<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1998
REGISTRATION NO. 333-48849
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
CUMULUS MEDIA INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ILLINOIS 4832 36-4159663
(State or other jurisdiction of (Primary standard industrial (IRS employer
incorporation or organization) classification code number) identification number)
</TABLE>
----------------------------
330 EAST KILBOURN AVE.
MILWAUKEE, WI 53202
(414) 283-4500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
----------------------------
RICHARD W. WEENING
EXECUTIVE CHAIRMAN
LEWIS W. DICKEY, JR.
EXECUTIVE VICE CHAIRMAN
CUMULUS MEDIA INC.
330 EAST KILBOURN AVE.
MILWAUKEE, WI 53202
(414) 283-4500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM F. SCHWITTER, ESQ. GEORGE R. KROUSE, JR., ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP SIMPSON THACHER & BARTLETT
399 PARK AVENUE 425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
(212) 318-6000 (212) 455-2000
</TABLE>
----------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective. If any of the securities
being registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following
box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
AMOUNT PROPOSED MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) OFFERING PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
Class A Common Stock, par value $.01 per
share.................................... shares(3) $ $100,000,000 $29,500
% Series A Cumulative Exchangeable
Redeemable Preferred Stock due 2009...... shares(4)(5) $ $219,000,000 $64,605
% Subordinated Exchange Debentures due
2009..................................... $ (6) $ $219,000,000 (7)
% Senior Subordinated Notes due
2008..................................... $ $ $150,000,000 $44,250
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) $102,660 of the total registration fees were previously paid in connection
with the Company's filing on March 30, 1998. The remaining $35,695 are being
paid in connection with this filing.
(3) Includes shares issuable upon exercise of the Underwriters'
over-allotment option.
(4) Includes $33,000,000 of % Series A Cumulative Exchangeable Redeemable
Preferred Stock due 2009 being issued in exchange for $33,000,000 of the
Registrant's Class A Preferred Stock.
(5) Includes shares issuable to cover fixed payment obligations on the
Series A Preferred Stock.
(6) Includes $94,000,000 in aggregate principal amount of Exchange Debentures
issuable to cover fixed payment obligations on the Exchange Debentures.
(7) In accordance with Rule 457 (i) the registration fee is calculated and based
solely on the offering price of the % Series A Cumulative Exchangeable
Redeemable Preferred Stock due 2009 and no additional fee is payable on the
% Subordinated Exchangeable Debentures.
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains four forms of prospectus: one to be
used in connection with the offering of the Class A Common Stock in the United
States and Canada (the "U.S. Common Stock Prospectus"), one to be used in
connection with a concurrent offering of the Class A Common Stock outside the
United States and Canada (the "International Common Stock Prospectus"), one to
be used in connection with a concurrent offering of Senior Subordinated Notes
(the "Notes Prospectus") and one to be used in connection with a concurrent
offering of Series A Cumulative Exchangeable Redeemable Preferred Stock (the
"Preferred Stock Prospectus"). The U.S. Common Stock Prospectus, the
International Common Stock Prospectus, the Preferred Stock Prospectus and the
Notes Prospectus will be identical in all respects except that they will contain
different front and back cover pages, the Notes Prospectus (i) will not contain
the sections entitled "Prospectus Summary -- The Stock Offering," "Dividend
Policy," "Dilution," "Principal and Selling Stockholders," "Description of
Credit Facility and Notes," "Shares Eligible for Future Sales," or "Certain
United States Tax Consequences to Non-United States Holders of Class A Common
Stock," (ii) will contain a different legend following the "Certain Definitions
and Market and Industry Data" section, and a different "Prospectus Summary --
Risk Factors" section, "Risk Factors" section and "Underwriting" section and
(iii) will contain additional sections entitled "Prospectus Summary -- The Debt
Offering," "Principal Stockholders," "Description of Credit Facility,"
"Description of Notes," and "Certain Federal Income Tax Considerations" and the
Preferred Stock Prospectus (i) will not contain the sections entitled
"Prospectus Summary -- The Stock Offerings," "Dilution," "Principal and Selling
Stockholders," or "Certain United States Tax Consequences to Non-United States
Holders of Class A Common Stock," (ii) will contain a different legend following
the "Certain Definitions and Market and Industry Data" section, and a different
"Prospectus Summary -- Risk Factors" section, "Risk Factors" section, "Shares
Eligible for Future Sale" section and "Underwriting" section and (iii) will
contain additional sections entitled "Prospectus Summary -- The Preferred Stock
Offering," "Principal Stockholders," "Description of the Series A Preferred
Stock and Exchange Debentures," and "Certain Federal Income Tax Considerations."
The U.S. Common Stock Prospectus is included herein and is followed by (i)
those pages to be used in the International Common Stock Prospectus which differ
from those in the U.S. Common Stock Prospectus, (ii) those pages to be used in
the Notes Prospectus which differ from those in the U.S. Common Stock
Prospectus, and (iii) those pages to be used in the Preferred Stock Prospectus
which differ from those in the U.S. Common Stock Prospectus. Each of the
additional pages for the International Common Stock Prospectus included herein
has been labeled "Alternate Page for International Common Stock Prospectus."
If required pursuant to Rule 424(b) of the General Rules and the Regulations
under the Securities Act of 1933, as amended, copies of each of the prospectuses
in the forms in which they are used after the Registration Statement becomes
effective will be filed with the Securities and Exchange Commission.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold, nor may
offers to buy be accepted, prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 18, 1998
<TABLE>
<S> <C> <C>
[LOGO] SHARES
CUMULUS MEDIA INC.
CLASS A COMMON STOCK
</TABLE>
---------------------
Of the shares of Class A Common Stock, par value $.01 per share (the "Class
A Common Stock"), offered hereby, shares are being sold by Cumulus Media
Inc. (the "Company") and shares are being sold by the Selling Stockholder
(as defined herein). Of the shares of Class A Common Stock being offered,
shares are being offered in the United States and Canada (the "U.S.
Offering") by the U.S. Underwriters and shares are being offered in a
concurrent offering outside the United States and Canada (the "International
Offering") by the International Managers (together with the U.S. Underwriters,
the "Underwriters"). The U.S. Offering and the International Offering are
collectively referred to as the "Stock Offerings." The offering price and
underwriting discounts and commissions for each of the Stock Offerings will be
identical.
Upon consummation of the Reorganization (as defined herein), the Company's
authorized capital stock will include Class A Common Stock, Class B Common
Stock, par value $.01 per share (the "Class B Common Stock"), and Class C Common
Stock, par value $.01 per share (the "Class C Common Stock" and, together with
the Class A Common Stock and the Class B Common Stock, the "Common Stock").
Except with respect to voting and conversion, the rights of holders of Class A
Common Stock, Class B Common Stock and Class C Common Stock are identical.
Except upon the occurrence of certain events, holders of Class B Common Stock
are not entitled to vote, whereas each share of Class A Common Stock entitles
its holder to one vote and subject to certain exceptions, each share of Class C
Common Stock entitles its holder to ten votes. Under certain conditions and
subject to prior governmental approval, shares of Class B Common Stock are
convertible into shares of Class A Common Stock and/or shares of Class C Common
Stock on a one-for-one basis at the option of the holder, and shares of Class C
Common Stock are convertible into shares of Class A Common Stock on a
one-for-one basis at the option of the holder. Following the Stock Offerings,
existing stockholders of the Company, including the officers and directors of
the Company, will continue to own approximately % of the Common Stock
(representing % of the voting stock) and will have the ability to control the
Company. See "Description of Capital Stock."
Concurrently with the Stock Offerings, the Company is offering $
million of % Series A Cumulative Exchangeable Redeemable Preferred Stock Due
2009 (the "Series A Preferred Stock"), (the "Preferred Stock Offering"),
$ million of which are being offered directly by the Company, and not
through the Underwriters, to The Northwestern Mutual Life Insurance Company, the
sole owner of the NML Preferred Stock (as defined herein), which had an accreted
value as of May 15, 1998 of $33,989,840, at a purchase price equal to the price
to public and $ million of % Senior Subordinated Notes Due 2008 (the
"Notes") (the "Debt Offering" and, together with the Stock Offerings and the
Preferred Stock Offering, the "Offerings"). Consummation of each Offering is
contingent upon consummation of each of the other Offerings. A portion of the
proceeds of the Offerings will be used to repay the Credit Facility (as defined
herein) for which affiliates of Lehman Brothers Inc. act as arranger and lender.
Prior to the Stock Offerings, there has been no public market for the Class
A Common Stock of the Company. It is anticipated that the initial public
offering price will be between $ and $ per share. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price.
The Class A Common Stock of the Company is expected to be approved for
inclusion in the Nasdaq National Market system under the symbol "CMLS." There
can be no assurance that an active public market for the Class A Common Stock
will develop or be maintained after the consummation of the Stock Offerings.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE CLASS A COMMON STOCK.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(3)................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Stock Offerings payable by the Company
estimated to be $ .
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase up
to an additional shares of Class A Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. The
International Managers have been granted a similar option to purchase up to
additional shares solely to cover over-allotments, if any. If both
options are exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."
---------------------
The shares of Class A Common Stock offered by this Prospectus are offered by
the U.S. Underwriters subject to prior sale, to withdrawal, cancellation, or
modification of the offer without notice, to delivery to and acceptance by the
U.S. Underwriters and to certain further conditions. It is expected that
delivery of the shares will be made at the offices of Lehman Brothers Inc., New
York, New York, on or about , 1998.
---------------------
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
BT ALEXs BROWN
, 1998
<PAGE>
[ARTWORK]
2 page gate fold
Cover page of gate fold--collage of logos of radio stations owned by the
Company.
Inside of gatefold--U.S. map and to the bottom right a Caribbean map showing
the locations of the Company's radio stations.
2
<PAGE>
CERTAIN DEFINITIONS AND MARKET AND INDUSTRY DATA
The terms "Broadcast Cash Flow" and "EBITDA" are referred to in various
places in this Prospectus. Broadcast Cash Flow consists of operating income
(loss) before depreciation and amortization, non-cash stock compensation expense
and corporate general and administrative expenses. EBITDA consists of operating
income (loss) before depreciation and amortization and non-cash stock
compensation expense. EBITDA, as defined by the Company, may not be comparable
to similarly titled measures used by other companies. Although Broadcast Cash
Flow and EBITDA are not measures of performance calculated in accordance with
generally accepted accounting principles ("GAAP"), management believes that they
are useful to an investor in evaluating the Company because they are measures
widely used in the broadcast industry to evaluate a radio company's operating
performance. However, Broadcast Cash Flow and EBITDA should not be considered in
isolation or as substitutes for net income, cash flows from operating activities
and other income or cash flow statement data prepared in accordance with GAAP,
or as a measure of liquidity or profitability.
The term "local marketing agreement" ("LMA") is referred to in various
places in this Prospectus. A typical LMA is an agreement under which the Federal
Communications Commission ("FCC") licensee of a radio station makes available,
for a fee, air time on its station to a party which provides programming to be
broadcast during such airtime and collects revenues from advertising it sells
for broadcast during such programming. A station's or station group's "power
ratio" is defined as such station's or station group's revenue market share
divided by audience market share. "MSA" is defined as Metro Survey Area, as
listed in the Arbitron Radio Metro and Television Market Population Estimates
1996-1997.
Unless otherwise indicated herein, (i) market ranking by radio advertising
revenue, radio market advertising revenue and radio market advertising data have
been obtained from BIA'S MASTERACCESS ("BIA") compiled by BIA Research, Inc.,
(ii) total industry listener and revenue levels have been obtained from the
Radio Advertising Bureau ("RAB"), (iii) all audience share data and audience
rankings, including ranking by population, except where otherwise stated to the
contrary, have been derived from surveys of people ages 12 and over ("Adults
12+"), listening Monday through Sunday, 6 a.m. to 12 midnight, and are based on
the Fall 1997 Arbitron Market Report pertaining to each market, as reported by
BIA, and (iv) revenue share data in each market presented have been obtained
from BIA as adjusted for market information available to and known by the
Company.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF CLASS A COMMON
STOCK FOLLOWING THE PRICING OF THE STOCK OFFERINGS TO COVER A SYNDICATE SHORT
POSITION IN THE CLASS A COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE
OF THE CLASS A COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
3
<PAGE>
THIS PROSPECTUS CONTAINS STATEMENTS WHICH CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. SUCH STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND
INCLUDE STATEMENTS (INCLUDING, WITHOUT LIMITATION, THE STATEMENTS CONTAINED
UNDER THE CAPTION "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS") REGARDING
THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY, ITS DIRECTORS OR ITS
OFFICERS PRIMARILY WITH RESPECT TO THE FUTURE OPERATING PERFORMANCE OF THE
COMPANY. PROSPECTIVE PURCHASERS OF CLASS A COMMON STOCK ARE CAUTIONED THAT ANY
SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND MAY
INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER FROM THOSE
IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS (INCLUDING,
WITHOUT LIMITATION, RISKS AND UNCERTAINTIES RELATING TO LEVERAGE, THE NEED FOR
ADDITIONAL FUNDS, CONSUMMATION OF THE PENDING ACQUISITIONS, INTEGRATION OF THE
PENDING ACQUISITIONS, THE ABILITY OF THE COMPANY TO ELIMINATE CERTAIN COSTS, THE
MANAGEMENT OF RAPID GROWTH, THE POPULARITY OF RADIO AS A BROADCASTING AND
ADVERTISING MEDIUM AND CHANGING CONSUMER TASTES), MANY OF WHICH ARE BEYOND THE
CONTROL OF THE COMPANY. THE INFORMATION UNDER THE CAPTIONS "RISK FACTORS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES. THE
OCCURRENCE OF ANY SUCH FACTORS NOT CURRENTLY EXPECTED BY THE COMPANY WOULD
SIGNIFICANTLY ALTER THE RESULTS SET FORTH IN THESE STATEMENTS. THE SAFE HARBOR
PROVISIONS FOR FORWARD-LOOKING STATEMENTS PROVIDED BY THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, THE SECURITIES ACT (AS DEFINED HEREIN) AND THE
EXCHANGE ACT (AS DEFINED HEREIN) DO NOT APPLY TO INITIAL PUBLIC OFFERINGS AND
THE COMPANY CANNOT AVAIL ITSELF OF THE PROTECTIONS PROVIDED THEREBY WITH RESPECT
TO THE OFFERINGS.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED OR THE CONTEXT
OTHERWISE REQUIRES, (I) THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES
THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND THE
REORGANIZATION HAS BEEN CONSUMMATED; (II) REFERENCES TO THE "COMPANY" INCLUDE
THE COMPANY AND ITS SUBSIDIARIES; AND (III) ALL PRO FORMA INFORMATION CONTAINED
IN THIS PROSPECTUS GIVES EFFECT TO THE REORGANIZATION, BORROWINGS UNDER THE
CREDIT FACILITY AND THE APPLICATION OF PROCEEDS THEREFROM, ACQUISITIONS
COMPLETED AS OF THE DATE HEREOF (THE "COMPLETED ACQUISITIONS"), THE PENDING
ACQUISITIONS (AS DEFINED HEREIN), AND THE OFFERINGS AND THE APPLICATIONS OF
PROCEEDS THEREFROM (COLLECTIVELY, THE "TRANSACTIONS").
THE COMPANY
Cumulus Media Inc. ("Cumulus" or the "Company") is a radio broadcasting
company focused on the acquisition, operation and development of radio stations
in mid-size and smaller radio markets in the U.S. The Company currently owns and
operates, or provides sales and marketing services under LMA agreements (pending
FCC approval of acquisition) to, 105 stations in 22 markets. Upon consummation
of the Pending Acquisitions, the Company will be one of the five largest radio
broadcasting companies based on number of stations, and among the fifteen
largest based on net revenues, in the U.S. and will own and operate 176 radio
stations (124 FM and 52 AM) clustered in 35 markets. The Company has assembled
market-leading clusters with stations comprising the first or second ranked
radio group, in terms of revenue share and/or audience share, in all of its 34
U.S. markets. On a pro forma basis, after giving effect to the Transactions, the
Company would have generated net revenues of approximately $111.0 million and
$25.8 million and Broadcast Cash Flow (as defined under "Certain Definitions and
Market and Industry Data") of approximately $24.5 million and $3.1 million for
the year ended December 31, 1997 and for the three months ended March 31, 1998,
respectively.
Cumulus operates and develops clusters of stations in demographically
attractive and fast growing mid-size and smaller markets. Relative to the 100
largest markets in the U.S., the Company believes that the mid-size and smaller
markets (MSA 100-267) represent attractive operating environments and generally
are characterized by: (i) a greater reliance on radio advertising as evidenced
by the greater percentage of total media revenues captured by radio than the
national average; (ii) rising advertising revenues as the larger national and
regional retailers expand into these markets; (iii) small independent operators,
many of whom lack the capital to produce high quality locally-originated
programming and/or to employ more sophisticated research, marketing, management
and sales techniques; and (iv) lower overall susceptibility to economic
downturns.
The Company believes that the attractive operating characteristics of
mid-size and smaller markets coupled with the relaxation of FCC ownership limits
create significant opportunities to form clusters within markets and regions
that will enable the Company to achieve revenue growth and cost efficiencies. As
a result, management believes that the Company can grow revenues at rates equal
to or better than larger market growth rates and generate Broadcast Cash Flow
margins that are comparable to the higher margins that previously were generally
achievable only in the top 100 markets. The Company believes that mid-size and
smaller radio markets provide an excellent opportunity to acquire attractive
properties at favorable purchase prices due to the size and fragmented nature of
ownership in these markets and to the historically greater attention given to
the larger markets by radio station acquirors. According to BIA, there are
approximately 1,600 FM and 1,000 AM stations in the 168 U.S. radio markets
ranked MSA 100-267. These 2,600 stations are owned by approximately 1,100
different operators. In addition, there are nearly 4,700 stations in unranked
markets owned by approximately 2,700 operators.
The Company's principal strategy is to establish its position as a leader in
its markets and regions and to expand into additional mid-size and smaller
markets and regions where it believes a leadership position can be achieved by
assembling clusters. Cumulus seeks to enhance the quality of radio for listeners
and the
5
<PAGE>
utility of the radio medium for advertisers in order to maximize the advertising
revenues and Broadcast Cash Flow of its radio stations. To that end, Cumulus
utilizes extensive research to properly position the formats of stations in a
given market and also significantly increases the amount of locally-originated
programming. Upon consummation of the Pending Acquisitions, the Company's
portfolio of stations will be diversified in terms of format, target audience,
geographic location and stage of development. Because of the size and diversity
of its portfolio and its individual radio station groups or "clusters", the
Company believes it is not reliant upon the performance of any single station or
any specific format.
MANAGEMENT TEAM
Members of the Company's senior management team have an aggregate of over 75
years of experience in the media and radio broadcasting industry. To date,
management has successfully negotiated 61 separate acquisition transactions on
behalf of the Company. The Company's Executive Chairman and Treasurer, Richard
W. Weening, has over 20 years of operating experience in media and information
companies including significant experience in corporate finance and mergers and
acquisitions. Lewis W. Dickey, Jr., Executive Vice Chairman, has over 15 years
of experience in the radio and television broadcasting industry and is a
successful owner-operator of radio stations in larger and mid-size markets. Mr.
Dickey is also a nationally regarded business strategy and marketing consultant
to the radio and television broadcasting industry. William M. Bungeroth, the
Company's President, has over 20 years of experience in the radio broadcasting
industry and has developed an expertise in enhancing revenue at stations under
his management. Mr. Bungeroth manages the broadcasting business along with the
General Managers of each market, the Director of Programming and the regional
Directors of Sales. The Company's Vice President and Chief Financial Officer,
Richard J. Bonick, Jr., has 20 years of experience in the radio broadcasting
industry. Mr. Bonick manages the financial reporting and control systems as well
as the operational aspects of the Company's broadcasting business.
STATION PORTFOLIO
The Company has four regions in the U.S. as its primary focus: the Midwest,
Southeast, Southwest and Northeast. The following chart sets forth certain
information with respect to the Company's stations in these regions, before and
after giving effect to the Pending Acquisitions:
<TABLE>
<CAPTION>
PENDING ACQUISITIONS (1) NUMBER OF
NUMBER OF STATIONS --------------------------------------------------- STATIONS
NUMBER OF NUMBER OF NUMBER OF FOLLOWING
CURRENTLY STATIONS STATIONS TO STATIONS TO BE PENDING
OWNED CURRENTLY BE PLACED ACQUIRED ACQUISITIONS
MARKET ----------- UNDER UNDER WITHOUT -------------
MARKET(2) RANK FM AM LMA(3) LMA LMA FM
- ----------------------- --------- ----- ----- --------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MIDWEST REGION
Ann Arbor, MI.......... 146 2 2 -- -- -- 2
Appleton-Oshkosh/ Green
Bay, WI.............. 138/182 3 2 2 -- -- 5
Dubuque, IA............ 217 -- -- 1 -- 4 4
Marion Carbondale, IL.. 209 -- -- 6 -- -- 4
Bismarck, ND........... 259 -- -- -- -- 4 3
Kalamazoo, MI.......... 172 -- -- -- -- 3 2
Faribault-Owatonna-
Waseca, MN........... -- -- -- -- -- 8 4
Mankato, MN............ -- -- -- -- -- 3 2
Mason City, IA......... -- -- -- -- -- 7 5
Monroe, MI............. -- -- -- 1 -- -- 1
New Ulm-Springfield-
Marshall, MN......... -- -- -- -- -- 3 2
Rochester, MN.......... -- -- -- -- -- 4 2
Toledo, OH............. 76 4 2 -- -- -- 4
SOUTHEAST REGION
Albany, GA............. 205 -- -- 4 2 -- 4
Augusta, GA(6)......... 109 4 2 2 -- 1 6(2)
Chattanooga, TN........ 102 -- -- 1 3 -- 3
Columbus, GA........... 166 3 2 -- -- -- 3
Florence, SC........... 198 2 2 5 1 -- 7
<CAPTION>
ADULTS
12+ REVENUE
MARKET(2) AM SHARE (%) RANK(4)
- ----------------------- ------------- ------------- -------------
<S> <C> <C> <C>
MIDWEST REGION
Ann Arbor, MI.......... 2 8.7 1
Appleton-Oshkosh/ Green
Bay, WI.............. 2 20.2(5) 2
Dubuque, IA............ 1 34.8 1
Marion Carbondale, IL.. 2 32.4 2
Bismarck, ND........... 1 37.7 1
Kalamazoo, MI.......... 1 22.3 1
Faribault-Owatonna-
Waseca, MN........... 4 -- 1
Mankato, MN............ 1 -- 1
Mason City, IA......... 2 -- 1
Monroe, MI............. 0 -- 1
New Ulm-Springfield-
Marshall, MN......... 1 -- 1
Rochester, MN.......... 2 -- 2
Toledo, OH............. 2 31.2 2
SOUTHEAST REGION
Albany, GA............. 2 23.2 2
Augusta, GA(6)......... 3 29.3 1
Chattanooga, TN........ 1 22.3 1
Columbus, GA........... 2 32.5 1
Florence, SC........... 3 42.2 1
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PENDING ACQUISITIONS (1) NUMBER OF
NUMBER OF STATIONS --------------------------------------------------- STATIONS
NUMBER OF NUMBER OF NUMBER OF FOLLOWING
CURRENTLY STATIONS STATIONS TO STATIONS TO BE PENDING
OWNED CURRENTLY BE PLACED ACQUIRED ACQUISITIONS
MARKET ----------- UNDER UNDER WITHOUT -------------
MARKET(2) RANK FM AM LMA(3) LMA LMA FM
- ----------------------- --------- ----- ----- --------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Montgomery, AL......... 143 -- -- 4 -- -- 2
Myrtle Beach, SC....... 175 3 1 2 -- -- 5
Salisbury-Ocean City,
MD................... 153 4 2 2 -- -- 6
Savannah, GA........... 154 -- -- 5 -- 2 5
Tallahassee, FL........ 165 3 1 1 -- -- 4
Wilmington, NC......... 178 4 1 -- -- -- 4
SOUTHWEST REGION
Abilene, TX............ 224 3 -- 1 -- -- 4
Amarillo, TX........... 188 3 1 2 -- -- 4
Beaumont-Port Arthur,
TX................... 128 -- -- 1 -- 4 3
Grand Junction, CO..... 247 -- -- -- -- 6 4
Lake Charles, LA....... 203 -- -- -- -- 4 3
Odessa-Midland, TX..... 174 -- -- 5 -- -- 4
Topeka, KS............. 180 -- -- -- -- 4 2
Wichita Falls, TX...... 236 3 -- 1 -- -- 4
NORTHEAST REGION
Augusta-Waterville,
ME................... 245 -- -- -- -- 6 5
Bangor, ME............. 263 -- -- -- -- 2 2
--- --- --- --- --- ---
TOTAL 34 U.S.
MARKETS.............. 41 18 46 6 65 124
<CAPTION>
ADULTS
12+ REVENUE
MARKET(2) AM SHARE (%) RANK(4)
- ----------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Montgomery, AL......... 2 34.4 1
Myrtle Beach, SC....... 1 20.3 1
Salisbury-Ocean City,
MD................... 2 31.2 1
Savannah, GA........... 2 36.0 2
Tallahassee, FL........ 1 32.8 1
Wilmington, NC......... 1 17.3 2
SOUTHWEST REGION
Abilene, TX............ 0 26.7 2
Amarillo, TX........... 2 30.6 2
Beaumont-Port Arthur,
TX................... 2 29.4 2
Grand Junction, CO..... 2 42.7 1
Lake Charles, LA....... 1 49.7 1
Odessa-Midland, TX..... 1 39.7 1
Topeka, KS............. 2 24.1 2
Wichita Falls, TX...... 0 28.6 2
NORTHEAST REGION
Augusta-Waterville,
ME................... 1 25.6 1
Bangor, ME............. 0 30.4 1
--
TOTAL 34 U.S.
MARKETS.............. 52
</TABLE>
- ------------------------
(1) The Company expects to consummate most of the Pending Acquisitions during
the second and third quarters of 1998, although there can be no assurance
that the transactions will be consummated within that time frame. The
pending acquisition of a Tallahassee FM station presently operated under an
LMA is expected to close by the end of 1998. In two of the markets in which
there are Pending Acquisitions (Dubuque, IA and Grand Junction, CO),
petitions or informal objections have been filed against the Company's FCC
assignment applications. In addition, the FCC staff has raised questions
concerning whether the Company will be permitted to acquire its full
complement of proposed stations in some markets, based on local market
concentration concerns. There can be no assurance that applications for
other Pending Acquisitions will not be subjected to similar challenges or
FCC staff inquiries. The FCC staff has also requested additional information
regarding attributable media interests of one of the Company's
non-attributable investors to determine compliance with the FCC's
cross-interest policy in one market. All such petitions, objections and FCC
staff inquiries must be resolved before FCC approval can be obtained and the
acquisitions consummated.
(2) The listed markets correspond to station clusters of the Company, but may
vary from the "markets" defined for purposes of the FCC's multiple-ownership
rules, which are defined by reference to the signal coverages of the
stations involved. Thus, in some instances (E.G., Augusta, GA, Florence, SC,
and Salisbury-Ocean City, MD), the number of stations following the Pending
Acquisitions as listed in the above table exceeds the number of radio
stations specified in the FCC's rules that one person or entity may own,
operate or control within a single market, but is still consistent with
these rules.
(3) Includes radio stations to which the Company currently provides programming
and on which the Company sells advertising pursuant to an LMA.
(4) Market revenue rankings for Faribault-Owatonna-Waseca, MN, Mankato, MN,
Mason City, IA, Rochester, MN and New Ulm-Springfield-Marshall, MN are based
on Company estimates.
(5) Indicates Adults 12+ share of Appleton-Oshkosh market.
(6) The FCC staff recently dismissed the assignment application for one of the
six FM stations in Augusta, GA based on the unacceptability of the Company's
supplemental engineering analysis in demonstrating compliance with the FCC's
multiple-ownership rules. The Company will not be permitted to acquire more
than five FM and three AM stations in this market unless it succeeds in
obtaining FCC approval to modify the facilities of one or more of its
currently owned stations or successfully appeals the FCC staff dismissal of
its assignment application for the sixth FM station.
The Company also owns and operates five radio stations and one leased
frequency in various locations throughout the English-speaking Eastern
Caribbean, including among other places, Trinidad, St. Kitts and St. Lucia.
ACQUISITION STRATEGY
Cumulus has focused its acquisition strategy on acquiring radio broadcasting
stations in demographically attractive and fast growing mid-size to smaller
markets that it believes offer substantial growth opportunities for the Company.
In executing this strategy, the Company adheres to certain key acquisition
criteria. Primary among these criteria are targeting markets with: (i) growing
economies that are not dependent
7
<PAGE>
upon any single industry or employer; (ii) a regional fit with the Company's
overall portfolio concentration in the Midwest, Southeast, Southwest and
Northeast regions of the U.S.; (iii) close proximity to larger markets that may
lead to increased economic expansion into the Company's markets; (iv) previously
unconsolidated markets with fragmented individual ownership of stations; (v) the
opportunity to assemble a cluster of stations diversified in format to provide a
range of target demographic options for advertisers; and (vi) the opportunity to
increase sales performance through greater coverage of potential advertisers
with more sales people per station.
In targeting specific stations, the Company seeks stations with a position
of leadership in their market in terms of ratings and format, with the
opportunity to significantly increase revenues and Broadcast Cash Flow (as
defined under "Certain Definitions and Market and Industry Data"). Additionally,
Cumulus seeks high quality technical and operating facilities, capable local
management and an FCC license which enables coverage of the entire market.
The Company believes that its acquisition strategy will have a number of
benefits, including: (i) growth and 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 certain
corporate overhead functions, including its senior management team; (iv)
improved leverage in various key vendor negotiations; (v) greater ability to
recruit top industry management talent; and (vi) increased overall scale, which
should facilitate the Company's future capital raising activities.
INTEGRATION OF ACQUIRED BUSINESSES
The Company has developed, through its 61 Completed and Pending
Acquisitions, an efficient process for the integration of newly acquired
properties into the Cumulus portfolio and respective geographic cluster, as well
as into the overall Cumulus culture and operating philosophy. The Company's
station integration plan consists of six key elements: (i) employ sophisticated
market research to refine station formats, enrich the listener experience and
increase audience and revenue share relative to other stations in the market;
(ii) expand the size and the effectiveness of the sales organization through
active recruitment and in-depth training to enhance demand for the station's
spot inventory to increase both revenue and margin; (iii) add the station to the
Cumulus in-market local area network and install the Company's proprietary
system for real-time monitoring by management of station sales and inventory
performance; (iv) install Cumulus's centralized networked accounting system for
financial reporting, budget control, payables management and cash management;
(v) establish revenue and expense budgets consistent with the programming and
sales strategy and make necessary cost adjustments; and (vi) implement necessary
improvements in transmission facilities, audio processing and studio facilities.
From time to time, in compliance with applicable law, the Company will enter
into an LMA or consulting arrangement with a target property prior to FCC final
approval and the consummation of the acquisition in order to gain a "head start"
on the integration process.
OPERATING STRATEGY
The Company's operating strategy has the following principal components:
ASSEMBLE AND MANAGE MARKET CLUSTERS WITH REGIONAL CONCENTRATIONS. The
Company has assembled the first or second ranked cluster of stations based
on revenue share and/or audience share in all of its U.S. markets in four
regional concentrations, the Midwest, Southeast, Southwest and Northeast.
The Company believes that by offering a diversity of radio formats within a
given market, Cumulus provides customized and efficient marketing solutions
to meet advertisers' needs. By assembling market clusters with a regional
concentration, the Company believes that it will be able to increase
revenues by offering regional coverage of key demographic groups that were
previously unavailable to national and regional advertisers. The Company
also believes that its cluster approach will allow it to operate its
stations with more highly skilled local management teams equipped with
greater resources and to eliminate redundant operating and overhead
expenses.
8
<PAGE>
MAXIMIZE EACH STATION'S POTENTIAL THROUGH POSITIONING AND BRANDING. The
Company utilizes extensive market research to refine the programming of each
of its stations and to position each as a separate brand within a particular
cluster. The objective of this strategy is to optimize each station's
potential in terms of audience ratings and revenue share while providing the
widest possible range of choice to listeners and advertisers. Such stations
can better capitalize on the operating leverage inherent in the radio
industry because the costs of operating a radio station are generally fixed
and, therefore, increased revenues generally result in disproportionately
larger increases in Broadcast Cash Flow (as defined under "Certain
Definitions and Market and Industry Data").
FOCUS ON PROGRAMMING. A principal Company operating strategy is to
enhance each station's programming appeal, including both the quality and
quantity of local programming as a means of enriching the listener
experience. The Company believes that adopting this commitment to high
quality, locally originated programming will provide its stations with a
competitive advantage and increase each station's audience share. Moreover,
the Company believes that the efficiencies and scale afforded by the
operation of multiple stations in the same market and region working
together with information technology make it possible to substantially
improve programming and the quality of the listener experience without a
comparable increase in cost.
EXPAND DEDICATED SALES FORCE AND OPTIMIZE INVENTORY
MANAGEMENT. Underpinning the Company's strategy for optimizing the
potential of each station within a cluster is the practice of dedicating a
sales force for each of its stations. The Company believes that many of the
acquired stations have dramatically underperformed in sales, due primarily
to undersized sales staffs responsible for selling air time on multiple
stations, thus diluting their ability to cover all of the potential
advertisers with strong advocates for each station. The Company believes its
practice of utilizing a dedicated sales force for each station will attract
a larger number of advertisers thereby increasing the demand for each
station's commercial spot inventory. Accordingly, the Company has
significantly expanded the number of salespeople for each of its stations.
Salespeople are typically compensated exclusively on a commission basis.
Also, in each of its market clusters, the Company utilizes Internet-based
sales reporting systems to monitor its sales activity and to formulate and
implement rate structure and inventory management on a continual basis.
INCREASE RADIO REVENUE SHARE. The Company believes that its strategy of
larger and dedicated station sales staffs, brand development, regional
concentration, and market clusters will help increase advertising volume and
revenues from existing customers and increase the number and scope of new
advertisers. This strategy enables the Company to compete more effectively
with other local and regional media such as newspapers and cable and
broadcast television stations, because it can now offer a competitively
priced alternative to reach the target audience that advertisers desire. The
Company's sales management team has substantial experience in the areas of
generating new sources of revenues including promotional events, retailer
co-op advertising and other sources including business-to-business
advertising.
IMPLEMENT STRICT COST CONTROLS. The Company's management imposes strict
financial reporting requirements and expense budget limitations on each of
its stations. In addition, management maintains a centralized accounting
system which allows it to monitor the performance and operations of each of
its stations. Management believes such centralization allows the Company to
achieve expense savings in certain areas, including purchasing and
administrative expenses. Management believes that the Company will also
achieve expense savings through the elimination of certain duplicate costs
within its markets and market clusters.
IMPLEMENT INTERNET-BASED MANAGEMENT INFORMATION SYSTEMS. The Company
has implemented a proprietary application using Internet software standards
to support daily sales and inventory performance reporting by station, by
market and by cluster. In addition, the Company employs the same system to
network its centralized accounting and cash management. This allows the
Company to compare each station's actual performance (including revenue and
inventory management) to budget
9
<PAGE>
on a regular basis and deploy resources on a timely basis to those stations
not achieving budgetary goals.
RECRUIT AND RETAIN SKILLED MANAGERS. The Company believes that
operating a top-ranked cluster of stations in a market will enable the
Company to recruit and retain high caliber radio management personnel who
might otherwise be attracted to larger markets. The Company believes that
regional management and coordination will enable it to maximize the benefits
of operating a growing number of stations in geographically diverse
locations, while maintaining controls over local operations. Local
management is also central to the Company's strategy and is primarily
responsible for building and developing a sales team capable of converting
the stations' audience rankings into revenues. The Company's general
managers and sales managers are motivated through incentive compensation
based primarily upon their station's cash flow performance and secondarily
on their ability to convert their station's audience share into market
revenue share.
REORGANIZATION AND CORPORATE STRUCTURE
In March 1998, the Company amended its articles of incorporation to change
its name from Cumulus Holdings, Inc. to Cumulus Media Inc. Until immediately
prior to the closing of the Offerings, all of the outstanding common stock of
the Company will have been held by Cumulus Media, LLC, a Wisconsin limited
liability company ("Media LLC"), whose members include State of Wisconsin
Investment Board, NationsBanc Capital Corp. ("NationsBanc"), Heller Equity
Capital Corporation, The Northwestern Mutual Life Insurance Company ("NML") and
certain members of the Company's management or affiliates of management. See
"Principal and Selling Stockholders." Immediately prior to the closing of the
Offerings, (i) all of the shares of the NML Preferred Stock will be exchanged
for shares of Series A Preferred Stock as described below; and (ii) Media LLC
will be liquidated and the shares of Class B Common Stock and Class C Common
Stock held by Media LLC will be distributed by Media LLC to its members in
liquidation (the "Reorganization").
All shares of Class A Cumulative Preferred Stock (the "NML Preferred Stock")
which were held by NML immediately prior to the Offerings plus all accrued and
unpaid dividends thereon as of the exchange date will be exchanged for shares of
Series A Preferred Stock having an equivalent aggregate liquidation value
pursuant to the Preferred Stock Offering. As of May 15, 1998, the liquidation
value of the NML Preferred Stock was approximately $34.0 million. Subject to
certain conditions, the Series A Preferred Stock will be exchangeable on any
dividend payment date, at the Company's option, for the % Subordinated
Exchange Debentures due 2009 (the "Exchange Debentures"). See "Description of
Capital Stock."
Upon the consummation of the Reorganization, the capital stock of the
Company will consist of the Class A Common Stock, the Class B Common Stock, the
Class C Common Stock and the Series A Preferred Stock.
The Company's U.S. radio operations are conducted primarily through Cumulus
Broadcasting, Inc., a Nevada corporation ("Broadcasting") and a wholly-owned
subsidiary of the Company, which owns the radio stations acquired pursuant to
asset purchase agreements. The Company also owns the stock of radio groups or
stations acquired pursuant to stock purchase agreements. Cumulus Licensing
Corp., a Nevada corporation ("Licensing") and a wholly-owned subsidiary of
Broadcasting, holds virtually all the FCC licenses for the Company's stations.
Certain other FCC licenses are held by wholly-owned subsidiaries of the Company,
and the Company intends in the near future to transfer those licenses to
Licensing or to newly created subsidiaries that hold only FCC licenses.
Caribbean Communications Company Ltd., a corporation organized under the laws of
Montserrat ("CCC") and a wholly-owned subsidiary of the Company, owns radio
stations throughout the English-speaking Eastern Caribbean, including among
other places, Trinidad, St. Kitts and St. Lucia. CCC is currently constructing
an FM station in Barbados and Tortola, BVI. The Company will be the issuer of
the Class A Common Stock, the Series A Preferred Stock
10
<PAGE>
and the Notes, and is the borrower under the Credit Facility. Broadcasting and
Licensing are guarantors of the Company's obligations under the Credit Facility.
See "Description of the Credit Facility and Notes."
PENDING ACQUISITIONS
The Company has entered into definitive purchase agreements to acquire 117
stations in 30 markets for an aggregate purchase price of approximately $250.5
million in transactions which have not yet been consummated (the "Pending
Acquisitions"). The Company expects to consummate most of the Pending
Acquisitions during the second and third quarters of 1998, although there can be
no assurance that the transactions will be consummated within that time frame.
The pending acquisition of a Tallahassee FM station presently operated under an
LMA is expected to close by the end of 1998. In two of the markets in which
there are Pending Acquisitions (Dubuque, IA and Grand Junction, CO), petitions
or informal objections have been filed against the Company's FCC assignment
applications. In several other markets, FCC staff questions and/or requests for
additional information relating to local market concentration or the FCC's
cross-interest policy have been raised with respect to pending assignment
applications. All such petitions, objections and FCC staff inquiries must be
resolved before FCC approval can be obtained and the acquisitions consummated.
There can be no assurances that other Pending Acquisitions will not be subjected
to similar challenges, or that the Pending Acquisitions will be consummated. The
Company believes that the proceeds of the Offerings will be sufficient to
finance the consummation of the Pending Acquisitions.
The Company from time to time enters into letters of intent to purchase
radio stations. The letters of intent are non-binding and are subject to certain
conditions, and there can be no assurance that the Company will enter into
definitive purchase agreements with respect to such stations or will consummate
such transactions. Accordingly, the Company does not consider a potential
transaction as probable until it has executed an asset purchase agreement.
FINANCING PLAN
The Company intends to use the proceeds of the Offerings to finance the
Pending Acquisitions and to repay certain indebtedness as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
---------------------
<S> <C>
SOURCES OF FUNDS:
Common Stock Offered to Public....................................... $
Debt Offering........................................................
Preferred Stock Offered to Public....................................
--------
Total............................................................ $
--------
--------
USES OF FUNDS:
Purchase price of the Pending Acquisitions........................... $
Repayment of Credit Facility (1).....................................
Fees and expenses....................................................
--------
Total............................................................ $
--------
--------
</TABLE>
- ------------------------------
(1) Affiliates of Lehman Brothers Inc. act as arranger and lender under the
Credit Facility.
The Company is an Illinois corporation with its principal executive offices
located at 330 East Kilbourn Ave., Milwaukee, Wisconsin 53202, telephone number
(414) 283-4500. Effective June 5, 1998, the Company's offices will be located at
111 East Kilbourn Ave., Suite 2700, Milwaukee, Wisconsin 53202, telephone number
(414) 615-2800.
11
<PAGE>
THE STOCK OFFERINGS
<TABLE>
<S> <C>
Class A Common Stock Offered by the Company
U.S. Offering.............................. shares
International Offering..................... shares
Total.................................... shares
Class A Common Stock offered
by the Selling Stockholder................. shares
Common Stock Outstanding after the
Stock Offerings:
Class A Common Stock(1).................... shares
Class B Common Stock....................... shares
Class C Common Stock....................... shares
Voting Rights................................ Except with respect to voting and conversion,
the rights of holders of Class A Common
Stock, Class B Common Stock and Class C
Common Stock are identical. Except upon the
occurrence of certain events, holders of the
Class B Common Stock are not entitled to
vote, whereas holders of the Class A Common
Stock are entitled to one vote per share and
subject to certain exceptions holders of the
Class C Common Stock are entitled to ten
votes per share. Under certain conditions and
subject to prior governmental approval, each
share of Class B Common Stock is convertible
into one share of Class A Common Stock or one
share of Class C Common Stock at the option
of the holder, and each share of Class C
Common Stock is convertible into one share of
Class A Common Stock at the option of the
holder. See "Description of Capital Stock."
Use of Proceeds.............................. Approximately $ million of the net
proceeds of the Offerings will be used to
finance the Pending Acquisitions. The balance
of the net proceeds of the Offerings will be
used to repay the principal amount of
indebtedness currently outstanding under the
Credit Facility for which affiliates of
Lehman Brothers Inc. act as arranger and
lender. See "Use of Proceeds" and
"Description of Credit Facility and Notes."
Proposed Nasdaq National Market
Symbol..................................... CMLS
Concurrent Offerings......................... Concurrently with the Stock Offerings, the
Company is offering shares of its %
Series A Cumulative Exchangeable Redeemable
Preferred Stock due 2009 (with a liquidation
preference of $1,000 per share) and $
million aggregate principal amount of its
% Senior Subordinated Notes due 2008. Each
Offering is conditioned upon consummation of
each of the other Offerings. See "Risk
Factors -- Significant Capital Requirements;
--Concurrent Offerings" and "Use of
Proceeds."
</TABLE>
- ------------------------
(1) If the Underwriters' over-allotment options were exercised in full,
shares of Class A Common Stock would be outstanding after the Stock
Offerings. See "Underwriting" and "Description of Capital Stock."
12
<PAGE>
RISK FACTORS
An investment in the Class A Common Stock offered hereby involves a high
degree of risk. Prospective purchasers of the Class A Common Stock offered
hereby should carefully consider the factors set forth in "Risk Factors", as
well as the other information set forth in this Prospectus, before making an
investment in the Class A Common Stock.
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following summary unaudited pro forma financial data are derived from
the Unaudited Pro Forma Combined Financial Statements of the Company included
elsewhere in this Prospectus. The pro forma combined statement of operations
data for the three months ended March 31, 1998 give effect to the Transactions
(other than acquisitions completed in 1997) as if they had occurred on January
1, 1998. The pro forma combined statement of operations data for the year ended
December 31, 1997 give effect to the Transactions as if they had occurred on
January 1, 1997. The pro forma combined balance sheet data give effect to the
Transactions as if they had occurred on March 31, 1998 (except for Completed
Acquisitions consummated prior to March 31, 1998, in which case the pro forma
combined balance sheet data give effect to such transactions as of the date of
their consummation). The summary unaudited pro forma financial data is presented
for illustrative purposes only and is not indicative of the operating results or
financial position that would have occurred if the Transactions had been
consummated on the dates indicated, nor is it indicative of future operating
results or financial positions if the aforementioned transactions are completed.
The Summary Unaudited Pro Forma Financial Data are based on certain assumptions
and adjustments described in the Notes to the Unaudited Pro Forma Combined
Financial Statements and should be read in conjunction therewith. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Risk Factors -- Substantial Leverage", and the Consolidated
Financial Statements of the Company included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------------- -----------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues.............................................. $ 25,757 $ 110,986
Station operating expenses excluding depreciation and
amortization............................................ 22,646 86,498
Depreciation and amortization............................. 5,195 20,685
Corporate general and administrative expenses............. 969 4,760
Non-cash stock compensation expense....................... -- 1,689
Operating income (loss)................................... (3,053) (2,646)
Interest expense.......................................... 4,485 17,360
Net income (loss) before extraordinary item............... (7,417) (20,347)
Extraordinary loss on early retirement of debt............ 1,837 --
Net income (loss)......................................... (9,254) (20,347)
Preferred stock dividends................................. 3,645 15,232
Net income (loss) attributable to common stockholders..... (12,899) (35,579)
Basic and diluted earnings (loss) per share............... $ $
OTHER FINANCIAL DATA(1)(2):
Broadcast Cash Flow....................................... $ 3,111 $ 24,488
Broadcast Cash Flow margin................................ 12.1% 22.1%
EBITDA.................................................... 2,142 19,728
EBITDA margin............................................. 8.3% 17.8%
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------
<S> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Total assets.............................................................................. $ 485,130
Long-term debt, including current portion................................................. 191,965
Preferred stock subject to mandatory redemption........................................... 125,000
Total stockholders' equity................................................................ 144,151
</TABLE>
- ------------------------------
(1) After giving effect to certain estimated cost savings which management
believes will be realized in connection with the Completed and Pending
Acquisitions, pro forma as adjusted Broadcast Cash Flow, pro forma as
adjusted Broadcast Cash Flow margin, pro forma as adjusted EBITDA and pro
forma as adjusted EBITDA margin for the three months ended March 31, 1998
would have been , , , and , respectively.
See "Unaudited Pro Forma Combined Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Certain Effects of the Acquisitions-- Certain Cost
Eliminations." Broadcast Cash Flow consists of operating income (loss)
before depreciation and amortization, non-cash stock compensation expense
and corporate general and administrative expenses. EBITDA consists of
14
<PAGE>
operating income (loss) before depreciation and amortization and non-cash
stock compensation expense. EBITDA, as defined by the Company, may not be
comparable to similarly titled measures used by other companies. Broadcast
Cash Flow margin is Broadcast Cash Flow as a percentage of net revenues.
EBITDA margin is EBITDA as a percentage of net revenues. Although Broadcast
Cash Flow, EBITDA, Broadcast Cash Flow margin and EBITDA margin are not
measures of performance calculated in accordance with GAAP, management
believes that they are useful to an investor in evaluating the Company
because they are measures widely used in the broadcast industry to evaluate
a radio company's operating performance. However, Broadcast Cash Flow and
EBITDA should not be considered in isolation or as substitutes for net
income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP, or as a measure of
liquidity or profitability.
(2) After giving effect to certain estimated cost savings which management
believes will be realized in connection with the Completed and Pending
Acquisitions, pro forma as adjusted Broadcast Cash Flow, pro forma as
adjusted Broadcast Cash Flow Margin, pro forma as adjusted EBITDA and pro
forma as adjusted EBITDA margin for the year ended December 31, 1997 would
have been , , , and , respectively. See
"Unaudited Pro Forma Combined Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Certain Effects of the Acquisitions--Certain Cost Eliminations."
15
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following sets forth summary historical financial data for the Company
as of March 31, 1998, for the three months ended March 31, 1998 and for the
period from inception on May 22, 1997 to December 31, 1997. The information
presented below is qualified in its entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
THREE MONTHS ON
ENDED MARCH 31, MAY 22, 1997(1)
1998 TO DECEMBER 31, 1997
------------------- -----------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues........................................................ $ 12,500 $ 9,163
Station operating expenses excluding depreciation and
amortization...................................................... 10,904 7,147
Depreciation and amortization....................................... 2,748 1,671
Corporate general and administrative expenses....................... 961 1,276
Non-cash stock compensation expense................................. -- 1,689
Operating income (loss)............................................. (2,113) (2,620)
Net interest expense................................................ 1,374 837
Net income (loss) before extraordinary item......................... (3,493) (3,578)
Extraordinary loss on early retirement of debt...................... 1,837 --
Net income (loss)................................................... (5,330) (3,578)
Preferred stock dividends........................................... 842 274
Net income (loss) attributable to common stockholders............... (6,172) (3,852)
Basic and diluted earnings (loss) per share......................... $ $
OTHER FINANCIAL DATA:
Broadcast Cash Flow(2).............................................. $ 1,596 $ 2,016
EBITDA(2)........................................................... 635 740
Net cash used in operating activities............................... 4,589 1,887
Net cash used in investing activities............................... 79,153 95,100
Net cash provided by financing activities........................... 105,585 98,560
Deficiency of earnings to fixed charges and preferred stock dividend
requirements(3)................................................... 3,493 3,578
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
1998
-------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
BALANCE SHEET DATA:
Total assets................................................................................. $ 220,126
Long-term debt, including current portion.................................................... 120,264
Preferred stock subject to mandatory redemption.............................................. 30,518
Total stockholders' equity................................................................... 58,786
</TABLE>
- ------------------------------
(1) The Company was incorporated on May 22, 1997. Between the date of
incorporation of Media LLC, which was April 18, 1997, and May 22, 1997,
Media LLC undertook certain activities on behalf of the Company pending its
incorporation, including the incurrence of expenses and the funding of
escrow deposits for acquisitions. Upon the incorporation of the Company,
these activities and the related expenses were transferred to the Company.
(2) Broadcast Cash Flow consists of operating income (loss) before depreciation
and amortization, non-cash stock compensation expense and corporate general
and administrative expenses. EBITDA consists of operating income (loss)
before depreciation and amortization and non-cash stock compensation
expense. EBITDA, as defined by the Company, may not be comparable to
similarly titled measures used by other companies. Although Broadcast Cash
Flow and EBITDA are not measures of performance calculated in accordance
with GAAP, management believes that they are useful to an investor in
evaluating the Company because they are measures widely used in the
broadcast industry to evaluate a radio company's operating performance.
However, Broadcast Cash Flow and EBITDA should not be considered in
isolation or as substitutes for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of liquidity or profitability.
(3) For purposes of computing the ratio of earnings to fixed charges and
preferred stock dividend requirements, earnings consists of earnings before
income taxes and fixed charges and preferred stock dividend requirements.
"Fixed charges and preferred stock dividend requirements" consists of
interest on all indebtedness, amortization of debt expense and preferred
stock dividends. As a result of the net loss attributable to common
stockholders, earnings were insufficient to cover fixed charges and
preferred stock dividend requirements by $3,578 and $3,493 for the period
from inception on May 22, 1997 to December 31, 1997 and for the three month
period ended March 31, 1998, respectively.
16
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED
HEREBY.
RISKS OF ACQUISITION STRATEGY
The Company intends to pursue growth through internal expansion and the
acquisition of radio broadcasting companies, radio station groups and individual
radio stations in mid-size and smaller markets. The Company cannot predict
whether it will be successful in pursuing such acquisition opportunities or what
the consequences of any such acquisitions would be. The Company is currently
evaluating certain acquisitions; however, other than as described in "Pending
Acquisitions", the Company currently has no binding commitments to acquire any
specific business or other material assets. Consummation of the Pending
Acquisitions and any subsequent acquisitions is subject to various conditions,
including FCC and other regulatory approvals including, in some cases,
expiration or termination of applicable waiting periods and possible review by
the U.S. Department of Justice ("DOJ") and the Federal Trade Commission ("FTC")
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). There can be no assurance that any of these conditions will be
satisfied. Consummation of the Pending Acquisitions and any subsequent
acquisitions will also be subject to FCC limits on the number of stations a
broadcaster may own in a given local market and other FCC rules or policies such
as the cross-interest policy, which may limit the Company's ability to acquire
stations in certain markets where one or more of the Company's shareholders has
other media interests. In addition, in two markets in which there are Pending
Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal
objections have been filed against the Company's FCC assignment applications,
and certain FCC staff questions have been raised with respect to Pending
Acquisitions in several other markets. All such petitions, objections and FCC
staff inquiries must be resolved before FCC approval can be obtained and the
Pending Acquisitions can be consummated.
The consummation of the Offerings is not conditioned on the consummation of
any of the Pending Acquisitions. No assurances can be given that such
transactions will be consummated or that, if completed, they will be successful.
The Company's acquisition strategy involves numerous risks, including
difficulties in identifying targets and negotiating definitive purchase
agreements on satisfactory terms, 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 at acquired stations. See "Business --
Integration of Acquired Businesses." 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. In addition, there can be no
assurance that the Company will be able to acquire properties at valuations as
favorable as previous acquisitions. Depending upon the nature, size and timing
of future acquisitions, the Company may be required to raise financing in
addition to the financing necessary to consummate the Pending Acquisitions.
There can be no assurance that the Credit Facility, the Indenture (as defined
herein), the Certificate of Designation (as defined herein) or the Exchange
Debenture Indenture (as defined herein) or any other agreements to which the
Company may become a party will permit such additional financing or that such
additional financing will be available to the Company or, if available, that
such financing would be on terms acceptable to its management. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
LIMITED OPERATING HISTORY
The Company began operations in May 1997 and, consequently, has a limited
operating history and limited historical financial information upon which
investors may base their evaluation of the Company's performance.
17
<PAGE>
MANAGEMENT OF RAPID GROWTH
The Company has grown very rapidly, through acquisitions, which will place
significant demands on its administrative, operational and financial resources.
Although the Company has been successful to date in completing the integration
of many new properties, future performance and profitability, if any, will
depend in part on the Company's continued ability to integrate successfully the
operations and systems of acquired radio stations and radio groups, to hire
additional personnel, and to implement necessary enhancements to its management
systems to respond to changes in its business.
NET LOSS
The Company had a net loss attributable to common stockholders of
approximately $6.2 million for the three months ended March 31, 1998 and $3.9
million for the period from inception on May 22, 1997 to December 31, 1997, and
additional losses can be expected to continue while the Company pursues its
strategy of acquiring and developing radio stations. Pro forma for the
Transactions, net loss attributable to common stockholders was approximately
$12.9 million for the three months ending March 31, 1998 and $35.6 million for
the year ended December 31, 1997. The Company currently anticipates to generate
net income on a historical basis for the year ending December 31, 1999. However,
there can be no assurance that the Company will be profitable in the future.
SIGNIFICANT CAPITAL REQUIREMENTS
If consummated, the Pending Acquisitions and other acquisitions for which
the Company has entered into letters of intent will require substantial capital.
The Company estimates that it will have significant capital requirements for the
remainder of 1998, including approximately $250.5 million for the consummation
of the Pending Acquisitions. The Company expects that the net proceeds from the
Offerings, together with internally generated cash flows and borrowings under
the Credit Facility, will provide sufficient funds for the Company to complete
the Pending Acquisitions. The amount of the Company's future capital
requirements will depend upon many factors, however, including the volume of
future acquisitions, as well as regulatory, technological and competitive
developments in the radio broadcasting industry, and may differ materially from
the Company's current estimates.
CONCURRENT OFFERINGS
The Company is currently offering Class A Common Stock, Series A Preferred
Stock and the Notes pursuant to the Offerings. Consummation of each Offering is
contingent upon consummation of each of the other Offerings and there can be no
assurance that the Offerings will be consummated and, if so, on what terms.
SUBSTANTIAL LEVERAGE
After giving effect to the Transactions, the Company will have consolidated
indebtedness that is substantial in relation to its cash flow and stockholders'
equity. As of March 31, 1998, on a pro forma basis after giving effect to the
Transactions, the Company would have had outstanding, on a consolidated basis,
long-term indebtedness (including current portion) of approximately $192.0
million, preferred stock subject to mandatory redemption of approximately $125.0
million, and stockholders' equity of approximately $144.2 million. See
"Capitalization." The Credit Facility, the Indenture, the Certificate of
Designation and the Exchange Debenture Indenture limit the incurrence of
additional indebtedness by the Company and its subsidiaries, in each case
subject to certain significant exceptions.
The level of the Company's indebtedness could have several important
consequences to the holders of the Class A Common Stock, including, but not
limited to, the following: (i) a substantial portion of the Company's cash flow
from operations will be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions and general corporate or
other purposes may be impaired in the future; (iii) certain of the Company's
borrowings will be at variable rates of interest (including any borrowings under
the Credit Facility), which will expose the Company to the risk of increased
interest rates; (iv) the Company's
18
<PAGE>
leveraged position and the covenants contained in the Credit Facility, the
Indenture, the Certificate of Designation and the Exchange Debenture Indenture
could limit the Company's ability to compete, expand and make capital
improvements; (v) the Company's level of indebtedness could make it more
vulnerable to economic downturns, limit its ability to withstand competitive
pressures and reduce its flexibility in responding to changing business and
economic conditions; and (vi) certain restrictive covenants contained in the
Credit Facility, the Indenture, the Certificate of Designation and the Exchange
Debenture Indenture limit the ability of Cumulus to pay dividends and make other
distributions to its stockholders.
ABILITY TO SERVICE DEBT OBLIGATIONS
The Company's ability to satisfy its debt service obligations will depend
upon its future financial and operating performance, which, in turn, is subject
to prevailing economic conditions and financial, business, competitive,
legislative and regulatory 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, expansion and capital expenditures, sell assets, obtain additional
equity capital or restructure its debt. There can be no assurance that the
Company's operating results, cash flow and capital resources will be sufficient
for payment of its debt service and other obligations in the future. In the
absence of such operating results and resources, the Company could face
substantial liquidity problems and might be required to sell material assets or
operations to meet its debt service and other obligations, and there can be no
assurance as to the timing of such sales or the proceeds that the Company could
realize therefrom or that such sales could be effected on terms satisfactory to
the Company or at all. As a result of the net loss attributable to common
stockholders, earnings were insufficient to cover fixed charges and preferred
stock dividend requirements by $3,578 and $3,493 for the period from inception
on May 22, 1997 to December 31, 1997 and for the three months ended March 31,
1998. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS AND PREFERRED STOCK
The Credit Facility, the Indenture, the Certificate of Designation and the
Exchange Debenture Indenture contain certain covenants that restrict, among
other things, the ability of the Company and its subsidiaries to incur
additional indebtedness, pay dividends or make certain other restricted
payments, enter into certain transactions with affiliates, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. In addition,
the Credit Facility, the Indenture and the Exchange Debenture Indenture also
restrict the ability of the Company to incur liens or to consummate certain
asset sales. The Credit Facility also requires the Company to maintain specified
financial ratios and to satisfy certain financial condition tests. The Company's
ability to meet those financial ratios and financial condition tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet those tests. A breach of any of these covenants could result
in a default under the Credit Facility, the Indenture, the Certificate of
Designation and/or the Exchange Debenture Indenture. Upon the occurrence of an
event of 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. If Cumulus were unable to repay those
amounts, the lenders under the Credit Facility could proceed against the
collateral granted to them to secure that indebtedness. If the Credit Facility
indebtedness were to be accelerated, there can be no assurance that the assets
of Cumulus would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company. The ability of the Company to comply with the
restrictions and covenants in the Credit Facility, the Indenture, the
Certificate of Designation and the Exchange Debenture Indenture will be
dependent upon the Company's future performance and various other factors, such
as legislative, business and regulatory factors, certain of which are beyond its
control. If the Company fails to comply with the restrictions and covenants in
the Credit Facility, the Indenture, the Certificate of Designation or the
Exchange Debenture Indenture, the Company's obligation to repay the Notes, the
Exchange Debentures and its indebtedness under the Credit Facility may be
accelerated.
19
<PAGE>
BUSINESS RISKS
Future operations of the Company are subject to many variables which could
have a material adverse effect upon the Company's financial performance. These
variables include economic conditions, both generally and relative to the radio
broadcasting industry; shifts in population and other demographics; shifts in
audience tastes; the level of competition for advertising dollars with other
radio stations, television stations and other entertainment and communications
media; fluctuations in operating costs; technological changes and innovations;
changes in labor conditions; and changes in laws and governmental regulations
and policies and actions of federal regulatory bodies, including the DOJ, the
FTC and the FCC. Although the Company believes that substantially all of its
radio stations, now owned or to be acquired upon completion of the Pending
Acquisitions, are positioned to compete effectively in their respective markets,
there can be no assurance that any such station will be able to maintain or
increase its current audience ratings and advertising revenues. See "Business --
Competition." Radio broadcasting is also subject to competition from new media
technologies that are being developed or introduced, such as the delivery of
audio programming by cable television systems and the introduction of digital
audio broadcasting ("DAB"). DAB may deliver by satellite to nationwide and
regional audiences multi-channel, multi-format digital radio services with sound
quality equivalent to compact discs and may sell advertising. The Company cannot
predict the effect, if any, that any such new technologies may have on the radio
broadcasting industry or the Company. See "Business -- Competition."
COMPETITION
Radio broadcasting is a highly competitive business. The Company's radio
stations, now owned or to be acquired upon completion of the Pending
Acquisitions, compete for audiences and advertising revenues within their
respective markets directly with other radio stations, as well as with other
media such as newspapers, magazines, cable and broadcast television, outdoor
advertising and direct mail. In addition, certain of the Company's stations
compete, and in the future other of the Company's stations may compete, with
groups of two or more stations operated by a single operator. Audience ratings
and market shares are subject to change, and any adverse change in a particular
market could have a material adverse effect on the revenue of stations located
in that market. While the Company already competes with other stations with
comparable programming formats in many of its markets, if another radio station
in the market were to convert its programming format to a format similar to one
of the Company's stations or launch aggressive promotional campaigns, or if a
new station were to adopt a competitive format, or if an existing competitor
were to strengthen its operations, the Company's stations could suffer a
reduction in ratings and/or advertising revenue and could require increased
promotional and other expenses, and consequently would have a lower Broadcast
Cash Flow (as defined under "Certain Definitions and Market and Industry Data").
The Telecommunications Act of 1996 (the "Telecom Act") facilitates the
consolidation of ownership of other radio broadcasting stations in the markets
in which the Company operates or may operate in the future. Some of such
competing in-market consolidated owners may be larger and have substantially
more financial and other resources than the Company. In addition, increased
consolidation in mid-size and smaller markets may result in greater competition
for acquisition properties and a corresponding increase in purchase prices for
such properties paid by the Company. See "Business -- Competition."
GOVERNMENTAL REGULATION OF BROADCASTING INDUSTRY
The broadcasting industry is subject to extensive and changing federal
regulation that, among other things, requires approval by the FCC for the
issuance, renewal, modification, transfer of control, or assignment of
broadcasting station operating licenses, limits the number of broadcasting
properties that the Company may acquire in any market, and regulates certain
operating practices of radio stations. Additionally, the Communications Act of
1934, as amended (the "Communications Act") and FCC rules impose limitations on
alien ownership and voting of the capital stock of the Company. The Telecom Act
creates significant new opportunities for broadcasting companies but also
creates uncertainties as to how the FCC and the courts will enforce and
interpret the Telecom Act.
20
<PAGE>
The number of radio stations the Company may acquire or operate pursuant to
an LMA in any market, overall and in each service (i.e., AM or FM), is limited
by the Telecom Act and FCC rules and may vary depending upon whether the
interests in other radio stations or certain other media properties of certain
individuals or entities affiliated with the Company are attributable to those
individuals or entities under FCC rules. 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 5% or greater voting stockholders are generally attributable to
the Company. Certain of the Company's officers and directors, and at least one
stockholder of the Company, have attributable broadcast interests outside of
their involvement with the Company, which will limit the number of radio
stations that the Company may acquire or own in any market in which such
officers or directors (or stockholders) hold or acquire such outside
attributable broadcast interests. 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
interest in another media outlet in the same market, thereby prohibiting a
particular acquisition by the Company. The markets in which the Company may be
subject to restrictions on ownership include Atlanta, GA, Nashville, TN and
Rochester, MN.
The Company's business will be dependent upon maintaining its broadcasting
licenses issued by the FCC, which are ordinarily issued for a maximum term of
eight years. Although it is rare for the FCC to deny a license renewal
application, there can be no assurance that the future renewal applications of
the Company will be approved or that such renewals will not include conditions
or qualifications that could adversely affect the Company. Moreover,
governmental regulations and policies may change over time and there can be no
assurance that such changes would not have a material adverse impact upon the
Company. See "Business -- Federal Regulation of Radio Broadcasting."
REGULATORY APPROVALS
The consummation of radio broadcasting acquisitions requires prior approval
of the FCC with respect to the transfer of control or assignment of the
broadcast licenses of the acquired stations. Certain of the Pending Acquisitions
have not yet received FCC approval. Pending Acquisitions in two markets are
being challenged before the FCC by competitors. The FCC staff has also stated
that it is currently reevaluating its policies and procedures relating to local
radio market concentration, even where proposed assignments would comply with
the FCC's multiple-ownership rules. The FCC has issued a Notice of Inquiry
which, among other things, seeks public comment on these issues. FCC approval of
a number of pending radio station acquisitions by various parties has been
delayed while this policy review is taking place. The FCC staff has informed the
Company that it has delayed action on several of its applications on this basis,
including pending applications to acquire stations in Augusta-Waterville, Maine
and one additional station in the Toledo, Ohio market. There can be no assurance
that the FCC will not prohibit or require the restructuring of future
acquisitions by the Company (including the Pending Acquisitions) as a result of
this policy review. In addition, the FCC staff has requested additional
information relating to whether the Company's Pending Acquisitions in one market
would comply with the FCC's cross-interest policy. There can be no assurance
that the FCC will approve future acquisitions by the Company (including the
Pending Acquisitions).
The consummation of certain of the Pending Acquisitions is also subject to
applicable waiting periods and possible review by the DOJ or the FTC under the
HSR Act and acquisitions that are not required to be reported under the HSR Act
may still be investigated by the FTC or the DOJ under the antitrust laws before
or after consummation. The DOJ has been active in reviewing radio broadcasting
acquisitions and has challenged a number of such transactions, some of which
have resulted in consent decrees requiring divestitures of certain stations,
terminations of LMAs and other relief. In general, the DOJ has more closely
scrutinized radio mergers and acquisitions that result in local market shares in
excess of 35% of radio advertising revenues, depending on format, signal
strength and other factors, although there is no hard-and-fast numerical rule
and certain transactions resulting in more than 35% market shares have not been
challenged. The DOJ can be expected to continue to enforce the antitrust laws in
this manner, and there can be no assurance that one or more of the Pending
Acquisitions will not be the subject of an investigation or enforcement action
by the DOJ or the FTC. If the DOJ or the FTC investigates or
21
<PAGE>
challenges one or more of the Pending Acquisitions or any subsequent
acquisitions, the Company may need to restructure such transactions or divest
other existing stations in a particular market. The Company is aware that the
DOJ has opened an investigation with respect to the Company's Pending
Acquisition in two markets which potentially affect the acquisition of up to an
additional nine stations in the aggregate. However, the Company believes that
its operating and sales practices and demand-driven pricing policies serve to
expand advertising volume and increase competition in a market while providing
more choice to advertisers and to listeners.
POTENTIAL CONFLICTS OF INTEREST
Mr. Weening and Mr. Dickey each have direct interests in entities that have
entered into service agreements with the Company. These interests may give rise
to certain conflicts of interest with respect to transactions between these
entities and the Company.
TRANSACTIONS WITH AFFILIATES
QUAESTUS, an entity controlled by Mr. Weening, and Stratford Research, an
entity controlled by Mr. Dickey, have acted as the Company's financial and
strategic advisor and market research and programming advisor, respectively,
since the Company's inception. See "Certain Relationships and Related
Transactions."
EFFECTS OF ECONOMIC RECESSION
The Company derives substantially all of its revenue from the sale of
advertising time on its radio stations. The Company's broadcasting revenue could
be adversely affected by a future national recession, although in the most
recent national recession, in 1991, radio revenues in small radio markets ranked
below 100 were impacted less severely on average than those in the larger
markets. In addition, because a substantial portion of the Company's revenue is
derived from local advertisers, the Company's ability to generate advertising
revenue in specific markets could be adversely affected by local or regional
economic downturns. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Advertising Sales."
YEAR 2000 RISK
The Company has implemented a Year 2000 program to ensure that the Company's
computer systems and applications will function properly beyond 1999. The
Company believes that it has allocated adequate resources for this purpose and
expects its Year 2000 date conversion program to be successfully completed on a
timely basis. There can, however, be no assurance that this will be the case.
