (the "Change of Control Offer") and the
other procedures set forth in the Notes Indenture.
Within 30 days following any Change of Control, the Company will notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Notes by first-class mail, postage prepaid, at its address appearing in the
security register, stating, among other things, (i) the purchase price and the
purchase date, which will be a Business Day no earlier than 30 days nor later
than 60 days from the date such notice is
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mailed or such later date as is necessary to comply with requirements under the
Exchange Act; (ii) that any Notes not tendered will continue to accrue interest;
(iii) that, unless the Company defaults in the payment of the purchase price,
any Notes accepted for payment pursuant to the Change of Control Offer will
cease to accrue interest after the Change of Control purchase date; and (iv)
certain other procedures that a holder of Notes must follow to accept a Change
of Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be tendered by holders of the Notes seeking to accept
the Change of Control Offer. The Credit Facility prohibits the purchase of Notes
by the Company prior to full repayment of indebtedness under the Credit Facility
and, upon a Change of Control, all amounts outstanding under the Credit Facility
become due and payable. There can be no assurance that in the event of a Change
of Control the Company will be able to obtain the necessary consents from the
lenders under the Credit Facility to consummate a Change of Control Offer. The
failure of the Company to make or consummate the Change of Control Offer or pay
the applicable Change of Control purchase price when due would result in an
Event of Default and would give the Trustee and the holders of the Notes the
rights described under "Events of Default."
In addition to the obligations of the Company under the Notes Indenture
with respect to the Notes in the event of a Change of Control, the Credit
Facility contains a provision designating a change of control as described
therein as an event of default, which would obligate the Company to repay
amounts outstanding under the Credit Facility upon an acceleration of the
indebtedness outstanding thereunder.
The existence of a holder's right to require the Company to purchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the Notes Indenture is limited in
scope. The provisions of the Notes Indenture may not afford holders of Notes the
right to require the Company to repurchase such Notes in the event of a highly
leveraged transaction or certain transactions with the Company's management or
its affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect holders of the Notes, if such transaction is not a transaction defined as
a Change of Control. See "Certain Definitions" above for the definition of
"Change of Control." A transaction involving the Company's management or its
affiliates, or a transaction involving a recapitalization of the Company, would
result in a Change of Control if it is the type of transaction specified in such
definition.
The Company will comply with the applicable tender offer rules including
Rule 14e-l under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create any restriction (other than restrictions existing under
Debt as in effect on the Closing Date or in refinancings or replacements of such
Debt) that would materially impair the ability of the Company to make a Change
of Control Offer to purchase the Notes or, if such Change of Control Offer is
made, to pay for the Notes tendered for purchase.
LIMITATION ON CERTAIN ASSET SALES. (a) The Company will not, and will not
permit any of its Restricted Subsidiaries to, engage in any Asset Sale unless
(i) the consideration received by the Company or such Restricted Subsidiary for
such Asset Sale is not less than the fair market value of the assets sold (as
determined by the Board of Directors of the Company, whose good faith
determination will be conclusive) and (ii) the consideration received by the
Company or the relevant Restricted Subsidiary in respect of such Asset Sale
consists of at least 80% (A) cash or cash equivalents and/or (B) the assumption
by the transferee of Debt of the Company or a Restricted Subsidiary ranked
senior to or pari passu with the Notes and release of the Company or such
Restricted Subsidiary from all liability on such Debt.
(b) If the Company or any of its Restricted Subsidiaries engages in an
Asset Sale, the Company may, at its option, within 12 months after such Asset
Sale, (i) apply all or a portion of such Net Cash Proceeds to the permanent
reduction of amounts outstanding under the Credit Facility or to the repayment
of other Senior Debt of the Company or a Subsidiary Notes Guarantor or (ii)
invest (or enter into one or more legally binding
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agreements to invest) all or a portion of such Net Cash Proceeds in properties
and assets to replace the properties and assets that were the subject of the
Asset Sale or in properties and assets that will be used in the broadcast
business or businesses reasonably related thereto. If any such legally binding
agreement to invest such Net Cash Proceeds is terminated, the Company may,
within 90 days of such termination or within 12 months of such Asset Sale,
whichever is later, invest such Net Cash Proceeds as provided in clause (i) or
(ii) (without regard to the parenthetical contained in such clause (ii)) above.
The amount of such Net Cash Proceeds not so used as set forth above in this
paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5,000,000, the
Company will, within 30 days thereafter, make an offer to purchase from all
holders of Notes, on a pro rata basis, in accordance with the procedures set
forth in the Notes Indenture, the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased with the Excess Proceeds, at
a purchase price in cash equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date such offer to purchase is
consummated. To the extent that the aggregate principal amount of the Notes
tendered pursuant to such offer to purchase is less than the Excess Proceeds,
the Company may use such deficiency for general corporate purposes. If the
aggregate principal amount of the Notes validly tendered and not withdrawn by
holders thereof exceeds the Excess Proceeds, the Notes to be purchased will be
selected on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds will be reset to zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act to the extent applicable in connection with the repurchase of Notes
pursuant to an offer to purchase Notes.
LIMITATION ON ASSET SWAPS. The Notes Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, engage in
any Asset Swap, unless:
(i) at the time of entering into the Asset Swap and immediately after
giving effect to the proposed Asset Swap, no Default or Event of Default
has occurred and is continuing or would occur as a consequence thereof;
(ii) the Company would, at the time of entering into the Asset Swap
and after giving pro forma effect to the proposed Asset Swap, as if such
Asset Swap had occurred at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional Debt
(other than Permitted Debt) pursuant to the first paragraph of the
"Limitation on Debt" covenant;
(iii) the respective aggregate fair market values of the assets being
purchased and sold by the Company or any of its Restricted Subsidiaries are
substantially the same at the time of entering into the Asset Swap (or any
difference in such aggregate fair market values is substantially
compensated for by an equalizing (i) payment of cash, (ii) assumption of
liabilities or (iii) taking of assets subject to liabilities); and
(iv) at the time of the consummation of the first to occur of the
relinquishment or the replacement of assets constituting part of the
proposed Asset Swap, the percentage of any decline in the fair market value
of the asset or assets being acquired by the Company and its Restricted
Subsidiaries shall not be significantly greater than the percentage of any
decline in the fair market value of the assets being disposed of by the
Company, calculated from the time the last agreement constituting part of
the Asset Swap was entered into.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or suffer to exist any transaction with, or for the benefit of, any
Affiliate of the Company unless (a) such transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than those that could have been obtained in an arm's length transaction with
third parties who are not Affiliates and (b) either (i) with respect to any
transaction or series of transactions involving aggregate payments in excess of
$1,000,000, but less than $5,000,000, the Company delivers an officers'
certificate to the Trustee certifying that such transaction or transactions
comply with clause (a) above or (ii) with respect to a transaction or series of
transactions involving aggregate payments equal to or greater than $5,000,000,
such transaction or transactions have been approved by the Board of Directors
(including a majority of the Disinterested Directors) of the Company or
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the Company has obtained a written opinion from a nationally recognized
investment banking firm to the effect that such transaction or transactions are
fair to the Company or such Restricted Subsidiary from a financial point of
view.
The foregoing covenant does not restrict any of the following:
(A) Transactions among the Company and/or any of its Restricted
Subsidiaries.
(B) The Company from paying reasonable and customary regular
compensation, fees, indemnification and similar arrangements and payments
thereunder to directors of the Company or any of its Restricted
Subsidiaries who are not employees of the Company or any of its Restricted
Subsidiaries.
(C) Employment agreements or compensation or employee benefits
arrangements with any officer, director or employee of the Company or its
Restricted Subsidiaries entered into in the ordinary course of business
(including customary benefits thereunder) (it being understood that
benefits of the nature in place as of the Closing Date shall be deemed
permissible hereunder).
(D) The performance of the Company's obligations under (a) that
certain lease agreement effective December 29, 1995 with Wilson Aviation,
L.L.C. relating to the lease of an airplane, (b) that certain agreement not
to compete dated December 31, 1996 with DVS Management, Inc. and (c) that
certain Voting Trust Agreement dated March 17, 1997 among Citadel
Communications, ABRY II, ABRY/CIP and others and the related letter
agreement dated March 17, 1997 among Citadel Communications, ABRY II,
ABRY/CIP and others (the "Affiliate Agreements"); provided that any
amendments or modifications to the terms of the Affiliate Agreements (1)
are no less favorable to the Company than those that could have been
obtained in an arm's length transaction with third parties who are not
Affiliates and (2) are approved by the Board of Directors (including a
majority of the Disinterested Directors) of the Company.
(E) The Company from making payments to Citadel Communications to pay
its operating and administrative expenses attributable to the Company
including, without limitation, legal and audit expenses, directors' fees
and Commission compliance expenses, in an amount not to exceed the greater
of $1,000,000 million per fiscal year and 1% of the net revenues of the
Company for the preceding fiscal year.
(F) The Company or a Restricted Subsidiary from transferring up to
$500,000 of properties and assets, including cash, to a joint venture in
which the Company or a Restricted Subsidiary has an equity interest and in
which one or more directors or officers of the Company or Citadel
Communications has an equity interest, which joint venture is engaged in
the internet service provider business.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any of its Restricted Subsidiaries to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock, (b) pay any Debt owed to the Company or any other Restricted
Subsidiary, (c) make loans or advances to the Company or any other Restricted
Subsidiary or (d) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of any of the following:
(i) The Credit Facility and any agreement in effect on the Closing
Date and listed on a schedule attached to the Notes Indenture.
(ii) Customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any of its Restricted Subsidiaries.
(iii) The refinancing or successive refinancings of Debt referred to
in clause (i) or (iv), so long as such encumbrances or restrictions are no
less favorable to the Company or any of its Restricted Subsidiaries than
those contained in such original agreement.
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(iv) Any agreement or other instrument of a person acquired by the
Company or any of its Restricted Subsidiaries in existence at the time of
such acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any person, or the
properties or assets of any person, other than the person, or the property
or assets of the person, so acquired.
(v) Any agreement providing for the incurrence of Debt by a Restricted
Subsidiary pursuant to paragraph (b) of the "Limitation on Debt" covenant,
provided that such Restricted Subsidiary becomes a Subsidiary Notes
Guarantor.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company will not sell, and will not permit any of its
Restricted Subsidiaries, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants, or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Wholly Owned Restricted Subsidiary, (ii) issuances or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law, or issuances or sales to directors of directors'
qualifying shares, (iii) if, immediately after giving effect to such issuance or
sale, neither the Company nor any Subsidiary owns any shares of Capital Stock of
such Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) or (iv) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such person remaining
after giving effect to such issuance or sale would have been permitted to be
made under the "Limitation on Restricted Payments" covenant if made on the date
of such issuance or sale.
In addition, the Company will not, and will not permit any of its
Restricted Subsidiaries to, sell, transfer or otherwise dispose of any of its
properties or assets to an Unrestricted Subsidiary other than in the ordinary
course of business.
UNRESTRICTED SUBSIDIARIES. (a) The Board of Directors of the Company may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither the Company
nor any of its Restricted Subsidiaries is directly or indirectly liable for any
Debt of such Subsidiary, (ii) no default with respect to any Debt of such
Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of
any other Debt of the Company or any of its Restricted Subsidiaries to declare a
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its stated maturity, (iii) any Investment in such Subsidiary
made as a result of designating such Subsidiary an Unrestricted Subsidiary will
not violate the provisions of the "Limitation on Restricted Payments" covenant,
(iv) neither the Company nor any of its Restricted Subsidiaries has a contract,
agreement, arrangement, understanding or obligation of any kind, whether written
or oral, with such Subsidiary other than those that might be obtained at the
time from persons who are not Affiliates of the Company and (v) neither the
Company nor any of its Restricted Subsidiaries has any obligation to subscribe
for additional shares of Capital Stock or other equity interest in such
Subsidiary, or to maintain or preserve such Subsidiary's financial condition or
to cause such Subsidiary to achieve certain levels of operating results.
Notwithstanding the foregoing, the Company may not designate the License
Subsidiary, or any Subsidiary to which any properties or assets (other than
current assets) owned by the Company or the License Subsidiary on the Closing
Date have been transferred, as an Unrestricted Subsidiary.
(b) The Board of Directors of the Company may designate any of its
Unrestricted Subsidiaries as a Restricted Subsidiary; provided that such
designation will be deemed to be an incurrence of Debt by a Restricted
Subsidiary of any outstanding Debt of such Unrestricted Subsidiary and such
designation will only be permitted if (i) such Debt is permitted under the
"Limitation on Debt" covenant and (ii) no Default or Event of Default will have
occurred and be continuing following such designation.
LIMITATION ON OTHER SENIOR SUBORDINATED DEBT. The Company and each
Subsidiary Notes Guarantor will not, directly or indirectly, incur or otherwise
permit to exist any Debt that is subordinate in right of payment to any Debt of
the Company or such Subsidiary Notes Guarantor, as the case may be, unless such
Debt is also pari passu with the Notes or the Subsidiary Notes Guarantee of the
Notes by such Subsidiary Notes Guarantor, as the case may be, or subordinate in
right of payment to the Notes or such Subsidiary Notes Guarantee of the Notes,
as the case may be, to at least the same extent as the Notes or such Subsidiary
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Notes Guarantee are subordinate in right of payment to Senior Debt or all senior
debt of the Subsidiary Notes Guarantors, as the case may be, as set forth in the
Notes Indenture.
SUBSIDIARY NOTES GUARANTEES. The Subsidiary Notes Guarantors will, jointly
and severally, unconditionally guarantee the due and punctual payment of the
principal of, premium, if any, and interest on the Notes on a senior
subordinated basis pursuant to the Subsidiary Notes Guarantees as described
under "-- Subordination." The Subsidiary Notes Guarantors may be released from
their obligations under the Subsidiary Notes Guarantees as described under
"-- Defeasance and Covenant Defeasance of the Notes Indenture" and a Subsidiary
Notes Guarantor may be released from its obligations under its Subsidiary Notes
Guarantee as described under "Guarantees."
The Company will (i) cause each person that, after the Closing Date,
becomes a Wholly Owned Restricted Subsidiary of the Company, as well as each
other Restricted Subsidiary that guarantees any other Debt of the Company, to
execute and deliver a supplemental indenture and thereby become a Subsidiary
Notes Guarantor bound by the Subsidiary Notes Guarantee of the Notes in the form
set forth in the Notes Indenture (without such Subsidiary Notes Guarantor being
required to execute and deliver its Subsidiary Notes Guarantee endorsed on the
Notes) and (ii) deliver to the Trustee an opinion of counsel, in form and
substance reasonably satisfactory to the Trustee, that the Subsidiary Notes
Guarantee of such Subsidiary Notes Guarantor is a valid and legally binding
obligation of such Subsidiary Notes Guarantor.
GUARANTEES OF DEBT BY RESTRICTED SUBSIDIARIES. The Company will not permit
any of its Restricted Subsidiaries that is not a Subsidiary Notes Guarantor,
directly or indirectly, to guarantee, assume or in any other manner become
liable for the payment of any Debt of the Company or any Debt of any other
Restricted Subsidiary, unless (a) such Restricted Subsidiary simultaneously
executes and delivers a Subsidiary Notes Guarantee and (b) with respect to any
guarantee of Subordinated Debt by a Restricted Subsidiary, any such guarantee is
subordinated to such Restricted Subsidiary's Subsidiary Notes Guarantee at least
to the same extent as such Subordinated Debt is subordinated to the Notes,
provided that the foregoing provision will not be applicable to any guarantee by
any such Restricted Subsidiary that existed at the time such person became a
Restricted Subsidiary and was not incurred in connection with, or in
contemplation of, such person becoming a Restricted Subsidiary.
LIMITATION ON LIENS. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, affirm or suffer to exist any Lien of
any kind securing any Pari Passu Debt or Subordinated Debt (including any
assumption, guarantee or other liability with respect thereto by any Restricted
Subsidiary) upon any property or assets (including any intercompany notes) of
the Company or any of its Restricted Subsidiaries now owned or acquired after
the Closing Date, or any income or profits therefrom, unless the Notes are
directly secured equally and ratably with (or prior to in the case of
Subordinated Debt) the obligation or liability secured by such Lien; provided
that the foregoing will not apply to Liens securing Debt of a person acquired by
the Company or any of its Restricted Subsidiaries in existence at the time of
such acquisition (but not created in contemplation thereof), which Lien is not
applicable to any person, or the properties or assets of any person, other than
the person, or the property or assets of the person, so acquired.
REPORTS. At all times from and after the earlier of (i) the date of the
commencement of the Exchange Offer or the effectiveness of a Shelf Registration
Statement relating to the Series A Notes (the "Registration") and (ii) the date
180 days after the Closing Date, in either case, whether or not the Company is
then required to file reports with the Commission, the Company will file with
the Commission all such reports and other information as it would be required to
file with the Commission by Sections 13(a) or 15(d) under the Exchange Act if it
were subject thereto. The Company will supply the Trustee and each holder, or
will supply to the Trustee for forwarding to each such holder, without cost to
such holder, copies of such reports and other information. In addition, at all
times prior to the earlier of the date of the Registration and the date 180 days
after the Closing Date, the Company will, at its cost, deliver to each holder of
the Notes quarterly and annual reports substantially equivalent to those that
would be required by the Exchange Act. In addition, at all times prior to the
Registration, upon the request of any holder or any prospective purchaser of the
Notes designated by a holder, the Company will supply to such holder or such
prospective purchaser the information required under Rule 144A under the
Securities Act.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with or merge with or into any other
person or, directly or indirectly, convey, transfer or lease its properties and
assets substantially as an entirety to any person or persons, unless:
(a) Either (i) the Company is the surviving corporation or (ii) the
person (if other than the Company) formed by such consolidation or into
which the Company is merged or the person that acquires by sale,
assignment, transfer, lease or other disposition the properties and assets
of the Company substantially as an entirety (the "Surviving Entity") (A) is
a corporation, partnership or trust organized and validly existing under
the laws of the United States, any state thereof or the District of
Columbia and (B) expressly assumes, by a supplemental indenture in form
satisfactory to the Trustee, all of the Company's obligations under the
Notes Indenture and the Notes.
(b) Immediately after giving effect to such transaction and treating
any obligation of the Company or a Restricted Subsidiary in connection with
or as a result of such transaction as having been incurred at the time of
such transaction, no Default or Event of Default has occurred and is
continuing.
(c) Immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred at the beginning of
the most recently ended four full fiscal quarter period for which internal
financial statements are available), the Company (or the Surviving Entity
if the Company is not the continuing obligor under the Notes Indenture)
could incur at least $1.00 of additional Debt (other than Permitted Debt)
pursuant to the first paragraph of the "Limitation on Debt" covenant.
(d) If the Company is not the continuing obligor under the Notes
Indenture, each Subsidiary Notes Guarantor, unless it is the other party to
the transaction described above, has by supplemental indenture confirmed
that its Subsidiary Notes Guarantee applies to the Surviving Entity's
obligations under the Notes Indenture and the Notes.
(e) If any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of the "Limitation on Liens" covenant are complied with.
(f) The Company delivers, or causes to be delivered, to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an officers'
certificate and an opinion of counsel, each stating that such transaction
complies with the requirements of the Notes Indenture.
In the event of any transaction described in and complying with the
conditions listed in the first paragraph of this covenant in which the Company
is not the continuing obligor under the Notes Indenture, the Surviving Entity
will succeed to, and be substituted for, and may exercise every right and power
of, the Company under the Notes Indenture, and thereafter the Company will,
except in the case of a lease, be discharged from all its obligations and
covenants under the Notes Indenture and Notes.
EVENTS OF DEFAULT
Each of the following are "Events of Default" under the Notes Indenture:
(a) Default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days.
(b) Default in the payment of the principal of (or premium, if any,
on) any Note when due.
(c) Failure to perform or comply with the Notes Indenture provisions
described under "Consolidation, Merger and Sale of Assets."
(d) Default in the performance, or breach, of any covenant or
agreement of the Company or any Subsidiary Notes Guarantor contained in the
Notes Indenture or any Subsidiary Notes Guarantee (other than a default in
the performance, or breach, of a covenant or agreement that is specifically
dealt with elsewhere herein), and continuance of such default or breach for
a period of 60 days after written notice
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<PAGE> 139
has been given to the Company by the Trustee or to the Company and the
Trustee by the holders of at least 25% in aggregate principal amount of the
Notes then outstanding.
(e) (i) An event of default has occurred under any mortgage, bond,
indenture, loan agreement or other document evidencing an issue of Debt of
the Company or any Significant Subsidiary, which issue has an aggregate
outstanding principal amount of not less than $5,000,000, and such default
has resulted in such Debt becoming, whether by declaration or otherwise,
due and payable prior to the date on which it would otherwise become due
and payable or (ii) a default in any payment when due at final maturity of
any such Debt.
(f) Failure by the Company or any of its Restricted Subsidiaries to
pay one or more final judgments the uninsured portion of which exceeds in
the aggregate $5,000,000, which judgment or judgments are not paid,
discharged or stayed for a period of 60 days.
(g) Any Subsidiary Notes Guarantee ceases to be in full force and
effect or is declared null and void or any Subsidiary Notes Guarantor
denies that it has any further liability under any Subsidiary Notes
Guarantee, or gives notice to such effect (other than by reason of the
termination of the Notes Indenture or the release of any Subsidiary Notes
Guarantee in accordance with the Notes Indenture), and such condition has
continued for a period of 30 days after written notice of such failure
requiring the Subsidiary Notes Guarantor and the Company to remedy the same
has been given (x) to the Company by the Trustee or (y) to the Company and
the Trustee by the holders of 25% in the aggregate principal amount of the
Notes then outstanding.
(h) The occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
If an Event of Default (other than as specified in clause (h) above) occurs
and is continuing, the Trustee or the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may, and the Trustee at the
request of such holders shall, declare the principal of all of the outstanding
Notes immediately due and payable, by a notice in writing to the Company (and to
the Trustee if given by the Holders) and, if the Credit Facility is in effect,
to the Credit Facility Agent, and, upon any such declaration, such principal
will become due and payable immediately. If an Event of Default specified in
clause (h) above occurs and is continuing, then such principal will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holder of Notes.
At any time after a declaration of acceleration under the Notes Indenture,
but before a judgment or decree for payment of the money due has been obtained
by the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration and its consequences if (i) the Company has paid or deposited
with the Trustee a sum sufficient to pay (A) all overdue interest on all Notes,
(B) all unpaid principal of (and premium, if any, on) any outstanding Notes that
has become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Notes, (C) to the extent that payment of such
interest is lawful, interest upon overdue interest and overdue principal amount
at the rate borne by the Notes and (D) all sums paid or advanced by the Trustee
under the Notes Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel; and (ii) all
Events of Default, other than the non-payment of principal of (or premium, if
any, on) or interest on the Notes that have become due solely by such
declaration of acceleration, have been cured or waived. No such rescission will
affect any subsequent default or impair any right consequent thereon.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may, on behalf of the holders of all of the Notes, waive
any past defaults under the Notes Indenture, except a default in the payment of
the principal of (and premium, if any) or interest on any Note, or in respect of
a covenant or provision that under the Notes Indenture cannot be modified or
amended without the consent of the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee will mail to each holder of the Notes notice of the
Default or Event of Default within 90 days after the occurrence
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<PAGE> 140
thereof. Except in the case of a Default or an Event of Default in payment of
principal of (and premium, if any, on) or interest on any Notes, the Trustee may
withhold the notice to the holders of the Notes if a committee of its trust
officers in good faith determines that withholding such notice is in the
interests of the holders of the Notes.
The Company is required to furnish to the Trustee annual statements as to
the performance by the Company and the Subsidiary Notes Guarantors of their
respective obligations under the Notes Indenture and as to any default in such
performance. The Company is also required to notify the Trustee within five days
of any officer of the Company having knowledge of any Default.
DEFEASANCE OR COVENANT DEFEASANCE OF NOTES INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company and any Subsidiary Notes Guarantors with respect to the
outstanding Notes ("defeasance"). Such defeasance means that the Company will be
deemed to have paid and discharged the entire Debt represented by the
outstanding Notes, except for (i) the rights of holders of outstanding Notes to
receive payments in respect of the principal of (and premium, if any, on) and
interest on such Notes when such payments are due, (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office or
agency for payments in respect of the Notes and segregate and hold such payments
in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee
and (iv) the defeasance provisions of the Notes Indenture. In addition, the
Company may, at its option and at any time, elect to terminate the obligations
of the Company and any Subsidiary Notes Guarantor with respect to certain
covenants set forth in the Notes Indenture and described under "Certain
Covenants" above, and any omission to comply with such obligations would not
constitute a Default or an Event of Default with respect to the Notes ("covenant
defeasance").
In order to exercise either defeasance or covenant defeasance, (a) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the holders of the Notes, money in an amount, or U.S.
government securities that through the scheduled payment of principal and
interest thereon will provide money in an amount, or a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay and discharge the principal of (and premium, if any, on) and
interest on the outstanding Notes at maturity (or upon redemption, if
applicable) of such principal or installment of interest; (b) no Default or
Event of Default has occurred and is continuing on the date of such deposit or,
insofar as an event of bankruptcy under clause (h) of "Events of Default" above
is concerned, at any time during the period ending on the 91st day after the
date of such deposit; (c) such defeasance or covenant defeasance must not result
in a breach or violation of, or constitute a default under, the Notes Indenture
or any material agreement or instrument to which the Company or any Subsidiary
Notes Guarantor is a party or by which it is bound or cause the Trustee or the
trust so created to be subject to the Investment Company Act of 1940, as
amended; (d) in the case of defeasance, the Company must deliver to the Trustee
an opinion of counsel stating that the Company has received from, or there has
been published by, the Internal Revenue Service a ruling, or since the date
hereof, there has been a change in applicable federal income tax law, to the
effect, and based thereon such opinion must confirm that, the holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred; (e) in the case of covenant
defeasance, the Company must have delivered to the Trustee an opinion of counsel
to the effect that the holders of the Notes outstanding will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; and (f) the Company must have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to either the
defeasance or the covenant defeasance, as the case may be, have been complied
with.
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<PAGE> 141
SATISFACTION AND DISCHARGE
The Notes Indenture will cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of the Notes, as
expressly provided for in the Notes Indenture) and, upon the request of the
Company, the Trustee, at the expense of the Company, will execute proper
instruments acknowledging satisfaction and discharge of the Notes Indenture when
(a) either (i) all the Notes theretofore authenticated and delivered (other than
destroyed, lost or stolen Notes that have been replaced or paid and Notes that
have been subject to defeasance as described under "Defeasance or Covenant
Defeasance of Notes Indenture") have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation (A) have become due and payable, (B) will become due and payable at
Stated Maturity within one year or (C) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company has irrevocably deposited or caused to be deposited with the
Trustee funds in trust for the purpose in an amount sufficient to pay and
discharge the entire Debt on such Notes not theretofore delivered to the Trustee
for cancellation, for principal (and premium, if any, on) and interest to the
date of such deposit (in the case of Notes that have become due and payable) or
to the Stated Maturity or Redemption Date, as the case may be; (b) the Company
has paid or caused to be paid all sums payable under the Notes Indenture by the
Company; and (c) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided in the Notes Indenture relating to the satisfaction and
discharge of the Notes Indenture have been complied with.
AMENDMENTS AND WAIVERS
Modifications and amendments of the Notes Indenture and any Subsidiary
Notes Guarantee may be made by the Company, any affected Subsidiary Notes
Guarantor and the Trustee with the consent of the holders of a majority in
aggregate outstanding principal amount of the Notes; provided, however, that no
such modification or amendment may, without the consent of the holder of each
outstanding Note affected thereby,
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where or change the coin or
currency in which, any Note or any premium or interest thereon is payable,
or impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date);
(b) reduce the percentage in principal amount of outstanding Notes,
the consent of whose holders is required for any such amendment or for any
waiver of compliance with certain provisions of, or certain defaults and
their consequences provided for under, the Notes Indenture;
(c) modify any of the provisions of the Notes Indenture relating to
the subordination of the Notes or the Subsidiary Notes Guarantees in a
manner materially adverse to the holders; or
(d) waive a default in the payment of principal of, or premium, if
any, or interest on the Notes or reduce the percentage or aggregate
principal amount of outstanding Notes the consent of whose holders is
necessary for waiver of compliance with certain provisions of the Notes
Indenture or for waiver of certain defaults.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Notes Indenture.
Without the consent of any holders, the Company and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
to the Notes Indenture for any of the following purposes: (1) to evidence the
succession of another person to the Company and the assumption by any such
successor of the covenants of the Company in the Notes Indenture and in the
Notes; or (2) to add to the covenants of the Company for the benefit of the
holders, or to surrender any right or power herein conferred upon the Company;
or (3) to add additional Events of Default; or (4) to provide for uncertificated
Notes in addition to or in place of the certificated Notes; or (5) to evidence
and provide for the acceptance of appointment under
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<PAGE> 142
the Notes Indenture by a successor Trustee; or (6) to secure the Notes; or (7)
to cure any ambiguity, to correct or supplement any provision in the Notes
Indenture that may be defective or inconsistent with any other provision in the
Notes Indenture, or to make any other provisions with respect to matters or
questions arising under the Notes Indenture, provided that such actions pursuant
to this clause do not adversely affect the interests of the holders in any
material respect; or (8) to comply with any requirements of the Commission in
order to effect and maintain the qualification of the Notes Indenture under the
Trust Indenture Act.
THE TRUSTEE
The Bank of New York, the Trustee under the Notes Indenture, is the initial
paying agent and registrar for the Notes. The Bank of New York is a lender under
the Credit Facility.
The Notes Indenture provides that, except during the continuance of an
Event of Default, the Trustee will perform only such duties as are specifically
set forth in the Notes Indenture. Under the Notes Indenture, the holders of a
majority in outstanding principal amount of the Notes will have the right to
direct the time, method and place of conducting any proceeding or exercising any
remedy available to the Trustee, subject to certain exceptions. If an Event of
Default has occurred and is continuing, the Trustee will exercise such rights
and powers vested in it under the Notes Indenture and use the same degree of
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
The Notes Indenture and provisions of the Trust Indenture Act incorporated
by reference therein, contain limitations on the rights of the Trustee
thereunder, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that, if it acquires any
conflicting interest (as defined), it must eliminate such conflict or else
resign.
GOVERNING LAW
The Notes Indenture, the Notes and the Subsidiary Notes Guarantees are
governed by, and construed in accordance with, the laws of the State of New
York.
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DESCRIPTION OF THE EXCHANGEABLE PREFERRED STOCK
AND EXCHANGE DEBENTURES
EXCHANGEABLE PREFERRED STOCK
As used in this "Description of the Exchangeable Preferred Stock and
Exchange Debentures" section, the term "Company" refers to Citadel Broadcasting
Company, but not any current or future subsidiary (unless the context otherwise
requires). The following summary of the material provisions of the Exchangeable
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the provisions of the Certificate of
Designation relating thereto, a copy of which is available from the Company. For
definitions of certain capitalized terms used in the following summary, see
"-- Certain Definitions" below. Other capitalized terms used herein and not
otherwise defined have the meanings set forth in the Certificate of Designation.
GENERAL
As of the date hereof, the Company is authorized to issue 4,000,000 shares
of preferred stock, no par value, and, as of the date hereof, there are
1,000,000 shares of preferred stock issued and outstanding and designated as
13 1/4% Series A Exchangeable Preferred Stock. It is anticipated that the 65,514
Series A Dividend Shares will be issued and become outstanding prior to the
Expiration Date. Subject to certain conditions, the Exchangeable Preferred Stock
will be exchangeable for the Exchange Debentures at the option of the Company on
any dividend payment date. The Series B Exchangeable Preferred Stock, when
issued by the Company, will be fully paid and non-assessable and the holders
thereof will not have any subscription or preemptive rights in connection
therewith. The Bank of New York, 101 Barclay Street, New York, New York 10286,
is the transfer agent and registrar (the "Transfer Agent") for the Exchangeable
Preferred Stock. The Bank of New York is a lender under the Credit Facility.
RANKING
The Exchangeable Preferred Stock, with respect to dividend rights and
rights on liquidation, winding-up and dissolution of the Company, ranks (i)
senior to all classes of common stock and to each other class of capital stock
or series of preferred stock established after June 30, 1997 by the Board of
Directors of the Company the terms of which expressly provide that it ranks
junior to the Exchangeable Preferred Stock as to dividend rights and rights on
liquidation, winding-up and dissolution of the Company (collectively referred
to, together with all classes of common stock of the Company, as "Junior
Stock"); (ii) on a parity with each other class of capital stock or series of
preferred stock established after June 30, 1997 by the Board of Directors of the
Company the terms of which expressly provide that such class or series will rank
on a parity with the Exchangeable Preferred Stock as to dividend rights and
rights on liquidation, winding-up and dissolution of the Company (collectively
referred to as "Parity Stock"); and (iii) subject to certain conditions,
described below, junior to each class of capital stock or series of preferred
stock established after June 30, 1997 by the Board of Directors of the Company
the terms of which do not expressly provide that such class or series will rank
junior to, or on a parity with, the Exchangeable Preferred Stock as to dividend
rights and rights upon liquidation, winding-up and dissolution of the Company
(collectively referred to as "Senior Stock").
The Company may not authorize any new class of Senior Stock (other than the
Exchangeable Preferred Stock) without the approval of the holders of at least a
majority of the shares of Exchangeable Preferred Stock then outstanding, voting
or consenting, as the case may be, as one class.
DIVIDENDS
Holders of the outstanding shares of Exchangeable Preferred Stock will be
entitled to receive, when, as and if declared by the Board of Directors of the
Company, out of funds legally available therefor, dividends on the Exchangeable
Preferred Stock. In the event that, after July 1, 2002, cash dividends on the
Exchangeable Preferred Stock are in arrears and unpaid for two or more
semi-annual dividend periods (whether or not consecutive), holders of
Exchangeable Preferred Stock will be entitled to certain voting rights. See
"-- Voting
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<PAGE> 144
Rights" below. All dividends will be cumulative, whether or not earned or
declared. Dividends on the Series B Exchangeable Preferred Stock will accumulate
from and including its issuance date. Additionally, dividends on the Series B
Exchangeable Preferred Stock will accumulate from the last dividend payment date
on which dividends were paid on the Series A Exchangeable Preferred Stock
surrendered in exchange therefor or, if no dividends have been paid on the
Series A Exchangeable Preferred Stock, from July 3, 1997, the date of original
issuance of the Series A Exchangeable Preferred Stock, to but not including the
issuance date of the Series B Exchangeable Preferred Stock. Holders whose Series
A Exchangeable Preferred Stock is accepted for exchange will be deemed to have
waived the right to receive dividends accumulated on such Series A Exchangeable
Preferred Stock. Accordingly, holders who exchange their Series A Exchangeable
Preferred Stock will receive the same dividend payment on the next dividend
payment date following the Expiration Date (expected to be July 1, 1998) that
they would have received had they not accepted the Exchange Offer, except that
if such dividend is not paid in cash, it will be paid in shares of Series B
Exchangeable Preferred Stock instead of shares of Series A Exchangeable
Preferred Stock. Dividends are payable semi-annually in arrears on January 1 and
July 1 of each year, commencing on January 1, 1998, to holders of record on the
December 15 or June 15 immediately preceding the relevant dividend payment date.
The Company has declared a dividend payable on January 1, 1998 to holders of
record of Series A Exchangeable Preferred Stock. Such dividend is to be paid in
Series A Dividend Shares. On or before July 1, 2002, the Company may, at its
option, pay dividends in cash or in additional fully paid and non-assessable
shares of Exchangeable Preferred Stock having an aggregate liquidation
preference equal to the amount of such dividends. After July 1, 2002, dividends
may be paid only in cash. If any dividend (or portion thereof) payable on any
dividend payment date on or before July 1, 2002 is not declared or paid in full
in cash or in shares of Exchangeable Preferred Stock as described above on such
dividend payment date, the amount of the accumulated and unpaid dividend will
bear interest at the dividend rate on the Exchangeable Preferred Stock,
compounding semi-annually from such dividend payment date until paid in full. If
any dividend (or portion thereof) payable on any dividend payment date after
July 1, 2002 is not declared or paid in full in cash on such dividend payment
date, the amount of the accumulated and unpaid dividend will bear interest at
the dividend rate on the Exchangeable Preferred Stock, compounding semi-annually
from such dividend payment date until paid in full. The Credit Facility and the
Notes Indenture limit the Company's ability under certain circumstances to pay
cash dividends on its capital stock, and future agreements may contain similar
or more restrictive limitations. See "Description of Indebtedness" and
"Description of the Notes."
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Stock for any period unless full cumulative
dividends shall have been or contemporaneously are declared and paid (or are
deemed declared and paid) in full or declared and, if payable in cash, a sum in
cash sufficient for such payment set apart for such payment on the Exchangeable
Preferred Stock. If full dividends are not so paid, the Exchangeable Preferred
Stock will share dividends pro rata with the Parity Stock. No dividends may be
paid or set apart for such payment on Junior Stock (except dividends on Junior
Stock payable in additional shares of Junior Stock) and no Junior Stock or
Parity Stock may be repurchased, redeemed or otherwise retired nor may funds be
set apart for payment with respect thereto, if full cumulative dividends have
not been paid in full (or deemed paid) on the Exchangeable Preferred Stock.
Dividends on account of arrears for any past dividend period and dividends in
connection with any optional redemption may be declared and paid at any time,
without reference to any regular dividend payment date, to holders of record of
the Exchangeable Preferred Stock on such date, not more than 45 days prior to
the payment thereof, as may be fixed by the Board of Directors of the Company.
OPTIONAL REDEMPTION
The Exchangeable Preferred Stock is redeemable (subject to contractual and
other restrictions with respect thereto and to the legal availability of funds
therefor) at the election of the Company, as a whole or from time to time in
part, at any time on or after July 1, 2002 on not less than 30 nor more than 60
days' prior notice, at the redemption prices (expressed as percentages of the
then effective liquidation preference thereof) set forth below, plus, without
duplication, all accumulated and unpaid dividends, if any, to the redemption
date (including an amount in cash equal to a prorated dividend for the period
from the dividend payment date
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<PAGE> 145
immediately prior to the redemption date to the redemption date), if redeemed
during the 12-month period beginning on July 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------------- ----------------
<S> <C>
2002....................................... 107.729%
2003....................................... 106.625
2004....................................... 105.521
2005....................................... 104.417
2006....................................... 103.313
2007....................................... 102.208
2008....................................... 101.104
</TABLE>
In addition, at any time and from time to time prior to July 1, 2000, the
Company may at its option redeem shares of Exchangeable Preferred Stock having
an aggregate liquidation preference of up to 35% of the aggregate liquidation
preference of all shares of Exchangeable Preferred Stock issued in this
Exchangeable Preferred Stock Offering or issued as dividends on the Exchangeable
Preferred Stock, with the net proceeds of one or more Public Equity Offerings at
a redemption price equal to 113.25% of the liquidation preference thereof, plus
without duplication, accumulated and unpaid dividends, if any, to the redemption
date (including an amount in cash equal to a prorated dividend for the period
from the dividend payment date immediately prior to the redemption date to the
redemption date), subject to the right of holders of record on the relevant
record date to receive dividends due on a dividend payment date; provided that,
immediately after giving effect to any such redemption, at least $75,000,000 in
aggregate liquidation preference of the Exchangeable Preferred Stock remains
outstanding. Any such redemption must be made within 90 days of the related
Public Equity Offering.
No optional redemption may be authorized or made unless on or prior to such
redemption full unpaid cumulative dividends shall have been paid or a sum set
apart for such payment on the Exchangeable Preferred Stock.
If less than all the Exchangeable Preferred Stock is to be redeemed, the
particular shares to be redeemed will be determined pro rata, except that the
Company may redeem such shares held by any holder of fewer than 100 shares
without regard to such pro rata redemption requirement. If any Exchangeable
Preferred Stock is to be redeemed in part, the notice of redemption that relates
to such Exchangeable Preferred Stock shall state the portion of the liquidation
preference to be redeemed. New shares of Exchangeable Preferred Stock having an
aggregate liquidation preference equal to the unredeemed portion will be issued
in the name of the holder thereof upon cancellation of the original shares of
Exchangeable Preferred Stock and, unless the Company fails to pay the redemption
price on the redemption date, after the redemption date dividends will cease to
accumulate on the Exchangeable Preferred Stock called for redemption. See
"Description of Indebtedness."
The Credit Facility and the Notes Indenture limit the Company's ability to
redeem the Exchangeable Preferred Stock, and future agreements may contain
similar or more restrictive limitations.
MANDATORY REDEMPTION
The Exchangeable Preferred Stock is also subject to mandatory redemption
(subject to the legal availability of funds therefor) in whole on July 1, 2009
(the "Mandatory Redemption Date"), at a redemption price equal to 100% of the
liquidation preference thereof, plus, without duplication, all accumulated and
unpaid dividends, if any, to the date of redemption. Future agreements of the
Company may restrict or prohibit the Company from redeeming the Exchangeable
Preferred Stock on such mandatory redemption date.
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<PAGE> 146
PROCEDURE FOR REDEMPTION
On and after the redemption date, unless the Company defaults in the
payment of the applicable redemption price, dividends will cease to accumulate
on shares of Exchangeable Preferred Stock called for redemption and all rights
of holders of such shares will terminate except for the right to receive the
redemption price, without interest; provided, however, that if a notice of
redemption shall have been given and the funds necessary for redemption
(including an amount in respect of all dividends that will accrue to the
redemption date) shall have been segregated and irrevocably set apart by the
Company, in trust for the benefit of the holders of the shares called for
redemption, then dividends shall cease to accumulate on the redemption date on
the shares to be redeemed and, at the close of business on the day on which such
funds are segregated and set apart, the holders of the shares to be redeemed
shall cease to be stockholders of the Company and shall be entitled only to
receive the redemption price for such shares. The Company will send a written
notice of redemption by first class mail to each holder of record of shares of
Exchangeable Preferred Stock, no fewer than 30 days nor more than 60 days prior
to the date fixed for such redemption at its registered address. Shares of
Exchangeable Preferred Stock issued and reacquired will, upon compliance with
the applicable requirements of Nevada law, have the status of authorized but
unissued shares of preferred stock of the Company undesignated as to series and
may, with any and all other authorized but unissued preferred stock of the
Company, be designated or redesignated and issued or reissued, as the case may
be, as part of any series of preferred stock of the Company, except that any
issuance or reissuance of shares of Exchangeable Preferred Stock must be in
compliance with the Certificate of Designation.
EXCHANGE
The Company may, at its option, subject to certain conditions, on any
scheduled dividend payment date, exchange the Exchangeable Preferred Stock, in
whole but not in part, for the Exchange Debentures; provided that (i) on the
date of such exchange there are no accumulated and unpaid dividends on the
Exchangeable Preferred Stock (including the dividend payable on such date) or
other contractual impediments to such exchange; and (ii) immediately after
giving effect to such exchange, no Default or Event of Default (each as defined
in the Exchange Indenture) would exist under the Exchange Indenture and no
material breach or default would exist under the Credit Facility, the Notes
Indenture or the Securities Purchase and Exchange Agreement. The exchange of the
Exchangeable Preferred Stock into Exchange Debentures would be restricted by
covenants contained in the Credit Facility, the Notes Indenture and the
Securities Purchase and Exchange Agreement, in each case, relating, among other
things, to the incurrence of debt, and future agreements may contain similar or
more restrictive limitations.
Upon any exchange pursuant to the preceding paragraph, holders of
outstanding shares of Exchangeable Preferred Stock will be entitled to receive,
subject to the second succeeding sentence, $1.00 principal amount of Exchange
Debentures for each $1.00 of the then effective liquidation preference of
Exchangeable Preferred Stock held by them. The Exchange Debentures will be
issued in registered form, without coupons. Exchange Debentures issued in
exchange for Exchangeable Preferred Stock will be issued in principal amounts of
$1,000 and integral multiples thereof, and the Company shall pay cash in lieu of
issuing an Exchange Debenture in any other principal amount. The Company will
send a written notice of exchange by mail to each holder of record of shares of
Exchangeable Preferred Stock not fewer than 30 days nor more than 60 days before
the date fixed for such exchange. On and after the date of exchange, dividends
will cease to accumulate on the outstanding shares of Exchangeable Preferred
Stock, and all rights of the holders of Exchangeable Preferred Stock (except the
right to receive the Exchange Debentures, an amount in cash, to the extent
applicable, equal to the accumulated and unpaid dividends to the exchange date
and cash in lieu of any Exchange Debenture that is in a principal amount less
than $1,000) will terminate. The person entitled to receive the Exchange
Debentures issuable upon such exchange will be treated for all purposes as the
registered holder of such Exchange Debentures.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of Exchangeable Preferred Stock will be entitled to be
paid, out of the assets of the Company available for
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distribution to stockholders, the then effective liquidation preference per
share of Exchangeable Preferred Stock (initially $100 per share), plus, without
duplication, an amount in cash equal to all accumulated and unpaid dividends
thereon to the date fixed for liquidation, dissolution or winding-up (including
an amount equal to a prorated dividend for the period from the last dividend
payment date to the date fixed for liquidation, dissolution or winding-up),
before any distribution is made on any Junior Stock, including, without
limitation, common stock of the Company. If, upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the amounts payable with
respect to the Exchangeable Preferred Stock and all other Parity Stock are not
paid in full, the holders of the Exchangeable Preferred Stock and the Parity
Stock will share equally and ratably in any distribution of assets of the
Company in proportion to the full liquidation preference to which each is
entitled. After payment of the full amount of the liquidation preference and
accumulated and unpaid dividends to which they are entitled, the holders of
shares of Exchangeable Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Company. However, neither the
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the Company nor the consolidation or merger of the Company with one or more
entities shall be deemed to be a liquidation, dissolution or winding-up of the
Company.
The Certificate of Designation for the Exchangeable Preferred Stock will
not contain any provision requiring funds to be set aside to protect the
liquidation preference of the Exchangeable Preferred Stock.
VOTING RIGHTS
The holders of Exchangeable Preferred Stock, except as otherwise required
under Nevada law or as set forth below, are not entitled or permitted to vote on
any matter required or permitted to be voted upon by the stockholders of the
Company.
The Certificate of Designation provides that if (i) after July 1, 2002,
cash dividends on the Exchangeable Preferred Stock are in arrears and unpaid for
two or more semi-annual dividend periods (whether or not consecutive); (ii) the
Company fails to redeem the Exchangeable Preferred Stock on July 1, 2009 or
fails to otherwise discharge any redemption obligation with respect to the
Exchangeable Preferred Stock; (iii) the Company fails to make a Change of
Control Offer if such offer is required by the provisions set forth under the
"Purchase of Exchangeable Preferred Stock upon a Change of Control" covenant
below or fails to purchase shares of Exchangeable Preferred Stock from holders
who elect to have such shares purchased pursuant to the Change of Control Offer;
(iv) a breach or violation of any other provisions described under the caption
"-- Certain Covenants" occurs and the breach or violation continues for a period
of 30 days or more after the Company receives notice thereof specifying the
default from the holders of at least 25% of the shares of Exchangeable Preferred
Stock then outstanding; or (v) the Company fails to pay at the final stated
maturity (giving effect to any extensions thereof) the principal amount of any
Debt of the Company or any Restricted Subsidiary of the Company, or the final
stated maturity of any such Debt is accelerated, if the aggregate principal
amount of such Debt, together with the aggregate principal amount of any other
such Debt in default for failure to pay principal at the final stated maturity
(giving effect to any extensions thereof) or which has been accelerated,
aggregates $5,000,000 or more at any time, then the number of directors
constituting the Board of Directors will be adjusted to permit the holders of a
majority of the then outstanding shares of Exchangeable Preferred Stock, voting
separately and as a class (together with the holders of any Parity Stock having
similar voting rights), to elect two directors to the Board of Directors of the
Company. Such voting rights will continue until such time as, in the case of a
dividend default, all dividends in arrears on the Exchangeable Preferred Stock
are paid in full in cash and, in all other cases, any failure, breach or default
giving rise to such voting rights is remedied or waived by the holders of at
least a majority of the shares of Exchangeable Preferred Stock then outstanding,
at which time the term of any directors elected pursuant to the provisions of
this paragraph shall terminate. Each such event described in clauses (i) through
(v) above is referred to herein as a "Voting Rights Triggering Event." The
voting rights provided herein shall be the holder's exclusive remedy at law or
in equity.
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The Certificate of Designation also provides that the Company will not
authorize any new class of Senior Stock without the affirmative vote or consent
of holders of at least a majority of the shares of Exchangeable Preferred Stock
then outstanding, voting or consenting, as the case may be, as one class.
Under Nevada law, holders of preferred stock are entitled to vote as a
class upon a proposed amendment to the certificate of incorporation, whether or
not entitled to vote thereon by the certificate of incorporation, if the
amendment would increase or decrease the par value of the shares of such class,
or alter or change the powers, preferences or special rights of the shares of
such class so as to affect them adversely.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Certificate of Designation and the Exchange Indenture. Reference is made to the
Certificate of Designation and the Exchange Indenture for the full definition of
all such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Debt" means Debt of a person (a) existing at the time such person
is merged with or into the Company or becomes a Subsidiary, (b) assumed in
connection with the acquisition of assets from such person or (c) secured by a
Lien encumbering assets acquired from such person.
"Acquired Preferred Stock" means preferred stock of a person (a) existing
at the time such person is merged with or into the Company or becomes a
Subsidiary or (b) assumed in connection with the acquisition of assets from such
person.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control," when used with respect to any specified person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer") by the Company or a
Restricted Subsidiary, directly or indirectly, in one or a series of related
transactions, to any person other than the Company or a Restricted Subsidiary of
(a) any Capital Stock of any of its Restricted Subsidiaries, (b) all or
substantially all of the properties and assets of the Company and its Restricted
Subsidiaries representing a division or line of business or (c) any other
properties or assets of the Company or any of its Restricted Subsidiaries, other
than in the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" does not include any transfer of properties or assets (a)
that is governed by the provisions of the Certificate of Designation or Exchange
Indenture, as applicable, described under (i) "Consolidation, Merger and Sale of
Assets" or (ii) the "Limitation on Asset Swaps" covenant, (b) between or among
the Company and any of its Restricted Subsidiaries pursuant to transactions that
do not violate any other provision of the Exchange Indenture, if applicable, (c)
to an Unrestricted Subsidiary, if permitted under the "Limitation on Restricted
Payments" covenant, (d) representing obsolete or permanently retired equipment,
(e) the gross proceeds of which (exclusive of indemnities) do not exceed
$100,000 for any particular item or $500,000 in the aggregate for any fiscal
year or (f) the transfer of up to $500,000 of properties and assets, including
cash, to a joint venture in which the Company or a Restricted Subsidiary has an
equity interest, which joint venture is engaged in the internet service provider
business.
"Asset Swap" means the execution of one or more definitive agreements,
subject only to FCC approval, if applicable, and other customary closing
conditions, which the Company in good faith believes will be satisfied, for a
substantially concurrent purchase and sale, or exchange, or "deferred exchange"
(for no more than 180 days) under section 1031(a)(3) of the Code, of assets used
in the broadcast or related businesses between the Company or any of its
Restricted Subsidiaries and one or more other persons or groups of affiliated
persons; provided that any amendment to or waiver of any closing conditions that
individually or in the aggregate are material to the Asset Swap will be deemed
to be a new Asset Swap.
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"Banks" means the banks and other financial institutions that from time to
time are lenders under the Credit Facility.
"Capital Stock" of any person means any and all shares, interests,
partnership interests, participations, rights in or other equivalents (however
designated) of such person's equity (however designated).
"Capitalized Lease Obligation" means, with respect to any person, an
obligation incurred or assumed under or in connection with any capital lease of
real or personal property that, in accordance with GAAP, has been recorded as a
capitalized lease on the balance sheet of such person.
"Change of Control" means the occurrence of any of the following events:
(a) Any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than Lawrence R. Wilson, Scott E.
Smith, John E. von Schlegell, Baker, Fentress & Company, ABRY Broadcast
Partners II, L.P., ABRY/Citadel Investment Partners, L.P., The Endeavour
Capital Fund Limited Partnership and any trustee, in its capacity as
trustee under the Voting Trust Agreement ("Permitted Holders") or Citadel
Communications is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person will be deemed
to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than a majority
of the voting power of all classes of Voting Stock of the Company;
(b) During any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Company, was
approved by a vote of at least 66 2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the
Company then in office; or
(c) The Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution.
"Closing Date" means July 3, 1997, the date on which the Series A
Exchangeable Preferred Stock was originally issued under the Certificate of
Designation.
"Consolidated Adjusted Net Income" means, for any period, the net income
(or net loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, (c) the portion of net income (or
loss) of any person (other than the Company or a Restricted Subsidiary),
including Unrestricted Subsidiaries, in which the Company or any of its
Restricted Subsidiaries has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Company or any
of its Restricted Subsidiaries in cash during such period, (d) the net income
(or loss) of any person combined with the Company or any of its Restricted
Subsidiaries on a "pooling of interests" basis attributable to any period prior
to the date of combination, and (e) the net income (but not the net loss) of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary is at the date of
determination restricted, directly or indirectly, except to the extent that such
net income could be paid to the Company or a Restricted Subsidiary thereof;
provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, Consolidated Adjusted Net Income will be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of the Consolidated Adjusted Net Income otherwise attributable to such
Restricted Subsidiary multiplied by (B) the quotient of (1) the number of shares
of outstanding common stock of such Restricted Subsidiary not owned on the last
day of such period by the Company or any of its Restricted Subsidiaries divided
by (2) the total number of shares of outstanding common stock of such Restricted
Subsidiary on the last day of such period.
"Consolidated Cash Flow" means, for any period, the sum of, without
duplication, Consolidated Adjusted Net Income for such period, plus (or, in the
case of clause (d) below, plus or minus) the following items to
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the extent included in computing Consolidated Adjusted Net Income for such
period: (a) the aggregate interest expense and preferred stock dividends of the
Company and its Restricted Subsidiaries for such period, plus (b) the provision
for federal, state, local and foreign income taxes of the Company and its
Restricted Subsidiaries for such period, plus (c) the aggregate depreciation and
amortization expense of the Company and any of its Restricted Subsidiaries for
such period, plus (d) any other non-cash charges for such period, and minus
non-cash credits for such period, other than non-cash charges or credits
resulting from changes in prepaid assets or accrued liabilities in the ordinary
course of business; provided that income tax expense, interest expense and
preferred stock dividends, depreciation and amortization expense, and non-cash
charges and credits of a Restricted Subsidiary will be included in Consolidated
Cash Flow only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Adjusted Net
Income for such period. Solely for purposes of determining whether the Company
could incur Debt pursuant to the first paragraph of the "Limitation on Debt"
covenant, if the Company is permitted to give pro forma effect to an In-Market
Acquisition of a radio station pursuant to clause (iii) of the second paragraph
of such covenant, such calculation may also give pro forma effect to projected
quantifiable improvements in operating results of such radio station due to cost
reductions calculated in good faith by the Company and certified by an officers'
certificate filed with the Transfer Agent or Debentures Trustee, as the case may
be. As used in the preceding sentence, the term "In-Market Acquisition" means
the acquisition of a radio station or group of radio stations serving an MSA in
which the Company or its Subsidiaries has owned, or has operated under a LMA,
one or more radio stations for at least the preceding six months.
"Consolidated Cash Flow Ratio" means, at any date, the ratio of (i) the
aggregate amount of Debt of the Company and its Restricted Subsidiaries on a
consolidated basis as of the end of the immediately preceding four fiscal
quarters for which internal financial statements of the Company are available
(the "Reference Period") to (ii) the aggregate amount of Consolidated Cash Flow
for such Reference Period.
"Consolidated Fixed Charges" means, for any period, without duplication,
the sum of (a) the amount which, in conformity with GAAP, would be set forth
opposite the caption "interest expense" (or any like caption) on a consolidated
statement of operations of the Company and its Restricted Subsidiaries for such
period, including, without limitation, (i) amortization of debt discount, (ii)
the net cost of interest rate contracts (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation, (iv) amortization
of debt issuance costs, (v) the interest component of Capitalized Lease
Obligations of the Company and any of its Restricted Subsidiaries, and (vi) the
portion of any rental obligation of the Company and any of its Restricted
Subsidiaries in respect of any sale and leaseback transaction allocable during
such period to interest expense (determined as if it were treated as a
Capitalized Lease Obligation) plus (b) all interest on any Debt of any other
person guaranteed by the Company or any of its Restricted Subsidiaries;
provided, however, that Consolidated Fixed Charges will not include any gain or
loss from extinguishment of debt, including any write-off of debt issuance
costs.
"Credit Facility" means the loan agreement dated October 9, 1996 among the
Company, the Banks and the Credit Facility Agent, as amended, and as such
agreement may be amended, restated, supplemented, replaced or refinanced or
otherwise modified from time to time.
"Credit Facility Agent" means the then acting Agent as defined in and under
the Credit Facility or any successor thereto.
"Debt" means (without duplication), with respect to any person, whether
recourse is to all or a portion of the assets of such person and whether or not
contingent, (a) every obligation of such person for money borrowed, (b) every
obligation of such person evidenced by bonds, debentures, notes or other similar
instruments, (c) every reimbursement obligation of such person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such person, (d) every obligation of such person issued or assumed as
the deferred purchase price of property or services, (e) every Capitalized Lease
Obligation of such person, (f) all Disqualified Stock of such person valued at
its maximum fixed repurchase price, plus accumulated and unpaid dividends, (g)
all Hedging Obligations of such person, and (h) every obligation of the type
referred to in clauses (a) through (g) of another person and all dividends of
another person (i) the payment of which, in either case, such person has
guaranteed or (ii) which is secured by any
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Lien on any property or asset of such person, the amount of such Debt being
deemed to be the lesser of the actual amount of the guarantee or the value of
such property or asset subject to such Lien, as the case may be, and the amount
of the Debt so guaranteed or secured, as the case may be. For purposes of this
definition, the "maximum fixed repurchase price" of any Disqualified Stock that
does not have a fixed repurchase price will be calculated in accordance with the
terms of such Disqualified Stock as if such Disqualified Stock were repurchased
on any date on which Debt is required to be determined pursuant to the
Certificate of Designation or Exchange Indenture, and if such price is based
upon, or measured by, the fair market value of such Disqualified Stock, such
fair market value will be determined reasonably and in good faith by the board
of directors of the issuer of such Disqualified Stock. Notwithstanding the
foregoing, trade accounts payable and accrued liabilities arising in the
ordinary course of business and any liability for federal, state or local taxes
or other taxes owed by such person will not be considered Debt for purposes of
this definition. The amount outstanding at any time of any Debt issued with
original issue discount is the aggregate principal amount at maturity of such
Debt, less the remaining unamortized portion of the original issue discount of
such Debt at such time, as determined in accordance with GAAP.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors, to make a finding or otherwise
take action under the Exchange Indenture, a member of the Board of Directors who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of transactions.
"Disqualified Stock" means any class or series of Capital Stock that,
either by its terms (or by the terms of any security into which it is
convertible or exchangeable by contract or otherwise), or upon the happening of
any event, matures (excluding any maturity as the result of an optional
redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of the
holder thereof, in whole or in part, prior to (i) one year after the Mandatory
Redemption Date, in the case of the Exchangeable Preferred Stock, or (ii) one
year after the Stated Maturity of the Exchange Debentures, in the case of the
Exchange Debentures; provided that (i) in the case of the Exchangeable Preferred
Stock, any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to cause the issuer thereof
to repurchase or redeem such Capital Stock upon occurrence of a "change of
control" occurring prior to the Mandatory Redemption Date will not constitute
Disqualified Stock if the "change of control" provisions applicable to such
Capital Stock are no more favorable to the holders of such Capital Stock than
the provisions contained in the "Purchase of Exchangeable Preferred Stock upon a
Change of Control" covenant of the Certificate of Designation described below
and such Capital Stock specifically provides that the issuer will not repurchase
or redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Exchangeable Preferred Stock as are required to be
repurchased pursuant to the "Purchase of Exchangeable Preferred Stock upon a
Change of Control" covenant of the Certificate of Designation described below or
(ii) in the case of the Exchange Debentures, any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to cause the issuer thereof to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring prior to
the Stated Maturity of the Exchange Debentures will not constitute Disqualified
Stock if the "asset sale" or "change of control" provisions applicable to such
Capital Stock are no more favorable to the holders of such Capital Stock than
the provisions contained in the "Limitation on Certain Asset Sales" and
"Purchase of Exchange Debentures upon a Change of Control" covenants of the
Exchange Indenture described below and such Capital Stock specifically provides
that the issuer will not repurchase or redeem any such Capital Stock pursuant to
such provision prior to the Company's repurchase of such Exchange Debentures as
are required to be repurchased pursuant to the "Limitation on Certain Asset
Sales" and "Purchase of Exchange Debentures upon a Change of Control" covenants
of the Exchange Indenture described below; provided further that "Disqualified
Stock" shall not include the Exchangeable Preferred Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the Closing Date.
"Guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limitation, the payment of
amounts drawn down under letters of credit.
"Hedging Obligations" means the obligations of any person under (a)
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements and (b) other agreements or arrangements designed to protect
such person against fluctuations in interest rates or the value of foreign
currencies.
"Investment" (in any person) means (a) directly or indirectly, any advance,
loan or other extension of credit (including, without limitation, by way of
guarantee or similar arrangement) or capital contribution to any person, the
purchase or other acquisition of any stock, bonds, notes, debentures or other
securities issued by such person or the acquisition (by purchase or otherwise)
of all or substantially all of the business or assets of such person or the
making of any investment in such person, (b) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary and (c) the transfer of any assets or
properties from the Company or a Restricted Subsidiary to any Unrestricted
Subsidiary, other than the transfer of assets or properties made in the ordinary
course of business. Investments will exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Junior Subordinated Debt" means Debt of the Company that is subordinated
in right of payment to the Subordinated Debt.
"License Subsidiary" means Citadel License, Inc.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim,
preference, priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A person will be deemed to own subject to a Lien any property that
such person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or cash equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any of its
Restricted Subsidiaries), net of (a) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (b) provisions for all taxes payable as a result of
such Asset Sale, (c) payments made to retire Debt where payment of such Debt is
secured by the assets that are the subject of such Asset Sale, (d) amounts
required to be paid to any person (other than the Company or any of its
Restricted Subsidiaries) owning a beneficial interest in the assets that are
subject to the Asset Sale and (e) appropriate amounts to be provided by the
Company or any of its Restricted Subsidiaries, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the seller after such Asset Sale, including pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale.
"Pari Passu Debt" means Debt of the Company that ranks pari passu in right
of payment with the Exchange Debentures.
"Permitted Investments" means any of the following:
(a) Investments in (i) securities with a maturity of one year or less
issued or directly and fully guaranteed or insured by the United States or
any agency or instrumentality thereof (provided that the
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full faith and credit of the United States is pledged in support thereof);
(ii) certificates of deposit, time deposits, overnight bank deposits or
bankers' acceptances with a maturity of 270 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus of not less than $500,000,000; and (iii) commercial
paper with a maturity of 270 days or less issued by a corporation that is
not an Affiliate of the Company and is organized under the laws of any
state of the United States or the District of Columbia and having the
highest rating obtainable from Moody's Investors Service, Inc. or Standard
& Poor's Ratings Services.
(b) Investments by the Company or any of its Restricted Subsidiaries
in another person, if as a result of such Investment (i) such other person
becomes a Restricted Subsidiary that is or would be a Subsidiary Debentures
Guarantor under the Exchange Indenture or (ii) such other person is merged
or consolidated with or into, or transfers or conveys all or substantially
all of its assets to, the Company or a Restricted Subsidiary that is or
would be such a Subsidiary Debentures Guarantor.
(c) Investments by the Company or any of its Restricted Subsidiaries
in a Subsidiary Debentures Guarantor and Investments by any Restricted
Subsidiary in the Company.
(d) Investments in assets owned or used in the ordinary course of
business.
(e) Investments in existence on the Closing Date.
(f) Promissory notes received as a result of Asset Sales permitted
under the "Exchange Debentures -- Limitation on Certain Asset Sales"
covenant.
(g) Direct or indirect loans to employees, or to a trustee for the
benefit of such employees, of the Company or any of its Restricted
Subsidiaries in an aggregate amount outstanding at any time not exceeding
$1,000,000.
(h) Investments by the Company or any of its Restricted Subsidiaries
in a joint venture that is engaged in the internet service provider
business in an aggregate amount outstanding at any time not exceeding
$500,000.
(i) Other Investments that do not exceed $2,000,000 at any one time
outstanding.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Public Equity Offering" means an underwritten public offering of Qualified
Equity Interests of either (a) the Company or (b) Citadel Communications the net
proceeds from which (after deducting any underwriting discounts and commissions)
are used by Citadel Communications to purchase Qualified Equity Interests of the
Company; provided that, in either case, such net proceeds exceed $10,000,000.
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any person means any and all Capital Stock of such
person, other than Disqualified Stock.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Senior Debt" means the principal of and premium, if any, and interest on
(including interest accruing after the filing of a petition initiating any
proceeding pursuant to any bankruptcy law, whether or not allowed) and other
amounts due on or in connection with any Debt of the Company, whether
outstanding on the Closing Date or thereafter incurred, unless, in the case of
any particular Debt, the instrument creating or evidencing the same or pursuant
to which the same is outstanding expressly provides that such Debt will be
subordinate in right of payment to any Debt or other general unsecured
obligations of the Company. Without limiting the generality of the foregoing,
"Senior Debt" includes the principal of and premium, if any, fees and interest
(including interest accruing after the occurrence of an event of default or
after the filing of a petition initiating any proceeding pursuant to any
bankruptcy law, whether or not allowed) on all obligations of every nature of
the Company from time to time owed to the Banks under the Credit Facility.
Notwithstanding the
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foregoing, "Senior Debt" will not include (a) Debt that is Disqualified Stock,
(b) Debt consisting of trade payables, (c) Debt of the Company to a Subsidiary
or any other Affiliate of the Company or any of such Affiliate's Subsidiaries
and (d) that portion of any Debt that, at the time of the incurrence, is
incurred by the Company in violation of the Exchange Indenture other than any
Debt incurred under the Credit Facility not in excess of $150,000,000 (less any
amounts applied to the permanent reduction of such Debt pursuant to the
"Limitation on Certain Asset Sales" covenant under the Exchange Indenture) if
the Company has certified to the Credit Facility Agent, at the time such Debt is
incurred, that the Company is permitted to incur such Debt under the Exchange
Indenture.
"Senior Subordinated Debt" means the principal of and premium, if any, and
interest on (including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law, whether or not
allowed) and other amounts due on or in connection with any Debt of the Company
(including the Notes), whether outstanding on the Closing Date or thereafter
incurred, for which, in the case of any particular Debt, the instrument creating
or evidencing the same or pursuant to which the same is outstanding expressly
provides that such Debt will be subordinate in right of payment to any Senior
Debt or other general unsecured obligations of the Company, unless such
instrument expressly provides that such Debt will be subordinate in right of
payment to the Notes or any Debt that is pari passu in right of payment with the
Notes. Notwithstanding the foregoing, "Senior Subordinated Debt" will not
include (a) Debt that is represented by Disqualified Stock, (b) Debt consisting
of trade payables, (c) Debt of the Company to a Subsidiary or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries and (d) that
portion of any Debt that, at the time of the incurrence, is incurred by the
Company in violation of the Exchange Indenture.
"Significant Subsidiary" means any Restricted Subsidiary of the Company
that, together with its Subsidiaries, (a) for the most recent fiscal year of the
Company, accounted for more than 10% of the consolidated net sales of the
Company and its Restricted Subsidiaries, (b) as of the end of such fiscal year,
was the owner of more than 10% of the consolidated assets of the Company and its
Restricted Subsidiaries, in the case of either (a) or (b), as set forth on the
most recently available consolidated financial statements of the Company for
such fiscal year, (c) was organized or acquired after the beginning of such
fiscal year and would have been a Significant Subsidiary if it had been owned
during the entire fiscal year or (d) that holds one or more licenses material to
the Company's business.
"Stated Maturity" means, when used with respect to any Exchange Debenture
or any installment of interest thereon, the date specified in such Exchange
Debenture as the fixed date on which the principal of such Exchange Debenture or
such installment of interest is due and payable, and, when used with respect to
any other Debt, means the date specified in the instrument governing such Debt
as the fixed date on which the principal of such Debt or any installment of
interest thereon is due and payable.
"Subordinated Debt" means the principal of and premium, if any, and
interest on (including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law, whether or not
allowed) and other amounts due on or in connection with any Debt of the Company
(including the Exchange Debentures), whether outstanding on the Closing Date or
thereafter incurred, for which, in the case of any particular Debt, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Debt will be subordinate in right of
payment to any Senior Debt or other general unsecured obligations of the
Company, and to any Senior Subordinated Debt, unless such instrument expressly
provides that such Debt will be subordinate in right of payment to the Exchange
Debentures or any Debt that is pari passu in right of payment with the Exchange
Debentures. Notwithstanding the foregoing, "Subordinated Debt" will not include
(a) Debt that is represented by Disqualified Stock, (b) Debt consisting of trade
payables, (c) Debt of the Company to a Subsidiary or any other Affiliate of the
Company or any of such Affiliate's Subsidiaries and (d) that portion of any Debt
that, at the time of the incurrence, is incurred by the Company in violation of
the Exchange Indenture.
"Subsidiary" means any person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company
and/or one or more other Subsidiaries of the Company.
"Subsidiary Debentures Guarantee" means a guarantee of the Exchange
Debentures by a Restricted Subsidiary in accordance with the provisions of the
Exchange Indenture.
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"Subsidiary Debentures Guarantor" means the License Subsidiary and each
other Restricted Subsidiary that issues a Subsidiary Debentures Guarantee as
described under the "Subsidiary Debentures Guarantees" covenant of the Exchange
Indenture.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by
the Board of Directors of the Company as an Unrestricted Subsidiary in
accordance with the "Unrestricted Subsidiaries" covenant and (b) any Subsidiary
of an Unrestricted Subsidiary.
"Voting Rights Triggering Event" shall have the meaning set forth above
under "-- Voting Rights."
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any person (irrespective of whether or not, at the time, stock of
any other class or classes has, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life" means, as of the date of determination with respect
to any Debt or Disqualified Stock, the quotient obtained by dividing (a) the sum
of the products of (i) the number of years from the date of determination to the
date or dates of each successive scheduled principal or liquidation value
payment of such Debt or Disqualified Stock, respectively, multiplied by (ii) the
amount of each such principal or liquidation value payment by (b) the sum of all
such principal or liquidation value payments.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary, all
of the outstanding voting securities (other than directors' qualifying shares or
an immaterial number of shares required to be owned by other persons pursuant to
applicable law) of which are owned, directly or indirectly, by the Company.
CERTAIN COVENANTS
The Certificate of Designation contains, among others, the following
covenants:
LIMITATION ON DEBT. (a) The Company will not, and will not permit any of
its Restricted Subsidiaries to, create, issue, assume, guarantee or in any
manner become directly or indirectly liable for the payment of, or otherwise
incur (collectively, "incur"), any Debt (including Acquired Debt and the
issuance of Disqualified Stock), except that the Company or a Restricted
Subsidiary may incur Debt or issue Disqualified Stock if, at the time of such
event, the Consolidated Cash Flow Ratio would have been less than 7.0 to 1.0.
In making the foregoing calculation, pro forma effect will be given to: (i)
the incurrence of such Debt and (if applicable) the application of the net
proceeds therefrom, including to refinance other Debt, as if such Debt had been
incurred and the application of proceeds therefrom occurred on the first day of
the four-fiscal quarter period used to calculate the Consolidated Cash Flow
Ratio, (ii) the incurrence, repayment or retirement of any other Debt by the
Company or any of its Restricted Subsidiaries since the first day of such
four-quarter period as if such Debt was incurred, repaid or retired at the
beginning of such four-quarter period and (iii) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by the
Company or any of its Restricted Subsidiaries, as the case may be, since the
first day of such four-quarter period, as if such acquisition or disposition
occurred at the beginning of such four-quarter period. In making a computation
under the foregoing clause (i) or (ii), the amount of Debt under a revolving
credit facility will be computed based upon the average daily balance of such
Debt during such four-quarter period.
(b) Notwithstanding the foregoing, the Company may, and may, to the extent
expressly permitted below, permit any of its Restricted Subsidiaries to, incur
any of the following Debt ("Permitted Debt"):
(i) Debt of the Company or any Restricted Subsidiary under the Credit
Facility (including guarantees thereof by Subsidiaries) in an aggregate
principal amount at any one time outstanding not to exceed $110,000,000.
(ii) Debt of the Company or any of its Restricted Subsidiaries
outstanding on the Closing Date, other than Debt described in clause (i)
above.
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(iii) Debt owed by the Company to any of its Restricted Subsidiaries
or owed by any Subsidiary to the Company or a Restricted Subsidiary
(provided that such Debt is Junior Subordinated Debt and is held by the
Company or such Restricted Subsidiary) or owed to the Company or a
Restricted Subsidiary by a Restricted Subsidiary, provided the incurrence
of such Debt did not violate the "Limitation on Restricted Payments"
covenant.
(iv) Debt represented by the Notes and the Subsidiary Notes
Guarantees.
(v) Hedging Obligations of the Company or any of its Restricted
Subsidiaries incurred in the ordinary course of business.
(vi) Capitalized Lease Obligations of the Company or any of its
Restricted Subsidiaries in an aggregate amount not exceeding $3,000,000 at
any one time outstanding.
(vii) Debt under purchase money mortgages or secured by purchase money
security interests so long as (x) such Debt is not secured by any property
or assets of the Company or any of its Restricted Subsidiaries other than
the property or assets so acquired and (y) such Debt is created within 60
days of the acquisition of the related property; provided that the
aggregate principal amount of Debt under this clause (vii) does not exceed
$2,000,000 at any one time outstanding.
(viii) Debt of the Company or any Restricted Subsidiary, not permitted
by any other clause of this definition, in an aggregate principal amount
not to exceed $5,000,000 at any one time outstanding.
(ix) Debt of the Company or any of its Restricted Subsidiaries
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments in connection with the acquisition or disposition of
assets, including, without limitation, shares of Capital Stock.
(x) Acquired Debt of a person, other than Debt incurred in connection
with, or in contemplation of, such person becoming a Restricted Subsidiary
or the acquisition of assets from such person, as the case may be, provided
that the Company on a pro forma basis could incur $1.00 of additional Debt
(other than Permitted Debt) pursuant to the first paragraph of this
covenant.
(xi) Any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by the
Company or any Restricted Subsidiary of any outstanding Debt of the Company
or such Restricted Subsidiary, other than Debt incurred pursuant to clause
(i), (v), (vi), (vii), (viii) or (ix) of this definition, including any
successive refinancings thereof, so long as (A) any such new Debt is in a
principal amount that does not exceed the principal amount so refinanced,
plus the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Debt refinanced or the amount of
any premium reasonably determined by the Company as necessary to accomplish
such refinancing plus the amount of expenses of the Company incurred in
connection with such refinancing and (B) such refinancing Debt does not
have a Weighted Average Life less than the Weighted Average Life of the
Debt being refinanced and does not have a final scheduled maturity earlier
than the final scheduled maturity, or permit redemption at the option of
the holder earlier than the earliest date of redemption at the option of
the holder, of the Debt being refinanced.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, take any
of the following actions:
(a) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Junior Stock of the Company or any of its
Restricted Subsidiaries, other than (i) dividends or distributions payable
solely in Qualified Equity Interests of the issuer of such shares of Junior
Stock, (ii) dividends or distributions by a Restricted Subsidiary payable
to the Company or another Restricted Subsidiary or (iii) pro rata dividends
or distributions on common stock of a Restricted Subsidiary held by
minority stockholders, provided that such dividends do not in the aggregate
exceed the minority stockholders' pro rata share of such Restricted
Subsidiary's net income from the first day of the Company's fiscal quarter
during which the Closing Date occurs;
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(b) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of (i) Junior Stock of the Company (or
any options, warrants or other rights to acquire shares of Junior Stock of
the Company (other than any such Junior Stock owned by Restricted
Subsidiaries)) or (ii) Capital Stock (or any options, warrants or other
rights to acquire shares of Capital Stock) of (A) any Unrestricted
Subsidiary or (B) any Restricted Subsidiary that are held by any Affiliate
of the Company (other than, in either case, any such Capital Stock owned by
the Company or any of its Restricted Subsidiaries);
(c) make any Investment (other than a Permitted Investment) in any
person
(such payments or other actions described in (but not excluded from)
clauses (a) through (c) being referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect to, the proposed
Restricted Payment:
(i) no Voting Rights Triggering Event has occurred and is
continuing,
(ii) the Company could incur at least $1.00 of additional Debt
(other than Permitted Debt) pursuant to the first paragraph of the
"Limitation on Debt" covenant, and
(iii) the aggregate amount of all Restricted Payments declared or
made after the Closing Date does not exceed the sum of:
(A) the remainder of (x) 100% of the aggregate Consolidated
Cash Flow for the period beginning on the first day of the
Company's fiscal quarter during which the Closing Date occurs and
ending on the last day of the Company's most recent fiscal quarter
for which internal financial statements are available ending prior
to the date of such proposed Restricted Payment (the "Computation
Period") minus (y) the product of 1.4 times the sum of (i)
Consolidated Fixed Charges for the Computation Period and (ii) all
dividends or other distributions paid in cash by the Company or
any of its Restricted Subsidiaries on any Disqualified Stock of
the Company or any of its Restricted Subsidiaries for the
Computation Period; plus
(B) the aggregate net proceeds received by the Company after
the Closing Date (including the fair market value of property
other than cash as determined by the Company's Board of Directors,
whose good faith determination will be conclusive) from the
issuance or sale (other than to a Subsidiary) of Qualified Equity
Interests of the Company (excluding from this computation any net
proceeds of a Public Equity Offering received by the Company that
are used by it to redeem the Exchangeable Preferred Stock, as
discussed above); plus
(C) the aggregate net proceeds received by the Company after
the Closing Date (including the fair market value of property
other than cash as determined by the Company's Board of Directors,
whose good faith determination will be conclusive) from the
issuance or sale (other than to a Subsidiary) of debt securities
or Disqualified Stock that have been converted into or exchanged
for Qualified Stock of the Company, together with the aggregate
net cash proceeds received by the Company at the time of such
conversion or exchange; plus
(D) without duplication, the Net Cash Proceeds received by the
Company or a Wholly Owned Restricted Subsidiary upon the sale of
any of its Unrestricted Subsidiaries; plus
(E) $5,000,000.
Notwithstanding the foregoing, the Company and any of its Restricted
Subsidiaries may take any of the following actions, so long as (with respect to
clauses (c) and (d) below) no Voting Rights Triggering Event has occurred and is
continuing or would occur:
(a) The payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would not have
been prohibited by the foregoing provision.
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(b) The repurchase, redemption or other acquisition or retirement for
value of any shares of Junior Stock of the Company, in exchange for, or out
of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, Qualified Equity Interests of the Company.
(c) The payment by the Company to Citadel Communications for the
purpose of the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of Citadel Communications,
options on any such shares or related stock appreciation rights or similar
securities held by officers or employees or former officers or employees
(or their estates or beneficiaries under their estates) or by any employee
benefit plan, upon death, disability, retirement or termination of
employment or pursuant to the terms of any employee benefit plan or any
other agreement under which such shares of stock or related rights were
issued; provided that the aggregate cash consideration paid for such
purchase, redemption, acquisition, cancellation or other retirement of such
shares of Capital Stock after the date of the Closing Date does not exceed
$1,000,000 in any fiscal year.
(d) Loans or advances to officers, directors and employees of Citadel
Communications, the Company or any of its Restricted Subsidiaries made in
the ordinary course of business after the Closing Date in an aggregate
principal amount not to exceed $1,000,000 at any one time outstanding.
(e) Payments to or on behalf of Citadel Communications to pay its
operating and administrative expenses attributable to the Company
including, without limitation, legal and audit expenses, directors' fees,
fees payable in respect of the trustee and the back-up trustees under the
Voting Trust Agreement, and Commission compliance expenses, in an amount
not to exceed the greater of $1,000,000 per fiscal year and 1% of the net
revenues of the Company for the preceding fiscal year.
The payments described in clauses (b), (c) and (d) of this paragraph will be
Restricted Payments that will be permitted to be taken in accordance with this
paragraph but will reduce the amount that would otherwise be available for
Restricted Payments under the foregoing clause (iii), and the payments described
in clauses (a) and (e) of this paragraph will be Restricted Payments that will
be permitted to be taken in accordance with this paragraph and will not reduce
the amount that would otherwise be available for Restricted Payments under the
foregoing clause (iii).
For the purpose of making any calculations under the Certificate of
Designation (i) if a Restricted Subsidiary is designated an Unrestricted
Subsidiary, the Company will be deemed to have made an Investment in an amount
equal to the fair market value of the net assets of such Restricted Subsidiary
at the time of such designation as determined by the Board of Directors of the
Company, whose good faith determination will be conclusive, (ii) any property
transferred to or from an Unrestricted Subsidiary will be valued at fair market
value at the time of such transfer, as determined by the Board of Directors of
the Company, whose good faith determination will be conclusive and (iii) subject
to the foregoing, the amount of any Restricted Payment, if other than cash, will
be determined by the Board of Directors of the Company, whose good faith
determination will be conclusive.
If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment in an Unrestricted Subsidiary or
other person that thereafter becomes a Restricted Subsidiary, such Investment
will no longer be counted as a Restricted Payment for purposes of calculating
the aggregate amount of Restricted Payments.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise), to the extent such net reduction is not included in
Consolidated Adjusted Net Income; provided that the total amount by which the
aggregate amount of all Restricted Payments may be reduced may not exceed the
lesser of (x) the cash proceeds received by the Company and any of its
Restricted Subsidiaries in connection with such net reduction and (y) the
initial amount of such Investment.
In computing Consolidated Adjusted Net Income for purposes of the foregoing
clause (iii)(A), (i) the Company may use audited financial statements for the
portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other
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current financial data based on the books and records of the Company for the
remaining portion of such period and (ii) the Company will be permitted to rely
in good faith on the financial statements and other financial data derived from
the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment that, at the time of
the making of such Restricted Payment, would in the good faith determination of
the Company be permitted under the requirements of the Certificate of
Designation, such Restricted Payment will be deemed to have been made in
compliance with the Certificate of Designation notwithstanding any subsequent
adjustments made in good faith to the Company's financial statements affecting
Consolidated Adjusted Net Income of the Company for any period.
PURCHASE OF EXCHANGEABLE PREFERRED STOCK UPON A CHANGE OF CONTROL. If a
Change of Control occurs at any time, then each holder of Exchangeable Preferred
Stock will have the right to require that the Company purchase such holder's
Exchangeable Preferred Stock, in whole or in part, at a purchase price in cash
equal to 101% of the liquidation preference of such Exchangeable Preferred
Stock, plus accumulated and unpaid dividends, if any, to the date of purchase,
pursuant to the offer described below (the "Change of Control Offer") and the
other procedures set forth in the Certificate of Designation.
Within 30 days following any Change of Control, the Company will notify the
Transfer Agent thereof and give written notice of such Change of Control to each
holder of Exchangeable Preferred Stock by first-class mail, postage prepaid, at
its address appearing in the security register for the Exchangeable Preferred
Stock, stating, among other things, (i) the purchase price and the purchase
date, which will be a Business Day no earlier than 30 days nor later than 60
days from the date such notice is mailed or such later date as is necessary to
comply with requirements under the Exchange Act; (ii) that any Exchangeable
Preferred Stock not tendered will continue to accumulate dividends; (iii) that,
unless the Company defaults in the payment of the purchase price, any
Exchangeable Preferred Stock accepted for payment pursuant to the Change of
Control Offer will cease to accumulate dividends after the Change of Control
purchase date; and (iv) certain other procedures that a holder of Exchangeable
Preferred Stock must follow to accept a Change of Control Offer or to withdraw
such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Exchangeable Preferred Stock that might be tendered by holders of the
Exchangeable Preferred Stock seeking to accept the Change of Control Offer. The
Credit Facility prohibits the purchase of Exchangeable Preferred Stock by the
Company prior to full repayment of indebtedness under the Credit Facility and,
upon a Change of Control, all amounts outstanding under the Credit Facility
become due and payable. There can be no assurance that in the event of a Change
of Control the Company will be able to obtain the necessary consents from the
lenders under the Credit Facility to consummate a Change of Control Offer. The
failure of the Company to make or consummate the Change of Control Offer or pay
the applicable Change of Control purchase price when due would result in an
Voting Rights Triggering Event and would give the holders of the Exchangeable
Preferred Stock the rights described under "Voting Rights."
In addition to the obligations of the Company under the Certificate of
Designation with respect to the Exchangeable Preferred Stock in the event of a
Change of Control, the Credit Facility contains a provision designating a change
of control as described therein as an event of default, which would obligate the
Company to repay amounts outstanding under the Credit Facility upon an
acceleration of the indebtedness outstanding thereunder.
The existence of a holder's right to require the Company to purchase such
holder's Exchangeable Preferred Stock upon a Change of Control may deter a third
party from acquiring the Company in a transaction that constitutes a Change of
Control.
The definition of "Change of Control" in the Certificate of Designation is
limited in scope. The provisions of the Certificate of Designation may not
afford holders of Exchangeable Preferred Stock the right to require the Company
to repurchase such Exchangeable Preferred Stock in the event of a highly
leveraged transaction or certain transactions with the Company's management or
its affiliates, including a reorganization, restructuring, merger or similar
transaction involving the Company (including, in certain circumstances, an
acquisition of the Company by management or its affiliates) that may adversely
affect holders of the Exchangeable
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Preferred Stock, if such transaction is not a transaction defined as a Change of
Control. See "Certain Definitions" above for the definition of "Change of
Control." A transaction involving the Company's management or its affiliates, or
a transaction involving a recapitalization of the Company, would result in a
Change of Control if it is the type of transaction specified in such definition.
The Company will comply with the applicable tender offer rules including
Rule 14e-l under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create any restriction (other than restrictions existing under
Debt as in effect on the Closing Date or in refinancings or replacements of such
Debt) that would materially impair the ability of the Company to make a Change
of Control Offer to purchase the Exchangeable Preferred Stock or, if such Change
of Control Offer is made, to pay for the Exchangeable Preferred Stock tendered
for purchase.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company will not sell, and will not permit any of its
Restricted Subsidiaries, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants, or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Wholly Owned Restricted Subsidiary, (ii) issuances or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law, or issuances or sales to directors of directors'
qualifying shares, (iii) if, immediately after giving effect to such issuance or
sale, neither the Company nor any Subsidiary owns any shares of Capital Stock of
such Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) or (iv) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such person remaining
after giving effect to such issuance or sale would have been permitted to be
made under the "Limitation on Restricted Payments" covenant if made on the date
of such issuance or sale.
In addition, the Company will not, and will not permit any of its
Restricted Subsidiaries to, sell, transfer or otherwise dispose of any of its
properties or assets to an Unrestricted Subsidiary other than in the ordinary
course of business.
UNRESTRICTED SUBSIDIARIES. (a) The Board of Directors of the Company may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither the Company
nor any of its Restricted Subsidiaries is directly or indirectly liable for any
Debt of such Subsidiary, (ii) no default with respect to any Debt of such
Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of
any other Debt of the Company or any of its Restricted Subsidiaries to declare a
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its stated maturity, (iii) any Investment in such Subsidiary
made as a result of designating such Subsidiary an Unrestricted Subsidiary will
not violate the provisions of the "Limitation on Restricted Payments" covenant,
(iv) neither the Company nor any of its Restricted Subsidiaries has a contract,
agreement, arrangement, understanding or obligation of any kind, whether written
or oral, with such Subsidiary other than those that might be obtained at the
time from persons who are not Affiliates of the Company and (v) neither the
Company nor any of its Restricted Subsidiaries has any obligation to subscribe
for additional shares of Capital Stock or other equity interest in such
Subsidiary, or to maintain or preserve such Subsidiary's financial condition or
to cause such Subsidiary to achieve certain levels of operating results.
Notwithstanding the foregoing, the Company may not designate the License
Subsidiary, or any Subsidiary to which any properties or assets (other than
current assets) owned by the Company or the License Subsidiary on the Closing
Date have been transferred, as an Unrestricted Subsidiary.
(b) The Board of Directors of the Company may designate any of its
Unrestricted Subsidiaries as a Restricted Subsidiary; provided that such
designation will be deemed to be an incurrence of Debt by a Restricted
Subsidiary of any outstanding Debt of such Unrestricted Subsidiary and such
designation will only be permitted if (i) such Debt is permitted under the
"Limitation on Debt" covenant and (ii) no Voting Rights Triggering Event will
have occurred and be continuing following such designation.
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LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. The Company will not permit
any of its Subsidiaries to issue any Preferred Stock (other than to the Company
or to a Wholly Owned Restricted Subsidiary of the Company) or permit any person
(other than the Company or a Wholly Owned Restricted Subsidiary of the Company)
to own any Preferred Stock of a Subsidiary of the Company (other than Acquired
Preferred Stock; provided that at the time the issuer of such Acquired Preferred
Stock becomes a Subsidiary of the Company or merges with the Company or any of
its Subsidiaries, and after giving effect to such transaction, the Company shall
be able to incur $1.00 of additional Debt (other than Permitted Debt) in
compliance with the "Limitation on Debt" covenant).
REPORTS. At all times from and after the earlier of (i) the date of the
commencement of the Exchange Offer or the effectiveness of the Stock Shelf
Registration Statement relating to the Series A Exchangeable Preferred Stock
(the "Preferred Stock Registration") and (ii) the date 180 days after the
Closing Date, in either case, whether or not the Company is then required to
file reports with the Commission, the Company will file with the Commission all
such reports and other information as it would be required to file with the
Commission by Sections 13(a) or 15(d) under the Exchange Act if it were subject
thereto. The Company will supply the Transfer Agent and each holder, or will
supply to the Transfer Agent for forwarding to each such holder, without cost to
such holder, copies of such reports and other information. In addition, at all
times prior to the earlier of the date of the Preferred Stock Registration and
the date 180 days after the Closing Date, the Company will, at its cost, deliver
to each holder of the Exchangeable Preferred Stock quarterly and annual reports
substantially equivalent to those that would be required by the Exchange Act. In
addition, at all times prior to the Preferred Stock Registration, upon the
request of any holder or any prospective purchaser of the Exchangeable Preferred
Stock designated by a holder, the Company will supply to such holder or such
prospective purchaser the information required under Rule 144A under the
Securities Act.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Certificate of Designation provides that, without the affirmative vote
of the holders of a majority of the issued and outstanding shares of
Exchangeable Preferred Stock and any Parity Stock, voting or consenting, as the
case may be, as a separate class, the Company may not, in a single transaction
or a series of related transactions, consolidate with or merge with or into, or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to, another person or adopt a plan of
liquidation unless:
(a) Either (i) the Company is the surviving corporation or (ii) the
person (if other than the Company) formed by such consolidation or into
which the Company is merged or the person that acquires by sale,
assignment, transfer, lease or other disposition the properties and assets
of the Company substantially as an entirety (the "Surviving Entity") (A) is
a corporation, partnership or trust organized and validly existing under
the laws of the United States or any state thereof or the District of
Columbia and (B) the Exchangeable Preferred Stock shall be converted into
or exchanged for and shall become shares of such Surviving Entity, having
in respect of such Surviving Entity the same powers, preferences and
relative participating, optional or other special rights and the
qualifications, limitations or restrictions thereon, that the Exchangeable
Preferred Stock had immediately prior to such transaction.
(b) Immediately after giving effect to such transaction and treating
any obligation of the Company or a Restricted Subsidiary in connection with
or as a result of such transaction as having been incurred at the time of
such transaction, no Voting Rights Triggering Event shall have occurred or
be continuing.
(c) Immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred at the beginning of
the most recently ended four full fiscal quarter period for which internal
financial statements are available), the Company (in the case of clause (i)
of paragraph (a) or such person (in the case of clause (ii) of paragraph
(a)) could incur at least $1.00 of additional Debt (other than Permitted
Debt) pursuant to the first paragraph of the "Limitation on Debt" covenant.
(d) The Company delivers, or causes to be delivered, to the Transfer
Agent an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer complies with the
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Certificate of Designation and that all conditions precedent in the
Certificate of Designation relating to such transaction have been
satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of related transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries, the
Capital Stock of which constitutes all or substantially all of the properties or
assets of the Company, will be deemed to be the transfer of all or substantially
all of the properties and assets of the Company.
EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under the Exchange
Indenture, dated as of July 1, 1997, between the Company, the initial Subsidiary
Debentures Guarantor and The Bank of New York, trustee (the "Debentures
Trustee"), a copy of which is available from the Company. If the Exchange
Debentures are issued, the Exchange Indenture will be subject to and governed by
the Trust Indenture Act. The following summary of the material provisions of the
Exchange Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the provisions of the Exchange
Indenture, including the definitions of certain terms therein and those terms
made part of the Exchange Indenture by reference to the Trust Indenture Act. The
definitions of certain terms used in the following summary are set forth above
under "-- Exchangeable Preferred Stock -- Certain Definitions." The Credit
Facility and the Notes Indenture limit the Company's ability to issue the
Exchange Debentures, and future agreements may contain similar or more
restrictive limitations.
GENERAL
The Exchange Debentures will mature on July 1, 2009, will be general
unsecured obligations of the Company and will be limited in aggregate principal
amount to the liquidation preference of the Exchangeable Preferred Stock, plus,
without duplication, accumulated and unpaid dividends, on the Exchange Date of
the Exchangeable Preferred Stock into Exchange Debentures (plus any additional
Exchange Debentures issued in lieu of cash interest as described herein). Each
Exchange Debenture will bear interest at the rate of 13 1/4% per annum from the
Exchange Date or from the most recent interest payment date to which interest
has been paid or provided for. Interest will be payable semi-annually in cash
(or, on or prior to July 1, 2002, in additional Exchange Debentures having an
aggregate principal amount equal to the amount of such interest, at the option
of the Company) in arrears on each January 1 and July 1, commencing with the
first such date after the Exchange Date. Interest on the Exchange Debentures
will be computed on the basis of a 360-day year comprised of twelve 30-day
months. The Exchange Debentures will be subordinate and junior in right of
payment to all existing and future Senior Debt and Senior Subordinated Debt of
the Company.
The principal of and premium, if any, and interest on the Exchange
Debentures will be payable, and the Exchange Debentures will be exchangeable or
transferrable, at the office or agency of the Company in the City of New York
maintained for such purposes (which initially will be the office of the
Debentures Trustee located at 101 Barclay Street, New York, New York 10286);
provided, however, that, at the option of the Company, interest, to the extent
paid in cash, may be paid by check mailed to the address of the person entitled
thereto as such address appears in the security register for the Exchange
Debentures. The Exchange Debentures will be issued only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof. No service charge will be made for any registration of, transfer,
exchange or redemption of Exchange Debentures, but the Company may require
payment in certain circumstances of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
The Exchange Debentures will not be entitled to the benefit of any sinking
fund.
GUARANTEES
Payment of the principal of (and premium, if any, on) and interest on the
Exchange Debentures, when and as the same become due and payable, will be
unconditionally guaranteed, jointly and severally, on a senior subordinated
basis by the Subsidiary Debentures Guarantors. The obligations of each
Subsidiary Debentures
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Guarantor under its Subsidiary Debentures Guarantee will be limited so as not to
constitute a fraudulent conveyance under applicable law. See "Risk
Factors -- Fraudulent Transfer Considerations."
The Exchange Indenture requires that each Wholly Owned Restricted
Subsidiary be a Subsidiary Debentures Guarantor, as well as each other
Restricted Subsidiary that guarantees any other Debt of the Company.
The Exchange Indenture provides that no Subsidiary Debentures Guarantor may
consolidate with or merge with or into any other person (other than the Company
or another Subsidiary Debentures Guarantor) or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets in one or
more related transactions to another person unless: (a) subject to the
provisions of the following paragraph, the person formed by or surviving such
consolidation or merger or to which all or substantially all of such assets are
disposed (if other than the Company or a Subsidiary Debentures Guarantor)
assumes all of the obligations of such Subsidiary Debentures Guarantor under the
Exchange Indenture and its Subsidiary Debentures Guarantee, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Debentures Trustee and (b) immediately after giving effect to such transaction,
no Default or Event of Default has occurred and is continuing.
The Exchange Indenture provides that, in the event of (a) a sale, transfer
or other disposition of all of the Capital Stock of a Subsidiary Debentures
Guarantor to a person that is not an Affiliate of the Company, (b) a sale,
transfer or other disposition of all or substantially all of the assets of a
Subsidiary Debentures Guarantor to a person that is not an Affiliate of the
Company or (c) the designation of such Subsidiary Debentures Guarantor as an
Unrestricted Subsidiary, in any such case in compliance with the terms of the
Exchange Indenture, then such Subsidiary Debentures Guarantor will be deemed
automatically and unconditionally released and discharged from all of its
obligations under the Exchange Indenture and its Subsidiary Debentures Guarantee
without any further action on the part of the Debentures Trustee or any holder
of the Exchange Debentures; provided that the Net Cash Proceeds of any such
sale, transfer or other disposition are applied in accordance with the
"Limitation on Certain Asset Sales" covenant.
SUBORDINATION
The Exchange Debentures will, to the extent set forth in the Exchange
Indenture, be subordinate in right of payment to the prior payment in full of
all Senior Debt and Senior Subordinated Debt. Upon any payment or distribution
of assets of the Company to creditors upon any liquidation, dissolution,
winding-up, reorganization, assignment for the benefit of creditors, marshaling
of assets or any bankruptcy, insolvency or similar proceedings of the Company
(except in connection with the consolidation or merger of the Company or its
liquidation or dissolution following the conveyance, transfer or lease of its
properties and assets substantially as an entirety, upon the terms and
conditions described under "Consolidation, Merger and Sale of Assets"), the
holders of Senior Debt and Senior Subordinated Debt will first be entitled to
receive payment in full, in cash or cash equivalents, of all amounts due or to
become due on or in respect of such Senior Debt and Senior Subordinated Debt
before the holders of Exchange Debentures are entitled to receive any payment of
principal of (or premium, if any) or interest on the Exchange Debentures or on
account of the purchase or redemption or other acquisition of Exchange
Debentures by the Company or any Subsidiary of the Company. In the event that,
notwithstanding the foregoing, the Debentures Trustee or the holder of any
Exchange Debenture receives any payment or distribution of assets of the Company
of any kind or character (excluding equity or subordinated securities of the
Company provided for in a plan of reorganization or readjustment that, in the
case of subordinated securities, are subordinated in right of payment to all
Senior Debt and Senior Subordinated Debt to at least the same extent as the
Exchange Debentures are so subordinated), before all the Senior Debt and Senior
Subordinated Debt is paid in full, then such payment or distribution will be
held in trust for the holders of Senior Debt and Senior Subordinated Debt and
will be required to be paid over or delivered forthwith to the trustee in
bankruptcy or other person making payment or distribution of assets of the
Company for application to the payment of all Senior Debt and Senior
Subordinated Debt remaining unpaid, to the extent necessary to pay the Senior
Debt and Senior Subordinated Debt in full.
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The Company may not make any payments on account of the Exchange Debentures
or on account of the purchase or redemption or other acquisition of Exchange
Debentures if a default in the payment when due of principal of (or premium, if
any) or interest on Specified Senior Debt has occurred and is continuing or a
default in the payment when due of commitment, facility or other fees, letter of
credit fees or agency fees under the Credit Facility, or a default in payments
when due with respect to letter of credit reimbursement arrangements with the
Credit Facility Agent has occurred and is continuing (a "Senior Payment
Default"). In addition, if any default (other than a Senior Payment Default)
with respect to any Specified Senior Debt permitting the holders thereof (or a
trustee or agent on behalf thereof) to accelerate the maturity thereof (a
"Senior Nonmonetary Default") has occurred and is continuing and the Company and
the Debentures Trustee have received written notice thereof from the Credit
Facility Agent or from an authorized person on behalf of any holder of Specified
Senior Debt, then the Company may not make any payments on account of the
Exchange Debentures or on account of the purchase or redemption or other
acquisition of Exchange Debentures for a period (a "blockage period") commencing
on the date the Company and the Debentures Trustee receive such written note (a
"Blockage Notice") and ending on the earliest of (x) 179 days after such date
(the "Initial Period"), (y) the date, if any, on which the Specified Senior Debt
to which such default relates is discharged or such default is waived or
otherwise cured and (z) the date, if any, on which such blockage period has been
terminated by written notice to the Company or the Debentures Trustee from the
Credit Facility Agent or from the person who gave the Blockage Notice. Any
number of additional payment blockage periods may be commenced during the
Initial Period; provided, however, that no such additional payment blockage
periods shall extend beyond the Initial Period. After the expiration of the
Initial Period, no payment blockage period may be commenced until at least 181
consecutive days shall have elapsed from the last day of the Initial Period. No
Senior Nonmonetary Default that existed or was continuing on the date of the
commencement of any blockage period with respect to the Specified Senior Debt
initiating such blockage period will be, or can be, made the basis for the
commencement of a subsequent blockage period, unless such default has been cured
or waived for a period of not less than 90 consecutive days. In the event that,
notwithstanding the foregoing, the Company makes any payment to the Debentures
Trustee or the holder of any Exchange Debenture prohibited by these blockage
provisions, then such payment will be held in trust for the holders of Senior
Debt and Senior Subordinated Debt and will be required to be paid over and
delivered forthwith to the holders of the Senior Debt and Senior Subordinated
Debt remaining unpaid, to the extent necessary to pay in full all the Senior
Debt and Senior Subordinated Debt.