The Company does not expect to incur significant expenditures to address this
issue. The ability of third parties with whom the Company transacts business to
adequately address their Year 2000 issues is outside of the Company's control.
There can be no assurance that the failure of the Company or such third parties
to adequately address their respective Year 2000 issues will not have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations.
RELIANCE ON KEY PERSONNEL
The Company's business is managed by a small number of key management and
operating personnel, the loss of certain of whom could have a material adverse
effect on the Company. The Company believes that its future success will depend
in large part on its ability to attract and retain highly skilled and qualified
personnel and to expand, train and manage its employee base. The Company has
entered into employment agreements with Messrs. Weening, Dickey, Bungeroth and
Bonick which include provisions restricting the ability of Messrs. Weening,
Dickey, Bungeroth and Bonick to compete against the Company in certain
circumstances. The Company intends to arrange for "key-man" insurance on the
lives of Messrs. Weening, Dickey and Bungeroth. See "Management --Employment
Agreements."
The Company also employs several on-air personalities with large loyal
audiences in their respective markets. The loss of one of these personalities
could result in a short-term loss of audience share, but the
22
<PAGE>
Company does not believe that any such loss would have a material adverse effect
on the Company's financial condition or results of operations, taken as a whole.
DILUTION
Persons purchasing shares of Class A Common Stock in the Stock Offerings
will incur immediate and substantial dilution in the net tangible book value per
share of Class A Common Stock of approximately $ per share. See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Stock Offerings, the Company will have outstanding
shares of Class A Common Stock, shares of Class B Common Stock and
shares of Class C Common Stock. In addition, the Company will have
outstanding options to purchase shares of Class A Common Stock and
shares of Class C Common Stock. Of these shares, the shares of Class A
Common Stock offered hereby will be freely transferable without restriction
(subject to any FCC consent that might be required) under the Securities Act of
1933, as amended (the "Securities Act") or further registration under the
Securities Act, except that shares purchased by "affiliates" of the Company, as
that term is defined in Rule 144 promulgated under the Securities Act ("Rule
144"), may generally only be sold subject to certain restrictions as to timing,
manner and volume.
The Company, its directors, and certain officers of the Company, who will
directly or indirectly own shares of Class A Common Stock and
shares of Class C Common Stock and options to purchase shares of Class A
Common Stock and/or shares of Class C Common Stock upon completion of
the Stock Offerings, have, subject to certain exceptions, agreed not to,
directly or indirectly, offer for sale, sell or otherwise dispose of, or
announce the offering of, any shares of Class A Common Stock or any securities
convertible into or exercisable or exchangeable for shares of Class A Common
Stock (including the Class C Common Stock) for a period of 180 days after the
date of this Prospectus without the prior written consent of Lehman Brothers
Inc. See "Shares Eligible for Future Sale" and "Underwriting."
Future sales of substantial amounts of Common Stock, or the perception that
such sales could occur, may affect the market price of the Common Stock
prevailing from time to time. See "Shares Eligible for Future Sale" and
"Underwriting."
NO PRIOR PUBLIC MARKET
Prior to the Stock Offerings, there has been no public market for the Class
A Common Stock and there can be no assurance that an active public market will
develop or be sustained after the Offering or that the initial public offering
price corresponds to the price at which the Class A Common Stock will trade in
the public market subsequent to the Stock Offerings. The initial public offering
price for the Class A Common Stock will be determined by negotiations among
Cumulus and the representatives of the Underwriters based upon the consideration
of certain factors set forth herein under "Underwriting." After completion of
the Stock Offerings, the market price of the Class A Common Stock will be
subject to fluctuations in response to various factors and events including,
among other things, the liquidity of the market for the Class A Common Stock,
variations in the Company's operating results, regulatory or other changes, both
domestic and international, affecting the radio broadcasting industry generally
or the Company specifically, announcements of business developments by the
Company or its competitors, changes in operating results and changes in general
market conditions.
DIVIDEND POLICY
The Company does not anticipate paying any dividends except for the payment
of scheduled dividends on the Series A Preferred Stock. The Company has never
declared or paid any cash dividends on its common stock and does not anticipate
paying cash dividends in the foreseeable future. In addition, the Credit
Facility, the Indenture, the Certificate of Designation and the Exchange
Debenture Indenture will restrict the ability of the Company to pay dividends.
See "Dividend Policy."
23
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Stock Offerings are estimated to be
$92.1 million ($106.1 million if the Underwriters' over-allotment options are
exercised in full) after deducting underwriting discounts and commissions and
other offering expenses payable by the Company.
The net proceeds to the Company from the Preferred Stock Offering are
estimated to be approximately $88.5 million after deducting estimated
underwriting discounts and commissions and other offering expenses payable by
the Company.
The net proceeds to the Company from the Debt Offering are estimated to be
approximately $144.9 million, after deducting estimated underwriting discounts
and commissions and other offering expenses payable by the Company.
The Company intends to use a portion of the net proceeds from the Offerings
to finance the Pending Acquisitions. See "Pending Acquisitions." The balance of
the net proceeds will be used to repay approximately $ million principal
amount of indebtedness currently outstanding under the Credit Facility for which
affiliates of Lehman Brothers Inc. act as arranger and lender. At ,
1998 the blended interest rate on the outstanding borrowings under the Credit
Facility was %. See "Description of Credit Facility and Notes."
Consummation of each Offering is contingent upon consummation of each of the
other Offerings.
Pending the above uses, the net proceeds of the Offerings will be invested
in U.S. government securities or other interest bearing short-term investment
grade securities.
DIVIDEND POLICY
The Company does not anticipate paying any dividends except for the payment
of scheduled dividends on the Series A Preferred Stock. The Company has never
declared or paid any cash dividends on its common stock and does not anticipate
paying cash dividends in the foreseeable future. In addition, the Credit
Facility, the Indenture, the Certificate of Designation and the Exchange
Debenture Indenture will restrict the ability of the Company to pay dividends.
24
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of the Company as of March 31, 1998 on a historical basis and as
adjusted to give effect to the Completed Acquisitions consummated subsequent to
March 31, 1998 (the "Subsequent Acquisitions", and, together with all other
acquisitions completed since January 1, 1998, the "1998 Completed
Acquisitions"), the Offerings and the Pending Acquisitions. This table should be
read in conjunction with the Pro Forma Unaudited Combined Financial Statements
and the Consolidated Financial Statements of the Company included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
PRO FORMA
AS ADJUSTED
PRO FORMA FOR THE
AS ADJUSTED SUBSEQUENT
PRO FORMA FOR THE ACQUISITIONS,
AS ADJUSTED SUBSEQUENT THE OFFERINGS
FOR THE ACQUISITIONS AND
THE COMPANY SUBSEQUENT AND THE PENDING
HISTORICAL ACQUISITIONS THE OFFERINGS ACQUISITIONS
------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................. $ 23,416 $ 7,036 $ 211,574 $ 1,500
------------- ----------- -------------- ---------------
------------- ----------- -------------- ---------------
Long-term debt, including current maturities:
Old Credit Facility..................................... 12 12 12 12
Credit Facility(1)...................................... 120,252 120,252 -- 41,953
Notes................................................... -- -- 150,000 150,000
------------- ----------- -------------- ---------------
Total long-term debt.................................. 120,264 120,264 150,012 191,965
------------- ----------- -------------- ---------------
Preferred stock subject to mandatory redemption:
NML Preferred Stock..................................... 30,518 33,512 -- --
Series A Preferred Stock................................ -- -- 125,000 125,000
------------- ----------- -------------- ---------------
Total preferred stock................................. 30,518 33,512 125,000 125,000
------------- ----------- -------------- ---------------
Stockholders' equity:
Class A Common Stock, par value $.01 per share;
shares authorized; shares outstanding;
shares as adjusted for the Stock Offerings...... -- -- 1 1
Class B Common Stock, par value $.01 per share;
shares authorized; shares outstanding;
shares as adjusted for the Stock Offerings...... -- -- 1 1
Class C Common Stock, par value $.01 per share; shares
authorized; shares outstanding; shares as adjusted for
the Stock Offerings................................... -- -- 1 1
Additional paid-in capital................................ 67,692 64,698 153,054 153,054
Accumulated deficit....................................... (8,906) (8,906) (8,906) (8,906)
------------- ----------- -------------- ---------------
Total stockholders' equity............................ 58,786 55,792 144,151 144,151
------------- ----------- -------------- ---------------
Total capitalization.................................. $ 209,568 $ 209,568 $ 419,163 $ 461,116
------------- ----------- -------------- ---------------
------------- ----------- -------------- ---------------
</TABLE>
- ------------------------------
(1) Affiliates of Lehman Brothers Inc. act as arranger and lender under the
Credit Facility.
25
<PAGE>
DILUTION
Dilution is the amount by which the initial public offering price paid by
the purchasers of the shares of Class A Common Stock will exceed the net
tangible book value per share of Class A Common Stock after the Stock Offerings.
The net tangible book value per share of Class A Common Stock is determined by
subtracting the total liabilities of the Company from the total book value of
the tangible assets of the Company and dividing the difference by the number of
shares of Class A Common Stock deemed to be outstanding on the date of which
such book value is determined.
At March 31, 1998, on a pro forma basis after giving effect to the
Transactions, the Company had a net tangible book value (deficit) of
approximately $ , or $ per share. After giving effect to the
sale by the Company of shares of Class A Common Stock offered
hereby, and application of the estimated net proceeds therefrom, the pro forma
net tangible book value (deficit) of the Company as of March 31, 1998 would have
been approximately $ , or $ per share. This represents an
immediate increase in such net tangible book value of $ per share to
existing stockholders and an immediate dilution to new investors of $
per share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share................................. $
Pro forma net tangible book value (deficit) before the Stock
Offerings........................................................... $
Increase in net tangible book value (deficit) per share attributable
to new investors....................................................
---------
Pro forma net tangible book value (deficit) per share after the Stock
Offerings.............................................................
---------
Dilution per share to new investors..................................... $
---------
---------
</TABLE>
The following table sets forth, as of March 31, 1998, the number of shares
of Class A Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid to the Company by existing
stockholders and the investors purchasing shares of Class A Common Stock (before
deducting underwriting discounts and commissions and offering expenses) in the
Stock Offerings:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
----------------------- ----------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).................................. % $ % $
New investors.............................................
---------- ----- ---------- -----
Total................................................. 100.0% $ 100.0%
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
- ------------------------
(1) If the Underwriters' over-allotment options were exercised in full,
shares of Class A Common Stock would be outstanding after the Stock
Offerings.
26
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements reflect the
results of operations for the three months ended March 31, 1998 and the year
ended December 31, 1997 and the combined balance sheet as of March 31, 1998 of
the Company after giving effect to the Transactions. The information set forth
under the heading "The Company Historical" in the pro forma combined statement
of operations for the three months ended March 31, 1998 and the year ended
December 31, 1997 includes results relating to LMAs. The information set forth
under the heading "Pending Acquisitions" in the pro forma combined statement of
operations for the three months ended March 31, 1998 and the year ended December
31, 1997 excludes results relating to LMAs.
The information set forth under the headings "Pro Forma as Adjusted for the
Subsequent Acquisitions" reflects all acquisitions consummated by the Company
after March 31, 1998. Upon consummation of the Pending Acquisitions, the Company
will be one of the five largest radio broadcasting companies based on number of
stations, and among the fifteen largest based on net revenues in the U.S. and
will own and operate 176 radio stations (124 FM and 52 AM) clustered in 35
markets.
The pro forma combined statement of operations for the three months ended
March 31, 1998 gives effect to the Transactions (other than acquisitions
completed in 1997) as if they occurred on January 1, 1998. For pro forma
purposes, the pro forma combined statement of operations for the year ended
December 31, 1997 gives effect to the Transactions as if they had occurred on
January 1, 1997. For pro forma purposes, the Company's pro forma combined
balance sheet as of March 31, 1998 gives effect to the Transactions (except for
Completed Acquisitions consummated prior to March 31, 1998, in which case the
pro forma combined balance sheet gives effect to such transactions as of the
date of their consummation) as if they had occurred on March 31, 1998.
The pro forma combined financial statements are based on the historical
consolidated financial statements of the Company and the financial statements of
those entities acquired, or from which assets were acquired, in conjunction with
the Completed Acquisitions and the Pending Acquisitions. The unaudited combined
pro forma financial information reflects the use of the purchase method of
accounting for all acquisitions. For purposes of the unaudited pro forma
combined financial statements, the purchase prices of the stations acquired and
to be acquired in the Completed Acquisitions and Pending Acquisitions have been
allocated based primarily on information furnished by management of the acquired
stations. The final allocation of the relative purchase prices of the stations
acquired and to be acquired in the Completed Acquisitions and Pending
Acquisitions are determined a reasonable time after consummation of such
transactions and are based on complete evaluations of the assets acquired and
liabilities assumed. Accordingly the information presented herein may differ
from the final purchase price allocation; however, in the opinion of the
Company's management, the final purchase price allocation will not differ
significantly from the information presented herein. In the opinion of the
Company's management, all adjustments have been made that are necessary to
present fairly the pro forma data.
Broadcast Cash Flow consists of operating income (loss) before depreciation
and amortization, non-cash stock compensation expense and corporate general and
administrative expenses. EBITDA consists of operating income (loss) before
depreciation and amortization and non-cash stock compensation expense. Broadcast
Cash Flow margin is Broadcast Cash Flow as a percentage of net revenues. EBITDA,
as defined by the Company, may not be comparable to similarly titled measures
used by other companies. EBITDA margin is EBITDA as a percentage of net
revenues. Although Broadcast Cash Flow, EBITDA, Broadcast Cash Flow margin and
EBITDA margin are not measures of performance calculated in accordance with
GAAP, management believes that they are useful to an investor in evaluating the
Company because they are measures widely used in the broadcast industry to
evaluate a radio company's operating performance. However, Broadcast Cash Flow
and EBITDA should not be considered in isolation or as substitutes for net
income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP, or as a measure of liquidity or
profitability.
27
<PAGE>
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 Transactions had been consummated on the dates
indicated, nor is it indicative of future operating results or financial
positions if the aforementioned transactions are completed. The failure of the
aforementioned transactions to be completed would significantly alter the
unaudited pro forma information.
All pro forma financial information should be read in conjunction with the
Company's Consolidated Financial Statements and the financial statements of
certain of the other acquired companies appearing elsewhere in this Prospectus.
See also "Risk Factors--Substantial Leverage" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
28
<PAGE>
CUMULUS MEDIA INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(D)
PRO FORMA
ADJUSTMENTS FOR THE (A)+(B)+(C)+
(B) COMPANY (D)=(E)
PRO FORMA HISTORICAL PRO FORMA AS
(A) ADJUSTMENTS FOR (C) AND THE 1998 ADJUSTED FOR
THE COMPANY THE COMPANY 1998 COMPLETED COMPLETED THE 1998 COMPLETED
HISTORICAL(1) HISTORICAL(3) ACQUISITIONS ACQUISITIONS ACQUISITIONS
----------- ---------------- -------------- ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $10,134 $21,414 $17,196 $-- $ 48,744
Less: agency commissions.... (971) (1,756) (1,569) -- (4,296)
----------- ------- ------- -------- --------
Net revenues................ 9,163 19,658 15,627 -- 44,448
Station operating expenses
excluding depreciation and
amortization............... 7,147 14,217 12,989 -- 34,353
Depreciation and
amortization............... 1,671 2,864 1,960 1,803(4) 8,298
Corporate general and
administrative expenses.... 1,276 430 526 -- 2,232
Non-cash stock compensation
expense.................... 1,689(2) -- -- -- 1,689
----------- ------- ------- -------- --------
Operating income (loss)..... (2,620) 2,147 152 (1,803) (2,124)
----------- ------- ------- -------- --------
Interest expense............ 837 1,042 1,272 5,834(5) 8,985
Gain (loss) on sale of
asset...................... -- 12,261 -- (12,261)(6) --
Other (income) expense...... 54 4 (4) -- 54
----------- ------- ------- -------- --------
Income (loss) before income
taxes...................... (3,511) 13,362 (1,116) (19,898) (11,163)
Income tax (expense)
benefit.................... (67) (83) (44) (194)
----------- ------- ------- -------- --------
Net income (loss)........... (3,578) 13,279 (1,160) (19,898) (11,357)
Preferred stock dividends... 274 -- -- 4,087(7) 4,361
----------- ------- ------- -------- --------
Net income (loss)
attributable to common
stockholders............... $(3,852) $13,279 $(1,160) $(23,985) $(15,718)
----------- ------- ------- -------- --------
----------- ------- ------- -------- --------
Basic and diluted earnings
(loss) per share........... $ $
<CAPTION>
(E)+(F)=(G)
PRO FORMA AS
ADJUSTED FOR (I)
(F) THE 1998 PRO FORMA
PRO FORMA COMPLETED ADJUSTMENTS (G)+(H)+(I)
ADJUSTMENTS ACQUISITIONS (H) FOR THE =(J)
FOR THE AND THE PENDING PENDING PRO FORMA
OFFERINGS OFFERINGS ACQUISITIONS ACQUISITIONS COMBINED(1)
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ -- $ 48,744 $73,106 $-- $121,850
Less: agency commissions.... -- (4,296) (6,568) -- (10,864)
----------- ------------ ------------ ----------- -----------
Net revenues................ -- 44,448 66,538 -- 110,986
Station operating expenses
excluding depreciation and
amortization............... -- 34,353 52,145 -- 86,498
Depreciation and
amortization............... -- 8,298 6,098 6,289(4) 20,685
Corporate general and
administrative expenses.... -- 2,232 2,528 -- 4,760
--
Non-cash stock compensation
expense.................... -- 1,689 278 (278)(10) 1,689
----------- ------------ ------------ ----------- -----------
Operating income (loss)..... -- (2,124) 5,489 (6,011) (2,646)
----------- ------------ ------------ ----------- -----------
Interest expense............ 5,395(8) 14,380 4,515 (1,535)(11) 17,360
Gain (loss) on sale of
asset...................... -- 1,462 (1,462)(12) --
Other (income) expense...... -- 54 215 (122)(13) 147
----------- ------------ ------------ ----------- -----------
Income (loss) before income
taxes...................... (5,395) (16,558) 2,221 (5,816) (20,153)
Income tax (expense)
benefit.................... -- (194) -- -- (194)
----------- ------------ ------------ ----------- -----------
Net income (loss)........... (5,395) (16,752) 2,221 (5,816) (20,347)
Preferred stock dividends... 10,871(9) 15,232 -- -- 15,232
----------- ------------ ------------ ----------- -----------
Net income (loss)
attributable to common
stockholders............... $(16,266) $(31,984) $ 2,221 $(5,816) $(35,579)
----------- ------------ ------------ ----------- -----------
----------- ------------ ------------ ----------- -----------
Basic and diluted earnings
(loss) per share........... $ $
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Statement of Operations.
29
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE COMPANY HISTORICAL
<TABLE>
<CAPTION>
WILKS
BROADCAST
VALUE RADIO ACQUISITIONS,
CORPORATION INC.
------------- -----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997):
Revenues...................................................................... $ 3,607 $ 2,625
Less: agency commissions...................................................... (226) (23)
------ ------
Net revenues.................................................................. 3,381 2,602
Station operating expenses excluding depreciation and amortization............ 2,389 1,799
Depreciation and amortization................................................. 624 554
Corporate general and administrative expenses................................. 73 70
Non-cash stock compensation expense........................................... -- --
------ ------
Operating income (loss)....................................................... 295 179
------ ------
Interest expense.............................................................. 418 424
Gain (loss) on sale of asset.................................................. -- --
Other (income) expense........................................................ 1 --
------ ------
Income (loss) before income taxes............................................. (124) (245)
Income tax (expense) benefit.................................................. -- --
------ ------
Net income (loss)............................................................. $ (124) $ (245)
------ ------
------ ------
<CAPTION>
CARRIBEAN
COMMUNICATIONS
COMPANY LIMITED HVS PARTNERS
------------------- -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997):
Revenues...................................................................... $ 191 $ 5,715
Less: agency commissions...................................................... (13) (384)
------ -------------
Net revenues.................................................................. 178 5,331
Station operating expenses excluding depreciation and amortization............ 524 4,863
Depreciation and amortization................................................. 56 638
Corporate general and administrative expenses................................. -- 85
Non-cash stock compensation expense........................................... -- --
------ -------------
Operating income (loss)....................................................... (402) (255)
------ -------------
Interest expense.............................................................. 62 68
Gain (loss) on sale of asset.................................................. -- 12,261
Other (income) expense........................................................ (1) --
------ -------------
Income (loss) before income taxes............................................. (463) 11,938
Income tax (expense) benefit.................................................. -- --
------ -------------
Net income (loss)............................................................. $ (463) $ 11,938
------ -------------
------ -------------
<CAPTION>
WKKO-FM, WRQN-FM,
WTOD-AM AND WIMX-FM
---------------------------
STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997):
Revenues...................................................................... $ 6,376
Less: agency commissions...................................................... (834)
------
Net revenues.................................................................. 5,542
Station operating expenses excluding depreciation and amortization............ 2,737
Depreciation and amortization................................................. 1,004
Corporate general and administrative expenses................................. 76
Non-cash stock compensation expense........................................... --
------
Operating income (loss)....................................................... 1,725
------
Interest expense.............................................................. 144
Gain (loss) on sale of asset.................................................. --
Other (income) expense........................................................ --
------
Income (loss) before income taxes............................................. 1,581
Income tax (expense) benefit.................................................. (74)
------
Net income (loss)............................................................. $ 1,507
------
------
<CAPTION>
THE MIDWESTERN
BROADCASTING COMPANY,
RADIO STATIONS WWWM-
FM AND WLQR-FM OTHER TOTAL
------------------------- ----------- ---------
STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997):
Revenues...................................................................... $ 2,517 $ 383 $ 21,414
Less: agency commissions...................................................... (279) 3 (1,756)
------ ----- ---------
Net revenues.................................................................. 2,238 386 19,658
Station operating expenses excluding depreciation and amortization............ 1,565 340 14,217
Depreciation and amortization................................................. 50 (62) 2,864
Corporate general and administrative expenses................................. 126 -- 430
Non-cash stock compensation expense........................................... -- -- --
------ ----- ---------
Operating income (loss)....................................................... 497 108 2,147
------ ----- ---------
Interest expense.............................................................. 4 (78) 1,042
Gain (loss) on sale of asset.................................................. -- -- 12,261
Other (income) expense........................................................ 6 (2) 4
------ ----- ---------
Income (loss) before income taxes............................................. 487 188 13,362
Income tax (expense) benefit.................................................. (10) 1 (83)
------ ----- ---------
Net income (loss)............................................................. $ 477 $ 189 $ 13,279
------ ----- ---------
------ ----- ---------
</TABLE>
30
<PAGE>
1998 COMPLETED ACQUISITIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SAVANNAH
VALLEY
BROADCASTING
RADIO
ARBOR RADIO LP PROPERTIES M&M PARTNERS
----------------- ------------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997):
Revenues...................................................................... $ 3,723 $ 2,283 $ 3,295
Less: agency commissions...................................................... (289) (258) (354)
------ ------ ------
Net revenues.................................................................. 3,434 2,025 2,941
Station operating expenses excluding depreciation and amortization............ 2,319 2,093 2,215
Depreciation and amortization................................................. 502 352 485
Corporate general and administrative expenses................................. 75 -- 120
Non-cash stock compensation expense........................................... -- -- --
------ ------ ------
Operating income (loss)....................................................... 538 (420) 121
------ ------ ------
Interest expense.............................................................. 329 246 114
Gain (loss) on sale of asset.................................................. -- -- --
Other (income) expense........................................................ -- -- (2)
------ ------ ------
Income (loss) before income taxes............................................. 209 (666) 9
Income tax (expense) benefit.................................................. -- -- --
------ ------ ------
Net income (loss)............................................................. 209 (666) 9
Preferred stock dividends..................................................... -- -- --
------ ------ ------
Net income (loss) attributable to common stockholders......................... $ 209 $ (666) $ 9
------ ------ ------
------ ------ ------
<CAPTION>
SEACOAST
FORJAY RADIO
BROADCASTING SUNNY COMPANY
CORPORATION BROADCASTERS, INC. LLC
------------- ------------------- -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997):
Revenues...................................................................... $ 1,667 $ 1,359 $ 820
Less: agency commissions...................................................... (178) (111) (80)
------ ------ -----
Net revenues.................................................................. 1,489 1,248 740
Station operating expenses excluding depreciation and amortization............ 978 850 480
Depreciation and amortization................................................. 29 117 58
Corporate general and administrative expenses................................. 300 -- --
Non-cash stock compensation expense........................................... -- -- --
------ ------ -----
Operating income (loss)....................................................... 182 281 202
------ ------ -----
Interest expense.............................................................. 48 99 34
Gain (loss) on sale of asset.................................................. -- -- --
Other (income) expense........................................................ -- -- --
------ ------ -----
Income (loss) before income taxes............................................. 134 182 168
Income tax (expense) benefit.................................................. (44) -- --
------ ------ -----
Net income (loss)............................................................. 90 182 168
Preferred stock dividends..................................................... -- -- --
------ ------ -----
Net income (loss) attributable to common stockholders......................... $ 90 $ 182 $ 168
------ ------ -----
------ ------ -----
<CAPTION>
CAROLINA BROADCASTING,
INC. AND GEORGETOWN
RADIO, INC. OTHER TOTAL
----------------------- --------- ---------
STATEMENT OF OPERATIONS DATA (FOR THE YEAR ENDED DECEMBER 31, 1997):
Revenues...................................................................... $ 268 $ 3,781 $ 17,196
Less: agency commissions...................................................... -- (299) (1,569)
----- --------- ---------
Net revenues.................................................................. 268 3,482 15,627
Station operating expenses excluding depreciation and amortization............ 562 3,492 12,989
Depreciation and amortization................................................. 106 311 1,960
Corporate general and administrative expenses................................. 17 14 526
Non-cash stock compensation expense........................................... -- -- --
----- --------- ---------
Operating income (loss)....................................................... (417) (335) 152
----- --------- ---------
Interest expense.............................................................. 167 235 1,272
Gain (loss) on sale of asset.................................................. -- -- --
Other (income) expense........................................................ -- (2) (4)
----- --------- ---------
Income (loss) before income taxes............................................. (584) (568) (1,116)
Income tax (expense) benefit.................................................. -- -- (44)
----- --------- ---------
Net income (loss)............................................................. (584) (568) (1,160)
Preferred stock dividends..................................................... -- -- --
----- --------- ---------
Net income (loss) attributable to common stockholders......................... $ (584) $ (568) $ (1,160)
----- --------- ---------
----- --------- ---------
</TABLE>
31
<PAGE>
PENDING ACQUISITIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CASTLE
TRYON-SEACOAST BROADCASTING BEAUMONT
K-COUNTRY, COMMUNICATIONS LIMITED NINETY FOUR POINT ONE, SKYWAVE,
INC. INC. PARTNERSHIP INC. AND KAYD-FM INC.
----------- ----------------- ------------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (FOR
THE YEAR ENDED DECEMBER 31,
1997):
Revenues.......................... $ 1,822 $ 1,197 $ 1,778 $ 4,172 $ 703
Less: agency commissions.......... (61) (142) (396) (57)
----------- ------ ------ ------ -----
Net revenues...................... 1,822 1,136 1,636 3,776 646
Station operating expenses
excluding depreciation and
amortization.................... 1,561 1,073 1,449 3,300 573
Depreciation and amortization..... 160 34 48 185 123
Corporate general and
administrative expenses......... -- -- -- -- --
Non-cash stock compensation
expense......................... -- -- -- -- --
----------- ------ ------ ------ -----
Operating income (loss)........... 101 29 139 291 (50)
----------- ------ ------ ------ -----
Interest expense.................. -- 89 150 380 71
Gain (loss) on sale of asset...... -- -- -- -- --
Other (income) expense............ -- (2) -- 22 --
----------- ------ ------ ------ -----
Income (loss) before income
taxes........................... 101 (58) (11) (111) (121)
Income tax (expense) benefit...... (25) -- -- -- --
----------- ------ ------ ------ -----
Net income (loss)................. $ 76 $ (58) $ (11) $ (111) $ (121)
----------- ------ ------ ------ -----
----------- ------ ------ ------ -----
<CAPTION>
JKJ BROADCASTING,
INC. MISSOURI RIVER
BROADCASTING, INC.
INGSTAD BROADCASTING,
REPUBLIC COMMUNICATIONS INC. AND HOMETOWN PAMPLICO
CORPORATION PROPERTIES, INC. WIRELESS, INC. BROADCASTING, L.P.
------------------- ----------------- --------------------- -------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA (FOR
THE YEAR ENDED DECEMBER 31,
1997):
Revenues.......................... $ 11,691 $ 2,528 $ 10,363 $ 1,046
Less: agency commissions.......... (2,360) (151) (448) (51)
------- ------ ------- ------
Net revenues...................... 9,331 2,377 9,915 995
Station operating expenses
excluding depreciation and
amortization.................... 6,323 2,290 7,631 1,214
Depreciation and amortization..... 1,206 67 806 68
Corporate general and
administrative expenses......... -- -- -- --
Non-cash stock compensation
expense......................... -- -- -- --
------- ------ ------- ------
Operating income (loss)........... 1,802 20 1,478 (287)
------- ------ ------- ------
Interest expense.................. (11) 173 849 271
Gain (loss) on sale of asset...... -- 1,462 -- --
Other (income) expense............ 32 (37) -- 18
------- ------ ------- ------
Income (loss) before income
taxes........................... 1,781 1,346 629 (576)
Income tax (expense) benefit...... 3,724 (168) -- --
------- ------ ------- ------
Net income (loss)................. $ 5,505 $ 1,178 $ 629 $ (576)
------- ------ ------- ------
------- ------ ------- ------
<CAPTION>
JAN-DI
BROADCASTING,
INC. SUBTOTAL
--------------- -----------
STATEMENT OF OPERATIONS DATA (FOR
THE YEAR ENDED DECEMBER 31,
1997):
Revenues.......................... $ 2,087 $ 37,387
Less: agency commissions.......... (116) (3,782)
------ -----------
Net revenues...................... 1,971 33,605
Station operating expenses
excluding depreciation and
amortization.................... 1,746 27,160
Depreciation and amortization..... 112 2,809
Corporate general and
administrative expenses......... -- --
Non-cash stock compensation
expense......................... -- --
------ -----------
Operating income (loss)........... 113 3,636
------ -----------
Interest expense.................. 50 2,022
Gain (loss) on sale of asset...... -- 1,462
Other (income) expense............ (27) 6
------ -----------
Income (loss) before income
taxes........................... 90 3,070
Income tax (expense) benefit...... -- 3,531
------ -----------
Net income (loss)................. $ 90 $ 6,601
------ -----------
------ -----------
</TABLE>
32
<PAGE>
PENDING ACQUISITIONS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LOUISIANA MEDIA LESNICK
MUSTANG BROADCASTING CRYSTAL RADIO INTERESTS, INC. CLEARLY SUPERIOR COMMUNICATIONS,
COMPANY GROUP, INC. AND SUBSIDIARIES RADIO PROPERTIES INC.
----------------------- --------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (FOR THE YEAR
ENDED DECEMBER 31,
1997):
Revenues................ $ 1,140 $ 4,580 $ 3,363 $ 2,662 $ 438
Less: agency
commissions........... (47) (601) (299) (104) (13)
------ ------ ------ ------ ------
Net revenues............ 1,093 3,979 3,064 2,558 425
Station operating
expenses excluding
depreciation and
amortization.......... 1,078 2,690 2,275 1,728 541
Depreciation and
amortization.......... 97 237 394 211 30
Corporate general and
administrative
expenses.............. -- -- -- -- --
Non-cash stock
compensation expense.. -- -- 278 -- --
------ ------ ------ ------ ------
Operating income
(loss)................ (82) 1,052 117 619 (146)
------ ------ ------ ------ ------
Interest expense........ 36 212 544 262 --
Gain (loss) on sale of
asset................. -- -- -- -- --
Other income
(expense)............. -- -- (122) (75) (5)
------ ------ ------ ------ ------
Income (loss) before
income taxes.......... (118) 840 (549) 282 (151)
Income tax (expense)
benefit............... -- -- -- -- (2)
------ ------ ------ ------ ------
Net income (loss)....... $ (118) $ 840 $ (549) $ 282 $ (153)
------ ------ ------ ------ ------
------ ------ ------ ------ ------
<CAPTION>
NEW FRONTIER SAVANNAH PHOENIX
COMMUNICATIONS, COMMUNICATIONS, BROADCAST TALLAHASSEE
INC. WJCL-FM L.P. PARTNERS, INC. BROADCASTING, INC. OTHER
----------------- ----------- ----------------- --------------- ------------------- ---------
<S> <C>
STATEMENT OF OPERATIONS
DATA (FOR THE YEAR
ENDED DECEMBER 31,
1997):
Revenues................ $ 4,642 $ 1,801 $ 1,405 $ 778 $ 794 $ 14,116
Less: agency
commissions........... (384) (236) (148) (47) (75) (832)
------ ----------- ------- ----- ----- ---------
Net revenues............ 4,258 1,565 1,257 731 719 13,284
Station operating
expenses excluding
depreciation and
amortization.......... 3,305 1,468 1,497 790 945 11,176
Depreciation and
amortization.......... 485 13 507 95 170 1,050
Corporate general and
administrative
expenses.............. -- -- -- -- -- --
Non-cash stock
compensation expense.. -- -- -- -- -- --
------ ----------- ------- ----- ----- ---------
Operating income
(loss)................ 468 84 (747) (154) (396) 1,058
------ ----------- ------- ----- ----- ---------
Interest expense........ 497 -- 366 131 -- 445
Gain (loss) on sale of
asset................. -- -- -- -- -- --
Other income
(expense)............. (32) -- 15 8 39 (37)
------ ----------- ------- ----- ----- ---------
Income (loss) before
income taxes.......... (61) 84 (1,098) (277) (357) 576
Income tax (expense)
benefit............... (6) -- -- -- -- (65)
------ ----------- ------- ----- ----- ---------
Net income (loss)....... $ (67) $ 84 $ (1,098) $ (277) $ (357) $ 511
------ ----------- ------- ----- ----- ---------
------ ----------- ------- ----- ----- ---------
<CAPTION>
TOTAL
---------
STATEMENT OF OPERATIONS
DATA (FOR THE YEAR
ENDED DECEMBER 31,
1997):
Revenues................ $ 73,106
Less: agency
commissions........... (6,568)
---------
Net revenues............ 66,538
Station operating
expenses excluding
depreciation and
amortization.......... 54,673
Depreciation and
amortization.......... 6,098
Corporate general and
administrative
expenses.............. --
Non-cash stock
compensation expense..
---------
Operating income
(loss)................ 5,489
---------
Interest expense........ 4,515
Gain (loss) on sale of
asset................. 1,462
Other income
(expense)............. (215)
---------
Income (loss) before
income taxes.......... 2,221
Income tax (expense)
benefit............... 3,458
---------
Net income (loss)....... $ 5,679
---------
---------
</TABLE>
33
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(1) On a historical basis, Broadcast Cash Flow, Broadcast Cash Flow margin,
EBITDA and EBITDA margin were $2,016, 22.0%, $740 and 8.1%, respectively,
for the year ended December 31, 1997. After giving effect to the
Transactions, pro forma Broadcast Cash Flow, pro forma Broadcast Cash Flow
margin, pro forma EBITDA and pro forma EBITDA margin would have been
$24,488, 22.1%, $19,728 and 17.8%, respectively, for the year ended December
31, 1997. The pro forma financial results exclude the effects of estimated
cost savings which management believes will result from the Completed
Acquisitions and the Pending Acquisitions. On a pro forma basis after giving
effect to the Transactions and assuming the realization of such cost
savings, pro forma as adjusted Broadcast Cash Flow, pro forma as adjusted
Broadcast Cash Flow margin, pro forma as adjusted EBITDA and pro forma as
adjusted EBITDA margin would have been $ , %, $ and %,
respectively, for the year ended December 31, 1997. The Company expects to
realize up to $ of such cost savings ($ of which would increase
EBITDA and $ of which would increase Broadcast Cash Flow), comprised of
(i) $ from the elimination of certain station management and staff
positions, including related benefits; (ii) $ from the consolidation of
station facilities and equipment; (iii) $ from the elimination of
previous owner compensation benefits; (iv) $ from new rates associated
with revised vendor contracts; and (v) $ from the elimination of certain
station overhead and general and administrative expenses.
Such estimated cost savings represent management's estimates of potential
savings available based upon individual radio station due diligence and the
successful execution of its operating strategy. There can be no assurances
that either the individual or aggregate estimated cost savings identified
above will be achieved.
(2) Amount represents a non-recurring, non-cash stock compensation expense on
common stock issued to certain employees and managers upon formation of the
Company.
(3) Adjustments reflect historical revenues and expenses of stations acquired by
the Company in 1997 for the period from January 1, 1997 through the date the
stations were acquired by the Company.
(4) Adjustments reflect (i) the change in depreciation and amortization expense
resulting from conforming the estimated useful lives of the Completed and
Pending Acquisitions' assets to the Company's policies and (ii) the
additional depreciation and amortization expense resulting from the
allocation of the purchase price to the estimated fair market value of the
assets acquired. On a pro forma basis, depreciation expense is $3,934 and
amortization expense is $16,751 after giving effect to the Completed and
Pending Acquisitions. Depreciation expense has been calculated on a straight
line basis using a weighted average life of ten years for property and
equipment. Goodwill and other intangible assets amortization has been
calculated on a straight line basis over 25 years.
(5) Adjustment to reflect increased interest expense resulting from:
<TABLE>
<S> <C>
Sources of funds:
Amount financed by the Credit Facility $ 101,289
NML Preferred Stock investment 16,250
Private equity investment in common stock 15,000
---------
Total $ 132,539
---------
---------
Uses of funds:
Purchase price of the 1998 Completed Acquisitions $ 86,750
Repayment of the Old Credit Facility 42,789
Credit Facility transaction costs 3,000
---------
Total $ 132,539
---------
---------
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
Interest on the Credit Facility at 8.50% $ 8,610
Amortization of $3,000 in debt issuance costs over 8 years 375
---------
Total interest expense 8,985
Less: Historical interest recorded by the Company and the Completed
Acquisitions (3,151)
---------
Net adjustment $ 5,834
---------
---------
</TABLE>
(6) Adjustment recorded to eliminate a non-recurring gain of $12,261 recognized
by HVS Partners on the 1997 sales of radio stations in Salisbury, MD and
Wilmington, NC to the Company prior to the acquisition by the Company of the
remainder of HVS Partners' stations.
(7) Reflects (i) the additional accretion of the NML Preferred Stock dividends
and (ii) the amortization of the $3,098 discount to liquidation value on the
NML Preferred Stock.
<TABLE>
<S> <C>
Accretion of NML Preferred Stock dividends (compounded quarterly at
11.50%).......................................................... $ 4,079
Amortization of discount (over 11 years)........................... 282
---------
4,361
Less: Historical dividends recorded by the Company................. (274)
---------
Net adjustment $ 4,087
---------
---------
</TABLE>
Upon the consummation of the Offerings, the Company will record the
accretion of the discount on the NML Preferred Stock of $2,994 when exchanged
for the Series A Preferred Stock.
(8) Adjustment to reflect increased interest expense resulting from:
<TABLE>
<S> <C>
Interest on the Notes at 9.00% $ 13,500
Amortization of $5,057 debt issuance costs over 10 years 505
Amortization of $3,000 Credit Facility transaction costs over 8
years 375
---------
Total interest expense 14,381
Less: Interest expense recorded pro forma as adjusted for the
Completed Acquisitions 8,985
---------
Net adjustment $ 5,396
---------
---------
</TABLE>
(9) To reflect additional accretion related to Series A Preferred Stock
dividend:
<TABLE>
<S> <C>
Accretion of Series A Preferred Stock dividend (compounded daily at
11.50%).......................................................... $ 15,232
Less: Pro forma dividends on NML Preferred Stock exchanged into
Series A Preferred Stock......................................... (4,361)
---------
Net adjustment..................................................... $ 10,871
---------
---------
</TABLE>
(10) Adjustment to eliminate non-cash stock compensation expense of $278 related
to the previous owners of one of the stations included in the Pending
Acquisitions.
35
<PAGE>
(11) Adjustment to reflect increased interest expense resulting from:
<TABLE>
<S> <C>
Sources of funds:
Amount financed by the Notes ($150,000 net of fees of $5,057)... $ 144,943
Preferred Stock Offering to the public ($92,260 net of fees of
$3,770)....................................................... 88,490
Stock Offerings ($100,000 to the Company net of fees of
$7,871)....................................................... 92,129
Amount financed by the Credit Facility.......................... 35,034
NML Preferred Stock investment.................................. 16,250
Private equity investment in common stock....................... 15,000
---------
Total........................................................... $ 391,846
---------
---------
Uses of funds:
Purchase price of the Completed Acquisitions and the Pending
Acquisitions.................................................. $ 346,057
Repayment of the Old Credit Facility............................ 42,789
Credit Facility transaction costs............................... 3,000
---------
Total........................................................... $ 391,846
---------
---------
Interest on the Notes at 9.00%.................................... $ 13,500
Interest on the Credit Facility at 8.50%.......................... 2,980
Amortization of $5,054 debt issuance costs over 10 years.......... 505
Amortization of $3,000 Credit Facility transaction costs over 8
years........................................................... 375
---------
Total interest expense.......................................... 17,360
Less: Interest expense recorded pro forma as adjusted for the
Pending Acquisitions and pro forma as adjusted for the
Offerings..................................................... (18,895)
---------
Net adjustment.................................................. $ (1,535)
---------
---------
</TABLE>
(12) Adjustment recorded to eliminate a non-recurring gain of $1,462 recognized
by Communications Properties, Inc., a Pending Acquisition of the Company, on
a sale by Communications Properties, Inc. of two radio stations not acquired
by the Company.
(13) Elimination of interests of minority shareholders in connection with a
Pending Acquisition.
36
<PAGE>
CUMULUS MEDIA INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(D)
PRO FORMA ADJUSTMENTS
FOR THE (A)+(B)+(C)+
(B) COMPANY (D)=(E)
PRO FORMA HISTORICAL PRO FORMA AS
(A) ADJUSTMENTS FOR (C) AND THE 1998 ADJUSTED FOR
THE COMPANY THE COMPANY 1998 COMPLETED COMPLETED THE 1998 COMPLETED
HISTORICAL(1) HISTORICAL(2) ACQUISITIONS ACQUISITIONS ACQUISITIONS
-------------- --------------- ---------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 13,787 $ 991 $ 402 $ -- $ 15,180
Less: agency commissions...... (1,287) (97) (35) -- (1,419)
------- ------ ------- ------ -------
Net revenues.................. 12,500 894 367 -- 13,761
Station operating expenses
excluding depreciation and
amortization................. 10,904 807 401 12,112
Depreciation and
amortization................. 2,748 137 84 (915)(3) 2,055
Corporate general and
administrative expenses...... 961 -- -- -- 961
Non-cash stock compensation
expense...................... -- -- -- -- --
------- ------ ------- ------ -------
Operating income (loss)....... (2,113) (51) (118) (915) (1,367)
------- ------ ------- ------ -------
Interest expense.............. 1,374 78 220 976(4) 2,648
Gain (loss) on sale of asset.. -- -- -- -- --
Other (income) expense........ 6 (56) -- -- (50)
------- ------ ------- ------ -------
Income (loss) before income
taxes........................ (3,493) (73) (338) (61) (3,965)
Income tax (expense)
benefit...................... -- -- -- -- --
------- ------ ------- ------ -------
Net income (loss) before
extraordinary item........... (3,493) (73) (338) (61) (3,965)
Extraordinary loss on early
retirement of debt........... 1,837 -- -- -- 1,837
------- ------ ------- ------ -------
Net income (loss)............. (5,330) (73) (338) (61) (5,802)
Preferred stock dividends..... 842 -- -- -- 842
------- ------ ------- ------ -------
Net income (loss) attributable
to common stockholders....... $ (6,172) $ (73) $ (338) $ (61) $ (6,644)
Earnings per share............ $ $
------- ------ ------- ------ -------
------- ------ ------- ------ -------
<CAPTION>
(E)+(F)=(G)
PRO FORMA AS
ADJUSTED FOR (I)
(F) THE 1998 PRO FORMA
PRO FORMA COMPLETED ADJUSTMENTS (G)+(H)+(I)
ADJUSTMENTS ACQUISITIONS (H) FOR THE =(J)
FOR THE AND THE PENDING PENDING PRO FORMA
OFFERINGS OFFERINGS ACQUISITIONS ACQUISITIONS COMBINED(1)
------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ -- $ 15,180 $ 12,968 $ -- $ 28,148
Less: agency commissions...... -- (1,419) (972) -- (2,391)
------------- -------------- ------------ ------------- -------------
Net revenues.................. -- 13,761 11,996 -- 25,757
Station operating expenses
excluding depreciation and
amortization................. -- 12,112 10,534 -- 22,646
Depreciation and
amortization................. -- 2,055 1,670 1,470(3) 5,195
Corporate general and
administrative expenses...... -- 961 8 969
Non-cash stock compensation
expense...................... -- -- -- --
------------- -------------- ------------ ------------- -------------
Operating income (loss)....... -- (1,367) (216) (1,470) (3,053)
------------- -------------- ------------ ------------- -------------
Interest expense.............. 946(5) 3,594 1,335 (444)(7) 4,485
Gain (loss) on sale of asset.. -- -- -- --
Other (income) expense........ -- (50) (71) -- (121)
------------- -------------- ------------ ------------- -------------
Income (loss) before income
taxes........................ (946) (4,911) (1,480) (1,026) (7,417)
Income tax (expense)
benefit...................... -- -- -- -- --
------------- -------------- ------------ ------------- -------------
Net income (loss) before
extraordinary item........... (946) (4,911) (1,480) (1,026) (7,417)
Extraordinary loss on early
retirement of debt........... -- 1,837 -- -- 1,837
------------- -------------- ------------ ------------- -------------
Net income (loss)............. (946) (6,748) (1,480) (1,026) (9,254)
Preferred stock dividends..... 2,803(6) 3,645 -- -- 3,645
------------- -------------- ------------ ------------- -------------
Net income (loss) attributable
to common stockholders....... $ (3,749) $ (40,393) $ (1,480) $ (1,026) $ (12,899)
Earnings per share............ $ $
------------- -------------- ------------ ------------- -------------
------------- -------------- ------------ ------------- -------------
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Statement of Operations.
37
<PAGE>
CUMULUS MEDIA INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS--CONTINUED
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SAVANNAH VALLEY
BROADCASTING
RADIO PROPERTIES
-----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................................................. $ 248
Less: agency commissions............................................................................. (26)
-----
Net revenues......................................................................................... 222
Station operating expenses excluding depreciation and amortization................................... 291
Depreciation and amortization........................................................................ 74
Corporate general and administrative expenses........................................................ --
Non-cash stock compensation expense.................................................................. --
-----
Operating income (loss).............................................................................. (143)
-----
Interest expense..................................................................................... 75
Gain (loss) on sale of asset......................................................................... --
Other income (expense)............................................................................... (157)
-----
Income (loss) before income taxes.................................................................... (375)
Income tax (expense) benefit......................................................................... --
-----
Net income (loss).................................................................................... $ (375)
-----
-----
<CAPTION>
OTHER TOTAL
----------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................................................. $ 154 $ 402
Less: agency commissions............................................................................. (9) (35)
----- ---------
Net revenues......................................................................................... 145 367
Station operating expenses excluding depreciation and amortization................................... 110 401
Depreciation and amortization........................................................................ 10 84
Corporate general and administrative expenses........................................................ -- --
Non-cash stock compensation expense.................................................................. -- --
----- ---------
Operating income (loss).............................................................................. 25 (118)
----- ---------
Interest expense..................................................................................... 145 220
Gain (loss) on sale of asset......................................................................... -- --
Other income (expense)............................................................................... 157 --
----- ---------
Income (loss) before income taxes.................................................................... 37 (338)
Income tax (expense) benefit......................................................................... -- --
----- ---------
Net income (loss).................................................................................... $ 37 $ (338)
----- ---------
----- ---------
</TABLE>
38
<PAGE>
CUMULUS MEDIA INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS--CONTINUED
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CASTLE
BROADCASTING
TRYON-SEACOAST LIMITED NINETY FOUR
K-COUNTRY, INC. COMMUNICATIONS INC. PARTNERSHIP POINT ONE, INC.
--------------- ----------------------- ------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 337 $ 262 $ 392 $ 979
Less: agency commissions........................... (33) (13) (35) (112)
----- ----- ----- -----
Net revenues....................................... 304 249 357 867
Station operating expenses excluding depreciation
and amortization.................................. 414 165 364 754
Depreciation and amortization...................... 33 11 19 47
Corporate general and administrative expenses...... -- -- -- --
Non-cash stock compensation expense................ -- -- -- --
----- ----- ----- -----
Operating income (loss)............................ (143) 73 (26) 66
----- ----- ----- -----
Interest expense................................... -- 28 45 105
Gain (loss) on sale of asset....................... -- -- -- --
Other income (expense)............................. -- -- -- (12)
----- ----- ----- -----
Income (loss) before income taxes.................. (143) 45 (71) (51)
Income tax (expense) benefit....................... 51 -- -- --
----- ----- ----- -----
Net income (loss).................................. $ (92) $ 45 $ (71) $ (51)
----- ----- ----- -----
----- ----- ----- -----
<CAPTION>
BEAUMONT REPUBLIC COMMUNICATIONS
SKYWAVE, INC. CORPORATION PROPERTIES, INC. SUBTOTAL
------------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 95 $ 2,007 $ 1,060 $ 5,132
Less: agency commissions........................... (14) (155) (89) (451)
------ ------ ------ -----------
Net revenues....................................... 81 1,852 971 4,681
Station operating expenses excluding depreciation
and amortization.................................. 110 1,429 959 4,295
Depreciation and amortization...................... 21 321 180 632
Corporate general and administrative expenses...... -- -- -- --
Non-cash stock compensation expense................ -- -- -- --
------ ------ ------ -----------
Operating income (loss)............................ (50) 102 (168) (246)
------ ------ ------ -----------
Interest expense................................... 18 (1) 143 338
Gain (loss) on sale of asset....................... -- -- -- --
Other income (expense)............................. 30 (15) 47 50
------ ------ ------ -----------
Income (loss) before income taxes.................. (38) 88 (264) (534)
Income tax (expense) benefit....................... -- (11) -- 62
------ ------ ------ -----------
Net income (loss).................................. $ (38) $ 77 $ (264) $ (472)
------ ------ ------ -----------
------ ------ ------ -----------
</TABLE>
39
<PAGE>
CUMULUS MEDIA INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS--CONTINUED
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JKJ BROADCASTING, INC.,
MISSOURI RIVER
BROADCASTING,
INC., INGSTAD MANKATO,
INC.,
JAMES INGSTAD
BROADCASTING, INC., PAMPLICO JAN-DI
HOMETOWN WIRELESS, INC. BROADCASTING, L.P. BROADCASTING, INC.
--------------------------- ------------------- -------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 2,549 $ 113 $ 479
Less: agency commissions................................. (115) -- (27)
------ ----- -----
Net revenues............................................. 2,434 113 452
Station operating expenses excluding depreciation and
amortization............................................ 1,938 262 465
Depreciation and amortization............................ 192 -- 25
Corporate general and administrative expenses............ -- -- --
Non-cash stock compensation expense...................... -- -- --
------ ----- -----
Operating income (loss).................................. 304 (149) (38)
------ ----- -----
Interest expense......................................... 210 52 10
Gain (loss) on sale of asset............................. -- -- --
Other income (expense)................................... -- 8 9
------ ----- -----
Income (loss) before income taxes........................ 94 (193) (39)
Income tax (expense) benefit............................. -- -- --
------ ----- -----
Net income (loss)........................................ $ 94 $ (193) $ (39)
------ ----- -----
------ ----- -----
<CAPTION>
LOUISIANA MEDIA
MUSTANG INTERESTS, INC.
BROADCASTING AND CLEARLY SUPERIOR
COMPANY SUBSIDIARIES RADIO PROPERTIES SUBTOTAL
--------------- ----------------- ----------------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 210 $ 824 $ 220 $ 4,408
Less: agency commissions................................. (7) (72) -- (221)
----- ------ ------ ---------
Net revenues............................................. 203 752 220 4,187
Station operating expenses excluding depreciation and
amortization............................................ 237 638 -- 3,845
Depreciation and amortization............................ 25 136 148 334
Corporate general and administrative expenses............ -- -- -- --
Non-cash stock compensation expense...................... -- -- -- --
----- ------ ------ ---------
Operating income (loss).................................. (59) (22) 72 8
----- ------ ------ ---------
Interest expense......................................... 1 174 76 523
Gain (loss) on sale of asset............................. -- -- -- --
Other income (expense)................................... -- (32) 39 (96)
----- ------ ------ ---------
Income (loss) before income taxes........................ (60) (228) 35 (611)
Income tax (expense) benefit............................. -- -- -- --
----- ------ ------ ---------
Net income (loss)........................................ $ (60) $ (228) $ 35 $ (611)
----- ------ ------ ---------
----- ------ ------ ---------
</TABLE>
40
<PAGE>
CUMULUS MEDIA INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS--CONTINUED
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LESNICK NEW FRONTIER SAVANNAH
COMMUNICATIONS, INC. COMMUNICATIONS, INC. WJCL-FM COMMUNICATIONS, L.P.
-------------------- -------------------- ----------- --------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 69 $ 133 $ -- $ 105
Less: agency commissions................... (5) -- -- (3)
------- -------- ----------- --------
Net revenues............................... 64 133 -- 102
Station operating expenses excluding
depreciation and amortization............. 136 117 31 107
Depreciation and amortization.............. 9 115 2 161
Corporate general and administrative
expenses.................................. -- -- -- --
Non-cash stock compensation expense........ -- -- -- --
------- -------- ----------- --------
Operating income (loss).................... (81) (99) (33) (166)
------- -------- ----------- --------
Interest expense........................... 4 146 -- 83
Gain (loss) on sale of asset............... -- -- -- --
Other income (expense)..................... -- 231 11 (3)
------- -------- ----------- --------
Income (loss) before income taxes.......... (85) (14) (22) (252)
Income tax (expense) benefit............... -- 4 -- --
------- -------- ----------- --------
Net income (loss).......................... $ (85) $ (10) $ (22) $ (252)
------- -------- ----------- --------
------- -------- ----------- --------
<CAPTION>
TALLAHASSEE
PHOENIX BROADCAST BROADCASTING, MIDLAND
PARTNERS, INC. INC. BROADCASTING SUBTOTAL
----------------- ----------------- ------------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 129 $ -- $ 741 $ 1,177
Less: agency commissions................... (6) -- (67) 601
------- ------- ------------- ---------
Net revenues............................... 123 -- 674 1,778
Station operating expenses excluding
depreciation and amortization............. 159 15 529 1,553
Depreciation and amortization.............. 27 39 45 398
Corporate general and administrative
expenses.................................. -- -- -- --
Non-cash stock compensation expense........ -- -- -- --
------- ------- ------------- ---------
Operating income (loss).................... (63) (54) 100 (173)
------- ------- ------------- ---------
Interest expense........................... 24 -- 19 276
Gain (loss) on sale of asset............... -- -- -- --
Other income (expense)..................... -- 27 -- 42
------- ------- ------------- ---------
Income (loss) before income taxes.......... (87) (27) 81 (407)
Income tax (expense) benefit............... -- -- -- 4
------- ------- ------------- ---------
Net income (loss).......................... $ (87) $ (27) $ 81 $ (403)
------- ------- ------------- ---------
------- ------- ------------- ---------
</TABLE>
41
<PAGE>
CUMULUS MEDIA INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS--CONTINUED
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUBTOTAL SUBTOTAL SUBTOTAL
PAGE 39 PAGE 40 PAGE 41 OTHER TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ 5,132 $ 4,408 $ 1,177 $ 2,251 $ 12,968
Less: agency commissions....................... (451) (221) 601 (901) (972)
--------- --------- --------- --------- ---------
Net revenues................................... 4,681 4,187 1,778 1,350 11,996
Station operating expenses excluding
depreciation and amortization................. 4,295 3,845 1,553 841 10,534
Depreciation and amortization.................. 632 334 398 306 1,670
Corporate general and administrative
expenses...................................... -- -- -- 8 8
Non-cash stock compensation expense............ -- -- -- -- --
--------- --------- --------- --------- ---------
Operating income (loss)........................ (246) 8 (173) 195 (216)
--------- --------- --------- --------- ---------
Interest expense............................... 338 523 276 198 1,335
Gain (loss) on sale of asset................... -- -- -- -- --
Other income (expense)......................... 50 (96) 42 75 71
--------- --------- --------- --------- ---------
Income (loss) before income taxes.............. (534) (611) (407) 72 (1,480)
Income tax (expense) benefit................... 62 -- 4 (66) --
--------- --------- --------- --------- ---------
Net income (loss).............................. $ (472) $ (611) $ (403) $ 6 $ (1,480)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
42
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(1) On a historical basis, Broadcast Cash Flow and EBITDA were $1,596 and $635
respectively, for the three months ended March 31, 1998. After giving effect
to the Transactions (other than acquisitions completed prior to January 1,
1998), pro forma Broadcast Cash Flow, pro forma Broadcast Cash Flow margin,
pro forma EBITDA and pro forma EBITDA margin would have been $3,111, 12.1%,
$2,142 and 8.3%, respectively, for the three months ended March 31, 1998.
The pro forma financial results exclude the effects of estimated cost
savings which management believes will result from the Completed
Acquisitions and the Pending Acquisitions. On a pro forma basis after giving
effect to the Transactions and assuming the realization of such cost
savings, pro forma as adjusted Broadcast Cash Flow, pro forma as adjusted
Broadcast Cash Flow margin, pro forma as adjusted EBITDA and pro forma as
adjusted EBITDA margin would have been $ , %, $ and %,
respectively, for the three months ended March 31, 1998. The Company expects
to realize up to $ of such cost savings ($ of which would increase
EBITDA and $ of which would increase Broadcast Cash Flow), comprised of
(i) $ from the elimination of certain station management and staff
positions, including related benefits; (ii) $ from the consolidation of
station facilities and equipment; (iii) $ from the elimination of
previous owner compensation benefits; (iv) $ from new rates associated
with revised vendor contracts; and (v) $ from the elimination of
certain station overhead and general and administrative expenses.
Such estimated cost savings represent management's estimates of potential
savings available based upon individual radio station due diligence and the
successful execution of its operating strategy. There can be no assurances
that either the individual or aggregate estimated cost savings identified
above will be achieved.
(2) Adjustments reflect historical revenues and expenses of stations acquired by
the Company in the first quarter of 1998 for the period from January 1, 1998
through the date the stations were acquired by the Company.
(3) Adjustments reflect (i) the change in depreciation and amortization expense
resulting from conforming the estimated useful lives of the Completed and
Pending Acquisitions' assets to the Company's policies and (ii) the
additional depreciation and amortization expense resulting from the
allocation of the purchase price to the estimated fair market value of the
assets acquired. On a pro forma basis, depreciation expense is $1,038 and
amortization expense is $4,157 after giving effect to the Completed and
Pending Acquisitions. Depreciation expense has been calculated on a straight
line basis using a weighted average life of ten years for property and
equipment. Goodwill and other intangible assets amortization has been
calculated on a straight line basis over 25 years.
(4) Adjustment to reflect increased interest expense resulting from:
<TABLE>
<S> <C>
Quarterly interest on the $120,252 of indebtedness under the Credit
Facility at 8.50%................................................ $ 2,555
Quarterly amortization of $3,000 in debt issuance costs over 8
years............................................................ 93
---------
Total interest expense........................................... 2,648
Less: Historical interest recorded by the Company and the
Completed Acquisitions......................................... (1,672)
---------
Net adjustment................................................... $ 976
---------
---------
</TABLE>
43
<PAGE>
(5) Adjustment to reflect increased interest expense resulting from:
<TABLE>
<S> <C>
Quarterly interest expense on $150,000 Notes at 9.00%.............. $ 3,375
Quarterly amortization of $5,057 debt issuance cost, over 10
years............................................................ 126
Quarterly amortization of $3,000 credit facility, transaction, over
8 years.......................................................... 93
---------
Total interest expense............................................. 3,594
Less: Historical interest recorded by the Company and the completed
Acquisitions..................................................... (2,648)
---------
Net adjustment..................................................... $ 946
---------
---------
</TABLE>
(6) To reflect additional accretion related to Series A Preferred Stock
dividend:
<TABLE>
<S> <C>
Accretion of Series A Preferred Stock dividend (compounded daily at
11.50%).......................................................... $ 3,645
Less: Pro forma dividends on NML Preferred Stock exchanged into
Series A Preferred Stock......................................... (842)
---------
Net adjustment..................................................... $ 2,803
---------
---------
</TABLE>
(7) Adjustment to reflect increased interest expense resulting from:
<TABLE>
<S> <C>
Sources of funds:
Amount financed by the Notes ($150,000 net of fees of $5,057)... $ 144,943
Preferred Stock Offering to the public ($91,488 net of fees of
$3,770)....................................................... 87,718
Stock Offerings ($100,000 to the Company net of fees of
$7,871)....................................................... 92,129
Cash applied to purchase price.................................. 21,916
---------
Total........................................................... $ 346,706
---------
---------
Uses of funds:
Purchase price of the Completed Acquisitions and the Pending
Acquisitions.................................................. $ 268,407
Repayment of credit facility.................................... 78,299
---------
Total........................................................... $ 346,706
---------
---------
Quarterly interest on the Notes at 9.00%.......................... $ 3,375
Quarterly interest on the Credit Facility at 8.50%................ 891
Quarterly amortization of $5,057 debt issuance costs over 10
years........................................................... 126
Quarterly amortization of $3,000 Credit Facility transaction costs
over 8 years.................................................... 93
---------
Total interest expense.......................................... 4,485
Less: Interest expense recorded pro forma as adjusted for the
Pending Acquisitions and pro forma as adjusted for the
Offerings..................................................... (4,929)
---------
Net adjustment.................................................. $ (444)
---------
---------
</TABLE>
Upon the consummation of the Offerings, the Company will record the
accretion of the discount on the NML Preferred Stock of $2,994 when exchanged
into Series A Preferred Stock.
44
<PAGE>
CUMULUS MEDIA INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(A)+(B)=(C)
(B) PRO FORMA
PRO FORMA ADJUSTMENTS AS ADJUSTED
(A) FOR THE FOR THE
THE COMPANY SUBSEQUENT SUBSEQUENT
HISTORICAL ACQUISITIONS(1) ACQUISITIONS
------------- --------------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....................................... $ 23,416 $ (16,380) $ 7,036
Accounts receivable............................................. 10,238 -- 10,238
Prepaid expenses and other current assets....................... 1,587 -- 1,587
------------- -------- -------------
Total current assets........................................ 35,241 (16,380) 18,861
Property and equipment, net..................................... 14,146 826 14,972
Intangible assets, net.......................................... 150,973 17,102 168,075
Other assets.................................................... 19,766 (1,548) 18,218
------------- -------- -------------
TOTAL ASSETS................................................ $ 220,126 $ -- $ 220,126
------------- -------- -------------
------------- -------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities.......................... $ 8,619 $ -- $ 8,619
Current portion of long-term debt............................... 12 -- 12
------------- -------- -------------
Total current liabilities................................... 8,631 -- 8,631
Long-term debt:
Notes......................................................... -- -- --
Credit Facility............................................... 120,252 120,252
Other long-term liabilities:
Deferred tax liability........................................ 856 -- 856
Other long-term liabilities................................... 1,083 -- 1,083
------------- -------- -------------
Total liabilities........................................... 130,822 -- 130,822
------------- -------- -------------
Preferred stock subject to mandatory redemption................. 30,518 2,994 33,512
------------- -------- -------------
Stockholders' equity:
Class A Common Stock.......................................... -- -- --
Class B Common Stock.......................................... -- --
Class C Common Stock.......................................... -- -- --
Additional paid in capital.................................... 67,692 (2,994)(2) 64,698
Accumulated other comprehensive income........................ 5 5
Retained earnings (deficit)................................... (8,911) -- (8,911)
------------- -------- -------------
Total stockholders' equity.................................. 58,786 (2,994) 55,792
Total liabilities and stockholders' equity.................. $ 220,126 $ -- $ 220,126
------------- -------- -------------
------------- -------- -------------
<CAPTION>
(C)+(D)=(E)
PRO FORMA
AS ADJUSTED
(D) FOR THE (F)
PRO FORMA SUBSEQUENT PRO FORMA
ADJUSTMENTS ACQUISITIONS ADJUSTMENTS FOR (E)+(F)=(G)
FOR THE AND THE THE PENDING PRO FORMA
OFFERINGS OFFERINGS ACQUISITIONS(9) COMBINED
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents....................................... $ 204,538(3) $ 211,574 $(210,074)(9) $ 1,500
Accounts receivable............................................. -- 10,238 -- 10,238
Prepaid expenses and other current assets....................... -- 1,587 35 1,622
--------------- --------------- --------------- -------------
Total current assets........................................ 204,538 223,399 (210,039) 13,360
Property and equipment, net..................................... -- 14,972 26,517 41,489
Intangible assets, net.......................................... -- 168,075 247,691 415,766
Other assets.................................................... 5,057(4) 23,275 (8,760) 14,515
--------------- --------------- --------------- -------------
TOTAL ASSETS................................................ $ 209,595 $ 429,721 $ 55,409 $ 485,130
--------------- --------------- --------------- -------------
--------------- --------------- --------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities.......................... $ -- $ 8,619 $ -- $ 8,619
Current portion of long-term debt............................... -- 12 -- 12
--------------- --------------- --------------- -------------
Total current liabilities................................... -- 8,631 -- 8,631
Long-term debt:
Notes......................................................... 150,000(5) 150,000 150,000
Credit Facility............................................... (120,252)(6) -- 41,953 41,953
Other long-term liabilities:
Deferred tax liability........................................ -- 856 13,456 14,312
Other long-term liabilities................................... -- 1,083 1,083
--------------- --------------- --------------- -------------
Total liabilities........................................... 29,748 160,570 55,409 215,979
--------------- --------------- --------------- -------------
Preferred stock subject to mandatory redemption................. 91,488(7) 125,000 -- 125,000
--------------- --------------- --------------- -------------
Stockholders' equity:
Class A Common Stock.......................................... 1(8) 1 -- 1
Class B Common Stock.......................................... -- -- -- --
Class C Common Stock.......................................... 1 1 -- 1
Additional paid in capital.................................... 92,128(8) 153,054 -- 153,054
(3,770)(8)
Accumulated other comprehensive income........................ 5 5
Retained earnings (deficit)................................... -- (8,911) -- (8,911)
--------------- --------------- --------------- -------------
Total stockholders' equity.................................. 88,359 144,151 -- 144,151
Total liabilities and stockholders' equity.................. $ 209,595 $ 429,721 $ 55,409 $ 485,130
--------------- --------------- --------------- -------------
--------------- --------------- --------------- -------------
</TABLE>
See accompanying notes to the unaudited combined pro forma balance sheet
45
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CASTLE
TRYON-SEACOAST BROADCASTING NINETY FOUR
K-COUNTRY, COMMUNICATIONS, LIMITED POINT ONE, BEAUMONT
INC. INC. PARTNERSHIP INC. SKYWAVE, INC.
----------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............... $ 161 $ 20 $ 16 $ 192 $ 15
Accounts receivable..................... 196 156 215 491 57
Prepaid expenses and other current
assets................................ 2 -- 13 33 69
----------- ------------ ------------ ------------- -------------
Total current assets................ 359 176 244 716 141
Property and equipment, net............. 630 185 252 756 161
Intangible assets, net.................. 529 116 482 124 797
Other assets............................ -- 28 57 -- --
----------- ------------ ------------ ------------- -------------
Total assets........................ $ 1,518 $ 505 $ 1,035 $ 1,596 $ 1,099
----------- ------------ ------------ ------------- -------------
----------- ------------ ------------ ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other
liabilities........................... $ 1,225 $ 345 $ 609 $ 206 226
Current portion of long-term debt....... -- 55 2,110 -- 125
----------- ------------ ------------ ------------- -------------
Total current liabilities........... 1,225 400 2,719 206 351
Long-term debt:
Notes................................. -- 656 -- -- 484
Credit Facility....................... -- -- -- -- --
Other long-term liabilities:
Deferred tax liability................ -- -- -- -- --
Other long-term liabilities........... -- -- -- -- --
----------- ------------ ------------ ------------- -------------
Total liabilities................... 1,225 1,056 2,719 206 835
----------- ------------ ------------ ------------- -------------
Preferred stock subject to mandatory
redemption............................
----------- ------------ ------------ ------------- -------------
Stockholders' equity:
Class A Common Stock.................. -- -- -- -- 400
Class B Common Stock.................. -- -- -- -- --
Additional paid in capital............ -- 61 -- 1,390 --
Retained earnings (deficit)........... 293 (612) (1,684) -- (136)
----------- ------------ ------------ ------------- -------------
Total stockholders' equity.......... 293 (551) (1,684) 1,390 264
----------- ------------ ------------ ------------- -------------
Total liabilities and stockholders'
equity (deficit).................. $ 1,518 $ 505 $ 1,035 $ 1,596 $ 1,099
----------- ------------ ------------ ------------- -------------
----------- ------------ ------------ ------------- -------------
<CAPTION>
JKJ
BROADCASTING,
INC.,
MISSOURI RIVER
BROADCASTING,
INC., INGSTAD
MANKATO, INC.,
JAMES
INGSTAD
BROADCASTING,
COMMUNICATIONS INC.,
REPUBLIC PROPERTIES, HOMETOWN
CORPORATION INC. WIRELESS, INC. SUBTOTAL
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............... $ 313 $ 26 $ 148 $ 891
Accounts receivable..................... 159 287 1,695 3,256
Prepaid expenses and other current
assets................................ 752 35 230 1,134
----------- -------------- -------------- --------------
Total current assets................ 1,224 348 2,073 5,281
Property and equipment, net............. 2,997 1,695 3,985 10,661
Intangible assets, net.................. 11,912 703 369 15,032
Other assets............................ 621 12 6,994 7,712
----------- -------------- -------------- --------------
Total assets........................ $ 16,754 $ 2,758 $ 13,421 $ 38,686
----------- -------------- -------------- --------------
----------- -------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other
liabilities........................... $ 707 $ 257 $ 549 $ 4,124
Current portion of long-term debt....... -- 2,703 451 5,444
----------- -------------- -------------- --------------
Total current liabilities........... 707 2,960 1,000 9,568
Long-term debt:
Notes................................. -- 102 301 1,543
Credit Facility....................... -- -- 11,143 11,143
Other long-term liabilities:
Deferred tax liability................ 272 177 -- 449
Other long-term liabilities........... -- -- -- --
----------- -------------- -------------- --------------
Total liabilities................... 979 3,239 12,444 22,703
----------- -------------- -------------- --------------
Preferred stock subject to mandatory
redemption............................ -- --
----------- -------------- -------------- --------------
Stockholders' equity:
Class A Common Stock.................. 1 1 121 523
Class B Common Stock.................. -- -- -- --
Additional paid in capital............ 8,003 230 110 9,794
Retained earnings (deficit)........... 7,771 (712) 746 5,666
----------- -------------- -------------- --------------
Total stockholders' equity.......... 15,775 (481) 977 15,983
----------- -------------- -------------- --------------
Total liabilities and stockholders'
equity (deficit).................. $ 16,754 $ 2,758 $ 13,421 $ 38,686
----------- -------------- -------------- --------------
----------- -------------- -------------- --------------
</TABLE>
46
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS--CONTINUED
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LOUISIANA
MEDIA
PAMPLICO JAN-DI MUSTANG INTERESTS,
BROADCASTING, BROADCASTING, BROADCASTING, INC. AND
L.P. INC. COMPANY SUBSIDIARIES
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............... $ 4 $ 303 $ 50 $ 32
Accounts receivable..................... 24 234 124 530
Prepaid expenses and other current
assets................................ 1 14 -- 15
-------------- -------------- -------------- --------------
Total current assets................ 29 551 174 577
Property and equipment, net............. 400 440 283 1,137
Intangible assets, net.................. 467 193 350 5,965
Other assets............................ -- -- -- 7
-------------- -------------- -------------- --------------
Total assets........................ $ 896 $ 1,184 $ 807 $ 7,686
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other
liabilities........................... $ 337 $ 119 $ 475 $ 398
Current portion of long-term debt....... 3,525 24 22 1,363
-------------- -------------- -------------- --------------
Total current liabilities........... 3,862 143 497 1,761
Long-term debt:
Notes................................. -- 486 27 6,257
Credit Facility....................... -- -- -- --
Other long-term liabilities:
Deferred tax liability................ -- -- -- --
Other long-term liabilities........... -- 0 299 --
-------------- -------------- -------------- --------------
Total liabilities................... 3,862 629 823 8,018
-------------- -------------- -------------- --------------
Preferred stock subject to mandatory
redemption............................ -- -- 762
-------------- -------------- -------------- --------------
Stockholders' equity:
Class A Common Stock.................. -- 52 1 598
Class B Common Stock.................. -- -- -- --
Additional paid in capital............ (2,773) -- 684 (227)
Retained earnings (deficit)........... (193) 503 (701) (1,465)
-------------- -------------- -------------- --------------
Total stockholders' equity.......... (2,996) 555 (16) (332)
-------------- -------------- -------------- --------------
Total liabilities and stockholders'
equity (deficit).................. $ 896 $ 1,184 $ 807 $ 7,686
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
CLEARLY
SUPERIOR LESNICK NEW FRONTIER
RADIO COMMUNICATIONS, COMMUNICATIONS,
PROPERTIES INC. INC. SUBTOTAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............... $ 95 $ 8 $ 232 $ 724
Accounts receivable..................... 281 57 699 1,949
Prepaid expenses and other current
assets................................ 7 2 94 133
-------------- -------------- -------------- --------------
Total current assets................ 383 67 1,025 2,806
Property and equipment, net............. 515 12 1,435 4,222
Intangible assets, net.................. 2,663 177 2,200 12,015
Other assets............................ -- 27 34
-------------- -------------- -------------- --------------
Total assets........................ $ 3,561 $ 256 $ 4,687 $ 19,077
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other
liabilities........................... $ 33 $ 303 $ 284 $ 1,949
Current portion of long-term debt....... 27 14 338 5,313
-------------- -------------- -------------- --------------
Total current liabilities........... 60 317 622 7,262
Long-term debt:
Notes................................. 3,101 14 -- 9,885
Credit Facility....................... -- -- 4,580 4,588
Other long-term liabilities:
Deferred tax liability................ -- -- 68 68
Other long-term liabilities........... -- -- -- 299
-------------- -------------- -------------- --------------
Total liabilities................... 3,161 331 5,278 22,102
-------------- -------------- -------------- --------------
Preferred stock subject to mandatory
redemption............................ -- 762
-------------- -------------- -------------- --------------
Stockholders' equity:
Class A Common Stock.................. -- 75 315 1,041
Class B Common Stock.................. -- -- -- --
Additional paid in capital............ 400 -- -- (1,916)
Retained earnings (deficit)........... -- (150) (906) (2,912)
-------------- -------------- -------------- --------------
Total stockholders' equity.......... 400 (75) (591) (3,025)
-------------- -------------- -------------- --------------
Total liabilities and stockholders'
equity (deficit).................. $ 3,561 $ 256 $ 4,687 $ 19,077
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
47
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS--CONTINUED
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SAVANNAH TALLAHASSEE
WJCL-FM COMMUNICATIONS, L.P. BROADCASTING, INC. OTHER TOTAL
--------- -------------------- ------------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............. $ -- $ 60 $ 7 $ (211,756) (210,074)
Accounts receivable................... 42 97 2 (5,346) --
Prepaid expenses and other current
assets.............................. 2 18 (1,252) 35
--------- -------- -------- ---------- ----------
Total current assets.............. 42 159 27 (218,354) (210,039)
Property and equipment, net........... 18 1,385 542 (9,689) 26,517
Intangible assets, net................ -- 3,352 -- 217,291 247,690
Other assets.......................... -- -- 4 (16,509) (8,759)
--------- -------- -------- ---------- ----------
Total assets...................... $ 60 $ 4,896 $ 573 $ (7,883) $ 55,409
--------- -------- -------- ---------- ----------
--------- -------- -------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other
liabilities......................... $ -- $ 257 $ 1,921 $ (8,251) $ --
Current portion of long-term debt..... -- 2,800 -- (13,557) --
--------- -------- -------- ---------- ----------
Total current liabilities......... -- 3,057 1,921 (21,808) --
Long-term debt:
Notes............................... -- 600 -- (12,028) --
Credit Facility..................... -- -- -- 26,222 41,953
Other long-term liabilities:
Deferred tax liability.............. -- -- -- 12,939 13,456
Other long-term liabilities......... -- -- -- (299) --
--------- -------- -------- ---------- ----------
Total liabilities................. -- 3,657 1,921 5,026 55,409
--------- -------- -------- ---------- ----------
Preferred stock subject to mandatory
redemption.......................... -- (762) --
--------- -------- -------- ---------- ----------
Stockholders' equity:
Class A Common Stock................ -- 1 (1,565) --
Class B Common Stock................ -- -- -- -- --
Additional paid in capital.......... 60 1,239 -- (9,177) --
Retained earnings (deficit)......... -- -- (1,349) (1,405) --
--------- -------- -------- ---------- ----------
Total stockholders' equity........ 60 1,239 (1,348) (12,909) --
--------- -------- -------- ---------- ----------
Total liabilities and
stockholders' equity (deficit)... $ 60 $ 4,896 $ 573 $ (7,883) $ 42,887
--------- -------- -------- ---------- ----------
--------- -------- -------- ---------- ----------
</TABLE>
48
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(1) To record the allocation of the $17,927 purchase price paid for transactions
through the use of cash of $16,380 and escrow payments of $1,547 consummated
subsequent to March 31, 1998.
(2) An amount of $2,994 has been recorded for the accretion of the discount on
the NML Preferred Stock when exchanged into Series A Preferred Stock.
(3) To reflect the net cash proceeds, after repayment of the Credit Facility,
from the Offerings. These net cash proceeds, plus additional monies
available from the Credit Facility will be used to finance the Pending
Acquisitions.
(4) To reflect the capitalization of $5,057 in costs related to the issuance of
the Notes.
(5) To reflect the issuance of $150,000 principal amount of Notes pursuant to
the Debt Offering.
(6) To reflect the repayment of the Credit Facility with the proceeds from the
Offerings.
(7) To reflect issuance of $91,488 principal amount of Series A Preferred Stock
to the public.
(8) To reflect net proceeds of the Stock Offerings to the Company of $92,128
less preferred stock issuance costs of $3,770.
(9) To record the allocation of the $268,407 purchase price paid for
transactions consummated subsequent to December 31, 1997 and the recording
of the related deferred income taxes of $13,456.
49
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data are derived from the Consolidated
Financial Statements of the Company. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
THREE MONTHS ON
ENDED MARCH 31, MAY 22, 1997(1)
1998 TO DECEMBER 31, 1997
------------------- -----------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues........................................................ $ 12,500 $ 9,163
Station operating expenses excluding depreciation and
amortization...................................................... 10,904 7,147
Depreciation and amortization....................................... 2,748 1,671
Corporate general and administrative expenses....................... 961 1,276
Non-cash stock compensation expense................................. -- 1,689
Operating income (loss)............................................. (2,113) (2,620)
Net interest expense................................................ 1,374 837
Net income (loss) before extraordinary item......................... (3,493) (3,511)
Extraordinary loss on early retirement of debt...................... 1,837 --
Net income (loss)................................................... (5,330) (3,578)
Preferred stock dividends........................................... 842 274
Net income (loss) attributable to common stockholders............... (6,172) (3,852)
Basic and diluted earnings (loss) per share......................... (6,172) (3,852)
OTHER FINANCIAL DATA:
Broadcast Cash Flow(2).............................................. $ 1,596 $ 2,016
EBITDA(2)........................................................... 635 740
Net cash used in operating activities............................... 4,589 1,887
Net cash used in investing activities............................... 79,153 95,100
Net cash provided by financing activities........................... 105,585 98,560
Deficiency of earnings to fixed charges and
preferred stock dividend requirements(3).......................... 3,493 3,578
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
BALANCE SHEET DATA:
Total assets............................................................................... $ 220,126
Long-term debt, including current portion.................................................. 120,264
Preferred stock subject to mandatory redemption............................................ 30,518
Total stockholders' equity................................................................. 58,786
</TABLE>
- ------------------------------
(1) The Company was incorporated on May 22, 1997. Between the date of
incorporation of Media LLC, which was April 18, 1997, and May 22, 1997,
Media LLC undertook certain activities on behalf of the Company pending its
incorporation, including the incurrence of expenses and the funding of
escrow deposits for acquisitions. Upon the incorporation of the Company,
these activities and the related expenses were transferred to the Company.
(2) Broadcast Cash Flow consists of operating income (loss) before depreciation
and amortization, non-cash stock compensation expense and corporate general
and administrative expenses. EBITDA consists of operating income (loss)
before depreciation and amortization and non-cash stock compensation
expense. Although Broadcast Cash Flow and EBITDA are not measures of
performance calculated in accordance with GAAP, management believes that
they are useful to an investor in evaluating the Company because they are
measures widely used in the broadcast industry to evaluate a radio company's
operating performance. However, Broadcast Cash Flow and EBITDA should not be
considered in isolation or as substitutes for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as a measure of liquidity or profitability.
(3) For purposes of computing the ratio of earnings to fixed charges and
preferred stock dividend requirements, earnings consists of earnings before
income taxes and fixed charges and preferred stock dividend requirements.
"Fixed charges and preferred stock dividend requirements" consists of
interest on all indebtedness, amortization of debt expense and preferred
stock dividends. As a result of the net loss attributable to common
stockholders, earnings were insufficient to cover fixed charges and
preferred stock dividend requirements by $3,578 and $3,493 for the period
from inception on May 22, 1997 to December 31, 1997 and for the three month
period ended March 31, 1998, respectively.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto included elsewhere in this
Prospectus. The following discussion contains certain forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in "Risk
Factors," "Business" and elsewhere in this Prospectus, including, without
limitation, risks and uncertainties relating to leverage, the need for
additional funds, consummation of the Pending Acquisitions, integration of the
Pending Acquisitions, the ability of the Company to eliminate certain costs, the
management of growth, the popularity of radio as a broadcasting and advertising
medium and changing consumer tastes.
GENERAL
The Company commenced operations in May 1997. During 1997, the Company
purchased, or entered into LMAs with, a total of 38 stations in 8 U.S. markets
and 5 stations plus additional translators and 1 station under construction in
the Caribbean market (the "Historical Acquisitions"). The following discussion
of the Company's results of operations includes the results of these
acquisitions and LMAs. As the Company has had only one accounting period, no
period to period comparison can be made.
The Company currently owns and operates, or provides sales and marketing
services to, 105 stations in 22 markets. Upon consummation of the Pending
Acquisitions, the Company will be one of the five largest radio broadcasting
companies based on number of stations, and among the fifteen largest based on
net revenues, in the U.S. and will own and operate 176 radio stations (124 FM
and 52 AM) clustered in 35 markets.
The Company believes that the financial results for the historical period
from inception at May 22, 1997 to December 31, 1997 are not indicative of the
prospective financial performance of the Company due to the subsequent
completion of the Completed Transactions and the pending completion of the
Pending Transactions, as presented in the Unaudited Pro Forma Combined Financial
Statements. Accordingly, the discussion of the Pending Acquisitions has been
made on a pro forma basis in order to give a more representative view of the
operations of the Company as if they owned the stations for the full year ended
December 31, 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 Transactions had been consummated on the dates
indicated, nor is it indicative of future operating results or financial
positions if the aforementioned transactions are completed. The failure of the
aforementioned transactions to be completed would significantly alter the
unaudited pro forma information.
ADVERTISING AND BROADCAST CASH FLOW
The primary source of the Company's revenues is the sale of advertising time
on its radio stations. The Company's sales of advertising time are primarily
affected by the demand for advertising time from local and national advertisers
and the advertising rates charged by its radio stations. Advertising demand and
rates are based in large part on a station's ability to attract audiences in the
demographic groups targeted by its advertisers, as measured principally by
Arbitron on a periodic basis, generally once, twice, or four times per year.
Because audience ratings in local markets are crucial to a station's financial
success, the Company endeavors to develop strong listener loyalty. The Company
believes that the diversification of formats on its stations helps to insulate
it from the effects of changes in the musical tastes of the public with respect
to any particular format.
51
<PAGE>
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
constantly managing the number of commercials available for sale and adjusting
prices based upon local market conditions. In the broadcasting industry, radio
stations sometimes utilize trade (or barter) agreements which exchange
advertising time for goods or services (such as travel or lodging), instead of
for cash. The Company's use of trade agreements was immaterial during 1997. The
Company will seek to continue to minimize its use of trade agreements.
The Company's advertising contracts are generally short-term. The Company
generates most of its revenue from local advertising, which is sold primarily by
a station's sales staff. In fiscal 1997, approximately 89% of the Company's
revenues were from local advertising. To generate national advertising sales,
the Company engages national representative companies.
The Company's revenues vary throughout the year. As is typical in the radio
broadcasting industry, the Company expects its first calendar quarter will
produce the lowest revenues for the year, and the fourth calendar quarter will
generally produce the highest revenues for the year, with the exception of
certain stations such as those of the Company in Salisbury-Ocean City, Maryland,
where the stations generally earn higher revenues in the second and third
quarters of the year because of the higher seasonal population in those
communities. The Company's operating results in any period may be affected by
the incurrence of advertising and promotion expenses that typically do not have
an effect on revenue generation until future periods, if at all.
The Company's most significant station operating expenses are employee
salaries and commissions, programming expenses, advertising and promotional
expenditures, technical expenses, and general and administrative expenses. The
Company strives to control these expenses by working closely with local station
management.
The performance of a radio station group, such as the Company's, is
customarily measured by its ability to generate Broadcast Cash Flow. Broadcast
Cash Flow consists of operating income (loss) before depreciation and
amortization, non-cash stock compensation expense and corporate general and
administrative expenses. EBITDA consists of operating income (loss) before
depreciation and amortization and non-cash stock compensation expense. EBITDA,
as defined by the Company, may not be comparable to similarly titled measures
used by other companies. Although Broadcast Cash Flow and EBITDA are not
measures of performance calculated in accordance with GAAP, management believes
that they are useful to an investor in evaluating the Company because they are
measures widely used in the broadcast industry to evaluate a radio company's
operating performance. However, Broadcast Cash Flow and EBITDA should not be
considered in isolation or as substitutes for net income, cash flows from
operating activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of liquidity or profitability.
RESULTS OF OPERATIONS
HISTORICAL--MARCH 31, 1998. Net revenue for the three months ending March
31, 1998 was $12,500. Station operating expenses excluding depreciation and
amortization for this three month period were $10,904 and depreciation and
amortization for this period were $2,748. Corporate general and administrative
expenses were $961 and the Company had a net operating loss of $2,113 for this
period. Interest expense net of interest income, other expense, and income tax
expense were $1,374, $6, and $0, respectively, resulting in a net loss before
extraordinary item of $3,493. On March 2, 1998, the Company recorded an
extraordinary loss of $1,837 related to the write-off of previously capitalized
debt issuance costs of its old credit facility. Net loss attributable to common
stockholders and basic and diluted loss per share for the three month period
through March 31, 1998 were $6,172. Broadcast Cash Flow and EBITDA for the three
month period ending March 31, 1998 were $1,596 and $635, respectively.
52
<PAGE>
HISTORICAL--PERIOD FROM INCEPTION TO DECEMBER 31, 1997. Net revenue for the
period from inception at May 22, 1997 through December 31, 1997 was $9,163.
Station operating expenses excluding depreciation and amortization for this same
period were $7,147 and depreciation and amortization for the period was $1,671.
Corporate general and administrative expenses were $1,276 and the operating loss
was $2,620 for the period. Interest expense net of interest income, other
expense, and income tax expense were $837, $54 and $67, respectively, resulting
in a net loss of $3,578 for the period. Net loss attributable to common
stockholders and basic and diluted loss per share for the period from inception
through December 31, 1997 were $3,852. Broadcast Cash Flow and EBITDA for the
period from inception through December 31, 1997 were $2,016 and $740,
respectively.
PRO FORMA--THREE MONTHS ENDED MARCH 31, 1998. On a pro forma basis, after
giving effect to the Transactions (other than acquisitions completed prior to
January 1, 1998), net revenue for the three months ending March 31, 1998 would
have been $25,757. Pro forma station operating expenses excluding depreciation
and amortization for this three month period would have been $22,646 and
depreciation and amortization for this period would have been $5,195. Pro forma
corporate general and administrative expenses would have been $969 and the
Company would have had net operating loss of $3,053 for this period. Pro forma
interest expense net of interest income, other expense (income), and income tax
expense would have been $4,485, $(121), and $0, respectively, resulting in a net
loss before extraordinary item of $7,417. On March 2, 1998, the Company recorded
an extraordinary loss of $1,837 related to the write-off of previously
capitalized debt issuance costs of its old credit facility. Pro forma net loss
attributable to common stockholders and basic and diluted loss per share for the
three month period through March 31, 1998 would have been $12,899. Broadcast
Cash Flow and EBITDA for the three month period ending March 31, 1998 would have
been $3,111 and $2,142, respectively.
PRO FORMA--PERIOD FROM INCEPTION TO DECEMBER 31, 1997. On a pro forma
basis, after giving effect to the Transactions (see "--Certain Effects of the
Acquisitions"), net revenue would have been $110,986 for the full year from
January 1, 1997 through December 31, 1997. Pro forma station operating expenses
excluding depreciation and amortization for the year would have been $86,498 and
pro forma depreciation and amortization for the year would have been $20,685.
Pro forma corporate general and administrative expenses would have been $4,760
and pro forma operating loss would have been $2,646 for the year. Pro forma
interest expense, pro forma other expense, and pro forma income tax expense
would have been $17,360, $147 and $194, respectively, resulting in a net loss of
$20,347 for the period. Pro forma net loss attributable to common stockholders
and pro forma basic and diluted loss per share for the year would have been
$35,579. Pro forma Broadcast Cash Flow and pro forma EBITDA for the year would
have been $24,488 and $19,728, respectively.
CERTAIN EFFECTS OF THE ACQUISITIONS
CERTAIN COST ELIMINATIONS. The Company expects that operating a cluster of
stations in each of its principal markets will allow the elimination of certain
expenses, by eliminating duplicative functions, facilities, contracts, corporate
office expenses and professional fees and certain non-recurring expenses. The
Company expects that such eliminations will be partially offset by increased
corporate overhead charges to be incurred as a result of the increased size of
the Company.
With respect to the Pending Acquisitions, the Company believes that had such
cost eliminations been implemented as of January 1, 1997, such eliminations
would have approximated up to $ in the aggregate ($ of which would
increase EBITDA and $ of which would increase Broadcast Cash Flow) with
respect to the Pending Acquisitions during the year ended December 31, 1997. The
Company believes these cost eliminations would have consisted of (i) $ from
the elimination of certain station management and staff positions, including
related benefits; (ii) $ from the consolidation of station facilities and
equipment; (iii) $ from previous owner compensation benefits; (iv) $ from
the new rates associated with revised vendor contracts and (v) $ from the
elimination of certain station overhead and general and administrative expenses.
53
<PAGE>
CERTAIN CHARGES. The Company expects that the Pending Acquisitions will be
accounted for using the purchase method of accounting and that the intangible
assets created in the purchase transactions will be amortized against future
earnings of the combined companies, that such amounts will be substantial and
that they will continue to affect the Company's operating results in the future.
These expenses, however, do not result in increased cash outflows by the Company
and do not affect the Company's Broadcast Cash Flow.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for funds has been to fund the acquisition of
radio stations, and to a lesser extent, interest and debt service payments and
capital expenditures. The Company's principal sources of funds for these
requirements have been equity financings and borrowings under credit agreements.
Following consummation of the Pending Acquisitions, the Company's principal need
for funds will be to fund future acquisitions, interest and debt service
payments, working capital needs, and capital expenditures. The Company
anticipates that its principal sources of funds will be proceeds from the
Offerings, borrowings under the Credit Facility, and cash flows from operations.
STATEMENT OF CASH FLOWS. Net cash used in operating activities was $4,589
for the three month period from January 1, 1998 through March 31, 1998. Net cash
used in investing activities was $79,153, and was related primarily to the
Historical and Completed Acquisition. Net cash provided by financing activities
was $105,585 for the same period. Net cash used in operating activities was
$1,887 for the period from inception at May 22, 1997 through December 31, 1997.
Net cash used in investing activities was $95,100, and related primarily to the
Historical Acquisitions. Net cash provided by financing activities was $98,560
for the same period.
HISTORICAL ACQUISITIONS. During the period from inception at May 22, 1997
through December 31, 1997, the Company consummated the Historical Acquisitions
for an aggregate purchase price of $91.9 million. Additional acquisitions have
been subsequently completed in 1998 for an aggregate purchase price of $85.1.
The sources of funds for these acquisitions were primarily the proceeds of the
Company's credit facilities and certain equity financings (see "Sources of
Liquidity").
PENDING ACQUISITIONS. The aggregate purchase price of the Pending
Acquisitions is expected to be approximately $250.5 million, consisting almost
entirely of cash. The Company intends to finance the Pending Acquisitions with
the proceeds of the Credit Facility and the Offerings. See "Use of Proceeds."
The Pending Acquisitions will be accounted for using the purchase method of
accounting, and with respect to asset transactions, the intangible assets
created in the purchase transactions will generally be amortized against future
earnings over a twenty-five year period. The amount of such amortization will be
substantial and will continue to affect the Company's operating results in the
future. These expenses, however, do not result in outflows of cash by the
Company and do not affect Broadcast Cash Flow (as defined under "Certain
Definitions and Market and Industry Data") or EBITDA as defined under "Certain
Definitions and Market and Industry Data").
The Company expects to consummate most of the Pending Acquisitions during
the second and third quarters of 1998, although there can be no assurance that
the transactions will be consummated within that time frame. The pending
acquisition of a Tallahassee FM station presently operated under an LMA is
expected to close by the end of 1998. In two of the markets in which there are
Pending Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal
objections have been filed against the Company's FCC assignment applications,
and certain FCC staff questions have been raised with respect to Pending
Acquisitions in several other markets. All such petitions, objections and FCC
staff inquiries must be resolved before FCC approval can be obtained and the
acquisitions consummated. There can be no assurance that the Pending
Acquisitions will be consummated. The Company believes that the proceeds of the
Offerings will be sufficient to finance the consummation of the Pending
Acquisitions.
54
<PAGE>
SOURCES OF LIQUIDITY. The Company financed the Completed Acquisitions
primarily through equity financings and borrowings under a $57.0 million credit
agreement dated as of July 7, 1997 (the "Old Credit Facility"), among the
Company, NationsBanc of Texas, N.A. as Administrative Lender and the Lenders (as
defined therein). The Old Credit Facility included a $32.0 million senior
secured reducing revolver facility and a $25.0 million uncommitted senior
secured acquisition facility. The Old Credit Facility allowed the Company to
draw on its credit line by means of the issuance of letters of credit as well as
cash drawdowns. During 1997, the limit on the committed portion of the Old
Credit Facility was raised from $32.0 million to $70.0 million. At December 31,
1997, the Company had borrowed $42.8 million in cash draws under the senior
secured reducing revolver and $5.5 million in outstanding letters of credit. In
January 1998, the credit limit under the senior secured reducing revolver was
increased to $75.0 million. The Company drew down a total of $42.8 million on
the Old Credit Facility. The Company received from Media LLC equity
contributions totaling $52.2 million for its Common Stock in 1997. These equity
contributions consisted of (i) $45.0 million in cash, (ii) stock of CCC valued
at $7.1 million, and (iii) other non-cash contributions of $0.1 million. The
Company also received cash contributions totalling $15.0 million from Media LLC
on January 22, 1998. On November 11, 1997, the Company entered into a Securities
Purchase Agreement with NML pursuant to which NML agreed to purchase 3,250
shares of the NML Preferred Stock for an aggregate consideration of $32.5
million. Of this amount, $16.2 million was received on November 17, 1997 and
$16.3 million was received on February 5, 1998.
In March 1998, the Company entered into a $190.0 million senior credit
facility (the "Credit Facility") with Lehman Brothers Inc., as Arranger and
Lehman Commercial Paper Inc., as Lender, Syndication Agent and Administrative
Agent pursuant to which the Company has available a revolving line of credit of
$110.0 million until March 2, 2006, and an eight-year term loan facility of
$80.0 million. The proceeds of the borrowings under the Credit Facility have
been used to finance acquisitions and to repay the Company's outstanding
indebtedness under the Old Credit Facility, except for outstanding Letters of
Credit in an aggregate amount equal to approximately $10.0 million. Except for
certain provisions regarding the payment of such Letters of Credit, the Old
Credit Facility has been terminated. In the first quarter of 1998, the Company
will record an extraordinary loss related to the early extinguishment of the Old
Credit Facility of $1.8 million. The Company's obligations under the Credit
Facility are secured by substantially all of its assets in which a security
interest may lawfully be granted (including, to the extent permitted by
applicable law and the rules of the FCC, any FCC licenses held by the Company's
subsidiaries), including, without limitation, intellectual property, real
property, and all of the capital stock of the Company's direct and indirect
domestic subsidiaries and 65% of the capital stock of any foreign subsidiaries
and are guaranteed by each of the domestic subsidiaries of the Company. As of
March 27, 1998, approximately $120.0 million was outstanding under the Credit
Facility. See "Use of Proceeds" and "Description of Credit Facility and Notes."
Both revolving credit and term loan borrowings under the Credit Facility
bear interest, at the Company's option, at a rate equal to the Base Rate (as
defined under the terms of the Credit Facility) plus a margin ranging between
0.50% to 1.75%, or the Eurodollar Rate (as defined under the terms of the Credit
Facility) plus a margin ranging between 1.50% to 2.75% (in each case dependent
upon the leverage ratio of the Company). The revolving credit and term loan
borrowings are repayable in equal quarterly installments beginning in 2000. The
scheduled annual amortization of the term loans is $10.0 million in each of the
years 2000 through 2002, $15.0 million in each of the years 2003 through 2005,
and $15.0 million in each of the years 2003 through 2005, and $5.0 million at
maturity. The scheduled annual reduction in availability under the revolving
credit loans is $10.0 million in each of the years 2000 and 2001, $15.0 million
in 2002, $20.0 million in year 2003, $25.0 million in each of the years 2004 and
2005, and $5.0 million at maturity in 2006.
Pursuant to the Debt Offering, the Company will issue $100.0 million in
aggregate principal amount of % Senior Subordinated Notes which have a
maturity date of , 2008. The Notes are senior subordinated obligations of
the Company and are subordinated in right of payment to all existing and future
Senior Debt of the Company (including obligations under the Credit Facility).
The Notes will be
55
<PAGE>
general unsecured obligations of the Company and will be subordinated in right
of payment to senior debt. Interest on the Notes will be payable semi-annually
in arrears. See "Description of Credit Facility and Notes."
Pursuant to the Preferred Stock Offering, the Company is offering
approximately $133.0 million of % Series A Cumulative Exchangeable
Redeemable Preferred Stock Due 2009, $ million of which are being offered
directly by the Company, and not through the Underwriters, to NML, the sole
owner of the NML Preferred Stock, which had an accreted value as of May 15, 1998
of approximately $34.0 million, at a purchase price equal to the price to
public. The holders of the Series A Preferred Stock are entitled to receive
cumulative dividends at an annual rate equal to % of the liquidation
preference per share of Series A Preferred Stock, payable quarterly, in arrears.
On or before , 2003, the Company may, at its option, pay dividends in
cash or in additional fully paid and non-assessable shares of Series A Preferred
Stock. After , 2003, dividends may only be paid in cash. The shares of
Series A Preferred Stock are subject to mandatory redemption in , 2009
at a price equal to 100% of the liquidation preference thereof plus any and all
accrued and unpaid cumulative dividends thereon. The Series A Preferred Stock
may be redeemed by the Company prior to such date under certain circumstances.
See "Description of Capital Stock--Series A Preferred Stock and Exchangeable
Debentures."
The degree to which the Company is leveraged following the Offerings will
have material consequences to the Company. The Company's ability to obtain
additional financing in the future for acquisitions, working capital, capital
expenditures, general corporate or other purposes will be subject to the
covenants contained in the Indenture, the Credit Facility, the Certificate of
Designation and the Exchange Debenture Indenture. A substantial portion of the
Company's cash flow from operations will be required to be used to pay principal
and interest on its debt and will not be available for other purposes. The
Company is subject to restrictive financial and operating covenants, and the
failure by the Company to comply with those covenants would result in an event
of default under the applicable instruments, which in turn would permit
acceleration of debt under those instruments. Because of these restrictions, the
Company is more vulnerable to economic downturns and is more limited in its
ability to withstand competitive pressures and to react to changes in broadcast
industry or general economic conditions.
The Company's ability to make scheduled payments of principal on, to pay
interest on, or to refinance its debt depends on its future financial
performance, which to a certain extent is subject to general economic,
financial, competitive, legislative, regulatory and business factors, certain of
which are beyond its control, as well as the success of the businesses acquired
and to be acquired and the integration of those businesses into the Company.
There can be no assurance that the Company's business will generate sufficient
cash flow from operations, that anticipated improvements in operating results
will be achieved or that future working capital borrowings will be available in
an amount sufficient to enable the Company to service its debt, or to make
necessary capital or other expenditures. The Company may be required to
refinance a portion of the principal amount of the Notes prior to their
maturity, or to redeem the Company's outstanding Series A Preferred Stock under
certain conditions. There can be no assurance that the Company will be able to
raise additional capital through the sale of securities, the disposition of
radio stations or otherwise for any such refinancing or redemption.
In addition, the Company may require additional financing for future
acquisitions beyond the Pending Acquisitions, if any, and there can be no
assurance that it would be able to obtain such financing or if available, such
financing would be on terms considered favorable by management. Management
evaluates potential acquisition opportunities on an on-going basis and has had,
and continues to have, preliminary discussions concerning the purchase of
additional stations. The Company expects that any additional acquisitions of
radio stations will be financed through funds generated from operations, cash on
hand, funds which may be available under the Credit Facility and additional debt
and equity financing. The availability of additional acquisition financing
cannot be assured, and, depending on the terms of the proposed acquisitions
financing, could be restricted by the Credit Facility and/or the debt incurrence
tests under the Indenture, the Certificate of Designation and the Exchange
Debenture Indenture. In addition, the Credit Facility contains operating and
financial covenants, including, without limitation, requirements
56
<PAGE>
to maintain minimum ratios of cash flow to debt service and maximum ratios of
total debt to cash flow and senior debt to cash flow. Although the Company is
currently in compliance with such covenants, the Company's ability to borrow
under the Credit Facility or obtain additional financing would be restricted if,
after giving effect to such additional borrowings or financings, the Company
would not be able to meet such covenants. See "Description of Credit Facility
and the Notes -- The Credit Facility -- Covenants." The Company expects that it
may consider disposing of certain stations in its markets, although the Company
has no current plans or arrangements to dispose of any of its stations. See
"Risk Factors."
Based upon the Company's current level of operations and anticipated
improvements, management believes that cash flow from operations, together with
the net proceeds of the Offerings and available borrowings under the Credit
Facility, will be adequate to meet the Company's anticipated future requirements
for working capital, capital expenditures and scheduled payments on its debt
service through and including December 31, 1999.
SEASONALITY
The Company expects that its operations and revenues will be largely
seasonal in nature, with generally lower revenue generated in the first quarter
of the year and generally higher revenue generated in the fourth quarter of the
year, with the exception of certain stations such as those of the Company in
Salisbury-Ocean City, Maryland, where the stations generally earn higher
revenues in the second and third quarters of the year because of the higher
seasonal population in those communities. The seasonality of the Company's
business causes and will likely continue to cause a significant variation in the
Company's quarterly operating results. Such variations could have a material
adverse effect on the timing of the Company's cash flows and therefore on its
ability to service its obligations with respect to its indebtedness, including
the Indenture, the Exchange Debenture Indenture and the Credit Facility.
YEAR 2000 RISK
The Company has implemented a Year 2000 program to ensure that the Company's
computer systems and applications will function properly beyond 1999. The
Company believes that it has allocated adequate resources for this purpose and
expects its Year 2000 date conversion program to be successfully completed on a
timely basis. There can, however, be no assurance that this will be the case.
The Company does not expect to incur significant expenditures to address this
issue. The ability of third parties with whom the Company transacts business to
adequately address their Year 2000 issues is outside of the Company's control.
There can be no assurance that the failure of the Company or such third parties
to adequately address their respective Year 2000 issues will not have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations.
NEW ACCOUNTING PRONOUNCEMENT
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-5, "Accounting for the
Costs of Start-up Activities." SOP 98-5, effective for 1999, requires
organization costs to be expensed as incurred. Management believes that adoption
of SOP 98-5 in the first quarter of 1999 will result in a non-cash charge of
approximately $200.0.
57
<PAGE>
BUSINESS
The Company is a radio broadcasting company focused on the acquisition,
operation and development of radio stations in mid-size and smaller radio
markets in the U.S. The Company currently owns and operates, or provides sales
and marketing services under LMA agreements (pending FCC approval of
acquisition) to 105 stations in 22 markets. Upon consummation of the Pending
Acquisitions, the Company will be one of the five largest radio broadcasting
companies based on number of stations, and among the fifteen largest based on
net revenues, in the U.S. and will own and operate 176 radio stations (124 FM
and 52 AM) clustered in 35 markets. The Company has assembled market-leading
clusters with stations comprising the first or second ranked radio group, in
terms of revenue share and/or audience share, in all of its 34 U.S. markets. On
a pro forma basis after giving effect to the Transactions, the Company would
have generated net revenues of approximately $111.0 million and $25.8 million
and Broadcast Cash Flow (as defined under "Certain Definitions and Market and
Industry Data") of approximately $24.5 million and $3.1 million for the year
ended December 31, 1997 and for the three months ended March 31, 1998,
respectively.
Cumulus operates and develops clusters of stations in demographically
attractive and fast growing mid-size and smaller markets. Relative to the 100
largest markets in the U.S., the Company believes that the mid-size and smaller
markets (MSA 100-267) represent attractive operating environments and generally
are characterized by: (i) a greater reliance on radio advertising as evidenced
by the greater percentage of total media revenues captured by radio than the
national average; (ii) rising advertising revenues as the larger national and
regional retailers expand into these markets; (iii) small independent operators,
many of whom lack the capital to produce high quality locally-originated
programming and/or to employ more sophisticated research, marketing, management
and sales techniques; and (iv) lower overall susceptibility to economic
downturns.
The Company believes that the attractive operating characteristics of
mid-size and smaller markets coupled with the relaxation of FCC ownership limits
create significant opportunities to form clusters within markets and regions
that will enable the Company to achieve revenue growth and cost efficiencies. As
a result, management believes that the Company can grow revenues at rates equal
to or better than larger market growth rates and generate Broadcast Cash Flow
margins that are comparable to the higher margins that previously were generally
achievable only in the top 100 markets. The Company believes that mid-size and
smaller radio markets provide an excellent opportunity to acquire attractive
properties at favorable purchase prices due to the size and fragmented nature of
ownership in these markets and to the historically greater attention given to
the larger markets by radio station acquirors. According to BIA, there are
approximately 1,600 FM and 1,000 AM stations in the 168 U.S. radio markets
ranked MSA 100-267. These 2,600 stations are owned by approximately 1,100
different operators. In addition, there are nearly 4,700 stations in unranked
markets owned by approximately 2,700 operators.
The Company's principal strategy is to establish its position as a leader in
its markets and regions and to expand into additional mid-size and smaller
markets and regions where it believes a leadership position can be achieved by
assembling clusters. Cumulus seeks to enhance the quality of radio for listeners
and the utility of the radio medium for advertisers in order to maximize the
advertising revenues and Broadcast Cash Flow of its radio stations. To that end,
Cumulus utilizes extensive research to properly position the formats of stations
in a given market and also significantly increases the amount of
locally-originated programming. Upon consummation of the Pending Acquisitions,
the Company's portfolio of stations will be diversified in terms of format,
target audience, geographic location and stage of development. Because of the
size and diversity of its portfolio and its individual radio station groups or
"clusters," the Company believes it is not reliant upon the performance of any
single station or any specific format.
58
<PAGE>
MANAGEMENT TEAM
Members of the Company's senior management team have an aggregate of over 75
years of experience in the media and radio broadcasting industry. To date,
management has successfully negotiated 61 separate acquisition transactions on
behalf of the Company. The Company's Executive Chairman and Treasurer, Richard
W. Weening, has over 20 years of operating experience in media and information
companies including significant experience in corporate finance and mergers and
acquisitions. Lewis W. Dickey, Jr., Executive Vice Chairman, has over 15 years
of experience in the radio and television broadcasting industry and is a
successful owner-operator of radio stations in larger and mid-size markets. Mr.
Dickey is also a nationally regarded business strategy and marketing consultant
to the radio and television broadcasting industry. William M. Bungeroth, the
Company's President, has over 20 years of experience in the radio and television
broadcasting industry and has developed an expertise in enhancing revenue at
stations under his management. Mr. Bungeroth is President and CEO of Cumulus
Broadcasting Inc. and manages the broadcasting business along with the General
Managers of each market, the Director of Programming and the regional Directors
of Sales. The Company's Vice President and Chief Financial Officer, Richard J.
Bonick, Jr., has 20 years of experience in the radio broadcasting industry. Mr.
Bonick manages the financial reporting and control systems as well as the
operational aspects of the Company's broadcasting business.
STATION PORTFOLIO
The Company has four regions in the U.S. as its primary focus: the Midwest,
Southeast, Southwest and Northeast. The following chart sets forth certain
information with respect to the Company's stations in these regions, before and
after giving effect to the Pending Acquisitions:
<TABLE>
<CAPTION>
PENDING ACQUISITIONS (1)
--------------------------------------------------- NUMBER OF
NUMBER STATIONS
NUMBER OF FOLLOWING
OF STATIONS NUMBER OF STATIONS PENDING
CURRENTLY STATIONS TO BE NUMBER OF ACQUISITIONS
OWNED CURRENTLY PLACED STATIONS TO BE (3)
MARKET ------------------------ UNDER UNDER ACQUIRED -----------
MARKET(2) RANK FM AM LMA (2) LMA WITHOUT LMA FM
- ------------------------- --------- ----------- ----------- --------------- ------------- ------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
MIDWEST REGION
Ann Arbor, MI............ 146 2 2 -- -- -- 2
Appleton-Oshkosh/
Green Bay, WI.......... 138/182 3 2 2 -- -- 5
Dubuque, IA.............. 217 -- -- 1 -- 4 4
Marion Carbondale, IL.... 209 -- -- 6 -- -- 4
Bismarck, ND............. 259 -- -- -- -- 4 3
Kalamazoo, MI............ 172 -- -- -- -- 3 2
Faribault-Owatonna-
Waseca, MN............. -- -- -- -- -- 8 4
Mankato, MN.............. -- -- -- -- -- 3 2
Mason City, IA........... -- -- -- -- -- 7 5
Monroe, MI............... -- -- -- 1 -- -- 1
New Ulm-Springfield-
Marshall, MN........... -- -- -- -- -- 3 2
Rochester, MN............ -- -- -- -- -- 4 2
Toledo, OH............... 76 4 2 -- -- -- 4
SOUTHEAST REGION
Albany, GA............... 205 -- -- 4 2 -- 4
Augusta, GA(6)........... 109 4 2 2 -- 1 6(2)
Chattanooga, TN.......... 102 -- -- 1 3 -- 3
Columbus, GA............. 166 3 2 -- -- -- 3
Florence, SC............. 198 2 2 5 1 -- 7
Montgomery, AL........... 143 -- -- 4 -- -- 2
<CAPTION>
ADULTS 12+ REVENUE
MARKET(2) AM SHARE(%) RANK (4)
- ------------------------- ------------- --------------- ---------------
<S> <C> <C> <C>
MIDWEST REGION
Ann Arbor, MI............ 2 8.7 1
Appleton-Oshkosh/
Green Bay, WI.......... 2 20.2(5) 2
Dubuque, IA.............. 1 34.8 1
Marion Carbondale, IL.... 2 32.4 2
Bismarck, ND............. 1 37.7 1
Kalamazoo, MI............ 1 22.3 1
Faribault-Owatonna-
Waseca, MN............. 4 -- 1
Mankato, MN.............. 1 -- 1
Mason City, IA........... 2 -- 1
Monroe, MI............... 0 -- 1
New Ulm-Springfield-
Marshall, MN........... 1 -- 1
Rochester, MN............ 2 -- 2
Toledo, OH............... 2 31.2 2
SOUTHEAST REGION
Albany, GA............... 2 23.2 2
Augusta, GA(6)........... 3 29.3 1
Chattanooga, TN.......... 1 22.3 1
Columbus, GA............. 2 32.5 1
Florence, SC............. 3 42.2 1
Montgomery, AL........... 2 34.4 1
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
PENDING ACQUISITIONS (1)
--------------------------------------------------- NUMBER OF
NUMBER STATIONS
NUMBER OF FOLLOWING
OF STATIONS NUMBER OF STATIONS PENDING
CURRENTLY STATIONS TO BE NUMBER OF ACQUISITIONS
OWNED CURRENTLY PLACED STATIONS TO BE (3)
MARKET ------------------------ UNDER UNDER ACQUIRED -----------
MARKET(2) RANK FM AM LMA (2) LMA WITHOUT LMA FM
- ------------------------- --------- ----------- ----------- --------------- ------------- ------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Myrtle Beach, SC......... 175 3 1 2 -- -- 5
Salisbury-Ocean City,
MD..................... 153 4 2 2 -- -- 6
Savannah, GA............. 154 -- -- 5 -- 2 5
Tallahassee, FL.......... 165 3 1 1 -- -- 4
Wilmington, NC........... 178 4 1 -- -- -- 4
SOUTHWEST REGION
Abilene, TX.............. 224 3 -- 1 -- -- 4
Amarillo, TX............. 188 3 1 2 -- -- 4
Beaumont-Port Arthur,
TX..................... 128 -- -- 1 -- 4 3
Grand Junction, CO....... 247 -- -- -- -- 6 4
Lake Charles, LA......... 203 -- -- -- -- 4 3
Odessa-Midland, TX....... 174 -- -- 5 -- -- 4
Topeka, KS............... 180 -- -- -- 2
Wichita Falls, TX........ 236 3 -- 1 -- -- 4
NORTHEAST REGION
Augusta-Waterville, ME... 245 -- -- -- -- 6 5
Bangor, ME............... 263 -- -- -- -- 2 2
-- -- -- -- --
---
TOTAL 34 U.S. MARKETS.... 41 18 46 6 65 124
<CAPTION>
ADULTS 12+ REVENUE
MARKET(2) AM SHARE(%) RANK (4)
- ------------------------- ------------- --------------- ---------------
<S> <C> <C> <C>
Myrtle Beach, SC......... 1 20.3 1
Salisbury-Ocean City,
MD..................... 2 31.2 1
Savannah, GA............. 2 36.0 2
Tallahassee, FL.......... 1 32.8 1
Wilmington, NC........... 1 17.3 2
SOUTHWEST REGION
Abilene, TX.............. 0 26.7 2
Amarillo, TX............. 2 30.6 2
Beaumont-Port Arthur,
TX..................... 2 29.4 2
Grand Junction, CO....... 2 42.7 1
Lake Charles, LA......... 1 49.7 1
Odessa-Midland, TX....... 1 39.7 1
Topeka, KS............... 2 24.1 2
Wichita Falls, TX........ 0 28.6 2
NORTHEAST REGION
Augusta-Waterville, ME... 1 25.6 1
Bangor, ME............... 0 30.4 1
--
TOTAL 34 U.S. MARKETS.... 52
</TABLE>
- ------------------------------
(1) The Company expects to consummate most of the Pending Acquisitions during
the second and third quarters of 1998, although there can be no assurance
that the transactions will be consummated within that time frame. The
pending acquisition of a Tallahassee FM station presently operated under an
LMA is expected to close by the end of 1998. In two of the markets in which
there are Pending Acquisitions (Dubuque, IA and Grand Junction, CO),
petitions or informal objections have been filed against the Company's FCC
assignment applications. In addition, the FCC staff has raised questions
concerning whether the Company will be permitted to acquire its full
complement of proposed stations in some markets, based on local market
concentration concerns. There can be no assurance that applications for
other Pending Acquisitions will not be subjected to similar challenges or
FCC staff inquiries. The FCC staff has also requested additional information
regarding attributable media interests of one of the Company's
non-attributable investors to determine compliance with the FCC's
cross-interest policy in one market. All such petitions, objections and FCC
staff inquiries must be resolved before FCC approval can be obtained and the
acquisitions consummated.
(2) The listed markets correspond to station clusters of the Company, but may
vary from the "markets" defined for purposes of the FCC's multiple-ownership
rules, which are defined by reference to the signal coverages of the
stations involved. Thus, in some instances (E.G., Augusta, GA, Florence, SC,
and Salisbury-Ocean City, MD), the number of stations following the Pending
Acquisitions as listed in the above table exceeds the number of radio
stations specified in the FCC's rules that one person or entity may own,
operate or control within a single market, but is still consistent with
these rules.
(3) Includes radio stations to which the Company currently provides programming
and on which the Company sells advertising pursuant to an LMA.
(4) Market revenue rankings for Faribault-Owatonna-Waseca, MN, Mankato, MN,
Mason City, IA, Rochester, MN and New Ulm-Springfield-Marshall, MN are based
on Company estimates.
(5) Indicates Adult 12+ share of Appleton-Oshkosh market.
(6) The FCC staff recently dismissed the assignment application for one of the
six FM stations in Augusta, GA based on the unacceptability of the Company's
supplemental engineering analysis in demonstrating compliance with the FCC's
multiple-ownership rules. The Company will not be permitted to acquire more
than five FM and three AM stations in this market unless it succeeds in
obtaining FCC approval to modify the facilities of one or more of its
currently owned stations or successfully appeals the FCC staff dismissal of
its assignment application for the sixth FM station.
The Company also owns and operates five radio stations and one leased
frequency in various locations throughout the English-speaking Eastern
Caribbean, including among other places, Trinidad, St. Kitts and St. Lucia.
ACQUISITION STRATEGY
Cumulus has focused its acquisition strategy on acquiring radio broadcasting
stations in demographically attractive and fast growing mid-size to smaller
markets that it believes offer substantial growth
60
<PAGE>
opportunities for the Company. In executing this strategy, the Company adheres
to certain key acquisition criteria. Primary among these criteria are targeting
markets with: (i) growing economies that are not dependent upon any single
industry or employer; (ii) a regional fit with the Company's overall portfolio
concentration in the Midwest, Southeast, Southwest and Northeast regions of the
U.S.; (iii) close proximity to larger markets that may lead to increased
economic expansion into the Company's markets; (iv) previously unconsolidated
markets with fragmented individual ownership of stations; (v) the opportunity to
assemble a cluster of stations diversified in format to provide a range of
target demographic options for advertisers; and (vi) the opportunity to increase
sales performance through greater coverage of potential advertisers with more
sales people per station.
In targeting specific stations, the Company seeks stations with a position
of leadership in their market in terms of ratings and format, with the
opportunity to significantly increase revenues and Broadcast Cash Flow (as
defined under "Certain Definitions and Market and Industry Data"). Additionally,
Cumulus seeks high quality technical and operating facilities, capable local
management and an FCC license which enables coverage of the entire market.
The Company believes that its acquisition strategy will have a number of
benefits, including: (i) growth and 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 certain
corporate overhead functions including its senior management team; (iv) improved
leverage in various key vendor negotiations; (v) greater ability to recruit top
industry management talent; and (vi) increased overall scale, which should
facilitate the Company's future capital raising activities.
INTEGRATION OF ACQUIRED BUSINESSES
The Company has developed, through its 61 Completed and Pending
Acquisitions, an efficient process for the integration of newly acquired
properties into the Cumulus portfolio and respective geographic cluster, as well
as into the overall Cumulus culture and operating philosophy. The Company's
station integration plan consists of six key elements: (i) employ sophisticated
market research to refine station formats, enrich the listener experience and
increase audience and revenue share relative to other stations in the market;
(ii) expand the size and the effectiveness of the sales organization through
active recruitment and in-depth training to enhance demand for the station's
spot inventory to increase both revenue and margin; (iii) add the station to the
Cumulus in-market local area network and install the Company's proprietary
system for real-time monitoring by management of station sales and inventory
performance; (iv) install Cumulus's centralized networked accounting system for
financial reporting, budget control, payables management and cash management;
(v) establish revenue and expense budgets consistent with the programming and
sales strategy and make necessary cost adjustments; and (vi) implement necessary
improvements in transmission facilities, audio processing and studio facilities.
From time to time, in compliance with applicable law, the Company will enter
into an LMA or consulting arrangement with a target property prior to FCC final
approval and the consummation of the acquisition in order to gain a "head start"
on the integration process.
OPERATING STRATEGY
The Company's operating strategy has the following principal components:
ASSEMBLE AND MANAGE MARKET CLUSTERS WITH REGIONAL CONCENTRATIONS. The
Company has assembled the first or second ranked cluster of stations based
on revenue share and/or audience share in all of its U.S. markets in four
regional concentrations, the Midwest, Southeast, Southwest and Northeast.
The Company believes that by offering a diversity of radio formats within a
given market, Cumulus provides customized and efficient marketing solutions
to meet advertisers' needs. By assembling market clusters with a regional
concentration, the Company believes that it will be able to increase
revenues by offering regional coverage of key demographic groups that were
previously unavailable to
61
<PAGE>
national and regional advertisers. The Company also believes that its
cluster approach will allow it to operate its stations with more highly
skilled local management teams equipped with greater resources and to
eliminate redundant operating and overhead expenses.
MAXIMIZE EACH STATION'S POTENTIAL THROUGH POSITIONING AND BRANDING. The
Company utilizes extensive market research to refine the programming of each
of its stations and to position each as a separate brand within a particular
cluster. The objective of this strategy is to optimize each station's
potential in terms of audience ratings and revenue share while providing the
widest possible range of choice to listeners and advertisers. Such stations
can better capitalize on the operating leverage inherent in the radio
industry because the costs of operating a radio station are generally fixed
and, therefore, increased revenues generally result in disproportionately
larger increases in Broadcast Cash Flow (as defined under "Certain
Definitions and Market Industry Data").
FOCUS ON PROGRAMMING. A principal Company operating strategy is to
enhance each station's programming appeal, including both the quality and
quantity of local programming as a means of enriching the listener
experience. The Company believes that adopting this commitment to high
quality, locally originated programming will provide its stations with a
competitive advantage and increase each station's audience share. Moreover,
the Company believes that the efficiencies and scale afforded by the
operation of multiple stations in the same market and region working
together with information technology make it possible to substantially
improve programming and the quality of the listener experience without a
comparable increase in cost.
EXPAND DEDICATED SALES FORCE AND OPTIMIZE INVENTORY MANAGEMENT.
Underpinning the Company's strategy for optimizing the potential of each
station within a cluster is the practice of dedicating a sales force for
each of its stations. The Company believes that many of the acquired
stations have dramatically underperformed in sales, due primarily to
undersized sales staffs responsible for selling air time on multiple
stations, thus diluting their ability to cover all of the potential
advertisers with strong advocates for each station. The Company believes its
pratice of utilizing a dedicated sales force for each station will attract a
larger number of advertisers thereby increasing the demand for each
station's commercial spot inventory. Accordingly, the Company has
significantly expanded the number of salespeople for each of its stations.
Salespeople are typically compensated exclusively on a commission basis.
Also, in each of its market clusters, the Company utilizes Internet-based
sales reporting systems to monitor its sales activity and to formulate and
implement rate structure and inventory management on a continual basis.
INCREASE RADIO REVENUE SHARE. The Company believes that its strategy of
larger and dedicated station sales staffs, brand development, regional
concentration, and market clusters will help increase advertising volume and
revenues from existing customers and increase the number and scope of new
advertisers. This strategy enables the Company to compete more effectively
with other local and regional media such as newspapers and cable and
broadcast television stations, because it can now offer a competitively
priced alternative to reach the target audience that advertisers desire. The
Company's sales management team has substantial experience in the areas of
generating new sources of revenues including promotional events, retailer
co-op advertising and other sources including business-to-business
advertising.
IMPLEMENT STRICT COST CONTROLS. The Company's management imposes strict
financial reporting requirements and expense budget limitations on each of
its stations. In addition, management maintains a centralized accounting
system which allows it to monitor the performance and operations of each of
its stations. Management believes such centralization allows the Company to
achieve expense savings in certain areas, including purchasing and
administrative expenses. Management believes that the Company will also
achieve expense savings through the elimination of certain duplicate costs
within its markets and market clusters.
62
<PAGE>
IMPLEMENT INTERNET-BASED MANAGEMENT INFORMATION SYSTEMS. The Company has
implemented a proprietary application using Internet software standards to
support daily sales and inventory performance reporting by station, by
market and by cluster. In addition, the Company employs the same system to
network its centralized accounting and cash management. This allows the
Company to compare each station's actual performance (including revenue and
inventory management) to budget on a regular basis and deploy resources on a
timely basis to those stations not achieving budgetary goals.
RECRUIT AND RETAIN SKILLED MANAGERS. The Company believes that operating
a top-ranked cluster of stations in a market will enable the Company to
recruit and retain high caliber radio management personnel who might
otherwise be attracted to larger markets. The Company believes that regional
management and coordination will enable it to maximize the benefits of
operating a growing number of stations in geographically diverse locations,
while maintaining controls over local operations. Local management is also
central to the Company's strategy and is primarily responsible for building
and developing a sales team capable of converting the stations' audience
rankings into revenues. The Company's general managers and sales managers
are motivated through incentive compensation based primarily upon their
station's cash flow performance and secondarily on their ability to convert
their station's audience share into market revenue share.
INDUSTRY OVERVIEW
The primary source of revenues for radio stations is generated from the sale
of advertising time to local and national spot advertisers and national network
advertisers. During the past decade, local advertising revenue as a percentage
of total radio advertising revenue in a given market has ranged from
approximately 72% to 87%. The growth in total radio advertising revenue tends to
be fairly stable and has generally grown at a rate faster than the Gross
National Product ("GNP"). With the exception of 1991, when total radio
advertising revenue fell by approximately 3.1% compared to the prior year,
advertising revenue has risen in each of the past 15 years more rapidly than
both inflation and the GNP.
According to the RAB's Radio Marketing Guide and Fact Book for Advertisers
1997, each week, radio reaches approximately 96% of all Americans over the age
of 12. More than one-half of all radio listening is done outside the home which
reaches three out of four adults 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 is considered an efficient, cost-effective means of reaching
specifically identified demographic groups. Stations are typically classified by
their on-air format, such as country, adult contemporary, oldies and news/talk.
A station's format and style of presentation enables it to target certain
demographics. By capturing a specific share of a market's radio listening
audience, with particular concentration in a targeted demographic, 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 demographics listen to specific stations.
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 and the local competitive environment. 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
63
<PAGE>
station usually 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.
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 1997,
approximately 89% 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. The major categories of the
Company's advertisers include: Automotive, Retail, Healthcare,
Telecommunications, Fast Food, Beverage, Movies, Entertainment and Services.
Each station's local sales staff solicits advertising either directly from the
local advertiser or indirectly through an advertising agency. The Company
employs a tiered commission structure to focus its individual sales staffs on
new business development. The Company has also, consistent with its operating
strategy of dedicated sales forces for each of its stations, significantly
increased the number of sales persons per station. The Company believes that it
can outperform the traditional growth rates of its markets by expanding its base
of advertisers and providing a higher level of service to its existing base.
This requires larger sales staffs than most of the stations currently employ at
the time they are acquired by the Company. The Company supports its strategy of
building local direct accounts by employing personnel in each of its markets to
produce custom commercials that respond to the needs of, and in turn help sell
product for, its advertisers. In addition, in-house production provides
advertisers greater flexibility in changing their commercial messages with
minimal lead time.
National sales are made by two firms specializing in radio advertising sales
on the national level in exchange for a commission from the Company that is
based on the Company's net revenue from the advertising obtained. Regional
sales, which the Company defines as sales in regions surrounding the Company's
markets to buyers that advertise in the Company's markets, are generally made by
the Company's local sales staff. The Company believes that both national and
regional sales represent an attractive growth opportunity for the Company.
Whereas the Company seeks to grow its local sales through larger and more
customer-focused sales staffs, it seeks to grow its national and regional sales
by offering clusters within specific markets and regions which will make the
Company's stations more attractive to key national and regional advertisers.
Many of these large accounts have previously been reluctant to advertise in
these markets because of the logistics involved in buying advertising from
individual stations. Certain of the Company's stations had no national
representation before being acquired by the Company.
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 up or down based on supply
and demand. The Company seeks to broaden its base of advertisers in each of its
markets by providing a wide array of audience demographic segments across its
cluster of stations, thereby providing each of its potential 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 time. The Company's
selling and pricing 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. 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), (ii) the supply of and demand for radio advertising time
generally and for time targeted at
64
<PAGE>
particular demographic groups and (iii) 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 or
all of the Company's radio stations will be able to maintain or increase 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 specific demographic groups 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 or launch an aggressive
promotional campaign may result in lower ratings and advertising revenue,
increased promotion and other expenses and, consequently, lower Broadcast Cash
Flow (as defined under "Certain Definitions and Market and Industry Data") 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 for each station individually. However, the Company competes
with some organizations that have substantially greater financial or other
resources than the Company.
Recent changes in the Communications Act and the FCC's rules and policies
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 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. The Company also competes with
other radio station groups to purchase additional 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, and
competition is enhanced to some extent by changes in existing radio station
formats and upgrades of power, among other actions, certain regulatory
limitations on entry exist. The operation of a radio broadcast station requires
a license from the FCC, and the number of radio stations that an entity can
operate in a given market is limited by the
65
<PAGE>
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
Telecom Act. For a discussion of FCC regulation and the provisions of the
Telecom 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.
The FCC has also authorized two companies to provide DARS service. 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 Telecom Act to make changes in
several broadcast laws. Among other things, the FCC grants permits and licenses
to construct and operate radio stations; assigns frequency bands for
broadcasting; determines whether to approve changes in ownership or control of
station licenses; regulates equipment used by stations and the operating power
and other technical parameters of stations; adopts and implements regulations
and policies that directly or indirectly affect the ownership, operation and
employment practices of stations; regulates the content of some forms of radio
broadcasting programming; 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-term" (less than the maximum
term) license renewal 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.
LICENSE GRANT AND RENEWAL. Radio broadcast licenses are granted and renewed
for maximum terms of eight years. Licenses may be renewed through an application
to the FCC. The Communications Act
66
<PAGE>
requires that the FCC grant the renewal of a station's license if the FCC finds
that, during the preceding term of the license, 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 renewal applications 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 a clear
channel, a regional channel or a local channel. A clear channel is one on which
certain dominant AM stations are assigned to serve wide areas. Clear channel AM
stations are classified as one of the following: 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 area served by AM stations is determined by a combination of frequency,
transmitter power and antenna orientation. Directional antenna arrays are often
employed to avoid or reduce interference to stations in certain locations. AM
stations are often required to reduce power or change directional pattern at
night in order to avoid interference to other licensees. To determine the
effective service area of an AM station, its power, its operating frequency, its
antenna patterns and its day/night operating modes are required.
The area served by FM stations is determined by a combination of transmitter
power and antenna height, with stations divided into classes according to their
anticipated service area. Antenna systems are typically non-directional and
power is the same, day and night.
Class C FM stations operate at 100 kilowatts of power with up to 1,968 feet
of antenna elevation above average terrain ("HAAT"). They are the most powerful
FM stations, providing service to a large area, typically a substantial portion
of a state. Class B FM stations operate at up to 50 kilowatts of power with up
to 500 feet of antenna elevation. These stations typically serve large
metropolitan areas as well as their associated suburbs. Class A FM stations
operate at 6 kilowatts with up to 328 feet of antenna elevation, and serve
smaller cities and towns or suburbs of larger cities.
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.
67
<PAGE>
The following table sets forth the market, call letters, FCC license
classification, antenna height above average terrain ("HAAT") (for FM stations
only), power and frequency of each of the stations owned or operated by the
Company, assuming the consummation of the Pending Acquisitions, 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 August 1,
1997 and April 1, 1998, and the expiration of the licenses is stayed during the
pendency of such applications.
<TABLE>
<CAPTION>
HEIGHT
ABOVE
FREQUENCY AVERAGE
(FM-MHZ) EXPIRATION FCC TERRAIN
MARKET STATIONS CITY OF LICENSE (AM-KHZ) DATE OF LICENSE CLASS (IN FEET)
- -------------------- --------- -------------------- ------------- ----------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
MIDWEST REGION
Ann Arbor, MI WIQB FM Ann Arbor, MI 102.9 October 1, 2004 B 499
WQKL FM Ann Arbor, MI 107.1 October 1, 2004 A 289
WTKA AM Ann Arbor, MI 1050 October 1, 2004 II N.A.
WDEO AM Saline, MI 1290 October 1, 2004 III N.A.
Appleton Oshkosh/
Green Bay, WI WUSW FM Oshkosh, WI 96.7 December 1, 2004 A 328
WVBO FM Oshkosh, WI 103.9 December 1, 2004 C3 318
WOGB FM Kaukauna, WI 103.1 December 1, 2004 C3 879
WNAM AM Neenah-Menasha, WI 1280 December 1, 2004 III N.A.
WOSH AM Oshkosh, WI 1490 December 1, 2004 IV N.A.
WJLW FM Allouez, WI 106.7 December 1, 2004 C3 509
WEZR FM Brillion, WI 107.5 December 1, 2004 A 328
Dubuque, IA KLYV FM Dubuque, IA 105.3 February 1, 2005 C2 331
KXGE FM Dubuque, IA 102.3 February 1, 2005 A 410
WJOD FM Galena, IL 107.5 February 1, 2005 A 328
WDBQ AM Dubuque, IA 1490 February 1, 2005 IV N.A.
KIKR FM Asbury, IA 103.3 February 1, 2005 C3 643
Bismarck, ND KBYZ FM Bismarck, ND 96.5 April 1, 2005 C 1001
KACL FM Bismarck, ND 98.7 April 1, 2005 C 1093
KKCT FM Bismarck, ND 97.5 April 1, 2005 C1 830
KLXX AM Bismarck, ND 1270 April 1, 2005 III N.A.
Kalamazoo, MI WKFR FM Battle Creek, MI 103.3 October 1, 2004 B 482
WRKR FM Portage, MI 107.7 October 1, 2004 B 489
WKMI AM Kalamazoo, MI 1360 October 1, 2004 III N.A.
Owatonna-Waseca, MN KDHL AM Faribault, MN 920 April 1, 2005 III N.A.
KQCL FM Faribault, MN 95.9 April 1, 2005 A 328
KQPR FM Albert Lea, MN 96.1 April 1, 2005 A 328
KNFX AM Austin, MN 970 April 1, 2005 III N.A.
KRFO FM Owatonna, MN 1390 April 1, 2005 III N.A.
KRFO FM Owatonna, MN 104.9 April 1, 2005 A 174
KOWO AM Waseca, MN 1170 April 1, 2005 II N.A.
KRUE FM Waseca, MN 92.1 April 1, 2005 C3 285
Mankato, MN KXLP FM New Ulm, MN 93.1 April 1, 2005 C1 489
KYSM AM Mankato, MN 1230 April 1, 2005 IV N.A.
KYSM FM Mankato, MN 103.5 April 1, 2005 C1 541
Marion- Carbondale,
IL WDDD FM Marion, IL 107.3 December 1, 2004 B 492
WDDD AM Johnston City, IL 810 December 1, 2004 II N.A.
WFRX AM West Frankfort, IL 1300 December 1, 2004 III N.A.
WTAO FM Murphysboro, IL 105.1 December 1, 2004 B1 308
WVZA FM Herrin, IL 92.7 December 1, 2004 B1 328
WQUL FM West Frankfort, IL 97.7 December 1, 2004 A 433
Mason City, IA KCHA FM Charles City, IA 95.9 February 1, 2005 A 299
KGLO AM Mason City, IA 1300 February 1, 2005 III N.A.
KIAI FM Mason City, IA 93.9 February 1, 2005 C1 791
KLKK FM Clear Lake, IA 103.1 February 1, 2005 A 308
<CAPTION>
POWER
(IN
KILOWATTS)
--------------------
MARKET DAY NIGHT
- -------------------- --------- ---------
<S> <C> <C>
MIDWEST REGION
Ann Arbor, MI 49.0 49.0
3.0 3.0
10.0 0.5
0.5 0.0
Appleton Oshkosh/
Green Bay, WI 6.0 6.0
25.0 25.0
25.0 25.0
20.0 5.0
1.0 1.0
25.0 25.0
6.0 6.0
Dubuque, IA 50.0 50.0
1.7 1.7
3.0 3.0
1.0 1.0
6.6 6.6
Bismarck, ND 100.0 100.0
100.0 100.0
100.0 100.0
1.0 0.3
Kalamazoo, MI 50.0 50.0
50.0 50.0
5.0 1.0
Owatonna-Waseca, MN 5.0 5.0
3.0 3.0
6.0 6.0
5.0 5.0
0.5 0.1
4.7 4.7
1.0 0.0
25.0 25.0
Mankato, MN 100.0 100.0
1.0 1.0
100.0 100.0
Marion- Carbondale,
IL 50.0 50.0
0.3 0.3
1.0 0.1
25.0 25.0
25.0 25.0
3.5 3.5
Mason City, IA 3.0 3.0
5.0 5.0
100.0 100.0
6.0 6.0
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
HEIGHT
ABOVE
FREQUENCY AVERAGE
(FM-MHZ) EXPIRATION FCC TERRAIN
MARKET STATIONS CITY OF LICENSE (AM-KHZ) DATE OF LICENSE CLASS (IN FEET)
- -------------------- --------- -------------------- ------------- ----------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
KCHA AM Charles City, IA 1580 February 1, 2005 II N.A.