The Subsidiary Debentures Guarantees will, to the extent set forth in the
Exchange Indenture, be subordinated in right of payment to the prior payment in
full of all senior debt and senior subordinated debt of the Subsidiary
Debentures Guarantors, upon terms substantially comparable to the subordination
of the Exchange Debentures to all Senior Debt and Senior Subordinated Debt.
By reason of such subordination, in the event of insolvency, creditors of
the Company or a Subsidiary Debentures Guarantor who are not holders of Senior
Debt or Senior Subordinated Debt or the Exchange Debentures may recover less,
ratably, than holders of Senior Debt or Senior Subordinated Debt and may recover
more, ratably, than the holders of the Exchange Debentures.
The subordination provisions described above will cease to be applicable to
the Exchange Debentures and the Subsidiary Debentures Guarantees upon any
defeasance or covenant defeasance of the Exchange Debentures as described under
"-- Defeasance or Covenant Defeasance of Exchange Indenture."
As used herein, the term "Specified Senior Debt" means (i) all Senior Debt
under the Credit Facility and (ii) any other issue of Senior Debt having a
principal amount of at least $10,000,000.
At September 30, 1997, on a pro forma basis, after giving effect to the
Recent 1997 Acquisitions and the Pending Transactions, the aggregate principal
amount of Senior Debt and Senior Subordinated Debt (including the Notes)
outstanding would have been approximately $212.1 million excluding the discount
on the Notes. The Company may from time to time hereafter incur additional Debt
constituting Senior Debt and Senior Subordinated Debt under the Credit Facility
or otherwise, subject to the "Limitation on Debt" covenant described below.
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OPTIONAL REDEMPTION
The Exchange Debentures will be redeemable (subject to contractual and
other restrictions with respect thereto and to the legal availability of funds
therefor) at the election of the Company, as a whole or from time to time in
part, at any time on or after July 1, 2002, on not less than 30 nor more than 60
days' prior notice, at the redemption prices (expressed as percentages of the
principal amount thereof) set forth below, together with accrued and unpaid
interest, if any, to the redemption date, if redeemed during the 12-month period
beginning on July 1 of the years indicated below (subject to the right of
holders of record on the relevant record date to receive interest due on an
interest payment date):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
--------------------------------------------- ----------------
<S> <C>
2002......................................... 107.729%
2003......................................... 106.625
2004......................................... 105.521
2005......................................... 104.417
2006......................................... 103.313
2007......................................... 102.208
2008......................................... 101.104
</TABLE>
In addition, at any time and from time to time prior to July 1, 2000, the
Company may, at its option, redeem Exchange Debentures having an aggregate
principal amount of up to 35% of the aggregate principal amount of Exchange
Debentures issued upon exchange of the Exchangeable Preferred Stock or in
payment of interest on the Exchange Debentures, at a redemption price equal to
113.25% of the aggregate principal amount thereof plus, without duplication,
accrued and unpaid interest, with proceeds of one or more Public Equity
Offerings, provided that, immediately after giving effect to any such
redemption, at least $75,000,000 of the aggregate principal amount of the
Exchange Debentures remains outstanding. Any such redemption must be made within
90 days of the related Public Equity Offering.
If less than all the Exchange Debentures are to be redeemed, the particular
Exchange Debentures to be redeemed will be selected not more than 60 days prior
to the redemption date by the Debentures Trustee by such method as the
Debentures Trustee deems fair and appropriate.
CERTAIN COVENANTS
The Exchange Indenture contains, among others, the following covenants:
LIMITATION ON DEBT. (a) The Company will not, and will not permit any of
its Restricted Subsidiaries to, create, issue, assume, guarantee or in any
manner become directly or indirectly liable for the payment of, or otherwise
incur (collectively, "incur"), any Debt (including Acquired Debt and the
issuance of Disqualified Stock), except that the Company or a Subsidiary
Debentures Guarantor may incur Debt or issue Disqualified Stock if, at the time
of such event, the Consolidated Cash Flow Ratio would have been less than 7.0 to
1.0.
In making the foregoing calculation, pro forma effect will be given to: (i)
the incurrence of such Debt and (if applicable) the application of the net
proceeds therefrom, including to refinance other Debt, as if such Debt had been
incurred and the application of proceeds therefrom occurred on the first day of
the four-fiscal quarter period used to calculate the Consolidated Cash Flow
Ratio, (ii) the incurrence, repayment or retirement of any other Debt by the
Company or any of its Restricted Subsidiaries since the first day of such
four-quarter period as if such Debt was incurred, repaid or retired at the
beginning of such four-quarter period and (iii) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by the
Company or any of its Restricted Subsidiaries, as the case may be, since the
first day of such four-quarter period, as if such acquisition or disposition
occurred at the beginning of such four-quarter period. In making a computation
under the foregoing clause (i) or (ii), the amount of Debt under a revolving
credit facility will be computed based upon the average daily balance of such
Debt during such four-quarter period.
(b) Notwithstanding the foregoing, the Company may, and may, to the extent
expressly permitted below, permit any of its Restricted Subsidiaries to, incur
any of the following Debt ("Permitted Debt"):
(i) Debt of the Company or any Subsidiary Debentures Guarantor under
the Credit Facility (including guarantees thereof by Subsidiaries) in an
aggregate principal amount at any one time
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outstanding not to exceed $110,000,000 less any amounts applied to the
permanent reduction of such Debt pursuant to the "Limitation on Certain
Asset Sales" covenant.
(ii) Debt of the Company or any of its Restricted Subsidiaries
outstanding on the Closing Date, other than Debt described under clause (i)
above.
(iii) Debt owed by the Company to any of its Restricted Subsidiaries
or owed by any Subsidiary to the Company or a Restricted Subsidiary
(provided that such Debt is Junior Subordinated Debt and is held by the
Company or such Restricted Subsidiary) or owed to the Company or a
Subsidiary Debentures Guarantor by a Restricted Subsidiary that is not a
Subsidiary Debentures Guarantor, provided the incurrence of such Debt did
not violate the "Limitation on Restricted Payments" covenant.
(iv) Debt represented by the Notes and the Subsidiary Notes
Guarantees.
(v) Debt represented by the Exchange Debentures and the Subsidiary
Debentures Guarantees.
(vi) Hedging Obligations of the Company or any of its Restricted
Subsidiaries incurred in the ordinary course of business.
(vii) Capitalized Lease Obligations of the Company or any of its
Restricted Subsidiaries in an aggregate amount not exceeding $3,000,000 at
any one time outstanding.
(viii) Debt under purchase money mortgages or secured by purchase
money security interests so long as (x) such Debt is not secured by any
property or assets of the Company or any of its Restricted Subsidiaries
other than the property or assets so acquired and (y) such Debt is created
within 60 days of the acquisition of the related property; provided that
the aggregate principal amount of Debt under this clause (viii) does not
exceed $2,000,000 at any one time outstanding.
(ix) Debt of the Company or any Subsidiary Debentures Guarantor, not
permitted by any other clause of this definition, in an aggregate principal
amount not to exceed $5,000,000 at any one time outstanding.
(x) Debt of the Company or any of its Restricted Subsidiaries
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments in connection with the acquisition or disposition of
assets, including, without limitation, shares of Capital Stock.
(xi) Acquired Debt of a person, other than Debt incurred in connection
with, or in contemplation of, such person becoming a Restricted Subsidiary
or the acquisition of assets from such person, as the case may be, provided
that the Company on a pro forma basis could incur $1.00 of additional Debt
(other than Permitted Debt) pursuant to the first paragraph of this
covenant.
(xii) Any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") by the
Company or any Restricted Subsidiary of any outstanding Debt of the Company
or such Restricted Subsidiary, other than Debt incurred pursuant to clause
(i), (vi), (vii), (viii), (ix) or (x) of this definition, including any
successive refinancings thereof, so long as (A) any such new Debt is in a
principal amount that does not exceed the principal amount so refinanced,
plus the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Debt refinanced or the amount of
any premium reasonably determined by the Company as necessary to accomplish
such refinancing, plus the amount of expenses of the Company incurred in
connection with such refinancing, (B) in the case of any refinancing of
Junior Subordinated Debt, such new Debt is made subordinate to the Exchange
Debentures at least to the same extent as the Debt being refinanced, (C) in
the case of any refinancing of the Exchange Debentures or any Pari Passu
Debt, such Debt is Pari Passu Debt or Junior Subordinated Debt and (D) such
refinancing Debt does not have a Weighted Average Life less than the
Weighted Average Life of the Debt being refinanced and does not have a
final scheduled maturity earlier than the final scheduled maturity, or
permit redemption at the option of the holder earlier than the earliest
date of redemption at the option of the holder, of the Debt being
refinanced.
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LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, take any
of the following actions:
(a) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Capital Stock of the Company or any of its
Restricted Subsidiaries, other than (i) dividends or distributions payable
solely in Qualified Equity Interests of the issuer of such shares of
Capital Stock, (ii) dividends or distributions by a Restricted Subsidiary
payable to the Company or another Restricted Subsidiary or (iii) pro rata
dividends or distributions on common stock of a Restricted Subsidiary held
by minority stockholders, provided that such dividends do not in the
aggregate exceed the minority stockholders' pro rata share of such
Restricted Subsidiary's net income from the first day of the Company's
fiscal quarter during which the Closing Date occurs;
(b) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock (or any options,
warrants or other rights to acquire shares of Capital Stock) of (i) the
Company or any of its Unrestricted Subsidiaries or (ii) any Restricted
Subsidiary that are held by any Affiliate of the Company (other than, in
either case, any such Capital Stock owned by the Company or any of its
Restricted Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Junior Subordinated Debt;
and
(d) make any Investment (other than a Permitted Investment) in any
person
(such payments or other actions described in (but not excluded from)
clauses (a) through (d) being referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect to, the proposed
Restricted Payment:
(i) no Default or Event of Default has occurred and is continuing,
(ii) the Company could incur at least $1.00 of additional Debt
(other than Permitted Debt) pursuant to the first paragraph of the
"Limitation on Debt" covenant, and
(iii) the aggregate amount of all Restricted Payments declared or
made after the Closing Date does not exceed the sum of:
(A) the remainder of (x) 100% of the aggregate Consolidated Cash
Flow for the period beginning on the first day of the Company's
fiscal quarter during which the Closing Date occurs and ending on the
last day of the Company's most recent fiscal quarter for which
internal financial statements are available ending prior to the date
of such proposed Restricted Payment (the "Computation Period") minus
(y) the product of 1.4 times the sum of (i) Consolidated Fixed
Charges for the Computation Period and (ii) all dividends or other
distributions paid in cash by the Company or any of its Restricted
Subsidiaries on any Disqualified Stock of the Company or any of its
Restricted Subsidiaries for the Computation Period; plus
(B) the aggregate net proceeds received by the Company after the
Closing Date (including the fair market value of property other than
cash as determined by the Company's Board of Directors, whose good
faith determination will be conclusive) from the issuance or sale
(other than to a Subsidiary) of Qualified Equity Interests of the
Company (excluding from this computation any net proceeds of a Public
Equity Offering received by the Company that are used by it to redeem
the Exchange Debentures, as discussed above); plus
(C) the aggregate net proceeds received by the Company after the
Closing Date (including the fair market value of property other than
cash as determined by the Company's Board of Directors, whose good
faith determination will be conclusive) from the issuance or sale
(other than to a Subsidiary) of debt securities or Disqualified Stock
that have been converted into or exchanged for Qualified Stock of the
Company, together with the aggregate net cash proceeds received by
the Company at the time of such conversion or exchange; plus
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(D) without duplication, the Net Cash Proceeds received by the
Company or a Wholly Owned Restricted Subsidiary upon the sale of any
of its Unrestricted Subsidiaries; plus
(E) $5,000,000.
Notwithstanding the foregoing, the Company and any of its Restricted
Subsidiaries may take any of the following actions, so long as (with respect to
clauses (f) and (g) below) no Default or Event of Default has occurred and is
continuing or would occur:
(a) The payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would not have
been prohibited by the foregoing provision.
(b) The repurchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Subsidiary) of, Qualified Equity Interests of the
Company.
(c) The purchase, redemption, defeasance or other acquisition or
retirement for value of Junior Subordinated Debt in exchange for, or out of
the net cash proceeds of, a substantially concurrent issuance and sale
(other than to a Restricted Subsidiary) of shares of Qualified Stock of the
Company.
(d) The purchase, redemption, defeasance or other acquisition or
retirement for value of Junior Subordinated Debt in exchange for, or out of
the net cash proceeds of, a substantially concurrent issuance or sale
(other than to a Subsidiary) of, Junior Subordinated Debt, so long as the
Company or a Restricted Subsidiary would be permitted to refinance such
original Junior Subordinated Debt with such new Junior Subordinated Debt
pursuant to clause (xii) of the definition of Permitted Debt.
(e) The repurchase of any Junior Subordinated Debt at a purchase price
not greater than 101% of the principal amount of such Junior Subordinated
Debt in the event of a "change of control" in accordance with provisions
similar to the "Purchase of Exchange Debentures upon a Change of Control"
covenant; provided that, prior to such repurchase, the Company has made the
Change of Control Offer as provided in such covenant with respect to the
Exchange Debentures and has repurchased all Exchange Debentures validly
tendered for payment in connection with such Change of Control Offer.
(f) The payment by the Company to Citadel Communications for the
purpose of the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of Citadel Communications,
options on any such shares or related stock appreciation rights or similar
securities held by officers or employees or former officers or employees
(or their estates or beneficiaries under their estates) or by any employee
benefit plan, upon death, disability, retirement or termination of
employment or pursuant to the terms of any employee benefit plan or any
other agreement under which such shares of stock or related rights were
issued; provided that the aggregate cash consideration paid for such
purchase, redemption, acquisition, cancellation or other retirement of such
shares of Capital Stock after the date of the Closing Date does not exceed
$1,000,000 in any fiscal year.
(g) Loans or advances to officers, directors and employees of Citadel
Communications, the Company or any of its Restricted Subsidiaries made in
the ordinary course of business after the Closing Date in an aggregate
principal amount not to exceed $1,000,000 at any one time outstanding.
(h) Payments to or on behalf of Citadel Communications to pay its
operating and administrative expenses attributable to the Company
including, without limitation, legal and audit expenses, directors' fees,
fees payable in respect of the trustee and the back-up trustees under the
Voting Trust Agreement, and Commission compliance expenses, in an amount
not to exceed the greater of $1,000,000 per fiscal year and 1% of the net
revenues of the Company for the preceding fiscal year.
The payments described in clauses (b), (c), (e), (f) and (g) of this paragraph
will be Restricted Payments that will be permitted to be taken in accordance
with this paragraph but will reduce the amount that would otherwise be available
for Restricted Payments under the foregoing clause (iii) and the payments
described in clauses (a), (d) and (h) of this paragraph will be Restricted
Payments that will be permitted to be taken in
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accordance with this paragraph and will not reduce the amount that would
otherwise be available for Restricted Payments under the foregoing clause (iii).
For the purpose of making any calculations under the Exchange Indenture (i)
if a Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company
will be deemed to have made an Investment in amount equal to the fair market
value of the net assets of such Restricted Subsidiary at the time of such
designation as determined by the Board of Directors of the Company, whose good
faith determination will be conclusive, (ii) any property transferred to or from
an Unrestricted Subsidiary will be valued at fair market value at the time of
such transfer, as determined by the Board of Directors of the Company, whose
good faith determination will be conclusive and (iii) subject to the foregoing,
the amount of any Restricted Payment, if other than cash, will be determined by
the Board of Directors of the Company, whose good faith determination will be
conclusive.
If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment in an Unrestricted Subsidiary or
other person that thereafter becomes a Restricted Subsidiary, such Investment
will no longer be counted as a Restricted Payment for purposes of calculating
the aggregate amount of Restricted Payments.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise), to the extent such net reduction is not included in
Consolidated Adjusted Net Income; provided that the total amount by which the
aggregate amount of all Restricted Payments may be reduced may not exceed the
lesser of (x) the cash proceeds received by the Company and any of its
Restricted Subsidiaries in connection with such net reduction and (y) the
initial amount of such Investment.
In computing Consolidated Adjusted Net Income for purposes of the foregoing
clause (iii)(A), (i) the Company may use audited financial statements for the
portions of the relevant period for which audited financial statements are
available on the date of determination and unaudited financial statements and
other current financial data based on the books and records of the Company for
the remaining portion of such period and (ii) the Company will be permitted to
rely in good faith on the financial statements and other financial data derived
from the books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment that, at the time of
the making of such Restricted Payment, would in the good faith determination of
the Company be permitted under the requirements of the Exchange Indenture, such
Restricted Payment will be deemed to have been made in compliance with the
Exchange Indenture notwithstanding any subsequent adjustments made in good faith
to the Company's financial statements affecting Consolidated Adjusted Net Income
of the Company for any period.
PURCHASE OF EXCHANGE DEBENTURES UPON A CHANGE OF CONTROL. If a Change of
Control occurs at any time, then each holder of Exchange Debentures will have
the right to require that the Company purchase such holder's Exchange
Debentures, in whole or in part in integral multiples of $1,000, at a purchase
price in cash equal to 101% of the principal amount of such Exchange Debentures,
plus accrued and unpaid interest, if any, to the date of purchase, pursuant to
the offer described below (the "Change of Control Offer") and the other
procedures set forth in the Exchange Indenture.
Within 30 days following any Change of Control, the Company will notify the
Debentures Trustee thereof and give written notice of such Change of Control to
each holder of Exchange Debentures by first-class mail, postage prepaid, at its
address appearing in the security register, stating, among other things, (i) the
purchase price and the purchase date, which will be a Business Day no earlier
than 30 days nor later than 60 days from the date such notice is mailed or such
later date as is necessary to comply with requirements under the Exchange Act;
(ii) that any Exchange Debenture not tendered will continue to accrue interest;
(iii) that, unless the Company defaults in the payment of the purchase price,
any Exchange Debenture accepted for payment pursuant to the Change of Control
Offer will cease to accrue interest after the Change of Control purchase date;
and (iv) certain other procedures that a holder of Exchange Debentures must
follow to accept a Change of Control Offer or to withdraw such acceptance.
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If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Exchange Debentures that might be tendered by holders of the Exchange
Debentures seeking to accept the Change of Control Offer. The Credit Facility
prohibits the purchase of Exchange Debentures by the Company prior to full
repayment of indebtedness under the Credit Facility and, upon a Change of
Control, all amounts outstanding under the Credit Facility become due and
payable. There can be no assurance that in the event of a Change of Control the
Company will be able to obtain the necessary consents from the lenders under the
Credit Facility to consummate a Change of Control Offer. The failure of the
Company to make or consummate the Change of Control Offer or pay the applicable
Change of Control purchase price when due would result in an Event of Default
and would give the Debentures Trustee and the holders of the Exchange Debentures
the rights described under "Events of Default."
In addition to the obligations of the Company under the Exchange Indenture
with respect to the Exchange Debentures in the event of a Change of Control, the
Credit Facility contains a provision designating a change of control as
described therein as an event of default, which would obligate the Company to
repay amounts outstanding under the Credit Facility upon an acceleration of the
indebtedness outstanding thereunder.
The existence of a holder's right to require the Company to purchase such
holder's Exchange Debentures upon a Change of Control may deter a third party
from acquiring the Company in a transaction that constitutes a Change of
Control.
The definition of "Change of Control" in the Exchange Indenture is limited
in scope. The provisions of the Exchange Indenture may not afford holders of
Exchange Debentures the right to require the Company to repurchase such Exchange
Debentures in the event of a highly leveraged transaction or certain
transactions with the Company's management or its affiliates, including a
reorganization, restructuring, merger or similar transaction involving the
Company (including, in certain circumstances, an acquisition of the Company by
management or its affiliates) that may adversely affect holders of the Exchange
Debentures, if such transaction is not a transaction defined as a Change of
Control. See "Certain Definitions" above for the definition of "Change of
Control." A transaction involving the Company's management or its affiliates, or
a transaction involving a recapitalization of the Company, would result in a
Change of Control if it is the type of transaction specified in such definition.
The Company will comply with the applicable tender offer rules including
Rule 14e-l under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create any restriction (other than restrictions existing under
Debt as in effect on the Closing Date or in refinancings or replacements of such
Debt) that would materially impair the ability of the Company to make a Change
of Control Offer to purchase the Exchange Debentures or, if such Change of
Control Offer is made, to pay for the Exchange Debentures tendered for purchase.
LIMITATION ON CERTAIN ASSET SALES. (a) The Company will not, and will not
permit any of its Restricted Subsidiaries to, engage in any Asset Sale unless
(i) the consideration received by the Company or such Restricted Subsidiary for
such Asset Sale is not less than the fair market value of the assets sold (as
determined by the Board of Directors of the Company, whose good faith
determination will be conclusive) and (ii) the consideration received by the
Company or the relevant Restricted Subsidiary in respect of such Asset Sale
consists of at least 80% (A) cash or cash equivalents and/or (B) the assumption
by the transferee of Debt of the Company or a Restricted Subsidiary ranked
senior to or pari passu with the Exchange Debentures and release of the Company
or such Restricted Subsidiary from all liability on such Debt.
(b) If the Company or any of its Restricted Subsidiaries engages in an
Asset Sale, the Company may, at its option, within 12 months after such Asset
Sale, (i) apply all or a portion of such Net Cash Proceeds to the permanent
reduction of amounts outstanding under the Credit Facility or to the repayment
of other Senior Debt or Senior Subordinated Debt of the Company or a Subsidiary
Debentures Guarantor or (ii) invest (or enter into one or more legally binding
agreements to invest) all or a portion of such Net Cash Proceeds in properties
and assets to replace the properties and assets that were the subject of the
Asset Sale or in
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properties and assets that will be used in the broadcast business or businesses
reasonably related thereto. If any such legally binding agreement to invest such
Net Cash Proceeds is terminated, the Company may, within 90 days of such
termination or within 12 months of such Asset Sale, whichever is later, invest
such Net Cash Proceeds as provided in clause (i) or (ii) (without regard to the
parenthetical contained in such clause (ii)) above. The amount of such Net Cash
Proceeds not so used as set forth above in this paragraph (b) constitutes
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5,000,000, the
Company will, within 30 days thereafter, make an offer to purchase from all
holders of Exchange Debentures, on a pro rata basis, in accordance with the
procedures set forth in the Exchange Indenture, the maximum principal amount
(expressed as a multiple of $1,000) of Exchange Debentures that may be purchased
with the Excess Proceeds, at a purchase price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
such offer to purchase is consummated. To the extent that the aggregate
principal amount of the Exchange Debentures tendered pursuant to such offer to
purchase is less than the Excess Proceeds, the Company may use such deficiency
for general corporate purposes. If the aggregate principal amount of the
Exchange Debentures validly tendered and not withdrawn by holders thereof
exceeds the Excess Proceeds, the Exchange Debentures to be purchased will be
selected on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds will be reset to zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act to the extent applicable in connection with the repurchase of
Exchange Debentures pursuant to an offer to purchase Exchange Debentures.
LIMITATION ON ASSET SWAPS. The Exchange Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
engage in any Asset Swap, unless:
(i) at the time of entering into the Asset Swap and immediately after
giving effect to the proposed Asset Swap, no Default or Event of Default
has occurred and is continuing or would occur as a consequence thereof;
(ii) the Company would, at the time of entering into the Asset Swap
and after giving pro forma effect to the proposed Asset Swap, as if such
Asset Swap had occurred at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional Debt
(other than Permitted Debt) pursuant to the first paragraph of the
"Limitation on Debt" covenant;
(iii) the respective aggregate fair market values of the assets being
purchased and sold by the Company or any of its Restricted Subsidiaries are
substantially the same at the time of entering into the Asset Swap (or any
difference in such aggregate fair market values is substantially
compensated for by an equalizing (i) payment of cash, (ii) assumption of
liabilities or (iii) taking of assets subject to liabilities); and
(iv) at the time of the consummation of the first to occur of the
relinquishment or the replacement of assets constituting part of the
proposed Asset Swap, the percentage of any decline in the fair market value
of the asset or assets being acquired by the Company and its Restricted
Subsidiaries shall not be significantly greater than the percentage of any
decline in the fair market value of the assets being disposed of by the
Company, calculated from the time the last agreement constituting part of
the Asset Swap, was entered into.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or suffer to exist any transaction with, or for the benefit of, any
Affiliate of the Company unless (a) such transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than those that could have been obtained in an arm's length transaction with
third parties who are not Affiliates and (b) either (i) with respect to any
transaction or series of transactions involving aggregate payments in excess of
$1,000,000, but less than $5,000,000, the Company delivers an officers'
certificate to the Debentures Trustee certifying that such transaction or
transactions comply with clause (a) above or (ii) with respect to a transaction
or series of transactions involving aggregate payments equal to or greater than
$5,000,000, such transaction or transactions
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have been approved by the Board of Directors (including a majority of the
Disinterested Directors) of the Company or the Company has obtained a written
opinion from a nationally recognized investment banking firm to the effect that
such transaction or transactions are fair to the Company or such Restricted
Subsidiary from a financial point of view.
The foregoing covenant does not restrict any of the following:
(A) Transactions among the Company and/or any of its Restricted
Subsidiaries.
(B) The Company from paying reasonable and customary regular
compensation, fees, indemnification and similar arrangements and payments
thereunder to directors of the Company or any of its Restricted
Subsidiaries who are not employees of the Company or any of its Restricted
Subsidiaries.
(C) Employment agreements or compensation or employee benefits
arrangements with any officer, director or employee of the Company or its
Restricted Subsidiaries entered into in the ordinary course of business
(including customary benefits thereunder) (it being understood that
benefits of the nature in place as of the Closing Date shall be deemed
permissible hereunder).
(D) The performance of the Company's obligations under (a) that
certain lease agreement effective December 29, 1995 with Wilson Aviation,
L.L.C. relating to the lease of an airplane, (b) that certain agreement not
to compete dated December 31, 1996 with DVS Management, Inc. and (c) that
certain Voting Trust Agreement dated March 17, 1997 among Citadel
Communications, ABRY II, ABRY/CIP and others and the related letter
agreement dated March 17, 1997 among Citadel Communications, ABRY II,
ABRY/CIP and others (the "Affiliate Agreements"); provided that any
amendments or modifications to the terms of the Affiliate Agreements (1)
are no less favorable to the Company than those that could have been
obtained in an arm's length transaction with third parties who are not
Affiliates and (2) are approved by the Board of Directors (including a
majority of the Disinterested Directors) of the Company.
(E) The Company from making payments to Citadel Communications to pay
its operating and administrative expenses attributable to the Company
including, without limitation, legal and audit expenses, directors' fees
and Commission compliance expenses, in an amount not to exceed the greater
of $1,000,000 per fiscal year and 1% of the net revenues of the Company for
the preceding fiscal year.
(F) The Company or a Restricted Subsidiary from transferring up to
$500,000 of properties and assets, including cash, to a joint venture in
which the Company or a Restricted Subsidiary has an equity interest and in
which one or more directors or officers of the Company or Citadel
Communications has an equity interest, which joint venture is engaged in
the internet service provider business.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any of its Restricted Subsidiaries to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock, (b) pay any Debt owed to the Company or any other Restricted
Subsidiary, (c) make loans or advances to the Company or any other Restricted
Subsidiary or (d) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of any of the following:
(i) The Credit Facility and any agreement in effect on the Closing
Date.
(ii) Customary non-assignment provisions of any lease governing a
leasehold interest of the Company or any of its Restricted Subsidiaries.
(iii) The refinancing or successive refinancings of Debt referred to
in clause (i) or (iv), so long as such encumbrances or restrictions are no
less favorable to the Company or any of its Restricted Subsidiaries than
those contained in such original agreement.
(iv) Any agreement or other instrument of a person acquired by the
Company or any of its Restricted Subsidiaries in existence at the time of
such acquisition (but not created in contemplation
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thereof), which encumbrance or restriction is not applicable to any person,
or the properties or assets of any person, other than the person, or the
property or assets of the person, so acquired.
(v) Any agreement providing for the incurrence of Debt by a Restricted
Subsidiary pursuant to paragraph (b) of the "Limitation on Debt" covenant,
provided that such Restricted Subsidiary becomes a Subsidiary Debentures
Guarantor.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company will not sell, and will not permit any of its
Restricted Subsidiaries, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants, or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Wholly Owned Restricted Subsidiary, (ii) issuances or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law, or issuances or sales to directors of directors'
qualifying shares, (iii) if, immediately after giving effect to such issuance or
sale, neither the Company nor any Subsidiary owns any shares of Capital Stock of
such Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) or (iv) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such person remaining
after giving effect to such issuance or sale would have been permitted to be
made under the "Limitation on Restricted Payments" covenant if made on the date
of such issuance or sale.
In addition, the Company will not, and will not permit any of its
Restricted Subsidiaries to, sell, transfer or otherwise dispose of any of its
properties or assets to an Unrestricted Subsidiary other than in the ordinary
course of business.
UNRESTRICTED SUBSIDIARIES. (a) The Board of Directors of the Company may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither the Company
nor any of its Restricted Subsidiaries is directly or indirectly liable for any
Debt of such Subsidiary, (ii) no default with respect to any Debt of such
Subsidiary would permit (upon notice, lapse of time or otherwise) any holder of
any other Debt of the Company or any of its Restricted Subsidiaries to declare a
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its stated maturity, (iii) any Investment in such Subsidiary
made as a result of designating such Subsidiary an Unrestricted Subsidiary will
not violate the provisions of the "Limitation on Restricted Payments" covenant,
(iv) neither the Company nor any of its Restricted Subsidiaries has a contract,
agreement, arrangement, understanding or obligation of any kind, whether written
or oral, with such Subsidiary other than those that might be obtained at the
time from persons who are not Affiliates of the Company and (v) neither the
Company nor any of its Restricted Subsidiaries has any obligation to subscribe
for additional shares of Capital Stock or other equity interest in such
Subsidiary, or to maintain or preserve such Subsidiary's financial condition or
to cause such Subsidiary to achieve certain levels of operating results.
Notwithstanding the foregoing, the Company may not designate the License
Subsidiary, or any Subsidiary to which any properties or assets (other than
current assets) owned by the Company or the License Subsidiary on the Closing
Date have been transferred, as an Unrestricted Subsidiary.
(b) The Board of Directors of the Company may designate any of its
Unrestricted Subsidiaries as a Restricted Subsidiary; provided that such
designation will be deemed to be an incurrence of Debt by a Restricted
Subsidiary of any outstanding Debt of such Unrestricted Subsidiary and such
designation will only be permitted if (i) such Debt is permitted under the
"Limitation on Debt" covenant and (ii) no Default or Event of Default will have
occurred and be continuing following such designation.
LIMITATION ON OTHER SUBORDINATED DEBT. The Company and each Subsidiary
Debentures Guarantor will not, directly or indirectly, incur or otherwise permit
to exist any Debt that is subordinate in right of payment to any Senior
Subordinated Debt of the Company or such Subsidiary Debentures Guarantor, as the
case may be, unless such Debt is also pari passu with the Exchange Debentures or
the Subsidiary Debentures Guarantee of the Exchange Debentures by such
Subsidiary Debentures Guarantor, as the case may be, or subordinate in right of
payment to the Exchange Debentures or such Subsidiary Debentures Guarantee of
the Exchange Debentures, as the case may be, to at least the same extent as the
Exchange Debentures or such Subsidiary Debentures Guarantee are subordinate in
right of payment to Senior Subordinated Debt or all senior
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subordinated debt of the Subsidiary Debentures Guarantors, as the case may be,
as set forth in the Exchange Indenture.
SUBSIDIARY DEBENTURES GUARANTEES. The Subsidiary Debentures Guarantors
will, jointly and severally, unconditionally guarantee the due and punctual
payment of the principal of, premium, if any, and interest on the Exchange
Debentures on a subordinated basis pursuant to the Subsidiary Debentures
Guarantees as described under "-- Subordination." The Subsidiary Debentures
Guarantors may be released from their obligations under the Subsidiary
Debentures Guarantees as described under "-- Defeasance and Covenant Defeasance
of the Exchange Indenture" and a Subsidiary Debentures Guarantor may be released
from its obligations under its Subsidiary Debentures Guarantee as described
under "Guarantees."
The Company will (i) cause each person that, after the Closing Date,
becomes a Wholly Owned Restricted Subsidiary of the Company, as well as each
other Restricted Subsidiary that guarantees any other Debt of the Company, to
execute and deliver a supplemental indenture and thereby become a Subsidiary
Debentures Guarantor bound by the Subsidiary Debentures Guarantee of the
Exchange Debentures in the form set forth in the Exchange Indenture (without
such Subsidiary Debentures Guarantor being required to execute and deliver its
Subsidiary Debentures Guarantee endorsed on the Exchange Debentures) and (ii)
deliver to the Debentures Trustee an opinion of counsel, in form and substance
reasonably satisfactory to the Debentures Trustee, that the Subsidiary
Debentures Guarantee of such Subsidiary Debentures Guarantor is a valid and
legally binding obligation of such Subsidiary Debentures Guarantor.
GUARANTEES OF DEBT BY RESTRICTED SUBSIDIARIES. The Company will not permit
any of its Restricted Subsidiaries that is not a Subsidiary Debentures
Guarantor, directly or indirectly, to guarantee, assume or in any other manner
become liable for the payment of any Debt of the Company or any Debt of any
other Restricted Subsidiary, unless (a) such Restricted Subsidiary
simultaneously executes and delivers a Subsidiary Debentures Guarantee and (b)
with respect to any guarantee of Junior Subordinated Debt by a Restricted
Subsidiary, any such guarantee is subordinated to such Restricted Subsidiary's
Subsidiary Debentures Guarantee at least to the same extent as such Junior
Subordinated Debt is subordinated to the Exchange Debentures, provided that the
foregoing provision will not be applicable to any guarantee by any such
Restricted Subsidiary that existed at the time such person became a Restricted
Subsidiary and was not incurred in connection with, or in contemplation of, such
person becoming a Restricted Subsidiary.
LIMITATION ON LIENS. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, affirm or suffer to exist any Lien of
any kind securing any Pari Passu Debt or Junior Subordinated Debt (including any
assumption, guarantee or other liability with respect thereto by any Restricted
Subsidiary) upon any property or assets (including any intercompany notes) of
the Company or any of its Restricted Subsidiaries now owned or acquired after
the Closing Date, or any income or profits therefrom, unless the Exchange
Debentures are directly secured equally and ratably with (or prior to in the
case of Junior Subordinated Debt) the obligation or liability secured by such
Lien; provided that the foregoing will not apply to Liens securing Debt of a
person acquired by the Company or any of its Restricted Subsidiaries in
existence at the time of such acquisition (but not created in contemplation
thereof), which Lien is not applicable to any person, or the properties or
assets of any person, other than the person, or the property or assets of the
person, so acquired.
REPORTS. At all times while the Exchange Debentures are issued and
outstanding, whether or not the Company is then required to file reports with
the Commission, the Company will file with the Commission all such reports and
other information as it would be required to file with the Commission by
Sections 13(a) or 15(d) under the Exchange Act if it were subject thereto. The
Company will supply the Debentures Trustee and each holder, or will supply to
the Debentures Trustee for forwarding to each such holder, without cost to such
holder, copies of such reports and other information.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with or merge with or into any other
person or, directly or indirectly, convey, transfer or lease its properties and
assets substantially as an entirety to any person or persons, unless:
(a) Either (i) the Company is the surviving corporation or (ii) the
person (if other than the Company) formed by such consolidation or into
which the Company is merged or the person that acquires by sale,
assignment, transfer, lease or other disposition of the properties and
assets of the Company substantially as an entirety (the "Surviving Entity")
(A) is a corporation, partnership or trust organized and validly existing
under the laws of the United States, any state thereof or the District of
Columbia and (B) expressly assumes, by a supplemental indenture in form
satisfactory to the Debentures Trustee, all of the Company's obligations
under the Exchange Indenture and the Exchange Debentures.
(b) Immediately after giving effect to such transaction and treating
any obligation of the Company or a Restricted Subsidiary in connection with
or as a result of such transaction as having been incurred at the time of
such transaction, no Default or Event of Default has occurred and is
continuing.
(c) Immediately after giving effect to such transaction on a pro forma
basis (on the assumption that the transaction occurred at the beginning of
the most recently ended four full fiscal quarter period for which internal
financial statements are available), the Company (or the Surviving Entity
if the Company is not the continuing obligor under the Exchange Indenture)
could incur at least $1.00 of additional Debt (other than Permitted Debt)
pursuant to the first paragraph of the "Limitation on Debt" covenant.
(d) If the Company is not the continuing obligor under the Exchange
Indenture, each Subsidiary Debentures Guarantor, unless it is the other
party to the transaction described above, has by supplemental indenture
confirmed that its Subsidiary Debentures Guarantee applies to the Surviving
Entity's obligations under the Exchange Indenture and the Exchange
Debentures.
(e) If any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of the "Limitation on Liens" covenant are complied with.
(f) The Company delivers, or causes to be delivered, to the Debentures
Trustee, in form and substance reasonably satisfactory to the Debentures
Trustee, an officers' certificate and an opinion of counsel, each stating
that such transaction complies with the requirements of the Exchange
Indenture.
In the event of any transaction described in and complying with the
conditions listed in the first paragraph of this covenant in which the Company
is not the continuing obligor under the Exchange Indenture, the Surviving Entity
will succeed to, and be substituted for, and may exercise every right and power
of, the Company under the Exchange Indenture, and thereafter the Company will,
except in the case of a lease, be discharged from all its obligations and
covenants under the Exchange Indenture and Exchange Debentures.
EVENTS OF DEFAULT
Each of the following are "Events of Default" under the Exchange Indenture:
(a) Default in the payment of any interest on any Exchange Debenture
when it becomes due and payable, and continuance of such default for a
period of 30 days.
(b) Default in the payment of the principal of (or premium, if any,
on) any Exchange Debenture when due.
(c) Failure to perform or comply with the Exchange Indenture
provisions described under "Consolidation, Merger and Sale of Assets."
(d) Default in the performance, or breach, of any covenant or
agreement of the Company or any Subsidiary Debentures Guarantor contained
in the Exchange Indenture or any Subsidiary Debentures Guarantee (other
than a default in the performance, or breach, of a covenant or agreement
that is specifically dealt with elsewhere herein), and continuance of such
default or breach for a period of 60
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days after written notice has been given to the Company by the Debentures
Trustee or to the Company and the Debentures Trustee by the holders of at
least 25% in aggregate principal amount of the Exchange Debentures then
outstanding.
(e) (i) An event of default has occurred under any mortgage, bond,
indenture, loan agreement or other document evidencing an issue of Debt of
the Company or any Significant Subsidiary, which issue has an aggregate
outstanding principal amount of not less than $5,000,000, and such default
has resulted in such Debt becoming, whether by declaration or otherwise,
due and payable prior to the date on which it would otherwise become due
and payable or (ii) a default in any payment when due at final maturity of
any such Debt.
(f) Failure by the Company or any of its Restricted Subsidiaries to
pay one or more final judgments the uninsured portion of which exceeds in
the aggregate $5,000,000, which judgment or judgments are not paid,
discharged or stayed for a period of 60 days.
(g) Any Subsidiary Debentures Guarantee ceases to be in full force and
effect or is declared null and void or any Subsidiary Debentures Guarantor
denies that it has any further liability under any Subsidiary Debentures
Guarantee, or gives notice to such effect (other than by reason of the
termination of the Exchange Indenture or the release of any Subsidiary
Debentures Guarantee in accordance with the Exchange Indenture), and such
condition has continued for a period of 30 days after written notice of
such failure requiring the Subsidiary Debentures Guarantor and the Company
to remedy the same has been given (x) to the Company by the Debentures
Trustee or (y) to the Company and the Debentures Trustee by the holders of
25% in the aggregate principal amount of the Exchange Debentures then
outstanding.
(h) The occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
If an Event of Default (other than as specified in clause (h) above) occurs
and is continuing, the Debentures Trustee or the holders of not less than 25% in
aggregate principal amount of the Exchange Debentures then outstanding may, and
the Debentures Trustee at the request of such holders shall, declare the
principal of all of the outstanding Exchange Debentures immediately due and
payable, by a notice in writing to the Company (and to the Debentures Trustee if
given by the Holders) and, if the Credit Facility is in effect, to the Credit
Facility Agent, and, upon any such declaration, such principal will become due
and payable immediately. If an Event of Default specified in clause (h) above
occurs and is continuing, then such principal will ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Debentures Trustee or any holder of Exchange Debentures.
At any time after a declaration of acceleration under the Exchange
Indenture, but before a judgment or decree for payment of the money due has been
obtained by the Debentures Trustee, the holders of a majority in aggregate
principal amount of the outstanding Exchange Debentures, by written notice to
the Company and the Debentures Trustee, may rescind such declaration and its
consequences if (i) the Company has paid or deposited with the Debentures
Trustee a sum sufficient to pay (A) all overdue interest on all Exchange
Debentures, (B) all unpaid principal of (and premium, if any, on) any
outstanding Exchange Debentures that has become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Exchange Debentures, (C) to the extent that payment of such interest is lawful,
interest upon overdue interest and overdue principal amount at the rate borne by
the Exchange Debentures and (D) all sums paid or advanced by the Debentures
Trustee under the Exchange Indenture and the reasonable compensation, expenses,
disbursements and advances of the Debentures Trustee, its agents and counsel;
and (ii) all Events of Default, other than the non-payment of principal of (or
premium, if any, on) or interest on the Exchange Debentures that have become due
solely by such declaration of acceleration, have been cured or waived. No such
rescission will affect any subsequent default or impair any right consequent
thereon.
The holders of not less than a majority in aggregate principal amount of
the outstanding Exchange Debentures may, on behalf of the holders of all of the
Exchange Debentures, waive any past defaults under the Exchange Indenture,
except a default in the payment of the principal of (and premium, if any) or
interest on
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any Exchange Debenture, or in respect of a covenant or provision that under the
Exchange Indenture cannot be modified or amended without the consent of the
holder of each Exchange Debenture outstanding.
If a Default or an Event of Default occurs and is continuing and is known
to the Debentures Trustee, the Debentures Trustee will mail to each holder of
the Exchange Debentures notice of the Default or Event of Default within 90 days
after the occurrence thereof. Except in the case of a Default or an Event of
Default in payment of principal of (and premium, if any, on) or interest on any
Exchange Debentures, the Debentures Trustee may withhold the notice to the
holders of the Exchange Debentures if a committee of its trust officers in good
faith determines that withholding such notice is in the interests of the holders
of the Exchange Debentures.
The Company is required to furnish to the Debentures Trustee annual
statements as to the performance by the Company and the Subsidiary Debentures
Guarantors of their respective obligations under the Exchange Indenture and as
to any default in such performance. The Company is also required to notify the
Debentures Trustee within five days of any officer of the Company having
knowledge of any Default.
DEFEASANCE OR COVENANT DEFEASANCE OF EXCHANGE INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company and any Subsidiary Debentures Guarantors with respect to the
outstanding Exchange Debentures ("defeasance"). Such defeasance means that the
Company will be deemed to have paid and discharged the entire Debt represented
by the outstanding Exchange Debentures, except for (i) the rights of holders of
outstanding Exchange Debentures to receive payments in respect of the principal
of (and premium, if any, on) and interest on such Exchange Debentures when such
payments are due, (ii) the Company's obligations to issue temporary Exchange
Debentures, register the transfer or exchange of any Exchange Debentures,
replace mutilated, destroyed, lost or stolen Exchange Debentures, maintain an
office or agency for payments in respect of the Exchange Debentures and
segregate and hold such payments in trust, (iii) the rights, powers, trusts,
duties and immunities of the Debentures Trustee and (iv) the defeasance
provisions of the Exchange Indenture. In addition, the Company may, at its
option and at any time, elect to terminate the obligations of the Company and
any Subsidiary Debentures Guarantor with respect to certain covenants set forth
in the Exchange Indenture and described under "-- Certain Covenants" above, and
any omission to comply with such obligations would not constitute a Default or
an Event of Default with respect to the Exchange Debentures ("covenant
defeasance").
In order to exercise either defeasance or covenant defeasance, (a) the
Company must irrevocably deposit or cause to be deposited with the Debentures
Trustee, as trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the holders of the Exchange Debentures,
money in an amount, or U.S. government securities that through the scheduled
payment of principal and interest thereon will provide money in an amount, or a
combination thereof, sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay and discharge the principal of (and
premium, if any, on) and interest on the outstanding Exchange Debentures at
maturity (or upon redemption, if applicable) of such principal or installment of
interest; (b) no Default or Event of Default has occurred and is continuing on
the date of such deposit or, insofar as an event of bankruptcy under clause (h)
of "Events of Default" above is concerned, at any time during the period ending
on the 91st day after the date of such deposit; (c) such defeasance or covenant
defeasance must not result in a breach or violation of, or constitute a default
under, the Exchange Indenture or any material agreement or instrument to which
the Company or any Subsidiary Debentures Guarantor is a party or by which it is
bound or cause the Debentures Trustee or the trust so created to be subject to
the Investment Company Act of 1940, as amended; (d) in the case of defeasance,
the Company must deliver to the Debentures Trustee an opinion of counsel stating
that the Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or since the date hereof, there has been a change in
applicable federal income tax law, to the effect, and based thereon such opinion
must confirm that, the holders of the outstanding Exchange Debentures will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred; (e) in the case of covenant defeasance, the Company
must have delivered to the Debentures Trustee an opinion of
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counsel to the effect that the holders of the Exchange Debentures outstanding
will not recognize income, gain or loss for federal income tax purposes as a
result of such covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred; and (f) the Company must
have delivered to the Debentures Trustee an officers' certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
either the defeasance or the covenant defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Exchange Indenture will cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of the Exchange
Debentures, as expressly provided for in the Exchange Indenture) and, upon the
request of the Company, the Debentures Trustee, at the expense of the Company,
will execute proper instruments acknowledging satisfaction and discharge of the
Exchange Indenture when (a) either (i) all the Exchange Debentures theretofore
authenticated and delivered (other than destroyed, lost or stolen Exchange
Debentures that have been replaced or paid and Exchange Debentures that have
been subject to defeasance as described under "Defeasance or Covenant Defeasance
of Exchange Indenture") have been delivered to the Debentures Trustee for
cancellation or (ii) all Exchange Debentures not theretofore delivered to the
Debentures Trustee for cancellation (A) have become due and payable, (B) will
become due and payable at Stated Maturity within one year or (C) are to be
called for redemption within one year under arrangements satisfactory to the
Debentures Trustee for the giving of notice of redemption by the Debentures
Trustee in the name, and at the expense, of the Company, and the Company has
irrevocably deposited or caused to be deposited with the Debentures Trustee
funds in trust for the purpose in an amount sufficient to pay and discharge the
entire Debt on such Exchange Debentures not theretofore delivered to the
Debentures Trustee for cancellation, for principal (and premium, if any, on) and
interest to the date of such deposit (in the case of Exchange Debentures that
have become due and payable) or to the Stated Maturity or Redemption Date, as
the case may be; (b) the Company has paid or caused to be paid all sums payable
under the Exchange Indenture by the Company; and (c) the Company has delivered
to the Debentures Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided in the Exchange Indenture
relating to the satisfaction and discharge of the Exchange Indenture have been
complied with.
AMENDMENTS AND WAIVERS
Modifications and amendments of the Exchange Indenture and any Subsidiary
Debentures Guarantee may be made by the Company, any affected Subsidiary
Debentures Guarantor and the Debentures Trustee with the consent of the holders
of a majority in aggregate outstanding principal amount of the Exchange
Debentures; provided, however, that no such modification or amendment may,
without the consent of the holder of each outstanding Exchange Debenture
affected thereby,
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Exchange Debenture, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the place of payment where or change the coin
or currency in which, any Exchange Debenture or any premium or interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date);
(b) reduce the percentage in principal amount of outstanding Exchange
Debentures, the consent of whose holders is required for any such amendment
or for any waiver of compliance with certain provisions of, or certain
defaults and their consequences provided for under, the Exchange Indenture;
(c) modify any of the provisions of the Exchange Indenture relating to
the subordination of the Exchange Debentures or the Subsidiary Debentures
Guarantees in a manner materially adverse to the holders; or
(d) waive a default in the payment of principal of, or premium, if
any, or interest on the Exchange Debentures or reduce the percentage or
aggregate principal amount of outstanding Exchange Debentures
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the consent of whose holders is necessary for waiver of compliance with
certain provisions of the Exchange Indenture or for waiver of certain
defaults.
The holders of a majority in aggregate principal amount of the Exchange
Debentures outstanding may waive compliance with certain restrictive covenants
and provisions of the Exchange Indenture.