KCZE FM New Hampton, IA 95.1 February 1, 2005 A 338
KCZX FM Osage, IA 103.7 February 1, 2005 A 154
New Ulm-Springfield-
Marshall, MN KNUJ AM New Ulm, MN 860 April 1, 2005 II N.A.
KNUJ FM Sleepy Eye, MN 107.3 April 1, 2005 A 400
KNSG FM Springfield, MN 94.7 April 1, 2005 C2 472
Rochester, MN KRCH FM Rochester, MN 101.7 April 1, 2005 C2 554
KWEB AM Rochester, MN 1270 April 1, 2005 III N.A.
KMFX FM Lake City, MN 102.5 April 1, 2005 C3 528
KMFX AM Wabasha, MN 1190 April 1, 2005 II N.A.
Toledo, OH WKKO FM Toledo, OH 99.9 October 1, 2003 B 499
WRQN FM Bowling Green, OH 93.5 October 1, 2003 A 397
WTOD AM Toledo, OH 1560 October 1, 2003 III N.A.
WWWM FM Sylvania, OH 105.5 October 1, 2003 A 390
WLQR AM Toledo, OH 1470 October 1, 2003 III N.A.
WXKR FM Port Clinton, OH 94.5 October 1, 2003 B 630
WTWR FM Monroe, MI 98.3 October 1, 2004 A 466
SOUTHEAST REGION
Albany, GA WKAK FM Albany, GA 101.7 April 1, 2004 A 299
WEGC FM Sasser, GA 107.7 April 1, 2004 C3 328
WALG AM Albany, GA 1590 April 1, 2004 III N.A.
WJAD FM Leesburg, GA 103.5 April 1, 2004 C3 463
WGPC FM Albany, GA 104.5 April 1, 2004 C1 981
WGPC AM Albany, GA 1450 April 1, 2004 IV N/A
Augusta, GA WEKL FM Augusta, GA 102.3 April 1, 2004 A 666
WRXR FM Aiken, SC 96.3 April 1, 2004 C2 889
WUUS FM Martinez, GA 107.7 April 1, 2004 C2 577
WGUS AM N. Augusta, SC 1380 April 1, 2004 III N.A.
WBBQ FM Augusta, GA 104.3 April 1, 2004 C 1001
WBBQ AM Augusta, GA 1340 April 1, 2004 IV N.A.
WLOV FM Washington, GA 100.1 April 1, 2004 A 322
WLOV AM Washington, GA 1370 April 1, 2004 III N.A.
WZNY FM Augusta, GA 105.7 April 1, 2004 C 1168
Chattanooga, TN WUSY FM Cleveland, TN 100.7 April 1, 2005 C 1191
WLMX FM Rossville, GA 105.5 April 1, 2004 A 646
WLMX AM Rossville, GA 980 April 1, 2004 III N/A
WZST FM Signal Mountain, TN 98.1 April 1, 2005 A 794
Columbus, GA WVRK FM Columbus, GA 102.9 April 1, 2004 C 1519
WGSY FM Phenix City, GA 100.1 April 1, 2004 A 328
WMLF AM Columbus, GA 1270 April 1, 2004 III N.A.
WPNX AM Phenix City, GA 1460 April 1, 2004 III N.A.
WAGH FM Ft. Mitchell, GA 98.3 April 1, 2004 A 328
Florence, SC WYNN FM Florence, SC 106.3 December 1, 2003 A 325
WYNN AM Florence, SC 540 December 1, 2003 II N.A.
WHLZ FM Manning, SC 92.5 December 1, 2003 C 1171
WYMB AM Manning, SC 920 December 1, 2003 III N.A.
WCMG FM Latta, SC 94.3 December 1, 2003 C3 502
WHSC AM Hartsville, SC 1450 December 1, 2003 IV N.A.
WHSC FM Hartsville, SC 98.5 December 1, 2003 A 328
WBZF FM Marion, SC 100.5 December 1, 2003 C3 354
WMXT FM Pamplico, SC 102.1 December 1, 2003 C2 479
WWFN FM Lake City, SC 100.1 December 1, 2003 A 433
Montgomery, AL WMSP AM Montgomery, AL 740 April 1, 2004 II N.A.
WNZZ AM Montgomery, AL 950 April 1, 2004 III N.A.
WMXS FM Montgomery, AL 103.3 April 1, 2004 C 1096
WLWI FM Montgomery, AL 92.3 April 1, 2004 C 1096
<CAPTION>
POWER
(IN
KILOWATTS)
--------------------
MARKET DAY NIGHT
- -------------------- --------- ---------
<S> <C> <C>
0.5 0.0
5.5 5.5
6.0 6.0
New Ulm-Springfield-
Marshall, MN 1.0 0.1
1.9 1.9
50.0 50.0
Rochester, MN 39.0 39.0
5.0 1.0
9.4 9.4
1.0 0.0
Toledo, OH 50.0 50.0
4.1 4.1
5.0 0.0
4.3 4.3
1.0 1.0
30.0 30.0
1.4 1.4
SOUTHEAST REGION
Albany, GA 3.0 3.0
25.0 25.0
5.0 1.0
12.5 12.5
98.0 98.0
1.0 1.0
Augusta, GA 1.5 1.5
15.0 15.0
24.5 24.5
4.0 0.1
100.0 100.0
1.0 1.0
2.4 2.4
1.0 0.0
100.0 100.0
Chattanooga, TN 100.0 100.0
1.6 1.6
0.5 0.1
1.0 1.0
Columbus, GA 100.0 100.0
6.0 6.0
5.0 0.2
4.0 0.1
6.0 6.0
Florence, SC 6.0 6.0
0.3 0.2
98.0 98.0
2.3 1.0
10.5 10.5
1.0 1.0
3.0 3.0
21.5 21.5
50.0 50.0
3.3 3.3
Montgomery, AL 10.0 0.0
1.0 0.4
100.0 100.0
100.0 100.0
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
HEIGHT
ABOVE
FREQUENCY AVERAGE
(FM-MHZ) EXPIRATION FCC TERRAIN
MARKET STATIONS CITY OF LICENSE (AM-KHZ) DATE OF LICENSE CLASS (IN FEET)
- -------------------- --------- -------------------- ------------- ----------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Myrtle Beach, SC WSYN FM Georgetown, SC 106.5 December 1, 2003 C2 492
WDAI FM Pawley's Island, SC 98.5 December 1, 2003 A 328
WJXY FM Conway, SC 93.9 December 1, 2003 A 420
WXJY FM Georgetown, SC 93.7 December 1, 2003 A 328
WJXY AM Conway, SC 1050 December 1, 2003 II N.A.
WSEA FM Atlantic Beach, SC 100.3 December 1, 2003 A 476
Salisbury--Ocean
City, MD WLVW FM Salisbury, MD 105.5 October 1, 2003 A 384
WLBW FM Fenwick Island, DE 92.1 August 1, 1998 A 308
WQHQ FM Salisbury, MD 104.7 October 1, 2003 B 610
WTGM AM Salisbury, MD 960 October 1, 2003 III N.A.
WOSC FM Bethany Beach, DE 95.9 October 1, 2003 B1 377
WWFG FM Ocean City, MD 99.9 October 1, 2003 B 315
WSBY FM Salisbury, MD 98.9 October 1, 2003 A 325
WJDY AM Salisbury, MD 1470 October 1, 2003 III N.A.
Savannah, GA WJCL FM Savannah, GA 96.5 April 1, 2004 C 1161
WIXV FM Savannah, GA 95.5 April 1, 2004 C1 856
WSGF FM Springfield, GA 103.9 April 1, 2004 A 328
WBMQ AM Savannah, GA 630 April 1, 2004 III N.A.
WEAS FM Savannah, GA 93.1 April 1, 2004 C1 981
WEAS AM Savannah, GA 900 April 1, 2004 II N.A.
WZAT FM Savannah, GA 102.1 April 1, 2004 C 1306
Tallahassee, FL WHBX FM Tallahassee, FL 96.1 February 1, 2004 C2 479
WBZE FM Tallahassee, FL 98.9 February 1, 2004 C1 604
WHBT AM Tallahassee, FL 1410 February 1, 2004 III N.A.
WWLD FM Tallahassee, FL 106.1 February 1, 2004 A 328
WGLF FM Tallahassee, FL 104.1 February 1, 2004 C 1394
Wilmington, NC WWQQ FM Wilmington, NC 101.3 December 1, 2003 C2 545
WQSL FM Jacksonville, NC 92.3 December 1, 2003 C2 725
WXQR FM Jacksonville, NC 105.5 December 1, 2003 C2 794
WAAV FM Leland, NC 94.1 December 1, 2003 A 148
WAAV AM Leland, NC 980 December 1, 2003 III N.A.
SOUTHWEST REGION
Abilene, TX KCDD FM Hamlin, TX 103.7 August 1, 2005 C1 745
KBCY FM Tye, TX 99.7 August 1, 2005 C 984
KHXS FM Abilene, TX 106.3 August 1, 2005 C2 492
KFQX FM Merkel, TX 102.7 August 1, 2005 C1 1148
Amarillo, TX KZRK FM Canyon, TX 107.9 August 1, 2005 C1 476
KZRK AM Canyon, TX 1550 August 1, 2005 II N.A.
KARX FM Claude, TX 95.7 August 1, 2005 C1 390
KPUR AM Amarillo, TX 1440 August 1, 1997 III N.A.
KPUR FM Canyon, TX 107.1 August 1, 1997 A 315
KQIZ FM Amarillo, TX 93.1 August 1, 2005 C1 699
Beaumont--Port
Arthur, TX KAYD FM Beaumont, TX 97.5 August 1, 2005 C 1200
KQXY FM Beaumont, TX 94.1 August 1, 2005 C 1099
KQHN AM Nederland, TX 1510 August 1, 2005 II N.A.
KAYD AM Beaumont, TX 1450 August 1, 2005 IV N.A.
KTCX FM Beaumont, TX 102.5 August 1, 1997 C2 492
Grand Junction, CO KBKL FM Grand Junction, CO 107.9 April 1, 2005 C 1460
KEKB FM Fruita, CO 99.9 April 1, 2005 C 1542
KMXY FM Grand Junction, CO 104.3 April 1, 2005 C 1460
KKNN FM Delta, CO 95.1 April 1, 2005 C 1424
KEXO AM Grand Junction, CO 1230 April 1, 2005 IV N.A.
KQIL AM Grand Junction, CO 1340 April 1, 2005 IV N.A.
Lake Charles, LA KKGB FM Sulphur, LA 101.3 June 1, 2004 C3 289
<CAPTION>
POWER
(IN
KILOWATTS)
--------------------
MARKET DAY NIGHT
- -------------------- --------- ---------
<S> <C> <C>
Myrtle Beach, SC 50.0 50.0
6.0 6.0
3.7 3.7
6.0 6.0
5.0 0.5
2.75 2.75
Salisbury--Ocean
City, MD 2.1 2.1
6.0 6.0
33.0 33.0
5.0 5.0
18.8 18.8
50.0 50.0
6.0 6.0
5.0 0.0
Savannah, GA 100.0 100.0
100.0 100.0
6.0 6.0
5.0 5.0
97.0 97.0
4.4 0.2
100.0 100.0
Tallahassee, FL 37.0 37.0
100.0 100.0
5.0 0.0
6.0 6.0
90.0 90.0
Wilmington, NC 40.0 40.0
22.7 22.7
19.0 19.0
5.0 5.0
5.0 5.0
SOUTHWEST REGION
Abilene, TX 100.0 100.0
98.0 98.0
50.0 50.0
66.0 66.0
Amarillo, TX 100.0 100.0
1.0 0.2
100.0 100.0
5.0 1.0
6.0 6.0
100.0 100.0
Beaumont--Port
Arthur, TX 100.0 100.0
100.0 100.0
5.0 0.0
1.0 1.0
50.0 50.0
Grand Junction, CO 100.0 1.0
79.0 79.0
100.0 100.0
100.0 100.0
1.0 1.0
1.0 1.0
Lake Charles, LA 25.0 25.0
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
HEIGHT
ABOVE
FREQUENCY AVERAGE
(FM-MHZ) EXPIRATION FCC TERRAIN
MARKET STATIONS CITY OF LICENSE (AM-KHZ) DATE OF LICENSE CLASS (IN FEET)
- -------------------- --------- -------------------- ------------- ----------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
KBIU FM Lake Charles, LA 103.7 June 1, 2004 C1 469
KYKZ FM Lake Charles, LA 96.1 June 1, 2004 C 1204
KXZZ AM Lake Charles, LA 1580 June 1, 2004 II N.A.
Odessa--Midland, TX KBAT FM Midland, TX 93.3 August 1, 2005 C1 440
KODM FM Odessa, TX 97.9 August 1, 2005 C1 1000
KNFM FM Midland, TX 92.3 August 1, 2005 C 984
KGEE FM Monahans, TX 99.9 August 1, 2005 C1 574
KMND AM Midland, TX 1510 August 1, 2005 II N.A.
Topeka, KS KDVV FM Topeka, KS 100.3 June 1, 2005 C 984
KMAJ FM Topeka, KS 107.7 June 1, 2005 C 988
KMAJ AM Topeka, KS 1440 June 1, 2005 III N/A
KTOP AM Topeka, KS 1490 June 1, 2005 IV N/A
Wichita Falls, TX KLUR FM Wichita Falls, TX 99.9 August 1, 2005 C1 830
KQXC FM Wichita Falls, TX 102.5 August 1, 2005 A 312
KYYI FM Burkburnett, TX 104.7 August 1, 2005 C 1017
KOLI FM Electra, TX 94.9 (1) C2 492
NORTHEAST REGION
Augusta-Waterville,
ME WABK FM Gardiner, ME 104.3 April 1, 1998 B 371
WKCG FM Augusta, ME 101.3 April 1, 1998 B 322
WIGY FM Madison, ME 97.5 April 1, 1998 A 328
WCME FM Boothbay Harbor, ME 96.7 April 1, 1998 B1 417
WFAU AM Gardiner, ME 1280 April 1, 2006 III N.A.
WTOS FM Skowhegan, ME 105.1 April 1, 1998 C 2431
Bangor, ME WQCB FM Brewer, ME 106.5 April 1, 1998 C 1079
WBZN FM Old Town, ME 107.3 April 1, 1998 C2 436
<CAPTION>
POWER
(IN
KILOWATTS)
--------------------
MARKET DAY NIGHT
- -------------------- --------- ---------
<S> <C> <C>
100.0 100.0
97.0 97.0
1.0 1.0
Odessa--Midland, TX 100.0 100.0
100.0 0.0
100.0 100.0
98.0 98.0
2.4 2.4
Topeka, KS 100.0 100.0
100.0 100.0
5.0 1.0
1.0 1.0
Wichita Falls, TX 100.0 100.0
4.5 4.5
100.0 100.0
50.0 50.0
NORTHEAST REGION
Augusta-Waterville,
ME 50.0 50.0
50.0 50.0
6.0 6.0
15.5 15.5
5.0 5.0
50.0 50.0
Bangor, ME 98.0 98.0
50.0 50.0
</TABLE>
- ------------------------
(1) Station has been granted a construction permit and is currently operating
under program test authority. An application for a license is pending before
the FCC.
REGULATORY APPROVALS. 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, financial qualifications of the licensee, 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 rules and policies, including programming and
filing requirements and 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 the public 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 if the staff has questions, seek further
information and amendments to the application.
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
71
<PAGE>
rules and acceptable to the staff. The staff often grants the application by
delegated authority approximately 10 to 15 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," as explained below.
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 latter notice, another 30-day period begins, within
which 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, for a period of 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 U.S. Court of Appeals for the District of Columbia Circuit within 30 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 U.S. 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 and generally is no longer subject
to administrative or judicial review, although such action can nevertheless be
set aside in rare circumstances.
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.
OWNERSHIP MATTERS. 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.
The Company therefore will be restricted to having no more than one-fourth of
its stock owned or voted by aliens, foreign governments or non-U.S.
corporations. The Company will be required to take appropriate steps to monitor
the citizenship of its shareholders, such as through representative samplings on
a periodic basis, to provide a reasonable basis for certifying compliance with
the foreign ownership restrictions of 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, the Company would not 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 Telecom Act
directed the FCC to extend this waiver policy to stations in the top 50
television markets, although the FCC has not yet implemented this change. For
purposes of these rules, a "market" is defined by reference to the signal
coverage(s) of the station(s) involved.
The Telecom Act and 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:
72
<PAGE>
(i) in a market with 45 or more commercial radio signals, 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
signals, 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
signals, an entity may own up to six commercial radio stations, not
more than four of which are in the same service; and
(iv) in a market with 14 or fewer commercial radio signals, 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, except that the Company's assignment application for one
station in the Augusta, GA market has been dismissed by the FCC staff on
multiple ownership grounds and petitions to deny or informal objections have
been filed against the acquisition of four stations in the Dubuque, IA market
and three stations in the Grand Junction, CO market alleging that such
acquisitions would result in undue market concentration. The FCC staff has also
raised market concentration questions with respect to Pending Acquisitions in
several other markets. However, these FCC rules and policies 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 the Company which acquires an "attributable" interest in the Company
may violate the FCC's rules if it also has an attributable or a non-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 the Company violates
any of these ownership rules, the 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, 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
the 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
where the limited partnership agreement expressly "insulates" the limited
partner from such material involvement, and minority (under 5%) voting stock,
generally do not subject
73
<PAGE>
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, and otherwise
"insulated" limited partnership interests) and significant employment positions.
This policy may limit the permissible investments a purchaser of the Company's
voting stock may make or hold. It also may limit the Company's ability to
acquire stations in the same local market in which any of the Company's
non-attributable investors has an attributable media interest. The FCC staff has
requested additional information concerning whether certain such overlapping
media interests in one market comply with the FCC's cross-interest policy, which
compliance is necessary to obtain the FCC's approval of the Company's assignment
applications in that market.
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 to the FCC 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-term" (less than the maximum term) renewal 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 became effective on September 1, 1997 and 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 six 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" or "time brokerage
agreements." In a typical LMA, the licensee of a station makes available, for a
fee, airtime on its station to a party which supplies programming to be
broadcast during that airtime, and collects revenues from advertising aired
during such programming. LMAs are subject to compliance with the antitrust laws
and the FCC's rules and policies, including the requirement that the licensee of
each station maintain independent control over the programming and other
operations of its own station. 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.
74
<PAGE>
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 a station 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.
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 of a corporate
license; and (iv) considering joint sales agreements ("JSA"), debt and
non-voting stock interests to be attributable under certain circumstances. The
FCC has made no decision 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.
From time to time Congress and the FCC 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 regulations relating to political broadcasting; technical
and frequency allocation matters; proposals to restrict or prohibit the
advertising of beer, wine and other alcoholic beverages on radio; changes in the
FCC's cross-interest, multiple ownership and 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 certain types of 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 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-based 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 of the foregoing 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, the Telecom Act and of specific FCC rules and policies. This description
does not purport to be comprehensive and
75
<PAGE>
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.
ANTITRUST AND MARKET CONCENTRATION CONSIDERATIONS. The Company is aware
that the DOJ, which evaluates transactions to determine whether those
transactions should be challenged under the federal antitrust laws, has been
active recently in its review of radio station acquisitions, particularly where
an operator proposes to acquire additional stations in its existing markets or
multiple stations in new markets. The Company is aware that the DOJ has opened
an investigation with respect to the Company's Pending Acquisition in two
markets which potentially affect the acquisition of up to an additional nine
stations in the aggregate. In addition, the FCC staff has stated publicly that
it is currently reevaluating its policies and procedures relating to local radio
market concentration, even where proposed acquisitions would comply with the
station ownership limits in the Telecom Act and the FCC's multiple-ownership
rules, and FCC approval of a number of pending radio station acquisitions by
various parties (including acquisitions by the Company in several markets) has
been delayed while this policy review is taking place. The FCC has issued a
Notice of Inquiry which, among other things, seeks public comment on these
issues. There can be no assurance that the DOJ, the FTC or the FCC will not
prohibit or require the restructuring of future acquisitions (including one or
more of the Pending Acquisitions). Competitors have also filed petitions or
informal objections before the FCC on market concentration grounds in two
markets (Dubuque, IA and Grand Junction, CO), and all such petitions or
objections must be resolved before FCC approval can be obtained and the
acquisitions consummated.
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 transaction. If the agencies determine that
the transaction does not raise significant antitrust issues, then they will
either terminate the waiting period or allow it to expire after the initial 30
days. On the other hand, if either of the agencies determine 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"). During the initial 30 day period after the
filing, the agencies decide which of them will investigate the acquisition,
which in the case of radio broadcasting has generally been the DOJ. The issuance
of a Second Request extends the waiting period until the twentieth calendar day
after the date of substantial compliance by all parties to the acquisition.
Thereafter, such waiting period may only be extended by court order or with the
consent of the parties. In practice, complying with a Second Request can take a
significant amount of time. In addition, if the investigating agency raises
substantive issues in connection with a proposed transaction, then the parties
frequently engage in lengthy discussions or negotiations with the investigating
agency concerning possible means of addressing those issues, including but not
limited to persuading the agency that the proposed acquisition would not violate
the antitrust laws, restructuring the proposed acquisition, divestiture of other
assets of one or more parties, or abandonment of the transaction. Such
discussions and negotiations can be time-consuming, and the parties may agree to
delay consummation of the acquisition during their pendency.
At any time before or after the consummation of a proposed acquisition, the
DOJ or the FTC 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
also may be investigated by the DOJ or the FTC 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.
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 ownership 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
76
<PAGE>
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.
SEASONALITY
The Company expects that its operations and revenues will be largely
seasonal in nature, with generally lower revenue generated in the first quarter
of the year and generally higher revenue generated in the fourth quarter of the
year, with the exception of certain stations such as those of the Company in
Salisbury-Ocean City, Maryland, where the stations generally earn higher
revenues in the second and third quarters of the year because of the higher
seasonal population in those communities. The seasonality of the Company's
business causes and will likely continue to cause a significant variation in the
Company's quarterly operating results. Such variations could have a material
adverse effect on the timing of the Company's cash flows and therefore on its
ability to service its obligations with respect to its indebtedness, including
the Indenture, the Exchange Debenture Indenture and the Credit Facility.
EMPLOYEES
At December 31, 1997, the Company employed approximately 660 persons. None
of such employees are covered by collective bargaining agreements, and the
Company considers its relations with its employees to be satisfactory.
The Company also employs several on-air personalities with large loyal
audiences in their respective markets. On occasion, the Company 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, taken as a whole.
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 of
the station's community of license or largest nearby community. The transmitter
sites and antenna sites are generally located so as to provide maximum market
coverage.
On December 31, 1997, the Company owned its studio facilities in four
markets and it owned transmitter and antenna sites in six markets. The Company
leases its remaining studio and office facilities and 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.
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.
77
<PAGE>
REORGANIZATION AND CORPORATE STRUCTURE
In March 1998, the Company amended its articles of incorporation to change
its name from Cumulus Holdings, Inc. to Cumulus Media Inc. Until immediately
prior to the closing of the Offerings, all of the outstanding common stock of
the Company will have been held by Media LLC, whose members include State of
Wisconsin Investment Board, NationsBanc Capital Corp., Heller Equity Capital
Corporation, NML, and certain members of the Company's management or affiliates
of management. See "Principal and Selling Stockholders." Immediately prior to
the closing of the Offerings, (i) all of the shares of NML Preferred Stock will
be exchanged for shares of Series A Preferred Stock as described below; and (ii)
Media LLC will be liquidated and the shares of Class A Common Stock, Class B
Common Stock and Class C Common Stock held by Media LLC will be distributed by
Media LLC to its members in liquidation.
All shares of Class A Cumulative Preferred Stock which were held by NML
immediately prior to the Offerings plus all accrued and unpaid dividends thereon
as of the exchange date will be exchanged for shares of Series A Preferred Stock
having an equivalent aggregate liquidation value pursuant to the Preferred Stock
Offering. As of May 15, 1998, the liquidation value of the NML Preferred Stock
was approximately $34.0 million. Subject to certain conditions, the Series A
Preferred Stock will be exchangeable on any dividend payment date, at the
Company's option, for the Exchange Debentures. See "Description of Capital
Stock."
The Company's U.S. radio operations are conducted primarily through
Broadcasting, which owns the radio stations acquired pursuant to asset purchase
agreements. The Company also owns the stock of radio groups or stations acquired
pursuant to stock purchase or merger agreements. Licensing holds virtually all
the FCC licenses for the Company's stations. Certain other FCC licenses are held
by wholly-owned subsidiaries of the Company, and the Company intends in the near
future to transfer those licenses to Licensing or to newly created subsidiaries
that hold only FCC licenses. CCC owns radio stations throughout the
English-speaking Eastern Caribbean, including among other places, Trinidad, St.
Kitts and St. Lucia. CCC is currently constructing an FM station in Barbados and
Tortola, BVI. The Company will be the issuer of the Class A Common Stock, the
Series A Preferred Stock and the Notes, and is the borrower under the Credit
Facility. Broadcasting and Licensing are guarantors of the Company's obligations
under the Credit Facility. See "Description of the Credit Facility and Notes."
Upon the consummation of the Reorganization, the capital stock of the
Company will consist of the Class A Common Stock, the Class B Common Stock, the
Class C Common Stock and the Series A Preferred Stock.
78
<PAGE>
PENDING ACQUISITIONS
The Company has entered into definitive purchase agreements to acquire 117
stations in 30 markets for an aggregate purchase price of approximately $250.5
million in Pending Acquisitions. The Company expects to consummate most of the
Pending Acquisitions during the second and third quarters of 1998, although
there can be no assurance that the transactions will be consummated within that
time frame. The pending acquisition of a Tallahassee FM station presently
operated under an LMA is expected to close by the end of 1998. In two of the
markets in which there are Pending Acquisitions (Dubuque, IA and Grand Junction,
CO), petitions or informal objections have been filed against the Company's FCC
assignment applications In several other markets, FCC staff questions and/or
requests for additional information relating to local market concentration or
the FCC's cross-interest policy have been raised with respect to pending
assignment applications. All such petitions, objections and FCC staff inquiries
must be resolved before FCC approval can be obtained and the acquisitions
consummated. There can be no assurance that other Pending Acquisitions will not
be subjected to similar challenges, or that the Pending Acquisitions will be
consummated. The Company believes that the proceeds of the Offerings will be
sufficient to finance the consummation of the Pending Acquisitions.
The Company from time to time enters into letters of intent to purchase
radio stations. The letters of intent are non-binding and are subject to certain
conditions, and there can be no assurance that the Company will enter into
definitive purchase agreements with respect to such stations or will consummate
such transactions. Accordingly, the Company does not consider a potential
transaction as probable until it has executed an asset purchase agreement.
79
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers and managers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Richard W. Weening(1) 52 Executive Chairman, Treasurer and Director
Lewis W. Dickey, Jr.(1) 36 Executive Vice Chairman and Director
William M. Bungeroth(1) 52 President and Director
Richard J. Bonick, Jr. 47 Vice President and Chief Financial Officer
Terrence Baun 50 Director of Engineering
John Dickey 31 Director of Programming
Terrence Leahy 43 Secretary and General Counsel
Daniel O'Donnell 38 Director of Corporate Finance
Mini Srivathsa 29 Director of Technology
Robert H. Sheridan, III(2)(3) 35 Director
Ralph B. Everett(2)(3) 46 Director
</TABLE>
- ------------------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
RICHARD W. WEENING has served as Executive Chairman, Treasurer and Director
of the Company since March 1998. Mr. Weening served as Chairman of Cumulus from
its inception on May 22, 1997 until March 1998. Mr. Weening was a founder and an
initial investor in Media LLC through his ownership interest in CML Holdings LLC
("CML"), an investment fund managed by QUAESTUS Management Corporation
("QUAESTUS"), a private equity investment and advisory firm specializing in
information services and media and new media companies. QUAESTUS is also a
Managing Member of Media LLC. Mr. Weening served as Chairman and Chief Executive
Officer of Media LLC from its inception in April 1997 until the Reorganization.
Mr. Weening founded QUAESTUS in 1989 and served as Chairman and Chief Executive
Officer until March 1998. Mr. Weening has over 20 years experience as a chief
executive officer and investor in the information and media industry including
text and reference book publishing and business magazine publishing, radio
broadcasting, interactive information services and electronic commerce software
and services. In 1985, Mr. Weening founded Caribbean Communications Company
Ltd., a radio broadcasting company acquired by the Company in May 1997. He
currently serves as a director of QUAESTUS and ARI Network Services, Inc. He
holds a Bachelor of Arts degree from St. Johns University.
LEWIS W. DICKEY, JR. has served as Executive Vice Chairman and Director of
the Company since March 1998. Mr. Dickey was a founder and an initial investor
in Media LLC through his interest in CML and owns 75% of the outstanding capital
stock of DBBC of Georgia, LLC ("DBBC"), a Managing Member in Media LLC. He
served as Executive Vice Chairman and a Director of Media LLC from its inception
in April 1997 until the Reorganization. Mr. Dickey is the founder and was
President of Stratford Research from September 1985 to March 1998 and owns 25%
of the outstanding capital stock of Stratford Research. Stratford Research is a
strategy consulting and market research firm advising radio and television
broadcasters as well as other media related industries. Mr. Dickey is a
nationally regarded consultant on radio strategy and the author of THE
FRANCHISE--BUILDING RADIO BRANDS, published by the
80
<PAGE>
National Association of Broadcasters ("NAB"), one of the industry's leading
texts on competition and strategy. From January 1988 until March 1998, Mr.
Dickey served as President and Chief Operating Officer of Midwestern
Broadcasting, which operated two stations in Toledo, Ohio that were acquired by
the Company in November 1997. He also has an ownership interest (along with
members of his family and Mr. Weening) in three stations in Nashville: WQQK-FM,
WNPL-FM and WVOL-AM. He holds Bachelor of Arts and Master of Arts degrees in
English Literature from Stanford University and a Master of Business
Administration degree from Harvard University. Mr. Dickey is the brother of John
Dickey.
WILLIAM M. BUNGEROTH has served as President and Director of Cumulus and
President and Chief Executive Officer of Cumulus Broadcasting Inc. since the
companies began operations in May 1997. Mr. Bungeroth joined Cumulus from WPNT
Radio in Chicago where he was Vice President and General Manager of this
flagship property of Century Broadcasting Corp. Prior to joining Century in
1992, he was President of Consulting Partners, which specialized in improving
the operations of radio stations in mid-size and smaller markets. From August
1989 to July 1990, Mr. Bungeroth was Vice President of Major Market Affiliations
at Unistar Radio Networks. From August 1987 to August 1989, he was President and
Chief Operating Officer of Sunbelt Communications. From 1982 to 1987, he was
Vice President of Sales and Operations at Century Broadcasting. He holds a
Bachelor of Arts degree from Lafayette College.
RICHARD J. BONICK, JR. has served as Vice President and Chief Financial
Officer of Cumulus since May 1997. Prior to joining Cumulus, Mr. Bonick had a
successful 20 year career with Century Broadcasting where he held various
financial and operating positions, most recently as Executive Vice President and
Chief Financial Officer. He began his career with Price Waterhouse. Mr. Bonick
is a Certified Public Accountant and holds a Bachelor of Arts degree from the
University of Dayton and a Master of Management degree in finance from the
Kellogg School at Northwestern University.
TERRENCE M. BAUN has served as Director of Engineering of the Company and
Vice President of Cumulus Broadcasting Inc. since January 1998. Prior to joining
Cumulus, Mr. Baun was President of Criterion Broadcast Services, a broadcast
engineering technical support company serving clients in Wisconsin and Illinois,
from 1988 to January 1998. He was previously Technical Director of Multimedia
Broadcasting's Radio Division, and a Chief Engineer at several Milwaukee
stations. Mr. Baun is certified by the Society of Broadcast Engineers ("SBE") as
a Professional Broadcast Engineer and recently concluded two years of service as
SBE President. He is a twenty year member of the Audio Engineering Society, and
holds a Bachelor of Sciences degree from Marquette University.
JOHN DICKEY has served as Director of Programming of the Company and Vice
President of Cumulus Broadcasting Inc. since March 1998. Mr. Dickey was
Executive Vice President of Stratford Research from June 1988 until the
Reorganization. He has served as Director of Programming for Midwestern
Broadcasting from January 1990 until March 1998 and is a partner in both
Stratford Research as well as the Nashville stations. Mr. Dickey also owns 25%
of the outstanding capital stock of Stratford Research and 25% of the
outstanding capital stock of DBBC. Mr. Dickey holds a Bachelors of Arts degree
in American History from Stanford University. Mr. Dickey is the brother of Lewis
W. Dickey, Jr.
TERRENCE J. LEAHY has served as Secretary and General Counsel of the Company
and Vice President of Cumulus Broadcasting, Inc. since March 1998. Prior to the
Reorganization Mr. Leahy was serving Cumulus in the same capacity as a Managing
Director of QUAESTUS and Vice President of the Company. Mr. Leahy began his
career practicing media, telecommunications and corporate law and litigation in
Washington, D.C. with the law firms of Wilmer, Cutler & Pickering and Mintz,
Levin, Cohn, Ferris, Glovsky & Popeo. He joined QUAESTUS in April 1992 and
played a key role in the founding of Media LLC. He is an honors graduate of
Princeton University, Harvard Law School, and the Executive MBA program at The
Wharton School at the University of Pennsylvania.
DANIEL O'DONNELL has served as Director of Corporate Finance of the Company
and Vice President of Cumulus Broadcasting Inc. since March 1998. Prior to
joining Cumulus in March, 1998, Mr. O'Donnell was a Senior Vice President in the
Corporate Finance Group of Heller Financial, Inc. Prior to joining
81
<PAGE>
Heller's Corporate Finance Group in 1992, Mr. O'Donnell held a number of offices
within Heller Financial, Inc., including Vice President, Portfolio Manager for
the Corporate Finance Group's media portfolio, Vice President of Heller's
Corporate Asset Quality Group, and Vice President, Finance for Heller
International Corporation. Prior to joining Heller Financial, Inc., Mr.
O'Donnell was a manager and audit supervisor for Arthur Young & Company in the
Chicago office, which he joined in 1982. Mr. O'Donnell has a Bachelor of Arts
degree in Accounting from Loyola University in Chicago, and is a Certified
Public Accountant.
MINI SRIVATHSA has served as Director of Technology of the Company and Vice
President of Cumulus Broadcasting, Inc. since March 1998. Prior to joining
Cumulus in January 1998, Ms. Srivathsa was a Senior Consultant for Keane, Inc.
from February 1997 to January 1998. From December 1993 to February 1997, she
served as a Systems Architect for ARI Network Services where she served as the
lead architect for an object-oriented, distributed nation-wide ordering system
and WWW-based search engine. From December 1992 to December 1993, Ms. Srivathsa
was a consultant in the Consultant Services Division at the University of
Wisconsin. Ms. Srivathsa has extensive experience in Internet-based
applications, object-oriented technologies and electronic commerce. She was Vice
President of the Wisconsin Java User Group and is a voting committee member of
the Internet Developers Association. She has also published several articles on
Internet technology. She holds a Bachelor of Science degree in Computer Science
from Bangalore University and a Masters of Science degree in Computer Science
from the University of Wisconsin.
ROBERT H. SHERIDAN, III will be elected to serve as a Director of the
Company upon the consummation of the Offerings. Mr. Sheridan served as a member
of the Investment Committee of Media LLC from April 1997 until the
Reorganization. Mr. Sheridan is a Managing Director of NationsBank Capital
Investors, the principal investment group within NationsBank Corporation, and a
Senior Vice President of NationsBanc Capital Corp., NationsBanc Investment
Corporation and NationsBank, N.A. NationsBanc Capital Corp. is a stockholder of
the Company. Prior to joining NationsBank Capital Investors in January 1994, Mr.
Sheridan worked in the corporate bank division of NationsBank Corporation and
its predecessor from June 1989 to January 1994. Prior to joining NationsBank
Corporation, Mr. Sheridan worked in investment bank and capital markets
positions at PaineWebber, Inc. from 1986 to 1988. Mr. Sheridan holds a Bachelor
of Arts degree from Vanderbilt University and a Master of Business
Administration from Columbia University. See "Principal and Selling
Stockholders."
RALPH B. EVERETT will be elected to serve as a Director of the Company upon
the consummation of the Offerings. Since 1989, Mr. Everett has been a partner
with the Washington, D.C. office of the law firm of Paul, Hastings, Janofsky &
Walker LLP, where he heads the Firm's Federal Legislative Practice Group. Prior
to 1989, he was the Chief Counsel and Staff Director of the United States Senate
Committee on Commerce, Science and Transportation. He is a Director and a member
of the Investment Committee of Shenandoah Life Insurance Company. He is also a
member of the Board of Visitors of Duke University Law School and the Norfolk
Southern Corporation Advisory Board. Mr. Everett graduated with a Bachelor of
Arts degree from Morehouse College and received a Juris Doctor degree from Duke
University.
82
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION OF NAMED EXECUTIVE OFFICERS. The following table provides
certain summary information for the nine months ended December 31, 1997
concerning compensation paid or accrued by the Company to or on behalf of the
persons functioning effectively as executive officers of the Company whose
combined salary and bonus on an annualized basis exceeded $100,000 during such
period (the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
OTHER ALL OTHER
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (2)
- ---------------------------------------------------- --------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Richard W. Weening(1)............................... 1997 -- -- -- --
Lewis W. Dickey, Jr.(1)............................. 1997 -- -- -- --
William M. Bungeroth................................ 1997 $ 169,000 $ 50,000 $ 8,000 $ 205,000
Richard J. Bonick, Jr............................... 1997 $ 169,000 $ 25,000 $ 8,000 $ 205,000
</TABLE>
For the period from inception on May 22, 1997 to December 31, 1997, the
Company did not grant any options to any party.
- ------------------------
(1) During 1997, Messrs. Weening and Dickey dedicated approximately 85% and 80%
of their time, respectively, to matters directly related to the Company and
its business, since the Company's inception. Messrs. Weening and Dickey did
not receive any compensation directly from the Company. However, during 1997
the Company paid $297,000 to QUAESTUS, an entity controlled by Mr. Weening,
for acquisition and corporate finance serves performed on behalf of the
Company. In addition, the Company paid $184,000 to Stratford, an entity
controlled by Mr. Dickey, for programming research and broadcast strategy
consulting services. At December 31, 1997, the Company owed an additional
$240,000 to Stratford for services rendered.
The Company also paid to Media LLC (i) a non-recurring organizational fee of
$300,000 (with QUAESTUS receiving $180,000 of such fee and DBBC of Georgia,
LLC, an entity controlled by Mr. Dickey receiving $120,000 of such fee), and
(ii) a management fee of $206,000 (with QUAESTUS receiving $124,000 of such
fee and DBBC of Georgia, LLC receiving $82,000 of such fee). See "Certain
Relationships and Related Transactions."
(2) During the period from inception on May 22, 1997 to December 31, 1997
Cumulus Media, LLC issued common stock to the following affiliates and
employees of the Company: QUAESTUS Management Corporation, DBBC of Georgia,
LLC, William M. Bungeroth and Richard J. Bonick, Jr. Shares issued to Mr.
Bungeroth and Mr. Bonick were issued in connection with a one-time grant of
shares issued to them upon formation of the Company. The Company has
recognized a non-recurring, non-cash stock compensation expense related to
the issuance of such common stock.
1998 STOCK INCENTIVE PLAN
The Company's Board of Directors intends to adopt the 1998 Stock Incentive
Plan (the "1998 Plan") to provide officers, other key employees and non-employee
directors (other than participants in the Executive Plan (as defined herein)) of
the Company, as well as consultants to the Company, with additional incentives
by increasing their proprietary interest in the Company. An aggregate of
shares of Class A Common Stock will be subject to the 1998 Plan, of
which a maximum of shares of Class A Common Stock will be subject to
incentive stock options and a maximum of shares of Class A Common Stock
are available to be awarded as restricted stock. In addition, subject to certain
equitable adjustments, no one person will be eligible to receive options for
more
83
<PAGE>
than shares in any one calendar year and the maximum amount of restricted
stock which will be awarded to any one person during any calendar year is
$ .
The 1998 Plan will permit the Company to grant awards in the form of stock
options (including both incentive stock options that meet the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified
stock options) and restricted shares of the Class A Common Stock (individually,
an "Award" and collectively, "Awards"). All stock options awarded under the 1998
Plan will be granted at an exercise price of no less than fair market value of
the Class A Common Stock on the date of grant. No Award will be granted under
the 1998 Plan after , 2008.
The 1998 Plan will be administered by the Compensation Committee of the
Board, which will have exclusive authority to grant Awards under the 1998 Plan
and to make all interpretations and determinations affecting the 1998 Plan. The
Compensation Committee will have discretion to determine the individuals to whom
Awards are granted, the amount of such Award, any applicable vesting schedule,
whether Awards vest upon the occurrence of a Change in Control (as defined in
the Plan) and other terms of any Award. The Committee may delegate to certain
senior officers of Cumulus Media Inc. its duties under the plan subject to such
conditions or limitations the Committee may establish. Any Award made to a
non-employee director must be approved by the Company's Board of Directors. In
the event of any changes in the capital structure of the Company, the
Compensation Committee will make equitable adjustments to outstanding Awards so
that the net value of the Award is not changed.
Prior to completion of the Offering, the Company will have outstanding
options to purchase a total of shares of Class C Common Stock exercisable at
the initial public offering price.
EXECUTIVE STOCK INCENTIVE PLAN
The Company's Board of Directors also intends to adopt the Executive Stock
Incentive Plan (the "Executive Plan") to provide certain key executives of the
Company with additional incentives by increasing their proprietary interest in
the Company. An aggregate of shares of Class C Common Stock will be
subject to the Executive Plan. In addition, no one person will be eligible to
receive options for more than shares in any one calendar year and the
maximum amount of restricted stock which will be awarded to any one person
during any calendar year is $ . It is currently anticipated that Messrs.
Weening and Dickey will be the sole participants in the Executive Plan.
The Executive Plan permits the Company to grant awards in the form of stock
options (including both incentive stock options that meet the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified
stock options) and restricted shares of the Class C Common Stock (individually,
an "Executive Award" and collectively, "Executive Awards").
Stock options under the Executive Plan will be granted upon the consummation
of the Offerings and will be divided into three tranches. Tranche 1 will consist
of options (the "Time Vested Options") with an exercise price equal to the
initial public offering price (the "IPO Price") and will vest quarterly in equal
installments over a four-year period (subject to accelerated vesting in certain
circumstances as described under Employment Agreements), provided the plan
participant is employed by the Company on each of such dates. Tranche 2 and
Tranche 3 will consist of performance based options (the "Performance Options")
which will vest in four equal annual installments on each of the first four
anniversaries of the closing of the Stock Offerings (subject to accelerated
vesting in certain circumstances as described under "Employment Agreements").
The first installment of both the Tranche 2 options and Tranche 3 options will
be exercisable at the IPO Price upon the first anniversary of the closing of the
Offerings and the succeeding installments will be exercisable at a price 15% (or
20% in the case of Tranche 3 options) greater than the prior year's exercise
price for each of the next three years. Vesting of Tranche 2 and Tranche 3
options is conditioned on the employment of the plan participant by the Company
on the vesting date.
84
<PAGE>
The Executive Plan will be administered by the Compensation Committee of the
Board, which will have exclusive authority to grant Executive Awards under the
Executive Plan and to make all interpretations and determinations affecting the
Executive Plan. In the event of any changes in the capital structure of the
Company, the Compensation Committee will make equitable adjustments to
outstanding Executive Awards so that the net value of the Executive Award is not
changed.
EMPLOYEE STOCK PURCHASE PLAN
A total of shares of the Company's Class A Common Stock will be
reserved for issuance under the Company's proposed 1998 Employee Stock Purchase
Plan (the "Purchase Plan"). None of such shares have been issued. The Purchase
Plan will permit an eligible employee of the Company to purchase common stock at
a discount through payroll deductions not to exceed 10% of the compensation
received by such employee during such pay period ("Employee Purchases").
Employee Purchases will not exceed $25,000 in any plan year. The price at which
the Class A Common Stock is purchased under the Purchase Plan will be set by the
Board of Directors but will not be less than 95% of the fair market value of the
Class A Common Stock on the date of purchase.
DEFINED CONTRIBUTION PLAN
The Company has established a profit sharing plan under Section 401(k) of
the Internal Revenue Code (the "401(k) Plan") for all eligible employees. Under
the 401(k) Plan, all eligible employees are permitted to defer compensation up
to a maximum of the lesser of (a) $10,000 and (b) 15% of their income. The
401(k) Plan provides for a matching contribution by the Company equal to 25% of
the amount contributed by the employee, up to 6% of the employee's total
compensation. The employee's contribution is immediately vested and 20% of the
Company's matching contribution vests every year after the first year of the
employee's participation in the plan. Accordingly, the matching contribution is
fully vested five years after such contribution.
EMPLOYMENT AGREEMENTS
As discussed more particulary below, the Company intends to enter into
employment agreements with certain of the Named Executive Officers. Subject to
certain exceptions, such employment agreements prohibit each of the Named
Executive Officers from competing with the Company for a specified period after
termination of employment (18 months for Messrs. Weening and Dickey and 12
months for Messrs. Bungeroth and Bonick).
Upon the consummation of the Offerings, Mr. Weening will enter into an
employment agreement with the Company pursuant to which he will serve as
Executive Chairman and Treasurer of the Company. Under the terms of Mr.
Weening's employment agreement, he will be entitled to receive an annual base
salary of $300,000. Such base salary will increase by 5.0% during each year of
the term of the employment agreement, subject to merit increases as the
Compensation Committee deems appropriate. The agreement will provide that Mr.
Weening may receive a bonus of up to 50% of the base salary, with bonus targets
to be based on Broadcast Cash Flow (as defined under "Certain Definitions and
Market and Industry Data") or stock appreciation goals as determined by the
Compensation Committee. Mr. Weening's employment agreement will have a
three-year term with an automatic renewal provision of one year, subject to non-
renewal. The terms of the agreement will also provide that upon the death or
disability of Mr. Weening, the Company shall continue to pay Mr. Weening's base
salary for the twelve-month period immediately following such event and all
unvested Time Vested Options will vest and be retained. In addition, in the
event (i) the death or disability occurs after the mid-point of a particular
vesting year and (ii) the fair market value of the Class A Common Stock as of
the date of such death or disability equals or exceeds the exercise price per
share of the Performance Options Scheduled to vest at the end of such vesting
year, such Performance Options will vest and be retained. The agreement will
also provide that in the event Mr. Weening is terminated by the Company without
cause or terminates his employment for good reason,
85
<PAGE>
the Company will pay to Mr. Weening an amount equal to the greater of (i) the
base salary owed to Mr. Weening for the remainder of the term of the agreement
and (ii) one times annual base salary in effect as of the date of termination
plus the last bonus received by Mr. Weening and all unvested Time Vested Options
will vest and be retained. In addition, in the event the fair market value of
the Class A Common Stock as of the date of such termination equals or exceeds
the exercise price per share of the unvested Performance Options, such
Performance Options will vest and be retained. Such Performance Options that
become vested shall remain exercisable until 90 days following the date that
such Performance Options would otherwise have become vested and exercisable. If,
within the one-year period following a change of control, the Company terminates
Mr. Weening's employment for any reason other than death or disability or for
cause or Mr. Weening terminates his employment for good reason, Mr. Weening will
be paid the same amount as if he were terminated without cause if no change of
control had occurred except all unvested Time Vested Options and Performance
Options will vest and be retained.
Upon the consummation of the Offerings, Mr. Dickey will enter into an
employment agreement with the Company pursuant to which he will serve as
Executive Vice Chairman of the Company. Under the terms of Mr. Dickey's
employment agreement he will be entitled to receive an annual base salary of
$300,000. Such base salary will increase by 5.0% during each year of the term of
the employment agreement, subject to merit increases as the Compensation
Committee deems appropriate. The agreement provides that Mr. Dickey may receive
a bonus of up to 50% of the base salary, with bonus targets to be based on
Broadcast Cash Flow or stock appreciation goals as determined by the
Compensation Committee. Mr. Dickey's employment agreement and will have a
three-year term with an automatic renewal provision of one year, subject to
non-renewal. The terms of the agreement will also provide that upon the death or
disability of Mr. Dickey, the Company shall continue to pay Mr. Dickey's base
salary for the twelve-month period immediately following such event and all
unvested Time Vested Options will vest and be retained. In addition, in the
event (i) the death or disability occurs after the mid-point of a particular
vesting year and (ii) the fair market value of the Class A Common Stock as of
the date of such death or disability equals or exceeds the exercise price per
share of the Performance Options scheduled to vest at the end of such vesting
year, such Performance Options will vest and be retained. The agreement also
provides that in the event Mr. Dickey is terminated by the Company without cause
or terminates his employment for good reason, the Company will pay to Mr. Dickey
an amount equal to the greater of (i) the base salary owed to Mr. Dickey for the
remainder of the term of the agreement and (ii) one times annual base salary in
effect as of the date of termination plus the last bonus received by Mr. Dickey
and all unvested Time Vested Options will vest and be retained. In addition, in
the event the fair market value of the Class A Common Stock as of the date or
such termination equals or exceeds the exercise price per share of the unvested
Performance Options, such Performance Options will vest and be retained. Such
Performance Options that become vested shall remain exercisable until 90 days
following the date that such Performance Options would otherwise have become
vested and exercisable. If, within the one-year period following a change of
control, the Company terminates Mr. Dickey's employment for any reason other
than death or disability or for cause or Mr. Dickey terminates his employment
for good reason, Mr. Dickey will be paid the same amount as if he were
terminated without cause if no change of control had occurred except all
unvested Time Vested Options and Performance Options will vest.
Mr. Bungeroth is a party to an employment agreement with Media LLC pursuant
to which he serves as President and Chief Executive Officer of the Company and
President and Chief Executive Officer of Broadcasting. Under the terms of Mr.
Bungeroth's employment agreement, he is entitled to receive
an annual base salary of $250,000 and is eligible to receive a bonus of up to
50% of his annual base salary based on goals agreed upon by Mr. Bungeroth and
QUAESTUS. Mr. Bungeroth's employment agreement is terminable by either party.
Upon the consummation of the Offerings, Mr. Bungeroth will enter into an
employment agreement with the Company with terms comparable to his existing
employment agreement.
Mr. Bonick is a party to an employment agreement with Media LLC pursuant to
which he serves as Vice President and Chief Financial Officer of the Company and
Broadcasting. Under the terms of Mr.
86
<PAGE>
Bonick's employment agreement, he is entitled to receive an annual base salary
of $250,000 and is eligible to receive a bonus of up to 50% of his annual base
salary based on goals agreed upon by Mr. Bonick and QUAESTUS. Mr. Bonick's
employment agreement is terminable by either party. Upon consummation of the
Offerings, Mr. Bonick will enter into an employment agreement with the Company
with terms comparable to his existing employment agreement.
BOARD OF DIRECTORS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Sheridan and Everett will comprise the Company's Compensation
Committee. Prior to the Stock Offerings, the Company did not have a Compensation
Committee and compensation decisions were made primarily by the Board and the
Investment Committee including representatives of NationsBanc Capital Corp.,
Heller Equity Capital Corporation and State of Wisconsin Investment Board.
AUDIT COMMITTEE
Messrs. Sheridan and Everett will serve as the Company's Audit Committee.
NON-EMPLOYEE DIRECTOR COMPENSATION
Each member of the Board of Directors who is not an officer or an owner, or
the representative of an owner, of more than 5% of the outstanding Class A
Common Stock of the Company receives compensation of $ per meeting for
serving on the Board of Directors. The Company also reimburses Directors for any
expenses incurred in attending meetings of the Board of Directors and the
committees thereof. Upon their election to the Board of Directors or the closing
of the Offering (whichever is later), each non-employee Board member will be
granted options to purchase shares of the Company's Class A Common Stock.
Such options will be exercisable at the fair market value of the common stock at
the date of grant. These options will become vested and exercisable for up to
33% of the total optioned shares upon the first anniversary of the grant of the
options and for an additional 33% of the total optioned shares upon each
succeeding anniversary until the option is fully exercisable at the end of the
third year.
87
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1997, the Company acquired two radio stations (one AM and one FM
station) in Toledo, Ohio from Midwestern Broadcasting, Inc. ("Midwestern"), an
entity controlled by Lewis Dickey, Sr., the father of the Company's Executive
Vice Chairman, Lewis W. Dickey, Jr., and Vice President and Director of
Programming, John Dickey. Lewis W. Dickey, Jr., was Midwestern's President and
Chief Operating Officer. John Dickey served as Director of Programming of
Midwestern from January 1990 until March 1998. The total purchase price of the
stations purchased from Midwestern was $10.0 million.
Richard W. Weening, Lewis W. Dickey, Jr., John Dickey and other members of
the Dickey family have ownership interests in three radio stations (two FM
stations and one AM station) in Nashville, Tennessee which are not affiliates of
the Company.
Lewis W. Dickey, Jr. and John Dickey each have a 25% ownership interest in
Stratford Research, an entity that provides programming and marketing consulting
and market research services to the Company. Historically, Stratford Research
has received a one-time $25,000 per market fee to evaluate programming at target
radio stations prior to acquisition. Annual strategic studies of each market
have been provided at a cost of $25,000 per year, per market. Program consulting
services for acquired stations have been provided on an as needed basis. Total
fees earned by Stratford Research during 1997 totaled $424,000. Under the new
agreement with Stratford Research which takes effect immediately prior to the
consummation of the Offerings, Stratford Research will continue to receive
$25,000 to evaluate programming at target radio stations. The strategic studies
will cost the Company a minimum of $25,000, negotiable depending on competitive
market conditions. Additionally, Stratford Research will provide program
consulting services for $900 per month, per FM station, increasing to $1,100 per
month per FM station over the three years of the agreement.
QUAESTUS, an entity controlled by Mr Weening, provides industry research,
market support and due diligence support services, and transaction management
for the Company's acquisitions and provides certain corporate finance and
related services in support of the Company's treasury function. Prior to March
1998, QUAESTUS received $25,000 for each FM station acquired, from which was
paid additional out-of-pocket expenses for legal, due diligence, and engineering
expenses in connection with each acquisition. During 1997, the Company paid
QUAESTUS $297,000 for acquisition and corporate finance services. Under the new
agreement with QUAESTUS which takes effect immediately prior to the consummation
of the Offerings, QUAESTUS will receive a specified rate per transaction between
$15,000 and $60,000, depending on the number of FM stations acquired in the
transaction, and conditioned on consummation of those transactions. In addition,
the Company is obligated to reimburse QUAESTUS for all of its expenses incurred
in connection with the performance of services under such agreement.
The Company also paid to Media LLC fees in 1997 consisting of (i) a
non-recurring organizational fee of $300,000 (with QUAESTUS receiving $180,000
of such fee and DBBC, receiving $120,000 of such fee) and (ii) a management fee
of $206,000 (with QUAESTUS receiving $123,600 of such fee from Media LLC and
DBBC receiving $82,400 of such fee from Media LLC). Upon the consummation of the
Offerings, the fee paid to Media LLC shall terminate. Lewis W. Dickey, Jr. and
John Dickey have a 75% and 25% ownership interest in DBBC, respectively.
CCC has a liability to Robin Woodard Weening, the former president of CCC
and the wife of Richard Weening, representing deferred compensation in the
amount of approximately $184,000, which is accruing interest. Ms. Weening is an
employee of QUAESTUS and is currently a member of the board of directors of CCC.
88
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of , 1998 and as adjusted to
give effect to the sale of Class A Common Stock offered hereby, certain
information regarding beneficial ownership of the Company's Common Stock by (i)
State of Wisconsin Investment Board ("the Selling Stockholder"), (ii) each
person who is known to the Company to be the beneficial owner of more than 5% of
the outstanding shares of common stock, (iii) each director, (iv) each of the
Named Executive Officers and (v) all directors and executive officers as a
group. All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated.
<TABLE>
<CAPTION>
CLASS B
COMMON
STOCK(1)
CLASS A COMMON STOCK -----------
-----------------------------------------------------------------------
PRIOR TO
PRIOR TO STOCK AFTER STOCK OFFERINGS STOCK
OFFERINGS OFFERINGS
-------------------------- SHARES BEING -------------------------- -----------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE NUMBER
- ---------------------------------------- ----------- ------------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
State of Wisconsin Investment Board
NationsBanc Capital Corp.
Heller Equity Capital Corporation
The Northwestern Mutual Life Insurance
Company
CML Holdings, LLC
QUAESTUS Management Corporation
DBBC of Georgia, LLC
Richard W. Weening
Lewis W. Dickey, Jr.
William M. Bungeroth
Richard J. Bonick, Jr.
Robert H. Sheridan, III
Ralph B. Everett
<CAPTION>
CLASS C COMMON STOCK(2)
---------------------------------------
AFTER STOCK OFFERINGS PRIOR TO STOCK AFTER STOCK
OFFERINGS OFFERINGS
-------------------------- -------------------------- -----------
NAME PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER
- ---------------------------------------- ------------- ----------- ------------- ----------- ------------- -----------
<S> <C>
State of Wisconsin Investment Board
NationsBanc Capital Corp.
Heller Equity Capital Corporation
The Northwestern Mutual Life Insurance
Company
CML Holdings, LLC
QUAESTUS Management Corporation
DBBC of Georgia, LLC
Richard W. Weening
Lewis W. Dickey, Jr.
William M. Bungeroth
Richard J. Bonick, Jr.
Robert H. Sheridan, III
Ralph B. Everett
<CAPTION>
NAME PERCENTAGE
- ---------------------------------------- -------------
State of Wisconsin Investment Board
NationsBanc Capital Corp.
Heller Equity Capital Corporation
The Northwestern Mutual Life Insurance
Company
CML Holdings, LLC
QUAESTUS Management Corporation
DBBC of Georgia, LLC
Richard W. Weening
Lewis W. Dickey, Jr.
William M. Bungeroth
Richard J. Bonick, Jr.
Robert H. Sheridan, III
Ralph B. Everett
</TABLE>
- ------------------------------
(1) Except upon the occurrence of certain events, holders of Class B Common
Stock are not entitled to vote, whereas each share of Class A Common Stock
entitles its holders to one vote and subject to certain exceptions, each
share of Class C Common Stock entitles its holders to ten votes. Under
certain conditions and subject to prior governmental approval, shares of
Class B Common Stock are convertible into shares of Class A Common Stock
and/or Class C Common Stock.
(2) Subject to certain exceptions, each share of Class C Common Stock entitles
its holders to ten votes. Under certain conditions and subject to prior
governmental approval, shares of Class C Common Stock are convertible into
shares of Class A Common Stock.
(3) Less than 1%.
89
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company is
qualified by reference to the Company's Amended and Restated Articles of
Incorporation and Bylaws, which are filed as exhibits to the Registration
Statement of which this Prospectus is a part and are incorporated herein by
reference.
The Company's authorized capital stock consists of: (i) shares of
Class A Common Stock, $.01 par value per share; (ii) shares of Class B
Common stock, $.01 par value per share and (iii) shares of preferred
stock.
COMMON STOCK
GENERAL. Except with respect to voting and conversion, shares of Class A
Common Stock , Class B Common Stock and Class C Common Stock are identical in
all respects. Holders of shares of Class A Common Stock are entitled to one vote
per share; except as provided below, holders of Class B Common Stock are not
entitled to vote; and, subject to the immediately succeeding sentence, holders
of shares of Class C Common Stock are entitled to ten votes per share. During
the period of time commencing with the date of conversion of Class B Common
Stock to Class C Common Stock by NationsBanc or SWIB and ending with the date on
which NationsBanc and SWIB (together with their respective affiliates) each
ceases to beneficially own at least 5% of the aggregate shares of Common Stock
held by such holders immediately prior to the consummation of the Offerings,
holders of Class C Common Stock shall be entitled to only one vote per share.
VOTING. All actions submitted to a vote of the Company's stockholders are
voted on by holders of Class A Common Stock and Class C Common Stock, voting
together as a single class. Holders of Class B Common Stock are not entitled to
vote, except with respect to the following corporate actions ("Fundamental
Actions"): (i) any proposed amendment to the Company's articles of incorporation
or by-laws; (ii) any proposed merger, consolidation or other business
combination, or sale, transfer or other disposition of all or substantially all
of the assets of the Company; (iii) any proposed voluntary liquidation,
dissolution or termination of the Company; and (iv) any proposed transaction
resulting in a Change of Control and except as set forth below. The affirmative
vote of the holders of a majority of the outstanding shares of Class A Common
Stock and Class C Common Stock, voting together as a single class, and the
affirmative vote of the holders of a majority of the outstanding shares of Class
B Common Stock, voting separately as a class, are required to approve any
Fundamental Action; PROVIDED that such voting rights will cease with respect to
such holder of Class B Common Stock and the shares of Class B Common Stock held
by such holder shall not be included in determining the aggregate number of
shares outstanding for voting purposes, upon the failure of any such holder
(together with its affiliates) to beneficially own at least 50% of the shares
held by such holder immediately prior to the consummation of the Offerings.
In addition to the above voting rights, upon a final order by the FCC that
the granting of the right to NationsBanc to designate a director to the Board of
Directors of the Company pursuant to a stockholders agreement will not result in
NationsBanc's interest being "attributable" under applicable FCC rules and so
long as NationsBanc (together with its affiliates) continues to own not less
than 50% of the shares of the Company's common stock held by NationsBanc
immediately prior to the consummation of the Offerings, NationsBanc will,
pursuant to a stockholders agreement, be entitled to designate one director to
the Board of Directors of the Company. The Articles of Incorporation of the
Company will provide that, so long as NationsBanc (together with its affiliates)
continues to own not less than 50% of the shares of the Company's common stock
held by NationsBanc immediately prior to the consummation of the Offerings and
upon a final order by the FCC that the granting of the right to NationsBanc to
designate a director to the Board of Directors of the Company pursuant to a
stockholders agreement will not result in such holders' interest being
"attributable" under applicable FCC rules, (a) the holders of the Class C Common
Stock will be entitled to elect a director, which director shall be the
NationsBanc designee (the "Class C Director") to the Board of Directors of the
Company and (b) the Company may not take any of the following actions without
the unanimous vote of the Board of Directors (including the Class C Director):
90
<PAGE>
(i) enter into any transaction with any affiliate of the Company or amend or
otherwise modify any existing agreement with any affiliate of the Company other
than transactions with affiliates which are on terms no less favorable to the
Company than the Company would obtain in a comparable arm's-length transaction
with a Person not an affiliate of the Company and which are approved, after the
disclosure of the terms thereof, by vote of the majority of the Board of
Directors (PROVIDED, that any director which is an interested party or an
affiliate of an interested party will not be entitled to vote and will not be
included in determining whether a majority of the Board of Directors has
approved the transaction); (ii) issue any shares of Class B Common Stock or
Class C Common Stock of the Company; (iii) acquire (by purchase or otherwise) or
sell, transfer or otherwise dispose of assets having a fair market value in
excess of 10% of the Company's stockholders' equity as of the last day of the
preceding fiscal quarter for which financial statements are available; or (iv)
amend, terminate or otherwise modify any of the foregoing clauses (i) through
(iii) or this clause (iv) or any provision governing the voting or conversion
rights of the Class B Common Stock or the Class C Common Stock. Concurrently
with the consummation of the Offerings, the holders of the Class C Common Stock
will enter into a stockholders agreement with NationsBanc providing that such
holders of Class C Common Stock will elect the person designated by NationsBanc
as the Class C Director.
The Articles of Incorporation of the Company will provide that, so long as
NationsBanc (together with its affiliates) continues to own not less than 50% of
the shares of the Company's common stock held by NationsBanc immediately prior
to the consummation of the Offerings, the Company may not, so long as the
NationsBanc designee is not a director, take any action with respect to the
actions described above without the affirmative vote of the holders of a
majority of the outstanding shares of Class B Common Stock, voting separately as
a class.
The Articles of Incorporation will further provide that the Board of
Directors will be required to consider in good faith any bona fide offer from
any third party to acquire any stock or assets of the Company and to pursue
diligently any transaction determined by the Board of Directors in good faith to
be in the best interests of the Company's stockholders.
DIVIDENDS AND OTHER DISTRIBUTIONS (INCLUDING DISTRIBUTIONS UPON LIQUIDATION
OR SALE OF THE COMPANY). Each share of Class A Common Stock and Class B Common
Stock is equal in respect of dividends and other distributions in cash, stock or
property (including distributions upon liquidation of the Company and
consideration to be received upon a sale or conveyance of all or substantially
all of the Company's assets); except that in the case of dividends or other
distributions payable on the Class A Common Stock or Class B Common Stock in
shares of such stock, including distributions pursuant to stock splits or
dividends, only Class A Common Stock will be distributed with respect to Class A
Common Stock and only Class B Common Stock will be distributed with respect to
Class B Common Stock. In no event will any of the Class A Common Stock or Class
B Common Stock be split, divided or combined unless each other class is
proportionately split, divided or combined.
CONVERTIBILITY OF CLASS B COMMON STOCK INTO CLASS A COMMON STOCK OR CLASS C
COMMON STOCK AND CONVERTIBILITY OF CLASS C COMMON STOCK INTO CLASS A COMMON
STOCK. The Class B Common Stock is convertible at any time, or from time to
time, at the option of the holder of such Class B Common Stock (provided that
the prior consent of any governmental authority required to make such conversion
lawful shall have been obtained) without cost to such holder (except any
transfer taxes that may be payable if certificates are to be issued in a name
other than that in which the certificate surrendered is registered), into Class
A Common Stock or Class C Common Stock on a share-for-share basis; PROVIDED such
holder is not at the time of such conversion a Disqualified Person (as defined
below).
The Class C Common Stock is convertible at any time, or from time to time,
at the option of the holder of such Class C Common Stock (provided that the
prior consent of any governmental authority required to make such conversion
lawful shall have been obtained) without cost to such holder (except any
transfer taxes that may be payable if certificates are to be issued in a name
other than that in which the
91
<PAGE>
certificate surrendered is registered), into Class A Common Stock on a
share-for-share basis; PROVIDED such holder is not at the time of such
conversion a Disqualified Person.
A record or beneficial owner of shares of Class B Common Stock or Class C
Common Stock which was converted from Class B Common Stock may transfer such
shares of Class B Common Stock or Class C Common Stock (whether by sale,
assignment, gift, bequest, appointment or otherwise) to any transferee, PROVIDED
that the prior consent of any governmental authority required to make such
transfer lawful shall have been obtained, and PROVIDED, FURTHER, that the
transferee is not a Disqualified Person. Concurrently with any such transfer,
all shares of such transferred Class B Common Stock or Class C Common Stock
shall convert into shares of Class A Common Stock, and the holders of such
converted Common Stock shall exchange its share certificates for Class A Common
Stock.
As a condition to any proposed transfer or conversion, the person who
intends to hold the transferred or converted shares will provide the Company
with any information reasonably requested by the Company to enable the Company
to determine whether such a person is a Disqualified Person
A person shall be deemed to be a "Disqualified Person" if, (and with respect
to any proposed conversion or transfer, after giving effect to such proposed
conversion or transfer), the Board of Directors of the Company in good faith
determines a person is (or would be after giving effect to such conversion or
transfer), or a person becomes aware that he or she is (or would be after giving
effect to such conversion or transfer), or the FCC determines by a final order
that such person is (or would be after giving effect to such conversion or
transfer), a person which, directly or indirectly, as a result of ownership of
Common Stock or other capital stock of the Company or otherwise (i) causes (or
would cause) the Company or any of its subsidiaries to violate the multiple,
cross-ownership, cross-interest or other rules, regulations, policies or orders
of the FCC, or (ii) would result in disqualification of the Company or any of
its subsidiaries as a licensee of the FCC or (iii) would cause the Company to
violate the provisions with respect to foreign ownership or voting of the
Company or any of its subsidiaries as set forth in Section 310(b)(3) or (4) of
the Communications Act, as applicable. Notwithstanding the foregoing, if a
person objects in good faith, within 10 days of notice by the Company that the
Board of Directors has determined that such person is a Disqualified Person to
such determination, the Company and/or such person shall, when appropriate,
apply for a determination by the FCC with respect thereto within 10 days of
notice of such objection. If no determination is made by the FCC within 90 days
from the date of such application or if the Company and such holder determine
that it is inappropriate to make any application to the FCC, the Company and
such holder agree that such determination shall be made by an arbitrator,
mutually agreed upon by the Company and such holder. Notwithstanding the
foregoing, until a determination is made by the FCC (and such determination is a
final under) or by the arbitrator, such person will not be deemed a Disqualified
Person.
In the event the FCC determines by a final order, a person obtains knowledge
that it is, or, subject to the above, the Board of Directors, in good faith
determines that, a person is a Disqualified Person, such person shall promptly
take any and all actions necessary or required by the FCC to cause such person
to cease being a Disqualified Person, including, without limitation, divesting
all or a portion of its interest in the Company, making an application to or
requesting a ruling from and/or cooperating with the Company in any application
to or a ruling the FCC seeking a waiver for or an approval of such ownership,
divesting itself of any ownership interest in any entity which together with
such person's interest in the Company makes such person a Disqualified Person,
entering into a voting trust whereby its interest in the Company will not make
such person a Disqualified Person or exchanging its shares of Common Stock for
Class B Common Stock. The Articles of Incorporation will provide that all shares
of Common Stock will bear a legend regarding restrictions on transfer and
ownership.
REGISTRATION RIGHTS OF CERTAIN HOLDERS. Pursuant to an agreement among the
Company, and NationsBanc, SWIB and certain other holders collectively, (the
"Holders of Registrable Stock") of approximately shares of Class B Common
Stock and shares of Class A Common Stock and shares of Class C
Common Stock issuable upon the exercise of conversion rights with respect to the
92
<PAGE>
Class B Common Stock, the Holders of Registrable Stock are entitled to certain
demand and piggyback registration rights (or, in come cases, piggyback
registration rights only) with respect to shares of Class A Common Stock (the
"Registrable Stock"). Pursuant to such agreement, at any time after the 180th
day following the date of this Prospectus, (i) in the case of a first notice,
persons holding more than 25% of the Registrable Stock, (ii) in the case of a
second notice, persons holding more than 25% of the Registrable Stock, excluding
Registrable Stock held by the person(s) initiating the first notice and (iii) in
the case of a third notice, persons holding more than 20% of the Registrable
Stock, excluding Registrable Stock held by person(s) initiating the first or
second notice or may request may request that the Company file a registration
statement under the Securities Act and, upon such request and subject to certain
conditions, the Company generally will be required to use its commercially
reasonable efforts to effect any such registration. The Company is not required
to effect more than three such demand registrations (subject to (i) one
additional demand Registration if all Registrable Stock to be included in prior
demand registrations are not so included and (ii) one additional demand to
NationsBanc in the event NationsBanc is not permitted, pursuant to a no-action
letter from the Commission, to "tack" the holding period of Media LLC to its own
holding period with respect to the shares of the Common Stock distributed to
NationsBanc upon dissolution of Media LLC. In addition, if the Company proposes
to register any of its securities, either for its own account or for the account
of other stockholders (including, without limitation, for the account of any
Holder of Registrable Stock), the Company is required, with certain exceptions,
to notify all Holders of Registrable Stock and, subject to certain limitations,
to include in such registration all of the shares of Common Stock requested to
be included by the Holders of Registrable Stock. The Company is generally
obligated to bear the expenses, other than underwriting discounts and sales
commissions, of all of these registrations. The piggyback registration rights
expire at such time as a Holder of Registrable Stock would be able to dispose of
all of its registrable securities in any six-month period under Rule 144 of the
Securities Act.
PREEMPTIVE RIGHTS. Neither the Class A Common Stock nor the Class B Common
Stock carry any preemptive rights enabling a holder to subscribe for or receive
shares of stock of the Company of any class or any other securities convertible
into shares of stock of the Company. The Cumulus Board possesses the power to
issue shares of authorized but unissued Class A Common Stock without further
stockholder action.
LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any liquidation,
dissolution or winding up of Cumulus, whether voluntarily or involuntarily,
after payment or provision for payment of the debts and other liabilities of
Cumulus and the preferential amounts to which the holders of any stock ranking
prior to the Class A Common Stock and the Class B Common Stock in the
distribution of assets shall be entitled upon liquidation, the holders of the
Class A Common Stock and the Class B Common Stock shall be entitled to share pro
rata in the remaining assets of Cumulus according to their respective interests.
PREFERRED STOCK
Preferred stock may be issued from time to time by the Company's Board of
Directors, without stockholder approval, in one or more classes or series.
Subject to the provisions of the Amended and Restated Articles of Incorporation
and the limitations prescribed by law, the Board of Directors is expressly
authorized to adopt resolutions to issue the shares of preferred stock, to fix
the number of shares and to change the number of shares constituting any series,
and to provide for or change the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms or redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any class or series of
preferred stock, in each case without any further action or vote by the
stockholders.
One of the effects of undesignated preferred stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer,
93
<PAGE>
proxy contest, merger or otherwise, and thereby to protect the continuity of the
Company's management. The issuance of shares of the preferred stock pursuant to
the Board of Directors' authority described above may adversely affect the
rights of the holders of Common Stock. For example, preferred stock issued by
the Company may rank prior to the Common Stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of Common Stock. Accordingly, the issuance of shares
of preferred stock may discourage bids for the Common Stock at a premium or may
otherwise adversely affect the market price of the Common Stock.
CERTAIN STATUTORY AND OTHER PROVISIONS
Illinois law and the Company's Articles of Incorporation and Bylaws contain
several provisions that may make the acquisition of control of the Company by
means of tender offer, open market purchases, proxy contest or otherwise more
difficult. Set forth below is a description of those provisions.
ILLINOIS LAW. Following the Offering, the Company will be subject to
Section 7.85 of the Business Corporation Act of Illinois ("Section 7.85").
Section 7.85 prohibits a publicly held Illinois corporation from engaging in a
"business combination" with an "interested shareholder," unless the proposed
"business combination" (i) receives the affirmative vote of the holders of at
least 80% of the combined voting power of the then outstanding shares of all
classes and series of the corporation entitled to vote generally in the election
of directors (the "Voting Shares") voting together as a single class, and the
affirmative vote of a majority of the combined voting power of the then
outstanding Voting Shares held by disinterested shareholders voting together as
a single class, (ii) is approved by at least two-thirds of the "disinterested
directors," or (iii) provides for consideration offered to shareholders that
meets certain fair price standards and satisfied certain procedural
requirements. Such fair price standards require that the fair market value per
share of such consideration be equal to or greater than the higher of (A) the
highest price paid by the "interested shareholder" during the two-year period
immediately prior to the first public announcement of the proposed "business
combination" or in the transaction by which the "interested shareholder" became
such, and (B) the fair market value per common share on the first trading date
after the date the first public announcement of the proposed "business
combination" has become such. For purposes of Section 7.85, "disinterested
director" means any member of the board of directors of the corporation who (a)
is neither the "interested shareholder" nor an affiliate or associate thereof,
(b) was a member of the board of directors prior to the time that the
"interested shareholder" became such, or was recommended to succeed a
"disinterested director" by a majority of the "disinterested directors" then in
office, and (c) was not nominated for election as a director by the "interested
shareholder" of any affiliate or associate thereof. For purposes of Section 7.85
and Section 11.75 described below, a "business combination" includes a merger,
asset sale or other transaction resulting in a financial benefit to the
interested shareholder, and an "interested shareholder" is a person who,
together with affiliates and associates, owns (or within the prior two years,
did own) 10% or more of the combined voting power of the outstanding Voting
Shares.
The Company is also subject to Section 11.75 of the Business Corporation Act
of Illinois ("Section 11.75") which prohibits "business combinations" with
"interested shareholders" for a period of 3 years following the date that such
shareholder became an "interested shareholder," unless (i) prior to such date,
the Board of Directors approve the transaction that resulted in the shareholder
becoming an "interested shareholder," or (ii) upon consummation of such
transaction, the "interested shareholder" owned at least 85% of the Voting
Shares outstanding at the time such transaction commenced (excluding shares
owned by directors who are also officers, and shares owned by employee stock
plans in which employee participants do not have the right to determine
confidentiality whether shares held subject to the plan will be tendered in a
tender or exchange offer), or (iii) on or after such date, the "business
combination" is approved by the Board of Directors and authorized at a meeting
of the shareholders by two-thirds of the outstanding Voting Shares not owned by
the "interested shareholder." For purposes of Section 11.75, an "interested
shareholder" is a person who, together with affiliates and associates, owns (or
within the prior three years, did own) 15% or more of the combined voting power
of the Voting Shares.
94
<PAGE>
Illinois law requires the affirmative votes of at least two-thirds of the
votes of the shares of the Company entitled to approved or authorize any (a)
merger or consolidation of the Company with or into another corporation, (b)
sale, lease or other disposition of all or substantially all of the assets of
the Company, (c) dissolution of the Company or (d) amendment of the Company's
Articles of Incorporation. The two-thirds voting requirement may have the effect
of delaying, deterring or preventing a change of control of the Company not
favored by a shareholder or group of shareholders holding more than one-third of
the outstanding voting stock.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES. The Company's Articles
of Incorporation eliminate the liability of the Company's directors to the
Company or its shareholders for monetary damages resulting from breaches of
their fiduciary duties as directors. Directors remain liable for breaches of
their duty of loyalty to the Company or its shareholders, as well as for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law and transactions from which a director derives improper
personal benefit. The Company's Articles of Incorporation also do not absolve
directors of liability under Section 8.65 of the Business Corporation Act of
Illinois, which makes directors personally liable for (i) unlawful dividends or
unlawful stock repurchases or redemptions if the director did not act in good
faith, (ii) the barring of known claims against the corporation after
dissolution, and (iii) debts incurred by a dissolved corporation in carrying on
its business. The effect of this provision is to eliminate the personal
liability of directors for monetary damages for actions involving a breach of
their fiduciary duty of care, including any such actions involving gross
negligence. The Company believes that this provision does not eliminate the
liability of directors of the Company to the Company or its stockholders for
monetary damages under the Federal securities laws. The Articles of
Incorporation and Bylaws also provide indemnification for the benefit of
directors and officers of the Company to the fullest extent permitted by
Illinois law as it may be amended from time to time, including most
circumstances under which indemnification otherwise would be discretionary.
SERIES A PREFERRED STOCK AND EXCHANGEABLE DEBENTURES
GENERAL. Concurrently with the Stock Offerings, the Company is offering in
accordance with its Statement of Resolutions Fixing Terms (the "Certificate of
Designation") shares of % Series A Cumulative Exchangeable Redeemable
Preferred Stock due 2009, with a liquidation preference of $1,000 per share.
DIVIDENDS. The holders of the Series A Preferred Stock are entitled to
receive cumulative dividends at an annual rate equal to % of the liquidation
preference per share of the Series A Preferred Stock, payable quarterly, in
arrears. On or before , 2003, the Company may, at its option, pay
dividends in cash or in additional fully paid and non-assessable shares of
Series A Preferred Stock having a liquidation preference equal to the amount of
such dividends. It is not expected that the Company will pay any dividends in
cash prior to , 2003. After , 2003, dividends may be paid
only in cash. The terms of the Credit Facility and the Indenture restrict, and
future indebtedness of the Company may restrict, the payment of cash dividends
by the Company.
REDEMPTION. The shares of Series A Preferred Stock are subject to mandatory
redemption in , 2009, at a price equal to 100% of the liquidation
preference thereof plus any and all accrued and unpaid cumulative dividends
thereon. Except as provided herein, the Company may not redeem the Series A
Preferred Stock prior to , 2003. On or after such date, the Company
may redeem the Series A Preferred Stock at the redemption prices set forth under
the terms of the Certificate of Designation pursuant to which the Series A
Preferred Stock will be issued together with accumulated and unpaid dividends,
if any, to the date of redemption. Prior to , 2001, the Company may
redeem up to 35% of the original aggregate liquidation preference of the Series
A Preferred Stock with the proceeds of one or more Equity Offerings (as defined
in the Certificate of Designation) at a redemption price equal to % of the
liquidation preference thereof plus accumulated and unpaid dividends thereon.
In the event of a change of control, the Company must offer to redeem the
outstanding
95
<PAGE>
shares of the Series A Preferred Stock for cash at a purchase price of 101% of
the liquidation preference thereof, together with all accumulated and unpaid
dividends.
VOTING. The holders of the shares of the Series A Preferred Stock will have
no voting rights with respect to general corporate matters except that the
holders of a majority of the then outstanding Series A Preferred Stock, voting
as a class, may elect two directors to the Board of Directors of the Company in
the event of (i) a failure to pay dividends on the Series A Preferred Stock for
four consecutive quarters, (ii) a failure to discharge a redemption obligation
with respect to the Series A Preferred Stock, (iii) a failure to offer to
purchase the outstanding shares of Series A Preferred Stock following a change
of control, (iv) a violation of certain covenants after the expiration of
applicable grace periods, all as set forth in the Certificate of Designation or
(v) a default in the payment of principal, premium or interest in indebtedness
of the Company or certain of its subsidiaries or any other default which results
in the acceleration of such indebtedness prior to its maturity, in each case if
the aggregate principal amount of all such indebtedness exceeds $5.0 million.
The approval of holders of a majority of the outstanding shares of Series A
Preferred Stock, voting as a separate class, will be required for (i) any
merger, consolidation or sale of all or substantially all of the assets of the
Company not specifically permitted by the Certificate of Designation and (ii)
any modification to the Certificate of Designation or the form of the Exchange
Debenture Indenture.
LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution
or winding up of the Company, the holders of the Series A Preferred Stock are
entitled to be paid for each share thereof out of the assets of the Company
before any distribution is made to any shares of junior stock.
EXCHANGE The Company may at its option exchange all, but not less than all,
of the then outstanding shares of Series A Preferred Stock into the Exchange
Debentures on any dividend payment date, subject to certain restrictions
contained in the Certificate of Designation.
EXCHANGE DEBENTURES The Exchange Debentures, if issued, will be issued
under an indenture between the Company and , as trustee (the "Exchange
Debenture Indenture"). The Exchange Debentures will be issued in fully
registered form only in denominations of $1,000 and integral multiples thereof.
Interest on the Exchange Debentures will be payable semi-annually in arrears in
cash (or on or prior to 2003, in additional Exchange Debentures, at the option
of the Company). The Exchange Debentures will be unsecured and will be
subordinated in right of payment to all Exchange Debenture Senior Debt (as
defined in the Exchange Debenture Indenture), including debt in respect of the
Credit Facility and the Notes and will contain covenants and events of default
and remedies with respect thereto which are substantially similar to the
covenants contained in the Notes. See "Description of Credit Facility and
Notes--The Notes."
The Exchange Debentures are subject to mandatory redemption in
2009, at a price equal to 100% of the principal amount thereof
together with accrued and unpaid interest, if any, to the date of redemption.
Except as provided herein, the Company may not redeem the Exchange Debentures
prior to 2003. On or after such date, the Company may redeem the
Exchange Debentures at the redemption prices set forth in the indenture
governing the Exchange Debentures (the "Exchange Debenture Indenture") together
with accrued and unpaid interest, if any, to the date of redemption. Prior to
2001, the Company may redeem up to 35% of the original aggregate
principal amount of the Exchange Debentures with the proceeds of one or more
Equity Offerings (as defined in the Exchange Debenture Indenture) at a
redemption price equal to % of the principal amount thereof plus accrued and
unpaid interest thereon. In the event of a change of control, the Company must
offer to redeem the outstanding shares of the Exchange Debentures for cash at a
purchase price of 101% of the principal amount thereof, together with all
accrued and unpaid interest.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is Firstar
Trust Company.
96
<PAGE>
DESCRIPTION OF CREDIT FACILITY AND NOTES
THE CREDIT FACILITY
GENERAL. In March 1998, the Company entered into a $190.0 million senior
credit facility with Lehman Brothers Inc., as Arranger and Lehman Commercial
Paper Inc., as Lender, Syndication Agent and Administrative Agent pursuant to
which the Company has available a revolving credit line of $110.0 million until
March 2, 2006, and an eight-year term loan facility of $80.0 million. The
proceeds of the borrowings under the Credit Facility have been used to finance
acquisitions and repay the Company's outstanding indebtedness under the Old
Credit Facility, and to secure outstanding Letters of Credit issued under the
Old Credit Facility in an aggregate amount equal to approximately $10.0 million.
As of March 31, 1998, approximately $120.3 million was outstanding under the
Credit Facility. See "Use of Proceeds."
SECURITY; GUARANTEES. The Company's obligations under the Credit Facility
are secured by substantially all of its assets in which a security interest may
lawfully be granted (including FCC licenses held by the Company's subsidiaries)
including, without limitation, intellectual property, real property, and all of
the capital stock of the Company's direct and indirect domestic subsidiaries and
65% of the capital stock of any foreign subsidiaries. The obligations under the
Credit Facility are also guaranteed by each of the domestic subsidiaries of the
Company and is required to be guaranteed by any additional subsidiaries acquired
by the Company.
INTEREST RATES; FEES; REPAYMENTS. Both revolving credit and term loan
borrowings under the Credit Facility bear interest, at the Company's option, at
a rate equal to the Base Rate (as defined under the terms of the Credit
Facility) plus a margin ranging between 0.50% to 1.75%, or the Eurodollar Rate
(as defined under the terms of the Credit Facility) plus a margin ranging
between 1.50% to 2.75% (in each case dependent upon the leverage ratio of the
Company). A commitment fee calculated at a rate ranging from 0.375% to 0.50% per
annum (depending upon the Company's leverage ratio) of the average daily amount
available under the revolving line of credit and the amount available under the
term loan facility is payable quarterly in arrears and fees in respect of
letters of credit issued under the Credit Facility equal to the lesser of (i)
the interest rate margin then applicable to Eurodollar Rate loans and (ii) 2.50%
is also payable quarterly in arrears. In addition, a fronting fee to be agreed
to by the Company and the issuing bank of such letter of credit calculated at a
rate not to exceed 0.0125% per annum on the maximum amount of each letter of
credit is payable quarterly to the issuing bank.
The revolving credit and term loan borrowings are repayable in equal
quarterly installments beginning in 2000. The scheduled annual amortization of
the term loans is $10.0 million in each of the years 2000 through 2002, $15.0
million in each of the years 2003 through 2005, and $5.0 million at maturity.
The scheduled annual reduction in availability under the revolving credit loans
is $10.0 million in each of the years 2000 and 2001, $15.0 million in 2002,
$20.0 million in year 2003, $25.0 million in each of the years 2004 and 2005,
and $5.0 million at maturity in 2006. Certain mandatory prepayments of the term
loan facility and the revolving credit line and reductions in the availability
of the revolving credit line is required to be made including: (i) subject to
certain exceptions (including the issuance of capital stock or the incurrence of
senior subordinated indebtedness prior to September 2, 1998) 100% of the net
proceeds from any issuance of capital stock in connection with an initial public
offering or incurrence of indebtedness; (ii) 100% of the net proceeds from
certain asset sales; and (iii) between 50% and 75% (dependent on the leverage
ratio of the Company) of the excess cash flow of the Company.
COVENANTS. The terms of the Credit Facility contain operating and financial
covenants, including, without limitation, requirements to maintain minimum
ratios of cash flow to debt service and maximum ratios of total debt to cash
flow and senior debt to cash flow. In addition, the terms of the Credit Facility
restrict, among other things, the ability of the Company and its subsidiaries to
incur additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person or
sell, assign,
97
<PAGE>
transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Sources of
Liquidity."
EVENTS OF DEFAULT. The terms of the Credit Facility contain events of
default after expiration of applicable grace periods, including failure to make
payments on the Credit Facility, breach of covenants, breach of representations
and warranties, invalidity of the agreement governing the Credit Facility and
related documents, cross default under other agreements or conditions relating
to indebtedness of the Company or its subsidiaries, certain events of
liquidation, moratorium, insolvency, bankruptcy or similar events, enforcement
of security, certain litigation or other proceedings, and certain events
relating to changes in control.
Upon the occurrence of an event of default under the terms of the Credit
Facility, the majority of the banks may declare all amounts under the Credit
Facility to be due and payable and take certain other actions, including
enforcement of rights in respect of the collateral. The majority of the banks
extending credit under the term loan facility and the majority of the banks
under the revolving credit line may terminate the term loan facility and the
revolving credit line, respectively.
THE NOTES
GENERAL. Concurrently with the Common Stock Offerings, the Company is
offering $ of % Senior Subordinated Notes due 2008.
INTEREST. The Notes bear interest at the rate of % per annum, payable
semi-annually in arrears.
REDEMPTION. The Notes mature on , 2008, at a price equal to 100%
of the principal amount thereof together with accrued and unpaid interest, if
any, to the date of redemption. Except as provided herein, the Company may not
redeem the Notes prior to , 2003. On or after such date, the Company
may redeem the Notes at the redemption prices set forth in the indenture
pursuant to which the Notes will be issued (the "Indenture") together with
accrued and unpaid interest, if any, to the date of redemption. Prior to
, 2001, the Company may redeem up to 35% of the original aggregate
principal amount of the Notes with the proceeds of one or more Equity Offerings
(as defined in the Indenture) at a redemption price equal to % of the
principal amount thereof plus accrued and unpaid interest thereon; provided,
however, that at least 65% of the original aggregate principal amount of the
Notes remain outstanding following each such redemption. In the event of a
change of control, the Company must offer to redeem the outstanding shares of
the Notes for cash at a purchase price of 101% of the principal amount thereof,
together with all accrued and unpaid interest.
RANKING. The Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt (as
defined in the Indenture), including all obligations of the Company under the
Credit Facility. On a pro forma basis, after giving effect to the Transactions
as if they had occurred on March 31, 1997, the Company would have had
outstanding $29.4 million of Senior Debt.
CERTAIN COVENANTS. The Indenture will contain certain covenants that, among
other things, limit the ability of the Company and its Restricted Subsidiaries
(as defined in the Indenture) to incur additional debt, pay dividends or make
other distributions, repurchase any capital stock or subordinated debt, make
certain investments, create certain liens, enter into certain transactions with
affiliates, sell assets or enter into certain mergers and consolidations. In
addition, the Indenture will contain a covenant limiting the lines of business
of certain Unrestricted Subsidiaries (as defined in the Indenture).
EVENTS OF DEFAULT. The terms of the Indenture contain events of defaults,
including failure to make payments on the Notes, breach of covenants, breach of
representations and warranties, cross default under other agreements or
conditions relating to indebtedness of the Company or its restricted
subsidiaries, certain events of liquidation, moratorium, insolvency, bankruptcy
or similar events and certain litigation or other proceedings.
98
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Stock Offerings, the Company will have outstanding
shares of Class A Common Stock, shares of Class B Common Stock and
shares of Class C Common Stock. In addition, the Company will have
outstanding options to purchase shares of Class A Common Stock and
shares of Class C Common Stock. Of these shares, the shares of Class A
Common Stock offered hereby will be freely transferable without restriction
(subject to any FCC consent that might be required) or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined in Rule 144, may generally only be sold
subject to certain restrictions as to timing, manner and volume.
The Company, its directors, and certain officers of the Company, who will
directly or indirectly own shares of Class A Common Stock and/or Class C
Common Stock and options to purchase shares of Class A Common Stock and/or
Class C Common Stock upon completion of the Stock Offerings, have, subject to
certain exceptions, agreed not to, directly or indirectly, offer for sale, sell
or otherwise dispose of, or announce the offering of, any shares of Class A
Common Stock or any securities convertible into or exercisable or exchangeable
for shares of Class A Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Lehman Brothers Inc.
In general, under Rule 144 as currently in effect, a shareholder, including
an Affiliate, who has beneficially owned his or her restricted securities (as
that term is defined in Rule 144) for at least one year from the later of the
date such securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate is entitled to sell, within any three-month
period, a number of such shares that does not exceed the greater of 1% of the
then outstanding shares of Class A Common Stock or the average weekly trading
volume in the Class A Common Stock during the four calendar weeks preceding the
date on which notice of such sale was filed under Rule 144, provided certain
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, under Rule 144(k), if a period of at
least two years has elapsed between the later of the date restricted securities
were acquired from the Company or (if applicable) the date they were acquired
from an Affiliate of the Company, a stockholder who is not an Affiliate of the
Company at the time of sale and has not been an Affiliate of the Company for at
least three months prior to the sale is entitled to sell the shares immediately
without compliance with the foregoing requirements under Rule 144.
The Company intends to file registration statements on Form S-8 under the
Securities Act immediately following the consummation of the Offering to
register all shares of Class A Common Stock issuable under the Cumulus employee
benefit plans. The registration statements are expected to be filed on or
shortly after the closing date of the Offering and will be effective upon
filing. Shares issued upon the exercise of stock options after the effective
date of the Form S-8 registration statements will be eligible for resale in the
public market without restriction (subject to any FCC consent that might be
required), and subject to Rule 144 limitations applicable to Affiliates and the
lock-up agreements noted above.
Prior to the Offering, there has been no public market for the Class A
Common Stock. No prediction can be made as to the effect, if any, that market
sales of shares of Class A Common Stock or the availability of shares for sale
will have on the market price of the Class A Common Stock prevailing from time
to time. Nevertheless, sales of significant numbers of shares of Class A Common
Stock in the public market could adversely affect the market price of the Class
A Common Stock and could impair the Company's ability to raise capital through
an offering of its equity securities. See "Underwriting."
99
<PAGE>
UNDERWRITING
Under the terms of and subject to the conditions contained in the
underwriting agreement relating to the offering of shares of Class A Common
Stock in the U.S. and Canada (the "U.S. Underwriting Agreement"), the form of
which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, between the Company and each of the underwriters named
below (the "U.S. Underwriters"), for whom Lehman Brothers Inc., Bear, Stearns &
Co. Inc. and BT Alex. Brown Incorporated are acting as representatives (the
"Representatives"), the U.S. Underwriters have severally agreed to purchase from
the Company, and the Company has agreed to sell to each U.S. Underwriter, the
aggregate number of shares of the Class A Common Stock set forth opposite the
name of such U.S. Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
--------------------------------------------------------------------------- -----------
<S> <C> <C>
Lehman Brothers Inc...................................................................
Bear, Stearns & Co. Inc...............................................................
BT Alex. Brown Incorporated...........................................................
-----------
Total......................................................................
-----------
-----------
</TABLE>
Under the terms of and subject to the conditions contained in the
underwriting agreement relating to the offering of shares of Class A Common
Stock outside of the U.S. and Canada (the "International Underwriting Agreement"
and together with the U.S. Underwriting Agreement, the "Underwriting
Agreements"), the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, between the Company and each of
the international managers named below (the "International Managers" and
together with the U.S. Underwriters, the "Underwriters"), for whom Lehman
Brothers International (Europe), Bear, Stearns International Limited, BT Alex.
Brown International, division of Bankers Trust International PLC and Credit
Lyonnais Securities are acting as lead managers (the "Lead Managers"), the
International Managers have severally agreed to purchase from the Company, and
the Company has agreed to sell to each International Manager, the aggregate
number of shares of Class A Common Stock set forth opposite the name of such
International Manager below:
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
--------------------------------------------------------------------------- -----------
<S> <C> <C>
Lehman Brothers International (Europe)................................................
Bear, Stearns International Limited...................................................
BT Alex. Brown International..........................................................
Credit Lyonnais.......................................................................
-----------
Total......................................................................
-----------
-----------
</TABLE>
The Company has been advised by the Representatives and the Lead Managers
that the U.S. Underwriters and the International Managers propose to offer part
of the shares to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ per share under the public offering price (the
"selling concession"). The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per
100
<PAGE>
share to certain other Underwriters, or to certain other brokers or dealers.
After the initial offering to the public, the offering price and other selling
terms may be changed by the Representatives and the Lead Managers.
The Underwriting Agreements provide that the obligations of the several U.S.
Underwriters and the International Managers, respectively, to pay for and accept
delivery of the shares of Class A Common Stock offered hereby are subject to the
approval of certain legal matters by counsel and to certain other conditions and
that, if any of the shares of Class A Common Stock are purchased by the U.S.
Underwriters pursuant to the U.S. Underwriting Agreement or by the International
Managers pursuant to the International Underwriting Agreement, all the shares of
Class A Common Stock agreed to be purchased by either the U.S. Underwriters or
the International Managers, as the case may be, pursuant to their respective
Underwriting Agreements, must be so purchased. The initial public offering price
and underwriting discounts and commissions for each of the U.S. Offering and the
International Offering are identical. The closing of each Offering is
conditioned upon the closing of each of the other Offerings.
The Company has agreed in the Underwriting Agreements to indemnify the U.S.
Underwriters and the International Managers against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the U.S. Underwriters and the International Managers may be required to
make in respect thereof.
The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an additional shares and shares
of Class A Common Stock, respectively, exercisable solely to cover
over-allotments, at the initial offering price to the public, less the
underwriting discounts and commissions, shown on the cover page of this
Prospectus. Any or all of such options may be exercised at any time until 30
days after the date of the U.S. Underwriting Agreement and the International
Underwriting Agreement, as the case may be. To the extent that an option is
exercised, each U.S. Underwriter or International Manager, as the case may be,
will be committed, subject to certain conditions, to purchase a number of the
additional shares of Class A Common Stock proportionate to such Underwriter's
initial commitment as indicated in the preceding tables.
The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers (the "Agreement
Between") pursuant to which each U.S. Underwriter has agreed that, as part of
the distribution of the shares of Class A Common Stock offered in the U.S. and
Canada (plus any of the shares of Class A Common Stock to cover
over-allotments), (a) it is not purchasing any of such shares for the account of
anyone other than a U.S. or Canadian Person (as defined below) and (b) it has
not offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to such
shares to anyone other than a U.S. or Canadian Person. In addition, pursuant to
the Agreement Between, each International Manager has agreed that, as part of
the distribution of the shares of Class A Common Stock offered outside the U.S.
and Canada (plus any of the shares of Class A Common Stock to cover
over-allotments), (a) it is not purchasing any of such shares for the account of
any U.S. or Canadian Person and (b) it has not offered or sold, and will not
offer, sell, resell or deliver, directly or indirectly, any of such shares or
distribute any prospectus relating to such shares to any U.S. or Canadian
Person. Each International Manager also has agreed that it will offer to sell
shares of Class A Common Stock only in compliance with all relevant requirements
of any applicable laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Underwriting Agreements and the
Agreement Between, including (i) certain purchases and sales between the U.S.
Underwriters and the International Managers; (ii) certain offers, sales,
resales, deliveries or distributions to or through investment advisors or other
persons exercising investment discretion; (iii) purchases, offers or sales by a
U.S. Underwriter who is also acting as an International Manager for the account
of a Person other than a U.S. or Canadian Person and by an International Manager
who is also acting as a U.S. Underwriter for the account of a U.S. or Canadian
Person; and (iv) other transactions specifically approved by the U.S.
Underwriters and International Managers. As used
101
<PAGE>
herein, (a) the term "U.S." means the United States of America (including the
District of Columbia) and its territories, its possessions and other areas
subject to its jurisdiction, (b) the term "Canada" means Canada, its provinces,
territories and possessions and other areas subject to its jurisdiction and (c)
the term "U.S. or Canadian Person" means any resident or citizen of the U.S. or
Canada, any corporation, partnership or other entity created or organized in or
under the laws of the U.S. or Canada or any political subdivision thereof or any
estate or trust, the income of which is subject to U.S. federal income taxation
or Canadian income taxation regardless of the source (other than the foreign
branch of any U.S. or Canadian Person), and includes any U.S. or Canadian branch
of a person other than a U.S. or Canadian Person.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Managers of such number of shares of Class A
Common Stock as may be mutually agreed. Unless otherwise agreed, the price of
any shares so sold shall be the public offering price as then in effect for
Class A Common Stock being sold by the U.S. Underwriters and International
Managers, less the selling concession allocable to such shares of Class A Common
Stock. To the extent that there are sales pursuant to the Agreement Between, the
number of shares of Class A Common Stock initially available for sale by the
U.S. Underwriters or by the International Managers may be more or less than the
amount appearing on the cover page of this Prospectus.
This Prospectus is not, and under no circumstances is to be construed as, an
advertisement or a public offering of the Class A Common Stock in Canada or any
province or territory thereof. Any offer or sale of the shares of Class A Common
Stock in Canada may only be made pursuant to an exemption from the prospectus
and registration statement requirements in the province or territory of Canada
in which such offer or sale is made.
Each International Manager has represented and agreed that (i) it has not
offered or sold and prior to the date six months after the latest closing date
will not offer or sell any shares of Class A Common Stock to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 (the "1986 Act") with respect to anything done by it in
relation to the shares of Class A Common Stock in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on, and will only
issue and pass on to any person in the United Kingdom, any investment
advertisement (within the meaning of the 1986 Act) relating to the shares of
Class A Common Stock if that person falls within Article II(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom such document may otherwise lawfully be issued or passed on.
No action has been taken or will be taken in any jurisdiction by the Company
or the Underwriters that would permit a public offering of the shares of Class A
Common Stock in any jurisdiction where action for that purpose is required,
other than the U.S. Persons into whose possession this Prospectus comes are
required by the Company and the Underwriters to inform themselves about, and to
observe any restrictions as to, the offering of the shares of Class A Common
Stock and the distribution of this Prospectus.
Purchasers of the shares of Class A Common Stock offered hereby may be
required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase in addition to the offering price set forth
on the cover page hereof.
The Representatives and the Lead Managers have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they exercise
discretionary authority.
The Company and the directors, officers and stockholders of the Company have
generally agreed not to offer, sell, contract to sell or otherwise issue any
Class A Common stock or other capital stock prior to the expiration of 180 days
from the date of this Prospectus without the prior written consent of Lehman
Brothers Inc. on behalf of the Representatives and the Lead Managers.
102
<PAGE>
Until the distribution of the Class A Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase shares of Class A
Common stock. As an exception to these rules, the Representatives and the Lead
Managers are permitted to engage in certain transactions that stabilize the
price of the Class A Common Stock. Such transactions may consist of bids or
purchases for the purpose pegging, fixing or maintaining the price of the Class
A Common Stock.
If the Underwriters create a short position in the Class A Common Stock in
connection with the Stock Offerings (i.e., if they sell more shares of Class A
Common Stock than are set forth on the cover page of this Prospectus), the
Representatives and the Lead Managers may reduce that short position by
purchasing Class A Common Stock in the open market. The Representatives and the
Lead Managers also may elect to reduce any short position by exercising all or
part of the over-allotment options described herein.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could also cause the price of the security to
be higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
this Offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A Common stock. In addition,
neither the Company nor any of the Underwriters makes any representation that
the Representatives or Lead Managers will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Application has been made for the inclusion of the Class A Common Stock on
the Nasdaq National Market. In order to meet one of the requirements for listing
of the Class A Common Stock on the Nasdaq National market, the Underwriters have
agreed to sell lots of 100 or more shares to a minimum of beneficial
holders.
Lehman Brothers Inc. and Lehman Brothers Commercial Paper Inc., an affiliate
of Lehman Brothers Inc., act as Arranger, and Syndication Agent and
Administrative Agent, respectively, in connection with the Credit Facility and
will receive any repayment by the Company of amounts outstanding under the
Credit Facility from the proceeds of the Offerings. Lehman Brothers Inc. and
Bear, Stearns & Co. Inc. will act as representatives of the underwriters in the
concurrent Debt Offering and the concurrent Preferred Stock Offering. Each of
the Representatives has engaged from time to time and may in the future engage
in general financing and banking transactions with the Company or affiliates
thereof.
The Stock Offerings are being made pursuant to the provisions of Section
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc. Bear, Stearns & Co. Inc. ("Bear Stearns") has agreed to act as
Qualified Independent Underwriter for the Stock Offerings, and as such has
assumed responsibilities of conducting due diligence and has reviewed and
participated in the preparation of the Registration Statement. The public
offering price of the Class A Common Stock will not be higher than the price
recommended by Bear Stearns.
DETERMINATION OF THE OFFERING PRICE
Prior to the Stock Offerings, there has been no public market for the Class
A Common Stock. The initial public offering price for the Class A Common Stock
was determined by negotiations between the Company and the Representatives.
Among the factors considered in such negotiations were prevailing market
conditions, the market values of publicly traded companies that the Underwriters
believed to be somewhat comparable to the Company, the demand for the Class A
Common Stock and for similar securities of companies comparable to the Company,
the current state of the Company's development and other factors deemed
relevant. There can, however, be no assurance that the prices at which the Class
A Common Stock will sell in the public market after the Stock Offerings will not
be lower than the price at which it will be sold in the Stock Offerings.
103
<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS OF CLASS A COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate and gift tax consequences of the ownership and sale or other disposition
of Class A Common Stock by a holder that, for U.S. federal income tax purposes,
is not a "U.S. person" (a "Non-U.S. Holder"). For purposes of this discussion, a
"U.S. person" means a citizen or resident (as determined for U.S. federal income
tax purposes) of the U.S.; a corporation created or organized in the U.S. or
under the laws of the U.S. or of any political subdivision thereof; an estate
the income of which is subject to U.S. federal income taxation regardless of its
source or a trust if both (i) a U.S. court is able to exercise primary
supervision over the administration of the trust and (ii) one or more U.S.
persons have the authority to control all substantial decisions of the trust.
Resident alien individuals will be subject to U.S. federal income tax with
respect to the Class A Common Stock as if they were U.S. citizens.
The Company does not intend to treat the Class A Common Stock, the Notes and
the Series A Preferred Stock, all of which are being offered concurrently, as an
investment unit for United States federal income tax purposes.
THIS DISCUSSION IS BASED ON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE"), AND THE ADMINISTRATIVE INTERPRETATIONS AS OF THE DATE HEREOF, ALL
OF WHICH MAY BE CHANGED EITHER RETROACTIVELY OR PROSPECTIVELY. THIS DISCUSSION
IS FOR GENERAL INFORMATION ONLY, DOES NOT CONSIDER ANY SPECIFIC FACTS OR
CIRCUMSTANCES THAT MAY APPLY TO A PARTICULAR NON-UNITED STATES HOLDER AND DOES
NOT ADDRESS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, MUNICIPALITY, FOREIGN
COUNTRY OR OTHER TAXING JURISDICTION. PROSPECTIVE INVESTORS ARE URGED TO CONSULT
THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL TAX CONSEQUENCES OF
OWNING AND DISPOSING OF CLASS A COMMON STOCK (INCLUDING THE INVESTOR'S STATUS AS
A UNITED STATES PERSON OR NON-UNITED STATES HOLDER), AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY STATE, MUNICIPALITY, FOREIGN
COUNTRY OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends paid to a Non-U.S. Holder will generally be subject to withholding
tax at the rate of 30%, unless the dividend is effectively connected with the
conduct of a trade or business (or, if an income tax treaty applies, is
attributable to a "permanent establishment", as defined therein) within the U.S.
of the Non-U.S. Holder, in which case the dividend will be subject to the rules
described in the next paragraph. Non-U.S. Holders should consult any applicable
income tax treaties, which may provide for a reduced withholding rate or other
rules different from those described above. For purposes of determining whether
tax is to be withheld at a 30% rate or a reduced rate as specified by an income
tax treaty, current law permits the Company to presume that dividends paid to an
address in a foreign country are paid to a resident of such country absent
definite knowledge that such presumption is not warranted. However, under
recently finalized U.S. Treasury regulations, in the case of dividends paid
after December 31, 1999, a Non-U.S. Holder generally would be subject to U.S.
backup withholding tax at a 31% rate under the backup withholding rules
described below, rather than at a 30% rate or a reduced rate under an income tax
treaty, unless certain certification procedures (or, in the case of payments
made outside the U.S. with respect to an offshore account, certain documentary
evidence procedures) are satisfied, directly or through an intermediary.
Further, in order to claim the benefit of an applicable tax treaty rate for
dividends paid after December 31, 1999, a Non-U.S. Holder must comply with IRS
certification requirements. Certain IRS certification and disclosure
requirements must be complied with in order to be exempt from withholding under
the effectively connected income exemption. The new regulations also provide
special rules for dividend payments made to foreign intermediaries, U.S. or
foreign wholly owned entities that are disregarded for U.S. federal income tax
purposes and entities that are treated as fiscally transparent in the
104
<PAGE>
U.S., the applicable income tax treaty jurisdiction, or both. Prospective
investors should consult with their own tax advisers concerning the effect, if
any, of the adoption of these new Treasury regulations on an investment in the
Class A Common Stock. A Non-U.S. Holder who is eligible for a reduced
withholding rate may obtain a refund of any excess amounts withheld by filing a
tax return with the Internal Revenue Service (the "IRS").
U.S. withholding tax will not apply to dividends paid to a Non-U.S. Holder
if the company receives the appropriate IRS form (currently Form 4224) from that
Non-U.S. Holder, establishing that such income is effectively connected with the
conduct of a trade or business (or, if an income tax treaty applies, is
attributable to a "permanent establishment", as defined therein) of the Non-U.S.
Holder within the U.S., unless the Company has knowledge to the contrary.
Dividends paid to a Non-U.S. Holder that are effectively connected with the
conduct of a trade or business (or, if an income tax treaty applies, are
attributable to a "permanent establishment", as defined therein) of the Non-U.S.
Holder within the U.S. are generally taxed on a net income basis (that is, after
allowance for applicable deductions) at the graduated rates that are applicable
to U.S. persons. In the case of a Non-U.S. Holder that is a corporation, such
income may also be subject to a branch profits tax (which is generally imposed
on a foreign corporation upon the deemed repatriation from the U.S. of
effectively connected earnings and profits) at a 30% rate, unless the rate is
reduced or eliminated by an applicable income tax treaty and the Non-U.S. Holder
is a qualified resident of the treaty country.
GAIN ON SALE OR OTHER DISPOSITION
Subject to special rules applicable to individuals as described below, a
Non-U.S. Holder will generally not be subject to regular U.S. federal income or
withholding tax on gain recognized on a sale or other disposition of Class A
Common Stock, unless (i) the gain is effectively connected with the conduct of a
trade or business (or, if an income tax treaty applies, is attributable to a
"permanent establishment", as defined therein) of the Non-U.S. Holder within the
U.S. or of a partnership, trust or estate in which the Non-U.S. Holder is a
partner or beneficiary within the U.S., or (ii) the Company has been, is or
becomes a "U.S. real property holding corporation" within the meaning of Section
897(c) (2) of the Code at any time within the shorter of the five-year period
preceding such sale or other disposition or such Non-U.S. Holder's holding
period for the Class A Common Stock.
A corporation is generally considered to be a U.S. real property holding
corporation if the fair market value of its "U.S. real property interests"
within the meaning of Section 897(c)(1) of the Code equals or exceeds 50% of the
sum of the fair market value of its worldwide real property interests plus the
fair market value of any other of its assets used or held for use in a trade or
business. The Company believes that it has not been, is not currently and is not
likely to become a U.S. real property holding corporation. Further, even if the
Company were to become a U.S. real property holding corporation, any gain
recognized by a Non-U.S. Holder still would not be subject to U.S. federal
income tax if the Class A Common Stock were considered to be "regularly traded"
(within the meaning of applicable U.S. Treasury regulations) on an established
securities market (e.g., the New York Stock Exchange, on which the Class A
Common Stock will be listed), and the Non-U.S. Holder did not own, directly or
indirectly, at any time during the five-year period ending on the date of the
sale or other disposition, more than 5% of the Class A Common Stock.
Gains realized by a Non-U.S. Holder of Class A Common Stock that are
effectively connected with the conduct of a trade or business (or, if an income
tax treaty applies, are attributable to a "permanent establishment", as defined
therein) within the U.S. of the Non-U.S. Holder are generally taxed on a net
income basis (that is, after allowance for applicable deductions) at the
graduated rates that are applicable to U.S. persons. In the case of a Non-U.S.
Holder that is a corporation, such income may also be subject to a branch
profits tax (which is generally imposed on a foreign corporation upon the deemed
repatriation from the U.S. of effectively connected earnings and profits) at a
30% rate, unless the rate is reduced or
105
<PAGE>
eliminated by an applicable income tax treaty and the Non-U.S. Holder is a
qualified resident of the treaty country.
In addition to being subject to the rules described above, an individual
Non-U.S. Holder who holds Class A Common Stock as a capital asset will generally
be subject to tax at a 30% rate on any gain recognized on the sale or other
disposition of such stock if (i) such gain is not effectively connected with the
conduct of a trade or business (or, if an income tax treaty applies, is not
attributable to a "permanent establishment", as defined therein) of the Non-U.S.
Holder within the U.S., and (ii) such individual is present in the U.S. for 183
days or more in the taxable year of the sale or other disposition and either (A)
has a "tax home" in the U.S. (as specially defined for purposes of the U.S.
federal income tax), or (B) maintains an office or other fixed place of business
in the U.S. and the income from the sale of the stock is attributable to such
office or other fixed place of business. Individual Non-U.S. Holders may also be
subject to tax pursuant to provisions of U.S. federal income tax law applicable
to certain U.S. expatriates.
FEDERAL ESTATE AND GIFT TAXES
Class A Common Stock owned or treated as owned by an individual (regardless
of whether such an individual is a citizen or a resident of the U.S.) on the
date of death will be included in such individual's estate for U.S. federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
A Non-U.S. Holder will not be subject to U.S. federal gift tax on a transfer of
Class A Common Stock, unless such person is a domiciliary of the U.S., or such
person is an individual subject to provisions of U.S. federal gift tax law
applicable to certain U.S. expatriates.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, such Non-U.S.
Holder, regardless of whether tax was actually withheld and whether withholding
was reduced or eliminated by an applicable income tax treaty. Pursuant to
certain income tax treaties and other agreements, that information may also be
made available to the tax authorities of the country in which the Non-U.S.
Holder resides.
U.S. federal backup withholding (which generally is withholding imposed at
the rate of 31% on certain payments to persons not otherwise exempt who fail to
furnish certain identifying information) will generally not apply to (i)
dividends paid to a Non-U.S. Holder that is subject to withholding at the 30%
rate (or that is subject to withholding at a reduced rate under an applicable
income tax treaty), or (ii) before January 1, 2000, dividends paid to a Non-U.S.
Holder at an address outside of the U.S. (unless the payor has knowledge that
the payee is a U.S. person). However, under recently finalized U.S. Treasury
regulations, in the case of dividends paid after December 31, 1999, a Non-U.S.
Holder generally would be subject to U.S. withholding tax at a 31% rate, unless
certain certification procedures (or, in the case of payments made outside the
U.S. with respect to an offshore account, certain documentary evidence
procedures) are satisfied, directly or through an intermediary.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the U.S. on shares of Class A Common Stock to
beneficial owners that are not "exempt recipients" and that fail to provide in
the manner required certain identifying information.
The backup withholding and information reporting requirements also apply to
the gross proceeds paid to a Non-U.S. Holder upon the sale or other disposition
of Class A Common Stock by or through a U.S. office of a U.S. or foreign broker,
unless the Non-U.S. Holder certifies to the broker under penalties of perjury as
to, among other things, its name, address and status as a Non-U.S. Holder by
filing the Service's Form W-8 with the broker, or unless the Non-U.S. Holder
otherwise establishes an exemption. In general, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale or
other disposition of Class A Common Stock effected at a foreign office of a
broker. Before January 1, 1999, however, information reporting requirements (but
not backup withholding) will apply to a payment
106
<PAGE>
of the proceeds of a sale or other disposition of Class A Common Stock effected
at a foreign office of (i) a U.S. broker; (ii) a foreign broker 50% or more of
whose gross income for certain periods is effectively connected with the conduct
of a trade or business within the U.S.; or (iii) a foreign broker that is a
"controlled foreign corporation" for U.S. federal income tax purposes, unless
the broker has documentary evidence in its records that the Non-U.S. Holder is a
Non-U.S. Holder (and the broker has no knowledge to the contrary) and certain
other conditions are met, or unless the Non-U.S. Holder otherwise establishes an
exemption. Further, after December 31, 1999, under the newly issued Treasury
regulations referred to above, information reporting and backup withholding may
apply to payments of the gross proceeds from the sale or redemption of Class A
Common Stock effected through foreign offices of brokers having any of a broader
class of connections with the U.S. unless certain IRS certification requirements
are complied with. Prospective investors should consult with their own tax
advisers regarding these Treasury regulations, and in particular with respect to
whether the use of a particular broker would subject the investor to these
rules.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Holder's U.S. federal income tax liability, provided that the Non-U.S. Holder
files a tax return with the IRS.
107
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the shares of Class A Common Stock
offered hereby will be passed upon for the Company by Paul, Hastings, Janofsky &
Walker LLP, New York, New York. Ralph B. Everett, who will be elected to serve
as a Director of the Company upon the consummation of the Offerings, is a
partner in the Washington, D.C. office of Paul, Hastings, Janofsky & Walker,
LLP. Simpson Thacher & Bartlett, New York, New York, has acted as counsel to the
Underwriters in connection with the Offerings.
EXPERTS
The financial statements included in this Prospectus for the following
companies, except for the financial statements as they relate to the unaudited
three-month periods ended March 31, 1998 and 1997, have been audited by Price
Waterhouse LLP, independent accountants.
Cumulus Media Inc.
Arbor Radio LP
Beaumont Skywave, Inc.
Caribbean Communications Company Limited
Carolina Broadcasting, Inc. and Georgetown Radio, Inc.
Castle Broadcasting Limited Partnership
Clearly Superior Radio Properties
Communications Properties, Inc.
Crystal Radio Group, Inc.
Forjay Broadcasting Corporation
HVS Partners
Jan-Di Broadcasting, Inc.
K-Country, Inc.
Lesnick Communications, Inc.
Louisiana Media Interests, Inc. and Subsidiaries
M&M Partners
The Midwestern Broadcasting Company, Radio Stations WWWM-FM and WLQR-AM
Midland Broadcasters, Inc.
Mustang Broadcasting Company
Ninety Four Point One, Inc. and KAYD AM/FM
Pamplico Broadcasting, L.P.
Phoenix Broadcast Partners, Inc.
Savannah Valley Broadcasting Radio Properties
Seacoast Radio Company, LLC
Sunny Broadcasters, Inc.
Tallahassee Broadcasting, Inc.
Tryon-Seacoast Communications, Inc.
Value Radio Corporation
Wicks Broadcasting
Wilks Broadcast Acquisitions, Inc.
WJCL-FM
WKKO-FM, WRQN-FM, WTOD-AM and WIMX-FM
WWFG-FM AND WOSC-FM
Such financial statements have been so included in reliance on the reports
of Price Waterhouse LLP given on the authority of said firm as experts in
auditing and accounting.
108
<PAGE>
The financial statements of Fritz Broadcasting, Inc. Toledo Division as of
December 29, 1996 and December 31, 1995 and for each of the years ended December
29, 1996 and December 31, 1995 included in this Prospectus have been so included
in reliance on the report of Plante & Moran LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements of JKJ Broadcasting, Inc., Missouri River
Broadcasting, Inc., Ingstad Mankato, Inc., James Ingstad Broadcasting, Inc., and
Hometown Wireless, Inc. as of December 31, 1997 and 1996 and for each of the
three years ended December 31, 1997 included in this Prospectus have been so
included in reliance on the report of McGladrey & Pullen, LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of New Frontier Communications, Inc. as of December
31, 1997 and 1996 and for each of the three years ended December 31, 1997
included in this Prospectus have been so included in reliance on the report of
Johnson, Miller & Co., independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of Republic Corporation as of December 31, 1997 and
1996 and for each of the three years ended December 31, 1997 included in this
Prospectus have been so included in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
The financial statements of Savannah Communications, L.P. as of December 31,
1997 and 1996 and for each of the years ended December 31, 1997 and 1996
included in this Prospectus have been so included in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
terms shall include any amendment thereto) on Form S-1 under the Securities Act
with respect to the Class A Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. The Registration
Statement, including exhibits and schedules thereto, may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, Room 1024, N.W., Washington, D.C. 20549 and copies may be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C., and may be electronically accessed at the
Commission's site on the World Wide Web at http://www.sec.gov. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
109
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CUMULUS MEDIA INC.
Report of Independent Accountants................................................... F-8
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997.............. F-9
Consolidated Statements of Operations for the three month period ended March 31,
1998 and for the period from inception on May 22, 1997 to December 31, 1997....... F-10
Consolidated Statement of Stockholder's Equity for the period from inception on May
22, 1997 to December 31, 1997..................................................... F-11
Consolidated Statements of Cash Flows for the three month period ended March 31,
1998 and for the period from inception on May 22, 1997 to December 31, 1997....... F-12
Notes to Consolidated Financial Statements.......................................... F-13
ARBOR RADIO LP
Report of Independent Accountants................................................... F-27
Balance Sheets as of December 31, 1997 and 1996..................................... F-28
Statements of Operations and Partners' Capital for the years ended December 31,
1997, 1996 and 1995............................................................... F-29
Statements of Cash Flows for the years ended December 31 1997, 1996 and 1995........ F-30
Notes to Financial Statements....................................................... F-31
BEAUMONT SKYWAVE, INC. (A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF
BEAUMONT, INC.)
Report of Independent Accountants................................................... F-36
Balance Sheets as of March 31, 1998 and December 31, 1997........................... F-37
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and for the year ended December 31, 1997.......................................... F-38
Statement of Changes in Stockholder's Equity for the year ended December 31,
1997.............................................................................. F-39
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and for the year ended December 31, 1997.......................................... F-40
Notes to Financial Statements....................................................... F-41
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
Report of Independent Accountants................................................... F-45
Consolidated Balance Sheet as of April 30, 1997..................................... F-46
Consolidated Statement of Operations for the four month period ended April 30,
1997.............................................................................. F-47
Consolidated Statement of Changes in Stockholder's Equity (Deficit) for the four
month period ended April 30, 1997................................................. F-48
Consolidated Statement of Cash Flows for the four month period ended April 30,
1997.............................................................................. F-49
Notes to Consolidated Financial Statements.......................................... F-50
CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC.
Report of Independent Accountants................................................... F-54
Combined Balance Sheet as of December 31, 1997...................................... F-55
Combined Statement of Operations for the year ended December 31, 1997............... F-56
Combined Statement of Changes in Stockholders' Deficit for the year ended December
31, 1997.......................................................................... F-57
Combined Statement of Cash Flows for the year ended December 31, 1997............... F-58
Notes to Combined Financial Statements.............................................. F-59
CASTLE BROADCASTING LIMITED PARTNERSHIP
Report of Independent Accountants................................................... F-63
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-64
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997 and 1996................................ F-65
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Statements of Changes in Partners' Deficit for the years ended December 31, 1997 and
1996.............................................................................. F-66
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997 and 1996................................ F-67
Notes to Financial Statements....................................................... F-68
CLEARLY SUPERIOR RADIO PROPERTIES
Report of Independent Accountants................................................... F-72
Combined Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996......... F-73
Combined Statements of Operations for the three month periods ended March 31, 1998
and 1997 and for the years ended December 31, 1997 and 1996....................... F-74
Combined Statement of Changes in Owner's Equity in Stations for the years ended
December 31, 1997 and 1996........................................................ F-75
Combined Statements of Cash Flows for the three month periods ended March 31, 1998
and 1997 and for the years ended December 31, 1997 and 1996....................... F-76
Notes to Combined Financial Statements.............................................. F-77
COMMUNICATIONS PROPERTIES, INC.
Report of Independent Accountants................................................... F-82
Balance Sheets as of March 31, 1998 and August 31, 1997 and 1996.................... F-83
Statements of Operations for the seven month periods ended March 31, 1998 and 1997
and for the years ended August 31, 1997 and 1996.................................. F-84
Statements of Changes in Stockholders' Equity (Deficit) for the seven month periods
ended March 31, 1998 and 1997 and for the years ended August 31, 1997 and 1996.... F-85
Statements of Cash Flows for the seven month periods ended March 31, 1998 and 1997
and for the years ended August 31, 1997 and 1996.................................. F-86
Notes to Financial Statements....................................................... F-87
CRYSTAL RADIO GROUP, INC.
Report of Independent Accountants................................................... F-94
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-95
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997, 1996, and 1995......................... F-96
Statements of Changes in Stockholders' Equity (Deficit) for the years ended December
31, 1997, 1996 and 1995........................................................... F-97
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997, 1996, and 1995......................... F-98
Notes to Financial Statements....................................................... F-99
FORJAY BROADCASTING CORPORATION
Report of Independent Accountants................................................... F-102
Balance Sheet as of December 31, 1997............................................... F-103
Statement of Operations for the year ended December 31, 1997........................ F-104
Statement of Changes in Shareholder's Equity for the year ended December 31, 1997... F-105
Statement of Cash Flows for the year ended December 31, 1997........................ F-106
Notes to Financial Statements....................................................... F-107
FRITZ BROADCASTING, INC. TOLEDO DIVISION
Independent Auditor's Report........................................................ F-110
Divisional Balance Sheet as of December 29, 1996 and December 31, 1995.............. F-111
Statements of Divisional Income for the years ended December 29, 1996 and December
31, 1995.......................................................................... F-112
Statements of Changes in Divisional Equity for the years ended December 29, 1996 and
December 31, 1995................................................................. F-113
Statements of Divisional Cash Flows for the years ended December 29, 1996 and
December 31, 1995................................................................. F-114
Notes to Financial Statements....................................................... F-115
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C>
HVS PARTNERS
Report of Independent Accountants................................................... F-119
Balance Sheets as of December 31, 1997 and 1996..................................... F-120
Statements of Operations for the years ended December 31, 1997, 1996 and 1995....... F-121
Statements of Changes in Partners' Equity for the years ended December 31, 1997,
1996 and 1995..................................................................... F-122
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995....... F-123
Notes to Financial Statements....................................................... F-124
JKJ BROADCASTING, INC., MISSOURI RIVER BROADCASTING, INC., INGSTAD MANKATO, INC.,
JAMES INGSTAD BROADCASTING, INC., AND HOMETOWN WIRELESS, INC.
Independent Auditor's Report........................................................ F-129
Combined Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996......... F-130
Combined Statements of Income for the three month periods ended March 31, 1998 and
1997 and for the years ended December 31, 1997, 1996 and 1995..................... F-132
Combined Statements of Stockholders' Equity for the years ended December 31, 1997,
1996 and 1995..................................................................... F-133
Combined Statements of Cash Flows for the three month periods ended March 31, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-134
Notes to Combined Financial Statements.............................................. F-135
JAN-DI BROADCASTING, INC.
Report of Independent Accountants................................................... F-143
Balance Sheets as of March 31, 1998 and June 30, 1997 and 1996...................... F-144
Statements of Operations for the nine months ended March 31, 1998 and 1997 and for
the years ended June 30, 1997 and 1996............................................ F-145
Statements of Changes in Shareholders' Equity for the nine months ended March 31,
1998 and 1997 and for the years ended June 30, 1997 and 1996...................... F-146
Statements of Cash Flows for the nine months ended March 31, 1998 and 1997 and for
the years ended June 30, 1997 and 1996............................................ F-147
Notes to Financial Statements....................................................... F-148
K--COUNTRY, INC.
Report of Independent Accountants................................................... F-152
Combined Balance Sheets as of March 31, 1998, December 31, 1997 and June 30, 1997... F-153
Combined Statements of Income and Retained Earnings for the three month periods
ended March 31, 1998 and 1997, for the six months ended December 31, 1997 and for
the year ended June 30, 1997...................................................... F-154
Combined Statements of Cash Flows for the three month periods ended March 31, 1998
and 1997, for the six months ended December 31, 1997 and for the year ended June
30, 1997.......................................................................... F-155
Notes to Combined Financial Statements.............................................. F-156
LESNICK COMMUNICATIONS, INC.
Report of Independent Accountants................................................... F-160
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-161
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997 and 1996................................ F-162
Statements of Changes in Stockholders' Equity (Deficit) for the years ended December
31, 1997 and 1996................................................................. F-163
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997 and 1996................................ F-164
Notes to Financial Statements....................................................... F-165
LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
Report of Independent Accountants................................................... F-168
</TABLE>
F-3
<PAGE>
<TABLE>
<S> <C>
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996..... F-169
Consolidated Statements of Operations for the three month periods ended March 31,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995............ F-170
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1997, 1996 and 1995.................................................. F-171
Consolidated Statements of Cash Flows for the three month periods ended March 31,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995............ F-172
Notes to Consolidated Financial Statements.......................................... F-173
M&M PARTNERS
Report of Independent Accountants................................................... F-179
Balance Sheets as of November 30, 1997 and December 31, 1996........................ F-180
Statements of Operations for the eleven months ended November 30, 1997 and the years
ended December 31, 1996 and 1995.................................................. F-181
Statements of Changes in Partners' Capital for the eleven months ended November 30,
1997 and the years ended December 31, 1996 and 1995............................... F-182
Statements of Cash Flows for the eleven months ended November 30, 1997 and the years
ended December 31, 1996 and 1995.................................................. F-183
Notes to Financial Statements....................................................... F-184
MIDLAND BROADCASTERS, INC.
Report of Independent Accountants................................................... F-189
Balance Sheets as of March 31, 1998, December 31, 1997 and 1996..................... F-190
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and the years ended December 31, 1997, 1996 and 1995.............................. F-191
Statements of Changes in Stockholders' Equity for the years ended December 31, 1997,
1996 and 1995..................................................................... F-192
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and the years ended December 31, 1997, 1996 and 1995.............................. F-193
Notes to Financial Statements....................................................... F-194
THE MIDWESTERN BROADCASTING COMPANY, RADIO STATIONS WWWM-FM AND WLQR-AM
Report of Independent Accountants................................................... F-199
Combined Balance Sheets as of October 31, 1997 and December 31, 1996................ F-200
Combined Statements of Income and Retained Earnings for the period January 1, 1997
to October 31, 1997 and the years ended December 31, 1996 and 1995................ F-202
Combined Statements of Cash Flows for the period January 1, to October 31, 1997 and
the years ended December 31, 1996 and 1995........................................ F-203
Notes to Combined Financial Statements.............................................. F-204
MUSTANG BROADCASTING COMPANY
Report of Independent Accountants................................................... F-207
Balance Sheets as of March 31, 1998 and December 31, 1997........................... F-208
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and for the year ended December 31, 1997.......................................... F-209
Statement of Changes in Stockholder's Equity for the year ended December 31, 1997... F-210
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and for the year ended December 31, 1997.......................................... F-211
Notes to Financial Statements....................................................... F-212
</TABLE>
<TABLE>
<S> <C>
NEW FRONTIER COMMUNICATIONS, INC.
Report of Independent Certified Public Accountants.................................. F-215
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-216
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997, 1996 and 1995.......................... F-217
</TABLE>
F-4
<PAGE>
<TABLE>
<S> <C>
Statements of Stockholders' Deficit for the years ended December 31, 1997, 1996 and
1995.............................................................................. F-218
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997, 1996 and 1995.......................... F-219
Notes to Financial Statements....................................................... F-220
NINETY FOUR POINT ONE, INC. (A SUBSIDIARY OF PETRACOM BROADCASTING, INC.) AND KAYD
AM/FM (A DIVISION OF PETRACOM BROADCASTING OF ROCKFORD, INC.)
Report of Independent Accountants................................................... F-229
Combined Balance Sheet as of March 31, 1998 and December 31, 1997 and 1996.......... F-230
Combined Statement of Operations for the three month periods ended March 31, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-231
Combined Statement of Changes in Net Investment of Parent for the years ended
December 31, 1997, 1996 and 1995.................................................. F-232
Combined Statement of Cash Flows for the three month periods ended March 31, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-233
Notes to Financial Statements....................................................... F-234
PAMPLICO BROADCASTING, L.P.
Report of Independent Accountants................................................... F-238
Balance Sheets as of March 31, 1998 and December 31, 1997........................... F-239
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and for the year ended December 31, 1997.......................................... F-240
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and for the year ended December 31, 1997.......................................... F-241
Notes to Financial Statements....................................................... F-242
PHOENIX BROADCAST PARTNERS, INC.
Report of Independent Accountants................................................... F-245
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-246
Statements of Operations and Accumulated Deficit for the three month periods ended
March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996........ F-247
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997 and 1996................................ F-248
Notes to Financial Statements....................................................... F-249
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
Report of Independent Accountants................................................... F-256
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996..... F-257
Consolidated Statements of Income for the three month periods ended March 31, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-258
Consolidated Statements of Changes in Stockholder's Equity for the years ended
December 31, 1997, 1996 and 1995.................................................. F-259
Consolidated Statements of Cash Flows for the three month periods ended March 31,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995............ F-260
Notes to Consolidated Financial Statements.......................................... F-261
SAVANNAH COMMUNICATIONS, L.P.
Report of Independent Accountants................................................... F-268
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-269
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997 and 1996................................ F-270
Statements of Partners' Capital for the years ended December 31, 1997 and 1996...... F-271
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997 and 1996................................ F-272
Notes to Financial Statements....................................................... F-273
SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES
</TABLE>
F-5
<PAGE>
<TABLE>
<S> <C>
Report of Independent Accountants................................................... F-277
Combined Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996......... F-278
Combined Statements of Operations for the three month periods ended March 31, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-279
Combined Statements of Changes in Owner's Equity (Deficit) in Stations for the years
ended December 31, 1997, 1996 and 1995............................................ F-280
Combined Statements of Cash Flows for the three month periods ended March 31, 1998
and 1997 and for the years ended December 31, 1997, 1996 and 1995................. F-281
Notes to Combined Financial Statements.............................................. F-282
SEACOAST RADIO COMPANY, LLC
Report of Independent Accountants................................................... F-286
Balance Sheets as of December 31, 1997 and 1996..................................... F-287
Statements of Operations for the years ended December 31, 1997 and 1996............. F-288
Statements of Changes in Members' Equity for the years ended December 31, 1997 and
1996.............................................................................. F-289
Statements of Cash Flows for the years ended December 31, 1997 and 1996............. F-290
Notes to Financial Statements....................................................... F-291
SUNNY BROADCASTERS, INC.
Report of Independent Accountants................................................... F-295
Balance Sheets as of December 31, 1997 and 1996..................................... F-296
Statements of Operations for the years ended December 31, 1997 and 1996............. F-297
Statements of Changes in Stockholders' Equity for the years ended December 31, 1997
and 1996.......................................................................... F-298
Statements of Cash Flows for the years ended December 31, 1997 and 1996............. F-299
Notes to Financial Statements....................................................... F-300
TALLAHASSEE BROADCASTING, INC.
Report of Independent Accountants................................................... F-305
Balance Sheets as of March 31, 1998 and December 31, 1997........................... F-306
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and for the year ended December 31, 1997.......................................... F-307
Statement of Changes in Stockholders' Equity (Deficit) for the year ended December
31, 1997.......................................................................... F-308
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and for the year ended December 31, 1997.......................................... F-309
Notes to Financial Statements....................................................... F-310
TRYON-SEACOAST COMMUNICATIONS, INC.
Report of Independent Accountants................................................... F-314
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-315
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997 and 1996................................ F-316
Statements of Changes in Stockholders' Deficit for the years ended December 31, 1997
and 1996.......................................................................... F-317
Statements of Cash Flow for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997 and 1996................................ F-318
Notes to Financial Statements....................................................... F-319
VALUE RADIO CORPORATION
Report of Independent Accountants................................................... F-324
Balance Sheets as of August 30, 1997 and August 31, 1996............................ F-325
Statements of Operations for the years ended August 30, 1997 and August 31, 1996 and
1995.............................................................................. F-326
Statements of Changes in Stockholders' Equity for the years ended August 30, 1997,
and August 31, 1996 and 1995...................................................... F-327
Statements of Cash Flows for the years ended August 30, 1997, and August 31, 1996
and 1995.......................................................................... F-328
Notes to Financial Statements....................................................... F-329
</TABLE>
F-6
<PAGE>
<TABLE>
<S> <C>
WILKS BROADCAST ACQUISITIONS, INC.