Without the consent of any holders, the Company and the Debentures Trustee,
at any time and from time to time, may enter into one or more indentures
supplemental to the Exchange Indenture for any of the following purposes: (1) to
evidence the succession of another person to the Company and the assumption by
any such successor of the covenants of the Company in the Exchange Indenture and
in the Exchange Debentures; or (2) to add to the covenants of the Company for
the benefit of the holders, or to surrender any right or power herein conferred
upon the Company; or (3) to add additional Events of Default; or (4) to provide
for uncertificated Exchange Debentures in addition to or in place of the
certificated Exchange Debentures; or (5) to evidence and provide for the
acceptance of appointment under the Exchange Indenture by a successor Debentures
Trustee; or (6) to secure the Exchange Debentures; or (7) to cure any ambiguity,
to correct or supplement any provision in the Exchange Indenture that may be
defective or inconsistent with any other provision in the Exchange Indenture, or
to make any other provisions with respect to matters or questions arising under
the Exchange Indenture, provided that such actions pursuant to this clause do
not adversely affect the interests of the holders in any material respect; or
(8) to comply with any requirements of the Commission in order to effect and
maintain the qualification of the Exchange Indenture under the Trust Indenture
Act.
THE DEBENTURES TRUSTEE
The Bank of New York is the Debentures Trustee under the Exchange
Indenture. The Bank of New York is a lender under the Credit Facility.
The Exchange Indenture provides that, except during the continuance of an
Event of Default, the Debentures Trustee will perform only such duties as are
specifically set forth in the Exchange Indenture. Under the Exchange Indenture,
the holders of a majority in outstanding principal amount of the Exchange
Debentures will have the right to direct the time, method and place of
conducting any proceeding or exercising any remedy available to the Debentures
Trustee, subject to certain exceptions. If an Event of Default has occurred and
is continuing, the Debentures Trustee will exercise such rights and powers
vested in it under the Exchange Indenture and use the same degree of care and
skill in its exercise as a prudent person would exercise under the circumstances
in the conduct of such person's own affairs.
The Exchange Indenture and provisions of the Trust Indenture Act
incorporated by reference therein, contain limitations on the rights of the
Debentures Trustee thereunder, should it become a creditor of the Company, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or otherwise. The
Debentures Trustee is permitted to engage in other transactions; provided,
however, that, if it acquires any conflicting interest (as defined), it must
eliminate such conflict or else resign.
GOVERNING LAW
The Exchange Indenture is, and the Exchange Debentures and the Subsidiary
Debentures Guarantees will be, governed by, and construed in accordance with,
the laws of the State of New York.
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DESCRIPTION OF OTHER CAPITAL STOCK
The following summarizes certain provisions of the Company's Certificate of
Incorporation, the Company's Bylaws and certain provisions of the Nevada General
Corporation Law (the "NGCL"). Such summaries do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all of the
provisions of the Company's Certificate of Incorporation and Bylaws and the
NGCL, including the definitions therein of certain terms.
GENERAL
The authorized capital stock of the Company consists of 136,300 shares of
common stock, par value $0.001 per share, of which all outstanding shares are
owned by Citadel Communications, and, 4,000,000 shares of preferred stock, no
par value, of which 2,000,000 shares have been designated as 13 1/4% Series A
Exchangeable Preferred Stock and 2,000,000 shares have been designated as Series
B Exchangeable Preferred Stock. The only preferred stock currently outstanding
are 1,000,000 shares of Series A Exchangeable Preferred Stock, and it is
anticipated that the 65,514 Series A Dividend Shares will be issued and
outstanding as of January 1, 1998. See "Description of Exchangeable Preferred
Stock and Exchange Debentures." Certain of the rights and provisions summarized
below are limited or modified by the Securities Purchase and Exchange Agreement,
the Stockholders Agreement and the Voting Agreement. See "Management -- Board
Composition and Governance Matters" and "-- Compensation Committee Interlocks
and Insider Participation."
Holders of the Company's common stock are entitled to one vote for each
share held of record on all matters to be submitted to a vote of the
shareholders. The Company's Certificate of Incorporation does not provide for
cumulative voting for the election of directors. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors of the Company out of funds legally available
therefor. The holders of common stock have no preemptive or other subscription
rights, and there are no conversion rights or redemption or sinking fund
provisions with respect to the common stock. All outstanding shares of common
stock are fully paid and nonassessable. In the event of any liquidation,
dissolution or winding-up of the affairs of the Company, holders of common stock
will be entitled to share ratably in the assets of the Company available for
distribution after payment in full of creditors and holders of the preferred
stock of the Company.
ANTI-TAKEOVER EFFECTS OF CERTAIN AGREEMENTS
The Company and/or Citadel Communications are party to certain agreements
which may be deemed to have anti-takeover effects. These agreements may have the
effect of discouraging a future takeover attempt which is not approved by the
Company and/or the Citadel Communications Board of Directors, but which
individual shareholders may deem to be in their best interests or in which
shareholders may receive a substantial premium for their shares over
then-current market prices. As a result, shareholders who might desire to
participate in such a transaction may not have an opportunity to do so. Such
agreements will also render the removal of the current Board of Directors of the
Company and/or Citadel Communications more difficult.
The Voting Agreement gives certain parties the right to designate the
directors of the Company and Citadel Communications, and provides that creation
of committees of the Board of Directors of either the Company or Citadel
Communications must be approved by a majority of the members of the Citadel
Communications Board. See "Management -- Board Composition and Governance
Matters."
Pursuant to the Stockholders Agreement, certain stockholders of Citadel
Communications have preemptive rights with respect to shares of capital stock of
the Company and Citadel Communications. See "Management -- Compensation
Committee Interlocks and Insider Participation."
FOREIGN OWNERSHIP
The Company's Certificate of Incorporation permits restriction on the
ownership, voting and transfer of the Company's capital stock in accordance with
the Communications Act and the rules of the FCC, to prohibit ownership of more
than 20% of the Company's outstanding capital stock (or more than 20% of the
voting rights it represents) by or for the account of aliens or corporations
otherwise subject to domination or
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control by aliens. See "Business -- Federal Regulation of Radio Broadcasting."
The Certificate of Incorporation also authorizes the Company's Board to prohibit
any transfer of the Company's capital stock that would cause the Company to
violate this prohibition. The Company's Board of Directors may also prohibit the
ownership, voting or transfer of any portion of its outstanding capital stock to
the extent the ownership, voting or transfer of such portion would cause the
Company to violate, or would otherwise result in violation of, any provision of
the Communications Act or the rules, regulations and policies promulgated by the
FCC under the Communications Act. No shareholders may exercise any voting rights
the result of which would cause the Company to be in violation of the rules,
regulations, or policies of the FCC.
NEVADA GENERAL CORPORATION LAW
Under certain circumstances, the following provisions of the NGCL may delay
or make more difficult acquisitions or changes of control of the Company and may
make it more difficult to accomplish transactions that shareholders may
otherwise believe to be in their best interests. Such provisions may also have
the effect of preventing changes in the Company's management. The Company's
Certificate of Incorporation and Bylaws do not exclude it from these provisions
of the NGCL. However, since it is anticipated that the Company will have fewer
than 200 shareholders after giving effect to the Offerings, these provisions of
the NGCL will not apply to the Company immediately after the Offerings.
CONTROL SHARE ACQUISITIONS. Under Sections 78.378 to 78.3793 of the NGCL
(the "Control Share Act"), an "acquiring person," who acquires a "controlling
interest" in an "issuing corporation" may not exercise voting rights on any
"control shares" unless such voting rights are conferred by a majority vote of
the disinterested shareholders of the issuing corporation at an annual meeting
or at a special meeting of such shareholders held upon the request and at the
expense of the acquiring person. If the control shares are accorded full voting
rights and the acquiring person acquires control shares with a majority or more
of all the voting power, any shareholder, other than the acquiring person, who
does not vote for authorizing voting rights for the control shares, is entitled
to demand payment for the fair value of their shares, and the corporation must
comply with the demand. For the above provisions, "acquiring person" means
(subject to certain exceptions) any person who, individually or in association
with others, acquires or offers to acquire, directly or indirectly, a
controlling interest in an issuing corporation. "Controlling interest" means the
ownership of outstanding voting shares of an issuing corporation sufficient to
enable the acquiring person, individually or in association with others,
directly or indirectly, to exercise (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, and/or (iii) a
majority or more of the voting power of the issuing corporation in the election
of directors. Voting rights must be conferred by a majority of the disinterested
shareholders as each threshold is reached and/or exceeded. "Control Shares"
means those outstanding voting shares of an issuing corporation which an
acquiring person (1) acquires or offers to acquire in an acquisition or (2)
acquires within 90 days immediately preceding the date when the acquiring person
became an acquiring person. "Issuing corporation" means a corporation that is
organized in Nevada, has 200 or more shareholders (at least 100 of whom are
shareholders of record and residents of Nevada) and does business in Nevada
directly or though an affiliated corporation. The above does not apply if the
articles of incorporation or bylaws of the corporation in effect on the 10th day
following the acquisition of a controlling interest by an acquiring person
provide that said provisions do not apply. The Company's Certificate of
Incorporation and Bylaws do not exclude it from the restrictions imposed by such
provisions.
CERTAIN BUSINESS COMBINATIONS. Sections 78.411 to 78.444 of the NGCL (the
"Business Combinations Act") restrict the ability of a "resident domestic
corporation" to engage in any combination with an "interested stockholder" for
three years following the interested stockholder's date of acquiring the shares
that cause such stockholder to become an interested stockholder, unless the
combination or the purchase of shares by the interested stockholder on the
interested stockholder's date of acquiring the shares that cause such
stockholder to become an interested stockholder is approved by the board of
directors of the resident domestic corporation before that date. If the
combination was not previously approved, the interested stockholder may effect a
combination after the three-year period only if such stockholder receives
approval from a majority of the disinterested shares or the offer meets certain
fair price criteria. For the above provisions, "resident domestic corporation"
means a Nevada corporation that has 200 or more shareholders. The provisions of
the Business Combinations Act do not apply to any combination of a resident
domestic corporation which does
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not, as of the date of acquiring shares, have a class of voting shares
registered with the Commission under Section 12 of the Exchange Act, unless the
corporation's articles of incorporation provide otherwise. "Interested
stockholder," when used in reference to any resident domestic corporation, means
any person, or its subsidiaries, who is (i) the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the outstanding voting shares
of the resident domestic corporation or (ii) an affiliate or associate of the
resident domestic corporation and, at any time within three years immediately
before the date in question, was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then outstanding shares of the
resident domestic corporation. The above does not apply to corporations that so
elect in a charter amendment approved by a majority of the disinterested shares.
Such a charter amendment, however, would not become effective for 18 months
after its passage and would apply only to stock acquisitions occurring after its
effective date. The Company's Certificate of Incorporation does not exclude it
from the restrictions imposed by such provisions.
DIRECTORS' DUTIES. Section 78.138 of the NGCL allows directors and
officers, in exercising their respective powers to further the interests of the
corporation, to consider the interests of the corporation's employees,
suppliers, creditors and customers. They can also consider the economy of the
state and the nation; the interests of the community and of society and the long
and short-term interests of the corporation and its shareholders, including the
possibility that these interests may be best served by the continued
independence of the corporation. Directors may resist a change or potential
change in control if the directors, by a majority vote of a quorum, determine
that the change or potential change is opposed to or not in the best interest of
the corporation. In so determining, the board of directors may consider the
interests described above or have reasonable grounds to believe that, within a
reasonable time, the debt created as a result of the change in control would
cause the assets of the corporation or any successor to be less than the
liabilities or would render the corporation or any successor insolvent or lead
to bankruptcy proceedings.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary discusses the material federal income tax
consequences of the purchase, holding and disposition of the Notes and the
Exchangeable Preferred Stock (the "Securities") by U.S. holders who hold such
Securities as capital assets. A U.S. holder is a beneficial owner of a Security
that is a citizen or resident of the United States or any state thereof, a
corporation or other entity created or organized under the laws of the United
States or any political subdivision thereof, an estate the income of which is
subject to United States federal income tax regardless of source, or a trust
with respect to which a court within the United States is able to exercise
primary supervision over its administration and one or more United States
fiduciaries have the authority to control all its substantial decisions. The
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change at any time by legislative, judicial or administrative action. Any such
change may be applied retroactively in a manner that could adversely affect a
holder of the Securities.
Although the matter is not entirely free from doubt, the Company intends to
treat the Exchange Debentures as indebtedness for federal income tax purposes,
and the balance of the discussion is based on the assumption that such treatment
will be respected. The discussion is not binding on the IRS or the courts. The
Company has not sought and will not seek any rulings from the IRS with respect
to the positions of the Company discussed herein, and there can be no assurance
that the IRS will not take a different position concerning the tax consequences
of the purchase, ownership or disposition of the Securities or that any such
position would not be sustained.
The tax treatment of a holder of the Securities may vary depending on his
particular situation or status. Certain holders (including S corporations,
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers and taxpayers subject to alternative minimum tax) may be subject
to special rules not discussed below. The following discussion does not consider
all aspects of United States federal income tax that may be relevant to the
purchase, ownership, and disposition of the Securities by such holders in light
of their particular circumstances. In addition, the discussion does not consider
the effect of any applicable foreign, state, local or other tax laws or estate
or gift tax considerations. ACCORDINGLY, PURCHASERS OF THE SECURITIES SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF HOLDING AND DISPOSING OF THE SECURITIES.
THE EXCHANGE OFFER
The exchange of the Series B Securities for the Series A Securities
pursuant to the Exchange Offer will not be treated as an "exchange" for federal
income tax purposes because the Series B Securities will not be considered to
differ materially in kind or extent from the Series A Securities. Rather, the
Series B Securities received by a holder will be treated as a continuation of
the Series A Securities in the hands of such holder. As a result, there will be
no federal income tax consequences to holders exchanging Series A Securities for
Series B Securities pursuant to the Exchange Offer. Therefore, the same tax
consequences apply to the Series B Securities as are applicable to the Series A
Securities, and a holder should have the same adjusted tax basis and holding
period in the Series B Securities as it had in the Series A Securities
immediately before the exchange.
DISTRIBUTIONS ON EXCHANGEABLE PREFERRED STOCK
Distributions on the Exchangeable Preferred Stock paid in cash will be
taxable to the holder as ordinary income and treated as a dividend to the extent
of the Company's current and accumulated earnings and profits (as determined for
federal income tax purposes).
A distribution on the Exchangeable Preferred Stock made in the form of
additional shares of Exchangeable Preferred Stock ("PIK Shares") will be treated
as being in an amount equal to the fair market value of the PIK Shares and will
be a taxable distribution treated as a dividend to the extent of the Company's
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current and accumulated earnings and profits (as determined for federal income
tax purposes). The holding period of any such PIK Shares will commence on the
date of their distribution.
To the extent that the amount of any distribution paid on the Exchangeable
Preferred Stock (including distributions made in the form of PIK Shares) exceeds
the Company's current and accumulated earnings and profits allocable to such
distributions (as determined for federal income tax purposes), such distribution
will be treated as a return of capital, thus reducing the holder's adjusted tax
basis in such Exchangeable Preferred Stock. Any such excess distribution that is
greater than the holder's adjusted basis in the Exchangeable Preferred Stock
will be taxed as capital gain and will be long-term capital gain if the holder's
holding period for such Exchangeable Preferred Stock exceeds one year. For
purposes of the remainder of this discussion, the term "dividend" refers to a
distribution paid out of the Company's allocable earnings and profits, unless
the context indicates otherwise.
The Company does not now have any current or accumulated earnings and
profits and is unable to predict whether or when it will have sufficient
earnings and profits for distributions with respect to the Exchangeable
Preferred Stock to be treated as dividends. Until such time, if any, as such
distributions are treated as dividends, corporate holders of the Exchangeable
Preferred Stock will not be eligible for the dividends-received deduction
described below.
If the fair market value of any PIK Shares at the time of distribution is
less than the redemption price of such PIK Shares by more than a statutorily
defined de minimis amount (a "redemption premium"), then such redemption premium
will be required, pursuant to section 305(c) of the Code, to be accrued ratably
by the holder as a constructive distribution of additional PIK Shares over the
term of the PIK Shares in a manner similar to the accrual of original issue
discount as described below in the discussion "Taxation of Stated Interest and
Original Issue Discount on Exchange Debentures". To the extent that any PIK
Shares distributed bear a redemption premium, such shares might not be
interchangeable for trading purposes with PIK Shares distributed at other times
or with Exchangeable Preferred Stock.
Dividends received by corporate holders generally will be eligible for the
70% dividends-received deduction available under section 243 of the Code. The
availability of such dividends-received deduction is subject to numerous
exceptions and restrictions, including those relating to (i) the holding period
of the stock, (ii) stock treated as "debt-financed portfolio stock" within the
meaning of Section 246A of the Code, (iii) dividends treated as "extraordinary
dividends" for purposes of section 1059 of the Code and (iv) holders who pay
alternative minimum tax. A recent amendment made by the Taxpayer Relief Act of
1997 requires a corporate holder to satisfy a separate 46-day holding period
requirement with respect to each dividend (91 days in the case of preferred
stock dividends with respect to periods aggregating more than 366 days) in order
to be eligible for such dividends-received deduction. Corporate stockholders
should consult their own tax advisors regarding the extent, if any, to which
such exceptions and restrictions may apply to their particular factual
situations.
SALE, REDEMPTION AND EXCHANGE OF EXCHANGEABLE PREFERRED STOCK
A redemption of shares of Exchangeable Preferred Stock for cash or in
exchange for Exchange Debentures would be a taxable event.
A redemption of shares of Exchangeable Preferred Stock for cash will
generally be treated as a sale or exchange if the holder does not own, actually
or constructively within the meaning of section 318 of the Code, any stock of
the Company other than the Exchangeable Preferred Stock. If a holder does own,
actually or constructively, other stock of the Company, a redemption of
Exchangeable Preferred Stock may be treated as a dividend to the extent of the
Company's current and accumulated earnings and profits (as determined for
Federal income tax purposes). Dividend treatment would not apply, however, if
the redemption is "not essentially equivalent to a dividend" with respect to the
holder under section 302(b)(1) of the Code. A distribution to a holder will be
"not essentially equivalent to a dividend" if it results in a "meaningful
reduction" in the holder's stock interest in the Company. For this purpose, a
redemption of Exchangeable Preferred Stock that results in a reduction in the
proportionate interest in the Company (taking into account any actual ownership
of common stock of the Company and any stock constructively owned) of a holder
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whose relative stock interest in the Company is minimal should be regarded as a
meaningful reduction in the holder's stock interest in the Company.
If a redemption of the Exchangeable Preferred Stock for cash is not treated
as a distribution taxable as a dividend, the redemption would result in capital
gain or loss equal to the difference between the amount of cash received and the
holder's adjusted tax basis in the Exchangeable Preferred Stock redeemed, except
to the extent that the redemption price includes dividends which have been
declared by the Board of Directors of the Company prior to the redemption.
Similarly, upon the sale of the Exchangeable Preferred Stock (other than in a
redemption or in exchange for the Exchange Debentures), the difference between
the sum of the amount of cash and the fair market value of other property
received and the holder's adjusted basis in the Exchangeable Preferred Stock
would result in capital gain or loss. This gain or loss would be long-term
capital gain or loss if the holder's holding period for the Exchangeable
Preferred Stock exceeds one year. Under current law, capital gains recognized by
corporations are currently taxed at a maximum rate of 35% and the maximum rate
on net capital gains in the case of individuals is currently 20% for property
held 18 months or more (28% if held more than 12 months but less than 18
months).
A redemption of Exchangeable Preferred Stock in exchange for Exchange
Debentures will be subject to the same general rules as a redemption for cash,
except that any gain or loss generally will be determined based upon the issue
price of the Exchange Debentures (as determined for purposes of computing the
original issue discount on such Exchange Debentures). See the discussion below
under "Original Issue Discount."
If a redemption of the Exchangeable Preferred Stock is treated as a
distribution that is taxable as a dividend, the amount of the distribution will
be measured by the amount of cash or the issue price of the Exchange Debentures,
as the case may be, received by the holder. It is possible, however, that the
fair market value of the Exchange Debentures (if different from their issue
price) may constitute the amount of the distribution. The holder's adjusted tax
basis in the redeemed Exchangeable Preferred Stock will be transferred to any
remaining stock holdings in the Company, subject to reduction or possible gain
recognition under Section 1059 of the Code in respect of the nontaxed portion of
such dividend. If the holder does not retain any actual stock ownership in the
Company (i.e., such holder is treated as having received a dividend because he
constructively owns stock in the Company but such holder does not actually own
any Company Stock), such holder may lose the benefit of his basis in the
Exchangeable Preferred Stock.
ORIGINAL ISSUE DISCOUNT
In the event that the Exchangeable Preferred Stock is exchanged for
Exchange Debentures and the "stated redemption price at maturity" of the
Exchange Debentures exceeds their "issue price" by more than a de minimis
amount, the Exchange Debentures will be treated as having original issue
discount ("OID") equal to the amount of such excess.
If the Exchange Debentures are traded on an established securities market
within the sixty-day period ending thirty days after the Exchange Date, the
issue price of the Exchange Debentures will be their fair market value as of
their issue date. Subject to certain limitations described in the Treasury
Regulations, the Exchange Debentures will be deemed to be traded on an
established securities market if, at a minimum, price quotations will be readily
available from dealers, brokers or traders. If the Exchangeable Preferred Stock,
but not the Exchange Debentures issued in exchange therefor, is traded on an
established securities market within the sixty-day period ending thirty days
after the Exchange Date, then the issue price of each Exchange Debenture should
be the fair market value of the Exchangeable Preferred Stock exchanged therefor
at the time of the exchange. The Exchangeable Preferred Stock generally will be
deemed to be traded on an established securities market if, at a minimum, it
appears on a system of general circulation that provides a reasonable basis to
determine fair market value based either on recent price quotations or recent
sales transactions. In the event that neither the Exchangeable Preferred Stock
nor the Exchange Debentures are traded on an established securities market
within the applicable period, the issue price of the Exchange Debentures will be
their stated principal amount (i.e., their face value) unless either (i) the
Exchange Debentures do not bear "adequate stated interest" within the meaning of
section 1274 of the Code, which is unlikely, or (ii) the Exchange Debentures are
issued in a so-called "potentially abusive situation" as defined in
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the Treasury Regulations under section 1274 of the Code (including a situation
involving a recent sales transaction), in which case the issue price of such
Exchange Debentures generally will be the fair market value of the Exchangeable
Preferred Stock surrendered in exchange therefor.
The "stated redemption price at maturity" of the Exchange Debentures should
equal the total of all payments under the Exchange Debentures, other than
payments of "qualified stated interest." "Qualified stated interest" generally
is stated interest that is unconditionally payable in cash or other property
(excluding additional Exchange Debentures) at least annually at a single fixed
rate. If the Exchange Debentures are issued prior to July 1, 2002, none of the
stated interest on the Exchange Debentures will be treated as qualified stated
interest because of the ability of the Company to pay interest on the Exchange
Debentures in the form of additional Exchange Debentures (the "PIK Debentures").
The "stated redemption price at maturity" would include any optional redemption
premium on the Exchange Debentures if assuming that such optional redemption
will occur would result in a lower yield to maturity on the Exchange Debentures.
TAXATION OF STATED INTEREST AND ORIGINAL ISSUE DISCOUNT ON EXCHANGE DEBENTURES
Each holder of an Exchange Debenture with OID will be required to include
in gross income an amount equal to the sum of the "daily portions" of the OID
for all days during the taxable year in which such holder holds the Exchange
Debenture. The daily portions of OID required to be included in a holder's gross
income in a taxable year will be determined under a constant yield method by
allocating to each day during the taxable year in which the holder holds the
Exchange Debenture a pro rata portion of the OID thereon which is attributable
to the "accrual period" in which such day is included. The amount of the OID
attributable to each accrual period will be the product of the "adjusted issue
price" of the Exchange Debenture at the beginning of such accrual period
multiplied by the "yield to maturity" of the Exchange Debenture (properly
adjusted for the length of the accrual period), less the amount of any qualified
stated interest allocable to the accrual period. The adjusted issue price of an
Exchange Debenture at the beginning of an accrual period is the original issue
price of the Exchange Debenture plus the aggregate amount of OID that accrued in
all prior accrual periods, and less any cash payments other than qualified
stated interest payments on the Exchange Debenture. The "yield to maturity" is
the discount rate that, when used in computing the present value of all
principal and interest payments to be made under the Exchange Debenture,
produces an amount equal to the issue price of the Exchange Debenture. An
"accrual period" may be of any length and may vary in length over the term of
the debt instrument, provided that each accrual period is no longer than one
year and each scheduled payment of principal or interest occurs either on the
final day or the first day of an accrual period.
In the event that the Exchange Debentures are issued before July 1, 2002,
the Company will have the option to pay interest thereon in PIK Debentures. The
issuance of PIK Debentures in lieu of cash interest is not treated as a payment
of interest. Instead, the underlying Exchange Debenture and any PIK Debenture
that may be issued thereon are treated as a single debt instrument under the OID
rules. Moreover, because the terms of the PIK Debentures and the underlying
Exchange Debentures are identical so that the two are fungible in all respects,
the issuance of a PIK Debenture should be treated simply as a division of the
underlying Exchange Debenture, so that the holder's tax basis and adjusted issue
price in the underlying Exchange Debenture should be allocated between the
underlying Exchange Debenture and the PIK Debenture in proportion to their
relative principal amounts.
For purposes of determining the stated redemption price at maturity and the
rate at which OID accrues on an Exchange Debenture issued before July 1, 2002,
applicable regulations require that it be assumed that the Company will pay
interest in the form of PIK Debentures to the maximum extent permitted under the
terms of the Exchange Debentures if doing so would reduce the yield to maturity
on such Exchange Debentures. In such a case, if the Company elects to pay in
cash an interest payment on such Exchange Debentures payable in cash or in PIK
Debentures, the cash payment will be treated as a pro rata prepayment on the
exchange debentures. As a result, the holder would realize gain in an amount
equal to the excess of the cash payment over the portion of the holder's tax
basis that would have been allocated to such PIK Debentures, and the holder's
tax basis in the Exchange Debentures held would be reduced by such allocated
portion of the holder's tax basis.
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For purposes of determining the stated redemption price at maturity and the
rate at which OID accrues on an Exchange Debenture issued before July 1, 2002,
applicable regulations require that it be assumed that the Company will pay
interest in cash and not in the form of PIK Debentures if paying interest in the
form of PIK Debentures would not reduce the yield to maturity on such Exchange
Debentures. In such a case, if the Company elects to pay in the form of PIK
Debentures an interest payment on such Exchange Debentures payable in cash or in
PIK Debentures, the future accruals of OID will be calculated based on a
redetermination of the stated redemption price at maturity and yield to maturity
made by treating the Exchange Debenture as if it were retired and reissued on
such payment date.
In the event that Exchange Debentures are issued on or after July 1, 2002
when the Company does not have the option to pay interest thereon in PIK
Debentures, stated interest would be included in income by a holder in
accordance with such holder's usual method of accounting. In all other cases,
all stated interest paid will be treated as payments on Exchange Debentures
under the rules discussed above.
BOND PREMIUM ON EXCHANGE DEBENTURES
If the holder's basis in the Exchange Debentures exceeds the amount payable
at the maturity date (or, in certain circumstances, the amount payable on an
earlier call date), such excess will be deductible by the holder of the Exchange
Debentures as amortizable bond premium over the term of the Exchange Debentures
(or the period ending on such earlier call date) under a yield-to-maturity
formula, if an election by the holder under section 171 of the Code is made or
is already in effect. An election under section 171 of the Code is available
only if the Exchange Debentures are held as capital assets. This election is
revocable only with the consent of the IRS and applies to all obligations owned
or acquired by the holder on or after the first day of the taxable year to which
the election applies. To the extent the excess is deducted as amortizable bond
premium, the holder's adjusted tax basis in the Exchange Debentures is reduced.
Except as may otherwise be provided in future Treasury Regulations, the
amortizable bond premium will be treated as an offset to interest income on the
Exchange Debentures rather than as a separate deduction item. Proposed Treasury
Regulations, which are not yet effective, would modify the rules described above
in order to coordinate such rules with the rules relating to OID.
ACQUISITION PREMIUM ON EXCHANGE DEBENTURES
A holder of an Exchange Debenture issued with OID who purchases such
Exchange Debenture for an amount that is greater than its then adjusted issue
price but equal to or less than the sum of all amounts payable on the Exchange
Debenture after the purchase date (other than payments, if any, of qualified
stated interest) will be considered to have purchased such Exchange Debenture at
an "acquisition premium." Under the acquisition premium rules, the amount of OID
that such holder must include in income with respect to such Exchange Debenture
for any taxable year will be reduced by the portion of such acquisition premium
properly allocable to such year.
MARKET DISCOUNT ON EXCHANGE DEBENTURES
Purchasers of Exchangeable Preferred Stock should be aware that the
disposition of Exchange Debentures may be affected by the market discount
provisions of the Code. The market discount rules generally provide that if a
holder of a debt instrument purchases it at a "market discount" and thereafter
realizes gain upon a disposition or a retirement of the debt instrument, the
lesser of such gain or the portion of the market discount that has accrued on a
straight-line basis (or, if the holder so elects under section 1276(b) of the
Code, on a constant interest rate basis) while the debt instrument was held by
such holder will be taxed as ordinary income at the time of such disposition.
"Market discount" with respect to the Exchange Debentures is the amount, if any,
by which the "revised issue price" of an Exchange Debenture (or its stated
redemption price at maturity if the Exchange Debenture does not have any OID)
exceeds the holder's basis in the Exchange Debenture immediately after such
holder's acquisition, subject to a de minimis exception. The "revised issue
price" of an Exchange Debenture is its issue price increased by the portion of
OID previously includible in the gross income of prior holders for periods prior
to the acquisition of the Exchange Debenture
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by the holder (without regard to any acquisition premium exclusion) and reduced
by prior payments other than payments of qualified stated interest.
A holder who acquires an Exchange Debenture at a market discount also may
be required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry such
Exchange Debenture until the holder disposes of the Exchange Debenture in a
taxable transaction. Moreover, any partial principal payment with respect to
Exchange Debentures will be includible as ordinary income to the extent of any
accrued market discount on such Exchange Debentures. Such accrued market
discount will also generally be includible as ordinary income upon the
occurrence of certain otherwise non-taxable transfers (such as gifts).
A holder of Exchange Debentures acquired at a market discount may elect for
federal income tax purposes to include market discount in gross income as the
discount accrues, either on a straight-line basis or on a constant interest rate
basis. This current inclusion election, once made, applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies, and may not be revoked without the consent
of the IRS. If a holder of Exchange Debentures makes such an election, the
foregoing rules with respect to the recognition of ordinary income on sales and
other dispositions of such debt instruments, and with respect to the deferral of
interest deductions on indebtedness incurred or maintained to purchase or carry
such debt instruments, would not apply.
REDEMPTION OR SALE OF EXCHANGE DEBENTURES
Generally, any redemption or sale of Exchange Debentures by a holder would
result in taxable gain or loss equal to the difference between the sum of the
amount of cash and the fair market value of other property received (except to
the extent that cash received is attributable to accrued but previously untaxed
interest, which portion of the consideration would be taxed as ordinary income)
and the holder's adjusted tax basis in the Exchange Debentures. The adjusted tax
basis of a holder who receives an Exchange Debenture in exchange for
Exchangeable Preferred Stock will generally be equal to the issue price of the
Exchange Debenture increased by any OID with respect to the Exchange Debenture
included in the holder's income prior to sale or redemption of the Exchange
Debenture, reduced by any amortizable bond premium applied against the holder's
income prior to sale or redemption of the Exchange Debenture and by payments
other than payments of qualified stated interest. Subject to the above
discussion of market discount, such gain or loss would be long-term capital gain
or loss if the holder's holding period for the Exchange Debentures exceeds one
year.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO CORPORATE HOLDERS
It is possible that the Exchange Debentures will be treated as "applicable
high yield discount obligations" ("AHYDOs") for federal income tax purposes,
especially if the Exchange Debentures are issued before July 1, 2002. The
Exchange Debentures will constitute AHYDOs if they (i) have a term of more than
five years, (ii) have a yield to maturity equal to or greater than the sum of
the applicable federal rate (the "AFR") at the time of issuance of the Exchange
Debentures plus five percentages points and (iii) have "significant OID." A debt
instrument is treated as having "significant OID" if the aggregate amount that
would be includible in gross income with respect to such debt instrument for
periods before the close of any accrual period ending after the date five years
after the date of issue exceeds the sum of (i) the aggregate amount of interest
to be paid in cash under the debt instrument before the close of such accrual
period and (ii) the product of the initial issue price of such debt instrument
and its yield to maturity. In determining whether any Exchange Debentures issued
prior to July 1, 2002 are AHYDOs, it will be presumed that interest will be paid
in the form of PIK Debentures to the maximum extent permitted under the terms of
the Exchange Debentures. Because the amount of OID, if any, attributable to the
Exchange Debentures will be determined at the time such Exchange Debentures are
issued and the AFR at that point in time is not predictable, it is impossible
currently to determine whether Exchange Debentures will be treated as AHYDOs.
If the Exchange Debentures are treated as AHYDOs, (i) as described in the
following paragraph, a portion of the OID that accrues on the Exchange
Debentures may be treated as a dividend generally eligible
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for the dividends-received deduction in the case of corporate holders, (ii) the
Company would not be entitled to deduct the "disqualified portion" of the OID
that accrues on the Exchange Debentures and (iii) the Company would be allowed
to deduct the remainder of the OID only when it pays amounts attributable to
such OID in cash. (In particular, in the case of a payment in cash of an
interest payment payable on or before July 1, 2002 on an Exchange Debenture
issued prior to July 1, 2002 and interest on which (for purposes of accruing OID
under applicable regulations) is presumed to be paid in the form of PIK
Debentures to the maximum extent permitted under the terms of the Exchange
Debentures, the Company would be able to deduct only a small portion of such
cash payment attributable to OID because the payment as a whole would be treated
as a prepayment of a ratable portion of the Exchange Debentures.)
If an Exchange Debenture is treated as an AHYDO, a corporate holder would
be treated as receiving dividend income to the extent of the lesser of (i) an
allocable portion of the Company's current and accumulated earnings and profits
and (ii) the "disqualified portion" of the OID of such AHYDO. The "disqualified
portion" of the OID is equal to the lesser of (x) the amount of OID or (y) the
portion of the "total return" (i.e., the excess of all payments to be made with
respect to the Exchange Debenture over its issue price) with respect to the
Exchange Debenture in excess of the AFR at issuance plus six percentage points
per annum.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of a Security may be subject to backup withholding at the rate of
31 percent with respect to distributions on the Exchangeable Preferred Stock,
interest on the Exchange Debentures or sales proceeds thereof, unless such
holder (a) is a corporation or comes within certain other exempt categories and,
when required, demonstrates its exempt status or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A holder of a Security who does not provide the Company with
the holder's correct taxpayer identification number may be subject to penalties
imposed by the IRS. Any amount paid as backup withholding would be creditable
against the holder's federal income tax liability.
The Company will furnish annually to the IRS and to record holders of the
Exchangeable Preferred Stock (other than with respect to certain exempt holders)
information relating to dividends paid during the calendar year. In the case of
PIK Shares subject to section 305(c) of the Code, such information may be based
upon dividends accruing to the record holder of such PIK Shares at the time of
issuance.
The Company will furnish annually to the IRS and to record holders of the
Exchange Debentures (other than with respect to certain exempt holders)
information relating to the stated interest and the OID, if any, accruing during
the calendar year. Such information will be based on the amount of OID that
would have accrued to a holder who acquired the Exchange Debenture on original
issue. Accordingly, other holders will be required to determine for themselves
whether they are eligible to report a reduced amount of OID for federal income
tax purposes.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Series B Securities for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Series B Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Series B
Securities received in exchange for Series A Securities where such Series A
Securities were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 120 days after
the date of this Prospectus, it will make this Prospectus, as amended or
supplemented, available to any Participating Broker-Dealer for use in connection
with any such resale. In addition, for a period of 90 days after the date of
this Prospectus, all dealers effecting transactions in the Series B Securities
may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of Series B
Securities by Participating Broker-Dealers. Series B Securities received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Series B Securities or a combination of such methods of resale,
at market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
Participating Broker-Dealer and/or the purchasers of any such Series B
Securities. Any Participating Broker-Dealer that resells the Series B Securities
that were received by it for its own account pursuant to the Exchange Offer and
any broker or dealer that participates in a distribution of such Series B
Securities may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of Series B Securities and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letters of Transmittal
state that, by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 120 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letters of Transmittal.
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LEGAL MATTERS
Certain legal matters with respect to the Series B Notes and the Series B
Exchangeable Preferred Stock offered hereby, including federal income tax
consequences, will be passed upon for the Company by Eckert Seamans Cherin &
Mellott, LLC.
EXPERTS
The consolidated financial statements of Citadel Broadcasting Company and
Subsidiary as of December 31, 1995 and 1996, and for each of the years in the
three-year period ended December 31, 1996, have been included herein in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Deschutes River Broadcasting, Inc.
and Subsidiaries as of December 31, 1995 and 1996, and for each of the years in
the two-year period ended December 31, 1996, have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Maranatha Broadcasting Company,
Inc's., Radio Broadcasting Division, as of December 31, 1996, and for the year
then ended, have been included herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Tele-Media Broadcasting Company
and its partnership interests as of December 31, 1995 and 1996 and for each of
the three years in the period ended December 31, 1996 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Snider Corporation and Snider Broadcasting
Corporation and Subsidiary and CDB Broadcasting Corporation as of December 31,
1995 and 1996 and for each of the years in the two-year period ended December
31, 1996 have been included in this Prospectus in reliance upon the reports of
Erwin & Company, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The combined financial statements of Pacific Northwest Broadcasting
Corporation and Affiliates as of December 31, 1996 and for the year ended
December 31, 1996, have been included in this Prospectus in reliance upon the
report of Balukoff, Lindstrom & Co., P.A., independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Series B Securities
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, and to which reference is
hereby made. Statements contained in this Prospectus as to the contents of any
contract, agreement or any other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
to the Registration Statement for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Registration Statement can be inspected and copied at the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at
185
<PAGE> 192
Seven World Trade Center, Suite 1300, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration
Statement can be obtained from the Public Reference Section of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20459, at prescribed rates.
The Company is filing the Registration Statement with the Commission
electronically. The Commission maintains a web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The address of that Web site is
http://www.sec.gov.
Neither the Company nor Citadel License is currently subject to the
informational requirements of the Exchange Act. Upon completion of the Exchange
Offer, the Company and Citadel License will be subject to the informational
requirements of the Exchange Act, and, in accordance therewith, will file
periodic reports and other information with the Commission. Copies of any
material so filed can be obtained from the Public Reference Section of the
Commission, upon payment of certain fees prescribed by the Commission.
Notwithstanding the foregoing, Citadel License intends to request that the
Commission, pursuant to Section 12(h) of the Exchange Act, grant an order
exempting it from complying with the informational requirements of the Exchange
Act.
The Company intends, and is required by the terms of the Notes Indenture
and the Certificate of Designation, to furnish the holders of the Series B Notes
and Series B Exchangeable Preferred Stock, respectively, with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three quarters
of each fiscal year.
186
<PAGE> 193
GLOSSARY OF CERTAIN DEFINED TERMS
Following is a list of certain defined terms with their respective
definitions, as used in this Prospectus:
"A/C" means an adult contemporary radio programming format.
"AOR" means an album oriented rock radio programming format.
"Boise Acquisition" means the pending acquisition by the Company of the
Boise Stations.
"Boise Stations" means collectively radio stations KIZN-FM, KZMG-FM,
KKGL-FM, KQFC-FM and KBOI-AM, all serving the Boise, Idaho market, and which
stations the Company has entered into various agreements to acquire.
"Broadcast cash flow" means operating income (loss) before depreciation,
amortization and corporate expenses. Although broadcast cash flow is not a
measure of performance calculated in accordance with GAAP, management believes
that it is useful to an investor in evaluating the Company because it is a
measure widely used in the broadcast industry to evaluate a radio company's
operating performance. However, broadcast cash flow should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in accordance
with GAAP as a measure of liquidity or profitability.
"Certificate of Designation" means the certificate of designation governing
the Exchangeable Preferred Stock.
"CHR" means a contemporary hit radio programming format.
"Completed Transactions" means collectively the Company's June 1996
acquisitions of radio stations KTBL-FM, KHFM-FM and KNML-AM in Albuquerque, New
Mexico and KHOP-FM in Modesto, California; its October 1996 acquisitions of
radio station KKLI-FM in Colorado Springs, Colorado and radio station KRST-FM in
Albuquerque; its January 1997 acquisition of Deschutes; its February 1997
acquisition of radio station KENZ-FM in Salt Lake City, Utah; its April 1997
acquisition of radio station KBER-FM in Salt Lake City; the Third Quarter
Acquisitions; the Recent 1997 Acquisitions; and the Original Offerings.
"DAB" means digital audio broadcasting.
"DARs" means satellite digital audio radio services.
"Deschutes" means Deschutes River Broadcasting, Inc., now merged with and
into the Company.
"EBITDA" means operating income (loss) before depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, management believes that it is useful to an investor in
evaluating the Company because it is a measure widely used in the broadcast
industry to evaluate a radio company's operating performance. However, EBITDA
should not be considered in isolation or as a substitute for net income, cash
flows from operating activities and other income or cash flow statement data
prepared in accordance with GAAP as a measure of liquidity or profitability.
"Exchange Debentures" means the Company's 13 1/4% Subordinated Exchange
Debentures due 2009 which are issuable upon conversion of the Exchangeable
Preferred Stock.
"Exchange Indenture" means the indenture governing the Exchange Debentures.
"Exchangeable Preferred Stock" means the shares of 13 1/4% Exchangeable
Preferred Stock issued by the Company.
"Heritage" means a station or on-air show that is firmly established in its
format and market and has been so for many years.
"In-Market Acquisition Stations" means collectively radio stations WEMR-FM,
WSGD-FM, WDLS-FM, WEMR-AM and WCDL-AM in Wilkes-Barre/Scranton, Pennsylvania,
which stations the Company has entered into agreements to purchase.
"In-Market Acquisitions" means the pending acquisitions pursuant to various
agreements the Company has entered into in order to purchase the In-Market
Acquisition Stations.
187
<PAGE> 194
"JSA" means a joint sales agreement or similar arrangement under which a
radio station operator sells advertising on behalf of a radio station it does
not own.
"Little Rock Acquisitions" means collectively the several transactions
which resulted in the Company owning the radio stations that it currently owns
in the Little Rock, Arkansas area.
"LMA" means a local marketing agreement or similar arrangement under which
a radio station operator sells advertising on behalf of, and provides
programming to, a radio station it does not own.
"MSA" means metropolitan statistical area.
"Notes" means the $101.0 million aggregate principal amount of 10 1/4%
Senior Subordinated Notes due 2004, issued by the Company and guaranteed by
Citadel License.
"Notes Indenture" means that certain Indenture dated as of July 1, 1997
governing the Notes among the Company, Citadel License and The Bank of New York,
as trustee.
"Original Offerings" means the July 1997 sale and issuance by the Company
of the Notes and 1,000,000 shares of Exchangeable Preferred Stock.
"Pending Acquisitions" means the In-Market Acquisitions and the Boise
Acquisition.
"Pending Transactions" means collectively the Pending Acquisitions and the
agreements entered into by the Company to sell radio stations WQKK-FM and
WGLU-FM in Johnstown, Pennsylvania; WRSC-AM, WQWK-FM, WBLF-AM and WIKN-FM in
State College, Pennsylvania; and WEST-AM in Allentown/ Bethlehem, Pennsylvania.
"Predecessor" means collectively Citadel Associates Limited Partnership and
Citadel Associates Montana Limited Partnership.
"Recent 1997 Acquisitions" means the radio station acquisitions completed
by the Company since September 30, 1997.
"Series A Dividend Shares" means the aggregate 65,514 shares of Series A
Exchangeable Preferred Stock anticipated to be issued as of January 1, 1998 as a
dividend payment to holders of record of Series A Exchangeable Preferred Stock
as of December 15, 1997.
"Subsidiary Merger" means the June 1997 merger of Deschutes with and into
the Company.
"Telecommunications Act" means the Telecommunications Act of 1996.
"Tele-Media" means Tele-Media Broadcasting Company.
"Tele-Media Acquisition" means the July 1997 acquisition by the Company of
Tele-Media Broadcasting Corporation.
"Tele-Media Bonds" means certain corporate bonds and warrants of Tele-Media
whose redemption was included in the purchase price for the July 1997
acquisition of Tele-Media by the Company.
"Third Quarter Acquisitions" means collectively the Tele-Media Acquisition
and the other acquisitions by the Company which occurred during the third
quarter of 1997.
188
<PAGE> 195
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CITADEL BROADCASTING COMPANY AND SUBSIDIARY
Independent Auditors' Report....................................................... F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)...................................................................... F-4
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996 and the nine months ended September 30, 1996 and 1997 (unaudited)....... F-5
Consolidated Statements of Shareholder's Equity.................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996 and the nine months ended September 30, 1996 and 1997 (unaudited)....... F-7
Notes to Consolidated Financial Statements......................................... F-9
DESCHUTES RIVER BROADCASTING, INC. AND SUBSIDIARIES
Independent Auditors' Report....................................................... F-29
Consolidated Balance Sheets as of December 31, 1995 and 1996....................... F-30
Consolidated Statements of Operations for the years ended December 31, 1995 and
1996............................................................................. F-31
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995 and 1996.................................................................... F-32
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and
1996............................................................................. F-33
Notes to Consolidated Financial Statements......................................... F-34
TELE-MEDIA BROADCASTING COMPANY AND ITS PARTNERSHIP INTERESTS
Independent Auditors' Report....................................................... F-42
Consolidated Balance Sheets as of December 31, 1995 and 1996....................... F-43
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996......................................................................... F-44
Consolidated Statements of Deficiency in Net Assets for the years ended December
31, 1994, 1995 and 1996.......................................................... F-45
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996......................................................................... F-46
Notes to Consolidated Financial Statements......................................... F-47
Condensed Consolidated Balance Sheet as of June 30, 1997 (unaudited)............... F-54
Condensed Consolidated Statements of Operations and Changes in Deficit for the six
months ended June 30, 1996 and 1997 (unaudited).................................. F-55
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and 1997 (unaudited)............................................... F-56
Notes to Unaudited Condensed Consolidated Financial Statements..................... F-57
SNIDER CORPORATION
Independent Auditors' Report....................................................... F-58
Balance Sheets as of December 31, 1995 and 1996.................................... F-59
Statements of Income for the years ended December 31, 1995 and 1996................ F-60
Statements of Stockholders' Equity for the years ended December 31, 1995 and
1996............................................................................. F-61
Statements of Cash Flows for the years ended December 31, 1995 and 1996............ F-62
Notes to Financial Statements...................................................... F-63
Balance Sheet as of May 31, 1997 (unaudited)....................................... F-67
Statement of Income for the five months ended May 31, 1997 (unaudited)............. F-68
Statement of Stockholders' Equity for the five months ended May 31, 1997
(unaudited)...................................................................... F-69
Statement of Cash Flows for the five months ended May 31, 1997 (unaudited)......... F-70
Note to Financial Statements (unaudited)........................................... F-71
Balance Sheet as of June 30, 1996 (unaudited)...................................... F-72
</TABLE>
F-1
<PAGE> 196
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Statement of Income for the six months ended June 30, 1996 (unaudited)............. F-73
Statement of Stockholders' Equity for the six months ended June 30, 1996
(unaudited)...................................................................... F-74
Statement of Cash Flows for the six months ended June 30, 1996 (unaudited)......... F-75
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY AND
CDB BROADCASTING CORPORATION
Independent Auditors' Report....................................................... F-76
Combined Balance Sheets as of December 31, 1995 and 1996........................... F-77
Combined Statements of Operations for the years ended December 31, 1995 and 1996... F-78
Combined Statements of Stockholders' Deficit for the years ended
December 31, 1995 and 1996....................................................... F-79
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996... F-80
Notes to Combined Financial Statements............................................. F-81
Combined Balance Sheet as of May 31, 1997 (unaudited).............................. F-86
Combined Statement of Operations for the five months ended May 31, 1997
(unaudited)...................................................................... F-87
Combined Statement of Stockholders' Deficit for the five months ended May 31, 1997
(unaudited)...................................................................... F-88
Combined Statement of Cash Flows for the five months ended May 31, 1997
(unaudited)...................................................................... F-89
Note to Combined Financial Statements (unaudited).................................. F-90
Combined Balance Sheet as of June 30, 1996 (unaudited)............................. F-91
Combined Statement of Operations for the six months ended June 30, 1996
(unaudited)...................................................................... F-92
Combined Statement of Stockholders' Deficit for the six months ended June 30, 1996
(unaudited)...................................................................... F-93
Combined Statement of Cash Flows for the six months ended June 30, 1996
(unaudited)...................................................................... F-94
MARANATHA BROADCASTING COMPANY, INC.'S RADIO BROADCASTING DIVISION
Independent Auditors' Report....................................................... F-95
Balance Sheet as of December 31, 1996 and September 15, 1997 (unaudited)........... F-96
Statement of Operations and Division Equity for the year ended December 31, 1996
and the eight and one-half-month period ended September 15, 1997 (unaudited)..... F-97
Statement of Cash Flows for the year ended December 31, 1996 and the eight and
one-half-month period ended September 15, 1997 (unaudited)....................... F-98
Notes to Financial Statements...................................................... F-99
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
Independent Auditors' Report....................................................... F-102
Combined Balance Sheet as of December 31, 1996..................................... F-103
Combined Statement of Operations for the year ended December 31, 1996.............. F-104
Combined Statement of Changes in Owners' Equity for the year ended
December 31, 1996................................................................ F-105
Combined Statement of Cash Flows for the year ended December 31, 1996.............. F-106
Notes to Combined Financial Statements............................................. F-107
Unaudited Combined Balance Sheets as of September 30, 1996 and 1997................ F-114
Unaudited Combined Statements of Operations for the nine months ended September 30,
1996 and 1997.................................................................... F-115
Unaudited Combined Statements of Changes in Owners' Equity for the nine months
ended September 30, 1997......................................................... F-116
Unaudited Combined Statements of Cash Flows for the nine months ended September 30,
1996 and 1997.................................................................... F-117
Notes to Unaudited Combined Financial Statements................................... F-118
</TABLE>
F-2
<PAGE> 197
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
Citadel Broadcasting Company:
We have audited the accompanying consolidated balance sheets of Citadel
Broadcasting Company (a wholly-owned subsidiary of Citadel Communications
Corporation) and subsidiary as of December 31, 1995 and 1996 and the related
consolidated statements of operations, shareholder's equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Citadel
Broadcasting Company and subsidiary as of December 31, 1995 and 1996 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
Phoenix, Arizona
February 14, 1997, except as to
thirteenth through seventeenth paragraphs
of note 2 and notes 8, 13 and 23 which are as of November 18, 1997
F-3
<PAGE> 198
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 1,005,275 $ 1,588,366 $ 26,699,846
Accounts receivable, less allowance for
doubtful accounts of $514,533 in 1995,
$621,054 in 1996, and $1,037,900 in 1997.... 7,200,656 12,199,973 22,028,072
Notes receivable from related parties.......... 523,964 118,646 218,164
Prepaid expenses............................... 420,497 595,755 1,600,984
------------ ------------ -------------
Total current assets................... 9,150,392 14,502,740 50,547,066
Property and equipment, net...................... 12,667,530 15,208,569 27,620,968
Note receivable.................................. -- 18,251,402 --
Intangible assets, net........................... 15,093,134 51,801,835 207,035,617
Deposits for pending acquisitions................ 150,000 300,000 650,000
Other assets..................................... 311,290 2,179,039 4,606,572
------------ ------------ -------------
$ 37,372,346 $102,243,585 $ 290,460,223
============ ============ =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable............................... $ 1,192,002 $ 1,286,019 $ 2,680,110
Accrued liabilities............................ 2,383,517 2,301,716 6,847,012
Current maturities of notes payable............ 1,919,808 2,500,000 --
Note payable to parent company................. -- 12,174,416 --
Current maturities of other long-term
obligations................................. 362,392 435,791 243,574
Due to related party........................... 365,000 -- --
------------ ------------ -------------
Total current liabilities.............. 6,222,719 18,697,942 9,770,696
Notes payable, less current maturities........... 29,390,577 75,084,060 50,584,060
Senior subordinated notes payable................ -- -- 98,290,042
Notes payable to related parties................. 10,777,525 -- --
Other long-term obligations, less current
maturities..................................... 230,718 877,600 1,351,663
Deferred tax liability........................... -- 1,585,333 19,319,861
Exchangeable preferred stock..................... -- -- 99,583,021
Commitments and contingencies
Shareholder's (deficit) equity:
Common stock, $.001 par value; authorized
136,300 shares; issued and outstanding
40,000 shares............................... 40 40 40
Additional paid-in capital..................... 8,488,557 27,472,380 36,148,590
Accumulated deficit............................ (17,737,790) (21,473,770) (24,587,750)
------------ ------------ -------------
Total shareholder's (deficit) equity... (9,249,193) 5,998,650 11,560,880
------------ ------------ -------------
$ 37,372,346 $102,243,585 $ 290,460,223
============ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 199
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross broadcasting revenue................ $36,613,189 38,047,879 50,824,384 35,579,638 66,516,801
Less agency commissions................. 3,615,159 3,936,169 5,411,578 3,846,553 6,491,983
----------- ----------- ----------- ----------- -----------
Net broadcasting revenue.............. 32,998,030 34,111,710 45,412,806 31,733,085 60,024,818
----------- ----------- ----------- ----------- -----------
Operating expenses:
Station operating expenses.............. 24,331,135 26,832,123 33,232,485 23,662,182 43,305,951
Depreciation and amortization........... 7,434,666 4,890,517 5,158,206 3,262,753 9,457,916
Corporate general and administrative.... 2,504,192 2,273,744 3,247,579 1,903,311 2,562,480
----------- ----------- ----------- ----------- -----------
Operating expenses.................... 34,269,993 33,996,384 41,638,270 28,828,246 55,326,347
----------- ----------- ----------- ----------- -----------
Operating income (loss)................... (1,271,963) 115,326 3,774,536 2,904,839 4,698,471
----------- ----------- ----------- ----------- -----------
Nonoperating expenses (income):
Interest expense........................ 4,865,893 5,241,760 6,155,472 4,176,808 8,213,550
Interest income......................... (49,941) (70,503) (407,581) (158,669) (371,442)
Loss (gain) on sale of property and
equipment............................. (620,068) (707,286) 1,749 -- --
Other (income) expense, net............. 13,295 (3,221) (8,124) (717) (29,657)
----------- ----------- ----------- ----------- -----------
Nonoperating expenses, net............ 4,209,179 4,460,750 5,741,516 4,017,422 7,812,451
----------- ----------- ----------- ----------- -----------
Loss before income taxes and extraordinary
item.................................... (5,481,142) (4,345,424) (1,966,980) (1,112,583) (3,113,980)
Income tax (benefit)...................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Loss before extraordinary item............ (5,481,142) (4,345,424) (1,966,980) (1,112,583 (3,113,980)
Extraordinary loss on extinguishment of
debt.................................... -- -- (1,769,000) -- --
----------- ----------- ----------- ----------- -----------
Net loss.................................. $(5,481,142) (4,345,424) (3,735,980) (1,112,583) (3,113,980)
Dividend requirement for exchangeable
preferred stock......................... -- -- -- -- 3,303,018
----------- ----------- ----------- ----------- -----------
Net loss applicable to common share....... (5,481,142) (4,345,424) (3,735,980) (1,112,583) (6,416,998)
=========== =========== =========== =========== ===========
Net loss per common share................. $ (137.03) (108.64) (93.40) (27.81) (160.42)
=========== =========== =========== =========== ===========
Shares used in per share calculation...... 40,000 40,000 40,000 40,000 40,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 200
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL ACCUMULATED SHAREHOLDER'S
STOCK PAID-IN CAPITAL DEFICIT EQUITY
------ --------------- ------------ -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1993................. $ 40 $11,363,466 $ (7,911,224) $ 3,452,282
Net loss.................................... -- -- (5,481,142) (5,481,142)
Capital contribution to parent(1)........... -- (2,793,782) -- (2,793,782)
--- ----------- ------------ -----------
Balances, December 31, 1994................. 40 8,569,684 (13,392,366) (4,822,642)
Net loss.................................... -- -- (4,345,424) (4,345,424)
Capital contribution to parent(2)........... -- (81,127) -- (81,127)
--- ----------- ------------ -----------
Balances, December 31, 1995................. 40 8,488,557 (17,737,790) (9,249,193)
Net loss.................................... -- -- (3,735,980) (3,735,980)
Forgiveness of receivable from shareholder
of parent company......................... -- (408,637) -- (408,637)
Capital contribution from parent(3)......... -- 19,392,460 -- 19,392,460
--- ----------- ------------ -----------
Balances, December 31, 1996................. 40 27,472,380 (21,473,770) 5,998,650
Net loss (unaudited)........................ -- -- (3,113,980) (3,113,980)
Exchangeable preferred stock dividend
requirement (unaudited)................... -- (3,303,018) -- (3,303,018)
Capital contribution from parent
(unaudited)(4)............................ -- 11,979,228 -- 11,979,228
--- ----------- ------------ -----------
Balances, September 30, 1997 (unaudited).... $ 40 $36,148,590 $(24,587,750) $ 11,560,880
=== =========== ============ ===========
</TABLE>
- ---------------
(1) Represents the funding of the purchase and retirement of preferred stock and
the payment of preferred stock dividends on behalf of the parent company.
(2) Represents the payment of preferred stock dividends on behalf of the parent
company.
(3) Represents the net capital contribution from the parent company from the
issuance and redemption of preferred stock, the redemption of warrants, the
cost of the equity issuance, as well as the payment of preferred stock
dividends.
(4) Represents the net capital contribution from the parent company from the
issuance of preferred stock and the exercise of common stock options.
F-6
<PAGE> 201
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------ ----------- ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $ (5,481,142) $(4,345,424) $ (3,735,980) $ (1,112,583) $ (3,113,980)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Extraordinary loss............... -- -- 1,769,000 -- --
Depreciation and amortization.... 7,434,666 4,890,517 5,158,206 3,262,753 9,457,916
Amortization of debt issuance
costs and debt discounts....... 286,715 131,752 162,603 140,352 138,352
Bad debt expense................. 383,275 484,702 421,378 531,908 603,558
Loss/(gain) on sale of property
and equipment.................. (620,068) (707,286) 1,749 -- --
Changes in assets and liabilities,
net of acquisitions:
Increase in accounts receivable
and notes receivable from
related parties................ (3,328,513) (1,069,681) (5,257,849) (3,030,553) (5,388,399)
(Increase) decrease in prepaid
expenses....................... (146,972) 55,531 (175,058) (388,255) (446,599)
Decrease in other assets......... 592,511 75,432 41,303 278,371 (266,368)
Increase (decrease) in accounts
payable........................ (149,423) 651,247 94,017 95,684 (215,156)
Increase (decrease) in accrued
liabilities.................... 1,352,692 (600,847) 126,248 581,079 3,367,485
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in)
operating activities........... 323,741 (434,057) (1,394,383) 358,756 4,136,809
----------- ----------- ----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures............... (2,857,007) (1,690,950) (2,037,840) (1,867,267) (1,478,410)
Capitalized acquisition costs...... (840,212) (33,480) (1,144,699) (720,839) (2,484,066)
Cash paid to acquire stations...... (11,576,474) -- (38,805,036) (18,260,000) (128,187,024)
Deposits for pending
acquisitions..................... -- (150,000) (930,000) (2,050,000) (1,200,000)
Increase in note receivable........ -- -- (18,251,402) (9,128,092) --
Proceeds from sales of property and
equipment........................ 1,236,765 6,684,479 1,115 -- --
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in)
investing activities........... $(14,036,928) $ 4,810,049 $(61,167,862) $(32,026,198) $(133,349,500)
----------- ----------- ----------- ----------- ------------
</TABLE>
F-7
<PAGE> 202
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Principal payments on notes
payable.......................... $ (2,298,413) $(6,866,198) $(50,970,385) $ (4,000,000) $ (39,000,000)
Proceeds from notes payable........ 19,743,070 2,400,000 86,244,059 2,000,000 12,000,000
Proceeds from senior subordinated
notes payable.................... -- -- -- -- 97,250,000
Proceeds from issuance of
exchangeable preferred stock..... -- -- -- -- 96,850,000
Cost of issuance of exchangeable
preferred stock.................. -- -- -- -- (569,997)
Payment of debt issuance costs..... -- (30,000) (2,283,124) (32,794) --
Principal payments on other
long-term obligations............ (244,495) (412,066) (776,107) (746,649) (408,840)
Prepayment premium................. -- -- (420,000) -- --
Advances from parent company....... -- -- 12,367,070 11,645,511 1,000,000
Principal payments on advances from
parent company................... -- -- -- -- (12,817,000)
Capital contribution (to) from
parent company................... (2,806,725) -- 18,983,823 23,663,787 20,008
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in)
financing activities........... 14,393,437 (4,908,264) 63,145,336 32,529,855 154,324,171
----------- ----------- ----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents................... 680,250 (532,272) 583,091 862,413 25,111,480
Cash and cash equivalents, beginning
of period.......................... 857,297 1,537,547 1,005,275 1,005,275 1,588,366
----------- ----------- ----------- ----------- ------------
Cash and cash equivalents, end of
period............................. $ 1,537,547 $ 1,005,275 $ 1,588,366 $ 1,867,688 $ 26,699,846
Supplemental disclosure of non-cash
activities:
Deferred tax liability representing
the difference between the tax
basis and fair value of assets
acquired......................... $ -- $ -- $ 1,585,333 $ 1,612,667 $ 17,734,528
=========== =========== =========== =========== ============
Forgiveness of receivable from
shareholder of parent company.... $ -- $ -- $ 408,637 $ 408,637 $ --
=========== =========== =========== =========== ============
Exchangeable preferred stock
dividend requirement............. $ -- $ -- $ -- $ -- $ 3,303,018
=========== =========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 203
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Citadel Broadcasting Company was formed August 21, 1991 as a Nevada Corporation
and is a wholly-owned subsidiary of Citadel Communications Corporation ("Citadel
Communications"). Citadel Licensing Inc. ("Citadel License") is a wholly-owned
subsidiary of Citadel Broadcasting Company. Citadel Broadcasting Company and its
subsidiary own and operate radio stations and hold Federal Communications
Commission (FCC) licenses in California, Colorado, Illinois, Montana, Nevada,
New Mexico, Oregon, Pennsylvania, Rhode Island, Utah and Washington.
Principles of Consolidation and Presentation
The accompanying consolidated financial statements include Citadel
Broadcasting Company and its wholly-owned subsidiary (Company). All significant
intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Derivative Financial Instruments
The Company uses an interest rate swap agreement to hedge the effects of
fluctuations in interest rates. Amounts receivable or payable under the interest
rate swap agreement are recognized as interest expense or income.
Property and Equipment
Assets acquired in business combinations accounted for using the purchase
method of accounting are recorded at their estimated fair value upon acquisition
as determined by management or by independent appraisal. Property and equipment
additions are recorded at cost. Depreciation of property and equipment is
determined using the straight-line method over the estimated useful lives of the
related assets.
Intangible Assets
Intangible assets with determinable lives have been allocated among various
categories of customer-based or market-based intangibles at their estimated fair
value upon acquisition as determined by management or by independent appraisal.
Goodwill represents the excess of cost over the fair value of tangible assets
and intangible assets with determinable lives. Amortization is provided on the
straight-line method over the estimated useful lives of the related assets (see
note 5). The Company's policy is to write-off intangible assets once they have
become fully amortized. The useful lives and recoverability of long-lived assets
are evaluated at least annually. This evaluation encompasses the undiscounted
historical broadcast cash flow of each station
F-9
<PAGE> 204
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
and existing broadcast cash flow multiples for sales of similar radio properties
to estimate the potential selling price for the station and, therefore,
recoverability of the assets.
Barter Transactions
Barter contracts are agreements entered into under which the Company
provides commercial air time in exchange for goods and services used principally
for promotional, sales and other business activities. An asset and liability are
recorded at the fair market value of the goods or services received. Revenue is
recorded and the liability is relieved when commercials are broadcast and
expense is recorded and the asset is relieved when goods or services are used.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Company is included in the consolidated tax returns of its
parent company, Citadel Communications.
Income (Loss) Per Share of Common Stock
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during the
period.
Revenue Recognition
Revenue is recognized as commercials are broadcast.
Local Marketing Agreements
Fees earned or incurred pursuant to various local marketing agreements are
recognized as gross broadcasting revenue or station operating expenses,
respectively, in the period that the services performed or received occur. The
Company's consolidated financial statements include broadcasting revenues and
station operating expenses of stations marketed under local marketing
agreements.
Joint Sales Agreements
Fees earned or incurred pursuant to various joint sales agreements (JSA)
are recognized as gross broadcasting revenue or station operating expenses,
respectively, pursuant to the terms in the various agreements. The Company is
allocated a percentage of the JSA stations' net revenues and operating expenses
and these amounts are recognized as gross broadcasting revenues and station
operating expenses, respectively in the period earned or incurred.
Business and Credit Concentrations
In the opinion of management, credit risk with respect to receivables is
limited due to the large number of customers and the geographic diversification
of the Company's customer base. The Company performs credit
F-10
<PAGE> 205
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
evaluations of its customers and believes that adequate allowances for any
uncollectible receivables are maintained. At December 31, 1995 and 1996 and
September 30, 1997, no receivable from any customer exceeded five percent of
gross accounts receivable nor did any customer's account exceed more than ten
percent of net broadcasting revenue for any of the periods presented.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", (SFAS No. 121) which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company adopted SFAS No. 121 in the first quarter of the fiscal year ended
December 31, 1996 and this adoption did not have a material impact on the
consolidated financial statements.
Recently Issued Accounting Pronouncements
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share" (SFAS
No. 128). This statement establishes standards for computing and presenting
earnings per share ("EPS"), and supersedes APB Opinion No. 15. The Statement
replaces primary EPS with basic EPS and requires dual presentation of basic and
diluted EPS. The Statement is effective for both interim and annual periods
ending after December 15, 1997. Earlier application is not permitted. After
adoption, all prior period EPS data shall be restated to conform to SFAS No.
128. The pro forma effect of the Company adopting Statement 128 is that basic
and diluted EPS would have been $(137.03) and $(137.03) for the year ended
December 31, 1994, $(108.64) and $(108.64) for the year ended December 31, 1995
and $(93.40) and $(93.40) for the year ended December 31, 1996 and $(27.81) and
$(27.81) for the nine months ended September 30, 1996 and $(160.42) and
$(160.42) for the nine months ended September 30, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes requirements for disclosure of comprehensive
income and becomes effective for the Company for the year ending December 31,
1998. Comprehensive income includes such items as foreign currency translation
adjustments and unrealized holding gains and losses on available for sale
securities that are currently being presented by the Company as a component of
stockholders' equity (deficit).
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
disclosure about operating segments in annual financial statements and selected
information in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. This statement supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise." The new standard becomes effective for the
Company for the year ending December 31, 1998, and requires that comparative
information from earlier years be restated to conform to the requirements of
this standard.
Reclassifications
Certain 1994 and 1995 balances have been reclassified to conform to the
1996 presentation.
F-11
<PAGE> 206
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(2) ACQUISITIONS AND DISPOSITIONS
1994 Acquisitions and Dispositions
During 1994, the Company acquired the assets of three FM and two AM radio
stations from various parties as follows:
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE STATION MARKET SERVED PRICE
------------------------ ----------------- -------------------- ----------
<S> <C> <C> <C>
May 13, 1994............ KKOB-AM/KKOB-FM Albuquerque, NM $7,780,000
May 13, 1994............ KQEO-AM/KMGA-FM Albuquerque, NM 1,450,000
May 13, 1994............ KKMG-FM Colorado Springs, CO 912,500
</TABLE>
The acquisitions were accounted for by the purchase method of accounting
and, accordingly, the purchase price was allocated to current assets as well as
noncurrent tangible and intangible assets based on their fair values at the date
of acquisition. The acquisitions were funded with the proceeds from new notes
payable. The purchase price, including acquisition costs of $449,292, was
allocated as follows:
<TABLE>
<S> <C>
Property and equipment.......................... $ 3,655,000
Intangible assets............................... 6,909,958
Accounts receivable............................. 26,834
-----------
$10,591,792
===========
</TABLE>
On March 15, 1994, the Company acquired the call letters and the format,
along with certain tangible assets, of radio station KOH-AM in Reno, Nevada for
approximately $1,400,000. Property and equipment was allocated $100,000 of the
purchase price and the remaining $1,300,000 was allocated to intangible assets
based on their fair values at the date of acquisition. The Company replaced the
call letters of its existing KROW-AM station in Reno with the acquired call
letters.
On September 15, 1994, the Company sold the assets of KHEZ-FM in Boise,
Idaho for $550,000. A gain of approximately $116,000 was recognized on the sale.
1995 Dispositions
On February 15, 1995, the Company sold the assets of KBOZ-AM, KBOZ-FM and
KATH-FM, and KCTR-FM, KDWG-AM and KKBR-FM in Boseman and Billings, Montana,
respectively for $5,400,000. A gain of approximately $800,000 was recognized on
the sale.
1996 Acquisitions
During 1996, the Company acquired the assets of five FM and one AM radio
stations from various parties as follows:
<TABLE>
<CAPTION>
PURCHASE
ACQUISITION DATE STATION MARKET SERVED PRICE
- -------------------- ------------------ --------------------- -----------
<S> <C> <C> <C>
June 28, 1996....... KHFM-FM/KHFN-AM Albuquerque, NM $ 5,500,000
June 28, 1996....... KASY-FM Albuquerque, NM 5,000,000
June 28, 1996....... KDJK-FM Modesto, CA 5,010,000
October 1, 1996..... KKLI-FM Colorado Springs, CO 3,450,000
October 9, 1996..... KRST-FM Albuquerque, NM 20,000,000
</TABLE>
F-12
<PAGE> 207
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The acquisitions were accounted for by the purchase method of accounting
and, accordingly, the purchase price was allocated to current assets as well as
noncurrent tangible and intangible assets based on their fair values at the date
of acquisition. The acquisitions were funded with the proceeds from new notes
payable and a securities purchase and exchange agreement. The purchase price,
including acquisition costs of $782,881, was allocated as follows:
<TABLE>
<S> <C>
Property and equipment.......................... $ 2,446,594
Intangible assets............................... 37,135,955
Accounts receivable............................. 160,332
-----------
$39,742,881
===========
</TABLE>
Pro Forma
The following summary, prepared on a pro forma basis, presents the results
of operations as if all the above noted radio stations had been acquired as of
January 1, 1994, after including the impact of the amortization of intangible
assets, depreciation of fixed assets and increased interest expense on the
acquisition debt since the date of acquisition.
<TABLE>
<CAPTION>
UNAUDITED
----------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net broadcasting revenue.................... $ 42,432,789 41,341,551 48,520,743
Operating income (loss)..................... (3,281,080) (1,407,363) 2,802,488
Net loss.................................... (9,834,603) (7,851,613) (6,017,738)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the radio stations had been owned for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
1997 Acquisitions
Effective as of January 1, 1997, Citadel Communications acquired Deschutes
River Broadcasting, Inc. ("Deschutes"). At the time of the acquisition,
Deschutes owned 18 radio stations in Montana, Oregon and Washington. The total
consideration paid was approximately $26.0 million.
The acquisition was accounted for under the purchase method of accounting
and, accordingly, the purchase price was allocated to current assets as well as
noncurrent tangible assets based on their fair value as determined by
management. Although Deschutes was a sister company to the Company until June
20, 1997 when Deschutes was merged with and into the Company, the operating
results of the Company include Deschutes from January 1, 1997 as the entities
were under common control.
F-13
<PAGE> 208
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Cash............................................ $ 823,968
Accounts receivable............................. 1,856,984
Prepaid expenses................................ 519,862
Fixed assets.................................... 3,153,930
Intangible assets............................... 20,665,947
Other assets.................................... 146,026
Accounts payable................................ (337,968)
Accrued liabilities............................. (820,392)
Capital lease obligation........................ (47,735)
</TABLE>
On February 14, 1997, the Company acquired 100% of the stock of radio
station KENZ-FM in Salt Lake City, Utah for a purchase price of $5,590,000. The
acquisition was accounted for by purchase method of accounting and, accordingly,
the purchase price was allocated to current assets as well as noncurrent
tangible assets based on their fair value as determined by management. The
acquisition was funded with the proceeds from new notes payable. The purchase
price, including acquisition costs of $31,619 was allocated as follows:
<TABLE>
<S> <C>
Property and equipment.......................... $ 550,000
Intangible assets............................... 4,981,619
Accounts receivable............................. 333,700
Prepaid expenses................................ 7,000
Accounts payable and accrued liabilities........ (250,700)
</TABLE>
On April 10, 1997, the Company acquired substantially all of the assets of
radio station KBER-FM in Salt Lake City, Utah for a purchase price of
$7,760,000. The acquisition was accounted for by the purchase method of
accounting and, accordingly, the purchase price was allocated to current assets
as well as noncurrent tangible assets based on their fair values as determined
by management. In conjunction with the acquisition, the Company borrowed an
additional $7,000,000 on its Senior Credit Facility. The purchase price was
allocated as follows:
<TABLE>
<S> <C>
Property and equipment........................... $ 290,000
Intangible assets................................ 7,470,000
</TABLE>
On July 3, 1997, the Company acquired all of the issued and outstanding
capital stock of Tele-Media Broadcasting Company ("Tele-Media") for a purchase
price of approximately $116 million. Tele-Media's assets include 14 FM and nine
AM radio stations in Pennsylvania, Rhode Island and Illinois, as well as two FM
radio stations and one AM radio station in Wilkes-Barre/Scranton, Pennsylvania
that are operated under an LMA and a JSA, respectively. The Company has the
option to purchase the LMA and JSA stations. The acquisition was accounted for
by the purchase method of accounting and, accordingly, the purchase price was
allocated to current assets and liabilities as well as noncurrent tangible
assets based on their fair market values as determined by management. In
conjunction with the acquisition, the Company issued $101 million in
F-14
<PAGE> 209
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
senior subordinated notes and $100 million in exchangeable preferred stock. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Cash........................................... $ 3,725
Accounts receivable............................ 2,907,371
Prepaid expenses............................... 187,764
Property and equipment......................... 8,503,714
Intangible assets.............................. 105,688,373
Other assets................................... 10,100
Accounts payable............................... (1,131,975)
Other debt..................................... (431,926)
</TABLE>
On July 17, 1997, the Company acquired radio station KNHK-FM in Reno,
Nevada for a purchase price of $1.3 million. The acquisition was accounted for
by the purchase method of accounting and, accordingly, the purchase price was
allocated to current assets as well as noncurrent tangible assets based on their
fair market values as determined by management. The purchase price was allocated
as follows:
<TABLE>
<S> <C>
Property and equipment........................... $ 75,000
Intangible assets................................ 1,225,000
</TABLE>
On September 25, 1997, the Company acquired KTHK-FM in Tri-Cities,
Washington for a purchase price of approximately $600,000. The acquisition was
accounted for by the purchase method of accounting and, accordingly, the
purchase price was allocated to current assets as well as noncurrent tangible
assets based on their fair market values as determined by management. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Property and equipment............................ $100,000
Intangible assets................................. 500,000
</TABLE>
On September 29, 1997, the Company acquired radio station WXEX-FM and
Edgenet LLC, an internet access provider in Providence, Rhode Island for a
purchase price of $4.25 million. The acquisition was accounted for by the
purchase method of accounting and, accordingly, the purchase price was allocated
to current assets as well as noncurrent tangible assets based on their fair
market values as determined by management. The purchase price was allocated as
follows:
<TABLE>
<S> <C>
Property and equipment........................... $ 500,000
Intangible assets................................ 3,750,000
</TABLE>
(3) NOTE RECEIVABLE
During 1996 the Company made various advances to Deschutes, a non-related
party, to allow Deschutes to acquire various radio stations and pay-off existing
debt, in conjunction with the acquisition of Deschutes by Communications. These
advances were funded through borrowings the Company made on the Senior Credit
Facility and advances from its parent company. As of December 31, 1996,
$18,251,402 was due under these advances; of this amount, approximately
$8,600,000 is included in note payable to parent company.
F-15
<PAGE> 210
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996 and September 30, 1997
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30, ESTIMATED
1995 1996 1997 USEFUL LIFE
----------- ---------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land............................ $ 567,785 569,638 2,175,228 --
Buildings and improvements...... 1,033,896 1,217,287 3,790,796 5-30 years
Transmitters, towers and
equipment..................... 12,585,421 15,509,084 23,638,434 5-15 years
Office furniture and
equipment..................... 2,236,823 3,268,426 5,724,105 3-5 years
Construction in progress........ 225,587 577,289 709,632 --
----------- ---------- ----------
16,649,512 21,141,724 36,038,195
Less accumulated depreciation
and amortization.............. (3,981,982) (5,933,155) (8,417,227)
----------- ---------- ----------
$12,667,530 15,208,569 27,620,968
=========== ========== ==========
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 and September 30, 1997
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30, ESTIMATED
1995 1996 1997 USEFUL LIFE
------------ ----------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Goodwill...................... $ 9,077,182 28,925,936 110,319,483 15 years
Broadcast licenses............ 7,244,983 26,262,983 105,498,289 15 years
Noncompetition agreements..... 4,977,018 5,168,854 705,285 3-5 years
Local marketing agreements.... 1,909,998 1,909,998 1,909,998 5 years
Presold commercials........... -- 496,380 -- less than 1
year
Premium lease space........... 49,552 161,787 161,787 1-13 years
On-air talent contracts....... 1,231,634 1,383,323 -- 1-3 years
Subcarrier antenna income..... 118,284 219,162 100,878 1-4 years
Programming contracts......... 500,000 503,000 3,000 3 years
----------- ---------- ----------
25,108,651 65,031,423 218,698,720
Less accumulated
amortization................ (10,015,517) (13,229,588) (11,663,103)
----------- ---------- ----------
$ 15,093,134 51,801,835 207,035,617
=========== ========== ==========
</TABLE>
F-16
<PAGE> 211
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(6) ACCRUED LIABILITIES
Accrued liabilities at December 31, 1995 and 1996 and September 30, 1997
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1995 1996 1997
---------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Interest.................................................. $ 891,155 -- 2,458,750
Music license fees........................................ 66,471 245,715 241,911
Compensation and commissions.............................. 621,748 1,237,392 2,512,175
Dividends................................................. 246,198 -- --
Other..................................................... 557,945 818,609 1,634,176
---------- --------- -------------
$2,383,517 2,301,716 6,847,012
========= ======== ==========
</TABLE>
(7) NOTES PAYABLE
Notes payable at December 31, 1995 and 1996 and September 30, 1997 consist
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to financial institution (Senior
Credit Facility), interest payable
quarterly at the prime rate (8.5% at
December 31, 1995) plus 2.5%, principal due
quarterly in amounts ranging from $350,000
to $750,000 through April 1, 1999, at which
time all outstanding amounts are due in
full, subject to optional prepayments, paid
in full in 1996 (note 10).................. $31,310,385 -- --
Note payable to financial institution (Senior
Credit Facility), interest payable at the
LIBOR rate (5.78% at December 31, 1996 and
5.6563% at September 30, 1997) plus 2.75%,
principal due quarterly in amounts ranging
from $2,500,000 to $5,000,000 through June
30, 2003, at which time all outstanding
amounts are due in full, subject to
optional prepayments....................... -- 77,584,060 50,584,060
----------- ---------- ----------
31,310,385 77,584,060 50,584,060
Less current maturities...................... 1,919,808 2,500,000 --
----------- ---------- ----------
Long-term portion............................ $29,390,577 75,084,060 50,584,060
=========== ========== ==========
</TABLE>
In 1996, the Company entered into a financing agreement for a term loan up
to a maximum of $85,000,000 (Senior Credit Facility). The agreement allows for
additional borrowings of $65,000,000 represented by a revolving loan, above the
term loan maximum. Maximum borrowings, including term and revolving loans, is
$150,000,000 under the Senior Credit Facility. The Company must pay, on a
quarterly basis, an unused commitment fee equal to the maximum revolving loan
commitment less the average of the outstanding principal balance for the
preceding quarter, multiplied by .125% or if the total leverage ratio (as
defined in the agreement) calculated as of the last day of the preceding quarter
was less than 4.5, the commitment fee is .09375%. Commitment fees paid in 1996
were $74,931 and $280,926 in the nine month
F-17
<PAGE> 212
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
period ended September 30, 1997. The agreement requires that the Company enter
into an interest rate swap agreement for a period of at least two years. See
note 22 for information on the interest rate swap agreement.
The Senior Credit Facility is secured by a pledge of the common stock of
the Company. Various debt covenants place restrictions on, among other things,
indebtedness, acquisitions, dividends, capital expenditures and the sale or
transfer of assets and provide for certain minimum operating cash flows for the
Company and the individual radio markets. The debt covenant provisions also
include certain financial ratio covenants, the most restrictive in nature being:
total debt to adjusted operating cash flow < 6.5 times, total debt to
acquisition adjusted operating cash flow < 6.5 times and consolidated operating
cash flow to interest expense >1.50 times. At December 31, 1996 and September
30, 1997, the Company was in compliance with all debt covenant provisions.
The required aggregate principal payments as of December 31, 1996,
excluding the consideration of any payments required based upon annual excess
cash flow (as defined), are as follows:
<TABLE>
<S> <C>
1997............................................ $ 2,500,000
1998............................................ 10,000,000
1999............................................ 12,500,000
2000............................................ 14,000,000
2001............................................ 16,000,000
Thereafter...................................... 22,584,060
-----------
$77,584,060
===========
</TABLE>
On July 3, 1997, the payment terms of the Senior Credit Facility were
revised in connection with the issuance of the Senior Subordinated Notes (see
note 8).
(8) SENIOR SUBORDINATED NOTES PAYABLE
On July 3, 1997, the Company completed the issuance of $101 million in
10 1/4% Senior Subordinated Notes (Notes) due 2007. The Notes will be redeemable
at the option of the Company, in whole or in part, at any time on or after July
1, 2002. In addition, at any time prior to July 1, 2000, the Company may, at its
option, redeem a portion of the Notes with the net proceeds of one or more
Public Equity Offerings, at a redemption price equal to 110.25% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
redemption. Senior subordinated notes payable at September 30, 1997 consist of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
Senior subordinated notes payable, interest payable
semi-annually at 10 1/4%, notes redeemable at the option of
the Company, in whole or in part, at any time on or after July
1, 2002 with the remaining principal due July 1, 2007, face
amount of $101,000,000 at September 30, 1997, net of discount
of $2,709,958................................................. $ 98,290,042
</TABLE>
F-18
<PAGE> 213
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(9) NOTES PAYABLE TO RELATED PARTIES
Notes payable to shareholders of Citadel Communications at December 31,
1995 consisted of the following:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Senior subordinated notes payable, face amount $4,000,000,
interest payable quarterly at the U.S. Treasury rate plus
4.15% (fixed at 10.4% until October 1, 1996), principal due in
full October 1, 1999, subject to optional prepayments, net of
unamortized discount of $222,475, paid in full in 1996........ $ 3,777,525
Junior subordinated note payable, interest only payments due
quarterly at 12%, principal due in full June 30, 2000, subject
to optional prepayments, paid in full in 1996................. 7,000,000
-----------
$10,777,525
===========
</TABLE>
(10) OTHER LONG-TERM OBLIGATIONS
Other long-term obligations at December 31, 1995 and 1996 and September 30,
1997 consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
1995 1996 -------------
-------- --------- (UNAUDITED)
<S> <C> <C> <C>
Noncompetition agreement with former
shareholder of Citadel Communications
due June 1996, face amount $25,001,
non-interest bearing with interest
imputed at 8.5%, net of discount of
$609, paid in full in 1996........... $ 24,392 -- --
Various noncompetition and consulting
agreements with the sellers of radio
stations acquired, due at various
dates through July 2003, face amount
of $647,218 and $486,113 and $372,919
at December 31, 1995 and 1996 and
September 30, 1997, respectively,
non-interest bearing with interest
imputed at 8.5% to 9.0%, net of
discount of $78,500, $54,540 and
$35,442 in 1995, 1996 and 1997,
respectively......................... 568,718 431,573 337,477
Promissory note, interest payable
monthly at 8% per annum, principal
due in full March 20, 2002........... -- -- 147,980
Prepayment premium on extinguishment of
debt (a)............................. -- 881,818 802,880
Capital leases......................... -- -- 306,900
-------- --------- ---------
593,110 1,313,391 1,595,237
Less current maturities................ 362,392 435,791 243,574
-------- --------- ---------
Long-term portion...................... $230,718 877,600 1,351,663
======== ========= =========
</TABLE>
F-19
<PAGE> 214
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The required aggregate principal payments as of December 31, 1996,
excluding the amortization of debt discount are as follows:
<TABLE>
<S> <C>
1997............................................. $ 435,791
1998............................................. 162,269
1999............................................. 124,716
2000............................................. 69,151
2001............................................. 46,793
Thereafter....................................... 474,671
----------
$1,313,391
==========
</TABLE>
- ---------------
(a) On October 9, 1996, the Company extinguished its long-term debt of
$31,310,385, payable to a financial institution, and its note payable to a
related party of $7,000,000. The early retirement of the long-term debt
resulted in a $1,769,000 extraordinary loss due to prepayment premiums and
the write-off of debt issuance costs. The prepayment premium can be reduced
on a quarterly basis dependent on the outstanding balance of the Senior
Credit Facility. The balance of the prepayment premium is due upon the
repayment of the Senior Credit Facility.
(11) LEASE COMMITMENTS
The Company leases certain tower sites, transmitters and equipment,
automobiles, office equipment and an airplane. The following is a schedule by
year of future minimum rental payments required under operating leases that have
an initial or remaining noncancelable lease term in excess of one year as of
December 31, 1996:
<TABLE>
<S> <C>
1997............................................ $ 1,425,503
1998............................................ 1,414,926
1999............................................ 1,389,561
2000............................................ 1,347,258
2001............................................ 1,340,597
Thereafter...................................... 4,173,404
-----------
$11,091,249
===========
</TABLE>
Total rental expense was $633,666, $744,395 and $1,101,237 for the years
ended December 31, 1994, 1995 and 1996, respectively, and $758,011 and
$1,589,421 for the nine month periods ended September 30, 1996 and 1997,
respectively.
(12) INCOME TAXES
The Company is included in the consolidated tax returns of Citadel
Communications and calculates its tax provision or benefit as though it filed a
separate return. For the years ended December 31, 1994, 1995 and 1996, the
Company generated a net loss for both financial reporting and income tax
purposes, therefore no tax provision has been recorded. At December 31, 1996,
Citadel Communications has net operating loss carryforwards for federal income
tax purposes of approximately $16,800,000 which begin to expire in 2007.
On June 28, 1996, Citadel Communications underwent an ownership change in
accordance with Section 382 of the Internal Revenue Code. Due to this change,
the net operating losses of Citadel
F-20
<PAGE> 215
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
Communications are subject to limitation in future years. The approximate amount
of the net operating loss which may be used in any one year is $4,400,000.
The reconciliation of the expected income tax benefit calculated at the
U.S. federal statutory rate to the actual income tax benefit per the financial
statements for the years ended December 31, 1994, 1995 and 1996 and the nine
months ended September 30, 1997 is as follows:
<TABLE>
<CAPTION>
1997
1994 1995 1996 -----------
----------- ---------- ---------- (UNAUDITED)
<S> <C> <C> <C> <C>
U.S. federal statutory rate applied to
the loss before income taxes and
extraordinary item.................... $(1,873,861) (1,487,717) (679,046) (1,058,753)
Amortization of goodwill................ 17,478 16,563 186,844 122,767
Net operating losses providing no
current benefit for federal income tax
purposes.............................. 1,847,534 1,467,025 526,304 898,305
Other................................... 8,849 4,129 (34,102) (12,560)
----------- ---------- -------- ----------
$ -- -- -- --
=========== ========== ======== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets, liabilities and the valuation allowance are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ 1997
1995 1996 -------------
----------- ---------- (UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Receivables, principally due to valuation
allowances........................................ $ 195,360 248,422 415,160
Intangible assets.................................... 17,145 -- --
Net operating loss carryforward...................... 6,811,470 6,720,659 8,776,215
Accrued liabilities not deductible................... 25,330 18,465 81,267
----------- ---------- -----------
Total deferred tax assets.................... 7,049,305 6,987,546 9,272,642
Valuation allowance.................................. (6,590,905) (5,104,277) (7,266,396)
----------- ---------- -----------
Net deferred tax assets...................... 458,400 1,883,269 2,006,246
----------- ---------- -----------
Deferred tax liabilities:
Property and equipment, principally due to
accelerated depreciation.......................... (458,400) (1,883,269) (2,006,246)
Differences between the tax basis and fair value of
intangibles and fixed assets acquired............. -- (1,585,333) (19,319,861)
----------- ---------- -----------
Total deferred tax liabilities............... (458,400) (3,468,602) (21,326,107)
----------- ---------- -----------
Net deferred tax liability............................. $ -- (1,585,333) (19,319,861)
=========== ========== ===========
</TABLE>
The valuation allowance has been increased by $3,053,457 in 1995 and
decreased by $1,486,628 in 1996 and increased by $2,162,119 for the nine months
ended September 30, 1997. The Company has established a valuation allowance for
the amount of the net deferred tax asset which management has determined that it
is more likely than not will not be realized.
F-21
<PAGE> 216
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(13) EXCHANGEABLE PREFERRED STOCK
On July 3, 1997, the Company completed the sale of $100 million of Series A
Exchangeable Preferred Stock (Exchangeable Preferred Stock). The Exchangeable
Preferred Stock has a liquidation preference of $100 per share, plus accumulated
and unpaid dividends. Dividends on the Exchangeable Preferred Stock accrue at
the rate of 13 1/4% per annum. All dividends will be payable semi-annually on
January 1 and July 1 of each year, commencing January 1, 1998. On or prior to
July 1, 2002, dividends are payable in additional shares of Exchangeable
Preferred Stock having an aggregate liquidation preference equal to the amount
of such dividends, or, at the option of the Company, in cash. Thereafter, all
dividends will be payable only in cash. The Company will be required to redeem
the Exchangeable Preferred Stock on July 1, 2009 (subject to the legal
availability of funds therefor) at a redemption price equal to the liquidation
preference thereof, plus accumulated and unpaid dividends, if any, to the date
of redemption.
(14) CITADEL COMMUNICATIONS FINANCIAL DATA
The operations of Citadel Communications (the parent company) include the
issuance of convertible preferred stock and obtaining a credit facility
including a revolving line of credit of $20 million, the proceeds of which were
advanced to the Company. Interest was charged on these advances in an amount
equal to the interest costs of Citadel Communications. There are no other costs
or expenses of Citadel Communications.
Advances from Citadel Communications, other than those representing draws
on Citadel Communications revolving line of credit, are recorded as capital
contributions from the parent company and are presented as additional paid-in
capital on the consolidated balance sheets.
On January 1, 1997, in a non-cash transaction, the Company transferred
$9,123,310 of debt under the Senior Credit Facility to Deschutes which reduced
the corresponding note receivable. In addition, on June 20, 1997, Citadel
Communications transferred the ownership of Deschutes to the Company.
F-22
<PAGE> 217
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The following is summary consolidated financial data for Citadel
Communications and its subsidiaries, including the Company:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Consolidated balance sheets:
Current assets................................. $ 14,502,740 50,547,066
Property and equipment, net.................... 15,208,569 27,620,968
Note receivable................................ 18,251,402 --
Intangible assets, net......................... 51,801,835 207,341,383
Other assets................................... 2,550,778 5,256,572
------------ -----------
Total assets........................... $102,315,324 290,765,989
============ ===========
Notes payable to related parties............... 11,817,000 --
Other current liabilities...................... 6,880,942 9,770,696
------------ -----------
Total current liabilities.............. 18,697,942 9,770,696
Notes payable, less current portion............ 75,084,060 50,584,060
Senior subordinated notes payable.............. -- 98,290,042
Other liabilities.............................. 2,462,933 20,977,290
Exchangeable preferred stock................... -- 100,153,018
Shareholders' equity........................... 6,070,389 10,990,883
------------ -----------
Total liabilities and shareholders'
equity............................... $102,315,324 290,765,989
============ ===========
Consolidated statements of operations:
Net broadcasting revenue....................... $ 45,412,806 59,978,631
Operating income............................... $ 3,744,323 4,643,872
Interest expense............................... 6,155,472 8,213,550
Other (income) expense, net.................... (413,955) (401,099)
------------ -----------
Loss before income taxes and extraordinary
item........................................ (1,997,194) (3,168,579)
Extraordinary loss on extinguishment of debt... (1,769,000) --
------------ -----------
Net loss............................... $ (3,766,194) (3,168,579)
============ ===========
</TABLE>
(15) CITADEL LICENSE FINANCIAL DATA
The operations of Citadel License include holding FCC licenses for all
stations owned by the Company and the amortization of these licenses. Citadel
License has guaranteed the Senior Subordinated Notes (note 8) and Series A
Exchangeable Preferred Stock (note 13). The guarantee is full, unconditional and
joint and several. The separate financial statements of Citadel License have not
been presented because management of the Company has determined they would not
be material to investors. There are no costs or expenses of Citadel License that
are borne by the Company.
F-23
<PAGE> 218
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The following is summary financial data for Citadel License:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
DECEMBER 31, -------------
1996
------------ (UNAUDITED)
<S> <C> <C>
Balance sheets:
Intangible assets, net (broadcast licenses)..... $ 24,035,920 90,881,962
Other assets.................................... 5,147 2,732
----------- -----------
Total assets................................. $ 24,041,067 90,884,694
=========== ===========
Shareholder's equity............................ $ 24,041,067 90,884,694
----------- -----------
Total liabilities and shareholder's equity... $ 24,041,067 90,884,694
=========== ===========
Statements of Operations:
Amortization expense............................ $ 991,901 2,873,989
----------- -----------
Net loss..................................... $ (991,901) 2,873,989
=========== ===========
</TABLE>
(16) DEFINED CONTRIBUTION PLAN
The Company has a defined contribution 401(k) plan for all employees who
are at least 21 years of age and have worked at least 1,000 hours in the year.
Under the 401(k) plan, employees can contribute up to 20% of their compensation,
subject to the maximum contribution allowed by the Internal Revenue Code.
Participants vest immediately in their contributions. The Company may make
discretionary contributions as approved by the Board of Directors. Participants'
rights to amounts contributed by the Company vest on a graded schedule over a
five-year period. During 1994, 1995, and 1996 the Company contributed $116,978,
$133,215, and $143,192, respectively, and $96,445 and $211,772 for the nine
months ended September 30, 1996 and 1997, respectively, which represented a two
percent matching of employee contributions to the 401(k) plan.
(17) TRANSACTIONS WITH RELATED PARTIES
On December 29, 1995, the Company entered into a sale-leaseback transaction
with the principal shareholder of Citadel Communications. The Company sold an
airplane for its fair value of $1,275,000 to the shareholder resulting in a loss
of $74,327. The operating lease commenced on December 29, 1995 with monthly
payments of $17,250 due through December 31, 2001.
(18) LOCAL MARKETING AGREEMENTS
At December 31, 1996, the Company has local marketing agreements to market
stations KFNZ-AM, KBEE-FM, and KBER-FM in Salt Lake City, Utah. The agreements
principally provide for the Company to supply specified programming to the
brokered stations and enables the sales staff of the Company to sell advertising
time on the station for a fixed fee to be paid by the Company. The agreements
also provide the Company with the option to purchase the stations. The Company's
financial statements include the broadcasting revenue and station operating
expenses of the brokered stations.
The local marketing agreements enable the Company to extend or terminate
the agreements at the Company's option through December 31, 1997. The fees paid
under the local marketing agreements amounted to $436,090, $350,000 and
$1,414,527 for the years ended December 31, 1994, 1995 and 1996 and $1,121,586
and $1,355,991 for the nine months ended September 30, 1996 and 1997,
respectively.
F-24
<PAGE> 219
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(19) JOINT SALES AGREEMENTS
On January 15, 1996, the Company entered into a joint sales agreement (JSA)
to sell advertising for radio stations KEYF-AM/FM, KUDY-AM and KKZX-FM in
Spokane, Washington and radio stations KVOR-AM, KSPZ-FM, KTWK-AM, and KVUU-FM in
Colorado Springs, Colorado. As stated in the JSA agreement, JSA revenue is
calculated as 55% of the broadcast cash flows of these radio stations and all
Company owned radio stations in these markets, with the exception of KKLI in
Colorado Springs which is not included in the JSA calculation.
On April 22, 1996, the Company entered into a joint sales agreement for
radio station KENZ-FM in Salt Lake City, Utah. The Company's financial
statements include all sales expenses for the station as well as revenue for the
JSA fee calculated at 30% of net revenue of the station. On February 14, 1997
the Company acquired KENZ-FM. See note 2.
(20) SUPPLEMENTAL FINANCIAL INFORMATION
The Company paid cash of $3,440,392, $5,237,240 and $7,065,546 for interest
for the years ended December 31, 1994, 1995 and 1996 and $2,242,663 and
$5,853,590 for the nine months ended September 30, 1996 and 1997, respectively.
Barter revenue included in gross broadcasting revenue and barter expenses
included in station operating expenses, excluding depreciation and amortization,
amounted to $3,053,671, $3,087,871, $3,335,024, $2,307,253 and $4,711,253, and
$2,891,310, $3,214,284, $3,029,665, $1,976,357 and $4,257,068 for the years
ended December 31, 1994, 1995 and 1996 and the nine months ended September 30,
1996 and 1997, respectively.
A summary of additions and deductions related to the allowance for accounts
receivable for the years ended December 31, 1994, 1995 and 1996 and for the nine
months ended September 30, 1997 follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF END OF
PERIOD ADDITIONS DEDUCTIONS PERIOD
------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1994................. $234,892 383,275 (237,636) 380,531
Year ended December 31, 1995................. $380,531 484,702 (350,700) 514,533
Year ended December 31, 1996................. $514,533 421,378 (314,857) 621,054
Nine months ended September 30, 1997......... $621,054 603,558 (186,712) 1,037,900
</TABLE>
(21) LITIGATION
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. Management believes that such litigation and claims
will be resolved without a material effect on the Company's financial position.
The Company has received two civil investigative demands ("CIDs") from the
Antitrust Division of the U.S. Department of Justice. One CID addresses the
Company's acquisition of station KRST in Albuquerque, New Mexico and the second
CID addresses the joint sales agreement for stations in Spokane, Washington and
Colorado Springs, Colorado. The Company has provided the requested information
in response to each CID, and at present has been given no indication from the
Department of Justice regarding its intended future actions.
F-25
<PAGE> 220
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(22) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires that the Company disclose
estimated fair values for its financial instruments. The following summary
presents a description of the methodologies and assumptions used to determine
such amounts.
Limitations
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument; they
are subjective in nature and involve uncertainties, matters of judgment and,
therefore, cannot be determined with precision. These estimates do not reflect
any premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular instrument. Changes in assumptions
could significantly affect these estimates.
Since the fair value is estimated as of December 31, 1995 and 1996, the
amounts that will actually be realized or paid at settlement or maturity of the
instruments could be significantly different.
Cash equivalents
The carrying amount is assumed to be the fair value because of the
liquidity of these instruments.
Accounts receivable and notes receivable
The carrying amount is assumed to be the fair value because of the
short-term maturity of the portfolio. The carrying amount of the non-current
note receivable is assumed to be the fair value because the note receivable was
converted by Citadel Communications into a portion of the purchase price of
Deschutes on January 1, 1997 at the carrying value.
Accounts payable and accrued liabilities
The carrying amount approximates fair value because of the short-term
maturity of these instruments.
Notes payable, notes payable to related parties, note payable to parent
company and other long-term
obligations
The fair value of the Company's notes payable, note payable to related
parties, notes payable to parent company and other long-term obligations
approximate the terms in the marketplace at which they could be replaced.
Therefore, the fair value approximates the carrying value of these financial
instruments.
In 1996, the Company entered into an interest rate swap agreement with a
financial institution in accordance with the terms of its Senior Credit
Facility. At December 31, 1996, the Company had accrued $1,900 in interest
expense related to the interest rate swap agreement. The fair value of the
interest rate swap as of December 31, 1996 was $190,000 as determined by the
financial institution and represents an unrealized gain. The fair value of the
interest rate swap is the estimated amount that the financial institution would
receive or pay to terminate the swap agreement at the reporting date, taking
into account current interest rates and the current creditworthiness of the swap
counterparties.