Report of Independent Accountants................................................... F-334
Balance Sheets as of August 31, 1997 and December 31, 1996.......................... F-335
Statements of Operations for the eight months ended August 31, 1997 and for the
years ended December 31, 1996 and 1995............................................ F-336
Statements of Changes in Stockholders' Equity (Deficit) for the eight months ended
August 31, 1997 and for the years ended December 31, 1996 and 1995................ F-337
Statements of Cash Flows for the eight months ended August 31, 1997 and for the
years ended December 31, 1996 and 1995............................................ F-338
Notes to Financial Statements....................................................... F-339
WJCL-FM (A DIVISION OF LEWIS BROADCASTING CORPORATION)
Report of Independent Accountants................................................... F-343
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-344
Statements of Income for the three month periods ended March 31, 1998 and 1997 and
for the years ended December 31, 1997 and 1996.................................... F-345
Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997 and 1996................................ F-346
Statements of Changes in Owners' Net Investment for the years ended December 31,
1997 and 1996..................................................................... F-347
Notes to Financial Statements....................................................... F-348
WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM (A WHOLLY OWNED ENTITY OF 62ND STREET
BROADCASTING LLC)
Report of Independent Accountants................................................... F-351
Combined Balance Sheet as of November 9, 1997....................................... F-353
Combined Statements of Income for the period June 30, 1997 to November 9, 1997 and
for the period January 1, 1997 to June 29, 1997................................... F-354
Combined Statements of Changes in Owner's Equity for the period June 30, 1997 to
November 9, 1997 and for the period January 1, 1997 to June 29, 1997.............. F-355
Combined Statements of Cash Flows for the period June 30, 1997 to November 9, 1997
and for the period January 1, 1997 to June 29, 1997............................... F-356
Notes to Combined Financial Statements.............................................. F-357
WWFG-FM AND WOSC-FM
Report of Independent Accountants................................................... F-361
Combined Balance Sheet as of December 31, 1997...................................... F-362
Combined Statement of Operations for the five month period from August 1, 1997 to
December 31, 1997................................................................. F-363
Combined Statement of Changes in Owner's Equity for the five month period from
August 1, 1997 to December 31, 1997............................................... F-364
Combined Statement of Cash Flows for the five month period from August 1, 1997 to
December 31, 1997................................................................. F-365
Notes to the Combined Financial Statements.......................................... F-366
</TABLE>
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of Cumulus
Media Inc. (formerly, Cumulus Holdings, Inc.) at December 31, 1997, and the
results of their operations and their cash flows for the period from inception
on May 22, 1997 to December 31, 1997, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 18, 1998
F-8
<PAGE>
CUMULUS MEDIA INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 23,416 $ 1,573
Accounts receivable, less allowance for doubtful accounts of $241 and $125,
respectively...................................................................... 10,238 5,241
Prepaid expenses and other current assets........................................... 1,587 288
----------- ------------
Total current assets.............................................................. 35,241 7,102
Property and equipment, net........................................................... 14,146 8,120
Intangible assets, net................................................................ 150,973 90,217
Other assets.......................................................................... 19,766 5,002
----------- ------------
Total assets...................................................................... $ 220,126 $ 110,441
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................... $ 8,619 $ 3,643
Current portion of long-term debt................................................... 12 12
Other current liabilities........................................................... -- 195
----------- ------------
Total current liabilities......................................................... 8,631 3,850
Long-term debt, excluding current portion............................................. 120,252 42,789
Other liabilities..................................................................... 853 400
Deferred income taxes................................................................. 1,083 --
----------- ------------
Total liabilities................................................................. 130,819 47,039
----------- ------------
Preferred stock subject to mandatory redemption, stated value $10,000 per share;
authorized: 12,000 shares; outstanding: 3,250 shares and 1,625 shares
respectively........................................................................ 30,518 13,426
----------- ------------
Commitments and contingencies (Note 10)
Stockholder's equity:
Common stock, $.01 par value; authorized 10,000 shares; issued 1,000 shares -- --
Additional paid-in-capital.......................................................... 67,692 53,549
Accumulated other comprehensive income.............................................. 5 5
Accumulated deficit................................................................. (8,908) (3,578)
----------- ------------
Total stockholder's equity........................................................ 58,789 49,976
----------- ------------
Total liabilities and stockholder's equity........................................ $ 220,126 $ 110,441
----------- ------------
----------- ------------
</TABLE>
See Notes to Consolidated Financial Statements
F-9
<PAGE>
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION ON
THREE MONTHS ENDED MAY 22, 1997 TO
MARCH 31, 1998 DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
(UNAUDITED)
Revenues.................................................................. $ 13,787 $ 10,134
Less: agency commissions.................................................. (1,287) (971)
------- -------
Net revenues......................................................... 12,500 9,163
Operating expenses:
Station operating expenses, excluding depreciation and amortization..... 10,904 7,147
Depreciation and amortization........................................... 2,748 1,671
Corporate general and administrative.................................... 961 1,276
Non-cash stock compensation............................................. -- 1,689
------- -------
Operating expenses..................................................... 14,613 11,783
------- -------
Operating loss....................................................... (2,113) (2,620)
------- -------
Nonoperating income (expense):
Interest expense........................................................ (1,516) (992)
Interest income......................................................... 142 155
Other income (expense), net............................................. (6) (54)
------- -------
Nonoperating expenses, net............................................ (1,380) (891)
------- -------
Loss before income taxes.............................................. (3,493) (3,511)
Income tax expense........................................................ -- 67
------- -------
Loss before extraordinary item............................................ (3,493) (3,578)
Extraordinary loss on early extinguishment of debt........................ (1,837) --
------- -------
Net loss.................................................................. (5,330) --
Preferred stock dividend.................................................. 842 274
------- -------
Net loss attributable to common stockholders.......................... $ (6,172) $ (3,852)
------- -------
------- -------
Basic and diluted loss per share.......................................... $ (6,172) $ (3,852)
------- -------
------- -------
Average shares outstanding................................................ 1,000 1,000
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
F-10
<PAGE>
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE ACCUMULATED COMPREHENSIVE
SHARES STOCK CAPITAL INCOME DEFICIT LOSS
----------- --------- ----------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock........... 1,000 $ 52,748
Comprehensive income
(cumulative translation $ 5 $ 5
adjustment)......................
Preferred and common stock offering (614)
costs............................
Preferred stock dividend and (274)
accretion of discount............
Non-cash stock compensation........ 1,689
Net loss........................... $ (3,578) (3,578)
----- --------- ----------- ------- ------------ -------
Balance at December 31, 1997....... 1,000 53,549 5 (3,578) (3,573)
Capital contribution............... 1,000 14,985
Preferred stock dividend and (842)
accretion of discount............
Net loss........................... (5,330) (5,330)
----- --------- ----------- ------- ------------ -------
Balance at March 31, 1998 $ $ 67,692 $ 5 $ (8,908) $ (8,903)
(unaudited)......................
----- --------- ----------- ------- ------------ -------
----- --------- ----------- ------- ------------ -------
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
CUMULUS MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION ON
THREE MONTHS ENDED MAY 22, 1997 TO
MARCH 31, 1998 DECEMBER 31, 1997
------------------- -----------------
<S> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss................................................................ $ (5,330) $ (3,578)
Adjustments to reconcile net loss to net cash used in operating
activities:
Extraordinary loss on early extinguishment of debt.................... 1,837
Depreciation.......................................................... 472 391
Amortization of goodwill, intangible assets and other assets.......... 1,652 1,064
Non-cash stock compensation........................................... -- 1,689
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable................................................... (4,997) (4,546)
Prepaid expenses and other current assets............................. (1,299) (235)
Accounts payable and accrued expenses................................. 4,654 3,401
Other assets.......................................................... (1,211) (166)
Other liabilities..................................................... (367) 93
------- -------
Net cash used in operating activities..................................... (4,589) (1,887)
------- -------
Cash flows from investing activities:
Acquisitions............................................................ (67,224) (91,289)
Escrow deposits on pending acquisitions................................. (10,523) (1,999)
Capital expenditures.................................................... (1,114) (869)
Other................................................................... (292) (943)
------- -------
Net cash used by investing activities..................................... (79,153) (95,100)
------- -------
Cash flows from financing activities:
Net proceeds from revolving line of credit.............................. 143,000 74,525
Payments on revolving line of credit.................................... (65,535) (31,990)
Payments on promissory notes............................................ (2) (4)
Proceeds from issuance of common stock.................................. 14,985 45,245
Proceeds from issuance of preferred stock............................... 16,250 13,152
Payments for debt issuance costs........................................ (3,113) (1,754)
Payments for preferred and common stock offering costs.................. -- (614)
------- -------
Net cash provided by financing activities................................. 105,585 98,560
------- -------
Increase in cash and cash equivalents..................................... 21,843 1,573
Cash and cash equivalents at beginning of period.......................... 1,573 --
------- -------
Cash and cash equivalents at end of period................................ $ 23,416 $ 1,573
------- -------
------- -------
Supplemental disclosures of cash information:
Interest paid........................................................... $ 928 $ 25
------- -------
------- -------
Non-cash operating and financing activities:
Trade revenue........................................................... $ 912 $ 757
------- -------
------- -------
Trade expense........................................................... $ 912 $ 712
------- -------
------- -------
Assets acquired through notes payable................................... $ 936 $ 520
------- -------
------- -------
Capital contribution from Cumulus Media, LLC............................ $ -- $ 7,503
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Cumulus Media Inc., formerly known as Cumulus Holdings, Inc., ("Cumulus" or
the "Company") is a radio broadcasting corporation incorporated in the state of
Illinois on May 22, 1997 to own and operate commercial radio stations in
mid-size and smaller radio markets in the United States and the Eastern
Caribbean. The Company has four regions as its primary focus in the United
States: the Midwest, Southeast, Southwest and Northeast. Cumulus is controlled
by Cumulus Media, LLC (a Wisconsin limited liability company) through the
ownership of all of its outstanding common stock. Between the date of
incorporation of Cumulus Media, LLC, which was April 18, 1997, and May 22, 1997,
Cumulus Media, LLC undertook certain activities upon behalf of the Company
pending its incorporation, including the incurrence of expenses and the funding
of escrow deposits for acquisitions. Upon the incorporation of the Company,
these activities and their related account balances and expenses, were
transferred to the Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cumulus and
its wholly-owned subsidiaries. Significant intercompany balances and
transactions have been eliminated in consolidation.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
ORGANIZATION COSTS
Costs related to organizing the Company including incorporation and
recording fees and legal fees are capitalized and amortized to expense over a
three year period. During the period ended December 31, 1997, the Company
recognized amortization expense of organization costs of approximately $22.
INTANGIBLE ASSETS
Intangible assets consist primarily of broadcast licenses, goodwill and
other identifiable intangible assets. The Company amortizes such intangible
assets using the straight-line method over their estimated useful lives. The
Company evaluates the carrying value of broadcast licenses, goodwill and other
intangible assets in relation to the projected future undiscounted net cash
flows, in order to determine if an impairment has occurred.
VALUATION OF LONG-LIVED ASSETS
The Company evaluates the carrying value of long-lived assets to be held and
used, including goodwill and other intangible assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the
F-13
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
amount by which the carrying value exceeds the fair market value of the
long-lived asset. Long-lived assets to be disposed are reported at the lower of
carrying amount or fair value less cost to sell.
DEBT ISSUANCE COSTS
The costs related to the issuance of debt are capitalized and amortized to
interest expense over the life of the related debt. During the period ended
December 31, 1997, the Company recognized amortization expense of debt issuance
costs of approximately $65.
TRADE AGREEMENTS
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability is recorded at the fair market value of the goods or services
received. Trade revenue is recorded and the liability relieved when commercials
are broadcast and trade expense is recorded and the asset relieved when goods or
services are received or used.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts based on enacted tax laws and statutory tax rates.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount more likely than not to be realized.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
LOCAL MARKETING AGREEMENTS
In certain circumstances, the Company enters into a local marketing
agreement ("LMA") or time brokerage agreement with a Federal Communications
Commission licensee of a radio station. In a typical LMA, the licensee of the
station makes available, for a fee, airtime on its station to a party which
supplies programming to be broadcast on that airtime, and collects revenues from
advertising aired during such programming.
Fees paid pursuant to a LMA are amortized to expense over the term of the
agreement using the straight-line method. LMA fees of $281 are included in
amortization expense in the statement of operations.
CASH AND CASH EQUIVALENTS
The Company considers all cash balances and highly liquid investments with
original maturities of three months or less to be cash equivalents.
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
F-14
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISKS
In the opinion of management, credit risk with respect to accounts
receivable is limited due to the large number of diversified customers and the
geographic diversification of the Company's customer base. The Company performs
ongoing credit evaluations of its customers and believes that adequate
allowances for any uncollectible accounts receivable are maintained.
The change in the allowance for doubtful accounts for the period ended
December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Balance at inception.............................................. $ --
Provision for doubtful accounts................................... 95
Acquired stations................................................. 30
Write-offs........................................................ --
---------
Balance at December 31, 1997...................................... $ 106
---------
---------
</TABLE>
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board (APB) Opinion 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for stock issued to employees as defined by APB No. 25. In addition,
the Company applies Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock Based Compensation", for stock issued to individuals or
groups other than employees.
EARNINGS PER SHARE
Basic and diluted earnings per share has been calculated by dividing net
loss adjusted for preferred stock dividends and accretion of discount by average
shares outstanding.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
F-15
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2. ACQUISITIONS AND DISPOSITION:
The Company completed the following acquisitions of radio stations for cash
during 1997:
<TABLE>
<CAPTION>
ASSET PURCHASE
MARKETS AND STATIONS ACQUISITION DATE PRICE(1)
- ------------------------------------------------------------------ ---------------------- ----------------------
<S> <C> <C>
WEST INDIES/EASTERN CARIBBEAN BASIN
Caribbean Communications Company Limited
(GEM Radio Network)............................................. April 24, 1997 $ 7,203
WILMINGTON, NC
HVS Partners
(WWQQ-FM, WQSL-FM and WXQR-FM).................................. August 28, 1997 $ 6,186
Hara Broadcasting
(WAAV-FM and WAAV-AM)........................................... September 2, 1997 $ 1,590
AUGUSTA, GEORGIA
Wilks Broadcast Acquisitions, Inc.
(WEKL-FM, WRXR-FM, WUUS-FM and WGUS-AM)......................... August 31, 1997 $ 15,525
APPLETON/OSHKOSH/GREEN BAY, WISCONSIN
Value Radio Corporation
(WOSH-AM, WVBO-FM and WOGB-FM).................................. August 31, 1997 $ 7,347
Value Radio Corporation
(WUSW-FM and WNAM-AM)........................................... August 31, 1997 $ 5,515
TOLEDO, OHIO
WKKO-FM, WRQN-FM, WTOD-AM, and WIMX-FM
(WKKO-FM, WRQN-FM, WTOD-AM AND
WIMX-FM)...................................................... November 10, 1997 $ 30,113
(WWWM-FM and WLQR-AM)
The Midwestern Broadcasting Company, Radio Stations WWWM-FM and
WLQR-AM....................................................... November 12, 1997 $ 10,000
WICHITA FALLS, TEXAS
KLUR-FM, KQXC-FM and KYYI-FM (a wholly owned entity of Sam F.
and Pamela S. Beard, Sole Proprietors)
(KLUR-FM, KQXC-FM and KYYI-FM).................................. December 1, 1997 $ 6,341
SALISBURY-OCEAN CITY, MARYLAND
HVS Partners
(WLVW-FM, WQHQ-FM, WTGM-AM, and
WLBW-FM)...................................................... December 18, 1997 $ 9,283
-------
$ 99,103
-------
-------
</TABLE>
- ------------------------
(1) Includes acquisition related costs
F-16
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2. ACQUISITIONS AND DISPOSITION: (CONTINUED)
As a part of the above transactions, the Company sold WIMX-FM for a note
receivable in the amount of $1,500 in early 1998.
The aforementioned acquisitions were accounted for by the purchase method of
accounting. As such, the accompanying consolidated balance sheet includes the
acquired assets and liabilities and the statement of operations includes the
results of operations of the acquired entities from their respective dates of
acquisition.
An allocation of the purchase prices to the estimated fair values of the
assets acquired and liabilities assumed is presented below.
<TABLE>
<S> <C>
Current assets, other than cash.................................... $ 757
Property and equipment............................................. 7,708
Intangible assets.................................................. 91,121
Other liabilities.................................................. (483)
---------
$ 99,103
---------
---------
</TABLE>
The unaudited consolidated condensed pro forma results of operations data as
if the acquisitions had occurred on May 22, 1997 follows:
<TABLE>
<CAPTION>
(UNAUDITED)
-----------
Net revenues..................................................... $ 16,051
<S> <C>
-----------
-----------
Operating loss................................................... $ (4,454)
-----------
-----------
Net loss......................................................... $ (6,922)
-----------
-----------
Net loss attributable to common stockholders..................... $ (7,196)
-----------
-----------
Basic loss per common share...................................... $ (7,196)
-----------
-----------
</TABLE>
Escrow funds of approximately $2,000 paid in 1997 by the Company in
connection with transactions completed subsequent to year end and for
transactions which the Company has signed an agreement for the purchase of an
entity have been classified as other assets at December 31, 1997 in the
accompanying consolidated balance sheet.
F-17
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2. ACQUISITIONS AND DISPOSITION: (CONTINUED)
During 1997, the Company operated the following stations under a LMA:
<TABLE>
<CAPTION>
MARKETS AND STATIONS ACQUISITION DATE
- ------------------------------------------------------------------- -------------------------
<S> <C>
TALLAHASSEE, FL
HVS Partners
(WHBX-FM, WBZE-FM, and WHBT-AM).................................. August 18, 1997
Tally Radio, L.C.
(WWLD-FM)........................................................ August 18, 1997
Tallahassee Broadcasting, Inc.
(WGLF-FM)........................................................ November 3, 1997
SALISBURY-OCEAN CITY, MD
HVS Partners
(WLVW-FM, WQHQ-FM, WTGM-AM, and WLBW-FM)......................... August 25, 1997
AUGUSTA, GA
Savannah Valley Broadcasting Radio Properties
(WZNY-FM, WBBQ-FM, and WBBQ-AM).................................. September 3, 1997
WICHITA FALLS, TX
KLUR-FM, KQXC-FM and KYYI-FM (a wholly owned entity of Sam F. and
Pamela S. Beard, Sole Proprietors)
(KLUR-FM, KQXC-FM and KYYI-FM)................................... October 1, 1997
ALBILENE, TX
Big Country Broadcasting
(KBCY-FM and KCDD-FM)............................................ November 1, 997
IQ Radio, Inc.
(KHXS-FM)........................................................ November 1, 1997
</TABLE>
The consolidated statement of operations includes the revenue and broadcast
operating expenses of these entities from the date of the LMA and any related
fees associated with the LMA.
F-18
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2. ACQUISITIONS AND DISPOSITION: (CONTINUED)
The Company completed the following acquisitions of radio stations for cash
during the three months ended March 31, 1998 (unaudited):
<TABLE>
<CAPTION>
ASSET
PURCHASE
MARKETS AND STATIONS ACQUISITION DATE PRICE(1)
- ------------------------------------------------------------------------- -------------------- ----------------
<S> <C> <C>
COLUMBUS, GA
M & M Partners
(WVRK-FM, WGSY-FM, WPNX-AM and WMLF-AM)................................ January 6, 1998 $ 12,842
Minority Radio Associates
(WAGH-FM).............................................................. March 17, 1998 $ 2,054
TALLAHASSEE, FLORIDA
Tally Radio, L.C.
(WWLD-FM).............................................................. January 16, 1998 $ 1,200
HVS Partners
(WBZE-FM, WHBT-AM and WHBX-FM)......................................... January 16, 1998 $ 15,596
TOLEDO, OHIO
Venice Broadcasting Corp.
(WXKR-FM).............................................................. January 27, 1998 $ 5,009
SALISBURY, MARYLAND
Connor Broadcasting Corporation
(WSBY-FM and WJDY-AM).................................................. February 11, 1998 $ 1,361
ANN ARBOR, MICHIGAN
Arbor Radio LP
(WIQB-FM, WQKL-FM, WTKA-AM and WDEO-AM)................................ March 2, 1998 $ 15,170
MYRTLE BEACH, SOUTH CAROLINA
Carolina Broadcasting, Inc.
(WJXY-AM and WJXY-FM).................................................. March 16, 1998 $ 2,307
Seacoast Radio Company, LLC
WDAI-FM
Sunny Broadcasters, Inc.
(WSNY-FM).............................................................. March 25, 1998 $ 8,229
FLORENCE, SOUTH CAROLINA
Forjay Broadcasting Corporation
(WYNN-FM and WYNN-AM).................................................. March 23, 1998 $ 4,393
-------
$ 68,161
-------
-------
</TABLE>
(1) Includes acquisition related costs.
The aforementioned acquisitions were accounted for by the purchase method of
accounting. As such, the accompanying consolidated March 31, 1998 balance sheet
(unaudited) includes the acquired assets and
F-19
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2. ACQUISITIONS AND DISPOSITION: (CONTINUED)
liabilities and the statement of operations for the three months ended March 31,
1998 (unaudited) includes the results of operations of the acquired entities
from their respective dates of acquisition.
An allocation of the purchase prices to the estimated fair values of the
assets acquired and liabilities assumed is presented below.
<TABLE>
<S> <C>
Current assets, other than cash.................................... $ 1
Property and equipment............................................. 5,468
Intangible assets.................................................. 63,793
Other liabilities.................................................. (1,101)
---------
$ 68,161
---------
---------
</TABLE>
The unaudited consolidated condensed pro forma results of operations data
for the three months ended March 31, 1998 as if the acquisitions had occurred on
January 1, 1998 follows:
<TABLE>
<CAPTION>
(UNAUDITED)
-----------
Net revenues..................................................... $ 13,394
<S> <C>
-----------
-----------
Operating loss................................................... $ (2,163)
-----------
-----------
Net loss......................................................... $ (5,402)
-----------
-----------
Net loss attributable to common stockholders..................... $ (6,244)
-----------
-----------
Basic loss per common share (in dollars)......................... $ (6,244)
-----------
-----------
</TABLE>
Escrow funds of approximately $12,522 paid by the Company in connection with
transactions completed subsequent to March 31, 1998 and for transactions which
the Company has signed an agreement for the purchase of an entity have been
classified as other assets at March 31, 1998 in the accompanying consolidated
balance sheet.
As of March 31, 1998, the Company operated 46 radio stations under a LMA.
The unaudited March 31, 1998 consolidated statement of operations includes the
revenue & broadcast operating expenses of these radio stations and any related
fees associated with the LMA.
F-20
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at December 31, 1997:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIFE
--------------------
<S> <C> <C>
Broadcasting and other equipment............................. 3-7 years $ 4,377
Furniture and fixtures....................................... 5 years 2,679
Buildings and improvements................................... 20 years 879
Construction in process...................................... 169
---------
8,104
Less accumulated depreciation................................ (391)
Land......................................................... 407
---------
$ 8,120
---------
---------
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIFE
--------------------
<S> <C> <C>
Broadcasting licenses and goodwill........................... 25 years $ 89,472
Other intangibles............................................ 3-5 years 1,649
---------
91,121
Less accumulated amortization................................ (904)
---------
$ 90,217
---------
---------
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December
31, 1997:
<TABLE>
<S> <C>
Accounts payable.................................................... $ 2,124
Accrued expenses.................................................... 551
Accrued interest.................................................... 901
Accrued state income taxes.......................................... 67
---------
$ 3,643
---------
---------
</TABLE>
F-21
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
6. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Revolving line of credit of $70,000 at 9%........................ $ 42,535
Promissory note--interest and principal payable monthly at an
interest rate of 11%........................................... 266
---------
42,801
Less: Current portion of long-term debt.......................... (12)
---------
$ 42,789
---------
---------
</TABLE>
The revolving line of credit provides for commitments of $70,000 under a
senior secured reducing revolver and $25,000 under an uncommitted senior secured
acquisition facility (the "Old Credit Facility"). At December 31, 1997, the
Company had borrowed $42,535 under the revolver and the acquisition facility had
not been activated. At December 31, 1997, the Company has issued letters of
credit related to pending acquisitions in the amount of $5,574, which is also
included under the $70,000 revolver limit. Annual facility fees on unused
commitments were .50% for the revolver and, once activated, for the acquisition
facilities. Borrowing rates were based upon (i) LIBOR plus a margin ranging from
1.5% to 2.75% or, (ii) a base rate plus a margin ranging from 0.5% to 1.75%. The
commitments of the lenders for the revolver were scheduled to mandatorily reduce
in June 1999. The revolving line of credit has a maturity date of December 31,
2004. The Company's obligations under the facility were secured by substantially
all of its assets. The facilities contained general covenants related to the
operation of the Company, information covenants to provide periodic reporting of
information and various financial covenants consisting of financial ratios.
A summary of the future maturities of long-term debt follows:
<TABLE>
<S> <C>
1998............................................................... $ 12
1999............................................................... 12
2000............................................................... 12
2001............................................................... 12
2002............................................................... 12
Thereafter......................................................... 42,741
---------
$ 42,801
---------
---------
</TABLE>
On March 2, 1998, the Company entered into a $190 million senior credit
facility pursuant to which the Company has available a revolving line of credit
of $110 million and a term loan commitment of $80 million (the "Credit
Facility"). Commitments reduce beginning in March 2000. The Credit Facility
contains certain covenants that restrict, among other things, the ability of the
Company and its subsidiaries to incur additional indebtedness, pay dividends or
make certain other restricted payments, enter into certain transactions with
affiliates, merge or consolidate with any other person or sell, assign,
transfer, lease convey or otherwise dispose of all or substantially all of the
assets of the Company. In addition, the Credit Facility restricts the ability of
the Company to incur liens or to consummate certain asset sales. The Credit
Facility also requires the Company to maintain specified financial ratios and to
satisfy certain financial condition tests.
F-22
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
6. LONG-TERM DEBT (CONTINUED)
The proceeds of the borrowings under the Credit Facility have been used to
finance acquisitions and to repay the Company's indebtedness under the Old
Credit Facility. In connection with the extinguishment of the Old Credit
Facility, the Company recognized an extraordinary loss of $1,837 related to the
write-off of previously capitalized debt issuance costs.
Both revolving credit and term loan borrowings under the Credit Facility
bear interest, at the Company's option, at a rate equal to the Base Rate (as
defined under the terms of the Credit Facility) plus a margin ranging between
0.50% to 1.75%, or the Eurodollar Rate (as defined under the terms of the Credit
Facility) plus a margin ranging between 1.50% to 2.75% (in each case dependent
upon the leverage ratio of the Company). The revolving credit and term loan
borrowings are repayable in equal quarterly installments beginning in 2000. The
scheduled annual amortization of the term loan is $10.0 million in each of the
years 2000 through 2002, $15.0 million in each of the years 2003 through 2005,
and $5.0 million at maturity. The scheduled annual reduction in availability
under the revolving credit loans is $10.0 million in each of the years 2000 and
2001, $15.0 million in 2002, $20.0 million in year 2003, $25.0 million in each
of the years 2004 and 2005, and $5.0 million at maturity in 2006.
7. COMMON STOCK AND MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK
The Company is authorized to issue 10,000 shares of common stock. In 1997,
the Company issued 1,000 shares of common stock to Cumulus Media, LLC in
exchange for $45,245 and contributed net assets of $7,503 valued on a historical
cost basis. In January 1998, the Company received an additional $15,000 as an
equity contribution from Cumulus Media, LLC. The holder of common stock is
entitled to one vote per share. Dividends are payable subject to the rights and
preferences of preferred stock.
During 1997, the Company was authorized to issue 12,000 shares of
Mandatorily Redeemable 12% Class A Cumulative Preferred Stock ("Preferred
Stock"), $.01 par value, stated value $10,000. In November 1997, the Company
issued 1,625 shares for proceeds of $13,152. In February 1998, the Company
issued an additional 1,625 shares of the Preferred Stock in exchange for
$16,250. Dividends on the outstanding Preferred Stock accrue at an annual rate
of 12% of the stated value per share compounded quarterly, and accrue and are
payable quarterly, subject to the Company's right to pay dividends by issuing
Payment in Kind (PIK) shares, which are shares of Preferred Stock. At December
31, 1997, the Company had accrued the value of preferred stock dividends and
accretion of discount in the amount of $274. The Company declared a PIK dividend
of 52.36 shares in February 1998. On the mandatory redemption date, November 14,
2007, the Company will redeem any outstanding Preferred Stock at the stated
value plus any accrued and unpaid cumulative dividends. Under the agreement with
the holder of Preferred Stock, the Company is subject to various covenants
related to various financial ratios and measures and has restrictions related to
the payment of dividends, asset sales and debt issuances.
F-23
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
8. INCOME TAXES
Income tax expense for 1997 consisted of the following components:
<TABLE>
<S> <C>
Current tax expense:
Federal............................................................. $ --
State............................................................... 67
---
Total current expense........................................... 67
---
Deferred tax expense (benefit):
Federal............................................................. (356)
State............................................................... 21
---
(335)
---
Less: Change in valuation allowance................................... 335
---
Total deferred expense............................................ --
---
Total income tax expense.............................................. $ 67
---
---
</TABLE>
Total income tax expense differed from the amount computed by applying the
federal standard tax rate of 34% for the period ended December 31, 1997 due to
the following:
<TABLE>
<S> <C>
Pretax loss at federal statutory rate.............................. $ (1,194)
State income tax expense, net of federal benefit................... 58
Nondeductible stock compensation................................... 574
Other.............................................................. 294
Change in valuation allowance...................................... 335
---------
Net income tax expense............................................. $ 67
---------
---------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 are
presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards................................... $ 468
Accounts receivable................................................ 41
Property, plant and equipment...................................... 4
---------
Total deferred tax assets........................................ 513
Less: Valuation allowance.......................................... (335)
---------
Net deferred tax assets............................................ 178
---------
Deferred tax liabilities:
Intangible assets.................................................. 178
---------
Total deferred tax liabilities................................... 178
---------
Net deferred tax liability....................................... $ --
---------
---------
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes, such as net operating loss carryforwards. The Company
has established a valuation allowance against its net deferred tax asset
following an assessment of the likelihood of realizing such amounts. In arriving
at the determination as to the amount of the valuation allowance required, the
Company considered its operating history as well as
F-24
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
8. INCOME TAXES (CONTINUED)
significant acquisitions made in 1997 and pending acquisitions, statutory
restrictions on the use of operating losses, tax planning strategies and its
expectation of the level and timing of future taxable income.
The foreign operations of the Company have incurred operating losses, the
benefit of which remains unlikely. Accordingly, the Company has not recognized a
tax benefit for these loss carryforwards since it is not assured it could
utilize the loss carryforward in the future.
At December 31, 1997, the Company has a federal net operating loss
carryforward available to offset future income of approximately $1,303 which
will expire after 2012.
9. LEASES
The Company has noncancelable operating leases, primarily for office space
and various capital leases primarily for equipment and vehicles. The operating
leases generally contain renewal options for periods ranging from one to ten
years and require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases (excluding those with lease terms
of one month or less that were not renewed) was approximately $201 for the
period ended December 31, 1997.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- -------------------------------------------------------------------------------------
<S> <C>
1998................................................................................. $ 469
1999................................................................................. 407
2000................................................................................. 332
2001................................................................................. 258
2002................................................................................. 186
Thereafter........................................................................... 232
---------
$ 1,884
---------
---------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company is a defendant from time to time in various lawsuits which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of receivables, payables, and accrued expenses
approximate fair value due to the short maturity of these instruments. The
estimated fair value of long term debt and preferred stock subject to mandatory
redemption are estimated based on current market rates and approximate the
carrying value.
12. RELATED PARTY TRANSACTIONS
On November 12, 1997, the Company purchased substantially all of the assets
of The Midwestern Broadcasting Company, including WWWM-FM and WLQR-AM, for
approximately $10,000. The President of Midwestern Broadcasting Company is the
Vice Chairman and a Director of the Company.
Substantially all of the Company's broadcast strategy consulting services
and programming research are contracted with Stratford Research the co-owner of
which is the Vice Chairman and a Director of the
F-25
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
12. RELATED PARTY TRANSACTIONS (CONTINUED)
Company. Total fees paid to Stratford Research during fiscal 1997 were
approximately $184 and fees owed at December 31, 1997 were approximately $240.
During 1997, the Company remitted $206 to Cumulus Media, LLC representing
fees for management services. These fees are included in corporate general and
administrative expenses. The Company has also paid Cumulus Media, LLC $300 for
organizational costs, which have been included in other assets.
During 1997, the Company paid $297 to Quaestus Management Corporation for
services rendered in connection with the acquisition of stations and corporate
finance services. The Chairman and Chief Executive of Quaestus Management
Corporation is also the Chairman and a Director of the Company.
13. NON-CASH STOCK COMPENSATION
Cumulus Media, LLC issued 1,630 shares of common stock to two key employees
of the Company. In addition, Cumulus Media, LLC issued 1,564 shares and 2,346
shares of common stock to DBBC of Georgia, LLC, the co-owner of which is the
Vice Chairman and a Director of the Company, and Quaestus Management Corporation
(consulting service organizations), respectively. During the period ended
December 31, 1997, the Company has recognized compensation expense of $1,689
related to these shares. The value of the Cumulus Media, LLC stock was estimated
through the use of a discounted cash flow analysis. The valuation included
various assumptions regarding Cumulus Media, LLC's future performance which the
Company believed to be reasonable at the date of grant (the measurement date).
The valuation also considered the priority return of other equity instruments
issued by Cumulus Media, LLC.
14. DEFINED CONTRIBUTION PLAN
Effective January 1, 1998, the Company adopted a qualified profit sharing
plan under Section 401(k) of the Internal Revenue Code. All employees meeting
eligibility requirements are qualified for participation in the plan.
Participants in the plan may contribute 1% to 15% of their annual compensation
through payroll deductions. Under the plan, the Company will provide a matching
contribution of 25% of the first 6% of each participant's contribution. Matching
contributions are to be remitted to the plan by the Company quarterly.
15. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT
Subsequent to December 31, 1997, the Company completed acquisitions of 33
radio stations in 10 separate markets for an aggregate purchase price of
approximately $85,100. These transactions will be accounted for by the purchase
method of accounting.
The Company has also entered into various agreements to acquire 117 stations
in 30 markets for an aggregate purchase price of approximately $250,500.
The Company plans to complete a reorganization whereby (i) all of the shares
of Preferred Stock will be exchanged for shares of a new Series A Preferred
Stock and (ii) Cumulus Media, LLC will be liquidated and shares of common stock
of the Company will be distributed by Cumulus Media, LLC to its members in
liquidation.
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations and partners' capital and of cash flows present fairly, in all
material respects, the financial position of Arbor Radio LP at December 31, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 19, 1998
F-27
<PAGE>
ARBOR RADIO LP
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 117,000 $ 137,000
Accounts receivable, less allowance for doubtful accounts of $22,000 and $14,000,
respectively.................................................................... 640,000 520,000
Prepaid expenses and other current assets......................................... 10,000 18,000
------------- -------------
Total current assets.......................................................... 767,000 675,000
Property and equipment, net......................................................... 997,000 1,259,000
Intangible assets, net.............................................................. 2,140,000 2,334,000
------------- -------------
Total assets.................................................................. $ 3,904,000 $ 4,268,000
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Notes payable, current portion.................................................... $ 517,000 $ 450,000
Accounts payable.................................................................. 45,000 84,000
Accrued payroll and commissions................................................... 112,000 82,000
Accrued and other current liabilities............................................. 32,000 11,000
------------- -------------
Total current liabilities..................................................... 706,000 627,000
------------- -------------
Long-term liabilities:
Notes payable, less current portion............................................... 2,533,000 3,050,000
Related party notes payable....................................................... -- 135,000
------------- -------------
Total long-term liabilities................................................... 2,533,000 3,185,000
------------- -------------
Commitments and contingencies
Partners' capital:
Partners' capital................................................................. 1,800,000 1,800,000
Accumulated deficit............................................................... (1,135,000) (1,344,000)
------------- -------------
Total partners' capital....................................................... 665,000 456,000
------------- -------------
Total liabilities and partners' capital....................................... $ 3,904,000 $ 4,268,000
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements.
F-28
<PAGE>
ARBOR RADIO LP
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:............................................................... $ 3,723,000 $ 3,304,000 $ 2,993,000
Less: agency commissions.............................................. (289,000) (286,000) (287,000)
------------ ------------ ------------
Net revenues...................................................... 3,434,000 3,018,000 2,706,000
Operating expenses:
Programming........................................................... 623,000 575,000 596,000
Sales and promotions.................................................. 737,000 591,000 621,000
Advertising........................................................... 165,000 231,000 106,000
Technical............................................................. 152,000 164,000 193,000
General and administrative............................................ 717,000 739,000 737,000
Depreciation and amortization......................................... 502,000 666,000 926,000
------------ ------------ ------------
Total operating expenses.......................................... 2,896,000 2,966,000 3,179,000
------------ ------------ ------------
Income (loss) from operations........................................... 538,000 52,000 (473,000)
Other income (expense):
Interest expense, net................................................. (329,000) (358,000) (383,000)
Other................................................................. -- (14,000) 3,000
------------ ------------ ------------
Net income (loss)....................................................... 209,000 (320,000) (853,000)
Partners' capital at the beginning of the year.......................... 456,000 776,000 1,629,000
------------ ------------ ------------
Partners' capital at the end of the year................................ $ 665,000 $ 456,000 $ 776,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-29
<PAGE>
ARBOR RADIO LP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................ $ 209,000 ($ 320,000) ($ 853,000)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Loss on sale of fixed asset............................................ 3,000 14,000 --
Depreciation and amortization.......................................... 502,000 666,000 926,000
Provision for doubtful accounts........................................ 8,000 8,000 9,000
Decrease (increase) in accounts receivable............................. (128,000) 36,000 (242,000)
Decrease (increase) in prepaid expenses and other current assets....... 8,000 1,000 (1,000)
(Decrease) increase in accounts payable................................ (39,000) (14,000) (45,000)
Increase (decrease) in accrued and other liabilities................... 51,000 (221,000) 238,000
---------- ----------- -----------
Net cash provided by operating activities.............................. 614,000 170,000 32,000
---------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment...................................... (49,000) (35,000) (121,000)
Proceeds from sale of assets............................................. -- 3,000 --
Acquisition cost......................................................... -- -- (109,000)
---------- ----------- -----------
Net cash used for investing activities................................... (49,000) (32,000) (230,000)
---------- ----------- -----------
Cash flows from financing activities:
Payments on bank borrowings.............................................. (585,000) (300,000) --
Proceeds from borrowings of notes payable................................ -- 135,000 --
---------- ----------- -----------
Net cash used in financing activities.................................... (585,000) (165,000) --
---------- ----------- -----------
Net decrease in cash....................................................... (20,000) (27,000) (198,000)
Cash at beginning of year.................................................. 137,000 164,000 362,000
---------- ----------- -----------
Cash at end of year........................................................ $ 117,000 $ 137,000 $ 164,000
---------- ----------- -----------
---------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................................... $ 341,000 $ 446,000 $ 298,000
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-30
<PAGE>
ARBOR RADIO LP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Arbor Radio LP, a limited partnership, (the "Partnership") was incorporated
in the State of Delaware on October 6, 1994 and started operations on December
20, 1994. The general partner is American Media Management, Inc. The Partnership
owns and operates radio stations WQKL-FM, WTKA-AM, WIQB-FM and WDEO-AM, Ann
Arbor and Saline, Michigan.
In October 1997, the Partnership entered into an agreement with Cumulus
Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) ("Cumulus")
to sell the assets of the Partnership, subject to approval of the Federal
Communications Commission ("FCC"), to Cumulus.
The significant accounting principles followed by the Partnership and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Partnership enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Trade revenue and
trade expense are recognized in equal amounts at the fair market value of
products or services received as advertising air time is broadcast or as
services are received. Trade revenues and trade expenses for the years ended
December 31, 1997, 1996 and 1995 was $245,000, $262,000 and $251,000,
respectively. The difference between this method of accounting and the
recognition of trade sales as advertising air time as broadcast, and the
recognition of trade expense as services are received is not material.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Partnership to
concentrations of credit risk consist principally of cash and accounts
receivable. The Partnership holds deposits in money market accounts. The
Partnership performs ongoing credit evaluations of its customers and generally
does not require collateral
F-31
<PAGE>
ARBOR RADIO LP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
for its accounts receivable. The Partnership maintains reserves for potential
credit losses based upon the expected collectibility of all accounts receivable.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using accelerated methods over the estimated useful
lives of the respective assets, generally five to fifteen years for broadcasting
towers and equipment and furniture and fixtures and thirty-nine years for
buildings.
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include FCC licenses and acquisition and organizational
costs. Intangible assets are recorded at cost and amortized over their
respective estimated useful lives. Amortization is calculated using the
straight-line method over a 15-year life for FCC licenses and call letters and a
five-year life for acquisition and organizational costs. The Partnership
evaluates the carrying value of intangibles periodically in relation to the
projected future undiscounted net cash flows of the related businesses.
FEDERAL INCOME TAXES
The Partnership is not a taxpaying entity for Federal income tax purposes,
and thus no income tax expense has been recorded in the financial statements.
Income from the Partnership is taxed to the partners in their individual
returns.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Partnership's financial instruments, including
cash, accounts receivable, accounts payable and long-term debt, approximate fair
value.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Broadcasting towers and equipment................................ $1,932,000 $1,903,000
Buildings........................................................ 194,000 194,000
Office furniture and equipment................................... 226,000 224,000
Leasehold improvements........................................... 95,000 95,000
------------ ------------
2,447,000 2,416,000
Accumulated depreciation......................................... (1,580,000) (1,287,000)
------------ ------------
867,000 1,129,000
Land............................................................. 130,000 130,000
------------ ------------
Property and equipment, net...................................... $ 997,000 $1,259,000
------------ ------------
------------ ------------
</TABLE>
F-32
<PAGE>
ARBOR RADIO LP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT: (CONTINUED)
Depreciation expense for 1997, 1996 and 1995 was $308,000 and $478,000 and
$726,000, respectively.
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
FCC licenses and call letters.................................... $2,555,000 $2,555,000
Acquisition and organizational costs............................. 168,000 168,000
------------ ------------
2,723,000 2,723,000
Accumulated amortization......................................... (583,000) (389,000)
------------ ------------
Intangible assets, net........................................... $2,140,000 $2,334,000
------------ ------------
------------ ------------
</TABLE>
Amortization expense for 1997, 1996 and 1995 was $194,000, $188,000, and
$200,000, respectively.
4. NOTES PAYABLE:
At December 31, 1997, the Partnership owes $2,250,000 to Michigan National
Bank which is secured by accounts receivable; call letters; property, fixtures,
and equipment; and other assets. Interest payments are due quarterly beginning
January 1, 1995 with the principal portion due in equal quarterly payments
beginning March 31, 1996. The entire amount of unpaid principal and interest is
due December 31, 2002. Interest is calculated at Michigan National Prime
Interest Rate plus 1.25% (9.75% at December 31, 1997).
Maturities of debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1998............................................................................ $ 450,000
1999............................................................................ 450,000
2000............................................................................ 450,000
2001............................................................................ 450,000
2002............................................................................ 450,000
------------
2,250,000
Less current portion (450,000)
------------
$ 1,800,000
------------
------------
</TABLE>
The loan agreement relating to the note payable to the bank contains various
covenants pertaining to the maintenance of debt service and acquisition of
property, plant and equipment. At December 31, 1997, the debt service coverage
ratio, senior debt to broadcast cash flow ratio, and all other covenants were in
compliance.
Under a Promissory Note with the prior station owners, MW Blue Partnership,
the Partnership owes $800,000. Interest payments are due on the first business
day after each quarter end beginning April 3, 1995. The repayment of the
principal portion begins September 30, 1998 as presented below. Interest is
calculated at Michigan National Prime Interest Rate plus 1.5%. The interest rate
was 10% at December 31, 1997.
F-33
<PAGE>
ARBOR RADIO LP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE: (CONTINUED)
Maturities of debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 67,000
1999.............................................................................. 133,000
2000.............................................................................. 133,000
2001.............................................................................. 133,000
2002.............................................................................. 133,000
Thereafter........................................................................ 201,000
----------
800,000
Less current portion (67,000)
----------
$ 733,000
----------
----------
</TABLE>
Total interest expense related to notes payable for 1997, 1996 and 1995 was
$322,000, $351,000, and $384,000, respectively.
5. RELATED PARTY NOTES PAYABLE:
During the year ended December 31, 1996, three notes payable from the
partners were established. Each unsecured note bears interest at Michigan
National Prime Interest rate plus 1%. These notes were paid in full in November
1997.
Interest expense for 1997 and 1996 was $12,000 and $6,000, respectively.
6. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Partnership leases its station studios, and certain equipment under
various operating leases. Rent expense under operating leases for 1997, 1996 and
1995 was $107,000, $106,000 and $99,000, respectively. Future minimum annual
payments under these non-cancelable operating leases and agreements as of
December 31, 1997, are as follows:
<TABLE>
<CAPTION>
PAYMENT
----------
<S> <C>
1998.............................................................................. $ 102,000
1999.............................................................................. 97,000
2000.............................................................................. 97,000
2001.............................................................................. 100,000
2002.............................................................................. 83,000
Thereafter........................................................................ 198,000
----------
$ 677,000
----------
----------
</TABLE>
F-34
<PAGE>
ARBOR RADIO LP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. MANAGEMENT FEE:
The Partnership is under agreement with the general partner to pay an annual
management fee over the life of the Partnership. Payments are to commence with
the year 1998 as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- -------------------------------------------------------------------------------------- ----------
<S> <C>
1998.................................................................................. $ 25,000
1999.................................................................................. 50,000
2000.................................................................................. 50,000
2001.................................................................................. 50,000
2002.................................................................................. 50,000
2003.................................................................................. 200,000
2004.................................................................................. 200,000
2005.................................................................................. 250,000
2006.................................................................................. 250,000
Thereafter............................................................................ 100,000
</TABLE>
The agreement will be discontinued upon completion of the sale to Cumulus.
F-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of Beaumont Skywave, Inc., (the
"Company") at December 31, 1997, and the results of its operations for the year
then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 10, 1998
F-36
<PAGE>
BEAUMONT SKYWAVE, INC.
(A WHOLLY-OWNED SUBSIDIARY
OF PACIFIC BROADCASTING OF BEAUMONT, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash............................................................................... $ 14,980 $ 14,699
Accounts receivable, net of allowance for doubtful accounts of $26,143 and $11,143,
respectively..................................................................... 57,363 120,734
Employee receivables............................................................... 5,274 2,891
Other current assets............................................................... 10,369 3,604
Intercompany receivable............................................................ 52,678
------------ ------------
Total current assets........................................................... 140,664 141,928
Property and equipment, net.......................................................... 160,993 168,311
Intangible assets, net............................................................... 797,289 811,051
------------ ------------
Total assets................................................................... $ 1,098,946 $1,121,290
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt............................................... $ 41,208 $ 41,208
Accrued interest payable........................................................... 18,344 14,896
Accrued compensation............................................................... 1,457 20,088
Accrued expenses................................................................... 26,147 29,884
Advanced payments received from Cumulus............................................ 45,000 --
Advances payable to Parent......................................................... 94,132 107,869
Note payable to related party...................................................... 125,000 125,000
------------ ------------
Total current liabilities...................................................... 351,288 338,945
Long-term debt....................................................................... 483,782 480,358
------------ ------------
Total liabilities.............................................................. 835,070 819,303
------------ ------------
Commitments and contingencies
Stockholder's equity:
Common stock, no par value, 400 shares
authorized, 1 share issued and outstanding....................................... 400,000 400,000
Accumulated deficit................................................................ (136,124) (98,013)
------------ ------------
Total stockholder's equity..................................................... 263,876 301,987
------------ ------------
Total liabilities and stockholder's equity..................................... $ 1,098,946 $1,121,290
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
F-37
<PAGE>
BEAUMONT SKYWAVE, INC.
(A WHOLLY-OWNED SUBSIDIARY
OF PACIFIC BROADCASTING OF BEAUMONT, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED
---------------------- DECEMBER 31,
1998 1997 1997
---------- ---------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................................... $ 94,945 $ 95,598 $ 703,524
Less: agency commissions............................................. 13,855 7,138 (57,320)
---------- ---------- ----------
Net revenues.................................................... 81,090 88,460 646,204
Operating expenses:
Programming.......................................................... 16,844 25,375 109,475
Sales and promotions................................................. 40,015 35,250 222,753
General and administrative........................................... 53,386 38,681 240,709
Depreciation and amortization........................................ 21,080 25,068 122,826
---------- ---------- ----------
Total operating expenses......................................... 131,325 124,374 695,763
---------- ---------- ----------
Loss from operations................................................... (50,235) (35,914) (49,559)
Interest expense....................................................... 17,876 17,876 71,500
LMA fee income......................................................... 30,000 -- --
---------- ---------- ----------
Net loss............................................................... $ (38,111) $ (53,790) $ (121,059)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-38
<PAGE>
BEAUMONT SKYWAVE, INC.
(A WHOLLY-OWNED SUBSIDIARY
OF PACIFIC BROADCASTING OF BEAUMONT, INC.)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON SURPLUS
STOCK (DEFICIT) TOTAL
---------- ------------ -----------
<S> <C> <C> <C>
Balance at January 1, 1997................................................. $ 400,000 $ 25,546 $ 425,546
Net loss................................................................... (121,059) (121,059)
Distribution to stockholder................................................ (2,500) (2,500)
---------- ------------ -----------
Balance at December 31, 1997............................................... $ 400,000 $ (98,013) $ 301,987
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
See Notes to Financial Statements.
F-39
<PAGE>
BEAUMONT SKYWAVE, INC.
(A WHOLLY-OWNED SUBSIDIARY
OF PACIFIC BROADCASTING OF BEAUMONT, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 FOR THE YEAR ENDED
---------------------- DECEMBER 31,
1998 1997 1997
---------- ---------- ------------------
<S> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss............................................................. $ (38,111) $ (53,790) $ (121,059)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization...................................... 21,080 25,068 122,826
Provision for doubtful accounts.................................... -- -- 9,068
Decrease (increase) in accounts receivable......................... 63,371 (24,185) (103,539)
Decrease (increase) in employee receivables........................ (2,383) 1,338 (870)
Increase in other current assets................................... (6,765) (50) (2,134)
Increase in intangibles............................................ -- -- (15,823)
Increase in accrued interest payable............................... 3,448 3,438 13,750
(Decrease) in accrued compensation................................. (18,631) (12,717) 5,848
(Decrease) increase in accrued expenses............................ (3,737) -- 26,147
(Decrease) increase in other accrued liabilities................... -- (3,405) 332
Increase in inter-company receivable............................... (52,678) -- --
Increase in advance payments received from Cumulus................. 45,000 -- --
---------- ---------- ----------
Net cash used in operating activities............................ 10,594 (64,303) (65,454)
---------- ---------- ----------
Cash flows used in investing activities:
Purchases of property and equipment.................................. (11,290)
---------- ---------- ----------
Cash used in investing activities................................ (11,290)
---------- ---------- ----------
Cash flows provided by financing activities:
Advances from (payments to) Parent, net.............................. (13,737) 82,502 88,170
Distribution to shareholder.......................................... (2,500)
Payment (increase in) long-term debt................................. 3,424 (10) (3,434)
---------- ---------- ----------
Cash provided by financing activities............................ (10,313) 82,492 82,236
---------- ---------- ----------
Increase in cash....................................................... 281 18,189 5,492
Cash at beginning of period............................................ 14,699 9,207 9,207
---------- ---------- ----------
Cash at end of period.................................................. 14,980 27,396 $ 14,699
---------- ---------- ----------
---------- ---------- ----------
Non-cash operating activities:
Trade revenue........................................................ $ 8,500 $ 8,600 $ 52,085
---------- ---------- ----------
---------- ---------- ----------
Trade expense........................................................ $ 8,500 $ 8,600 $ 49,711
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............................... $ 14,438 $ 14,967 $ 57,750
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-40
<PAGE>
BEAUMONT SKYWAVE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Beaumont Skywave, Inc. (the "Company") is a wholly-owned subsidiary of
Pacific Broadcasting of Beaumont, Inc. (the "Parent"). The Company owns and
operates the radio station KTCX-FM (the "Station") located in Beaumont, Texas.
The Company is dependent on the Parent to fund certain of its activities,
primarily the Company's debt service requirements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated using an accelerated method over estimated useful lives of 5 and
7 years.
INTANGIBLE ASSETS
Intangible assets include goodwill (see Note 2), Federal Communications
Commission ("FCC") license and other acquisition costs. Intangible assets are
stated at cost and are being amortized using the straight-line method over the
estimated useful life or contract term for periods not exceeding 15 years. The
Company evaluates the carrying value of intangibles periodically in relation to
the projected future undiscounted net cash flows of the related businesses.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
INCOME TAXES
Effective January 1, 1997, the Company has elected to be treated as a
qualified subchapter S subsidiary of the Parent for federal and state income tax
purposes, in accordance with Section 1361b3 of
F-41
<PAGE>
BEAUMONT SKYWAVE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the Internal Revenue Code. Accordingly, no provision for federal or state income
taxes has been recorded in the financial statements as the earnings of the
Company are included in the personal income tax returns of the Parent's
shareholders.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments. The
carrying value of outstanding notes payable approximates fair value based on
current market rates.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
2. ACQUISITIONS:
In June 1996, the Parent acquired 33% of the issued and outstanding common
and preferred stock of the Company from Alice Ramsey and Skywave Communications
Corporation (collectively referred to as the "Sellers") for $400,000. In July
1996, the Parent entered into a stock purchase option agreement with the Sellers
whereby the Parent was granted an option to purchase the remaining 67% of the
issued and outstanding common and preferred stock of the Company. In November
1996, the Parent exercised its option and acquired the remaining 67% of the
Company's outstanding stock for $650,000, which was financed through the
execution of a $525,000 note payable to the Seller and a $125,000 note payable
to a shareholder of the Parent.
The above transactions were accounted for as a step acquisition using the
purchase method of accounting, and, accordingly, the purchase price of each
acquisition was allocated to the net assets acquired based on the estimated fair
value as of the acquisition date. As a result, the Company recorded goodwill
aggregating $755,000, which represents the excess of the purchase price over the
fair value of the net tangible assets acquired.
F-42
<PAGE>
BEAUMONT SKYWAVE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Broadcasting towers and equipment................................. $ 186,190
Studio equipment.................................................. 35,173
Furniture, fixtures and leasehold improvements.................... 17,486
---------
238,849
Accumulated depreciation.......................................... (70,538)
---------
Property and equipment, net....................................... $ 168,311
---------
---------
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $62,506.
4. INTANGIBLE ASSETS:
Intangible assets at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Broadcast license................................................. $ 100,000
Organization costs................................................ 32,423
Goodwill.......................................................... 755,000
---------
887,423
Accumulated amortization.......................................... (76,372)
---------
Intangible assets, net............................................ $ 811,051
---------
---------
</TABLE>
Amortization expense for the year ended December 31, 1997 was $60,320.
5. LONG-TERM DEBT:
In connection with the acquisition of the Company's stock in November 1996,
the Parent issued a $525,000 promissory note payable to the Sellers. This
promissory note has been recorded in the Company's financial statements. The
promissory note accrues interest at 11% and required interest only payments of
$4,813 per month during the first twelve months. Beginning December 1997, the
promissory note requires monthly principal and interest payments of $8,247
through October 2002, and the outstanding balance is due in its entirety at
November 30, 2002. During 1997, the Company recorded interest expense of $57,750
and made principal payments totaling $3,434.
Following represents a summary of the future maturities of the Company's
long-term debt as of December 31, 1997:
<TABLE>
<S> <C>
1998.............................................................. $ 41,208
1999.............................................................. 41,208
2000.............................................................. 41,208
2001.............................................................. 41,208
2002.............................................................. 356,734
---------
$ 521,566
---------
---------
</TABLE>
F-43
<PAGE>
BEAUMONT SKYWAVE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF BEAUMONT, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT: (CONTINUED)
The note payable to Sellers is secured by a pledge of $525,000 of the
Company's stock, as well as by personal guarantees of the Parent's shareholders.
6. RELATED PARTY TRANSACTIONS:
In connection with the acquisition of the Company's stock in November 1996,
the Parent also executed a $125,000 promissory note payable to a shareholder of
the Parent. This promissory note has been recorded in the Company's financial
statements. Such note is due on demand and accrues interest at 11%. During 1997,
the Company recorded interest expense of $13,750 and made no principal payments.
At December 31, 1997, the Company had net advances due to the Parent
totaling $107,869. Such advances relate to various operating activities of the
Station, as well as interest payments made by the Parent on behalf of the
Company. The advances are due on demand and do not accrue interest.
At December 31, 1997, the Company had outstanding loan receivable balances
due from the Station's General Manager and a certain employee totaling $2,691
and $200, respectively. Such loans are due on demand and do not accrue interest.
7. OPERATING LEASE COMMITMENTS:
The Company has entered into lease agreements for building and property used
in the operations of the Station. Rent expense under such leases totalled
$30,600 in 1997. Future minimum rentals under these leases at December 31, 1997
are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 20,100
1999............................................................... 5,400
2000............................................................... 5,400
2001............................................................... 6,000
2002............................................................... 6,600
Thereafter......................................................... 23,100
---------
$ 66,600
---------
---------
</TABLE>
8. SUBSEQUENT EVENT:
On January 30, 1998, the Parent and the Company entered into an asset
purchase agreement with Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of
Cumulus Media Inc.) ("Cumulus") to sell substantially all of the assets and
liabilities of the Station to Cumulus. The closing of the sale is subject to
certain events that must occur which include, among other things, obtaining the
approval of the FCC. In conjunction with the sale, the Parent and the Company
entered into a local marketing agreement ("LMA") with Cumulus effective February
15, 1998. Under the LMA, Cumulus agreed to pay the Company a monthly LMA fee of
$50,000 per month, of which $30,000 per month (or a pro-rated amount for a
period less than one month) will be applied against the purchase price to be
paid by Cumulus. In addition, Cumulus agreed to reimburse the Company for
station operating expenses of $15,000 per month.
F-44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholder's equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Caribbean Communications Company Limited and its
subsidiaries, a wholly-owned subsidiary of Cumulus Media, LLC, at April 30,
1997, and the results of their operations and their cash flows for the four
month period ended April 30, 1997 in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 9, 1998
F-45
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30,
1997
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................................ $ 86,674
Accounts receivable, less allowance for doubtful accounts of $30,688............................. 128,115
Prepaid expenses and other receivables........................................................... 24,242
-------------
Total current assets......................................................................... 239,031
Property and equipment, net........................................................................ 1,105,787
Intangible assets, net............................................................................. 217,437
-------------
Total assets................................................................................. $ 1,562,255
-------------
-------------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................................................. $ 138,498
Accrued interest................................................................................. 44,578
Capital lease obligation......................................................................... 16,029
Accrued professional fees........................................................................ 40,137
Due to related parties........................................................................... 2,496,950
Other accrued expenses........................................................................... 7,642
-------------
Total current liabilities.................................................................... 2,743,834
-------------
Non-current liabilities:
Deferred compensation............................................................................ 145,000
-------------
Commitments and contingencies
Stockholder's equity (deficit):
Common stock ($0.37 par value, 50,000 shares authorized, 46,057 shares issued, 46,057
outstanding)................................................................................... 17,058
Capital in excess of par value................................................................... 2,267,699
Accumulated deficit.............................................................................. (3,606,486)
-------------
(1,321,729)
Less treasury stock, at cost (50 shares)......................................................... (4,850)
-------------
Total stockholder's equity (deficit)......................................................... (1,326,579)
-------------
Total liabilities and stockholder's equity (deficit)............................................... $ 1,562,255
-------------
-------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-46
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOUR MONTH
PERIOD ENDED
APRIL 30,
1997
------------
<S> <C>
Revenues............................................................................................ $ 191,112
Less: agency commissions............................................................................ (13,554)
------------
Net revenues................................................................................. 177,558
------------
Operating expenses:
Sales and promotions.............................................................................. 120,733
Technical......................................................................................... 126,319
Programming....................................................................................... 75,985
General and administrative........................................................................ 200,538
Depreciation and amortization..................................................................... 55,628
------------
Total operating expenses...................................................................... 579,203
------------
Loss from operations................................................................................ (401,645)
Other income (expense):
Interest income................................................................................... 210
Interest expense.................................................................................. (62,248)
Other income...................................................................................... 1,227
------------
Net loss............................................................................................ ($ 462,456)
------------
------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-47
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON TREASURY EXCESS OF ACCUMULATED
STOCK STOCK PAR VALUE DEFICIT TOTAL
--------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997...................... $ 17,058 $ -- $ 2,267,699 $ (3,144,030) $ (859,273)
Purchase of treasury stock...................... (4,850) (4,850)
Net loss........................................ -- -- -- (462,456) (462,456)
--------- --------- ------------ ------------- -------------
Balance at April 30, 1997....................... $ 17,058 $ (4,850) $ 2,267,699 $ (3,606,486) $ (1,326,579)
--------- --------- ------------ ------------- -------------
--------- --------- ------------ ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-48
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOUR MONTH
PERIOD ENDED
APRIL 30,
1997
------------
<S> <C>
Cash flows from operating activities:
Net loss.......................................................................................... $ (462,456)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................................. 55,628
Decrease in receivables....................................................................... 15,917
Increase in prepaid expenses and other assets................................................. (3,657)
Increase in accounts payable.................................................................. 40,346
Decrease in accrued expenses and other current liabilities.................................... (49,760)
------------
Net cash used in operating activities............................................................... (403,982)
------------
Cash flows from investing activities:
Purchases of property and equipment............................................................... (20,345)
------------
Net cash used in investing activities............................................................... (20,345)
------------
Cash flows from financing activities:
Proceeds from borrowings.......................................................................... 983,725
Repayments of borrowings.......................................................................... (396,235)
Payments of capital lease obligation.............................................................. (2,381)
Payments of deferred compensation................................................................. (80,000)
Purchase of treasury stock........................................................................ (4,850)
------------
Net cash provided by financing activities........................................................... 500,259
------------
Increase in cash and cash equivalents............................................................... 75,932
Cash and cash equivalents at beginning of period.................................................... 10,742
------------
Cash and cash equivalents at end of period.......................................................... $ 86,674
------------
------------
Supplemental disclosure of cash flow information:
Cash paid for interest............................................................................ $ 91,773
------------
------------
Non-cash operating activities:
Trade revenue..................................................................................... $ 63,808
------------
------------
Trade expense..................................................................................... $ 45,919
------------
------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-49
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Caribbean Communications Company Limited (the "Company"), a wholly-owned
subsidiary of Cumulus Media, LLC, is a corporation incorporated in the Crown
Colony of Montserrat, which operates the GEM Radio Network, a multi-market FM
radio broadcasting network serving the area extending from the British Virgin
Islands south to Trinidad in the Eastern Caribbean.
Before April 24, 1997, the Company was wholly-owned by CML Holdings, LLC. On
April 24, 1997, CML Holdings, LLC transferred the capital stock and assets of
the Company to Cumulus Media, LLC in exchange for shares of preferred stock of
Cumulus Media, LLC. As such, for accounting presentation purposes the financial
statements have been prepared on a basis to include the results of operations of
the Company for the period from April 24, 1997 through April 30, 1997. The
Company does not consider the inclusion of the results of operations for this
period to be significant. The financial statements also do not reflect the
impact resulting from the application of purchase accounting when Cumulus
acquired Caribbean Communications on April 24, 1997. For accounting reporting
purposes, the Company used April 30, 1997 as the date of acquisition.
The Company is dependent on the continued financial support of Cumulus
Media, LLC to meet its obligations as they come due.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, GEM Radio Five Limited. All
intercompany transactions and balances have been eliminated in consolidation.
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 period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, and other accrued expenses approximates fair value due to
their short term nature.
CASH FLOWS
For purposes of the consolidated statement of cash flows, cash consists of
bank deposits and money market funds.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
advertisers. Revenue is recognized as commercials are broadcast.
F-50
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over their
estimated useful lives, or in the case of leasehold improvements, over the terms
of the leases, if shorter. The estimated useful lives used in determining
depreciation range from 3 to 20 years. For financial reporting purposes,
depreciation is computed using the straight-line method.
Depreciation expense includes the amortization of capital lease assets.
INTANGIBLE ASSETS
Intangible assets include goodwill and broadcast licenses. Intangible assets
are stated at cost and are being amortized using the straight-line method over
the estimated useful life not exceeding 15 years. The Company evaluates the
carrying value of intangibles periodically in relation to the projected future
undiscounted net cash flows of the related businesses.
INCOME TAXES
The Company accounts for income tax expense and liabilities under the
liability method. As the Company has not realized taxable profits, no income tax
liability has been recorded as of April 30, 1997.
FOREIGN CURRENCY
Assets, liabilities and all profit and loss items of the Company are stated
in U.S. dollars for reporting purposes. The Company used a weighted average
exchange rate to translate revenues and expenses. The weighted average
conversion rate is one U.S. dollar to 2.7 Eastern Caribbean dollars, and one
U.S. dollar to 6.0 Trinidad and Tobago dollars. For reporting purposes, the
Company also used the same weighted average exchange rate to convert assets and
liabilities at April 30, 1997. The difference between the actual exchange rate
and the weighted average exchange rate is not considered significant.
Translation gains and losses have not been recorded and are not considered
significant.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
1997
------------
<S> <C>
Broadcast equipment............................................................. $ 1,003,527
Towers, masts and transmitter buildings......................................... 228,458
Leasehold improvements and site preparation..................................... 67,314
Furniture and fixtures.......................................................... 352,107
Vehicles........................................................................ 63,095
</TABLE>
F-51
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT (CONTINUED)
<TABLE>
<CAPTION>
APRIL 30,
1997
------------
<S> <C>
Network infrastructure.......................................................... 218,673
------------
1,933,174
Accumulated depreciation........................................................ (836,290)
Land............................................................................ 8,903
------------
Property and equipment, net..................................................... $ 1,105,787
------------
------------
</TABLE>
Depreciation expense for the four months ended April 30, 1997 was $49,792.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
1997
----------
<S> <C>
Broadcast licenses................................................................ $ 262,674
Accumulated amortization.......................................................... (45,237)
----------
Intangible assets, net............................................................ $ 217,437
----------
----------
</TABLE>
Amortization expense for the four months ended April 30, 1997 was $5,836.
4. DUE TO RELATED PARTIES:
Amounts due to related parties consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
1997
------------
<S> <C>
Advances--CML Holdings, LLC..................................................... $ 2,286,189
Advances--Cumulus Media, LLC.................................................... 210,761
------------
$ 2,496,950
------------
------------
</TABLE>
ADVANCES--CML HOLDINGS, LLC
The Company has advances from CML Holdings, LLC, a related party, in the
amount of $2,286,189, bearing interest at prime plus 2% (10.5% at April 30,
1997) and payable on demand.
ADVANCES--CUMULUS MEDIA, LLC
The Company has an advance from Cumulus Media, LLC, a related party, in
the amount of $210,761, which does not bear interest and is payable on
demand.
5. LEASES
Certain of the Company's buildings and equipment are leased under
noncancelable operating leases. Total rent expense for the four month period
ended April 30, 1997 was approximately $22,300.
F-52
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LEASES (CONTINUED)
Future minimum lease payments required under operating leases in effect at
April 30, 1997 for the twelve month periods ended April 30 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 33,884
1999.............................................................. 32,384
2000.............................................................. 21,628
2001.............................................................. 20,000
2002.............................................................. 20,000
Thereafter........................................................ 1,667
---------
$ 129,563
---------
---------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company has entered into several agreements whereby the Company has been
granted licenses to broadcast under preassigned frequencies in Trinidad and
Tobago, Montserrat, Saint Lucia and the British Virgin Islands. The Company also
has an affiliation agreement with a broadcast licensee in St. Maarten. Under the
terms of the agreements, the Company pays royalties to the government of
Trinidad of 2% of gross annual revenue, and pays fixed annual royalties for all
other licenses. Royalty expense under these agreements was approximately $5,400
for the four month period ended April 30, 1997. Pursuant to the various
licensing agreements, the future minimum guaranteed royalty payments are $17,000
in 1998, and $12,000 per year from 1999 through 2005.
The Company has entered into a broadcast service agreement with a
telecommunications company for unlimited usage of its satellite equipment for
the purpose of uplinking GEM Radio Network broadcasts to its satellite equipment
and downlinking the transmission of these broadcasts to various receiver sites.
The agreement expires January 15, 2001 and requires 84 monthly payments of
$2,820, subject to escalation.
The Company also has a vehicle under a capital lease with a cost of $44,700
and accumulated depreciation of $16,729 as of April 30, 1997.
7. RELATED PARTY TRANSACTIONS
During 1997, the Company reimbursed Quaestus Management Corporation
(Quaestus), a related party, for general and administrative expenses paid by
Quaestus on behalf of the Company. At April 30, 1997, the Company had a payable
to Quaestus of $20,296.
During 1997, the Company paid $80,000 in settlement of notes payable to
shareholders of the Company. At April 30, 1997, the balance of the notes payable
was $0.
8. SUBSEQUENT EVENT
Effective May 22, 1997, the capital stock and assets of the Company were
contributed to Cumulus Media Inc.
F-53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of changes in stockholders' deficit and of
cash flows present fairly, in all material respects, the combined financial
position of Carolina Broadcasting, Inc. and Georgetown Radio, Inc. at December
31, 1997, and the combined results of their operations and their cash flows for
the year in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Companies' management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 4, 1998
F-54
<PAGE>
CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash.............................................................................................. $ 1,325
Accounts receivable, less allowance for doubtful accounts of $10,000.............................. 33,291
------------
Total current assets.......................................................................... 34,616
Property and equipment, net......................................................................... 397,170
Intangible assets, net of accumulated amortization of $78,897....................................... 1,104,537
------------
Total assets.................................................................................. $1,536,323
------------
------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................................................................. $ 59,839
Note payable...................................................................................... 50,800
Accrued interest.................................................................................. 131,573
------------
Total current liabilities..................................................................... 242,212
Notes payable from stockholders..................................................................... 1,154,000
Seller note payable................................................................................. 500,000
Commitments and contingencies
Stockholders' deficit:
Common stock...................................................................................... 4,448
Additional paid-in-capital........................................................................ 255,552
Accumulated deficit............................................................................... (619,889)
------------
Total stockholders' deficit................................................................... (359,889)
------------
Total liabilities and stockholders' deficit................................................... $1,536,323
------------
------------
</TABLE>
See Notes to Financial Statements.
F-55
<PAGE>
CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
Revenues...................................................................................... $ 267,770
----------
Operating expenses:
Sales and promotions........................................................................ 103,586
Technical and programming................................................................... 223,236
General and administrative.................................................................. 252,234
Depreciation and amortization............................................................... 105,910
----------
Total operating expenses.................................................................. 684,966
----------
Loss from operations.......................................................................... (417,196)
Other income (expense):
Interest income............................................................................. 853
Interest expense............................................................................ (168,240)
----------
Net loss...................................................................................... $ (584,583)
----------
----------
</TABLE>
See Notes to Financial Statements.
F-56
<PAGE>
CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC.
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN- ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1997...................................... $ 7 $ 154,993 $ (35,306) $ 119,694
Net loss........................................................ -- -- (584,583) (584,583)
Issuance of common stock........................................ 4,441 100,559 -- 105,000
----------- ---------- ------------ -----------
Balance at December 31, 1997.................................... $ 4,448 $ 255,552 $ (619,889) $ (359,889)
----------- ---------- ------------ -----------
----------- ---------- ------------ -----------
</TABLE>
See Notes to Financial Statements.