F-26
<PAGE> 221
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(23) SUBSEQUENT EVENTS
On September 11, 1997, the Company entered into an asset purchase agreement
with Endless Mountain Broadcasting, Inc. to purchase substantially all of the
assets of radio stations WEMR (AM/FM) in Wilkes-Barre/Scranton, Pennsylvania for
$815,000. The purchase is subject to approval from the FCC. The Company began
operating the stations under a Local Marketing Agreement (LMA) on September 15,
1997.
On September 26, 1997, the Company entered into an asset purchase agreement
with S&P Broadcasting Limited Partnership I, S&P Broadcasting Limited
Partnership II and Swanson Holdings, Ltd. to purchase substantially all of the
assets of radio stations WSGD-FM, WDLS-FM and WCDL-AM in Wilkes-Barre/ Scranton,
Pennsylvania for $6.0 million. The purchase is subject to approval from the FCC.
The Company began operating the stations under an LMA on October 1, 1997.
On September 29, 1997, the Company entered into an agreement with
Talleyrand Broadcasting, Inc. to sell substantially all of the assets of radio
stations WQKK-FM and WGLU-FM in Johnstown, Pennsylvania and radio stations
WRSC-AM, WQWK-FM, WBLF-AM and WIKN-FM in State College, Pennsylvania for $8.5
million. The sale is subject to approval from the FCC.
On September 29, 1997, the Company entered into an asset purchase agreement
with Wilson Group, LLC to purchase KIZN-FM and KZMG-FM in Boise, Idaho for a
purchase price of $14.1 million. The purchase is subject to approval from the
FCC. The Company began operating the stations under an LMA on November 1, 1997.
On September 29, 1997, the Company entered into a stock purchase agreement
with Pacific Northwest Broadcasting Corporation (Pacific) and Wilson Properties
LP, to purchase all of the issued and outstanding capital stock of Pacific for
$13.2 million. Pacific's assets include radio stations KQFC-FM, KKGL-FM and
KBOI-AM in Boise, Idaho. The purchase is subject to approval from the FCC. The
Company began operating the stations under an LMA on November 1, 1997.
On September 29, 1997, the Company entered into an agreement to acquire
real property in Boise, Idaho for $1.2 million.
On October 15, 1997, the Company acquired all of the issued and outstanding
stock of Snider Corporation for approximately $9 million. Snider Corporation's
assets include two FM radio stations, two AM radio stations, the right to
construct and operate an additional FM radio station and one state-wide news
network all located in Little Rock, Arkansas. The acquisition will be accounted
for using the purchase method of accounting.
On October 15, 1997, the Company acquired real estate in Little Rock,
Arkansas from the shareholders of Snider Corporation for a purchase price of
$3.0 million.
On October 15, 1997, the Company acquired all of the issued and outstanding
stock of Snider Broadcasting Corporation (Snider Broadcasting) for approximately
$5.5 million. Snider Broadcasting's assets include one FM radio station in
Little Rock, Arkansas. The acquisition will be accounted for using the purchase
method of accounting.
On October 15, 1997, the Company acquired KESR-FM in Little Rock, Arkansas
for a purchase price of $7.5 million. The acquisition will be accounted for
using the purchase method of accounting.
On October 21, 1997, the Company acquired WLEV-FM in Allentown,
Pennsylvania for a purchase price of $23.0 million. The acquisition will be
accounted for using the purchase method of accounting.
F-27
<PAGE> 222
CITADEL BROADCASTING COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DATA AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
On October 24, 1997, the Company acquired radio stations KBEE-FM and
KFNZ-AM in Salt Lake City, Utah for a purchase price of $2.9 million. The
acquisition will be accounted for using the purchase method of accounting.
On November 4, 1997, the Company acquired KLAL-FM in Little Rock, Arkansas
for a purchase price of $1.5 million. The acquisition will be accounted for
using the purchase method of accounting.
On November 4, 1997, the Company acquired KURB-FM, KVLO-FM and KLIH-AM in
Little Rock, Arkansas for a purchase price of $11.4 million. The acquisition
will be accounted for using the purchase method of accounting.
On November 18, 1997, the Company acquired WHKK-FM in Providence, Rhode
Island for a purchase price of $4.0 million. The acquisition will be accounted
for using the purchase method of accounting.
F-28
<PAGE> 223
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Deschutes River Broadcasting, Inc.:
We have audited the accompanying consolidated balance sheets of Deschutes
River Broadcasting, Inc. and subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Deschutes
River Broadcasting, Inc. and subsidiaries as of December 31, 1995 and 1996, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Portland, Oregon
February 14, 1997
F-29
<PAGE> 224
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ -- $ 823,968
Accounts receivable, less allowance for doubtful accounts of
$49,952 and $122,714 at December 31, 1995 and 1996,
respectively................................................ 1,283,847 1,856,984
Prepaid expenses and other current assets...................... 238,868 367,621
Current portion of note receivable............................. -- 156,000
----------- -----------
Total current assets........................................ 1,522,715 3,204,573
Intangible assets, net (note 4).................................. 5,281,109 14,142,899
Long-term portion of note receivable............................. -- 143,000
Property and equipment, net (notes 3 and 5)...................... 3,606,655 3,153,930
Deposits......................................................... 6,542 3,026
----------- -----------
$10,417,021 $20,647,428
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft................................................. 23,133 --
Line of credit (notes 7 and 13)................................ 418,168 --
Accounts payable............................................... 185,071 467,873
Accrued compensation and commissions........................... 313,734 542,502
Other accrued expenses......................................... 128,510 147,985
Current portion of long-term debt (notes 7 and 13)............. 485,983 --
Accrued interest payable (notes 6, 12 and 13).................. 335,501 255,001
----------- -----------
Total current liabilities................................... 1,890,100 1,413,361
Advance (note 13)................................................ -- 9,123,310
Note payable (notes 6 and 13).................................... -- 8,867,000
Long-term debt, less current portion (notes 7 and 13)............ 2,886,033 --
Subordinated notes payable (notes 7, 12 and 13).................. 3,156,998 --
Other long-term liabilities...................................... 38,751 47,735
----------- -----------
Total liabilities...................................... 7,971,882 19,451,406
----------- -----------
Stockholders' equity (notes 9 and 13):
Convertible preferred stock, authorized 5,000,000 shares;
issued at stated value of $1 per share:
Series A preferred, no par value, issued and outstanding
643,000 shares............................................. 643,000 643,000
Series B preferred, no par value, issued and outstanding
1,612,000 shares........................................... 1,612,000 1,612,000
Series C preferred, no par value, issued and outstanding
592,000 shares............................................. 592,000 592,000
Series D preferred, no par value, issued and outstanding
95,000 shares.............................................. 95,000 95,000
(Aggregate liquidation preference of $3,172,962 and
$3,426,798 at December 31, 1995 and 1996, respectively)
Common stock, authorized 10,000,000 shares; no par value; -0-
and 1,096,902 shares issued and outstanding at December 31,
1995 and 1996, respectively................................. -- 136,471
Accumulated deficit............................................ (496,861) (1,882,449)
----------- -----------
Total stockholders' equity............................. 2,445,139 1,196,022
----------- -----------
Commitments and contingencies (notes 9, 10, 12 and 13)........... $10,417,021 $20,647,428
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 225
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Revenues:
Net broadcasting revenues........................................ $6,845,107 $ 8,843,074
----------- ---------
Operating expenses:
Station operating expenses:
Selling, promoting, programming and engineering............... 4,053,145 5,554,632
General and administrative.................................... 1,297,835 1,780,584
Corporate general and administrative expenses.................... 374,158 488,831
Management fees (note 12)........................................ 171,128 215,938
Depreciation and amortization.................................... 765,200 1,173,349
----------- ---------
Income (loss) from operations............................ 183,641 (370,260)
----------- ---------
Nonoperating income (expenses):
Interest expense (notes 12 and 13)............................... (656,897) (1,143,893)
Gain on sale of assets........................................... -- 97,097
Other, net....................................................... 1,591 30,162
Net trade income (expense)....................................... (22,934) 1,306
----------- ---------
Nonoperating expenses, net............................... (678,240) (1,015,328)
----------- ---------
Loss before income taxes................................. (494,599) (1,385,588)
Income taxes (note 11)............................................. -- --
----------- ---------
Net loss................................................. $ (494,599) $(1,385,588)
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 226
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK NOTE TOTAL
---------------------- --------------------- ACCUMULATED RECEIVABLE -- STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT OFFICER EQUITY
--------- ---------- --------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 643,000 $ 643,000 102,000 $ 102,000 $ (2,262) $(42,000) $ 700,738
Repayment of note
receivable -- officer... -- -- -- -- -- 42,000 42,000
Issuance of common
stock............... -- -- 95,000 95,000 -- -- 95,000
Conversion of common
stock to preferred
stock............... 197,000 197,000 (197,000) (197,000) -- -- --
Issuance of preferred
stock............... 2,102,000 2,102,000 -- -- -- -- 2,102,000
Net loss............... -- -- -- -- (494,599) -- (494,599)
--------- ---------- --------- --------- ---------- ------- ----------
Balance, December 31,
1995................... 2,942,000 2,942,000 -- -- (496,861) -- 2,445,139
Issuance of common
stock............... -- -- 91,649 126,419 -- -- 126,419
Exercise of common
stock warrants...... -- -- 1,005,253 10,052 -- -- 10,052
Net loss............... -- -- -- -- (1,385,588) -- (1,385,588)
--------- ---------- --------- --------- ---------- ------- ----------
Balance, December 31,
1996................... 2,942,000 $2,942,000 1,096,902 $ 136,471 $(1,882,449) $ -- $ 1,196,022
========= ========== ========= ========= ========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 227
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................. $ (494,599) $(1,385,588)
---------- ----------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation.......................................................... 314,319 388,284
Amortization.......................................................... 450,881 785,065
Increase in allowance for doubtful accounts........................... 33,500 72,762
Gain on sale of assets................................................ -- (97,097)
Changes in assets and liabilities, net of effect of acquisitions:
Increase in accounts receivable..................................... (1,150,810) (645,898)
Increase in prepaid expenses and other current assets............... (86,257) (100,767)
Increase in accounts payable and accrued expenses................... 414,911 315,973
Increase (decrease) in accrued interest payable..................... 314,800 (59,287)
---------- ----------
Net cash used in operating activities............................ (203,255) (726,553)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of assets............................................. -- 1,150,000
Capital expenditures for property and equipment.......................... (171,177) (237,305)
Capital expenditures for property and equipment related to
acquisitions.......................................................... (2,898,359) (744,717)
Purchase of intangible assets............................................ (5,072,508) (9,532,047)
Purchase of note receivable.............................................. -- (273,416)
Other.................................................................... 11,454 2,340
---------- ----------
Net cash used in investing activities............................ (8,130,590) (9,635,145)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of note payable................................... -- 8,867,000
Proceeds from advance.................................................... -- 9,123,310
Increase (decrease) in bank overdraft.................................... 22,992 (23,133)
Proceeds from note receivable -- officer................................. 42,000 --
Proceeds from issuance of long-term debt................................. 3,306,000 --
Principal payments on long-term debt..................................... (284,649) (3,372,016)
Proceeds from issuance of subordinated debt.............................. 2,710,998 2,600,000
Principal payments on subordinated debt.................................. -- (5,756,998)
Net borrowings under line of credit...................................... 315,719 (418,168)
Proceeds from exercise of common stock warrants.......................... -- 10,052
Proceeds from issuance of preferred stock................................ 2,197,000 --
Proceeds from issuance of common stock................................... -- 126,419
Increase in other long-term liabilities.................................. 23,785 29,200
---------- ----------
Net cash provided by financing activities........................ 8,333,845 11,185,666
---------- ----------
Net increase in cash and cash equivalents........................ -- 823,968
Cash and cash equivalents, beginning of year............................... -- --
---------- ----------
Cash and cash equivalents, end of year..................................... $ -- $ 823,968
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................................... $ 321,396 $ 1,244,393
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE> 228
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(1) NATURE OF BUSINESS AND ORGANIZATION
Deschutes River Broadcasting, Inc. was formed in 1994 and is a holding
company which wholly-owns eight subsidiaries located in Oregon, Washington and
Montana. The subsidiaries own and operate radio stations and hold Federal
Communications Commission (FCC) licenses.
The subsidiary companies which own and operate radio stations are Deschutes
River Broadcasting of Oregon, Inc., Deschutes River-Tri-Cities Operating
Company, Inc., Deschutes River Broadcasting of Billings, Inc. and Deschutes
River Broadcasting of Bozeman, Inc. The subsidiary companies which hold FCC
licenses are DRB Oregon License, Inc., Deschutes River-Tri-Cities Broadcasting,
Inc., DRB Billings License, Inc. and DRB Bozeman License, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material intercompany items
and transactions have been eliminated in consolidation.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(c) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
note receivable, accounts payable and other accrued expenses, accrued interest,
advance, note payable and the line of credit approximate fair value because of
the short-term or intercompany nature of these instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
(d) Cash and Cash Equivalents
The Company considers all investments with a maturity of three months or
less at date of purchase to be a cash equivalent.
(e) Intangible Assets
Intangible assets are recorded at cost and amortized using the
straight-line method over the expected periods to be benefited, which range from
three to fifteen years. The Company assesses the recoverability of these
intangible assets by determining whether the balance can be recovered through
undiscounted future operating cash flows of the acquired asset. The amount of
asset impairment, if any, is measured based on
F-34
<PAGE> 229
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of the asset will be impacted if estimated future operating cash
flows are not achieved.
(f) Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated lives of the respective assets, which
range from five to twenty years. Maintenance and repairs are charged to
operations as incurred.
(g) Revenue
Net broadcast revenue is presented net of agency commissions and is
recognized when the advertisements are broadcast.
(h) Trade Transactions
Revenue from trade transactions (advertising provided in exchange for goods
and services) is recognized as income when advertisements are broadcast and
trade expense is recognized when merchandise is consumed or services are
performed. An asset and liability are recorded at the fair market value of the
goods or services received.
(i) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income disclosure for
employee stock option grants as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.
(j) Income Taxes
The Company accounts for taxes on the asset and liability method. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Deferred income taxes are measured
using the enacted tax rates and laws that are anticipated to be in effect when
the differences are expected to reverse.
(k) Reclassifications
Certain 1995 amounts have been reclassified to conform with current year
presentation.
(3) ACQUISITIONS
During 1995, the Company acquired two stations in Medford, Oregon for
approximately $1.9 million and six stations in the Montana markets combined for
approximately $5.4 million. The acquisitions were accounted for by the purchase
method of accounting and, accordingly, the purchase price was allocated to
F-35
<PAGE> 230
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
property and equipment and intangible assets based on their fair values at the
date of acquisition. The purchase price, including acquisition costs of $564,000
was allocated as follows:
<TABLE>
<S> <C>
Property and equipment........................... $2,600,000
Intangible assets................................ 5,264,000
-----------
$7,864,000
===========
</TABLE>
During 1996, the Company acquired ten new radio stations in various
markets. The acquisitions included three stations in Eugene, Oregon, four
stations in Medford, Oregon, two stations in Billings, Montana and one station
in Tri-Cities, Washington. The purchase prices were approximately $7.0 million,
$2.0 million, $1.35 million and $500,000, respectively.
The acquisitions were accounted for by the purchase method of accounting
and, accordingly, the purchase price was allocated to property and equipment,
intangible assets and payables based on their fair values at the date of
acquisition. The purchase price, including acquisition costs of $112,266 was
allocated as follows:
<TABLE>
<S> <C>
Property and equipment.......................... $ 806,000
Intangible assets............................... 10,206,028
Payables assumed................................ (49,762)
-----------
$10,962,266
===========
</TABLE>
During 1996, the Company disposed of three stations in Bozeman, Montana for
approximately $750,000. A gain of approximately $285,000 was recognized on the
sale.
The consolidated financial statements include the operating results of each
business from the date of acquisition. Pro forma unaudited consolidated
operating results of the Company and the acquired stations for the years ended
December 31, 1995 and 1996, assuming the acquisitions and dispositions had been
made as of January 1, 1995 and 1996, are summarized below:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net broadcasting revenues......................... $11,316,910 $11,442,108
Income (loss) from operations..................... 423,053 (436,871)
Net loss.......................................... (1,188,707) (2,215,299)
</TABLE>
These pro forma results have been prepared for comparative purposes only
and include certain adjustments for operational expenses that the Company will
not incur in its operation of the stations, for interest expense that would have
been incurred to finance the purchases, additional depreciation expense based on
the fair market value of the property and equipment acquired, and the
amortization of intangibles arising from the transactions. The pro forma
financial information is not necessarily indicative of the results of operations
had the acquisitions and dispositions been consummated as of January 1, 1995 and
1996 or of future results of operations of the consolidated entities.
F-36
<PAGE> 231
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INTANGIBLE ASSETS, NET
Intangible assets, net are as follows at December 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIFE 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Goodwill................................. 15 years $2,811,354 $ 5,037,425
FCC licenses............................. 15 years 2,325,000 9,474,000
Covenants not to compete................. 3-5 years 295,000 456,000
Organizational costs..................... 5 years 255,319 252,970
Deferred financing costs................. Loan term 88,455 --
---------- -----------
5,775,128 15,220,395
Less accumulated amortization............ 494,019 1,077,496
---------- -----------
Intangible assets, net.............. $5,281,109 $14,142,899
========== ===========
</TABLE>
(5) PROPERTY AND EQUIPMENT, NET
Property and equipment, net are as follows at December 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1995 1996
-------------- ---------- ----------
<S> <C> <C> <C>
Land................................. -- $ 312,764 $ 312,764
Buildings............................ 20 years 497,430 297,431
Leasehold improvements............... Life of lease 130,000 13,000
Tower and transmitter equipment...... 13 years 1,664,710 1,521,586
Vehicles............................. 5 years 13,260 28,724
Studio equipment..................... 7 years 1,089,163 1,153,715
Furniture and fixtures............... 5 - 7 years 236,859 352,179
---------- ----------
3,944,186 3,679,399
Less accumulated depreciation and
amortization....................... 337,531 525,469
---------- ----------
Property and equipment,
net...................... $3,606,655 $3,153,930
========== ==========
</TABLE>
(6) NOTE PAYABLE
During 1996, in contemplation of the merger discussed at note 13, the
Company obtained financing from Citadel Communications Corporation (CCC) in the
form of an $8.9 million note payable to assist in making current year
acquisitions (see note 3). The note bears interest at the higher of the Euro
dollar rate plus 300 basis points or 9% and is payable quarterly. Accrued
interest at December 31, 1996 was approximately $255,000. The note is secured by
the assets of the acquired stations and stock of the subsidiary corporations
that own the stations acquired with the note proceeds. The note payable was
required to be repaid by July 1, 1997 if the merger did not occur. On the date
of the merger, the note payable was reclassified as an intercompany liability,
therefore it is classified as a non-current liability at December 31, 1996.
F-37
<PAGE> 232
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LINE OF CREDIT, LONG-TERM DEBT AND SUBORDINATED NOTES PAYABLE
At December 31, the Company had the following debt instruments outstanding:
<TABLE>
<CAPTION>
1995 1996
---------- ------
<S> <C> <C>
Line of credit, revolving; rate of prime plus 1.5%..... $ 418,168 $ --
Bank note payable; variable and fixed rates
of 8.5% to 10%....................................... 3,372,016 --
Subordinated notes payable; rate of 11%................ 3,156,998 --
---------- ------
Total........................................ $6,947,182 $ --
========== ======
</TABLE>
Borrowings under the line of credit and bank note payable were
collateralized by substantially all assets of the Company, excluding assets
discussed in note 6.
In contemplation of the merger discussed at note 13, all debt instruments
were paid off on December 31, 1996. As the instruments were paid off by December
31, 1996, the Company did not have to comply with any financial covenants at or
for the year then ended.
(8) LEASES
The Company and its subsidiaries are obligated under certain noncancelable
operating leases for which future minimum payments are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997........................................................... $ 309,542
1998........................................................... 243,062
1999........................................................... 207,604
2000........................................................... 189,175
2001........................................................... 176,279
Subsequent to 2001............................................. 379,705
----------
$1,505,367
==========
</TABLE>
Rental expense, principally for office space, equipment and tower rentals,
amounted to $145,000 and $278,000 for the years ended December 31, 1995 and
1996.
(9) STOCKHOLDERS' EQUITY
Conversion of Stock at Time of Merger
As discussed in note 13, all equity instruments of the Company; preferred
stock, common stock and stock options, were converted into CCC equity
instruments on January 1, 1997, the merger date.
Convertible Preferred Stock
Each share of Deschutes River Broadcasting Series A, B, C and D preferred
stock is convertible at any time into common stock on a one-for-one basis
(subject to certain adjustments). Conversion of each series of preferred stock
is automatic upon the exchange of 51% or more of each series of preferred stock
into common stock.
Dividends are payable when and as declared by the Board of Directors and
are not cumulative. Dividends must be first paid on preferred stock before
amounts are paid on common stock. No dividends were declared or paid during 1995
or 1996.
F-38
<PAGE> 233
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon liquidation, dissolution, or winding up of the Company, holders of
convertible preferred stock have preference and priority over common shares for
payment out of the assets of the Company or proceeds thereof available for
distribution to stockholders of $1 per share plus a liquidation preference,
which accrues at an annual compounded rate of 8%.
Common Stock
At December 31, 1995 and 1996, the Company had reserved shares of common
stock for issuance as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Conversion of preferred stock....................... 2,942,000 2,942,000
Issuance of warrants................................ 1,005,253 --
Issuance to employees, officers, directors and
consultants under stock incentive plan............ 708,843 708,843
--------- ---------
4,656,096 3,650,843
========= =========
</TABLE>
Stock Incentive Plan
During 1995, the Company adopted a Stock Incentive Plan (the Plan) for
selected employees, officers, directors and consultants. Under the terms of the
Plan, the option price is determined by the Board of Directors (the Board) at
the time the option is granted. The options generally expire ten years from date
of grant and are exercisable as determined by the Board. At December 31, 1995,
no shares had been granted under the Plan.
During 1996, the Company granted 246,569 options at $.60 and 332,926
options at $2.10. None of the options were exercised during the current year.
The options generally are either 100% vested at the time of grant or become 100%
vested at the time of a merger (see note 13). At December 31, 1996, 579,495
options were outstanding at a weighted average exercise price of $1.46, of which
238,095 options with an exercise price of $2.10 were exercisable.
During 1995, the Financial Accounting Standards Board issued "Accounting
for Stock-Based Compensation" (SFAS 123) which defines a fair value based method
of accounting for an employee stock option and similar equity instruments.
As permitted under SFAS 123, the Company has elected to continue to account
for its stock-based compensation plans under APB Opinion No. 25. The Company has
computed, for pro forma disclosure purposes, the value of all options granted
during 1996 using the minimum value method as prescribed by SFAS 123 using the
following assumptions for grants:
<TABLE>
<S> <C>
Risk-free interest rate..................... 6.04%
Expected dividend yield..................... 0%
Expected lives.............................. 5 years
</TABLE>
Using the minimum value methodology, the total value of options granted
during 1996 was $223,000 which would be amortized on a pro forma basis over the
vesting period of the options (one to five years). The weighted average fair
value per share of options granted during 1996 was $.38. If the Company had
accounted
F-39
<PAGE> 234
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for its stock-based compensation plans in accordance with SFAS 123, the
Company's net loss would approximate the pro forma disclosure below for the year
ended December 31, 1996:
<TABLE>
<CAPTION>
AS PRO
REPORTED FORMA
---------- ----------
<S> <C> <C>
Net loss.................................. $1,385,588 $1,534,861
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure is not
indicative of future amounts.
Warrants
During 1995, the Company granted 1,005,253 warrants to purchase common
stock to subordinated debt holders at a price of $.01. All warrants granted in
1995 were exercised in 1996 for 1,005,253 shares of common stock. Management
determined that the value associated with these warrants at the date of grant
was not material.
During 1996, the Company granted 290,381 warrants to purchase common stock
to subordinated debt holders at a price of $.01. The warrants were to become
exercisable on January 1, 1997 if the warrant holders' portion of the
subordinated debt was not repaid by December 31, 1996. Due to the contingent
nature of these warrants, no value was assigned at the grant date. These
warrants expired on December 31, 1996, when the subordinated debt was repaid
(see notes 7 and 13).
(10) SALARY SAVINGS AND RETIREMENT PLAN
The Company has a salary savings and retirement plan. The plan covers
primarily all officers and employees of the Company who meet prescribed age and
service requirements. Employees may contribute up to 15% of their compensation.
Matching contributions are determined at the discretion of the Board of
Directors. There were no Company contributions made to the plan during the years
ended December 31, 1995 or 1996.
(11) INCOME TAXES
No income tax benefit was recorded by the Company in 1995 and 1996. Income
tax benefit for the year ended December 31, 1996 differed from the amounts
computed by applying the U.S. Federal income tax rate of 34% to pretax income
primarily due to an increase in the valuation allowance.
F-40
<PAGE> 235
DESCHUTES RIVER BROADCASTING, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1996 are presented below:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Federal and state net operating loss carryforwards........... $246,553 $912,219
Allowance for doubtful accounts.............................. 19,160 48,983
Payroll accrual.............................................. 21,403 2,100
-------- --------
Total gross deferred tax assets...................... 287,116 963,302
Less valuation allowance..................................... 190,338 735,645
-------- --------
Net deferred tax assets.............................. 96,778 227,657
-------- --------
Deferred tax liabilities:
Book versus tax basis accumulated depreciation............... 96,778 227,657
-------- --------
Total gross deferred tax liabilities................. 96,778 227,657
-------- --------
Net deferred tax asset............................... $ -- $ --
======== ========
</TABLE>
As of December 31, 1996, the Company had a consolidated net operating loss
carryforward of approximately $2,280,000 for consolidated federal income tax
reporting purposes available to offset future taxable income through the year
2011. Based on the Company's history of operating losses, the more likely than
not criteria for recognizing the tax benefit primarily associated with the net
operating losses cannot be met and, therefore, the Company has recorded a
valuation allowance to the extent of net deferred tax assets.
(12) RELATED PARTY TRANSACTIONS
The preferred stockholders are considered related parties of the Company.
At December 31, 1995, the Company had approximately $3.2 million in notes
payable to subordinated debt holders and $308,000 in accrued interest payable.
During 1996, the Company borrowed an additional $2.6 million in subordinated
debt from the preferred stockholders. Interest expense on the subordinated debt
for fiscal 1995 and 1996 was $308,000 and $548,000, respectively.
One of the preferred stockholders provides certain management services to
the Company. Management fees accrued at December 31, 1995 and 1996 were
approximately $21,000 and $48,000 and expense for the years then ended was
approximately $171,000 and $216,000, respectively.
As part of the merger discussed in note 13, all subordinated debt and
accrued interest was repaid and management services will no longer be provided
to the Company.
(13) SUBSEQUENT EVENTS
The Company was merged with and into a wholly-owned subsidiary of CCC
effective 12:01 a.m. on January 1, 1997. Effective with the merger, the Company
(and its wholly-owned subsidiaries) ceased to exist. All of the Company's equity
instruments, preferred stock, common stock and stock options, existing at
December 31, 1996, were converted into CCC equity instruments at the conversion
multiple defined in the merger agreement, at a per share conversion rate of
.1222948. All options outstanding at December 31, 1996 became fully vested at
the time of the merger. To effectuate the merger, CCC made an advance to the
Company of approximately $9.1 million on December 31, 1996 to pay off
subordinated debt, line of credit, long-term debt and other accrued expenses of
the Company. The advance is considered a non-current liability at December 31,
1996 as the obligation was reclassified as an intercompany liability on the date
of the merger.
F-41
<PAGE> 236
LOGO
-------------------------------------------------------------------
2500 One PPG Place Telephone: (412) 338-7200
Pittsburgh, Pennsylvania 15222-5401 Facsimile: (412) 338-7380
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Tele-Media Broadcasting Company:
We have audited the accompanying consolidated balance sheets of Tele-Media
Broadcasting Company and its partnership interests (collectively, the
"Companies" -- see Note 1) as of December 31, 1995 and 1996, and the related
consolidated statements of operations, deficiency in net assets and cash flows
for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Companies as of December
31, 1995 and 1996, and the 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.
As discussed in Note 4 to the consolidated financial statements, at
December 31, 1996, the Companies were not in compliance with the terms of a debt
agreement.
LOGO
March 28, 1997
LOGO
F-42
<PAGE> 237
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 1,904,258 $ 2,343,395
Accounts receivable:
Nonbarter -- less allowance for doubtful accounts of $531,000
and $612,000................................................ 4,599,032 5,262,484
Barter -- net................................................... 363,394 304,244
Other current assets............................................ 157,998 739,831
----------- -----------
Total current assets......................................... 7,024,682 8,649,954
----------- -----------
Property, plant and equipment:
Land............................................................ 1,372,571 1,372,571
Buildings and improvements...................................... 2,357,447 2,369,520
Broadcasting equipment.......................................... 10,653,182 11,169,533
----------- -----------
14,383,200 14,911,624
Less accumulated depreciation................................... 6,916,068 8,259,285
----------- -----------
Property, plant and equipment -- net......................... 7,467,132 6,652,339
----------- -----------
Intangibles -- Net of accumulated amortization.................... 29,036,404 26,904,288
----------- -----------
Other noncurrent assets........................................... 95,641 16,331
----------- -----------
$43,623,859 $42,222,912
=========== ===========
LIABILITIES AND DEFICIENCY IN NET ASSETS
Current liabilities:
Accounts payable and other accrued expenses..................... $ 1,466,387 $ 2,019,269
Accrued interest................................................ 999,880 1,895,889
Accrued sales commissions....................................... 330,561 358,513
Amounts due to affiliates -- net................................ 2,057,456 2,818,179
Current portion of long-term debt............................... 3,106,208 37,528,396
----------- -----------
Total current liabilities.................................... 7,960,492 44,620,246
----------- -----------
Long-term liabilities:
Long-term debt -- less current portion.......................... 64,417,869 32,382,419
Other........................................................... 32,772 31,266
----------- -----------
Total long-term liabilities.................................. 64,450,641 32,413,685
----------- -----------
Redeemable stock warrants......................................... 750,950 1,644,000
----------- -----------
Deficiency in net assets:
Common stock, voting, $0.01 par value per share; 25,000 shares
authorized, 15,000 shares outstanding........................ 150 150
Common stock, nonvoting, $0.01 par value per share; 10,000
shares authorized, none outstanding.......................... -- --
Additional paid-in capital...................................... 6,924,445 6,924,445
Deficit......................................................... (36,462,819) (43,379,614)
----------- -----------
Deficiency in net assets..................................... (29,538,224) (36,455,019)
----------- -----------
$43,623,859 $42,222,912
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-43
<PAGE> 238
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Local advertising................................. $17,637,256 $18,539,201 $20,968,055
National advertising.............................. 4,867,471 4,957,359 4,618,104
Barter............................................ 3,561,009 3,646,290 3,451,849
Other............................................. 576,607 511,827 370,932
----------- ----------- -----------
26,642,343 27,654,677 29,408,940
Less agency commissions........................... 2,648,183 2,811,738 2,984,574
----------- ----------- -----------
Net revenues.............................. 23,994,160 24,842,939 26,424,366
----------- ----------- -----------
Selling, general and administrative, programming,
barter and technical expenses:
Selling........................................ 4,719,103 5,154,097 5,001,176
General and administrative..................... 3,552,604 4,088,306 4,674,883
Programming.................................... 3,882,737 4,391,676 4,858,386
Barter......................................... 3,485,969 3,520,426 3,513,231
Technical...................................... 176,459 224,975 245,524
----------- ----------- -----------
15,816,872 17,379,480 18,293,200
----------- ----------- -----------
Operating income before management fees and
depreciation and amortization..................... 8,177,288 7,463,459 8,131,166
----------- ----------- -----------
Management fees and depreciation and amortization:
Management fees -- affiliates..................... 844,579 741,876 804,410
Depreciation and amortization..................... 4,690,730 3,708,809 3,493,509
----------- ----------- -----------
5,535,309 4,450,685 4,297,919
----------- ----------- -----------
Operating income.................................... 2,641,979 3,012,774 3,833,247
Interest expense.................................... 6,093,333 9,132,133 10,750,042
----------- ----------- -----------
Loss before extraordinary item...................... (3,451,354) (6,119,359) (6,916,795)
Extraordinary item -- Loss on extinguishment of
debt.............................................. (1,341,348) -- --
----------- ----------- -----------
Net loss.................................. $(4,792,702) $(6,119,359) $(6,916,795)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-44
<PAGE> 239
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
CONSOLIDATED STATEMENTS OF DEFICIENCY IN NET ASSETS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN
SHARES AMOUNT CAPITAL DEFICIT
------ ------ ---------- ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994................................ 2,000 $ 20 $7,125,383 $(25,550,758)
Stock dividend........................................ 13,000 130 (130) --
Capital contributions -- cash......................... -- -- 1,000 --
Distributions......................................... -- -- (400,000) --
Contribution of management fees -- affiliates......... -- -- 198,192 --
Net loss.............................................. -- -- -- (4,792,702)
------ ---- ---------- ------------
Balance, December 31, 1994.............................. 15,000 150 6,924,445 (30,343,460)
Net loss.............................................. -- -- -- (6,119,359)
------ ---- ---------- ------------
Balance, December 31, 1995.............................. 15,000 150 6,924,445 (36,462,819)
Net loss.............................................. -- -- -- (6,916,795)
------ ---- ---------- ------------
Balance, December 31, 1996.............................. 15,000 $150 $6,924,445 $(43,379,614)
====== ==== ========== ============
</TABLE>
See notes to consolidated financial statements.
F-45
<PAGE> 240
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $(4,792,702) $(6,119,359) $(6,916,795)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization........................... 4,690,730 3,708,809 3,493,509
Interest deferral....................................... 1,343,351 5,114,170 4,932,565
Amortization of loan origination fees................... -- 311,916 300,795
Management fees -- affiliates........................... 198,192 741,876 804,410
Provision for losses on accounts receivable............. 376,732 367,522 387,291
Loss on write-off of intangible assets.................. 159,431 -- --
Net barter transactions................................. (75,040) (125,864) 61,382
Increase in fair value of redeemable stock warrants..... -- -- 893,050
Other................................................... 90,867 (36,420) (78,760)
Changes in operating assets and liabilities:
Accounts receivable -- nonbarter...................... (437,520) (938,846) (1,050,743)
Other current assets.................................. (249,489) 233,807 (581,833)
Accounts payable and other accrued expenses........... (96,561) 281,957 552,882
Affiliates activity -- net............................ 1,148,600 (407,409) (43,687)
Accrued interest...................................... 35,113 136,081 896,009
Accrued sales commissions............................. (38,885) (6,891) 27,952
---------- ---------- ----------
Net cash provided by operating activities.......... 2,352,819 3,261,349 3,678,027
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures....................................... (428,423) (520,440) (468,631)
Purchase of radio stations................................. (1,900,000) (5,100,000) (65,000)
Other...................................................... (4,809) 6,124 6,000
---------- ---------- ----------
Net cash used in investing activities.............. (2,333,232) (5,614,316) (527,631)
---------- ---------- ----------
Cash flows from financing activities:
Capital contributions...................................... 1,000 -- --
Borrowings................................................. 61,334,446 5,433,347 95,144
Payments of long-term debt................................. (57,323,706) (2,932,546) (2,640,971)
Loan origination fees and other intangible assets.......... (2,668,295) (271,271) (163,764)
Sale of redeemable stock warrants.......................... 750,950 -- --
Distributions to stockholders.............................. (400,000) -- --
Other...................................................... (12,180) (2,178) (1,668)
---------- ---------- ----------
Net cash provided by (used in) financing
activities....................................... 1,682,215 2,227,352 (2,711,259)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents......... 1,701,802 (125,615) 439,137
Cash and cash equivalents, beginning of year................. 328,071 2,029,873 1,904,258
---------- ---------- ----------
Cash and cash equivalents, end of year....................... $ 2,029,873 $ 1,904,258 $ 2,343,395
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-46
<PAGE> 241
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND BUSINESS
Tele-Media Broadcasting Company (the "Company" or "TMBC") was incorporated
in 1988 under the name TMZ Broadcasting Company ("TMZ"). In April 1994, TMZ
changed its name to Tele-Media Broadcasting Company. Robert E. Tudek and Everett
I. Mundy each own 50% of the outstanding shares of TMBC. TMBC operates radio
stations principally in midsize markets in the eastern United States and in
Illinois.
In May 1989, TMZ acquired all of the outstanding common stock of Eastern
Broadcasting Company ("Eastern") and its wholly-owned subsidiaries: Lehigh
Valley Broadcasting ("Lehigh"), Penn Broadcasting Corporation ("Hershey"),
Providence Broadcasting Corporation ("Providence"), Quincy Communications
Corporation ("Quincy") and State College Communications Corporation ("State
College"). TMZ retained the assets acquired from State College and contributed
the assets acquired from the remaining subsidiaries of Eastern to limited
partnerships with the same names which TMZ had formed to facilitate the
acquisition. TMZ owned between a 95% and 99% general partnership interest in
each of the limited partnerships. With the exception of Quincy, the limited
partnership interests were owned by the shareholders of TMZ and employees of the
Companies (hereinafter defined). The limited partnership interest in Quincy (1%)
was owned by Tele-Media Holding Corporation ("Holding"), which is owned by
Messrs. Tudek and Mundy.
In April 1993, Messrs. Tudek and Mundy formed Tele-Media Broadcasting
Company of America ("America Corporation"), which purchased substantially all of
the assets of two radio stations in Rhode Island, WPRO(AM) and WPRO-FM, for
approximately $6 million, and in May 1993 formed Tele-Media Broadcasting Company
of Johnstown/Altoona ("Johnstown/Altoona Corporation"), which purchased all of
the common stock of Cambria County Broadcasting Company ("CCBC"). CCBC operated
radio station WIYQ(FM). Simultaneous with the purchase, CCBC was merged into
Johnstown/Altoona Corporation with Johnstown/Altoona Corporation being the
surviving corporation. WIYQ(FM)'s call letters were subsequently changed to
WQKK-FM.
In April 1994, Tele-Media Broadcasting Company of Cambria County ("Cambria
County Corporation") was formed by the shareholders of TMBC. Cambria County
Corporation purchased substantially all of the assets of a radio station,
WGLU(FM), in the Johnstown, PA market for approximately $1.9 million.
In June 1994, the companies were restructured in order to facilitate a
refinancing (see Note 4). In order to accomplish the restructuring, Tele-Media
Broadcasting Operating Company Limited Partnership ("Tele-Media Operating") was
formed by TMBC. Holding distributed its 1% limited partnership interest in
Quincy to the shareholders of TMBC. TMBC contributed its general partnership
interests in Lehigh, Hershey, Providence and Quincy to Tele-Media Operating. The
shareholders of TMBC contributed all of their limited partnership interests in
Lehigh, Hershey and Quincy to TMBC. TMBC contributed all of its limited
partnership interest in Lehigh and all but 1% of its limited partnership
interest in Hershey and Quincy to Tele-Media Operating. These limited
partnership interests were, by virtue of an amendment to the respective
partnership agreements, converted into general partnership interests. Tele-Media
Broadcasting Company of America Limited Partnership ("America LP"), Tele-Media
Broadcasting Company of Johnstown/Altoona Limited Partnership
("Johnstown/Altoona LP"), Tele-Media Broadcasting Company of State College
Limited Partnership ("State College LP") and Tele-Media Broadcasting Company of
Cambria County Limited Partnership ("Cambria County LP") were formed by
Tele-Media Operating, and America Corporation, Johnstown/Altoona Corporation and
Cambria County Corporation were merged with and into TMBC and the assets were
then contributed to Tele-Media Operating which in turn conveyed them to the
limited partnerships by the same names. TMBC then transferred all of the assets
acquired in the State College acquisition to Tele-Media Operating which in turn
conveyed them to State College LP.
F-47
<PAGE> 242
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
After the restructuring, TMBC owned a 99% general partnership interest in
Tele-Media Operating, and Tele-Media Operating owned between a 95% and 99%
general partnership interest in the following limited partnerships: Lehigh,
Hershey, Providence, Quincy, State College LP, America LP, Johnstown/Altoona LP
and Cambria County LP (collectively, the "Companies").
In March 1995, Quincy purchased substantially all of the assets of WZLZ-FM
for approximately $367,000 and the call letters were subsequently changed to
WMOS-FM. This acquisition was financed primarily with unsecured seller debt.
During 1994, Tele-Media Operating formed Tele-Media Broadcasting Company of
York Limited Partnership ("York LP"), of which Tele-Media Operating is 99%
general partner and TMBC is 1% limited partner. On May 1, 1995, the Companies
entered into Local Marketing Agreements ("LMAs") to operate WQXA-AM, WQXA-FM and
WIKN-FM. In November 1995, York LP acquired substantially all the assets of
WQXA-AM and WQXA-FM for approximately $5 million. This acquisition was financed
with additional borrowings under the Amended Loan Agreement (see Note 4).
On August 1, 1996, the Companies entered into an LMA to operate WBLF-AM. In
October 1996, State College LP acquired substantially all the assets of WBLF-AM
for approximately $215,000 (including forgiveness of a note receivable from the
seller and cash paid of $65,000).
During 1996, Tele-Media Operating formed Tele-Media Broadcasting Company of
Wilkes Barre /Scranton Limited Partnership ("Wilkes Barre LP") of which
Tele-Media Operating is 99% general partner and TMBC is 1% limited partner. On
August 1, 1996 Wilkes Barre LP entered into an asset purchase agreement to
acquire WAZL-AM and WZMT-FM and entered into an LMA to operate the stations. On
December 1, 1996, TMBC entered into an asset purchase agreement to acquire
WARM-AM and WMGS-FM along with the rights to purchase options for WBHT-FM,
WKQV-FM and WKQV-AM, all of which are located in the Wilkes-Barre market, and
which were being operated under LMAs and Joint Sales Agreements ("JSA's").
Subsequent to December 31, 1996, the Company consummated the acquisition of the
assets of WAZL-AM and WZMT-FM for approximately $3.5 million, which was financed
with borrowings under the Amended Loan Agreement. The Company expects to
consummate the acquisition of the assets of WARM-AM and WMGS-FM in 1997 for
approximately $11 million to be financed through additional borrowings under the
Amended Loan Agreement. The Company has made a nonrefundable escrow deposit of
$550,000 related to this acquisition. The escrow deposit is included in other
current assets and will be a reduction of the purchase price or, in the event
the acquisition is not consummated, paid to the seller.
The accompanying consolidated financial statements include the accounts of
TMBC and its partnership interests, including the acquisition of businesses from
their respective dates of purchase. All of the aforementioned acquisitions were
accounted for under the purchase method, and as such, the purchase price is
allocated among the assets and liabilities purchased based on their relative
fair market values at the date of acquisition. All material intercompany
transactions and balances have been eliminated in the consolidated financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Cash and Cash Equivalents -- For purposes of the consolidated statements
of cash flows, the Companies consider highly liquid investments with original
maturities of three months or less to be cash equivalents.
b. Property, Plant and Equipment -- Property, plant and equipment, carried
at cost, is depreciated over the estimated useful lives of the related assets,
principally five to ten years. Depreciation is computed on the straight-line
method for financial statement purposes and on accelerated methods for federal
income tax
F-48
<PAGE> 243
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purposes. Depreciation expense totaled $1,446,000, $1,499,000 and $1,358,000 for
the years ended December 31, 1994, 1995 and 1996, respectively.
c. Intangibles -- Broadcast licenses are amortized over 20 years. Loan
origination fees and non-compete agreements are amortized over the terms of the
related agreements, and organization costs are amortized over five years. The
Companies write-off these assets and related accumulated amortization when the
assets become fully amortized.
d. Impairment of Long-Lived Assets -- Management of the Companies reviews
long-lived assets (including property, plant and equipment and intangibles) for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Management considers the
undiscounted cash flow expected to be generated by the use of the asset and its
eventual disposition to determine when, and if, an impairment has occurred. Any
write-downs due to impairment are charged to operations at the time the
impairment is identified. During the year ended December 31, 1994, the Company
wrote-off loan origination fees with a net carrying value of approximately
$159,000 due to a refinancing of the debt. There were no such write-downs
required in 1995 or 1996.
e. Income Taxes -- No provision for income taxes has been made for the
taxable income of the partnerships included in the consolidated financial
statements as income taxes are the responsibility of the partners. TMBC has
Subchapter S status for federal income tax purposes and, therefore, the
shareholders, rather than the Company, have the responsibility for federal
income taxes and for state income taxes in those states that recognize the
equivalent of Subchapter S status.
f. Revenue Recognition -- Revenue is recognized as commercials are
broadcast. The Companies also enter into barter transactions in which
advertising time is traded for merchandise or services used principally for
promotional and other business purposes. Barter revenue is recorded as
commercials are broadcast at the estimated fair value of the air time. If
merchandise or services are received prior to the broadcast of commercials,
recognition of the related revenue is deferred and recognized as the commercials
are broadcast.
g. Reclassifications -- Certain reclassifications have been made to the
1994 and 1995 consolidated financial statements in order to conform to the 1996
presentation.
h. Use of Estimates in Preparation of the Consolidated Financial
Statements -- The preparation of these consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities as of the date of the consolidated financial statements and the
reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
i. Local Marketing Agreements and Joint Sales Agreements -- The Companies
use property, plant and equipment of the radio stations operated under LMAs and
JSAs in exchange for a fee. Under provisions of the Company's LMAs and JSAs, the
expenses of operating the stations (other than depreciation or amortization of
assets) are the obligations of the Companies, and they are entitled to the
revenues generated by the stations. Revenues and expenses related to these
agreements are reflected in the consolidated statements of operations. The
Companies have recorded fees in respect to these agreements of $63,750 for the
year ended December 31, 1996 within general and administrative expenses on the
consolidated statement of operations. No such costs were incurred in 1994 or
1995.
F-49
<PAGE> 244
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Broadcast licenses................................ $36,389,881 $36,440,231
Non-compete agreements............................ 1,487,500 265,000
Loan origination fees............................. 2,854,888 2,937,340
Organization costs................................ 250,387 284,633
----------- -----------
40,982,656 39,927,204
Less accumulated amortization..................... 11,946,252 13,022,916
----------- -----------
$29,036,404 $26,904,288
=========== ===========
</TABLE>
4. LONG-TERM DEBT AND REDEEMABLE STOCK WARRANTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Senior:
Borrowings under Amended Loan Agreement....... $36,383,700 $33,935,700
Discount Notes................................ 30,698,371 35,630,986
Other........................................... 442,006 344,129
----------- -----------
67,524,077 69,910,815
Less current portion............................ 3,106,208 37,528,396
----------- -----------
$64,417,869 $32,382,419
=========== ===========
</TABLE>
The significant provisions of the Amended and Restated Loan Agreement dated
February 26, 1997 (the "Amended Loan Agreement"), Senior Discount Notes (the
"Notes"), and the Redeemable Stock Warrants (the "Warrants") are discussed
below. The debt arrangements discussed in the preceding sentence were entered
into in connection with a refinancing in June 1994 of substantially all of the
debt then outstanding, resulting in an extraordinary loss on the extinguishment
thereof of approximately $1,341,000 during the year ended December 31, 1994.
AMENDED LOAN AGREEMENT
The Amended Loan Agreement permits borrowings of up to approximately $49
million. The remaining permitted borrowings under the Amended Loan Agreement
($16 million at February 26, 1997) were provided to finance the 1997 planned
acquisitions described in Note 1. The Amended Loan Agreement modified principal
and interest payments, and certain financial covenants and requires the payment
of additional fees to the Lender of $250,000 in 1997 and 1998 in the event of a
failure to meet the leverage covenant in either year. Prior to the amendment on
February 26, 1997, and at December 31, 1996, the Companies were not in
compliance with the provisions of the loan agreement then in effect.
Principal is payable in quarterly installments with any remaining principal
due April 1999. The Lender has the option to require the Companies to make an
additional principal payment of up to approximately $8.9 million in 1997 and
$21.4 million in 1998. Prior to the date of the Amended Loan Agreement, interest
was payable quarterly at the prime rate plus 2%, or at the Companies' option,
LIBOR plus 4.75%. At December 31, 1996, the interest rate was 10.25% (prime plus
2%). The Amended Loan Agreement requires interest payments quarterly. Interest
under the Amended Loan Agreement is charged at the prime rate plus
F-50
<PAGE> 245
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2%, or at the Companies' option, LIBOR plus 4.5%, on borrowings up to
approximately $44 million; interest on the next $5 million borrowed will be
charged at the prime rate plus 3.75%. The Amended Loan Agreement requires the
Companies to enter into a two year interest hedge contract on or before
September 30, 1997 in a notional amount not less than $25 million, providing
protection should the prime rate exceed the prime rate at the date the interest
hedge contract is entered into by 2.5%. A penalty of between 2% and 4% is
assessed on any principal prepayment.
Borrowings under the Amended Loan Agreement are collateralized by
substantially all of the assets and partnership interests of Tele-Media
Operating and its partnerships. The Amended Loan Agreement provides for, among
other things, limitations on distributions, indebtedness, mergers, sale and
purchase of assets, capital expenditures, payment of management fees and payment
of interest on the Notes, and requires the achievement of certain minimum cash
flow amounts.
SENIOR DISCOUNT NOTES
The Notes are due June 15, 2004 and were issued with an original issue
discount based on an interest rate of 16%. TMBC did not make interest payments
on the Notes due June 15, 1995, December 15, 1995 and June 15, 1996 and did not
consummate the Exchange Offer by the date as set forth in the original
Registration Rights Agreement (as defined below). Consequently, TMBC and the
Note holders amended the existing agreements to convert the amount of cash
interest payments then due ($2,509,000) plus penalties of approximately
$1,260,000 to notes payable and, in consideration of the conversion, the Note
holders waived TMBC's default. Under the terms of the Note Agreement, as amended
to include the notes issued in 1995 and 1996, interest of approximately $920,000
is payable semi-annually through June 15, 1999, and the remainder of the
interest is deferred and added to principal. After June 15, 1999, semi-annual
interest payments will be made at an annual rate of 16% of the accreted value of
the Notes. The accreted value of the Notes will approximate $47,811,000 at June
15, 1999.
TMBC did not make the required interest payment of $920,585 on the Notes
which was due on December 15, 1996, and consequently it is in default of the
Note Agreement. The holders of the Notes have the right to require immediate
payment of all amounts due under the Note Agreement. The total amount due under
the Note Agreement at December 31, 1996, which is classified as a current
obligation, was $35,630,986. The shareholders of TMBC have negotiated an
agreement to sell their stock in the Company. As part of the transaction, the
holders of the Notes will be paid an amount sufficient to satisfy all
outstanding claims against TMBC, including settlement of claims relating to the
redeemable stock warrants discussed below (see Note 6). In the event the sale is
not consummated, TMBC plans to enter into discussions with the Note holders to
convert the delinquent amount, plus any penalties, into a note payable. If the
Note holders refuse to agree to the conversion or another acceptable
alternative, TMBC intends to search for replacement financing.
Payment under the Notes is restricted by the Amended Loan Agreement.
Redemption of the Notes prior to their scheduled maturity is subject to
prepayment premiums. If a Qualified Public Offering is consummated by June 15,
1999, the Notes may be redeemed at TMBC's option for between 110% to 120% of the
Accreted Value of the Notes. After June 15, 1999, the Notes may be redeemed at
TMBC's option for $47,811,000 plus a premium of up to 8%, which declines ratably
through the date of maturity. In addition, if a Change of Control occurs, the
Note holders have the option to require TMBC to repurchase the Notes at 101% of
the Accreted Value.
The Notes are unsecured and restrict, among other things, the declaration
or payment of any dividends or any other distributions to shareholders, the
incurrence of additional debt, transactions with affiliates, payment of
management fees, formation of additional subsidiaries, mergers, sales of assets
and capital expenditures. Pursuant to a Registration Rights Agreement between
TMBC and the Purchasers, TMBC filed an Exchange Offer Registration Statement
(the "Registration Statement") with the Securities and Exchange Commission
F-51
<PAGE> 246
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on September 19, 1994. Under the terms of the Exchange Offer the holders of the
Notes may exchange the Old Notes for New Notes with identical terms, except that
the New Notes may be offered for resale, be resold or otherwise transferred,
under certain conditions by the holders without compliance with the registration
and prospectus delivery provisions of the Securities Act of 1933. Pursuant to
the terms of the Registration Rights Agreement, as amended, if the Registration
Statement does not become effective by May 1, 1997, additional interest of 1%
per annum will be charged from May 1, 1997 through December 1, 1997 and increase
.5% each six months thereafter, not to exceed an aggregate of 5% based on the
Accreted Value of the Notes until the Registration Statement becomes effective.
REDEEMABLE STOCK WARRANTS
The Warrants are exercisable at no additional cost to the Note holders for
between 3,750 and 5,290 shares of non-voting common stock representing 20% to
26% of the equity of TMBC, based on the achievement of certain levels of
Operating Cash Flow. The Warrant agreement provides registration rights to the
holders and restricts, among other things, the incurrence of additional debt,
payment of management fees, formation of additional subsidiaries, mergers, sale
of assets and distributions to stockholders. In addition, the Warrant holders
have put rights during the period from January 1, 2000 through March 31, 2000 or
upon a Change of Control, to require TMBC to redeem the Warrants for cash at
fair value.
The Warrants expire June 9, 2004 and are exercisable at any time on or
after January 1, 2000, or upon the occurrence of any of the following: the
conversion of TMBC to a Subchapter C corporation for federal income tax
purposes; an Initial Public Offering; a merger where TMBC is not the surviving
entity; a sale, lease, transfer or other disposition of all or substantially all
of the assets of TMBC or its subsidiaries; a liquidation or dissolution of TMBC;
or if Messrs. Tudek and Mundy own less than 50% of TMBC or a successor company.
Holders of the non-voting common stock will enter into a Registration
Rights Agreement providing them with unlimited piggy-back registration rights
and the right to participate in any Initial Public Offering. The non-voting
stock is convertible into voting common stock in connection with the sale of
shares in a public offering, in a brokers' transaction pursuant to Rule 144
under the Securities Act of 1933, and if, after conversion, the shareholder
would own 4.9% or less of the common stock. TMBC has reserved 10,000 shares of
non-voting stock and 10,000 shares of voting stock for exercise of the Warrants.
TMBC estimated the redemption price of the warrants at December 31, 1995
and 1996 as $750,950 and $7,000,000, respectively. Increases in the redemption
price are accounted for prospectively as an adjustment to periodic interest
expense from the date of the increase to January 1, 2000, the earliest date the
put can be exercised. The accreted value of the Warrants at December 31, 1995
and 1996, was $750,950 and $1,644,000, respectively, resulting in a charge to
interest expense for the year ended December 31, 1996 of $893,050. There was no
adjustment to interest expense for the years ended December 31, 1994 and 1995.
Minimum scheduled maturities of long-term debt during the next five years
considering the Amended Loan Agreement and the classification of the Notes as a
current liability resulting from the default are as follows:
<TABLE>
<S> <C>
1997............................................................ $37,528,000
1998............................................................ 2,595,000
1999............................................................ 33,744,000
2000............................................................ 19,000
2001............................................................ 3,000
</TABLE>
Interest paid on all debt in 1994, 1995 and 1996 was approximately
$4,616,000, $3,570,000 and $3,750,000, respectively.
F-52
<PAGE> 247
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OPERATING AGREEMENT WITH AFFILIATE
Under terms of an operating agreement entered into in June 1994, Tele-Media
Corporation of Delaware (an affiliate) ("Tele-Media Delaware") provides certain
management and technical services to the Companies and charges a management fee
of 3.5% of revenues. Payment of the management fee is restricted by the Notes
and the Amended Loan Agreement. The operating agreement expires on June 9, 2004
and continues from year-to-year thereafter unless either party gives written
notice to the other at least 30 days in advance of an expiration date.
Prior to the June 1994 operating agreement discussed above, Tele-Media
Delaware charged a management fee ranging from 3.5% to 7% of revenues. As
required by the provisions of the debt arrangements then outstanding as
discussed in Note 4, Messrs. Tudek and Mundy assumed responsibility for the
payment of certain management fees in 1994. The liabilities assumed by Messrs.
Tudek and Mundy are treated as additional paid-in capital in the consolidated
financial statements.
6. CONTINGENCIES AND COMMITMENTS
In 1995, TMBC and its shareholders entered into a nonbinding letter of
intent to sell the stock of TMBC. TMBC terminated the letter of intent and the
proposed buyer filed suit for damages and specific performance. A motion to
dismiss the suit was heard in early 1996 and the court ruled to dismiss a
majority of the claims, including those for specific performance, as no
definitive agreement had been reached for sale of the stock. On March 28, 1997,
the shareholders of TMBC executed an agreement to sell the stock of the Company
to the plaintiff in this suit. As part of this transaction, the suit was
dismissed with prejudice, and upon motion of the parties, the dismissal of the
suit was approved by the court. As a result of the suit's dismissal, this action
cannot again be filed by the plaintiff.
General and administrative expenses for the year ended December 31, 1995
and 1996 include approximately $274,000 and $260,000, respectively, of legal
expenses incurred relating to the defense of the lawsuit and the proposed sale.
The shareholders have agreed to pay 5.5% of the net proceeds from a sale of
their stock to two key members of management.
* * * * * *
F-53
<PAGE> 248
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 3,708,373
Accounts receivable:
Nonbarter -- less allowance for doubtful accounts of $800,000............. 5,447,842
Barter -- net............................................................. 303,749
Other current assets......................................................... 303,620
------------
Total current assets................................................. 9,763,584
------------
Property, plant and equipment -- net........................................... 8,436,165
------------
Intangibles -- net............................................................. 38,326,412
------------
Other noncurrent assets........................................................ 16,331
------------
$ 56,542,492
===========
LIABILITIES AND DEFICIENCY IN NET ASSETS
Current liabilities:
Accounts payable and other accrued expenses.................................. $ 1,514,622
Accrued interest............................................................. 2,969,594
Amounts due to affiliates -- net............................................. 4,159,152
Current portion of long-term debt............................................ 39,491,064
------------
Total current liabilities............................................ 48,134,432
------------
Long-term liabilities:
Long-term debt -- less current portion....................................... 47,306,734
Other........................................................................ 31,266
------------
Total long-term liabilities.......................................... 47,338,000
------------
Redeemable stock warrants...................................................... 7,000,000
------------
Deficiency in net assets:
Common stock, voting, $0.01 par value per share; 25,000 shares authorized,
15,000 shares outstanding................................................. 150
Common stock, nonvoting, $0.01 par value per share; 10,000 shares authorized,
none outstanding.......................................................... --
Additional paid-in capital................................................... 6,924,445
Deficit...................................................................... (52,854,535)
------------
Deficiency in net assets............................................. (45,929,940)
------------
$ 56,542,492
===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-54
<PAGE> 249
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Revenues:
Local advertising............................................. $ 9,323,963 $ 12,557,493
National advertising.......................................... 2,052,723 2,710,273
Barter........................................................ 1,697,415 2,357,519
Other......................................................... 222,507 339,431
------------ ------------
13,296,608 17,964,716
Less agency commissions....................................... 1,346,551 1,723,832
------------ ------------
Net revenues.......................................... 11,950,057 16,240,884
------------ ------------
Selling, general and administrative, programming, barter and
technical expenses:
Selling....................................................... 2,441,926 3,287,451
General and administrative.................................... 2,008,273 3,366,246
Programming................................................... 2,337,296 3,491,639
Barter........................................................ 1,697,415 2,357,519
Technical..................................................... 127,977 176,110
------------ ------------
8,612,887 12,678,965
------------ ------------
Operating income before management fees and depreciation and
amortization.................................................. 3,337,170 3,561,919
------------ ------------
Management fees and depreciation and amortization:
Management fees -- affiliates................................. 358,113 454,258
Depreciation and amortization................................. 2,092,858 2,207,660
------------ ------------
2,450,971 2,661,918
------------ ------------
Operating income................................................ 886,199 900,001
Interest expense................................................ 4,955,734 10,374,922
------------ ------------
Net loss........................................................ (4,069,535) (9,474,921)
Deficit, beginning of period.................................... (36,462,819) (43,379,614)
------------ ------------
Deficit, end of period.......................................... $(40,532,354) $(52,854,535)
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-55
<PAGE> 250
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $(4,069,535) $ (9,474,921)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................... 2,092,858 2,207,660
Interest deferral........................................... 3,012,406 1,975,012
Management fees -- affiliates............................... 358,113 454,258
Provision for losses on accounts receivable................. 158,144 305,581
Increase in fair value of redeemable stock warrants......... -- 5,356,000
----------- ------------
Other....................................................... 849 335
Changes in operating assets and liabilities:
Accounts receivable -- nonbarter.......................... (6,589) (490,939)
Other current assets...................................... (115,852) (114,795)
Accounts payable and other accrued expenses............... (587,980) (863,160)
Affiliates activity -- net................................ (135,961) 886,715
Accrued interest.......................................... 478,336 1,073,705
----------- ------------
Net cash provided by operating activities.............. 1,184,789 1,315,451
----------- ------------
Cash flows from investing activities:
Capital expenditures........................................... (255,344) (227,926)
Purchase of radio stations..................................... -- (14,170,000)
Other.......................................................... 2,500 1,500
----------- ------------
Net cash used in investing activities.................. (252,844) (14,396,426)
----------- ------------
Cash flows from financing activities:
Borrowings..................................................... 79,361 16,000,000
Payments of long-term debt..................................... (1,575,046) (1,408,350)
Loan origination fees and other intangible assets.............. (25,000) (145,334)
Other.......................................................... (1,714) (363)
----------- ------------
Net cash provided by (used in) financing activities.... (1,522,399) 14,445,953
----------- ------------
Net increase (decrease) in cash and cash equivalents............. (590,454) 1,364,978
Cash and cash equivalents, beginning of period................... 1,904,258 2,343,395
----------- ------------
Cash and cash equivalents, end of period......................... $ 1,313,804 $ 3,708,373
=========== ============
</TABLE>
See notes to consolidated financial statements.
F-56
<PAGE> 251
TELE-MEDIA BROADCASTING COMPANY
AND ITS PARTNERSHIP INTERESTS
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 1997 and the
condensed consolidated statements of operations and changes in deficit and cash
flows for the six month periods ended June 30, 1996 and 1997 are unaudited. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation for the periods presented
have been included. These interim unaudited condensed consolidated financial
statements for 1996 and 1997 should be read in conjunction with the audited
consolidated financial statements and notes thereto. The consolidated results of
operations for the six months ended June 30, 1997 are not necessarily indicative
of the results to be expected for the full year.
2. BUSINESS ACQUISITIONS
On February 27, 1997, the Company purchased substantially all of the assets
of two radio stations in the Wilkes-Barre/Scranton, Pennsylvania market for
approximately $3,400,000. The acquisition was accounted for under the purchase
method, with approximately $500,000 allocated to property, plant and equipment
and approximately $2,900,000 allocated to intangibles.
On April 18, 1997, the Company closed the acquisition of two additional
radio stations in the Wilkes-Barre/Scranton, Pennsylvania market for
approximately $11,000,000. The acquisition was financed by $12,000,000 of
additional borrowings under the Amended Loan Agreement. The acquisition was
accounted for under the purchase method, with approximately $1,722,000 allocated
to property, plant and equipment and approximately $9,278,000 allocated to
intangibles.
On May 5, 1997, the Company closed the acquisition of a radio station in
the Quincy, Illinois market for approximately $345,000. The acquisition was
financed primarily by an unsecured seller note and assumption of capital leases.
The acquisition was accounted for under the purchase method, with approximately
$148,000 allocated to property and equipment and approximately $197,000
allocated to intangibles.
3. SUBSEQUENT EVENTS
On July 3, 1997, all of the issued and outstanding stock of the Company was
acquired by Citadel Broadcasting Company, a subsidiary of Citadel Communications
Corporation for approximately $114,400,000. In connection with the acquisition
by Citadel Broadcasting Company, a Change of Control occurred. The Change of
Control has a material effect on the financial statements due to the change in
the earliest put date of the redeemable stock warrants. The Warrant holders have
put rights as of January 1, 2000 or upon a Change of Control. TMBC estimated the
redemption price of the warrants at December 31, 1996 as $7,000,000, and the
accreted value of the warrants at December 31, 1996 was $1,644,000. Previously,
increases in the redemption price were accounted for prospectively as an
adjustment to periodic interest expense from the date of the increase to January
1, 2000, the earliest date the put could be exercised. However, due to the
Change of Control on July 3, 1997, the earliest put date is July 3, 1997 and the
warrants must be accreted to their full value by this time. The accreted value
of the warrants at December 31, 1996 was $1,644,000, thus resulting in a charge
to interest expense of $5,356,000 during the six months ended June 30, 1997 to
accrete the warrants to their $7,000,000 redemption price.
F-57
<PAGE> 252
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Snider Corporation:
We have audited the accompanying consolidated balance sheet of Snider
Corporation as of December 31, 1995 and the related consolidated statements of
income, stockholders' equity, and cash flows for the year then ended. We have
also audited the accompanying balance sheet of Snider Corporation as of December
31, 1996 and the related statements of income, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Snider
Corporation as of December 31, 1995 and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the financial
statements referred to above present fairly, in all material respects, the
financial position of Snider Corporation 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.
As discussed in Notes 3, 6 and 7, the Company has significant transactions
with related parties.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The combining information is
presented for purposes of additional analysis of the financial statements. The
combining information has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ ERWIN & COMPANY
Little Rock, Arkansas
April 1, 1997
F-58
<PAGE> 253
SNIDER CORPORATION
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 44,870 $ 105,788
Accounts receivable, net of allowance for doubtful accounts of
$26,652 in 1995 and $34,461 in 1996............................ 566,180 475,065
Due from affiliates............................................... 61,352 38,146
Other............................................................. 34,495 20,867
---------- ----------
Total current assets........................................... 706,897 639,866
Other assets:
Non-compete covenant.............................................. -- 45,833
Land held for investment, at cost, which approximates market
value.......................................................... 123,396 97,553
Other............................................................. -- 18,536
---------- ----------
Total other assets............................................. 123,396 161,922
Property and equipment, at cost less accumulated depreciation....... 666,934 874,992
---------- ----------
$1,497,227 $1,676,780
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable -- related party..................................... $ 50,000 $ 50,000
Accounts payable -- trade......................................... 128,416 152,388
-- other...................................... 385 --
Accrued expenses.................................................. 96,593 86,481
---------- ----------
Total current liabilities...................................... 275,394 288,869
Stockholders' equity:
Common stock, no par value; 1,000 shares authorized, 100 shares
issued and outstanding......................................... 143,000 143,000
Paid in capital................................................... 62,298 474,300
Retained earnings................................................. 1,016,535 770,611
---------- ----------
Total stockholders' equity..................................... 1,221,833 1,387,911
---------- ----------
$1,497,227 $1,676,780
========== ==========
</TABLE>
See accompanying notes.
F-59
<PAGE> 254
SNIDER CORPORATION
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Revenue:
Announcements and programs........................................ $3,510,863 $3,583,944
Barter accounts................................................... 360,616 428,129
---------- ----------
Total revenue............................................. 3,871,479 4,012,073
---------- ----------
Direct charges:
Commissions....................................................... 440,461 450,944
Royalties and franchise fees...................................... 93,744 140,303
---------- ----------
Total direct charges...................................... 534,205 591,247
---------- ----------
Gross profit........................................................ 3,337,274 3,420,826
---------- ----------
Operating expenses:
Technical department.............................................. 57,985 95,416
Program department................................................ 608,416 509,877
News department................................................... 264,837 255,458
Sales department.................................................. 839,461 859,674
General and administrative........................................ 926,945 974,815
Depreciation and amortization..................................... 81,232 186,723
---------- ----------
Total operating expenses.................................. 2,778,876 2,881,963
---------- ----------
Operating income.................................................... 558,398 538,863
Other income (expense):
Interest income................................................... 5,275 3,168
Interest expense.................................................. (8,548) (6,917)
Loss on sale of property and equipment............................ -- (59,024)
Minority interest................................................. (48,004) --
Operating agreement -- acquired stations.......................... -- (65,698)
Other............................................................. (30,540) (124,316)
---------- ----------
Total other income (expense).............................. (81,817) (252,787)
---------- ----------
Net income.......................................................... $ 476,581 $ 286,076
========== ==========
</TABLE>
See accompanying notes
F-60
<PAGE> 255
SNIDER CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance -- December 31, 1994................. $143,000 $ 62,298 $ 868,958 $1,074,256
Net income................................. -- -- 476,581 476,581
Distributions to stockholders.............. -- -- (329,004) (329,004)
-------- -------- ---------- ----------
Balance -- December 31, 1995................. 143,000 62,298 1,016,535 1,221,833
Net income................................. -- -- 286,076 286,076
Capital contribution....................... -- 412,002 -- 412,002
Distributions to stockholders.............. -- -- (532,000) (532,000)
-------- -------- ---------- ----------
Balance -- December 31, 1996................. $143,000 $474,300 $ 770,611 $1,387,911
======== ======== ========== ==========
</TABLE>
See accompanying notes
F-61
<PAGE> 256
SNIDER CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $ 476,581 $ 286,076
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................... 81,232 186,723
Loss on disposal of assets...................................... -- 59,023
Minority interest............................................... 48,004 --
Recognition of unearned income.................................. (107,813) --
Bad debt provision.............................................. 30,636 34,461
Net changes in operating assets and liabilities:
Accounts receivable........................................... (173,698) 56,654
Other current assets.......................................... 77,524 13,628
Other non-current assets...................................... -- (18,536)
Accounts payable.............................................. (15,065) 23,587
Accrued expenses.............................................. 6,280 (10,112)
--------- ---------
Net cash provided by operating activities.................. 423,681 631,504
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment................................. (192,120) (213,240)
Purchase of land held for investment............................... (22,563) --
Proceeds from sale of property and equipment....................... -- 262,800
Net advances to affiliate.......................................... (49,064) (38,146)
Payment under non-compete covenant................................. -- (50,000)
--------- ---------
Net cash used in investing activities...................... (263,747) (38,586)
--------- ---------
Cash flows from financing activities:
Proceeds from repayments of notes receivable....................... 107,623 --
Repayment of note payable -- Bank.................................. (45,044) --
Distributions to minority interest................................. (48,004) --
Distributions to stockholders...................................... (329,004) (532,000)
--------- ---------
Net cash used in financing activities...................... (314,429) (532,000)
--------- ---------
Net increase (decrease) in cash and cash equivalents................. (154,495) 60,918
Cash and cash equivalents:
Beginning of year.................................................. 199,365 44,870
--------- ---------
End of year........................................................ $ 44,870 $ 105,788
========= =========
Supplemental cash flows information:
Interest paid...................................................... $ 8,548 $ 6,917
Significant non-cash investing and financing activities:
Non-cash purchase of property and equipment from affiliate...... -- 473,353
Non-cash contribution of capital................................ -- 412,002
</TABLE>
See accompanying notes
F-62
<PAGE> 257
SNIDER CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements include the accounts of Snider
Corporation (the Company) and SMN Company (SMN), a 52% owned partnership. All
significant intercompany transactions and accounts have been eliminated in
consolidation. SMN was liquidated effective December 31, 1995.
Nature of operations
The Company operates an AM radio station and two FM radio stations in the
central Arkansas market area and provides news and information to other radio
stations throughout Arkansas. The activities of SMN were not material to 1995
consolidated financial position or results of operations.
Accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Depreciation and amortization
Depreciation is calculated by the straight-line method. Estimated useful
lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Transmitter building, antenna system, office machines and 3-25
equipment.........................................................
Furniture and fixtures.............................................. 5-10
Vehicles............................................................ 2- 4
Other............................................................... 3- 5
</TABLE>
Non-compete covenant
The non-compete covenant with the former owner of certain radio
broadcasting assets acquired in 1996 is being amortized on a straight-line basis
over a period of two years. Total amortization expense was for 1996 was $4,167.
Statement of cash flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents.
Concentrations of credit risk
Most of the Company's business activity is with customers located within
the state of Arkansas. The Company grants credit to its customers in the normal
course of business, ordinarily without collateral requirements.
The Company's exposure to credit risk from accounts receivable -- trade and
notes receivable is represented by the carrying value of those receivables. The
Company also periodically has demand deposit balances with a local financial
institution that exceed federally insured limits. Management periodically
reviews the soundness of this financial institution and does not believe the
Company is exposed to significant financial risk.
F-63
<PAGE> 258
SNIDER CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996 -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Reclassifications
Certain reclassifications have been made to the 1995 financial statements
to conform to the 1996 basis of presentation.
(2) PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1995 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Land............................................... $ 301,252 $ 57,700
Transmitter building............................... 87,879 87,879
Antenna system..................................... 91,736 91,736
Satellite equipment................................ -- 473,353
Equipment.......................................... 452,326 650,906
Office machines.................................... 325,787 339,616
Furniture and fixtures............................. 149,455 150,289
Vehicles........................................... 63,623 56,272
Other.............................................. 198,714 78,831
--------- ---------
1,670,772 1,986,582
Less accumulated depreciation...................... 1,003,838 1,111,590
--------- ---------
$ 666,934 $ 874,992
========= =========
</TABLE>
(3) NOTE PAYABLE -- RELATED PARTY:
Note payable -- related party at December 31, 1995 and 1996 consists of an
unsecured note payable to a stockholder. The note bears interest at 8% and is
due on demand.
(4) INCOME TAXES:
The Company has elected to be treated as an S corporation for federal
income tax purposes and is subject to similar treatment for state income tax
purposes. Under this election, income and losses of the Company are reported in
the income tax returns of the stockholders. As a result, no income taxes are
reflected in the accompanying consolidated financial statements.
(5) ACQUISITIONS:
During 1996, the Company acquired the assets, including broadcast rights
for a local FM radio. Prior to FCC approval of the acquisition, the station was
operated by the Company under a license management agreement. Expenses incurred
under this agreement totaling $65,698 are included in the accompanying 1996
statement of income under the heading "Other Income (Expenses)."
F-64
<PAGE> 259
SNIDER CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996 -- CONTINUED
(5) ACQUISITION (CONTINUED):
The acquisition cost of the broadcast assets were allocated as follows:
<TABLE>
<S> <C>
Property and equipment.................................. $ 132,820
Non-compete covenant.................................... 50,000
--------
Total......................................... $ 182,820
========
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES:
The Company leases its office building and parking lot under an operating
lease from an officer and principal stockholder of the Company for $10,000 per
month. Additionally, the Company rented satellite space from an affiliate under
an informal lease agreement totaling $107,950 and $6,300 during the years ended
December 31, 1995 and 1996, respectively. Total rent expense was $245,377 and
$140,400 for the years ended December 31, 1995 and 1996, respectively. Rent
expense was offset by $54,000 in 1995 and $48,320 in 1996 by amounts received
from an affiliate under a month to month sublease agreement for office space.
Future minimum rentals under noncancelable operating leases, including
renewal options, at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.................................................... $ 120,000
1998.................................................... 120,000
--------
$ 240,000
========
</TABLE>
(7) RELATED PARTY TRANSACTIONS:
General and administrative expense has been reduced by $23,282 and $21,000
in 1995 and 1996, respectively, for shared office and overhead expenses charged
to an affiliate. The amounts shown in the accompanying balance sheets as due
from affiliates represent amounts owed to the Company for these and certain
other operating expenses paid by the Company on behalf of affiliates.
During 1996, the Company purchased satellite communications equipment from
an affiliate for $473,353. In connection with the purchase, the Company's
stockholders transferred certain assets of another affiliate with a fair value
of $412,002 to the Company. The transfer was recorded as a capital contribution.
These contributed assets, plus accounts receivable due from the affiliate
totaling $61,351 were exchanged for the satellite communications equipment.
Information concerning the note payable -- related party is contained in
Note 3. Information concerning lease and other rental income and expenses with
related parties is described in Note 5.
F-65
<PAGE> 260
SNIDER CORPORATION
SCHEDULE OF COMBINING OPERATING INCOME,
EXCLUDING DEPRECIATION AND AMORTIZATION
FOR BROADCASTING UNITS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
KARN ARN COMBINED
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Local announcements.................................. $1,604,785 $1,353,472 $2,958,257
National announcements............................... 135,805 -- 135,805
Political announcements.............................. 68,318 193,539 261,857
Network.............................................. 77,236 -- 77,236
Materials and facilities............................. 71,411 79,378 150,789
Barter accounts...................................... 289,797 138,332 428,129
---------- ---------- ----------
Total revenue................................ 2,247,352 1,764,721 4,012,073
Less direct charges:
Agency commissions................................... 156,538 187,616 344,154
National representative commissions.................. 16,676 90,114 106,790
Rights fees.......................................... 78,426 61,877 140,303
---------- ---------- ----------
Totals....................................... 251,640 339,607 591,247
---------- ---------- ----------
Gross profit........................................... 1,995,712 1,425,114 3,420,826
Operating expenses:
Technical department................................. 73,611 21,805 95,416
Program department................................... 356,247 153,630 509,877
News department...................................... 115,269 140,189 255,458
Sales department..................................... 480,476 379,198 859,674
General and administrative........................... 633,288 341,527 974,815
---------- ---------- ----------
Total operating expenses, excluding
depreciation and amortization.............. 1,658,891 1,036,349 2,695,240
---------- ---------- ----------
Operating income, excluding depreciation and
amortization......................................... $ 336,821 $ 388,765 $ 725,586
========== ========== ==========
</TABLE>
F-66
<PAGE> 261
SNIDER CORPORATION
BALANCE SHEET
MAY 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 45,972
Accounts receivable -- trade, net of allowance for doubtful accounts of
$38,228..................................................................... 780,901
Due from affiliates............................................................ 44,589
Other.......................................................................... 7,941
----------
Total current assets................................................... 879,403
Property and equipment, at cost less accumulated depreciation of $1,193,204...... 813,910
Other assets:
Non-compete agreement, less accumulated amortization of $14,583................ 35,417
Land held for investment, at cost, which approximates market value............. 97,553
Other.......................................................................... 25,692
----------
Total other assets..................................................... 158,662
----------
$1,851,975
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable -- related party.................................................. $ 50,000
Accounts payable -- trade...................................................... 190,990
Accrued expenses............................................................... 103,427
----------
Total current liabilities.............................................. 344,417
Stockholders' equity:
Common stock, no par value; 1,000 shares authorized, 100 shares issued and
outstanding................................................................. 143,000
Paid-in capital................................................................ 474,300
Retained earnings.............................................................. 890,258
----------
Total stockholders' equity............................................. 1,507,558
----------
$1,851,975
=========
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE> 262
SNIDER CORPORATION
STATEMENT OF INCOME
FIVE MONTHS ENDED MAY 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Revenue:
Announcements and programs................................................. $1,694,439
Barter accounts............................................................ 140,783
----------
Total revenue......................................................... 1,835,222
Direct charges:
Commissions................................................................ 261,257
Royalties and franchise fees............................................... 42,210
----------
Total direct charges.................................................. 303,467
----------
Gross profit.................................................................... 1,531,755
----------
Operating expenses:
Technical department....................................................... 52,958
Program department......................................................... 263,608
News department............................................................ 99,351
Sales department........................................................... 439,047
General and administrative................................................. 437,718
Depreciation and amortization.............................................. 92,030
----------
Total operating expenses.............................................. 1,384,712
----------
Operating income................................................................ 147,043
Other income (expense):
Interest income............................................................ 733
Interest expense........................................................... (1,677)
Other...................................................................... (26,452)
----------
Total other income (expense).......................................... (27,396)
----------
Net income...................................................................... $ 119,647
==========
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE> 263
SNIDER CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FIVE MONTHS ENDED MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Balance -- December 31, 1996.................. $143,000 $474,300 $770,611 $1,387,911
Net income.................................... -- -- 119,647 119,647
-------- -------- -------- ----------
Balance -- May 31, 1997....................... $143,000 $474,300 $890,258 $1,507,558
======== ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE> 264
SNIDER CORPORATION
STATEMENT OF CASH FLOWS
FIVE MONTHS ENDED MAY 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income...................................................................... $119,647
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization................................................ 92,030
Bad debt provision........................................................... 12,155
Net changes in operating assets and liabilities:
Accounts receivable -- trade............................................... (317,991)
Other current assets....................................................... 12,926
Other non-current assets................................................... (7,156)
Accounts payable -- trade.................................................. 38,602
Accrued expenses........................................................... 16,946
--------
Net cash used in operating activities................................... (32,841)
--------
Cash flows from investing activities:
Capital expenditures............................................................ (20,532)
Net advances to affiliate....................................................... (6,443)
--------
Net cash used in investing activities................................... (26,975)
--------
Net decrease in cash and cash equivalents......................................... (59,816)
Cash and cash equivalents:
Beginning of period............................................................. 105,788
--------
End of period................................................................... $ 45,972
========
Supplemental cash flows information:
Interest paid................................................................... $ 1,677
========
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE> 265
SNIDER CORPORATION
NOTE TO FINANCIAL STATEMENTS
MAY 31, 1997
(UNAUDITED)
(1) SUBSEQUENT EVENT
On June 2, 1997, Snider Corporation (the "Company") entered into a local
marketing agreement ("LMA") with Citadel Broadcasting Company ("Citadel")
whereby Citadel pays $89,000 per month to the Company in exchange for supplying
specified programming to the brokered stations and marketing all commercial
advertising time of the brokered stations, subject to the Company's right to
control the content of all programming. On the same date, the Company also
entered into a Merger Agreement with Citadel, upon the consummation of which
Citadel will acquire radio stations KARN-FM, KARN-AM, KKRN-FM, KRNN-AM and
KAFN-FM. The LMA shall terminate upon the closing of the Merger Agreement or the
termination of the Merger Agreement, unless terminated earlier pursuant to the
default provisions of the LMA. In compliance with the LMA, the broadcasting
revenue and station operating expenses of the Company for the month ended June
30, 1997 are included in the financial statements of Citadel and are summarized
as follows:
<TABLE>
<S> <C>
Net broadcasting revenues......................................... $270,289
Station operating expenses........................................ 304,259
</TABLE>
F-71
<PAGE> 266
SNIDER CORPORATION
BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 191,595
Accounts receivable--trade, net of allowance for doubtful accounts of
$45,546..................................................................... 800,790
Due from affiliates............................................................ 25,617
Other.......................................................................... 4,106
----------
Total current assets................................................... 1,022,108
Property and equipment, at cost less accumulated depreciation of $1,017,541...... 808,870
Other assets:
Land held for investment, at cost, which approximates market value............. 97,553
Other.......................................................................... 11,240
----------
Total other assets..................................................... 108,793
----------
$1,939,771
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable--related party.................................................... $ 50,000
Accounts payable--trade........................................................ 153,348
Accrued expenses............................................................... 132,907
----------
Total current liabilities.............................................. 336,255
Stockholders' equity:
Common stock, no par value; 1,000 shares authorized, 100 shares issued and
outstanding................................................................. 143,000
Paid-in capital................................................................ 474,300
Retained earnings.............................................................. 986,216
----------
Total stockholders' equity............................................. 1,603,516
----------
$1,939,771
==========
</TABLE>
F-72
<PAGE> 267
SNIDER CORPORATION
STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Revenue:
Announcements and programs..................................................... $1,893,131
Barter accounts................................................................ 214,064
----------
Total revenue.......................................................... 2,107,195
Direct charges:
Commissions.................................................................... 266,398
Royalties and franchise fees................................................... 65,599
----------
Total direct charges................................................... 331,997
----------
Gross profit..................................................................... 1,775,198
----------
Operating expenses:
Technical department........................................................... 35,290
Program department............................................................. 236,052
News department................................................................ 125,103
Sales department............................................................... 414,766
General and administrative..................................................... 511,160
Depreciation and amortization.................................................. 88,507
----------
Total operating expenses............................................... 1,410,878
----------
Operating income................................................................. 364,320
Other income (expense):
Loss on sale of property and equipment......................................... (59,024)
Interest expense............................................................... (2,541)
Operating agreement--stations under contract................................... (36,839)
Other.......................................................................... (39,235)
----------
Total other income (expense)........................................... (137,639)
----------
Net income....................................................................... $ 226,681
=========
</TABLE>
F-73
<PAGE> 268
SNIDER CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Balance--December 31, 1995......................... $143,000 $ 62,298 $1,016,535 $1,221,833
Net income......................................... 226,681 226,681
Capital contribution............................... 412,002 412,002
Distributions to stockholders...................... (257,000) (257,000)
-------- -------- ---------- ----------
Balance--June 30, 1996............................. $143,000 $474,300 $ 986,216 $1,603,516
======== ======== ========= =========
</TABLE>
F-74
<PAGE> 269
SNIDER CORPORATION
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income...................................................................... $226,681
Adjustments to reconcile net income to net cash provided by in operating
activities:
Depreciation and amortization................................................ 88,507
Loss on sale of property and equipment....................................... 59,024
Bad debt provision........................................................... 19,886
Net changes in operating assets and liabilities:
Accounts receivable--trade................................................. (254,496)
Other current assets....................................................... 19,149
Accounts payable--trade.................................................... 24,547
Accrued expenses........................................................... 36,314
--------
Net cash provided by operating activities............................... 219,612
--------
Cash flows from investing activities:
Capital expenditures............................................................ (53,071)
Proceeds from sale of assets.................................................... 262,800
Net advances to affiliate....................................................... (25,616)
--------
Net cash provided by investing activities............................... 184,113
--------
Cash flows from financing activities:
Distributions to stockholders................................................... (257,000)
--------
Net cash used in financing activities................................... (257,000)
--------
Net increase in cash and cash equivalents......................................... 146,725
Cash and cash equivalents:
Beginning of period............................................................. 44,870
--------
End of period................................................................... $191,595
========
Supplemental cash flows information:
Interest paid................................................................... $ 2,541
Significant non-cash investing and financing activities:
Non-cash purchase of property and equipment from affiliate................... 473,353
Non-cash contribution of capital............................................. 412,002
</TABLE>
F-75
<PAGE> 270
INDEPENDENT AUDITORS' REPORT
The Boards of Directors and Stockholders
Snider Broadcasting Corporation and Subsidiary
CDB Broadcasting Corporation:
We have audited the accompanying consolidated balance sheet of Snider
Broadcasting Corporation and Subsidiary, as of December 31, 1995 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the year then ended. We have also audited the combined balance sheet of Snider
Broadcasting Corporation and Subsidiary, and CDB Broadcasting Corporation as of
December 31, 1996 and the related combined statements of operations,
stockholders' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The combined financial statements include the financial statements of
Snider Broadcasting Corporation and Subsidiary, and CDB Broadcasting
Corporation, which are related through common ownership and management.
As described in Notes 3, 5, and 10, the Company has significant
transactions with related parties.
In our opinion, the 1995 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Snider
Broadcasting Corporation and subsidiary as of December 31, 1995 and the
consolidated results of their operations and cash flows for the year then ended
in conformity with generally accepted accounting principles. Also, in our
opinion, the 1996 financial statements referred to above present fairly, in all
material respects, the combined financial position of Snider Broadcasting
Corporation and affiliate as of December 31, 1996 and the combined results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ ERWIN & COMPANY
Little Rock, Arkansas
April 23, 1997
F-76
<PAGE> 271
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................... $ 30,813 $ 49,821
Accounts receivable, net of allowance for doubtful accounts of
$8,108 in 1995 and $7,000 in 1996........................... 305,154 376,579
Other....................................................... 2,302 15,366
----------- -----------
Total current assets........................................ 338,269 441,766
Property and equipment, at cost less accumulated depreciation
(Note 2)....................................................... 59,706 292,286
Other assets:
Excess of cost over carrying value of net assets acquired, less
accumulated amortization of $117,476 in 1995 and $130,936 in
1996........................................................ 309,710 796,691
Start-up costs, net of accumulated amortization of $8,797 in
1996........................................................ -- 61,588
Non-compete agreement, net of accumulated amortization of
$2,083 in 1996.............................................. -- 97,917
Other assets................................................... -- 21,189
----------- -----------
Total other assets.......................................... 309,710 977,385
----------- -----------
$ 707,685 $ 1,711,437
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable -- stockholders (Note 3)......................... $ 52,698 $ --
Note payable -- bank (Note 4).................................. -- 2,637,408
Current maturities of long-term debt (Note 5).................. 206,781 --
Accounts payable -- trade...................................... 109,406 218,422
Income taxes payable........................................... 2,117 7,803
Accrued expenses............................................... 12,526 45,778
Accrued interest payable (Note 10)............................. 14,548 10,714
Deferred income taxes (Note 8)................................. -- 2,297
----------- -----------
Total current liabilities.............................. 398,076 2,922,422
Long-term debt, less current maturities (Note 5)................. 1,386,490 --
----------- -----------
Total liabilities...................................... 1,784,566 2,922,422
Stockholders' deficit:
Common stock (Note 6).......................................... 75,213 75,313
Retained deficit............................................... (1,152,094) (1,286,298)
----------- -----------
Total stockholders' deficit............................ (1,076,881) (1,210,985)
----------- -----------
$ 707,685 $ 1,711,437
=========== ===========
</TABLE>
See accompanying notes.
F-77
<PAGE> 272
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Revenue:
Announcements and programs....................................... $2,097,623 $2,008,315
Barter accounts.................................................. 145,608 137,963
---------- ----------
Total revenue............................................ 2,243,231 2,146,278
Less direct charges -- commissions................................. 286,944 264,907
---------- ----------
Gross profit....................................................... 1,956,287 1,881,371
---------- ----------
Operating expenses:
Technical department............................................. 45,339 55,616
Program department............................................... 305,344 384,480
Sales department................................................. 377,007 439,883
General and administrative....................................... 465,647 679,475
Ratings enhancement.............................................. -- 105,498
Time brokerage................................................... -- 60,470
Consulting and non-compete (Note 9).............................. 64,733 64,733
Goodwill amortization............................................ 10,680 13,460
Depreciation and amortization.................................... 27,046 78,820
---------- ----------
Total operating expenses................................. 1,295,796 1,882,435
---------- ----------
Operating income (loss)............................................ 660,491 (1,064)
---------- ----------
Other income (expense):
Interest expense (Note 10)....................................... (189,532) (150,553)
Rent (Note 10)................................................... 12,000 30,000
Other............................................................ -- 39
---------- ----------
Total other income (expense)............................. (177,532) (120,514)
---------- ----------
Income (loss) before income taxes.................................. 482,959 (121,578)
Provision for income taxes (Note 8)................................ 2,117 12,626
---------- ----------
Net income (loss).................................................. $ 480,842 $ (134,204)
========== ==========
</TABLE>
See accompanying notes.
F-78
<PAGE> 273
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK DEFICIT TOTAL
------- ----------- -----------
<S> <C> <C> <C>
Balance -- December 31, 1994.......................... $75,213 $(1,632,936) $(1,557,723)
Net income.......................................... -- 480,842 480,842
------- ----------- -----------
Balance -- December 31, 1995.......................... 75,213 (1,152,094) (1,076,881)
Common stock issued................................. 100 -- 100
Net loss............................................ -- (134,204) (134,204)
------- ----------- -----------
Balance -- December 31, 1996.......................... $75,313 $(1,286,298) $(1,210,985)
======= =========== ===========
</TABLE>
See accompanying notes.
F-79
<PAGE> 274
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ 480,842 $ (134,204)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation.................................................. 27,046 42,899
Amortization.................................................. 10,680 49,381
Deferred income taxes......................................... -- 2,297
Loss on sale of property and equipment........................ -- 458
Net changes in operating assets and liabilities:
Accounts receivable......................................... (56,489) (71,425)
Other assets................................................ 446 (59,294)
Accounts payable............................................ 2,896 99,824
Accrued expenses............................................ 12,707 38,938
Accrued interest payable.................................... (113,269) (3,834)
----------- ---------
Net cash provided by (used in) operating activities...... 364,859 (34,960)
----------- ---------
Cash flows from investing activities:
Acquisition of business assets................................... (14,921) (768,011)
Non-compete agreement............................................ -- (100,000)
Other............................................................ -- (69,560)
----------- ---------
Net cash used in investing activities.................... (14,921) (937,571)
----------- ---------
Cash flows from financing activities:
Repayment of borrowings -- affiliates............................ (186,825) (1,291,759)
-- other............................. (169,347) (494,210)
Proceeds from borrowings......................................... -- 2,777,408
Common stock issued.............................................. -- 100
----------- ---------
Net cash provided by (used in) financing activities...... (356,172) 991,539
----------- ---------
Net increase (decrease) in cash.................................... (6,234) 19,008
Cash:
Beginning of year................................................ 37,047 30,813
----------- ---------
End of year...................................................... $ 30,813 $ 49,821
=========== =========
Supplemental information:
Interest paid.................................................... $ 302,800 $ 154,387
Income taxes paid................................................ -- 4,643
Non-cash investing activities:
Equipment acquired through trade.............................. 2,333 9,192
</TABLE>
See accompanying notes.
F-80
<PAGE> 275
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Reporting Entity
The accompanying 1995 financial statements include the accounts of Snider
Broadcasting Corporation and its wholly-owned subsidiary, Cornerstone
Broadcasting Corporation (Snider). The accompanying 1996 financial statements
include these accounts combined with those of CDB Broadcasting Corporation
(CDB), a company affiliated through common ownership and management. CDB was
incorporated and began operations May 17, 1996 . All significant intercompany
transactions and accounts have been eliminated.
Nature of Operations
Snider and CDB operate FM radio stations in the Central Arkansas market
area.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment
Depreciation of property and equipment is calculated using the accelerated
and modified accelerated cost recovery systems. Depreciation calculated under
these methods does not differ significantly from amounts calculated under
methods and lives which conform to generally accepted accounting principles.
Estimated useful lives of property and equipment are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Tower......................................................... 5-10
Radio, office and computer equipment.......................... 3- 7
Vehicle....................................................... 5
</TABLE>
Intangible Assets
The excess of cost over carrying value of assets acquired for Snider
Broadcasting Corporation is being amortized over 40 years using the
straight-line method. The excess of cost over carrying value of assets acquired
of CDB Broadcasting Corporation is being amortized over 15 years using the
straight-line method.
The non-compete agreement is being amortized over 24 months using the
straight-line method. Start-up costs are being amortized over five years using
the straight-line method.
Asset Impairment
In the event that facts and circumstances indicate that the carrying value
of long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to fair value or a value based on discounted cash
flows is required.
F-81
<PAGE> 276
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Income Taxes
Snider incurred net operating losses from the date of its incorporation on
January 1, 1985 through 1991. At December 31, 1996 there are approximately
$610,000 of net operating loss carryforwards available for federal income tax
purposes. These loss carryforwards will expire beginning in the year 2000 if not
previously used to offset future net taxable income. In addition, Snider has
approximately $3,600 in general business credit carryforwards that expire in
2000 and 2001.
Snider provides for deferred income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
statement provides for a liability approach under which deferred income taxes
are based on enacted tax laws and rates applicable to the periods in which the
taxes become payable.
CDB has elected to be treated as an S corporation for federal income tax
purposes and is subject to similar treatment for state income tax purposes.
Under this election, income and losses of CDB are reported in the income tax
returns of the stockholders. As a result, no provision for income taxes for CDB
is reflected in the accompanying combined financial statements.
Statement of Cash Flows
For purposes of the statement of cash flows, the Companies consider cash on
hand and deposits in financial institutions with initial maturities of three
months or less as cash.
Concentrations of Credit Risk
Most of the Companies' business activity is with customers located within
the central region of Arkansas. The Companies' grant credit to their customers
in the normal course of business, ordinarily without collateral requirements.
Reclassifications
Certain reclassifications have been made to the 1995 financial statements
to conform to the 1996 basis of presentation.
(2) PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1995 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Tower................................................. $ 89,909 $104,642
Radio equipment....................................... 186,059 404,648
Office equipment...................................... 67,357 95,921
Computer equipment.................................... 37,727 52,604
Vehicle............................................... 20,113 9,859
-------- --------
401,165 667,674
Less accumulated depreciation......................... 341,459 375,388
-------- --------
$ 59,706 $292,286
======== ========
</TABLE>
F-82
<PAGE> 277
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) NOTES PAYABLE -- STOCKHOLDERS:
Notes payable -- stockholders at December 31, 1995 consist of unsecured
demand notes payable to stockholders of Snider bearing interest at 10.25% at
December 31, 1995.
(4) NOTE PAYABLE -- BANK:
Note payable-bank represents a short-term, $3,000,000 credit facility
shared by Snider and CDB. The note matures June 12, 1997, and is secured by
substantially all assets of the Companies and by guarantees of the Companies
stockholders.
The agreement requires the maintenance of certain ratios related to
leverage and debt service. In addition, the agreement contains certain
covenants, the most restrictive of which prohibit or restrict the Companies'
ability to incur additional debt; pledge assets; merge, consolidate or sell
assets; make certain "restricted" investments or loans and advances; dispose of
certain assets; make distributions to its stockholders; and engage in
transactions with their affiliates.
At December 31, 1996, the Companies were in technical default with respect
to a required leverage ratio and certain reporting requirements, however the
Companies had not defaulted on any required principal or interest payments and
were in compliance with all other ratios required under the agreement. These
technical defaults permit the lender to accelerate the scheduled due date of the
debt. Management anticipates the note to be extended during June 1997 with a new
maturity date of December 1997.
(5) LONG-TERM DEBT:
Long-term debt at December 31, 1995 consists of the following:
<TABLE>
<CAPTION>
1995
----------
<S> <C>
Variable rate (9.0% at December 31, 1995); note payable to
Nationsbank of Texas, N.A...................................... $ 169,500
Variable rate (10.0% at December 31, 1995) unsecured,
subordinated note payable to Snider Communications Corporation,
an affiliate; payable on demand................................ 1,291,759
10.0% note payable; payable $4,067 monthly, including interest
through February 1999; secured by real estate and personal
property of Snider and guaranteed by stockholders of Snider and
by a member of the immediate family of Snider's majority
stockholder.................................................... 132,012
----------
1,593,271
Less current portion............................................. 206,781
----------
Long-term debt, less current portion............................. $1,386,490
==========
</TABLE>
The note payable to affiliate of $1,291,759 at December 31, 1995 was
classified as long-term due to such affiliate waiving its right to demand
payment during the immediately following year.
(6) STOCKHOLDERS EQUITY:
Snider Broadcasting Corporation has 1,000 shares of no par value common
stock authorized and 85 shares issued and outstanding.
CDB Broadcasting Corporation has 1,000 shares of no par value common stock
authorized, issued and outstanding.
F-83
<PAGE> 278
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(7) RETIREMENT PLAN:
During 1995, Snider adopted a 401(k) savings plan which covers
substantially all employees who have completed one year of service and attained
the age of 21. Participating employees may contribute from 1% to 15% of their
compensation. Snider matches 25% of the first 4% contributed by participating
employees. Matching contributions totaled $3,950 and $3,727 for the years ended
December 31, 1995 and 1996, respectively.
(8) INCOME TAXES:
The provision for income taxes at December 31, 1995 and 1996, consists of
the following:
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Current:
Federal............................................ $ 2,117 $ --
State.............................................. -- 10,329
-------- ---------
2,117 10,329
-------- ---------
Deferred:
Federal............................................ 155,754 84,429
State.............................................. 32,802 4,709
Decrease in valuation allowance.................... (188,556) (86,841)
-------- ---------
-- 2,297
-------- ---------
Provision for income taxes........................... $ 2,117 $ 12,626
======== =========
</TABLE>
The income tax provision computed at the federal statutory rate on pretax
income differs from the reported tax provision due to the decrease in the
valuation allowance, effect of graduated rates and non-deductible expenses, and
the results of operations of CDB reported to stockholders for income tax
purposes.
The components of the net deferred tax liability at December 31, 1995 and
1996 follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Federal........................................... $ 295,680 $ 213,291
State............................................. 4,319 --
--------- ---------
Valuation allowance............................... (299,999) (213,158)
--------- ---------
-- 133
--------- ---------
Deferred tax liabilities:
Federal........................................... -- 2,040
State............................................. -- 390
--------- ---------
-- 2,430
--------- ---------
Net deferred tax liability.......................... $ -- $ (2,297)
========= =========
</TABLE>
F-84
<PAGE> 279
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES:
The Companies lease office space, office equipment, broadcasting equipment
and tower facilities under operating leases expiring in 1993 through 1999. Total
rent expense under these agreements was $61,939 in 1995 and $61,159 in 1996.
Snider has commitments to pay the former owner of one of its radio stations
consulting fees and amounts due under a non-compete agreement. These commitments
extend through February 1999. Payments related to these commitments totaled
$64,733 for each of the years ended December 31, 1995 and 1996.