F-57
<PAGE>
CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
Cash flows from operating activities:
Net loss.................................................................................... $ (584,583)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation............................................................................ 27,013
Amortization............................................................................ 78,897
Changes in assets and liabilities:
Accounts receivable, net................................................................ 28,984
Other current assets.................................................................... 25,000
Accounts payable........................................................................ 59,839
Accrued interest........................................................................ 131,573
------------------
Net cash used in operating activities................................................. (233,277)
------------------
Cash flows from investing activities:
Capital expenditures........................................................................ (46,777)
Payments for businesses acquired............................................................ (1,060,000)
------------------
Net cash used for investing activities................................................ (1,106,777)
------------------
Cash flows from financing activities:
Issuance of common stock.................................................................... 105,000
Net proceeds from shareholders' loans....................................................... 484,000
Proceeds from borrowings.................................................................... 50,800
------------------
Net cash provided by financing activities............................................. 639,800
------------------
Net decrease in cash and cash equivalents..................................................... (700,254)
Cash and cash equivalents, beginning of period................................................ 701,579
------------------
Cash and cash equivalents, end of period...................................................... $ 1,325
------------------
------------------
Supplemental disclosure:
Interest paid............................................................................... $ 36,667
------------------
------------------
Non-cash operating, investing and financing activities:
Trade revenue............................................................................... $ 40,942
------------------
------------------
Trade expense............................................................................... $ 40,942
------------------
------------------
Acquisition of assets in exchange for note payable.......................................... $ 500,000
------------------
------------------
</TABLE>
See Notes to Financial Statements.
F-58
<PAGE>
CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
On January 6, 1997, Carolina Broadcasting, Inc. (Carolina) acquired two
radio stations located in Conway, South Carolina (WJXY-FM and WJXY-AM) for
$800,000 in cash plus a $500,000 promissory note payable to the seller, Downs
Satellite Broadcasting of South Carolina, Inc. Pursuant to a time brokerage
agreement, Carolina has operated these stations since October 1, 1996. On
February 6, 1997, Georgetown Radio, Inc. (Georgetown) acquired a radio station
located in Georgetown, South Carolina (WXJY-FM) for $260,000. The acquisitions
were accounted for as purchases. Accordingly, the accompanying combined
financial statements include the results of operations of the acquired entities
from the dates of acquisition.
The significant accounting principles followed by Carolina and Georgetown
and the methods of applying those principles which materially affect the
determination of financial position, results of operations, and cash flows are
summarized below.
BASIS OF PRESENTATION
Carolina and Georgetown (collectively, the Companies) share common owners
and common management. Thus, the Companies' financial position and results of
operations have been combined in the attached financial statements. All
significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Companies enter into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Companies use
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Companies to
concentrations of credit risk consist principally of cash and accounts
receivable. The Companies perform ongoing credit evaluations of their customers
and generally do not require collateral for their accounts receivable.
F-59
<PAGE>
CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The Companies reserve for potential credit losses based upon the expected
collectibility of all accounts receivable.
CASH AND CASH EQUIVALENTS
The Companies consider all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Buildings......................................................... 15 years
Broadcasting equipment............................................ 15 years
Office furniture and equipment.................................... 5-7 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets primarily represent the excess of cost over the fair
market value of tangible net assets acquired. Intangible assets are stated at
cost and are being amortized using the straight-line method over fifteen years.
The Companies evaluate the carrying value of intangibles periodically in
relation to the projected future undiscounted cash flows of the related
businesses.
FEDERAL INCOME TAXES
The Companies have elected to be treated as Subchapter S corporations for
federal and state income tax purposes. As a result, the Companies' shareholders
include a pro-rata share of the Companies' taxable income in their respective
personal income tax returns. Accordingly, no federal and state income tax
expense or benefit has been included in the accompanying financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Companies financial instruments, including cash
and cash equivalents, accounts receivable and payable and long-term debt
approximate fair value.
F-60
<PAGE>
CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Buildings......................................................... $ 46,473
Equipment......................................................... 212,529
Furniture and fixtures............................................ 17,041
---------
276,043
Accumulated depreciation.......................................... (27,073)
---------
248,970
Land.............................................................. 148,200
---------
Property and equipment, net....................................... $ 397,170
---------
---------
</TABLE>
3. DEBT:
Debt at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Seller note payable at 8%, payable in 24 monthly installments
beginning January 2000 and $450,000 due January 2002.......... $ 500,000
Bank note payable at 9.5%, due April 1998....................... 50,800
Stockholder notes payable at 12%, due January 2007.............. 1,040,000
Stockholder notes payable at 12%, due June 1999................. 114,000
---------
$1,704,800
---------
---------
</TABLE>
In connection with the acquisition of radio stations in January 1997,
Carolina entered into a $500,000 promissory note payable to the seller. In
October 1997, Carolina borrowed $50,800 from a bank to fund operations. In
addition, throughout 1997 certain shareholders made advances to Carolina to fund
operations. Such advances were evidenced by promissory notes payable.
The maturities of long-term debt outstanding at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998............................................................. $ 50,800
1999............................................................. 114,000
2000............................................................. 25,000
2001............................................................. 25,000
2002............................................................. 450,000
Thereafter....................................................... 1,040,000
</TABLE>
4. COMMON STOCK:
Carolina has authorized 5,000 shares of common stock, $1 par value, of which
2,226 shares were outstanding at December 31, 1997. Georgetown has authorized
5,000 shares of common stock, $1 par value, of which 2,222 shares were
outstanding at December 31, 1997.
F-61
<PAGE>
CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $47,726 for the year ended
December 31, 1997 under operating leases for radio broadcasting facilities.
Future minimum annual payments under these non-cancelable operating leases and
agreements as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 41,572
1999............................................................... 37,176
2000............................................................... 37,176
2001............................................................... 600
Thereafter......................................................... --
</TABLE>
6. SALE OF ASSETS:
In October 1997, the Companies entered into an asset purchase agreement to
sell the Companies' assets to Cumulus Broadcasting, Inc., a wholly owned
subsidiary of Cumulus Media Inc., for approximately $2.3 million.
F-62
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in partners' deficit, and of cash flows present
fairly, in all material respects, the financial position of Castle Broadcasting
Limited Partnership at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 18, 1998
F-63
<PAGE>
CASTLE BROADCASTING LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------- ----------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 15,506 $ 22,925 $ 106,242
Accounts receivable, less allowance for
doubtful accounts of $10,500, at all dates....................... 215,170 209,118 184,482
Prepaid expenses and other current assets.......................... 13,055 16,539 19,219
------------- ------------- -------------
Total current assets........................................... 243,731 248,582 309,943
Other assets......................................................... 56,921 45,593 --
Property and equipment, net.......................................... 251,926 242,680 104,051
Intangible assets, net............................................... 481,881 495,731 47,762
------------- ------------- -------------
Total assets................................................... $ 1,034,459 $ 1,032,586 $ 461,756
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Note payable to bank............................................... $ 120,000 $ 70,000 $ --
Accounts payable................................................... 21,128 55,318 22,161
Accrued and other current liabilities.............................. 105,302 91,223 81,188
Note payable on demand to a limited partner........................ 1,990,190 1,990,190 1,445,190
Accrued interest to a limited partner.............................. 482,878 439,367 515,919
------------- ------------- -------------
Total current liabilities...................................... 2,719,498 2,646,098 2,064,458
------------- ------------- -------------
Commitments and contingencies
Partners' deficit.................................................... (1,685,039) (1,613,512) (1,602,702)
------------- ------------- -------------
Total liabilities and partners' deficit........................ $ 1,034,459 $ 1,032,586 $ 461,756
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-64
<PAGE>
CASTLE BROADCASTING LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
------------- ------------- ------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:............................................. $ 391,899 $ 321,312 $ 1,778,115 $ 1,689,508
Less: agency commissions........................... (35,207) (24,692) (142,134) (122,773)
------------- ------------- ------------- -------------
Net revenues.................................. 356,692 296,620 1,635,981 1,566,735
------------- ------------- ------------- -------------
Operating expenses:
Programming and technical........................... 100,506 70,894 370,702 257,933
Sales............................................... 112,620 84,982 485,093 441,120
Engineering......................................... 4,770 3,012 9,778 9,907
News................................................ 25,786 27,343 109,446 103,087
General and administrative.......................... 95,559 67,462 367,949 364,325
Promotions.......................................... 24,943 19,974 106,055 128,307
Depreciation and amortization....................... 18,575 7,710 47,908 31,275
------------- ------------- ------------- -------------
Total operating expenses........................ 382,759 281,377 1,496,931 1,335,954
------------- ------------- ------------- -------------
Income from operations................................ (26,067) 15,243 139,050 230,781
------------- ------------- ------------- -------------
Other income (expense):
Gain on sale of equipment........................... -- -- -- 75
Interest income..................................... 9 518 1,340 1,100
Interest expense.................................... (45,469) (34,030) (151,200) (133,680)
------------- ------------- ------------- -------------
Other income (expense) net...................... (45,460) (33,512) (149,860) (132,505)
------------- ------------- ------------- -------------
Net income (loss)..................................... $ (71,527) $ (18,269) $ (10,810) $ 98,276
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-65
<PAGE>
CASTLE BROADCASTING LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<S> <C>
Balance at January 1, 1996...................................................... $(1,700,978)
Net income...................................................................... 98,276
----------
Balance at December 31, 1996.................................................... (1,602,702)
Net loss........................................................................ (10,810)
----------
Balance at December 31, 1997.................................................... $(1,613,512)
----------
----------
</TABLE>
See Notes to Financial Statements.
F-66
<PAGE>
CASTLE BROADCASTING LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
----------- ----------- ----------- -----------
<CAPTION>
UNAUDITED
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $ (71,527) $ (18,269) $ (10,810) $ 98,276
Adjustments to reconcile net income(loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 18,575 7,710 47,908 31,275
Loss on sale of equipment.............................. -- -- -- (75)
(Increase) decrease in accounts receivable............. (6,052) 24,603 (24,636) (5,249)
(Increase) decrease in prepaid expenses and other
current assets....................................... 3,484 (8,643) 2,680 11,238
Increase (decrease) in accounts payable................ (34,190) (846) 33,157 (132)
Increase (decrease) in accrued and other current
liabilities.......................................... 14,079 (7,310) 10,035 (784)
Increase (decrease) in accrued interest to a limited
partner.............................................. 43,511 (1,664) (76,552) (125,320)
----------- ----------- ----------- -----------
Net cash (used in) provided by operating activities.......... (32,120) (4,419) (18,218) 10,797
----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment............................ -- -- -- 75
Purchases of property and equipment........................ (13,971) (2,051) (66,991) (13,056)
Acquisition of WBZN--FM.................................... -- -- (567,515) --
Deferred costs incurred with sale of the Partnership....... (11,328) -- (45,593) --
----------- ----------- ----------- -----------
Net cash used for investing activities....................... (25,299) (2,051) (680,099) (12,981)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of debt............................. 50,000 -- 615,000 --
----------- ----------- ----------- -----------
Net cash provided by financing activities.................... 50,000 -- 615,000 --
----------- ----------- ----------- -----------
Net decrease in cash......................................... (7,419) (6,470) (83,317) (2,184)
Cash at beginning of period.................................. 22,925 106,242 106,242 108,426
----------- ----------- ----------- -----------
Cash at end of period........................................ $ 15,506 $ 99,772 $ 22,925 $ 106,242
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental cash flow information:
Cash payments for interest................................. $ -- $ 36,000 $ 238,257 $ 259,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Non-cash operating activities:
Trade revenue.............................................. $ 6,308 $ 8,888 $ 28,200 $ 23,938
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Trade expense.............................................. $ 3,230 $ 3,738 $ 28,365 $ 26,510
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-67
<PAGE>
CASTLE BROADCASTING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Castle Broadcasting Limited Partnership (the "Partnership") owns and
operates radio stations WQCB-FM and WBZN-FM (the "Stations") located in Brewer,
Maine. The general partner of the Partnership is 200 Danforth Street, a company
controlled by a limited partner of the Partnership. During 1997, this limited
partner acquired the ownership interests of the three other limited partners of
the Partnership.
The significant accounting principles followed by the Partnership and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated using accelerated methods over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Transmitter....................................................... 25 years
Broadcasting towers and equipment................................. 15 years
Office furniture and equipment.................................... 5 years
Leasehold improvement............................................. 5 years
Vehicles.......................................................... 5 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets represent the excess of cost over the fair market value of
tangible net assets acquired and consist primarily of Federal Communications
Commission ("FCC") licenses and goodwill. Intangible assets are stated at cost
and are being amortized using the straight-line method over 15 years. The
Partnership evaluates the carrying value of intangibles periodically in relation
to the projected future undiscounted net cash flows of the related businesses.
INCOME TAXES
The Partnership operates as a Limited Partnership under the provisions of
the Internal Revenue Code. Accordingly, no provision for income taxes has been
made since income or losses of the Partnership are allocated to the partners.
F-68
<PAGE>
CASTLE BROADCASTING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Partnership enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Partnership uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
2. ACQUISITIONS
On October 1, 1997, the Partnership acquired WBZN-FM in Brewer, Maine for
$500,000 in cash plus various other direct acquisition costs totaling $67,515.
The purchase price was allocated to property and equipment ($99,810) and
intangibles ($467,705). Results of operations of WBZN-FM for the 1997 period
prior to acquisition are not available. The net loss of WBZN-FM for the 1996
year, based on unaudited financial information, approximated $110,000.
The acquisition was accounted for as a purchase. Accordingly, the
accompanying financial statements include the results of operations of the
acquired entity from the date of acquisition.
3. OTHER ASSETS
Other assets represents deferred costs incurred in connection with the sale
of the Partnership.
F-69
<PAGE>
CASTLE BROADCASTING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Transmitter........................................................... $ 115,883 $ 108,583
Broadcasting towers and equipment..................................... 723,141 593,169
Office furniture and equipment........................................ 108,510 89,038
Leasehold improvements................................................ 23,816 16,518
Vehicles.............................................................. 11,630 8,870
---------- ----------
Total property and equipment.......................................... 982,980 816,178
Accumulated depreciation.............................................. (757,220) (729,047)
---------- ----------
225,760 87,131
Land.................................................................. 16,920 16,920
---------- ----------
Property and equipment, net........................................... $ 242,680 $ 104,051
---------- ----------
---------- ----------
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was
$28,173 and $19,335 respectively.
5. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Goodwill, FCC license and other....................................... $ 646,810 $ 179,105
Accumulated amortization.............................................. (151,079) (131,343)
---------- ----------
Intangible assets, net................................................ $ 495,731 $ 47,762
---------- ----------
---------- ----------
</TABLE>
Amortization expense for the years ended December 31, 1997 and 1996 was
$19,735 and $11,940, respectively.
6. DEBT:
The Partnership has significant transactions with a limited partner and is
dependent upon the limited partner for continued support. The Partnership has
debt of $1,990,190 and $1,445,190 at December 31, 1997 and 1996, respectively,
payable to the limited partner on demand. The note is collaterialized by a
mortgage on real property in Garland, Maine and a security agreement on all
equipment, accounts receivable and contract rights of the Partnership. Interest
is due quarterly at 1% above Bank of Boston Base Rate. At December 31, 1997 and
1996, the Partnership owed accrued interest of $439,367 and $515,919,
respectively, to the limited partner.
The Partnership obtained a $100,000 secured demand line of credit during
1997. At December 31, 1997, $70,000 is outstanding. The borrowing rate is based
on the Bank of Boston's prime rate of interest. The Partnership's obligations
under the facility are secured by various marketable securities held by the
limited partner.
F-70
<PAGE>
CASTLE BROADCASTING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
The Partnership incurred expenses of approximately $52,632 and $46,498 for
the period ended December 31, 1997 and 1996, respectively, under operating
leases for radio broadcasting facilities. Future minimum annual payments at
December 31, 1997 are:
<TABLE>
<S> <C>
1998................................................................... $ 9,525
1999................................................................... 6,000
2000................................................................... 6,000
2001................................................................... 6,000
2002................................................................... 6,000
</TABLE>
Also, at December 31, 1997, the Partnership has vehicles under capital lease
with a cost of $11,630 ($8,870 at December 31, 1996) with accumulated
depreciation of $9,008 ($8,870 at December 31, 1996).
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, and accounts payable
approximates fair value because of the short maturity of these instruments.
9. SUBSEQUENT EVENT:
In February 1998, the Partnership entered into an agreement to sell, subject
to approval of the FCC, certain assets of the Partnership to Cumulus
Broadcasting, Inc., a wholly owned subsidiary of Cumulus Media Inc., for
$6,400,000.
F-71
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of owner's equity in stations and of cash
flows present fairly, in all material respects, the financial position of
Clearly Superior Radio Properties (the "Company") at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. 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 audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall combined financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 24, 1998
F-72
<PAGE>
CLEARLY SUPERIOR RADIO PROPERTIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 94,715 $ 10,604 $ 637,035
Accounts receivable, less allowance for doubtful accounts of $27,741
$44,427 and $25,039, respectively.................................. $ 280,529 438,020 253,204
Prepaid and other current assets..................................... 7,230 23,654 --
------------ ------------ ------------
Total current assets............................................... 382,474 472,278 890,239
Property and equipment, net............................................ 514,778 556,394 115,849
Intangible assets, net................................................. 2,663,025 2,759,096 220,816
------------ ------------ ------------
Total assets....................................................... 3,560,277 $3,787,768 $1,226,904
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND OWNER'S EQUITY IN STATIONS
Current liabilities:
Accounts payable and accrued liabilities............................. $ 32,700 $ 6,231 $ 12,593
Current portion of long-term debt.................................... 27,072 27,072 47,038
------------ ------------ ------------
Total current liabilities.......................................... 59,772 33,303 59,631
Long term debt......................................................... 3,101,330 3,170,307 73,962
------------ ------------ ------------
Total liabilities.................................................. 3,161,102 3,203,610 133,593
------------ ------------ ------------
Commitment and contingencies
Owner's equity in stations............................................. 399,175 584,158 1,093,311
------------ ------------ ------------
Total liabilities and owner's equity in stations................... $ 3,560,277 $3,787,768 $1,226,904
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Combined Financial Statements.
F-73
<PAGE>
CLEARLY SUPERIOR RADIO PROPERTIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------------- --------------------------
1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues................................................. $ 219,718 $ 489,780 $ 2,661,954 $ 1,568,752
Less: agency commissions............................... -- 16,845 (104,140) (56,402)
------------ ------------ ------------ ------------
Net revenues......................................... 219,718 472,935 2,557,814 1,512,350
Operating expenses:
Programming............................................ 12,965 104,384 530,285 301,997
Sales and promotions................................... 11,299 115,999 636,030 360,239
Technical.............................................. 4,767 9,603 90,536 33,221
General and administrative............................. 90,969 93,371 470,661 333,076
Depreciation and amortization.......................... 147,928 35,985 211,192 81,105
------------ ------------ ------------ ------------
Total operating expenses............................. 267,928 359,342 1,938,704 1,109,638
------------ ------------ ------------ ------------
Income (loss) from operations............................ (48,210) 113,593 619,110 402,712
Other income (expense), net.............................. (61,000) (7,110) (75,235) 36,965
Interest income (expense), net........................... (75,773) (26,573) (261,602) 15,707
------------ ------------ ------------ ------------
Net income............................................... $ (184,983) $ 79,910 $ 282,273 $ 455,384
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See Notes to Combined Financial Statements.
F-74
<PAGE>
CLEARLY SUPERIOR RADIO PROPERTIES
COMBINED STATEMENT OF OWNER'S EQUITY IN STATIONS
<TABLE>
<S> <C>
Balance at January 1, 1996...................................................... $ 972,927
Owner contributions............................................................. 50,000
Owner distributions............................................................. (385,000)
Net income...................................................................... 455,384
---------
Balance at December 31, 1996.................................................... 1,093,311
Owner distributions............................................................. (791,426)
Net income...................................................................... 282,273
---------
Balance at December 31, 1997.................................................... $ 584,158
---------
---------
</TABLE>
See Notes to Combined Financial Statements.
F-75
<PAGE>
CLEARLY SUPERIOR RADIO PROPERTIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
---------------------------- --------------------------
1998 1997 1997 1996
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)..................................... $ (184,983) $ 79,910 $ 282,273 $ 455,384
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 147,928 35,985 211,192 81,105
Provision for doubtful accounts..................... (16,686) 8,549 19,388 10,192
Gain on sale of equipment........................... -- -- -- 1,000
(Increase) decrease in accounts receivable.......... 174,177 (95,000) (204,204) (54,649)
(Increase) decrease in prepaid and other current
assets............................................ 16,424 -- (23,654) (14,835)
(Decrease) increase in accounts payable & accrued
liabilities....................................... 26,469 (5,180) (6,362) 4,639
------------- ------------- ------------- -----------
Net cash provided by operating activities........... 163,329 24,264 278,633 482,836
------------- ------------- ------------- -----------
Cash flows from investing activities:
Purchases of property and equipment................... (10,241) -- (32,171) (110,696)
Purchase of radio station assets...................... -- -- (3,157,844) --
------------- ------------- ------------- -----------
Cash used for investing activities.................... (10,241) -- (3,190,015) (110,696)
------------- ------------- ------------- -----------
Cash flows from financing activities:
Repayment of debt..................................... (68,977) -- (1,221,000) --
Distributions to owner................................ -- (4,130,000) (791,426) (385,000)
Contributions from owner.............................. -- -- -- 50,000
Proceeds from debt.................................... -- 4,130,000 4,297,377 --
------------- ------------- ------------- -----------
Cash provided by (used in) financing activities....... (68,977) -- 2,284,951 (335,000)
------------- ------------- ------------- -----------
(Decrease) increase in cash and cash equivalents........ 84,111 24,264 (626,431) 37,140
Cash and cash equivalents at beginning of period........ 10,604 637,035 637,035 599,895
------------- ------------- ------------- -----------
Cash and cash equivalents at end of period.............. 94,715 661,299 $ 10,604 $ 637,035
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
Supplemental disclosures of cash flow information:
Cash paid for interest................................ 75,773 26,573 $ 270,907 $ --
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
Non-cash operating activities:
Trade revenue......................................... -- 48,950 $ 195,801 $ 43,665
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
Trade expense......................................... $ -- $ 48,739 $ 194,954 $ 34,537
------------- ------------- ------------- -----------
------------- ------------- ------------- -----------
</TABLE>
See Notes to Combined Financial Statements.
F-76
<PAGE>
CLEARLY SUPERIOR RADIO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Clearly Superior Radio Properties ("the Company") represents six radio
stations under the common control of the sole owner. The stations are held in
pass-through entities which are controlled by the owner. The Company has
stations licensed in Marion, Illinois (WDDD-FM), Johnston City, Illinois (WDDD-
AM), Herrin, Illinois (WVZA-FM), West Frankfort, Illinois (WQUL-FM) & (WFRX-AM),
and Carbondale, IL (WTAO-FM).
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
INCOME TAXES
The stations are held in pass-through entities which are controlled by the
owner. Income or loss of the Company is included in the tax return of the sole
owner. Accordingly, federal income taxes are not recognized by the Company.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repair and maintenance, that significantly add to
productivity or extend the economic lives of the assets are capitalized at cost
and depreciated on an accelerated method as follows.
<TABLE>
<S> <C>
Building.................................................... 15 years
Broadcasting towers and equipment........................... 6 years
Office furniture and equipment.............................. 6 years
Leasehold improvements...................................... Term of lease
Automobiles................................................. 6 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets represent FCC licenses and organizational costs. Fee
licenses and organizational costs are stated at cost and are being amortized
using the straight-line method over the estimated useful
F-77
<PAGE>
CLEARLY SUPERIOR RADIO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
life of 15 and 5 years, respectively. The Company evaluates the carrying value
of intangibles periodically in relation to the projected future undiscounted net
cash flows of the related businesses.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
recharged products or services before advertising air time is provided, a trade
liability is recognized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to the short maturity of these
instruments. The fair value of notes payable are estimated based on current
market rates and approximates the carrying value.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
2. ACQUISITION
In March 1997, the Company acquired WTAO-FM in Carbondale, IL for
approximately $3 million. The acquisition was accounted for as a purchase.
Accordingly, the accompanying combined financial statements include the results
of operations of the acquired entity from the date of acquisition.
The following pro forma financial information represents the unaudited pro
forma results of operations as if the aforementioned acquisition had been
completed on January 1, 1996, after giving effect to certain adjustments
including increased depreciation and amortization of property and equipment and
intangible assets. These unaudited pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which would have been achieved had this
F-78
<PAGE>
CLEARLY SUPERIOR RADIO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION (CONTINUED)
acquisition been completed as of January 1, 1996, nor are the results indicative
of future results of operations.
<TABLE>
<CAPTION>
PRO FORMA FOR THE YEARS
ENDED DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
(UNAUDITED)
Revenues.......................................................... $ 2,690,889 $ 2,541,006
------------ ------------
------------ ------------
Income from operations............................................ $ 657,271 $ 670,135
------------ ------------
------------ ------------
Net income........................................................ $ 317,619 $ 733,136
------------ ------------
------------ ------------
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Building......................................................... $ 303,542 $ --
Broadcasting towers and equipment................................ 368,118 208,270
Office furniture and equipment................................... 71,485 62,674
Leasehold improvements........................................... 12,750 12,750
Automobile....................................................... 43,390 35,477
------------ ------------
799,285 319,171
Accumulated depreciation......................................... (313,882) (203,322)
Land............................................................. 70,991 --
------------ ------------
Property and equipment, net...................................... $ 556,394 $ 115,849
------------ ------------
------------ ------------
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was
$110,560 and $50,829, respectively.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
FCC license...................................................... $3,147,990 $ 518,330
Organizational costs............................................. 55,214 45,962
------------ ------------
3,203,204 564,292
Accumulated amortization......................................... (444,108) (343,476)
------------ ------------
Intangible assets, net........................................... $2,759,096 $ 220,816
------------ ------------
------------ ------------
</TABLE>
Amortization expense for the years ended December 31, 1997 and 1996 was
$100,632 and $30,276, respectively.
F-79
<PAGE>
CLEARLY SUPERIOR RADIO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS:
The Company rents property from its owner for use in the broadcasting
operations. Payments of $4,000 per month are made on a building lease with an
initial term of ten years, with two five-year extensions available at the option
of the lessee. Payments of $1,100 per month are made on a tower lease with an
initial term of fifteen years, with two five-year extensions available at the
option of the lessee. Additional payments of $500 per month were made during
1996 on an additional tower lease which expired December 31, 1996. The total
rental payments included in the Company's expense for 1996 under these leases
total $67,200.
During 1997, payments of $4,000 per month continued to be made on the
building lease. Payment of $2,380 per month are made to the sole stockholder on
various tower leases. In September 1997, the Company sold the WTAO transmitter
tower to the sole stockholder which then leased to the Company for $500 per
month. Total rental payments included in the Company's expense for 1997 under
these leases total $78,560. All lease agreements are subject to annual
escalations based on inflation.
Future minimum annual payments in current year dollars, under these
non-cancelable operating leases & agreement as of December 31, 1997, are as
follows:
<TABLE>
<S> <C>
1998............................................................ $ 82,560
1999............................................................ 82,560
2000............................................................ 82,560
2001............................................................ 82,560
2002............................................................ 82,560
Thereafter...................................................... 825,000
---------
$1,237,800
---------
---------
</TABLE>
6. LONG-TERM DEBT:
Following is a summary of long-term debt at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
------------ ----------
<S> <C> <C>
Note payable to financial institution, due May 31, 1998, including interest at 12%,
interest payable monthly.............................................................. $ -- $ 47,000
Note payable to financial institution, due in annual installments payable
May 31, 1997 and 1998, including interest at 12%, interest payable monthly............ -- 74,000
Note payable to bank, variable interest rate (8.75% on December 31, 1997), interest
payable monthly....................................................................... 3,030,000 --
Note payable to bank payable in monthly installments of $2,256, including interest at
7.75%, interest payable monthly....................................................... 167,379 --
------------ ----------
3,197,379 121,000
Less: Current maturities of long-term debt.............................................. (27,072) (47,038)
------------ ----------
$ 3,170,307 $ 73,962
------------ ----------
------------ ----------
</TABLE>
F-80
<PAGE>
CLEARLY SUPERIOR RADIO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
Payment obligation as of December 31, 1997 by year are as follows:
<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
1998............................................................................ $ 27,072
1999............................................................................ 27,072
2000............................................................................ 27,072
2001............................................................................ 27,072
2002............................................................................ 27,072
Thereafter...................................................................... 3,062,019
------------
$ 3,197,379
------------
------------
</TABLE>
7. OTHER TRANSACTIONS:
As of December 18, 1997, the Company entered into an asset purchase
agreement to sell all of the assets of the Company to Cumulus Broadcasting, Inc.
(a wholly-owned subsidiary Cumulus Media Inc.) for $12.5 million.
F-81
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of
Communications Properties, Inc. at March 31, 1998, August 31, 1997 and August
31, 1996, and the results of its operations and its cash flows for the seven
months ended March 31, 1998, and the years ended August 31, 1997 and 1996 in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Chicago, Illinois
April 22, 1998
F-82
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31,
---------------------------
<S> <C> <C> <C>
MARCH 31,
1998 1997 1996
------------ ------------ -------------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 25,720 $ 47,812 $ 16,994
Accounts receivable, less allowance for doubtful accounts of $14,060,
$9,060 and $16,340, respectively................................... 286,691 314,164 282,551
Prepaid expenses and other current assets............................ 1,863 12,910 18,326
Deferred income taxes................................................ 33,000 24,000 --
------------ ------------ -------------
Total current assets............................................... 347,274 398,886 317,871
Property and equipment, net.......................................... 1,695,420 1,873,040 174,966
Cash surrender value of life insurance............................... -- 120,560 108,339
Long-term receivables from affiliates................................ 12,367 15,352 33,112
Intangible assets, net............................................... 703,484 731,000 198,314
------------ ------------ -------------
Total assets....................................................... $ 2,758,545 $ 3,138,838 $ 832,602
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt................................. $ 38,362 $ 36,373 $ --
Notes payable........................................................ 2,664,996 2,718,202 1,577,084
Accounts payable..................................................... 60,733 88,189 47,055
Accrued and other current liabilities................................ 196,754 219,669 153,157
------------ ------------ -------------
Total current liabilities.......................................... 2,960,845 3,062,433 1,777,296
Long-term debt, less current maturities................................ 102,394 126,280 --
Deferred income taxes.................................................. 177,000 190,000 --
Stockholders' equity (deficit):
Common stock, $0.01 par value:
Class A Voting, authorized 1,250,000 shares; issued 62,150, 62,150
and 70,988 shares................................................ 622 622 710
Class B Nonvoting, authorized 1,250,000 shares;
issued 37,850, 37,850 and 46,688 shares.......................... 379 379 467
Additional paid-in capital........................................... 837,944 837,944 1,137,591
Accumulated deficit.................................................. (711,441) (469,622) (1,542,102)
Less--Cost of treasury shares:
Class A--41,017.5 shares........................................... (508,605) (508,605) (508,605)
Class B--18,738.5, 18,738.5 and 17,738.5 shares.................... (100,593) (100,593) (32,755)
------------ ------------ -------------
Total stockholders' equity (deficit)............................... (481,694) (239,875) (944,694)
------------ ------------ -------------
Total liabilities and stockholders equity (deficit)................ $ 2,758,545 $ 3,138,838 $ 832,602
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
See Notes to Financial Statements.
F-83
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SEVEN MONTH PERIOD FOR THE YEAR
ENDED MARCH 31, ENDED AUGUST 31,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:................................................ $ 1,060,259 $ 1,372,597 $ 2,527,771 $ 1,849,712
Less: agency commissions............................... (89,284) (122,199) (150,876) (104,880)
------------ ------------ ------------ ------------
Net revenues......................................... 970,975 1,250,398 2,376,895 1,744,832
Operating expenses:
Programming............................................ 331,035 409,813 767,710 595,159
Sales and promotions................................... 208,738 290,294 516,833 434,666
Technical.............................................. 48,628 53,636 104,923 96,649
General and administrative............................. 370,771 414,434 900,768 577,270
Depreciation and amortization.......................... 179,906 31,230 67,190 55,271
------------ ------------ ------------ ------------
Total operating expenses............................. 1,139,078 1,199,407 2,357,424 1,759,015
------------ ------------ ------------ ------------
Income (loss) from operations............................ (168,103) 50,991 19,471 (14,183)
Other income (expense):
Gain on sale of stations............................... -- -- 1,462,261 --
Interest expense....................................... (143,421) (77,136) (172,802) (139,260)
Other.................................................. 47,705 32,703 37,200 30,898
------------ ------------ ------------ ------------
(95,716) (44,433) 1,326,659 (108,362)
------------ ------------ ------------ ------------
Income (loss) before income taxes........................ (263,819) 6,558 1,346,130 (122,545)
Provision (benefit) for income taxes..................... (22,000) -- 167,598 --
------------ ------------ ------------ ------------
Net income (loss)........................................ ($ 241,819) $ 6,558 $ 1,178,532 ($ 122,545)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-84
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------ PAID-IN ACCUMULATED ------------------------
CLASS A CLASS B CAPITAL DEFICIT CLASS A CLASS B TOTAL
----------- ----------- ------------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1995........ $ 710 $ 467 $ 1,137,591 ($ 1,419,557) ($ 508,605) ($ 32,755) ($ 822,149)
Net loss.......................... (122,545) (122,545)
----- ----- ------------ ------------- ----------- ----------- -------------
Balance at August 31, 1996........ 710 467 1,137,591 (1,542,102) (508,605) (32,755) (944,694)
Redemption of 8,838 Class A shares
and 8,838 Class B shares........ (88) (88) (299,647) (106,052) (405,875)
Purchase of 1,000 Class B shares
for the treasury................ (67,838) (67,838)
Net income........................ 1,178,532 1,178,532
----- ----- ------------ ------------- ----------- ----------- -------------
Balance at August 31, 1997........ 622 379 837,944 (469,622) (508,605) (100,593) (239,875)
Net loss.......................... (241,819) (241,819)
----- ----- ------------ ------------- ----------- ----------- -------------
Balance at March 31, 1998......... $ 622 $ 379 $ 837,944 ($ 711,441) ($ 508,605) ($ 100,593) ($ 481,694)
----- ----- ------------ ------------- ----------- ----------- -------------
----- ----- ------------ ------------- ----------- ----------- -------------
Balance at August 31, 1996 (as
above).......................... $ 710 $ 467 $ 1,137,591 ($ 1,542,102) ($ 508,605) ($ 32,755) ($ 944,694)
Net income (unaudited)............ 6,558 6,558
Redemption of 8,838 Class A shares
and 8,838 Class B shares........ (88) (88) (299,647) (106,052) (405,875)
----- ----- ------------ ------------- ----------- ----------- -------------
Balance at March 31, 1997
(unaudited)..................... $ 622 $ 379 $ 837,944 ($ 1,641,596) ($ 508,605) ($ 32,755) ($ 1,344,011)
----- ----- ------------ ------------- ----------- ----------- -------------
----- ----- ------------ ------------- ----------- ----------- -------------
</TABLE>
See Notes to Financial Statements.
F-85
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SEVEN MONTH
PERIOD FOR THE YEAR
ENDED MARCH 31, ENDED AUGUST 31,
------------------------ --------------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
----------- ----------- ------------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ ($ 241,819) $ 6,558 $ 1,178,532 ($ 122,545)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
(Gain) loss on sale of stations/equipment.............. (11,793) -- (1,462,261) 37
Provision (benefit) for deferred income taxes.......... (22,000) -- 166,000 --
Depreciation and amortization.......................... 179,906 31,230 67,190 55,271
Provision for doubtful accounts........................ 5,000 -- (7,280) --
(Increase) decrease in accounts receivable............. 22,473 (86,141) (167,442) (10,616)
Decrease (increase) in prepaid expenses and other
current assets....................................... 14,032 (74,483) 5,416 (164)
Increase (decrease) in accounts payable................ (27,456) 50,004 41,134 22,910
Increase (decrease) in accrued and other liabilities... (22,915) (54,939) 66,512 25,612
----------- ----------- ------------- -----------
Net cash used in operating activities................ (104,572) (127,771) (112,199) (29,495)
----------- ----------- ------------- -----------
Cash flows from investing activities:
Purchases of property and equipment...................... (47,152) (12,529) (18,189) (21,580)
Purchase of stations..................................... -- -- (2,290,855) --
Proceeds from sale of assets............................. 84,175 -- 1,825,609 --
Other.................................................... -- -- 5,539 (6,974)
----------- ----------- ------------- -----------
Net cash provided by (used for) investing
activities......................................... 37,023 (12,529) (477,896) (28,554)
----------- ----------- ------------- -----------
Cash flows from financing activities:
Proceeds from long-term borrowings....................... -- -- -- 53,350
Repayment of long-term borrowings........................ (21,897) -- -- --
Increase (decrease) in notes payable..................... 67,354 549,658 1,026,788 (80,720)
Redemption of common stock............................... (405,875) (405,875) --
----------- ----------- ------------- -----------
Net cash provided by (used in) financing
activities......................................... 45,457 143,783 620,913 (27,370)
----------- ----------- ------------- -----------
Increase (decrease) in cash and cash equivalents........... (22,092) 3,483 30,818 (85,419)
Cash and cash equivalents at beginning of period........... 47,812 16,994 16,994 102,413
----------- ----------- ------------- -----------
Cash and cash equivalents at end of period................. $ 25,720 $ 20,477 $ 47,812 $ 16,994
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Cash paid for interest..................................... $ 92,086 $ 66,780 $ 122,639 $ 119,836
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Non-cash activities:
Trades-Revenue........................................... $ 86,648 $ 88,131 $ 180,617 $ 90,028
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Expense.............................................. $ 19,402 $ 46,350 $ 174,639 $ 90,028
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Acquisition of treasury shares by issuance of a note
payable................................................ $ -- $ -- $ 67,838 $ --
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Assumption of bank borrowings in connection with purchase
of stations............................................ $ -- $ -- $ 209,145 $ --
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Reduction of note payable, stockholder, through transfer
of insurance policy to the stockholder................. $ 120,560 $ -- $ -- $ --
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
</TABLE>
See Notes to Financial Statements.
F-86
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
The Company owns and operates radio stations WDBQ-AM, KXGE-FM and KLYV-FM
located in Dubuque, Iowa and WJOD-FM located in Galena, Illinois (the
"Stations").
In October 1997, the Company entered into an agreement with Cumulus
Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media, Inc.)
("Cumulus") to sell the outstanding capital stock of the Company, subject to
approval of the Federal Communications Commission, for $4,881,263.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
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 amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expense
during the reporting period. Actual results could differ from these estimates
and assumptions.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Building and building improvements.............................. 15-25
years
Broadcasting equipment.......................................... 5-20 years
Office and other equipment...................................... 10 years
Vehicles........................................................ 3-5 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets represent the excess of cost over the fair market value of
tangible net assets acquired. Intangible assets are stated at cost and are being
amortized using the straight-line method over estimated useful lives of 15 to 40
years. The Company evaluates the carrying value of intangibles periodically in
relation to the projected future undiscounted net cash flows of the related
businesses.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
Fees paid pursuant to a local marketing agreement ("LMA") are amortized to
expense, over the term of the agreement using the straight-line method.
F-87
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
MARCH 31, 1997 FINANCIAL STATEMENTS (UNAUDITED)
The interim financial data for the seven months ended March 31, 1997 is
unaudited. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments necessary for a fair presentation of results of the
interim periods have been made and such adjustments were of a normal and
recurring nature.
2. ACQUISITIONS AND DISPOSITIONS
On August 1, 1997, the Company acquired WJOD-FM (Galena, Illinois) and
KGGY-FM (now KXGE-FM) (Dubuque, Iowa) for $2,500,000. The acquisition also
included a wireless paging business operated in Galena. The purchase price
comprised cash of $2,290,855 and assumption of liabilities for bank borrowings
aggregating $209,145. The stations that were acquired were operated under a LMA
from February 1, 1997 through date of acquisition.
The acquisition discussed above was accounted for as a purchase.
Accordingly, the accompanying financial statements include the results of
operations of the acquired entities from the date of acquisition. The purchase
price was allocated $1,860,000 to property and equipment and $640,000 to
intangible assets.
On July 31, 1997, the Company sold KATE-AM and KCPI-FM located in Albert
Lea, Minnesota, for $1,825,609.
Because of the comparability of the stations purchased and sold, no pro
forma results of operations have been presented.
F-88
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
----------- ------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Building and improvements.............................. $ 74,892 $ 74,892 $ 153,324
Broadcasting equipment................................. 2,547,611 2,623,574 1,805,348
Office and other equipment............................. 248,650 245,535 335,339
Vehicles............................................... 20,060 20,060 23,971
----------- ----------- -----------
2,891,213 2,964,061 2,317,982
Accumulated depreciation............................... (1,230,793) (1,126,021) (2,180,396)
----------- ----------- -----------
1,660,420 1,838,040 137,586
Land................................................... 35,000 35,000 37,380
----------- ----------- -----------
Property and equipment, net............................ $ 1,695,420 $ 1,873,040 $ 174,966
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Depreciation expense for the seven months ended March 31, 1998 and 1997 was
$152,390 and (unaudited) $25,994, respectively, and for the years ended August
31, 1997 and 1996 was $54,646 and $46,283, respectively.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
---------- ----------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Goodwill................................................... $ 821,163 $ 821,163 $ 359,523
Accumulated amortization................................... (117,679) (90,163) (161,209)
---------- ---------- ----------
Intangible assets, net..................................... $ 703,484 $ 731,000 $ 198,314
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Amortization expense for the seven months ended March 31, 1998 and 1997 was
$27,516 and (unaudited) $5,236, respectively, and for the years ended August 31,
1997 and 1996 was $12,544 and $8,988, respectively.
F-89
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
------------ --------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Note payable, bank, due in monthly installments of $17,652, including
interest at a variable rate of .5% above The First National Bank of
Chicago Prime Rate (8.75% at August 31, 1997), due January 1, 1997.
The note was collateralized by substantially all Company assets and
the assets of a related party. The note was also guaranteed by the
cash surrender value of an officer-stockholder life insurance policy
and by personal guarantees of an officer-stockholder.................. $ -- $ -- $ 1,319,070
Note payable, under a line of credit agreement with a bank which allows
the Company to borrow up to $100,000. The line of credit bears
interest at 1% over The First National Bank of Chicago Prime Rate
(9 1/2% at March 31, 1998). Unpaid principal and interest are due June
4, 1998............................................................... 100,000 43,647 --
Note payable, bank, interest only payments, due at a variable rate of
1.5% over The First National Bank of Chicago Prime Rate (10% at March
31, 1998). Unpaid principal and interest, as extended, is due July 1,
1998. The note is collateralized by substantially all assets of the
Company............................................................... 1,249,939 1,249,939 --
Notes payable, stockholder. These notes bear interest at 7% and, in
accordance with the loan agreement, are subordinate to existing bank
debt. The notes are due on demand..................................... 1,061,467 1,171,026 258,014
Note payable, individual, bearing interest at 7%, due on demand......... 253,590 253,590 --
------------ ------------ ------------
$ 2,664,996 $ 2,718,202 $ 1,577,084
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
---------- ---------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Note payable, bank, due in monthly installments of $4,189, including interest
at 9.5%. The note matures June 4, 2001, and is collateralized by a Security
Agreement dated June 4, 1996, and a real estate mortgage..................... $ 140,756 $ 162,653 --
Less: current maturities (38,362) (36,373) --
---------- ---------- ---------
Total long-term debt........................................................... $ 102,394 $ 126,280 $ --
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-90
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
Aggregate maturities required on long-term debt for years following March
31, 1998 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 38,362
1999.............................................................. 42,207
2000.............................................................. 46,474
2001.............................................................. 13,713
---------
$ 140,756
---------
---------
</TABLE>
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
SEVEN MONTH
PERIOD ENDED YEAR ENDED
MARCH 31, AUGUST 31,
----------------------- ----------------------
1998 1997 1997 1996
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Current income taxes:
Federal........................................................ $ -- $ -- $ -- $ --
State.......................................................... -- -- 1,598 --
Deferred income taxes.......................................... (22,000) -- 166,000 --
---------- ----------- ---------- ----------
($ 22,000) $ -- $ 167,598 $ --
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
Income tax expense (benefit) differs from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax income due to
the following:
<TABLE>
<CAPTION>
SEVEN MONTH
PERIOD ENDED YEAR ENDED
MARCH 31, AUGUST 31,
----------------------- ----------------------
1998 1997 1997 1996
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Computed "expected" tax expense (benefit) at 34%................. ($ 90,000) $ 3,000 $ 457,700 ($ 41,600)
Increase (decrease) in income taxes resulting from:
Effect of graduated rates lower than 34%....................... 42,000 (1,000) (167,802) 10,600
State income taxes............................................. -- -- 1,600 --
Increase (reduction) in valuation allowance.................... 31,000 (4,000) (133,000) 15,000
Expiration of general business tax credits..................... -- -- 3,000 8,400
Reduction in contribution carryforward......................... -- -- 2,000 --
Permanently nondeductible expenses............................. 2,000 2,000 4,100 7,600
Adjustment of prior year taxes................................. (7,000) -- -- --
---------- ----------- ---------- ----------
Total income tax expense................................... (22,000) $ -- $ 167,598 $ --
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
F-91
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities consisted of the following at August 31:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
----------- -----------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................. $ 62,000 $ 49,000 $ 66,000
General business tax credits..................................... 43,000 43,000 46,000
Contribution carryforward........................................ 3,000 3,000 5,000
Allowance for doubtful accounts.................................. 3,000 2,000 3,000
Accrued expenses................................................. 31,000 22,000 16,000
----------- ----------- ----------
142,000 119,000 136,000
Less deferred tax valuation allowance............................ (31,000) -- (133,000)
----------- ----------- ----------
111,000 119,000 3,000
Deferred tax liability relating to property and equipment.......... (255,000) (285,000) (3,000)
----------- ----------- ----------
Net deferred tax liabilities..................................... ($ 144,000) ($ 166,000) $ --
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
Net operating loss carryforwards aggregate $342,000 and expire August 31:
2005 - $16,000, 2006 - $74,000, 2007 - $34,000, 2008 - $100,000, 2009 - $7,000
and 2017 - $111,000. The general business credits expire August 31, 1998 -
$9,000, 1999 - $8,000, 2000 - $14,000 and 2001 - $12,000.
In view of the operating loss for the period ended March 31, 1998 and
expected further losses in the near term, a valuation allowance of $31,000 was
provided against the business credits expiring during the period 1998-2000.
8. RELATED PARTY TRANSACTIONS:
The long-term receivables from affiliates of $12,367, $15,352 and $33,112 at
March 31, 1998, August 31, 1997 and 1996, respectively, are due from radio
stations owned by the principal stockholder of the Company and are personally
guaranteed by him.
The Company also leases land and buildings from the principal stockholder.
The lease is on a yearly basis and provides that the lessee pay general
maintenance plus a monthly rental. Rent expense related to this lease was
$27,783 and (unaudited) $46,690 for the seven months ended March 31, 1998 and
1997, respectively, and $77,230 and $80,040 for the years ended August 31, 1997
and 1996, respectively. Unpaid rentals under the lease included in accounts
payable were $26,680, $42,020 and $20,813 at March 31, 1998, August 31, 1997 and
1996, respectively.
During the seven months ended March 31, 1998, but prior to the sale to
Cumulus, the insurance policy on the life of the principal shareholder with a
cash surrender value of $120,560 was transferred to a related company and notes
payable owing to the stockholder were reduced by the same amount.
9. COMMITMENTS AND CONTINGENCIES:
Commencing in 1997, the Company leases building space from an unrelated
party. This operating lease expires March 31, 2001, and requires monthly
payments of $2,430. Total rent expense recognized on
F-92
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
this lease for the seven month period ended March 31, 1998 was $17,010 and for
the year ended August 31, 1997 was $19,440.
Total minimum future lease commitments under this lease for the years ending
March 31, 1998 are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 29,160
1999................................................................ 29,160
2000................................................................ 29,160
---------
$ 87,480
---------
---------
</TABLE>
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value because of the short maturity of these
instruments. The carrying amount of long-term debt approximates its fair value.
F-93
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Crystal
Radio Group, Inc. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 13, 1998
F-94
<PAGE>
CRYSTAL RADIO GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
<S> <C> <C>
1997 1996
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 320,622 $ 93,459
Accounts receivable, less allowance for
doubtful accounts of $9,000 and $9,000, respectively............................. 784,716 667,819
Receivable from shareholder........................................................ -- 41,289
Prepaid expenses and other current assets.......................................... 8,538 7,116
------------- ------------
Total current assets........................................................... 1,113,876 809,683
Property and equipment, net.......................................................... 637,162 693,866
Intangible assets, net of accumulated amortization
of $560,477 and $406,025, respectively............................................. 1,020,266 474,718
Deposits and other................................................................... 2,438 3,888
------------- ------------
Total assets................................................................... $ 2,773,742 $ 1,982,155
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings.............................................................. $ 326,530 --
Current portion of long-term debt.................................................. 1,326,250 $ 457,747
Accounts payable................................................................... 21,391 60,717
Notes payable--stockholders........................................................ 250,000 250,000
Current portion of payable to former stockholder................................... 579,978 --
Dividends payable.................................................................. -- 131,537
Accrued wages and commissions...................................................... 69,735 65,761
Accrued and other current liabilities.............................................. 25,853 28,589
------------- ------------
Total current liabilities...................................................... 2,599,737 994,351
------------- ------------
Long-term debt....................................................................... -- 1,363,360
Long term payable to former stockholder.............................................. 1,106,374 --
------------- ------------
Total liabilities.............................................................. 3,706,111 2,357,711
Commitments and contingent liabilities............................................... -- --
Stockholders' equity (deficit):
Common stock, $1 par value, 100,000 shares authorized,
93,094 issued and outstanding.................................................... 93,094 93,094
Additional paid-in capital......................................................... 303,036 290,664
Accumulated deficit................................................................ (9,478) (759,314)
Less--treasury stock at cost, 26,264 shares........................................ (1,319,021) --
------------- ------------
Total stockholders' equity (deficit)........................................... (932,369) (375,556)
------------- ------------
Total liabilities and stockholders' equity (deficit)........................... $ 2,773,742 $ 1,982,155
------------- ------------
------------- ------------
</TABLE>
See Notes to Financial Statements.
F-95
<PAGE>
CRYSTAL RADIO GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:............................................................... $ 4,579,576 $ 4,125,962 $ 3,774,516
Less: agency commissions.............................................. (601,172) (530,197) (472,154)
------------ ------------ ------------
Net revenues...................................................... 3,978,404 3,595,765 3,302,362
Operating expenses:
Programming........................................................... 1,037,483 973,259 900,929
Sales and promotions.................................................. 733,875 682,557 673,289
Technical............................................................. 116,504 60,741 56,750
General and administrative............................................ 802,006 866,620 804,973
Depreciation and amortization......................................... 237,108 141,769 122,189
------------ ------------ ------------
Total operating expenses.......................................... 2,926,976 2,724,946 2,558,130
------------ ------------ ------------
Income from operations.................................................. 1,051,428 870,819 744,232
Interest expense........................................................ 221,735 217,674 269,374
Interest income......................................................... (9,430) (4,752) (6,899)
------------ ------------ ------------
Net income.............................................................. $ 839,123 $ 657,897 $ 481,757
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-96
<PAGE>
CRYSTAL RADIO GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED TREASURY
STOCK CAPITAL DEFICIT STOCK TOTAL
--------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995................... $ 93,094 $ 290,664 $ (1,490,815) $ 1,107,057
Net income................................... 481,757 481,757
Dividends.................................... (149,145) (149,145)
--------- ---------- ------------- ------------- -------------
Balance at December 31, 1995................. 93,094 290,664 (1,158,203) (774,445)
Net income................................... 657,897 657,897
Dividends.................................... (259,008) (259,008)
--------- ---------- ------------- ------------- -------------
Balance at December 31, 1996................. 93,094 290,664 (759,314) (375,556)
Net income................................... 839,123 839,123
Dividends.................................... (89,287) (89,287)
Purchase of treasury stock................... $ (1,506,649) (1,506,649)
Sale of treasury stock....................... 12,372 187,628 200,000
--------- ---------- ------------- ------------- -------------
Balance at December 31, 1997................. $ 93,094 $ 303,036 $ (9,478) $ (1,319,021) $ (932,369)
--------- ---------- ------------- ------------- -------------
--------- ---------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-97
<PAGE>
CRYSTAL RADIO GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................................. $ 839,123 $ 657,897 $ 481,757
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization......................................... 237,108 141,769 122,189
Increase in accounts receivable....................................... (116,897) (18,495) (114,574)
Increase in shareholder receivable.................................... -- -- (11,961)
Non-compete payment................................................... (175,000) -- --
Decrease (increase) in prepaid expenses and other assets.............. 28 (295) (5,757)
(Decrease) increase in accounts payable............................... (39,326) (58,888) 100,394
Increase (decrease) in accrued and other liabilities.................. 28,030 (37,358) 16,014
------------ ----------- -----------
Net cash provided by operating activities............................... 773,066 684,630 588,062
------------ ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment..................................... (25,952) (139,478) (279,629)
Proceeds from life insurance policy..................................... -- -- 10,000
Cash payments for other assets.......................................... -- -- (56,032)
Proceeds from other assets.............................................. -- 75,854 --
------------ ----------- -----------
Cash used for investing activities...................................... (25,952) (63,624) (325,661)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from short-term borrowings..................................... 326,530 -- 250,000
Repayment of long-term obligations...................................... (494,857) (456,238) (471,596)
Dividends paid.......................................................... (220,824) (175,533) (101,083)
Purchase of treasury stock.............................................. (330,800) -- --
Sale of treasury stock.................................................. 200,000 -- --
------------ ----------- -----------
Cash used for financing activities...................................... (519,951) (631,771) (322,679)
------------ ----------- -----------
Increase (decrease) in cash and cash equivalents.......................... 227,163 (10,765) (60,278)
Cash and cash equivalents at beginning of period.......................... 93,459 104,224 164,502
------------ ----------- -----------
Cash and cash equivalents at end of period................................ $ 320,622 $ 93,459 $ 104,224
------------ ----------- -----------
------------ ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest.................................................. $ 194,943 $ 217,674 $ 269,374
------------ ----------- -----------
------------ ----------- -----------
Non-cash operating and financing activities:
Trade revenue........................................................... $ 179,578 $ 138,410 $ 96,813
------------ ----------- -----------
------------ ----------- -----------
Trade expense........................................................... $ 101,539 $ 131,719 $ 106,567
------------ ----------- -----------
------------ ----------- -----------
Purchase of treasury stock.............................................. $ 1,175,849 $ -- $ --
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-98
<PAGE>
CRYSTAL RADIO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Crystal Radio Group, Inc. (the "Company") owns and operates radio stations
WKFR-FM, WKMI-AM and WRKR-FM located in Kalamazoo, Michigan.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral for its accounts receivable.
The Company reserves for potential credit losses based upon the expected
collectibility of all accounts receivable.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Broadcasting towers and equipment................. 5-15 years
Buildings......................................... 19-31.5 years
Office furniture and equipment.................... 5-7 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
F-99
<PAGE>
CRYSTAL RADIO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTANGIBLE ASSETS
Intangible assets primarily include a covenant not-to-compete, goodwill and
Federal Communications Commission ("FCC") license. Intangible assets are stated
at cost and are being amortized using the straight-line method over estimated
useful lives of 3 to 40 years. Amortization expense was $154,452 in 1997, and
$57,230 in each of 1996 and 1995. The Company evaluates the carrying value of
intangibles periodically in relation to the projected future undiscounted net
cash flows of the related businesses.
INCOME TAXES
The Company's shareholders elected S Corporation status in 1986. In lieu of
corporate income taxes, the Company's taxable income or loss is reported by its
shareholders.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Broadcasting towers and equipment............................ $1,865,697 $1,849,793
Buildings.................................................... 562,412 562,412
Office furniture and equipment............................... 275,119 265,073
------------ ------------
2,703,228 2,677,278
Accumulated depreciation..................................... (2,142,322) (2,059,668)
------------ ------------
560,906 617,610
Land......................................................... 76,256 76,256
------------ ------------
Property and equipment, net.................................. $ 637,162 $ 693,866
------------ ------------
------------ ------------
</TABLE>
Depreciation expense for 1997, 1996 and 1995 was $82,656, $84,539 and
$64,959, respectively.
3. RELATED PARTY TRANSACTIONS:
Notes payable--stockholders in the amount of $250,000 at December 31, 1997
consist of promissory notes, which require monthly payments of interest at 8%
per annum. The notes are unsecured and are due December 31, 1998.
In August 1997, the Company entered into a Settlement and Purchase Agreement
with a stockholder (the "Former Stockholder"). Under this agreement, the Company
purchased the 30,000 shares of the Company owned by the Former Stockholder and
settled various matters in dispute with the Former Stockholder. The Former
Stockholder also entered into a three year non-compete agreement. As
consideration for the shares, the Former Stockholder received $330,800 in cash
and a note for $1,134,560. The note bears interest at 6.07% and is due in three
installments on each of August 7, 1998, 1999 and 2000. The shares purchased have
been classified as treasury stock. Under the non-compete agreement the Former
Stockholder received $175,000 in cash and will receive three additional payments
of $175,000 each on August 8, 1998, 1999 and 2000. The non-compete agreement is
being amortized on a straight line basis over three years.
As part of the agreement, the Company paid the Former Stockholder $144,000
which represented his portion of dividends which had been held in arrears and
forgave a receivable of $41,289 due to the Company from the Former Stockholder.
The forgiveness of this receivable has been recorded as additional
F-100
<PAGE>
CRYSTAL RADIO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS: (CONTINUED)
cost of the shares purchased from the Former Stockholder. In addition, a pending
lawsuit brought by the Former Stockholder against the Company was set aside and
dismissed.
Subsequently, during 1997, certain stockholders of the Company purchased an
aggregate 3,736 shares of the treasury stock for $200,000.
4. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Michigan National Bank........................................ $ 1,326,250 $ 1,821,107
Less: current maturities...................................... 1,326,250 457,747
------------ ------------
$ -- $ 1,363,360
------------ ------------
------------ ------------
</TABLE>
The note with Michigan National Bank calls for monthly payments of $50,256
(includes both principal and interest) with a balloon payment of $1,074,250 due
September 1, 1998. Interest is calculated at prime plus .75%. The prime rate at
December 31, 1997 and 1996 was 8.0% and 8.25%, respectively. The note is secured
by mortgages on all real estate, a security agreement and a life insurance
policy on a shareholder.
The Company also has a line of credit for $750,000 with Michigan National
Bank available for its use as of December 31, 1997. The line bears interest at
.75% over the bank's prime rate and is due July 1, 1998. There was $326,530 due
on the line at December 31, 1997.
5. BENEFITS PLAN:
The Company has a 401(k) plan that covers eligible employees. Employees may
contribute up to the maximum amount allowed by the Internal Revenue Code. The
Company does not match employee contributions.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value because of the short maturity of these
instruments. The carrying amount of notes payable approximates fair value based
on current market rates.
7. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT:
In March 1998, the Company entered into an agreement with Cumulus
Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media Inc.) to sell the
assets of the Company, subject to approval of the Federal Communications
Commission, for approximately $14,000,000.
F-101
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholder's equity and of cash flows present fairly,
in all material respects, the financial position of Forjay Broadcasting
Corporation (the "Company") at December 31, 1997, and the results of its
operations and its cash flows for the year ended December 31, 1997 in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
January 23, 1998
F-102
<PAGE>
FORJAY BROADCASTING CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash.............................................................................................. $ 217,000
Accounts receivable, less allowance for doubtful accounts of $13,000.............................. 228,000
------------
Total current assets............................................................................ 445,000
Property and equipment, net......................................................................... 203,000
Intangible assets, net.............................................................................. 145,000
Other assets, net................................................................................... 32,000
------------
Total assets.................................................................................... $ 825,000
------------
------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of note payable to related party............................................... $ 17,000
Accounts payable.................................................................................. 35,000
Accrued and other current liabilities............................................................. 137,000
Deferred compensation............................................................................. 191,000
------------
Total current liabilities....................................................................... 380,000
------------
Note payable to related party....................................................................... 42,000
Long-term debt...................................................................................... 384,000
------------
Total long-term liabilities..................................................................... 426,000
------------
Total liabilities............................................................................... 806,000
------------
Commitments and contingencies
Shareholder's equity:
Common stock, $100 par value, 200 shares authorized,
40 shares issued and outstanding................................................................ 20,000
Retained earnings................................................................................. 390,000
Less: treasury stock at cost, 160 shares.......................................................... (391,000)
------------
Total shareholder's equity...................................................................... 19,000
------------
Total liabilities and shareholder's equity...................................................... $ 825,000
------------
------------
</TABLE>
See Notes to Financial Statements.
F-103
<PAGE>
FORJAY BROADCASTING CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1997
------------------
<S> <C>
Revenues.................................................................. $ 1,667,000
Less: agency commissions................................................ (178,000)
------------------
Net revenues.......................................................... 1,489,000
------------------
Operating expenses:
Programming............................................................. 305,000
Sales and promotions.................................................... 465,000
Technical............................................................... 23,000
General and administrative.............................................. 485,000
Depreciation and amortization........................................... 29,000
------------------
Total operating expenses.............................................. 1,307,000
------------------
Income from operations.................................................... 182,000
Interest expense.......................................................... (48,000)
------------------
Income before income tax.................................................. 134,000
Income tax expense........................................................ (44,000)
------------------
Net income................................................................ $ 90,000
------------------
------------------
</TABLE>
See Notes to Financial Statements.
F-104
<PAGE>
FORJAY BROADCASTING CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
RETAINED TREASURY
COMMON STOCK EARNINGS STOCK TOTAL
-------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1997.................................. $ 20,000 $ 300,000 ($ 391,000) ($ 71,000)
Net income.................................................. -- 90,000 -- 90,000
------- ---------- ----------- ----------
Balance at December 31, 1997................................ $ 20,000 $ 390,000 ($ 391,000) $ 19,000
------- ---------- ----------- ----------
------- ---------- ----------- ----------
</TABLE>
See Notes to Financial Statements.
F-105
<PAGE>
FORJAY BROADCASTING CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Cash flows from operating activities:
Net income........................................................................................ $ 90,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................................... 29,000
Increase in accounts receivable................................................................. (37,000)
Decrease in other assets........................................................................ 40,000
Increase in accounts payable.................................................................... 11,000
Increase in accrued and other liabilities....................................................... 64,000
Increase in deferred compensation............................................................... 77,000
------------
Net cash provided by operating activities....................................................... 274,000
------------
Cash flows from investing activities:
Purchases of property and equipment............................................................... (5,000)
------------
Cash used for investing activities.............................................................. (5,000)
------------
Cash flows from financing activities:
Payments on bank notes payable.................................................................... (135,000)
Payments on borrowings from related party......................................................... (16,000)
------------
Cash used for financing activities.............................................................. (151,000)
------------
Increase in cash.................................................................................... 118,000
Cash at beginning of year........................................................................... 99,000
------------
Cash at end of year................................................................................. $ 217,000
------------
------------
Supplemental disclosures of cash flow information:
Cash paid for interest.......................................................................... $ 48,000
------------
------------
Cash paid for income taxes...................................................................... $ 22,000
------------
------------
Non-cash operating and financing activities:
Trade revenue..................................................................................... $ 104,000
------------
------------
Trade expense..................................................................................... $ 91,000
------------
------------
</TABLE>
See Notes to Financial Statements.
F-106
<PAGE>
FORJAY BROADCASTING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Forjay Broadcasting Corporation ("the Company") owns and operates the radio
stations WYNN-FM and WYNN-AM (the "Stations") located in Florence, South
Carolina.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH
Cash includes deposits in demand deposit accounts.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a declining balance method for equipment and furniture, and
by the straight-line method for buildings over the estimated useful lives of the
related assets as follows:
<TABLE>
<S> <C>
Buildings....................................................... 25 years
Tower and ground system......................................... 20 years
Technical and studio equipment.................................. 5-10 years
Office furniture, fixtures, and equipment....................... 6-10 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets are comprised of an FCC license and are stated at cost and
amortized using the straight-line method over the estimated useful life of 40
years. The Company evaluates the carrying value of intangibles periodically in
relation to the projected future undiscounted net cash flows for the related
businesses.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company provides
advertising air time before products and services are exchanged, a trade asset
is recognized.
F-107
<PAGE>
FORJAY BROADCASTING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts cash, accounts receivable and accounts payable
approximates fair value due to their short-term maturities. The fair value of
notes payable and long-term debt are estimated based on currents market rates
and approximate the carrying value.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Office furniture and equipment.................................................. $ 229,000
Buildings....................................................................... 69,000
Broadcasting towers and equipment............................................... 194,000
------------
492,000
Accumulated depreciation........................................................ (379,000)
Land............................................................................ 90,000
------------
Property and equipment, net..................................................... $ 203,000
------------
------------
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $23,000.
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
FCC license..................................................................... $ 182,000
Accumulated amortization........................................................ (37,000)
------------
Intangible assets, net.......................................................... $ 145,000
------------
------------
</TABLE>
Amortization expense for the year ended December 31, 1997 was $6,000.
4. RELATED PARTY TRANSACTIONS:
As of December 31, 1996, the Company had a payable to the sole shareholder
of $114,000 related to deferred compensation. During 1997, the deferred
compensation was paid with cash of $97,000 and the forgiveness of a $17,000
receivable due from this shareholder.
During 1997, the sole shareholder earned a bonus of $300,000. The bonus was
unpaid as of December 31, 1997 and $191,000, representing the liability for the
bonus less applicable taxes, is recorded as deferred compensation.
The Station has a note payable to the sole shareholder's mother, relating to
the Company's buyout of Forjay Broadcasting Corporation stock held by her. This
note bears interest at 6% per annum and is payable in equal monthly installments
of $2,000, including principal and interest, until repaid in March 2001. The
balance of this note at December 31, 1997 is $59,000. As of December 31, 1997,
future maturities on this note are as follows: 1998--$17,000; 1999--$18,000;
2000--$20,000; 2001--$4,000.
F-108
<PAGE>
FORJAY BROADCASTING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT:
In March 1995 the Company entered into a loan agreement with a bank which
provided for a term note payable of $750,000. The term note is payable in
fifty-nine monthly payments of principal and interest of $13,000, continuing
through February, 2000, with a final payment of $292,000 due March, 2000.
Payments remaining under the agreement for 1998 reflect advance payments made by
the Company. The term note bears interest at the prime rate plus 1% (9.5%) at
December 31, 1997, is secured by substantially all of the Company's assets, and
is guaranteed by the sole shareholder of the Company.
The agreement contains certain restrictive covenants, which, among other
things, require the maintenance of a debt service ratio and limitations on debt
and compensation. The Company did not calculate compliance with these covenants
as of December 31, 1997, and was in violation of the covenant related to
compensation. However, the bank has waived all financial covenants related to
the debt as of December 31, 1997.
As of December 31, 1997, future maturities of long-term debt are as follows:
1998--$0; 1999-- $72,000; 2000--$312,000.
6. INCOME TAXES:
The components of the provision for income taxes consists of the following
for the year ended December 31, 1997 are as follows:
<TABLE>
<S> <C>
Current income taxes:
Federal.......................................................... $ 38,000
State and local.................................................. 7,000
---------
Total.......................................................... 45,000
Deferred income taxes:
Federal.......................................................... (1,000)
---------
Total.......................................................... $ 44,000
---------
---------
</TABLE>
During 1997, the effective tax rate differs from the federal statutory tax
rate of 34% as a result of the following:
<TABLE>
<S> <C>
Federal income tax expense at U.S. statutory rate.................. $ 45,000
State income tax expense, net of U.S. benefit...................... 5,000
Impact of U.S. surtax exemption.................................... (9,000)
Nondeductible items................................................ 3,000
---------
$ 44,000
---------
---------
</TABLE>
Temporary differences giving rise to deferred tax assets relate to the FCC
license.
7. TREASURY STOCK:
Treasury stock relates to the buyout of the Company stock from family
members.
8. SUBSEQUENT EVENTS:
In 1997, the Company entered into an agreement with Cumulus Broadcasting,
Inc. ("Cumulus") (a wholly owned subsidiary of Cumulus Media Inc.) to sell the
stock of the Company, subject to approval of the Federal Communications
Commission ("FCC"), to Cumulus for approximately $4,100,000.
F-109
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Fritz Broadcasting, Inc. Toledo Division
We have audited the accompanying divisional balance sheet of Fritz
Broadcasting, Inc. Toledo Division as of December 29, 1996 and December 31, 1995
and the related statements of divisional income, changes in divisional equity
and divisional cash flows for the years then ended. These financial statements
are the responsibility of the Division's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also incudes
assessing the accounting principles used and significant estimates made by
management, we well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fritz Broadcasting, Inc.