Future commitments under noncancelable operating leases, consulting and
non-compete agreements at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997...................................................... $138,557
1998...................................................... 75,607
1999...................................................... 20,569
2000...................................................... 9,780
--------
$244,513
========
</TABLE>
(10) RELATED PARTY TRANSACTIONS:
Interest expense in 1995 and 1996, respectively, includes $144,132 and
$56,846 related to the Company's note payable to an affiliate (Note 5). Included
in accrued expenses at December 31, 1995 is accrued interest payable of $708
related to the note.
The Company leases a subcarrier bandwidth of Snider to an affiliate to
transmit paging and weather information under an operating lease, cancelable
upon six months written notice, expiring in 2000 and requiring monthly lease
payments. Total rental income recognized under this lease was $12,000 in 1995
and $30,000 in 1996.
F-85
<PAGE> 280
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED BALANCE SHEET
MAY 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 16,874
Accounts receivable -- trade, net of allowance for doubtful accounts of
$13,110.................................................................... 539,057
Other......................................................................... 16,652
-----------
Total current assets.................................................. 572,583
Property and equipment, at cost less accumulated depreciation of $421,330....... 284,067
Other assets:
Excess of cost over carrying value of net assets acquired, less accumulated
amortization of $149,287................................................... 778,340
Start-up costs, net of accumulated amortization of $14,663.................... 55,723
Non-compete agreement, less accumulated amortization of $22,917............... 77,083
-----------
Total other assets.................................................... 911,146
-----------
$ 1,767,796
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable -- bank.......................................................... $ 2,635,000
Accounts payable -- trade..................................................... 277,793
-- affiliate............................................... 27,782
Income taxes payable.......................................................... 2,461
Accrued expenses.............................................................. 13,056
Accrued interest payable...................................................... 42,216
Deferred income taxes......................................................... 4,245
-----------
Total current liabilities............................................. 3,002,553
Stockholders' deficit:
Common stock.................................................................. 75,313
Retained deficit.............................................................. (1,310,070)
-----------
Total stockholders' deficit........................................... (1,234,757)
-----------
$ 1,767,796
===========
</TABLE>
See accompanying notes to financial statements.
F-86
<PAGE> 281
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED STATEMENT OF OPERATIONS
FIVE MONTHS ENDED MAY 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Revenue:
Announcements and programs..................................................... $ 937,865
Barter accounts................................................................ 65,293
----------
Total revenue.......................................................... 1,003,158
Less direct charges -- commissions............................................... 107,208
----------
Gross profit..................................................................... 895,950
----------
Operating expenses:
Technical department........................................................... 28,843
Program department............................................................. 193,887
Sales department............................................................... 222,007
General and administrative..................................................... 246,680
Consulting and non-compete..................................................... 26,972
Goodwill amortization.......................................................... 18,351
Depreciation and amortization.................................................. 91,903
----------
Total operating expenses............................................... 828,643
----------
Operating income................................................................. 67,307
----------
Other income (expense):
Interest expense............................................................... (90,723)
Rent........................................................................... 12,500
----------
Total other income (expense)........................................... (78,223)
----------
Loss before income taxes......................................................... (10,916)
Provision for income taxes....................................................... 12,856
----------
Net loss......................................................................... $ (23,772)
==========
</TABLE>
See accompanying notes to financial statements.
F-87
<PAGE> 282
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED STATEMENT OF STOCKHOLDERS' DEFICIT
FIVE MONTHS ENDED MAY 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK DEFICIT TOTAL
------- ----------- -----------
<S> <C> <C> <C>
Balance -- December 31, 1996........................... $75,313 $(1,286,298) $(1,210,985)
Net loss............................................... -- (23,772) (23,772)
------- ----------- -----------
Balance -- May 31, 1997................................ $75,313 $(1,310,070) $(1,234,757)
======= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-88
<PAGE> 283
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED STATEMENT OF CASH FLOWS
FIVE MONTHS ENDED MAY 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (23,772)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation............................................................ 45,942
Amortization............................................................ 64,313
Deferred income taxes................................................... 1,948
Net changes in operating assets and liabilities:
Accounts receivable -- trade......................................... (134,431)
Other assets......................................................... 640
Accounts payable -- trade............................................ 56,906
Accrued expenses..................................................... (38,064)
Accrued interest payable............................................. 31,502
---------
Net cash provided by operating activities.......................... 4,984
---------
Cash flows from investing activities:
Capital expenditures......................................................... (35,523)
---------
Net cash used in investing activities.............................. (35,523)
---------
Cash flows from financing activities:
Repayment of borrowings...................................................... (2,408)
---------
Net cash used in financing activities.............................. (2,408)
---------
Net decrease in cash........................................................... (32,947)
Cash:
Beginning of period.......................................................... 49,821
---------
End of period................................................................ $ 16,874
=========
Supplemental cash flows information:
Interest paid................................................................ $ 59,229
Income taxes paid............................................................ 16,250
Equipment acquired by trade.................................................. 2,200
</TABLE>
See accompanying notes to financial statements.
F-89
<PAGE> 284
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
NOTE TO COMBINED FINANCIAL STATEMENTS
MAY 31, 1997
(UNAUDITED)
(1) SUBSEQUENT EVENT
On June 2, 1997, Snider Broadcasting Corporation and Subsidiary CDB
Broadcasting Corporation (the "Company") entered into local marketing agreements
("LMA") with Citadel Broadcasting Company ("Citadel") whereby Citadel pays
$97,335 per month to the Company in exchange for supplying specified programming
to the brokered stations and marketing all commercial advertising time of the
brokered stations, subject to the Company's right to control the content of all
programming. On the same date, the Company also entered into an Asset Purchase
Agreement and a Merger Agreement with Citadel, upon the consummation of which
Citadel will acquire radio stations KESR-FM and KIPR-FM. The LMA shall terminate
upon the closing of the Merger Agreement and the Asset Purchase Agreement or the
termination of the Merger Agreement and the Asset Purchase Agreement, unless
terminated earlier pursuant to the default provisions of the LMA. In compliance
with the LMA, the broadcasting revenue and station operating expenses of the
Company for the month ended June 30, 1997 are included in the financial
statements of Citadel and are summarized as follows:
<TABLE>
<S> <C>
Net broadcasting revenues......................................... $247,783
Station operating expenses........................................ 169,569
</TABLE>
F-90
<PAGE> 285
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash........................................................................... $ 74,209
Accounts receivable--trade, net of allowance for doubtful accounts of $6,000... 384,567
Other.......................................................................... 113,716
----------
Total current assets................................................... 572,492
Property and equipment, at cost less accumulated depreciation of $346,745........ 69,855
Other assets:
Excess of cost over carrying value of net assets acquired, less accumulated
amortization of $122,816.................................................... 304,370
Start-up costs, less accumulated amortization of $2,023........................ 78,900
----------
Total other assets..................................................... 383,270
----------
$1,025,617
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable--bank............................................................. $1,737,408
Accounts payable--trade........................................................ 137,490
Income taxes payable........................................................... 3,889
Accrued expenses............................................................... 16,638
Accrued interest payable....................................................... 19,132
----------
Total current liabilities.............................................. 1,914,557
Stockholders' deficit:
Common stock................................................................... 75,313
Retained deficit............................................................... (964,253)
----------
Total stockholders' deficit............................................ (888,940)
----------
$1,025,617
=========
</TABLE>
F-91
<PAGE> 286
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Revenue:
Announcements and programs..................................................... $ 974,107
Barter accounts................................................................ 62,690
----------
Total revenue.......................................................... 1,036,797
Less direct charges--commissions................................................. 136,184
----------
Gross profit..................................................................... 900,613
----------
Operating expenses:
Technical department........................................................... 27,973
Program department............................................................. 156,515
Sales department............................................................... 181,298
General and administrative..................................................... 209,999
Ratings enhancement............................................................ 7,657
Consulting and non-compete..................................................... 32,366
Goodwill amortization.......................................................... 5,340
Depreciation and amortization.................................................. 18,925
----------
Total operating expenses............................................... 640,073
----------
Operating income................................................................. 260,540
Other income (expense):
Interest expense............................................................... (82,076)
Loss on sale of property and equipment......................................... (458)
Rent........................................................................... 15,000
----------
Total other income (expense)........................................... (67,534)
----------
Income before income taxes....................................................... 193,006
Provision for income taxes....................................................... 5,165
----------
Net income....................................................................... $ 187,841
=========
</TABLE>
F-92
<PAGE> 287
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED STATEMENT OF STOCKHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK DEFICIT TOTAL
------- ----------- -----------
<S> <C> <C> <C>
Balance--December 31, 1995................................. $75,213 $(1,152,094) $(1,076,881)
Common stock issued........................................ 100 100
Net income................................................. 187,841 187,841
------- ----------- -----------
Balance--June 30, 1996..................................... $75,313 $ (964,253) $ (888,940)
======= ========== ==========
</TABLE>
F-93
<PAGE> 288
SNIDER BROADCASTING CORPORATION AND SUBSIDIARY
CDB BROADCASTING CORPORATION
COMBINED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 187,841
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.............................................................. 14,256
Amortization.............................................................. 8,800
Loss on sale of property and equipment.................................... 458
Net changes in operating assets and liabilities:
Accounts receivable--trade............................................. (79,413)
Other assets........................................................... (62,851)
Accounts payable--trade................................................ 28,084
Accrued expenses....................................................... 5,884
Accrued interest payable............................................... 4,584
----------
Net cash provided by operating activities............................ 107,643
----------
Cash flows from investing activities:
Capital expenditures........................................................... (25,688)
Proceeds from sale of assets................................................... 825
Business acquisition costs..................................................... (50,000)
Start-up costs................................................................. (80,923)
----------
Net cash used in investing activities....................................... (155,786)
----------
Cash flows from financing activities:
Repayment of borrowings--bank.................................................. (169,500)
--affiliates........................................ (1,291,759)
--others............................................ (184,710)
Proceeds from borrowings....................................................... 1,737,408
Common stock issued............................................................ 100
----------
Net cash provided by financing activities................................... 91,539
----------
Net increase in cash............................................................. 43,396
Cash:
Beginning of period............................................................ 30,813
----------
End of period.................................................................. $ 74,209
=========
Supplemental cash flows information:
Interest paid.................................................................. $ 77,492
=========
</TABLE>
F-94
<PAGE> 289
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Maranatha Broadcasting Company, Inc.:
We have audited the accompanying balance sheet of Maranatha Broadcasting
Company, Inc.'s Radio Broadcasting Division (the "Company") as of December 31,
1996, and the related statements of operations and division equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Maranatha Broadcasting
Company, Inc.'s Radio Broadcasting Division 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.
/s/ KPMG PEAT MARWICK LLP
Phoenix, Arizona
September 29, 1997
F-95
<PAGE> 290
MARANATHA BROADCASTING COMPANY, INC.
RADIO BROADCASTING DIVISION
BALANCE SHEET
DECEMBER 31, 1996 AND SEPTEMBER 15, 1997
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 15,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of reserves of $20,000................. $ 366,278 $ 293,143
Equipment....................................................... 213,800 220,562
Accumulated depreciation........................................ (140,828) (155,828)
----------- -----------
72,972 64,734
Broadcast license............................................... 10,325 9,895
----------- -----------
Total assets................................................. $ 449,575 $ 367,772
=========== ===========
LIABILITIES AND DIVISION EQUITY
Current Liabilities:
Accounts payable................................................ $ 11,944 $ 9,630
Trade payable................................................... 10,000 --
Accrued compensation and commissions............................ 18,091 12,537
Customer deposits............................................... 16,447 16,964
----------- -----------
Total current liabilities.................................... 56,482 39,131
Commitments and contingencies
Division equity................................................. 393,093 328,641
----------- -----------
Total liabilities and division equity........................ $ 449,575 $ 367,772
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-96
<PAGE> 291
MARANATHA BROADCASTING COMPANY, INC.
RADIO BROADCASTING DIVISION
STATEMENT OF OPERATIONS AND DIVISION EQUITY
YEAR ENDED DECEMBER 31, 1996 AND THE EIGHT AND ONE-HALF-MONTH PERIOD ENDED
SEPTEMBER 15, 1997
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 15,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Net broadcasting revenue........................................ $2,066,271 $ 1,375,243
Subcarrier rental............................................... 48,796 37,333
---------- ----------
2,115,067 1,412,576
Operating expenses:
Technical expenses.............................................. 75,265 54,366
Program expenses................................................ 191,363 135,229
Selling expenses................................................ 893,721 656,039
General and administrative expenses............................. 279,090 213,382
Management fee and corporate overhead allocation................ 139,379 55,966
Bad debts....................................................... 62,868 51,511
Depreciation and amortization................................... 20,148 15,430
---------- ----------
Total operating expenses................................ 1,661,834 1,181,923
---------- ----------
Net income........................................................ 453,233 230,653
Division equity, beginning of period.............................. 421,384 393,093
Transfers to parent............................................... (481,524) (295,105)
---------- ----------
Division equity, end of period.................................... $ 393,093 $ 328,641
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-97
<PAGE> 292
MARANATHA BROADCASTING COMPANY, INC.
RADIO BROADCASTING DIVISION
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 AND THE EIGHT AND ONE-HALF MONTH PERIOD ENDED
SEPTEMBER 15, 1997
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 15,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 453,233 $ 230,653
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 20,148 15,430
Changes in assets and liabilities:
Decrease in accounts receivable............................. 25,809 73,135
Decrease in accounts payable and accruals................... (740) (17,351)
----------- ---------
Net cash provided by operating activities................ 498,450 301,867
----------- ---------
Cash flows from investing activities:
Purchase of radio equipment...................................... (16,926) (6,762)
----------- ---------
Net cash used in investing activities.................... (16,926) (6,762)
----------- ---------
Cash flows from financing activities:
Cash transfers to parent......................................... (481,524) (295,105)
----------- ---------
Net cash used in financing activities.................... (481,524) (295,105)
----------- ---------
Net change in cash............................................... -- --
Cash, beginning of period.......................................... -- --
----------- ---------
Cash, end of period................................................ $ -- $ --
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-98
<PAGE> 293
MARANATHA BROADCASTING COMPANY, INC.
RADIO BROADCASTING DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION AS OF SEPTEMBER 15, 1997 AND FOR THE EIGHT AND ONE-HALF-MONTH
PERIOD
THEN ENDED IS UNAUDITED)
(1) NATURE OF BUSINESS AND ORGANIZATION
Radio Broadcasting (the "Company") is a division of the Maranatha
Broadcasting Company, Inc. ("Maranatha"). Maranatha is a television and radio
broadcaster with facilities located in Allentown, Pennsylvania. The Company's
operations and facilities are integrated with those of Maranatha. Maranatha
provides management, accounting and certain administrative services for the
Company and charges them for these services based upon a percentage of
utilization which management believes is reasonable. Total allocated
administrative costs were $418,469 and $296,416 for the year ended December 31,
1996 and the eight and one-half months ended September 15, 1997, respectively.
Maranatha collects and retains all cash generated by the Radio Broadcasting
Division.
The Radio Broadcasting Division provides credit to customers, substantially
all of whom are regional businesses engaged in a variety of industries and
services. The Division broadcasts in the Allentown, Bethlehem, Easton region of
Eastern Pennsylvania as WLEV (formerly WFMZ) and broadcasts, through a
translator, in Reading, Pennsylvania as WLEV.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Equipment
Equipment is carried at cost, less accumulated depreciation. Depreciation
is provided on the straight-line method over the estimated useful lives of 5 to
7 years. Maintenance and repairs are charged to operations as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue
Net broadcasting revenue is presented net of agency commissions and is
recognized when the advertisements are broadcast.
Trade Transactions
Revenue from trade transactions (advertising provided in exchange for goods
and services) is recognized when advertisements are broadcast and trade expense
is recognized when merchandise is consumed or services are performed. An asset
and liability are recorded at the fair market value of the goods or services
received.
Accounts Receivable
The division generally extends 60 day credit terms to its advertisers and
maintains an allowance for uncollectible accounts based upon past experience.
F-99
<PAGE> 294
MARANATHA BROADCASTING COMPANY, INC.
RADIO BROADCASTING DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Broadcast License
The broadcast license and translator license were recorded at cost and
amortized over 15 years; the license has been fully amortized.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Maranatha has elected by consent of its shareholders to be taxed under the
provisions of Subchapter S for federal and state income tax purposes. Under
those provisions, Maranatha does not pay corporate income taxes on its taxable
income. Instead, the shareholders are liable for individual income taxes on the
Company's taxable income. Accordingly, these financial statements do not contain
a provision for income taxes.
Interim Financial Information
The financial statements as of September 15, 1997 and for the eight and
one-half months ended September 15, 1997 are unaudited; however, in the opinion
of management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
period have been included. The results for the interim period are not
necessarily indicative of the results to be achieved for the full fiscal year.
Division Equity
Division equity at December 31, 1996 consists of accumulated earnings of
$5,629,473 less distributions to Maranatha of $5,216,380.
(3) CONTINGENT LIABILITIES AND COMMITMENTS
Maranatha has certain debt and a revolving line of credit, which is secured
by all the assets of Maranatha, including the assets of the Radio Broadcasting
Division, as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 15,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Total notes and debt payable...................... $506,886 $ 826,648
Less current portion.............................. (190,286) (183,670)
-------- ---------
Total long-term debt.............................. $316,600 642,978
======== =========
Revolving line of credit.......................... $ -- $ --
======== =========
</TABLE>
The notes and line of credit bear interest primarily at the lender's prime
rate which was 8.25% and 8.5% at December 31, 1996 and September 15, 1997,
respectively. One of the notes bears interest at a fixed rate of 7.90%.
Maranatha is in compliance with the debt covenants as of September 15, 1997.
Proceeds from debt issuance were used to enhance Maranatha's television
operations.
The Division leases its Reading translator site and Reading sales office
under operating leases with future minimum monthly payments of $800 through
November 1998. The Division has also entered into lease
F-100
<PAGE> 295
MARANATHA BROADCASTING COMPANY, INC.
RADIO BROADCASTING DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
agreements to provide sub-channel broadcast frequency to two lessees. The future
revenue under the lease terms is as follows:
<TABLE>
<S> <C>
1997...................................................... $ 48,796
1998...................................................... 50,516
1999...................................................... 39,121
2000...................................................... 39,817
2001...................................................... 23,891
---------
$ 202,141
========
</TABLE>
(4) AGREEMENT OF SALE
On July 15, 1997, Maranatha entered into an asset purchase agreement with
Citadel Broadcasting Company ("CBC") and a wholly-owned subsidiary of CBC to
sell the assets and broadcast license of the Radio Broadcasting Division to CBC
for $23,000,000 plus the broadcasting assets of a radio station (WEST-AM in
Easton, Pennsylvania) owned by CBC and a wholly-owned subsidiary of CBC.
On September 15, 1997 Maranatha entered into a local marketing agreement
(LMA) with Citadel Broadcasting Company (Citadel) whereby Citadel pays $25,000
per month to the Company in exchange for supplying specified programming to the
brokered stations and marketing all commercial advertising time of the brokered
stations, subject to the Company's right to control the content of all
programming. In compliance with the LMA, the broadcasting revenue and station
operating expenses of the Company for the 15-day period from September 16, 1997
to September 30, 1997 are included in the financial statements of Citadel.
F-101
<PAGE> 296
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Pacific Northwest Broadcasting Corporation
Boise, Idaho
We have audited the accompanying combined balance sheet of Pacific
Northwest Broadcasting Corporation and Affiliates as of December 31, 1996, and
the related combined statements of operations, changes in owners' equity, and
cash flows for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Pacific
Northwest Broadcasting Corporation and Affiliates as of December 31, 1996, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ BALUKOFF, LINDSTROM & CO., P.A.
Boise, Idaho
September 25, 1997
F-102
<PAGE> 297
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
COMBINED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash......................................................................... $ 220,381
Trade accounts receivable, net of allowance for doubtful accounts of
$25,000................................................................... 1,079,835
Other accounts receivable.................................................... 57,692
Prepaid expenses............................................................. 189,395
Accrued interest receivable.................................................. 18,169
Current portion of notes receivable.......................................... 488,880
----------
Total current assets...................................................... 2,054,352
Other assets:
AM and FM broadcast licenses................................................. 4,497,916
Notes receivable, less current portion....................................... 3,011,778
Noncompete agreements........................................................ 354,441
Equipment deposits and other assets.......................................... 39,250
Deferred taxes............................................................... 42,443
----------
7,945,828
Property and equipment, at cost
Land and improvements........................................................ 130,011
Leasehold improvements....................................................... 61,744
Towers and antennas.......................................................... 402,710
Transmitters and transmitter buildings....................................... 508,444
Studio and technical equipment............................................... 915,007
Automobiles.................................................................. 44,930
Furniture and office equipment............................................... 360,595
----------
2,423,441
Accumulated depreciation..................................................... (992,576)
----------
1,430,865
----------
$11,431,045
==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 268,401
Accrued expenses............................................................. 259,479
Accrued taxes payable........................................................ 12,520
Current portion of notes payable to related parties.......................... 106,868
Current portion of long-term debt............................................ 1,195,717
----------
Total current liabilities................................................. 1,842,985
Long-term debt:
Notes payable to related parties, less current portion....................... 1,155,817
Notes payable, less current portion.......................................... 7,184,057
----------
8,339,874
Deferred revenue............................................................... 235,395
Owners' equity:
Convertible preferred stock, nonvoting, par value $1,000 per share, 5% non
cumulative, authorized 3,500 shares, issued and outstanding 1,396.8
shares.................................................................... 1,396,800
Common stock, voting, no par value, authorized 10,000 shares, issued and
outstanding 3,766.6 shares................................................ 475,677
Members' equity.............................................................. 61,176
Accumulated deficit.......................................................... (920,862)
----------
1,012,791
----------
$11,431,045
==========
</TABLE>
See accompanying notes.
F-103
<PAGE> 298
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues:
Revenues...................................................................... $5,404,307
Less agency and representative commissions.................................... 772,233
----------
4,632,074
Expenses:
Transmission.................................................................. 223,366
Programming and production.................................................... 1,476,235
Sales......................................................................... 816,459
General and administrative.................................................... 1,599,675
Advertising................................................................... 150,696
----------
4,266,431
----------
Income from operations..................................................... 365,643
Nonoperating income (expense)
Gain on sale of assets........................................................ 198,581
Noncompete revenue............................................................ 184,508
Interest income............................................................... 321,759
Interest expense.............................................................. (566,783)
----------
138,065
----------
Income before income taxes................................................. 503,708
Income tax expense.............................................................. 182,480
----------
Net income................................................................. $ 321,228
==========
</TABLE>
See accompanying notes.
F-104
<PAGE> 299
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
COMBINED STATEMENT OF CHANGES IN OWNERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PREFERRED COMMON SHAREHOLDER ACCUMULATED MEMBERS'
STOCK STOCK RECEIVABLE DEFICIT EQUITY TOTAL
---------- --------- ------------ ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996... $1,396,800 $ 591,302 $(85,445) $(1,180,914) $ -- $ 721,743
Common stock redemption,
125 shares............... -- (115,625) -- -- -- (115,625)
Decrease in shareholder
receivable............... -- -- 85,445 -- -- 85,445
Net income................. -- -- -- 260,052 61,176 321,228
---------- --------- -------- ----------- ------- ----------
Balance at December 31,
1996....................... $1,396,800 $ 475,677 $ -- $ (920,862) $61,176 $1,012,791
========== ========= ======== =========== ======= ==========
</TABLE>
See accompanying notes.
F-105
<PAGE> 300
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 321,228
Adjustments to reconcile net income to net cash provided by operating
activities Amortization..................................................... 55,427
Depreciation................................................................ 71,926
Noncompete revenue.......................................................... (134,508)
Noncompete expense.......................................................... 89,257
Provision for bad debts..................................................... 14,029
Gain on sale of assets...................................................... (198,581)
Legal expense paid directly by bank......................................... 10,200
Changes in operating assets and liabilities
Trade accounts receivable................................................. (604,884)
Other accounts receivable................................................. (5,319)
Prepaid expenses.......................................................... 21,658
Prepaid income tax........................................................ 7,739
Accrued interest receivable............................................... 9,794
Equipment deposits and other assets....................................... (14,258)
Deferred taxes............................................................ 169,936
Accounts payable.......................................................... 90,761
Accrued expenses.......................................................... 82,996
Accrued taxes payable..................................................... 12,520
---------
Net cash used by operating activities.................................. (79)
Cash flows from investing activities:
Payments on receivable from shareholders....................................... 39
Loans made to shareholders..................................................... (491,256)
Payments on notes receivable................................................... 773,885
Payments for acquisition of stations........................................... (63,360)
Proceeds from sale of assets................................................... 190,244
Additions to property and equipment............................................ (152,300)
---------
Net cash provided by investing activities.............................. 257,252
Cash flows from financing activities:
Decrease in bank overdraft..................................................... (118,289)
Payments on notes payable...................................................... (282,906)
Borrowings on notes payable to related parties................................. 400,000
Payment on notes payable to related parties.................................... (35,597)
---------
Net cash provided by financing activities.............................. (36,792)
---------
Net increase in cash................................................... 220,381
Cash at beginning of year........................................................ --
---------
Cash at end of year.................................................... $ 220,381
=========
</TABLE>
See accompanying notes.
F-106
<PAGE> 301
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
The Company operates AM and FM radio stations in southwestern Idaho.
Revenues received from local advertisers and national agencies advertising in
the southwestern Idaho market account for the majority of revenues.
Principles of Combination
The financial statements include the accounts of Pacific Northwest
Broadcasting Corporation (PNWB) and its wholly owned subsidiary, (Richardson
Broadcasting Company), and Wilson Group, LLC (Wilson), a limited liability
company which has common ownership. Wilson operates as an Idaho limited
liability company and its members have limited personal liability for the
obligations or debts of the entity. Wilson will terminate no later than December
31, 2072. Intercompany accounts and transactions have been eliminated in
combination.
Allocation of Earnings
Wilson operates two broadcast signals--KIZN and KZMG. Earnings from these
two signals are reported on the balance sheet as increases or decreases in
members' equity. The other broadcast signals--KBOI, KQFC and KKGL--are operated
by PNWB. Their earnings are reported as increases or decreases in the
accumulated deficit account.
Cash
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less to be cash
equivalents.
Depreciation
Depreciation of property and equipment is provided using the straight line
method over the estimated useful lives of the assets, which range from 3 to 50
years.
Amortization
Costs related to obtaining AM and FM broadcast licenses are amortized using
the straight line method over fifteen years. Accumulated amortization relating
to these licenses was $133,852 at December 31, 1996.
Costs related to the noncompete agreements are amortized using the
straight-line method over five years, the term of the agreement. Accumulated
amortization relating to the noncompete agreements was $171,848 at December 31,
1996.
Deferred Revenue
Deferred revenue consists of a noncompete agreement and will be earned over
the life of the agreement (7 years).
Revenue Recognition and Trade Transactions
Broadcast revenue is recognized when the advertisements are broadcast.
Revenue from trade transactions (advertising provided in exchange for goods and
services) is recognized as income when advertisements are broadcast and trade
expense is recognized when merchandise is consumed or services are performed.
F-107
<PAGE> 302
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- CONTINUED
Advertising
The Company expenses advertising costs as they are incurred.
Income Taxes
Income taxes are provided for the tax effects of PNWB transactions reported
in the financial statements and consist of taxes currently due or recoverable
and deferred taxes related primarily to differences between the bases of assets
and liabilities for financial and income tax reporting. Differences between
financial and income tax reporting relate to accumulated depreciation,
installment sales, basis in subsidiary's stock, allowance for doubtful accounts,
deferred compensation, noncompete amortization and shareholder interest payable.
No provision has been made for the tax effects of the Wilson transactions
since Wilson is taxed as a partnership and taxes are the responsibility of the
individual members.
Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
reported revenues and expenses. Actual results could differ from these
estimates.
Concentrations of Credit Risk
In the normal course of business, the Company extends unsecured credit to
customers principally national advertising agencies and companies in the
southwestern Idaho market. The Company also has demand deposits on hand in
financial institutions which exceed applicable FDIC insurance.
Acquisitions and Local Marketing Agreement
In October, 1996, the Company acquired two radio stations in Boise, Idaho
for $5,000,000. This acquisition was accounted for using the purchase method of
accounting. The purchase price has been allocated to the assets purchased based
upon fair values as agreed to with the seller.
The Company operated the two radio stations under a Local Marketing
Agreement (LMA) for six months prior to the acquisition. Under the terms of the
LMA, the expenses of operating the stations (other than depreciation or
amortization of assets) were the obligation of the Company and the Company
received the revenues generated by the stations.
NOTE B -- NOTES RECEIVABLE
The Company sold radio stations in Medford, Oregon, Chico, California, and
Eugene, Oregon in prior years and financed the sale of the radio stations to the
buyers. In 1996, the Company sold two radio stations and a building in
Pocatello, Idaho, and financed the sale. Each of the sales agreements included
provisions which restrict the Company from competing in markets served by the
radio stations which were sold. The
F-108
<PAGE> 303
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- CONTINUED
noncompete agreements extend for periods up to seven years from the dates of the
sales. The terms of the notes are as follows:
<TABLE>
<S> <C>
Note receivable from broadcasting company for Pocatello stations at $4,003 per
month through March 1997 and $11,592 per month thereafter including interest
at 8.5%, due March 2002, secured by substantially all assets of the Pocatello
stations...................................................................... $ 564,993
Note receivable from broadcasting company for Pocatello building at $2,405 per
month, including interest at 8.5%, due March 2002, secured by real estate..... 108,884
Note receivable from broadcasting company for Chico and Eugene stations at
monthly payments ranging from $37,033 to $53,204 including interest at 7.71%,
due September 2002, secured by substantially all assets of the stations....... 2,826,781
----------
3,500,658
Less current portion............................................................ 488,880
----------
$3,011,778
=========
</TABLE>
NOTE C -- LONG-TERM DEBT
Long-term debt is summarized as follows:
To banks:
<TABLE>
<S> <C>
Note payable to bank, monthly payments of interest only at prime plus 1%,
secured by substantially all of the Company's assets. The interest rate at
December 31, 1996 was 9.25%................................................... $8,000,000
To individuals:
Note payable to former shareholder at $1,205 per month including interest at
8% through January 2003, unsecured............................................ 69,440
Note payable to former shareholder at $991 per month including interest at 10%
through June 2000, unsecured.................................................. 35,002
Note payable to former shareholder at $3,033 per month including interest at
8% through January 2006, unsecured............................................ 234,457
Note payable to former shareholder at $375 per month through January 2006..... 40,875
Unsecured notes payable to related party, due on demand....................... 7,772
Unsecured notes payable to related parties at $4,446 per month including
interest at 9% through August 2018............................................ 208,093
Unsecured notes payable to related party, due on demand including interest at
7.5%.......................................................................... 53,372
</TABLE>
F-109
<PAGE> 304
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- CONTINUED
Notes payable to related parties, secured by certain notes receivable and
guaranteed by principal shareholder, payable in monthly installments,
including interest as follows:
<TABLE>
<CAPTION>
MONTHLY INTEREST
INSTALLMENTS RATES DUE DATES
------------ -------- ---------------------------------
<S> <C> <C> <C>
$5,077 8.0% January 1, 2005.................. 679,945
$ 470 8.0% January 1, 2005.................. 58,820
$ 470 8.0% January 1, 2005.................. 58,820
$ 470 8.0% January 1, 2005.................. 58,821
$ 440 8.0% January 1, 2005.................. 58,956
$ 381 8.0% January 1, 2005.................. 50,989
Accrued interest due to related parties............................... 27,097
----------
9,642,459
Less current portion.................................................. 1,302,585
----------
$8,339,874
==========
</TABLE>
Maturities in future years are: 1997 -- $1,302,585, 1998 -- $2,589,369;
1999 -- $4,454,088; 2000 -- $106,077; 2001 -- $1,018,430 and
thereafter -- $171,910.
The note payable to the bank limits the amount of new debt and operating
leases to not more than a total of $50,000 without lender's approval.
The bank issued a commitment letter to refinance $7,000,000 of the
$8,000,000 obligation in 1997, including a bridge loan of $2,000,000 and a term
loan of $5,000,000. The bridge loan has terms which include interest at prime
plus 1% and a maturity date of February 28, 1998. Requirements of the term loan
include interest at prime plus 1%, due August 31, 1999 and monthly payments of
approximately $77,000 (using an interest rate of 9.25%). The current portion and
scheduled maturities have been adjusted to reflect the intended refinance.
NOTE D -- RELATED PARTY TRANSACTIONS
Interest expense paid to related parties amounted to $187,646 in 1996. The
Company leases land, office facilities, and equipment from certain shareholders
and officers of the Company. Rental expense paid to related parties amounted to
$99,588 in 1996.
NOTE E -- LEASE COMMITMENTS
The Company leases radio transmitter sites, buildings, music and airtime
under noncancellable leases with terms in excess of one year. Future minimum
payments, by year and in the aggregate, under noncancellable operating leases
with initial or remaining terms of one year or more consisted of the following
at December 31, 1996:
<TABLE>
<S> <C>
1997.............................................................. $206,120
1998.............................................................. 201,980
1999.............................................................. 133,202
2000.............................................................. 31,300
2001.............................................................. 11,150
Thereafter........................................................ 105,850
--------
Total minimum lease payments...................................... $689,602
========
</TABLE>
Rental expense amounted to $245,589 in 1996.
F-110
<PAGE> 305
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- CONTINUED
NOTE F -- INCOME TAXES
The provision for income taxes results from continuing operations and
includes the following components:
<TABLE>
<S> <C>
Federal
Current tax provision................................................... $ --
Deferred tax provision.................................................. 147,548
--------
147,548
State
Current tax provision................................................... 12,544
Deferred tax provision.................................................. 22,388
--------
34,932
--------
Total income tax expense.......................................................... $182,480
========
</TABLE>
The components of the net deferred tax asset at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
--------- -------- ---------
<S> <C> <C> <C>
Deferred tax liability from:
Taxable temporary differences............................. $(255,017) $(60,004) $(315,021)
Deferred tax asset from:
Deductible temporary differences.......................... 105,662 22,049 127,711
Operating loss carryforward............................... 205,289 -- 205,289
Tax credit carryforward................................... 83,214 2,793 86,007
Valuation allowance....................................... (61,543) -- (61,543)
--------- -------- ---------
332,622 24,842 357,464
--------- -------- ---------
Deferred tax asset (liability).............................. $ 77,605 $(35,162) $ 42,443
========= ======== =========
</TABLE>
The following reconciles the federal tax provision with the expected
provision by applying statutory rates to income before income taxes:
<TABLE>
<S> <C>
Federal tax expense at statutory rate............................. $171,261
Effect of state taxes............................................. (13,701)
Nondeductible expenses............................................ 2,861
Partnership income................................................ (20,800)
Other............................................................. 7,927
--------
Federal income tax expense........................................ $147,548
========
</TABLE>
For income tax purposes, operating losses and tax credit carryovers used
and available are as follows at December 31, 1996:
<TABLE>
<CAPTION>
USED AVAILABLE
-------- ---------
<S> <C> <C>
Net operating loss, federal............................. $379,789 $ 710,617
Alternative minimum tax credit.......................... -- 21,671
General business credit................................. -- 61,543
</TABLE>
The federal net operating losses expire during 2004 through 2010. The
general business credits expire during 1998 through 2000. The alternative
minimum tax credits can be carried forward indefinitely.
F-111
<PAGE> 306
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- CONTINUED
NOTE G -- DEFINED CONTRIBUTION PLAN
The Company maintains a 401(k) plan covering all employees over the age of
twenty-one who have completed one year of service. The Company matches 10% of an
employee's contribution. Contributions to the plan were $7,022 in 1996.
NOTE H -- CONVERTIBLE PREFERRED STOCK
The preferred stockholders have the option to convert the preferred stock
into common stock prior to December 31, 2002 on the basis of five shares of
common stock for each share of preferred stock redeemed. The holders of
preferred stock do not have voting rights. Preferred stock is redeemable at par.
Subsequent to year end, the preferred stockholders converted all of their
preferred stock to common stock at the ratio of five shares of common stock for
each share of preferred stock.
NOTE I -- CASH FLOW INFORMATION
Supplemental cash flow information for the years ended December 31, 1996 is
as follows:
<TABLE>
<S> <C>
Interest paid.................................................. $ 347,933
Taxes paid (net of refunds).................................... $ (7,718)
Noncash financing and investing activities:
Purchase of shareholder's common stock and payment of
deferred compensation:
Common stock redeemed..................................... $ 115,625
New debt incurred......................................... (295,000)
Deferred compensation paid................................ 179,375
-----------
$ --
==========
Sale of assets:
Proceeds from sale of property and equipment.............. $ 689,000
Increase in notes receivable.............................. (689,000)
-----------
$ --
==========
Payment of shareholder receivable with reduction in
shareholder note payable:
Notes payable reduced..................................... $ 1,000,000
Note payable created...................................... (7,772)
Shareholder receivable paid............................... (992,228)
-----------
$ --
==========
Refinancing company and shareholder debt and acquisition of
radio stations:
Proceeds from new debt.................................... $ 8,000,000
Payments on existing debt................................. (2,557,188)
Broadcast licenses acquired............................... (4,100,000)
Property and equipment acquired........................... (800,000)
Noncompete agreement...................................... (100,000)
Debt repayment on behalf of shareholder................... (415,972)
Loan fees................................................. (80,000)
Legal fees................................................ (10,200)
-----------
Net cash paid for acquisition $ (63,360)
==========
</TABLE>
F-112
<PAGE> 307
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- CONTINUED
NOTE J -- SUBSEQUENT EVENTS
The Company has entered into an agreement to redirect certain of the
Company's broadcast signals in exchange for a payment of $2,000,000. The
agreement is subject to Federal Communications Commission (FCC) approval and is
secured by a letter of credit. Approval is expected in 1997 and the payment is
expected to be received subsequent to approval.
Subsequent to December 31, 1996, the shareholders of PNWB and the members
of Wilson have signed letters of intent to sell the capital stock of PNWB, the
operating assets of Wilson and a building owned by a shareholder to Citadel
Broadcasting Company (Citadel). The transactions are subject to approval of the
FCC. Under the letters of intent, the Company will enter into a LMA with Citadel
which will allow Citadel use of the property and equipment of the radio stations
in exchange for a fee. The LMA will continue until closing of the sales of the
stock of PNWB and the assets of Wilson. The sale of the stock of PNWB will not
close prior to January 1, 1998 and the sale of the assets of Wilson will not
close prior to April 18, 1998. The sale price of $28,500,000 for the stock,
assets and building is payable in cash, or, if Citadel's parent consummates an
initial public offering prior to closing, such price is payable in cash totaling
$25,650,000 and stock of $2,850,000. The agreement to purchase the stock of PNWB
requires, among other things, that certain minimum levels of net asset value be
met on the date of closing.
The Company made payments of notes payable amounting to approximately
$1,800,000 subsequent to year end in advance of the payment due dates.
Additionally, the Company received approximately $2,600,000 in full payment of
certain notes receivables subsequent to December 31, 1996.
Subsequent to year end, the preferred stockholders converted all of their
preferred stock to common stock at the ratio of five shares of common stock for
each share of preferred stock.
F-113
<PAGE> 308
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
UNAUDITED COMBINED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................................... $ 97,690 $ 960,144
Trade accounts receivable, net of allowance for doubtful accounts of
$20,000 in 1996 and $25,000 in 1997..................................... 997,705 1,212,035
Other accounts receivable................................................. 149,625 338
Prepaid expenses.......................................................... 147,050 201,159
Prepaid income tax........................................................ -- 5,629
Accrued interest receivable............................................... 22,676 --
Current portion of notes receivable....................................... 441,913 108,203
----------- -----------
Total current assets............................................... 1,856,659 2,487,508
Other Assets:
AM and FM broadcast licenses.............................................. 424,148 4,393,593
Notes receivable, less current portion.................................... 3,141,640 499,677
Noncompete agreements..................................................... 279,254 274,994
Equipment deposits and other assets....................................... 34,992 43,509
Deferred taxes............................................................ 103,726 41,598
----------- -----------
3,983,760 5,253,371
Property and equipment, at cost:
Land and improvements..................................................... 170,521 3,272
Leasehold improvements.................................................... 61,744 63,063
Towers and antennas....................................................... 319,489 402,710
Transmitters and transmitter buildings.................................... 251,408 513,002
Studio and technical equipment............................................ 447,768 951,467
Automobiles............................................................... 21,380 44,930
Furniture and office equipment............................................ 250,415 382,018
Construction in progress.................................................. 1,177 --
----------- -----------
1,523,902 2,360,462
Accumulated depreciation.................................................. (965,571) (1,097,448)
----------- -----------
558,331 1,263,014
----------- -----------
$ 6,398,750 $ 9,003,893
=========== ===========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 197,594 $ 258,351
Accrued expenses.......................................................... 304,009 283,825
Accrued taxes payable..................................................... 32,172 --
Current portion of notes payable to related parties....................... 221,911 71,026
Current portion of long-term debt......................................... 430,099 6,533,732
----------- -----------
Total current liabilities.......................................... 1,185,785 7,146,934
Long-term debt:
Notes payable to related parties, less current portion.................... 1,788,173 837,410
Notes payable, less current portion....................................... 2,476,509 287,220
----------- -----------
4,264,682 1,124,630
Deferred revenue............................................................ 269,022 134,514
Owners' equity:
Convertible preferred stock, nonvoting, par value $1,000 per share, 5%
noncumulative, authorized 3,500 shares, issued and outstanding 1,396.8
and -0- shares in 1996 and 1997, respectively........................... 1,396,800 --
Common stock, voting, no par value, authorized 10,000 and 20,000 shares in
1996 and 1997, respectively, issued and outstanding 3,766.6 and 10,750.6
in 1996 and 1997, respectively.......................................... 475,677 1,872,477
Shareholder receivable.................................................... (273,874) (258,166)
Accumulated deficit....................................................... (919,342) (916,660)
Members' deficit.......................................................... -- (99,836)
----------- -----------
679,261 597,815
----------- -----------
$ 6,398,750 $ 9,003,893
=========== ===========
</TABLE>
See accompanying notes.
F-114
<PAGE> 309
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
UNAUDITED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Revenues:
Revenues.......................................................... $3,652,060 $5,072,675
Less agency and representative commissions........................ 536,001 728,656
---------- ----------
3,116,059 4,344,019
Expenses:
Transmission...................................................... 152,428 204,549
Programming and production........................................ 1,050,757 1,434,096
Sales............................................................. 552,712 768,305
General and administrative........................................ 1,139,770 1,450,950
Advertising....................................................... 84,424 109,698
---------- ----------
2,980,091 3,967,598
---------- ----------
Income from operations.................................... 135,968 376,421
Nonoperating income (expense)
Gain (loss) on sale of assets..................................... 217,597 (65,639)
Noncompete revenue................................................ 150,881 100,881
Interest income................................................... 241,714 106,703
Interest expense.................................................. (343,739) (678,781)
---------- ----------
266,453 (536,836)
---------- ----------
Income (loss) before income taxes......................... 402,421 (160,415)
Income tax expense (benefit)........................................ 140,849 (3,605)
---------- ----------
Net income (loss)......................................... $ 261,572 $ (156,810)
========== ==========
</TABLE>
See accompanying notes.
F-115
<PAGE> 310
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
UNAUDITED COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PREFERRED COMMON SHAREHOLDER ACCUMULATED MEMBERS'
STOCK STOCK RECEIVABLE DEFICIT DEFICIT TOTAL
---------- ---------- ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... $1,396,800 $ 475,677 $ -- $ (920,862) $ 61,176 $1,012,791
Preferred stock conversion... (1,396,800) 1,396,800 -- -- -- --
Increase in shareholder
receivable................. -- -- (258,166) -- -- (258,166)
Net income (loss)............ -- -- -- 4,202 (161,012) (156,810)
---------- ---------- ---------- ---------- ---------- -----------
Balance at September 30,
1997......................... $ -- $1,872,477 $ (258,166) $ (916,660) $ (99,836) $ 597,815
========== ========== ========== ========== ========== ===========
</TABLE>
See accompanying notes.
F-116
<PAGE> 311
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................ $ 261,572 $ (156,810)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Amortization........................................................... 29,195 104,323
Depreciation........................................................... 44,921 104,872
Noncompete revenue..................................................... (100,881) (100,881)
Noncompete expense..................................................... 64,444 79,447
Provision for bad debts................................................ 14,028 14,393
(Gain) loss on sale of assets.......................................... (217,597) 65,639
Changes in operating assets and liabilities
Trade accounts receivable............................................ (522,753) (146,593)
Other accounts receivable............................................ (97,658) 57,354
Prepaid expenses..................................................... (15,997) (11,764)
Prepaid income tax................................................... 7,739 (5,629)
Accrued interest receivable.......................................... 5,287 18,169
Equipment deposits and other assets.................................. (10,000) (4,259)
Deferred taxes....................................................... 108,653 845
Accounts payable..................................................... 19,954 (10,050)
Accrued expenses..................................................... 127,526 24,346
Accrued taxes payable................................................ 32,172 (12,520)
----------- -----------
Net cash provided (used) by operating activities.................. (249,395) 20,882
Cash flows from investing activities:
Loans made to shareholders............................................... (188,429) (258,166)
Payments on notes receivable............................................. 690,990 2,892,778
Proceeds from sale of assets............................................. 168,750 61,100
Additions to property and equipment...................................... (12,251) (63,760)
----------- -----------
Net cash provided by investing activities......................... 659,060 2,631,952
Cash flows from financing activities:
Bank overdraft........................................................... (118,259) --
Borrowings on notes payable.............................................. 200,000 --
Payments on notes payable................................................ (513,260) (1,558,822)
Borrowings on notes payable to related parties........................... 150,000 --
Payment on notes payable to related parties.............................. (30,456) (354,249)
----------- -----------
Net cash provided (used) by financing activities.................. (311,975) (1,913,071)
----------- -----------
Net increase in cash.............................................. 97,690 739,763
Cash at beginning of period................................................ -- 220,381
----------- -----------
Cash at end of period............................................. $ 97,690 $ 960,144
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid............................................................ $ 366,943 $ 687,489
Taxes paid (net of refunds).............................................. $ (7,718) $ 13,699
Noncash financing and investing activities:
Purchase of shareholder's common stock and related payment of deferred
compensation:
Common stock redeeemed............................................ $ 115,625 $ --
New debt incurred................................................. $ (295,000) $ --
Deferred compensation paid........................................ 179,375
----------- -----------
$ -- $ --
=========== ===========
Sale of assets:
Proceeds from sale of property and equipment........................... $ 689,000 $ --
Increase in notes receivable........................................... (689,000) --
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
See accompanying notes.
F-117
<PAGE> 312
PACIFIC NORTHWEST BROADCASTING CORPORATION AND AFFILIATES
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1997
NOTE A -- UNAUDITED INTERIM FINANCIAL STATEMENTS
The combined balance sheet as of September 30, 1996 and 1997 and the
combined statements of operations, changes in owners' equity, and cash flows for
the nine month periods ended September 30, 1996 and 1997 are unaudited. In the
opinion of management, the accompanying unaudited financial statements contain
all adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly the financial position of Pacific Northwest Broadcasting
Corporation and Affiliates, (the Company) and the results of operations, changes
in owners' equity, and cash flows. These interim unaudited combined financial
statements should be read in conjunction with the audited combined financial
statements. The combined results of operations for the nine months ended
September 30, 1996 and 1997 are not necessarily indicative of results to be
expected for the full year.
NOTE B -- AGREEMENT TO REDIRECT SIGNAL
The Company has entered into an agreement to redirect certain of the
Company's broadcast signals in exchange for a payment of $2,000,000. The
agreement is subject to Federal Communications Commission (FCC) approval and is
secured by a letter of credit. Approval is expected in 1997 and payment is
expected subsequently.
NOTE C -- SALES AGREEMENTS
On September 30, 1997, the shareholders of Pacific Northwest Broadcasting
Corporation (PNWB) and the members of Wilson Group, LLC (Wilson) signed various
agreements to sell the capital stock of PNWB, the operating assets of Wilson and
a building owned by a shareholder to Citadel Broadcasting Company (Citadel). The
transactions are subject to approval of the Federal Communications Commission
(FCC). In conjunction with the agreements, the Company has entered into a Local
Marketing Agreement (LMA) with Citadel which will allow Citadel use of the
property and equipment of the radio stations in exchange for a fee. The LMA will
continue until closing of the sales of the stock of PNWB and the assets of
Wilson. The sale of the stock of PNWB will not close prior to January 1, 1998
and the sale of the assets of Wilson will not close prior to April 18, 1998. The
sales price of $28,500,000 for the stock, assets and building is payable in cash
or, if Citadel's parent consummates an initial public stock offering prior to
closing, such price is payable in cash totaling $25,650,000 and stock of
$2,850,000. The agreement to purchase the stock of PNWB requires, among other
things, that certain minimum levels of net asset value be met on the date of
closing.
F-118
<PAGE> 313
=======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS THE COMPANY SINCE THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 19
Use of Proceeds........................ 28
Capitalization......................... 29
Unaudited Pro Forma Condensed
Consolidated Financial Statements.... 30
Selected Historical Financial Data..... 44
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 46
Business............................... 52
The Pending Transactions............... 82
Management............................. 84
Certain Transactions................... 92
Security Ownership of Certain
Beneficial Owners.................... 95
Description of Indebtedness............ 99
The Exchange Offer..................... 103
Description of the Notes............... 113
Description of the Exchangeable
Preferred Stock and Exchange
Debentures........................... 137
Description of Other Capital Stock..... 174
Certain Federal Income Tax
Considerations....................... 177
Plan of Distribution................... 184
Legal Matters.......................... 185
Experts................................ 185
Available Information.................. 185
Glossary of Certain Defined Terms...... 187
Index to Financial Statements.......... F-1
</TABLE>
UNTIL MARCH 24, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
=======================================================
=======================================================
$207,551,400
CITADEL LOGO
OFFER TO EXCHANGE
10 1/4% SENIOR SUBORDINATED
NOTES DUE 2007
FOR
10 1/4% SERIES B SENIOR
SUBORDINATED NOTES DUE 2007
AND
13 1/4% SERIES A EXCHANGEABLE
PREFERRED STOCK
FOR
13 1/4% SERIES B EXCHANGEABLE
PREFERRED STOCK
-----------------
PROSPECTUS
-----------------
December 24, 1997
=======================================================