Toledo Division as of December 29, 1996 and December 31, 1995 and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Plante & Moran, LLP
Troy, Michigan
February 11, 1997
F-110
<PAGE>
FRITZ BROADCASTING, INC. TOLEDO DIVISION
DIVISIONAL BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................................................... $ 61,813 $ 110,732
Accounts receivable--Less allowance for doubtful accounts of $30,957
for 1996 and $35,400 for 1995.................................................... 1,430,977 1,002,035
Prepaid expenses and deposits...................................................... 18,223 18,446
------------ ------------
Total current assets........................................................... 1,511,013 1,131,213
PROPERTY, PLANT AND EQUIPMENT (Note 2)............................................... 868,736 861,566
INTANGIBLE ASSETS (Note 1)........................................................... 5,935,825 5,007,725
------------ ------------
Total assets................................................................... $8,315,574 $7,000,504
------------ ------------
------------ ------------
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES
Current portion of long-term obligations:
Notes payable (Note 3)........................................................... $ 479,000 $ 12,000
Capital lease obligations (Note 4)............................................... 15,885 --
Accounts payable................................................................... 69,025 99,493
Accrued corporate charges.......................................................... 1,353,123 786,561
Accrued expenses................................................................... 650,172 470,773
------------ ------------
Total current liabilities...................................................... 2,567,205 1,368,837
LONG-TERM LIABILITIES
Notes payable--Long-term portion (Note 3).......................................... 2,836,000 2,238,000
Capital lease obligations (Note 4)................................................. 9,964 --
------------ ------------
Total liabilities.............................................................. 5,413,169 3,606,827
DIVISIONAL EQUITY.................................................................... 2,902,405 3,393,677
------------ ------------
Total liabilities and divisional equity........................................ $8,315,574 $7,000,504
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
F-111
<PAGE>
FRITZ BROADCASTING, INC. TOLEDO DIVISION
STATEMENT OF DIVISIONAL INCOME
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------
<S> <C> <C>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
BROADCASTING REVENUE--Net
Local.............................................................................. $4,488,610 $3,878,911
National........................................................................... 535,614 610,446
Network............................................................................ 6,724 50,740
Other.............................................................................. 115,098 118,861
------------ ------------
Total broadcasting revenue--Net................................................ 5,146,046 4,658,958
BROADCASTING EXPENSES
Programming........................................................................ 1,206,076 1,327,977
Technical.......................................................................... 124,413 115,967
News............................................................................... 49,761 44,172
Sales.............................................................................. 791,369 711,510
Promotions......................................................................... 182,723 303,354
General and administrative......................................................... 836,209 695,031
Depreciation....................................................................... 161,175 199,282
Amortization of intangible assets.................................................. 193,648 129,746
Corporate charges.................................................................. 566,562 544,914
------------ ------------
Total broadcasting expenses.................................................... 4,111,936 4,071,953
------------ ------------
OPERATING INCOME..................................................................... 1,034,110 587,005
OTHER EXPENSES
Interest expense................................................................... 260,459 224,188
Loss on sale of assets............................................................. 2,868 --
------------ ------------
Total other expense............................................................ 263,327 224,188
------------ ------------
INCOME--Before income taxes.......................................................... 770,783 362,817
STATE AND LOCAL INCOME TAXES......................................................... 66,485 52,277
------------ ------------
NET INCOME........................................................................... $ 704,298 $ 310,540
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
F-112
<PAGE>
FRITZ BROADCASTING, INC. TOLEDO DIVISION
STATEMENT OF CHANGES IN DIVISIONAL EQUITY
<TABLE>
<S> <C>
DIVISIONAL EQUITY--January 1, 1995.............................................. $4,289,689
Net income...................................................................... 310,540
Distribution of corporate division.............................................. (1,206,552)
---------
DIVISIONAL EQUITY--December 31, 1995............................................ 3,393,677
Net income...................................................................... 704,298
Distribution of corporate division.............................................. (1,195,570)
---------
DIVISIONAL EQUITY--December 29, 1996............................................ $2,902,405
---------
---------
</TABLE>
See Notes to Financial Statements.
F-113
<PAGE>
FRITZ BROADCASTING, INC. TOLEDO DIVISION
STATEMENT OF DIVISIONAL CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------
<S> <C> <C>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................................... $ 704,298 $ 310,540
Adjustments to reconcile net income to net cash from operating activities:
Depreciation..................................................................... 161,175 199,282
Loss on sale of assets........................................................... 2,868 --
Bad debt expense................................................................. -- 20,400
Amortization of intangible assets................................................ 193,648 129,746
Changes in assets and liabilities:
Accounts receivable............................................................ (428,942) 3,040
Prepaid expenses and deposits.................................................. 223 (6,432)
Accounts payable............................................................... (30,468) (24,077)
Accrued expenses............................................................... 745,961 766,069
------------ ------------
Net cash provided by operating activities.................................... 1,348,763 1,398,568
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of intangible assets...................................................... (1,121,748) (2,572)
Purchase of fixed assets........................................................... (171,213) (166,921)
------------ ------------
Net cash used in investing activities........................................ (1,292,961) (169,493)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term obligations................................................ 3,355,667 --
Payments of stockholder notes payable.............................................. (2,250,000) --
Principal payments under long-term obligations..................................... (14,818) --
Distributions to corporate division, net of advances............................... (1,195,570) (1,206,552)
------------ ------------
Net cash used in financing activities........................................ (104,721) (1,206,552)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. (48,919) 22,523
CASH AND CASH EQUIVALENTS--Beginning of year......................................... 110,732 88,209
------------ ------------
CASH AND CASH EQUIVALENTS--End of year............................................... $ 61,813 $ 110,732
------------ ------------
------------ ------------
</TABLE>
The Division paid approximately $280,000 in 1996 and $224,000 in 1995 for
interest expense.
See Notes to Financial Statements.
F-114
<PAGE>
FRITZ BROADCASTING, INC. TOLEDO DIVISION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 29, 1996 AND DECEMBER 31, 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fritz Broadcasting, Inc. (the "Company") owns and operates radio stations
within the Saginaw, Michigan and Toledo, Ohio markets. The station's advertisers
consist of a broad spectrum of services and industries, located primarily within
those markets. These financial statements present the operations of the Fritz
Broadcasting, Inc. Toledo Division (the "Division") only.
During 1996, the Division acquired a new station, WIMX. The 1995 financial
statements include the operations of the stations WTOD-AM, WKKO-FM and WRQN-FM.
The 1996 financial statements include the operations of the original stations
plus the newly acquired station. The new station was accounted for under the
purchase method.
Significant accounting policies are as follows:
BROADCAST REPORTING--The Division reports operations on a broadcast year as
opposed to a calendar year. The broadcast year ends on the last Sunday in
December.
CASH AND CASH EQUIVALENTS--For purposes of reporting cash flows, cash and
cash equivalents include checking and savings account balances and money market
funds.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are recorded at
cost. The Division uses predominantly accelerated methods of depreciation. Costs
of maintenance and repairs are charged to expense when incurred.
NOTES PAYABLE--The divisional balance sheet reflects long-term debt that has
been allocated to the Toledo division by the corporate division.
RECOGNITION OF BROADCASTING REVENUE--The Division recognizes broadcasting
revenue as the air time is produced. The fair value of barter and trade-out
transactions is included in broadcasting revenue and broadcasting expenses.
These transactions represent advertising time exchanged for program material,
merchandise or services.
DIVISIONAL EQUITY--Divisional equity represents the cumulative results of
operations of the Toledo division stations since their acquisition by Fritz
Broadcasting, Inc., the initial capitalization of the Division, cumulative
contributions of cash to the Division from Fritz Broadcasting, Inc., less
distributions paid back to the corporate division.
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
INTANGIBLE ASSETS--Broadcasting licenses and goodwill represent the excess
of consideration paid for the purchase of radio stations over the amounts
assigned to the net identifiable assets acquired. They are being amortized by
the straight-line method over 40 years. Noncompete agreements are amortized
straight-line over the lives of the agreements.
F-115
<PAGE>
FRITZ BROADCASTING, INC. TOLEDO DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996 AND DECEMBER 31, 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Organization costs are recorded at cost and are amortized over 69 months.
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Organization costs................................................ $ 67,336 $ --
Broadcasting licenses, goodwill and noncompete agreements......... 6,244,256 5,189,844
------------ ------------
Total cost.................................................. 6,311,592 5,189,844
Less accumulated amortization..................................... 375,767 182,119
------------ ------------
Net carrying amount......................................... $ 5,935,825 $ 5,007,725
------------ ------------
------------ ------------
</TABLE>
NOTE 2--PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES
1996 1995 (YEARS)
---------- ---------- -------------
<S> <C> <C> <C>
Land..................................................... $ 217,369 $ 198,229 --
Buildings................................................ 217,614 183,914 40
Vehicles................................................. 62,082 1,000 5
Furniture, fixtures and equipment........................ 666,389 625,701 5-20
Leasehold improvements................................... 162,041 19,514 20
Construction............................................. -- 126,878 --
---------- ----------
Total cost......................................... 1,325,495 1,155,236
Less accumulated depreciation............................ 456,759 293,670
---------- ----------
Net carrying amount................................ $ 868,736 $ 861,566
---------- ----------
---------- ----------
</TABLE>
F-116
<PAGE>
FRITZ BROADCASTING, INC. TOLEDO DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996 AND DECEMBER 31, 1995
NOTE 3--NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Bank note payable with one-half of the principal outstanding bearing interest at prime
(8.25 percent at December 29, 1996), and the remaining half bearing interest at the
swap rate as determined by the bank (9.20 percent at December 29, 1996). This note is
payable in quarterly principal installments of $103,500 to $212,750, plus interest,
from March 31, 1997 through December 31, 2001. The note is collateralized by all
Company assets and is guaranteed by the Company's stockholders and subject to
restrictive covenants relating to the Company's cash flow and liquidity............... $ 3,250,000 $ --
Notes payable issued for covenant not to compete with former owner of an acquired
station. The note bears no interest and is due on January 14, 1997.................... 65,000 --
Notes payable--stockholders bearing interest at 1 percent over prime (9.5 percent at
December 31, 1995). The notes were paid during 1996 with the proceeds of the bank note
described above....................................................................... -- 2,250,000
------------ ------------
Total........................................................................... 3,315,000 2,250,000
Less current portion............................................................ 479,000 12,000
------------ ------------
Long-term portion............................................................... $ 2,836,000 $ 2,238,000
------------ ------------
------------ ------------
</TABLE>
The following is a schedule by year of approximate future maturities on the
above notes:
<TABLE>
<CAPTION>
YEARS ENDING AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1997............................................................................ $ 479,000
1998............................................................................ 552,000
1999............................................................................ 690,000
2000............................................................................ 690,000
2001............................................................................ 904,000
------------
Total $ 3,315,000
------------
------------
</TABLE>
The notes payable were repaid in full in 1997 in connection with the sale of
the Division (see Note 8).
The Division has recorded $79,629 and $224,188 of interest expense on the
stockholder notes for 1996 and 1995, respectively.
NOTE 4--LEASE COMMITMENTS
The Division owns vehicles under capital leases with a cost of $61,082 and
accumulated depreciation of $43,490.
F-117
<PAGE>
FRITZ BROADCASTING, INC. TOLEDO DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996 AND DECEMBER 31, 1995
NOTE 4--LEASE COMMITMENTS (CONTINUED)
Future minimum capital lease payments are as follows:
<TABLE>
<S> <C>
1997............................................................... $ 18,143
1998............................................................... 12,892
---------
Total minimum lease payments................................. 31,035
Less interest................................................ 5,186
---------
Net minimum lease payments................................... $ 25,849
---------
---------
</TABLE>
NOTE 5--INCOME TAXES
Fritz Broadcasting, Inc. operates as an S Corporation under the provisions
of the Internal Revenue Code. Accordingly, no provision for income taxes has
been made since income or losses of the Company are allocated to the
stockholders. Additionally, the Company uses the modified cash basis method of
accounting for income tax reporting purposes.
NOTE 6--EMPLOYEE BENEFIT PLAN
Effective October 1995, Fritz Broadcasting, Inc. sponsors a defined
contribution 401(k) plan that covers all employees meeting a one-year
eligibility period. Contributions to the plan include employee contributions and
an employer amount determined on a yearly basis by management.
The Division's employer contributions to the plan for 1996 and 1995 amounted
to approximately $25,000 and $8,000, respectively.
NOTE 7--RELATED PARTY TRANSACTIONS
The corporate division of Fritz Broadcasting, Inc. incurs expenses for
executive management, compensation, professional services and other
administrative costs. These expenses have been allocated to the Company's
operating divisions as a corporate charge. The corporate charge for 1996 and
1995 was $566,562 and $544,914, respectively.
NOTE 8--SUBSEQUENT EVENT
In June 1997, Fritz Broadcasting, Inc. sold the assets of its Toledo
division to an unrelated company. The stations were resold to a third owner in
1997. All assets were sold for amounts in excess of their carrying amounts at
December 29, 1996.
F-118
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in partners' equity and of cash flows present fairly,
in all material respects, the financial position of HVS Partners at December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 25, 1998
F-119
<PAGE>
HVS PARTNERS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 149,465 $ 56,980
Accounts receivable, less allowance for doubtful accounts of $60,000 and $60,000,
respectively...................................................................... 242,176 1,461,429
Receivable from related party....................................................... 429,827 211,823
Prepaid expenses and other current assets........................................... 289,570 88,845
------------ ------------
Total current assets............................................................ 1,111,038 1,819,077
Property and equipment, net........................................................... 1,686,276 2,257,829
Intangible assets, net................................................................ 2,357,006 4,947,887
------------ ------------
Total assets.................................................................... $ 5,154,320 $ 9,024,793
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 517,461 $ 844,833
Accrued and other current liabilities............................................... 235,889 314,229
Notes payable due within one year................................................... 63,726 43,405
Capital lease obligations due within one year....................................... 4,575 51,072
------------ ------------
Total current liabilities....................................................... 821,651 1,253,539
Long-term liabilities:
Note payable........................................................................ 676,177 374,809
Capital lease obligations........................................................... 12,312 76,804
Commitments and contingencies
Partners' equity:..................................................................... 3,644,180 7,319,641
------------ ------------
Total liabilities and partners' equity.......................................... $ 5,154,320 $ 9,024,793
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements
F-120
<PAGE>
HVS PARTNERS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Revenues............................................................... $ 5,714,682 $ 7,733,057 $ 6,520,289
Less: agency commissions............................................. (383,862) (655,900) (363,666)
------------- ------------ ------------
Net revenues....................................................... 5,330,820 7,077,157 6,156,623
------------- ------------ ------------
Operating expenses:
Programming.......................................................... 1,178,362 1,625,755 1,432,463
Sales and promotions................................................. 1,548,549 1,777,075 1,646,461
Technical............................................................ 246,142 335,545 300,296
General and administrative........................................... 1,364,685 1,532,663 1,492,444
News................................................................. 82,208 117,098 87,687
Trade................................................................ 527,803 762,912 594,699
Depreciation and amortization........................................ 638,098 661,683 631,379
------------- ------------ ------------
Total operating expenses......................................... 5,585,847 6,812,731 6,185,429
------------- ------------ ------------
Income (loss) from operations.......................................... (255,027) 264,426 (28,806)
------------- ------------ ------------
Other income (expense):
Gain on sales of assets.............................................. 12,261,305 -- --
Interest income...................................................... 451 768 679
Interest expense..................................................... (68,740) (26,297) (14,061)
------------- ------------ ------------
Total other income............................................... 12,193,016 (25,529) (13,382)
------------- ------------ ------------
Net income (loss)...................................................... $ 11,937,989 $ 238,897 $ (42,188)
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-121
<PAGE>
HVS PARTNERS
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
-------------
<S> <C>
Balance at January 1, 1995......................................................................... $ 8,346,275
Net loss........................................................................................... (42,188)
Partner distributions.............................................................................. (735,603)
-------------
Balance at December 31, 1995....................................................................... 7,568,484
Net income......................................................................................... 238,897
Partner distributions.............................................................................. (487,740)
-------------
Balance at December 31, 1996....................................................................... 7,319,641
Net income......................................................................................... 11,937,989
Partner distributions.............................................................................. (15,613,450)
-------------
Balance at December 31, 1997....................................................................... $ 3,644,180
-------------
-------------
</TABLE>
See Notes to Financial Statements.
F-122
<PAGE>
HVS PARTNERS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ---------- ----------
Cash flows from operating activities:
Net income (loss)....................................................... $ 11,937,989 $ 238,897 $ (42,188)
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of assets................................................ (12,261,305) -- --
Depreciation and amortization......................................... 638,098 661,683 631,379
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable.......................... 1,219,253 (463,094) 621,514
Increase in receivable from related party........................... (218,004)
Decrease (increase) in prepaid expenses and other current assets.... (200,725) 949 14,632
(Decrease) increase in accounts payable............................. (327,372) 85,180 148,593
Increase (decrease) in accrued and other liabilities................ (78,340) 104,554 (124,522)
Other............................................................... (67,422) (4,038) (8,963)
------------- ---------- ----------
Net cash provided by operating activities........................... 642,172 624,131 1,240,445
------------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of assets............................................ 15,200,000 -- --
Purchases of property and equipment..................................... (88,490) (562,879) (329,009)
------------- ---------- ----------
Net cash provide by (used in) investing activities.................. 15,111,510 (562,879) (329,009)
------------- ---------- ----------
Cash flows from financing activities:
Distributions to partners............................................... (15,613,450) (487,740) (735,603)
Proceeds from issuance of notes payable................................. 37,773 436,066 115,572
Principal payments on notes payable and capital lease obligations....... (85,520) (74,273) (215,667)
------------- ---------- ----------
Net cash used in financing activities............................... (15,661,197) (125,947) (835,698)
------------- ---------- ----------
Increase (decrease) in cash and cash equivalents.......................... 92,485 (64,695) 75,738
Cash and cash equivalents at beginning of year............................ 56,980 121,675 45,937
------------- ---------- ----------
Cash and cash equivalents at end of year.................................. $ 149,465 $ 56,980 $ 121,675
------------- ---------- ----------
------------- ---------- ----------
Supplemental disclosures of cash flow information
Cash paid for interest.................................................. $ 68,000 $ 26,000 $ 14,000
------------- ---------- ----------
------------- ---------- ----------
Non-cash operating activities:
Trade revenue........................................................... $ 516,083 $ 696,540 $ 633,398
------------- ---------- ----------
------------- ---------- ----------
Trade expense........................................................... $ 527,803 $ 762,912 $ 594,699
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-123
<PAGE>
HVS PARTNERS
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
HVS Partners (Partnership) was organized under the laws of the State of
Florida on June 1, 1985 as a general partnership for the purpose of acquiring
and operating the following radio stations:
<TABLE>
<S> <C>
WQHQ-FM.......................................... Salisbury, Maryland
WLVW-FM.......................................... Salisbury, Maryland
WRXS-FM.......................................... Salisbury, Maryland
WLBW-FM.......................................... Fenwick Island, Delaware
WTGM-AM.......................................... Salisbury, Maryland
WBZE-FM.......................................... Tallahassee, Florida
WHBT-AM.......................................... Tallahassee, Florida
WHBX-FM.......................................... Tallahassee, Florida
Wilmington, North
WWQQ-FM.......................................... Carolina
Jacksonville, North
WQSL-FM.......................................... Carolina
Jacksonville, North
WXQR-FM.......................................... Carolina
</TABLE>
In January 1997, the Partnership entered into a Local Management Agreement
(LMA) to operate WRXS-FM, Salisbury, Maryland. The Partnership acquired this
station in April 1997. In August 1997, the Partnership completed the sale of
substantially all of the property and equipment and Federal Communications
Commission ("FCC") licenses related to WWQQ-FM, WQSL-FM and WSQR-FM to Cumulus
Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) ("Cumulus")
for $6,000,000 in cash. The results of operations for the year ended December
31, 1997 include net review of $1,384,000 and a loss from operations of 5,000
related to these stations. In August 1997, the Partnership entered into a LMA
granting Cumulus the right to operate all remaining stations. In December 1997,
the Partnership completed the sale of substantially all of the property and
equipment and FCC licenses related to WQHQ-FM, WLVW-FM, WTGM-AM to Cumulus for
$9,200,000 in cash. The results of operations for the year ended December 31,
1997 include net revenues of $1,801,000 and a loss from operations of $178,000.
The remaining stations were sold to Cumulus in January 1998 for $15,400,000. The
carrying value of the remaining stations at December 31, 1997 was approximately
$3,600,000. The results of operation for the year ended December 31, 1997
include net revenue of $2,146,0000 and income from operations of $436,000 for
the remaining stations.
The significant accounting principles followed by the Partnership and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
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.
F-124
<PAGE>
HVS PARTNERS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
RECEIVABLE FROM RELATED PARTY
Receivable from related party represents transactions in the ordinary course
of business with other radio stations owned by certain partners of the
Partnership.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions, improvements and
expenditures for repairs and maintenance that significantly add to productivity
or extend the economic lives of the assets, are capitalized at cost and
depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Building..................................................... 39 years
Broadcasting towers and equipment............................ 15 years
Office and studio furniture and equipment.................... 5-6 years
Leasehold improvement........................................ Term of
lease
Station vehicles............................................. 5 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include goodwill and FCC licenses. Intangible assets are
stated at cost and are being amortized using the straight-line method over the
estimated useful life term for periods not exceeding 25 years. The Company
evaluates the carrying value of intangibles periodically in relation to the
projected future undiscounted net cash flows of the related businesses.
INCOME TAXES
The Partnership operated as a general partnership under the provisions of
the Internal Revenue Code during its ownership by HVS Partners. Accordingly, no
provision for income taxes has been made since income or losses of the
Partnership are allocated to the partners.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Partnership enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Partnership uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
F-125
<PAGE>
HVS PARTNERS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS:
On April 4, 1997, the Partnership acquired WXRS-FM in Salisbury, Maryland
for $360,000 in the form of a note payable to the former owner, plus various
other direct acquisition costs.
The acquisition was accounted for as a purchase. Accordingly, the
accompanying financial statements include the results of operations of the
acquired stations from the date of acquisition. Pro forma results assuming the
acquisition had occurred on January 1, 1997 are not significantly different from
reported results.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
<S> <C> <C>
1997 1996
---------- ---------
Prepaid assets......................................................... $ 103,894 $ 5,581
Deposits refundable.................................................... 70,398 27,398
Prepaid insurance...................................................... 58,025 51,412
Prepaid property taxes................................................. 17,887 --
Other assets........................................................... 39,366 4,454
---------- ---------
Total.................................................................. $ 289,570 $ 88,845
---------- ---------
---------- ---------
</TABLE>
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Office and studio furniture and equipment......................... $ 862,056 $ 1,736,690
Broadcasting towers and equipment................................. 786,185 1,690,130
Building.......................................................... 460,425 429,618
Station vehicles.................................................. 28,212 154,110
Leasehold improvements............................................ 5,225 99,015
------------ ------------
Total property and equipment...................................... 2,142,103 4,109,563
Accumulated depreciation.......................................... (996,850) (2,392,757)
------------ ------------
1,145,253 1,716,806
Land and land improvements........................................ 541,023 541,023
------------ ------------
Property and equipment, net....................................... $ 1,686,276 $ 2,257,829
------------ ------------
------------ ------------
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $359,244, $392,486 and $362,323, respectively.
F-126
<PAGE>
HVS PARTNERS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Goodwill and FCC licenses......................................... $ 2,987,203 $ 6,314,593
Other............................................................. 9,082 44,001
------------ ------------
Total intangible assets........................................... 2,996,285 6,358,594
Accumulated amortization.......................................... (639,279) (1,410,707)
------------ ------------
Intangible assets, net............................................ $ 2,357,006 $ 4,947,887
------------ ------------
------------ ------------
</TABLE>
Amortization expense for the year ended December 31, 1997, 1996 and 1995 was
$278,854, $269,197 and $269,056, respectively.
6. NOTES PAYABLE:
Notes payable consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Promissory note--interest and principal
payable monthly at an interest rate of 8%....................... $ 343,885
Promissory Note--interest and principal
payable monthly at an interest rate of 8.5%..................... 332,673
Promissory Note--interest and principal
payable monthly at an interest rate of 9%....................... 63,345
---------
$ 739,903
---------
---------
</TABLE>
A summary of the future maturities of long-term debt follows:
<TABLE>
<S> <C>
1998.............................................................. $ 63,726
1999.............................................................. 47,764
2000.............................................................. 51,381
2001.............................................................. 55,310
2002.............................................................. 42,985
Thereafter........................................................ 478,737
---------
Total............................................................. 739,903
Less current portion.............................................. (63,726)
---------
Total long term debt.............................................. $ 676,177
---------
---------
</TABLE>
F-127
<PAGE>
HVS PARTNERS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. ACCRUED AND OTHER CURRENT LIABILITIES:
Accrued and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Federal withholding tax payable....................................... $ 55,019 $ 18,391
FICA tax payable...................................................... 63,254 22,008
State withholding tax liabilities..................................... 8,719 12,176
Vacation and commission accrual....................................... 44,971 170,856
Bonus accrual......................................................... 33,100 59,400
Other................................................................. 30,826 31,398
---------- ----------
$ 235,889 $ 314,229
---------- ----------
---------- ----------
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
The Partnership incurred expenses of approximately $29,000, $25,000 and
$13,000 for the years ended December 31, 1997, 1996 and 1995, respectively,
under capital leases for radio broadcasting facilities and vehicles.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to their short-term nature. The
carrying amount of notes payable approximates fair value.
F-128
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Boards of Directors
JKJ Broadcasting, Inc.
Missouri River Broadcasting, Inc.
Ingstad Mankato, Inc.
James Ingstad Broadcasting, Inc.
Hometown Wireless, Inc.
Fargo, North Dakota
We have audited the accompanying combined balance sheets of JKJ
Broadcasting, Inc., Missouri River Broadcasting, Inc., Ingstad Mankato, Inc.,
James Ingstad Broadcasting, Inc. and Hometown Wireless, Inc. (the Companies) as
of December 31, 1997 and 1996 and the related combined statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1997. 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.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Companies as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Pierre, South Dakota
February 11, 1998, except for Note 12 as
to which the date is February 19, 1998
F-129
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
MARCH 31, ------------- -------------
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 4)
Current Assets
Cash.............................................................. $ 147,871 $ 143,691 $ 300,883
Accounts receivable, less allowance for doubtful accounts of
$121,416, $111,200 and $116,046, respectively................... 1,694,595 1,783,164 1,374,013
Prepaid expenses.................................................. 140,563 140,369 98,500
Salary advances and other assets.................................. 89,723 57,441 21,354
------------- ------------- -------------
Total current assets.......................................... 2,072,752 2,124,665 1,794,750
------------- ------------- -------------
Notes receivable, related parties (Note 7).......................... 4,883,156 2,063,806 1,519,309
Property and Equipment, at cost
Land.............................................................. 481,123 481,123 180,502
Buildings......................................................... 1,024,906 1,024,175 920,127
Equipment......................................................... 5,929,305 5,921,283 5,660,785
------------- ------------- -------------
7,435,334 7,426,581 6,761,414
Less accumulated depreciation..................................... 3,449,962 3,322,623 2,815,231
------------- ------------- -------------
3,985,372 4,103,958 3,946,183
------------- ------------- -------------
Other Assets (Note 3)
Cost in excess of net assets of businesses acquired, net of
amortization.................................................... 369,241 378,553 433,673
Organization costs, net of amortization........................... 214,902 220,062 240,699
Loan fees, net of amortization.................................... 56,442 57,520 61,834
Noncompete agreement, net of amortization......................... 205,546 217,375 264,693
Broadcast licenses, net of amortization........................... 1,633,569 1,670,455 1,841,348
------------- ------------- -------------
2,479,700 2,543,965 2,842,247
------------- ------------- -------------
$ 13,420,980 $ 10,836,394 $ 10,102,489
------------- ------------- -------------
------------- ------------- -------------
See Notes to Combined Financial Statements.
</TABLE>
F-130
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
MARCH 31,
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt (Note 4)..................... $ 450,556 $ 500,642 $ 605,238
Accounts payable.................................................. 212,583 277,202 198,568
Accrued compensation.............................................. 157,535 159,535 144,435
Accrued interest.................................................. 60,747 54,544 64,217
Other accrued expenses............................................ 117,959 82,676 59,824
------------- ------------- -------------
Total current liabilities..................................... 999,380 1,074,599 1,072,282
Notes Payable, related parties (Note 7)............................. 300,910 396,284 358,302
Long-Term Debt, less current maturities (Note 4).................... 11,143,493 8,463,493 8,055,824
Commitments (Note 5)
Stockholder's Equity (Note 6)
Common stock...................................................... 121,000 121,000 121,000
Additional paid-in capital........................................ 109,917 109,917 109,917
Retained earnings................................................. 746,280 671,101 385,164
------------- ------------- -------------
977,197 902,018 616,081
------------- ------------- -------------
$ 13,420,980 $ 10,836,394 $ 10,102,489
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See Notes to Combined Financial Statements.
F-131
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1998 1997 1997 1996 1995
------------- ------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................... $ 2,549,271 $ 2,245,442 $ 10,362,585 $ 9,679,658 $ 8,017,046
Less--agency commissions............... 114,735 107,360 448,417 396,165 285,161
------------- ------------- ------------- ------------ ------------
2,434,536 2,138,082 9,914,168 9,283,493 7,731,885
------------- ------------- ------------- ------------ ------------
Operating expenses:
Direct programming................... 447,481 460,300 1,778,786 1,723,535 1,510,232
Studio............................... 33,103 20,599 124,206 127,816 89,338
Sales................................ 833,015 754,948 3,240,346 2,810,494 2,270,613
Administrative....................... 816,635 799,114 3,293,360 3,131,579 2,570,160
------------- ------------- ------------- ------------ ------------
Total expenses..................... 2,130,234 2,034,961 8,436,698 7,793,424 6,440,343
------------- ------------- ------------- ------------ ------------
Operating income................... 304,302 103,121 1,477,470 1,490,069 1,291,542
Interest income, including related
party interest of $55,660, $17,654,
$88,141, $51,323 and $18,679,
respectively......................... 50,988 16,814 88,141 52,557 22,138
Interest expense, including related
party interest of $8,453, $9,375,
$22,748, $7,630 and $7,326,
respectively......................... (261,312) (207,713) (937,244) (853,907) (630,267)
Gain from antenna agreement (Note
10).................................. -- -- -- 100,000 50,000
------------- ------------- ------------- ------------ ------------
Net income (loss).................. $ 93,978 $ (87,778) $ 628,367 $ 788,719 $ 733,413
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
Pro forma data (unaudited):
Net income (loss) before income taxes
(credits), as reported............. $ 93,978 $ (87,778) $ 628,367 $ 788,719 $ 733,413
Pro forma provision for income taxes
(credits).......................... 36,300 (36,100) 244,500 306,600 286,700
------------- ------------- ------------- ------------ ------------
Pro forma net income (loss)........ $ 57,678 $ (51,678) $ 383,867 $ 482,119 $ 446,713
------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------ ------------
</TABLE>
See Notes to Combined Financial Statements.
F-132
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994..................................... $ 61,000 $ 94,602 $ (266,775) $ (111,173)
Net income..................................................... -- -- 733,413 733,413
Shareholder distributions...................................... -- -- (281,399) (281,399)
Issuance of 10,000 shares of Ingstad Mankato common stock...... 10,000 -- -- 10,000
---------- ---------- ----------- -----------
Balance, December 31, 1995..................................... 71,000 94,602 185,239 350,841
Net income..................................................... -- -- 788,719 788,719
Shareholder distributions...................................... -- -- (588,794) (588,794)
Issuance of 50,000 shares of Hometown Wireless, Inc. common
stock........................................................ 50,000 15,315 -- 65,315
---------- ---------- ----------- -----------
Balance, December 31, 1996..................................... 121,000 109,917 385,164 616,081
Net income..................................................... -- -- 628,367 628,367
Shareholder distributions...................................... -- -- (342,430) (342,430)
---------- ---------- ----------- -----------
Balance, December 31, 1997..................................... $ 121,000 $ 109,917 $ 671,101 $ 902,018
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Net income (unaudited)......................................... -- -- 93,978 93,978
Shareholder distributions (unaudited).......................... -- -- (18,799) (18,799)
---------- ---------- ----------- -----------
Balance, March 31, 1998 (unaudited)............................ $ 121,000 $ 109,917 $ 746,280 $ 977,197
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See Notes to Combined Financial Statements.
F-133
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------ -----------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss)................................... $ 93,978 $ (87,778) $ 628,367 $ 788,719 $ 733,413
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.......................................... 127,339 119,900 506,980 472,930 441,859
Amortization.......................................... 64,265 87,140 298,282 310,302 230,639
Provision for doubtful accounts....................... 35,107 67,683 231,777 227,481 104,194
Imputed interest accrued and added to notes
receivable, related parties......................... (55,660) (17,654) (88,141) (51,323) (18,679)
Imputed interest accrued and added to notes payable,
related parties..................................... 8,453 9,375 22,748 -- --
Change in assets and liabilities:
(Increase) decrease in accounts receivable............ 53,462 (81,442) (640,928) (399,199) (304,587)
(Increase) in prepaid expenses and salary advances.... (32,476) (78,463) (77,956) (32,198) (57,370)
Decrease in accrued interest receivable............... -- -- -- 2,234 --
Increase (decrease) in accounts payable and accrued
expenses............................................ (25,133) 129,063 106,913 (41,197) 178,254
(Decrease) in excess of outstanding checks over bank
balances............................................ -- -- -- -- (37,902)
----------- ----------- ----------- ---------- ----------
Net cash provided by operating activities............. 269,335 147,824 988,042 1,277,749 1,269,821
----------- ----------- ----------- ---------- ----------
Cash Flows From Investing Activities
Change in related party notes receivable, net......... (2,763,690) (553,791) (456,356) (2,320,601) (69,850)
Payment of organizational costs....................... -- -- -- (233,271) --
Purchase of property and equipment.................... (8,753) (74,086) (664,755) (515,309) (580,157)
Purchase of radio stations............................ -- -- -- (1,111,630) (413,370)
Purchase of license for station construction.......... -- -- -- (56,885) (10,000)
----------- ----------- ----------- ---------- ----------
Net cash (used in) investing activities............... (2,772,443) (627,877) (1,121,111) (4,237,696) (1,073,377)
----------- ----------- ----------- ---------- ----------
Cash Flows From Financing Activities
Principal payments made on related party notes
payable............................................. $ (113,827) $ -- $ -- $ -- $ (106,001)
Proceeds from related party notes payable............. -- -- 15,234 -- --
Payment of loan fees.................................. -- -- -- (64,709) (22,114)
Proceeds from long-term borrowings.................... 2,950,050 715,340 987,080 6,610,735 896,666
Principal payments on long-term borrowings............ (310,136) (354,958) (684,007) (3,103,068) (604,739)
Proceeds from issuance of common stock................ -- -- -- 65,315 10,000
Distributions to stockholder.......................... (18,799) (164,284) (342,430) (588,794) (281,399)
----------- ----------- ----------- ---------- ----------
Net cash provided by (used in) financing activities... 2,507,288 196,098 (24,123) 2,919,479 (107,587)
----------- ----------- ----------- ---------- ----------
Increase (decrease) in cash........................... 4,180 (283,955) (157,192) (40,468) 88,857
Beginning cash........................................ 143,691 300,883 300,883 341,351 252,494
----------- ----------- ----------- ---------- ----------
Ending cash........................................... $ 147,871 $ 16,928 $ 143,691 $ 300,883 $ 341,351
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Supplemental Disclosures of Cash Flow Information
Cash payments for interest............................ $ 255,108 $ 234,721 $ 924,169 $ 839,539 $ 583,027
</TABLE>
See Notes to Combined Financial Statements.
F-134
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: The Companies' operations are in the radio broadcasting
industry. The Companies own and operate radio stations in Mankato, New Ulm,
Owatonna, Sleepy Eye, Springfield and Waseca, Minnesota and Mason City, Charles
City, New Hampton, Osage, Iowa and Bismarck, North Dakota. The Companies grant
credit to customers primarily in the immediate vicinity of each station.
A summary of the Companies' significant accounting policies is as follows:
PRINCIPLES OF COMBINATION: The combined financial statements include the
accounts of JKJ Broadcasting, Inc., Missouri River Broadcasting, Inc., Ingstad
Mankato, Inc. (IMI), James Ingstad Broadcasting, Inc. (JIB) and Hometown
Wireless, Inc. (HW), which are under common ownership, control and financing.
All material related party balances and transactions have been eliminated in the
combination. Combined financial statements for 1995 include the accounts of
James Ingstad Broadcasting of Iowa, Inc. This entity was merged with James
Ingstad Broadcasting, Inc. during 1996 and operates under this corporate name.
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 vary from those estimates.
REVENUE RECOGNITION: Revenues are earned primarily by selling advertising
air time on the radio. The Companies recognize revenue as the advertising time
is broadcast.
CONCENTRATIONS OF CREDIT RISK: Financial instruments, which potentially
subject the Companies to concentration of credit risk, consist principally of
uncollateralized trade receivables. The Companies perform ongoing credit
evaluations of their customers' financial conditions but do not require
collateral to support customer receivables. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
TRADE AGREEMENTS: The Companies trade commercial air time for goods and
services used principally for promotional, sales and other business activities.
An asset and liaiblity is recorded at the fair market value of the goods or
services received. Trade revenue is recorded and the liability relieved when
commercials are broadcast and trade expense is recorded and the assets relieved
when goods or services are received or used. The amount of trade agreements
included in revenue and expense was approximately $198,000, $156,000, $773,000,
$705,000 and $487,000 as of March 31, 1998 and 1997, December 31, 1997, 1996 and
1995, respectively.
DEPRECIATION: It is the policy of the Companies to provide depreciation
using either the straight-line method or accelerated methods based on the
estimated useful life of individual units. The estimated useful lives are as
follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings................................................................................................. 19-20
Equipment................................................................................................. 5-10
</TABLE>
F-135
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AMORTIZATION: The cost in excess of net assets of businesses acquired is
being amortized by the straight-line method over fifteen to twenty years.
Broadcast licenses and noncompete agreement are being amortized by the
straight-line method over ten to fifteen years. The Companies assess long-lived
assets for impairment under FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
Intangible assets are therefore included in impairment evaluations when events
or circumstances exist that indicate the carrying amount of the assets may not
be recoverable. Organization costs are being amortized by the straight-line
method over ten years. Loan fees are being amortized by the straight line method
over the term of the loan. Amortization of assets acquired under capital leases
is included in depreciation expense.
PRO FORMA INCOME TAXES (UNAUDITED): The unaudited pro forma adjustment to
reflect income taxes in the accompanying statement of income is for
informational purposes only and has been calculated based on the estimated
effective tax rate in each year, assuming the Companies had been subject to
corporate federal and state income taxes in each year presented.
INCOME TAX STATUS: Each of the Companies, with the consent of their
stockholder, have elected to be taxed under sections of the federal and state
income tax laws, which provide that in lieu of corporation income taxes, the
stockholder separately accounts for the Companies' items of income, deductions,
losses and credits. Therefore, these statements do not include any provision for
corporation income taxes (refunds). As of December 31, 1997, the Company's
reported net assets exceed their tax basis by approximately $1,270,000.
Accordingly, if the elections were terminated on that date, net deferred tax
liabilities totaling approximately $432,000 would be recognized by charges to
income tax expense. Also, no provision has been made for any amounts which may
be advanced or paid as dividends to the stockholder to assist the stockholder in
paying personal income taxes on the income of the Companies.
INTERIM FINANCIAL DATA (UNAUDITED): The financial statements and notes
related thereto at March 31, 1998 and for the three month periods ended March
31, 1997 and 1998 are unaudited, but in the Companies' opinion reflect all
adjustments consisting only of normal recurring adjustments necessary for a fair
presentation. The operating results for the Interim periods are not necessarily
indicative of the operating results to be expected for a full year.
NOTE 2. STATION PURCHASES
The Companies have acquired several operating radio stations during 1996 and
1995 as described in the following paragraphs. All acquisitions were accounted
for as purchases and the results of operations from the dates of purchase are
included in the accompanying combined financial statements.
Hometown Wireless, Inc. was formed in 1995 and purchased two Minnesota radio
stations in June 1996. Both are operated in connection with a third nearby
Minnesota radio station. The purchase price of $1,000,000 was allocated to the
assets acquired and consisted of a $250,000 cash down payment with the remaining
$750,000 financed by the seller.
Ingstad Northern Iowa Broadcasting, Inc. (INIBI), a related entity, entered
into an agreement to purchase four Iowa radio stations. INIBI assigned all
rights under this agreement to JIB in 1996. The
F-136
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. STATION PURCHASES (CONTINUED)
purchase in the amount of $875,000, less a cash down payment of $13,370 paid in
1995, occurred in April 1996 and was financed from the loan with a commercial
finance corporation described in Note 4.
Ingstad Mankato, Inc. purchased a Minnesota radio station in January 1995.
The station had previously been and continues to be operated under a Local
Marketing Agreement (LMA) by James Ingstad Broadcasting, Inc. Under the LMA, JIB
operates the radio station which is licensed to the owner, now IMI, and pays a
monthly fee to the owner. All revenues and expenses relating to the station
while operated under a LMA are recognized by JIB. The purchase price of
$1,741,169, $1,341,169 of which was financed by the seller, was allocated to the
assets acquired.
The purchase price of business acquisitions was allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
<S> <C> <C>
1996 1995
------------ -------------
Accounts receivable.................................................................. $ 25,000 $ --
Property and equipment............................................................... 1,040,000 550,000
Costs in excess of fair value of net assets acquired................................. -- 366,169
Other intangibles.................................................................... 810,000 825,000
Issuance of notes payable............................................................ (750,000) (1,341,169)
------------ -------------
Total cash purchase price............................................................ 1,125,000 400,000
Change in acquisition deposits....................................................... (13,370) 13,370
------------ -------------
$ 1,111,630 $ 413,370
------------ -------------
------------ -------------
</TABLE>
NOTE 3. OTHER ASSETS
Accumulated amortization for other assets as of March 31, 1998, December 31,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 ------------------------
(UNAUDITED) 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Cost in excess of net assets of businesses acquired....................... $ 294,116 $ 284,804 $ 229,684
Organization costs........................................................ 43,164 38,004 17,367
Loan fees................................................................. 8,268 7,190 2,876
Noncompete agreement...................................................... 290,335 278,506 231,188
Broadcast licenses........................................................ 485,592 448,706 277,813
------------ ------------ ----------
$ 1,121,475 $ 1,057,210 $ 758,928
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
F-137
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 --------------------------
(UNAUDITED) 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Term note payable to a commercial finance corporation, interest rate
at 4.5 percent above the 30 day Commercial Paper rate, paid monthly.
Principal payments monthly in amounts ranging from $30,500 in 1996
to $47,000 in 2001. (1) (2) (3)..................................... $ 8,767,100 $ 6,037,000 $ 6,006,000
9% Seller financed term note payable, due in monthly payments of
$12,021, including interest to January 2000, followed by payments of
$19,468, including interest to January 2007, at which time all
remaining principal and accrued interest will be payable in full,
secured by the assets and stock of Ingstad Mankato, Inc. and the
personal guarantee of stockholder................................... 1,255,271 1,262,973 1,292,718
8% Seller financed term note payable, due in monthly payments of
$7,167, including interest to June 2011, at which time all remaining
principal and accrued interest will be payable in full, secured by
blanket security interest on all assets purchased, a first mortgage
on real estate, and the personal guarantee of the stockholder (Note
6).................................................................. 701,318 708,696 736,777
Term note payable to a bank, variable interest rate of 1% below prior
months prime rate, due in monthly payments of $8,172, including
interest, through April 2004, at which time all remaining principal
and accrued interest will be payable in full, secured by the assets
and stock of Missouri River Broadcasting, Inc. and the personal
guarantee of the stockholder........................................ 461,806 475,005 262,920
9% Seller financed term note payable, due in monthly payments of
$4,424, including interest, beginning June 1998 through May 2005,
secured by personal guarantee of stockholder........................ 275,000 275,000 --
Other bank loans at 10% to 10.5% interest rate, payable in monthly
payments ending at various dates through July 1999, secured by
technical equipment................................................. 87,803 120,203 208,179
Other debt obligations................................................ 45,751 85,258 154,468
------------- ------------ ------------
11,594,049 8,964,135 8,661,062
Less current maturities............................................... 450,556 500,642 605,238
------------- ------------ ------------
$ 11,143,493 $ 8,463,493 $ 8,055,824
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
F-138
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. LONG-TERM DEBT (CONTINUED)
- ------------------------
(1) The term note payable to a commercial finance corporation is secured by all
James Ingstad Broadcasting, Inc. equipment, accounts receivable, the stock
of JIB, the personal guarantee of the stockholder, and is also secured by a
collateral assignment of life insurance on the life of the stockholder in an
amount not less than $1,500,000. The loan agreement also provides for a
penalty for early payment of the note and restrictive debt covenants.
The amounts loaned to affiliates exceeded the amount permitted in the loan
covenants during 1996; however, the Companies received a waiver of the
covenant from the lender.
Subsequent to December 31, 1997, the terms of this note were renegotiated.
The interest rate will be reduced to 4.25% above the 30 day commercial paper
rate and monthly payments will be reduced to $14,500 beginning in February
1998 increasing to $21,350 in February 2002 with final payment in January
2003.
(2) Subsequent to December 31, 1997, James Ingstad Broadcasting, Inc. negotiated
additional financing with the commercial finance corporation in the amount
of $2,672,000 with interest at 4.25% above the 30 day commercial paper rate
for high-grade unsecured notes sold through dealers by major corporations.
This agreement provides for JIB to make loans to certain affiliates and to
enable such affiliates to acquire certain radio broadcast properties as well
as fund working capital needs of JIB and its affiliates. This loan is
payable in monthly principal payments ranging from $6,950 in 1998 to $10,250
in 2002, plus interest. The security for this loan is the same as (1) above.
(3) Also subsequent to December 31, 1997, James Ingstad Broadcasting, Inc.
negotiated a line of credit with the commercial finance corporation in the
amount of $1,450,000 with interest at 4.25% above the 30 day commercial
paper rate for high-grade unsecured notes sold through dealers by major
corporations. Each advance shall be payable in monthly installments based on
a percentage of the outstanding principal balance from the date of the
advance continuing until January 2003 when all remaining outstanding
principal and accrued interest will be due and payable in full. The security
for this loan is the same as (1) above.
Maturities of long-term debt as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................................ $ 500,642
1999............................................................................ 519,898
2000............................................................................ 583,736
2001............................................................................ 630,233
2002............................................................................ 693,546
Thereafter...................................................................... 6,036,080
---------
$8,964,135
---------
---------
</TABLE>
F-139
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. COMMITMENTS
The following is a schedule by year of the minimum future rentals under
noncancelable operating leases and minimum future payments under noncompetition
and consulting agreements as of December 31, 1997:
<TABLE>
<CAPTION>
YEAR LEASES AGREEMENTS TOTAL
- ------------------------------------------------------------------------------- --------- ----------- ---------
<S> <C> <C> <C>
1998........................................................................... $ 22,032 $ 21,292 $ 43,324
1999........................................................................... 15,364 21,296 36,660
2000........................................................................... 700 -- 700
2001........................................................................... 700 -- 700
2002........................................................................... 700 -- 700
Thereafter..................................................................... 10,500 -- 10,500
--------- ----------- ---------
$ 49,996 $ 42,588 $ 92,584
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
Total rental expense under all operating leases was $73,756, $83,356 and
$80,374 for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 6. STOCKHOLDER'S EQUITY
Common stock, all of which is owned by the same individual, consists of the
following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
PAR SHARES SHARES ----------------------
VALUE AUTHORIZED ISSUED 1997 1996
--------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
JKJ Broadcasting, Inc. .................................. $ 1 100,000 1,000 $ 1,000 $ 1,000
Missouri River Broadcasting, Inc. ....................... $ 1 200,000 25,000 25,000 25,000
Ingstad Mankato, Inc. ................................... $ 1 250,000 10,000 10,000 10,000
James Ingstad Broadcasting, Inc. ........................ $ 1 100,000 35,000 35,000 35,000
Hometown Wireless, Inc. ................................. $ 1 100,000 50,000 50,000 50,000
----------- ---------- ---------- ----------
750,000 121,000 $ 121,000 $ 121,000
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
Additional paid-in capital and retained earnings by Company follows:
<TABLE>
<CAPTION>
ADDITIONAL PAID-IN RETAINED EARNINGS
CAPITAL (DEFICIT)
---------------------- -----------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---------- ---------- ----------- ----------
JKJ Broadcasting, Inc. ......................................... $ -- $ -- $ 38,618 $ 11,272
Missouri River Broadcasting, Inc. .............................. -- -- 278,215 231,429
Ingstad Mankato, Inc. .......................................... -- -- 80,605 50,210
James Ingstad Broadcasting, Inc. ............................... 94,602 94,602 381,678 90,704
Hometown Wireless, Inc. ........................................ 15,315 15,315 (108,015) 1,549
---------- ---------- ----------- ----------
$ 109,917 $ 109,917 $ 671,101 $ 385,164
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
F-140
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. RELATED PARTY TRANSACTIONS NOT DISCLOSED ELSEWHERE
Notes receivable from parties related through common ownership as of March
31, 1998, December 31, 1997 and 1996 consist of the following unsecured loans
which bear interest at the annual applicable federal rate. None of the loans
include structured repayment terms.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 --------------------------
(UNAUDITED) 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Radio Ingstad of Iowa, Inc. ............................................ $ 263,164 $ 258,509 $ 298,785
Ingstad Broadcasting, Inc. ............................................. 935,689 993,075 1,008,501
Radio Iowa Broadcasting, Inc. .......................................... 2,905,975 618,413 109,184
Stockholder............................................................. 778,328 193,809 102,839
------------ ------------ ------------
$ 4,883,156 $ 2,063,806 $ 1,519,309
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Notes payable to parties related through common ownership at March 31, 1998,
December 31, 1997 and 1996 consist of the following unsecured loans which bear
interest at the annual applicable federal rate. None of the loans include
structured repayment terms.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 ----------------------
(UNAUDITED) 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Stockholder................................................................. $ 263,910 $ 383,089 $ 319,707
Ingstad Broadcasting, Inc. ................................................. 37,000 13,195 38,595
----------- ---------- ----------
$ 300,910 $ 396,284 $ 358,302
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The Companies use the management services of their stockholder. The amount
of charges by the stockholder included in corporate office expense for travel,
postage, rent, staff salaries and other business expenses was $33,000, $14,400,
$85,253, $98,572 and $89,616 for the periods ended March 31, 1998 and 1997,
December 31, 1997, 1996 and 1995, respectively.
NOTE 8. DEFINED CONTRIBUTION RETIREMENT PLAN
The Companies have a 401(k) plan covering substantially all their employees,
which allows eligible employees to contribute a portion of their compensation to
the plan. The employer companies may make an additional contribution subject to
the terms of the plan. The Companies did not make any contribution to the plan
in 1997, 1996 and 1995.
NOTE 9. SELF INSURED HEALTH COVERAGE
The Company is self insured for health care up to predetermined amounts
above which third party insurance applies.
F-141
<PAGE>
JKJ BROADCASTING, INC.
MISSOURI RIVER BROADCASTING, INC.
INGSTAD MANKATO, INC.
JAMES INGSTAD BROADCASTING, INC.
HOMETOWN WIRELESS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. GAIN FROM ANTENNA AGREEMENT
James Ingstad Broadcasting, Inc. entered into an antenna agreement in
December 1995 whereby JIB agreed to elect to allow the tower of the other party
to be modified from directional to nondirectional pending FCC approval and the
results of interference on JIB's broadcast signal within certain defined areas.
The tests of interference would not be determined until modifications to the
other facility were complete and tested. The agreement provided for JIB to
receive a nonrefundable $50,000 initial deposit and $100,000 upon receiving
results of tests of interference and FCC approval. The initial $50,000 was
reported as gain from antenna agreement for the year ended December 31, 1995.
The remaining $100,000 was reported in 1996 when the results of the tests were
known and the FCC approved the agreement terms.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures of Fair Value of Financial
Instruments", requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. Statement No. 107 provides exclusions for certain trade receivables,
trade payables and accruals and all nonfinancial assets and liabilities from its
disclosure requirements.
Cash approximates fair value because of its highly liquid and short term
nature. The aggregate fair values of the notes receivable from and notes payable
to related parties approximates their carrying amounts as there are no
structured repayment terms and interest is adjusted annually. The carrying
amounts reported for the variable rate note payable to a commercial finance
corporation and notes payable to banks and sellers approximates their fair
values.
NOTE 12. SUBSEQUENT SALE OF BUSINESS
On February 19, 1998, the Companies and their shareholder and Radio Iowa
Broadcasting, Inc. agreed to sell all radio station assets and liabilities, as
defined in the agreements, to an outside party for approximately $49,500,000, of
which $40,200,000 is allocated to these Companies. Approval of the sale must be
received from the Federal Communications Commission ("FCC"). Closing on the sale
will occur on the last day of the month in which the FCC approves the assignment
application.
F-142
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Cumulus Media, Inc.
In our opinion, the accompanying balance sheet and the related statement of
operations, of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of Jan-Di Broadcasting, Inc.
(the "Company") at March 31, 1998, June 30, 1997 and June 30, 1996, and the
results of its operations and its cash flows for the nine months ended March 31,
1998 and for each of the years ended June 30, 1997 and 1996 in conformity with
generally accepted accounting principles. 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
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
April 30, 1998
F-143
<PAGE>
JAN-DI BROADCASTING, INC.
BALANCE SHEETS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, --------------------
1998 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 303 $ 181 $ 195
Accounts receivable, less allowance for doubtful accounts of $20................. 234 292 346
Note receivable from KMXY-FM..................................................... -- -- 213
Prepaid and other current assets................................................. 14 11 9
----------- --------- ---------
Total current assets........................................................... 551 484 763
Property and equipment, net........................................................ 440 496 277
Intangible assets, net............................................................. 193 215 166
----------- --------- ---------
Total assets................................................................... $ 1,184 $ 1,195 $ 1,206
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 50 $ 14 $ 12
Current portion of notes payable................................................. 24 60 34
Commissions payable.............................................................. 45 63 20
Accrued and other current liabilities............................................ 24 36 19
----------- --------- ---------
Total current liabilities...................................................... 143 173 85
Long-term liabilities:
Notes payable.................................................................... 486 505 515
----------- --------- ---------
Total liabilities.............................................................. 629 678 600
----------- --------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock, $2.60 par value, 50,000 shares authorized, 20,000 issued and
outstanding.................................................................... 52 52 52
Retained earnings................................................................ 503 465 554
----------- --------- ---------
Total shareholders' equity..................................................... 555 517 606
----------- --------- ---------
Total liabilities and shareholders' equity..................................... $ 1,184 $ 1,195 $ 1,206
----------- --------- ---------
----------- --------- ---------
</TABLE>
See Notes to Financial Statements.
F-144
<PAGE>
JAN-DI BROADCASTING, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED FOR THE YEAR ENDED
MARCH 31, JUNE 30,
---------------------- --------------------
1998 1997 1997 1996
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues....................................................... $ 1,484 $ 1,523 $ 2,087 $ 1,939
Less: agency commissions....................................... (87) (86) (116) (111)
--------- ----------- --------- ---------
Net revenues............................................... 1,397 1,437 1,971 1,828
Operating expenses:
Programming.................................................. 292 292 391 304
Sales and promotions......................................... 331 385 570 419
Technical.................................................... 111 101 145 105
General and administrative................................... 491 432 627 524
Trade........................................................ 15 6 13 20
Depreciation and amortization................................ 86 68 112 53
--------- ----------- --------- ---------
Total operating expenses................................... 1,326 1,284 1,858 1,425
--------- ----------- --------- ---------
Income from operations......................................... 71 153 113 403
Interest expense............................................... (30) (38) (50) (43)
Other income, net.............................................. (1) 6 27 13
--------- ----------- --------- ---------
Net income..................................................... $ 40 $ 121 $ 90 $ 373
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
See Notes to Financial Statements.
F-145
<PAGE>
JAN-DI BROADCASTING, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------------- ------------- ---------
<S> <C> <C> <C>
Balance at June 30, 1995........................................................... $ 52 $ 426 $ 478
Net income......................................................................... -- 373 373
Dividends.......................................................................... -- (245) (245)
--- ----- ---------
Balance at June 30, 1996........................................................... 52 554 606
Net income......................................................................... -- 90 90
Dividends.......................................................................... -- (179) (179)
--- ----- ---------
Balance at June 30, 1997........................................................... $ 52 $ 465 $ 517
Net income......................................................................... -- 40 40
Dividends.......................................................................... -- (2) (2)
--- ----- ---------
Balance at March 31, 1998.......................................................... $ 52 $ 503 $ 555
--- ----- ---------
--- ----- ---------
</TABLE>
See Notes to Financial Statements.
F-146
<PAGE>
JAN-DI BROADCASTING, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED FOR THE YEAR ENDED
MARCH 31, JUNE 30,
------------------------ --------------------
1998 1997 1997 1996
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income........................................................ $ 40 $ 121 $ 90 $ 373
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 86 68 112 53
Decrease (increase) in accounts receivable...................... 58 45 54 (111)
Decrease (increase) in prepaid expenses and other current
assets........................................................ (3) (3) (2) 54
Increase in accounts payable.................................... 36 63 2 3
Decrease in commissions payable................................. (18) (15) -- --
Increase (decrease) in accrued and other liabilities............ (12) (6) 60 (18)
--------- ----- --- ---------
Net cash provided by operating activities......................... 187 273 316 354
--------- ----- --- ---------
Cash flows from investing activities:
Purchases of property and equipment............................... (8) (211) (92) (434)
Acquisition of KMXY-FM............................................ -- (52) (52) --
--------- ----- --- ---------
Cash used in investing activities................................. (8) (263) (144) (434)
--------- ----- --- ---------
Cash flows from financing activities:
Proceeds from notes payable....................................... -- 25 27 305
Repayments of notes payable....................................... (55) (40) (34) (29)
Proceeds from notes receivable.................................... -- 213 -- --
Dividends paid to shareholders.................................... (2) (122) (179) (245)
--------- ----- --- ---------
Net cash (used in) provided by financing activities............... (57) 76 (186) 31
--------- ----- --- ---------
Increase (decrease) in cash and cash equivalents.................... 122 86 (14) (49)
Cash and cash equivalents at beginning of period.................... 181 195 195 244
--------- ----- --- ---------
Cash and cash equivalents at end of period.......................... $ 303 $ 281 $ 181 $ 195
--------- ----- --- ---------
--------- ----- --- ---------
Supplemental disclosures of cash flow information:
Cash paid for interest.............................................. $ 35 $ 40 $ 54 $ 43
--------- ----- --- ---------
--------- ----- --- ---------
Non-cash operating activities:
Trade revenue................................................... $ 3 $ 11 $ 20 $ 16
--------- ----- --- ---------
--------- ----- --- ---------
Trade expense................................................... $ 15 $ 6 $ 13 $ 20
--------- ----- --- ---------
--------- ----- --- ---------
</TABLE>
See Notes to Financial Statements.
F-147
<PAGE>
JAN-DI BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (DOLLARS IN 000'S)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Jan-Di Broadcasting, Inc. (the "Company") is a broadcasting company formed
in 1980 to own and operate radio stations in Western Colorado. As of March 31,
1998, the Company owned and operated three FM stations, KEKB-FM, KBKL-FM and
KMXY-FM.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flow are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Broadcasting towers and equipment............................ 7 years
Office furniture and equipment............................... 6 years
Leasehold improvement........................................ Term of
lease
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include FCC licenses and non-compete agreements.
Intangible assets are stated at cost and are being amortized using the
straight-line method over the estimated useful life or contract term for periods
not exceeding 15 years. The Company evaluates the carrying value of intangibles
periodically in relation to the projected future undiscounted net cash flows of
the related businesses.
INCOME TAXES
The Company has elected to be treated as an S-Corporation for federal income
tax purposes. Under this election the income or loss of the S-Corporation is
included in the tax returns of the individual shareholders. Accordingly, federal
income taxes are not included in the accompanying financial statements.
F-148
<PAGE>
JAN-DI BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (DOLLARS IN 000'S) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized as advertising air time is broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
2. ACQUISITION
On July 23, 1996, the Company acquired the intangible assets of Station
KMXY-FM in Grand Junction, Colorado for total consideration of $77 including a
non-compete agreement for $25. The acquisition was accounted for using the
purchase method of accounting.
The Company's results of operations for the year ended June 30, 1997 and
1996 include the results of operations of the KMXY-FM from the date of
acquisition. The following unaudited pro forma statement of operations data give
effect to the acquisition as if it had occurred on July 1, 1995. In addition,
depreciation and amortization has been increased for each period to reflect
initial purchase price allocations as if the acquisition had occurred as of July
1, 1995.
<TABLE>
<CAPTION>
PRO FORMA FOR THE YEARS
ENDED JUNE 30,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Net revenues........................................................ $ 1,987 $ 2,084
----------- -----------
----------- -----------
Income from operations.............................................. $ 116 $ 449
----------- -----------
----------- -----------
Net income.......................................................... $ 103 $ 419
----------- -----------
----------- -----------
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
------------------------ --------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
--------- ------------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Broadcasting towers and equipment........................ $ 872 $ 837 $ 857 $ 593
Office furniture and equipment........................... 57 54 57 35
Leasehold improvements................................... 60 50 67 50
--------- ----- --------- ---------
989 941 981 678
Less accumulated depreciation............................ (549) (459) (485) (401)
--------- ----- --------- ---------
Property and equipment, net.............................. $ 440 $ 482 $ 496 $ 277
--------- ----- --------- ---------
--------- ----- --------- ---------
</TABLE>
F-149
<PAGE>
JAN-DI BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (DOLLARS IN 000'S) (CONTINUED)
3. PROPERTY AND EQUIPMENT: (CONTINUED)
Depreciation expense for the years ended June 30, 1997 and 1996 was $84 and
$43, respectively, and for the nine months ended March 31, 1998 and 1997 was
$64 and (unaudited) $58, respectively.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
------------------------ --------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
--------- ------------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
FCC licenses............................................. $ 260 $ 208 $ 260 $ 208
Non-compete agreement.................................... 25 25 25 --
--------- ----- --------- ---------
285 233 285 208
Less accumulated amortization............................ (92) (52) (70) (42)
--------- ----- --------- ---------
Intangible assets, net................................... $ 193 $ 181 $ 215 $ 166
--------- ----- --------- ---------
--------- ----- --------- ---------
</TABLE>
Amortization expense for the years ended June 30, 1997 and 1996 was $28 and
$10, respectively, and for the nine months ended March 31, 1998 and 1997 was
$22 and (unaudited) $10, respectively.
5. RELATED PARTY TRANSACTIONS:
The Company leases business offices and studio space from the shareholders.
Monthly rental paid by the Company is $2.5 under a month to month agreement,
whereby the Company is responsible for all insurance, maintenance and utilities.
6. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $42 and $40, respectively,
for the years ended June 30, 1997 and 1996, and for the nine months ended March
31, 1998 and 1997 (unaudited) under operating leases for equipment and
broadcasting facilities. Future minimum annual payments under the non-cancelable
operating equipment leases and agreements as of March 31, 1998, are as follows:
<TABLE>
<CAPTION>
MARCH 31,
- ------------------------------------------------------------------------------------
<S> <C>
1999 $ 6
-----
-----
</TABLE>
F-150
<PAGE>
JAN-DI BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (DOLLARS IN 000'S) (CONTINUED)
7. NOTES PAYABLE:
Outstanding amounts under the Company's long-term debt arrangements consist
of the following:
<TABLE>
<CAPTION>
MARCH JUNE 30,
----------- --------------------
<S> <C> <C> <C>
1998 1997 1996
----------- --------- ---------
Note payable to Norwest Bank of Colorado, $538 principal, interest at prime
rate plus 1.5% (9.5% and 9.25% at June 30, 1997 and 1996, respectively
and 10.0% and 9.8% at March 31, 1998 and 1997, respectively) due June 14,
2006, secured by accounts receivable, inventory, and equipment........... $ 479 $ 505 $ 493
Note payable to Norwest Bank of Colorado with interest at 9.5%, due January
13, 2001, secured by Jeep Cherokee....................................... 11 13 --
Note payable with interest at 8.0%, due March 1, 1998, secured by
equipment................................................................ -- 22 56
Note payable with interest imputed at average funds rate, due December,
1998..................................................................... 20 25 --
----- --------- ---------
510 565 549
Less current maturities.................................................... (24) (60) (34)
----- --------- ---------
Long-term debt............................................................. $ 486 $ 505 $ 515
----- --------- ---------
----- --------- ---------
</TABLE>
A summary of the future maturities of long-term debt follows:
<TABLE>
<CAPTION>
MARCH 31,
- --------------------------------------------------------------------------------------
<S> <C>
1999.................................................................................. $ 24
2000.................................................................................. 29
2001.................................................................................. 51
2002.................................................................................. 54
2003.................................................................................. 56
Thereafter............................................................................ 296
---------
$ 510
---------
---------
</TABLE>
The Company also has a revolving line of credit with Norwest Bank of
Colorado which provides short-term borrowings up to $100. Interest on advances
is payable monthly at one percent above the prime rate. The line of credit is
reviewed annually by the bank, contains no fee for the unused balance and
expires November 1, 1998. There were no outstanding balances on this line of
credit as of March 31, 1998 and June 30, 1997 and 1996.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to their short-term nature. The
fair value of note payable are estimated based on current market rates and
approximates the carrying value.
9. SUBSEQUENT EVENTS
On January 5, 1998, the Company entered into an asset purchase agreement to
sell substantially all of the assets of the Company to Cumulus Media Inc. (a
wholly-owned subsidiary of Cumulus Holdings, Inc.) for $5 million.
F-151
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of income and retained earnings and of cash flows present
fairly, in all material respects, the financial position of K--Country, Inc. at
December 31, 1997 and June 30, 1997, and the results of its operations and its
cash flows for the six months ended December 31, 1997 and the year ended June
30, 1997 in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 16, 1998
F-152
<PAGE>
K-COUNTRY, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, JUNE 30,
1998 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 160,852 $ 149,904 $ 76,153
Accounts receivable, less allowance for doubtful accounts of $11,880,
$11,880, and $11,880, respectively................................. 196,136 363,806 271,236
Prepaid expenses..................................................... 2,131 4,123 4,973
------------ ------------ ------------
Total current assets............................................. 359,119 517,833 352,362
Property and equipment, net............................................ 630,123 652,398 706,711
Intangible assets, net of accumulated amortization of $105,409,
$94,264, and $71,876, respectively................................... 529,241 540,386 562,774
------------ ------------ ------------
Total asset...................................................... $ 1,518,483 $1,710,617 $ 1,621,847
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable on demand to stockholder................................ $ 1,161,157 $1,206,156 $ 1,296,156
Accounts payable..................................................... 33,571 22,786 41,862
Accrued salaries and commissions payable............................. 20,268 20,217 22,342
Income taxes payable................................................. 1,433 67,735 2,206
Other accrued expenses............................................... 8,256 7,183 11,998
------------ ------------ ------------
Total current liabilities........................................ 1,224,685 1,324,077 1,374,564
------------ ------------ ------------
Commitment and contingencies
Stockholders' equity:
Common stock, $1 par value, 5,000 shares authorized, 500 issued and
outstanding........................................................ 500 500 500
Retained earnings.................................................... 293,298 386,040 246,783
------------ ------------ ------------
Total stockholders' equity....................................... 293,798 386,540 247,283
------------ ------------ ------------
Total liabilities and stockholders' equity....................... $ 1,518,483 $1,710,617 $ 1,621,847
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Combined Financial Statements.
F-153
<PAGE>
K-COUNTRY, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED MARCH 31 ENDED
---------------------- DECEMBER 31, YEAR ENDED
1998 1997 1997 JUNE 30, 1997
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues:................................................... $ 304,269 $ 504,487 $1,106,178 $ 1,822,078
Less: agency commissions.................................. (32,607) (10,070) (58,687) (128,526)
---------- ---------- ------------ -------------
Net revenues.......................................... 271,662 494,417 1,047,491 1,693,552
Operating expenses:
Programming............................................... 109,577 102,415 189,073 423,610
Magazine expenses......................................... -- 58,309 135,733 261,650
Selling and promotions expenses........................... 145,553 87,051 250,302 459,242
General and administrative................................ 126,358 116,339 186,167 308,426
Depreciation and amortization............................. 33,420 36,083 81,430 159,649
---------- ---------- ------------ -------------
Total operating expenses.............................. 414,908 400,197 842,705 1,612,577
---------- ---------- ------------ -------------
Income before income taxes.................................. (143,246) 94,220 204,786 80,975
Income taxes (expense) benefit.............................. 50,504 (27,513) (65,529) (24,777)
---------- ---------- ------------ -------------
Net income (loss)........................................... (92,742) 66,707 139,257 56,198
Beginning retained earnings................................. 386,040 196,895 246,783 190,585
---------- ---------- ------------ -------------
Ending retained earnings.................................... $ 293,298 $ 263,602 $ 386,040 $ 246,783
---------- ---------- ------------ -------------
---------- ---------- ------------ -------------
</TABLE>
See Notes to Combined Financial Statements.
F-154
<PAGE>
K-COUNTRY, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED MARCH 31 ENDED
---------------------- DECEMBER 31, YEAR ENDED
1998 1997 1997 JUNE 30, 1997
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
UNAUDITED
Cash flows from operating activities:
Net income (loss)......................................... $ (92,742) $ 66,707 $ 139,257 $ 56,198
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization......................... 33,420 36,083 81,430 159,649
(Increase) decrease in accounts receivable............ 167,670 (97,389) (92,570) (5,435)
(Increase) decrease in prepaid insurance.............. 1,992 (16,505) 850 5,311
Increase (decrease) in accounts payable............... 10,785 12,400 (19,076) (80,790)
Increase (decrease) in accrued liabilities............ 1,125 (2,750) (6,939) (10,677)
Increase (decrease) in income taxes payable........... (66,302) 27,513 65,529 1,095
---------- ---------- ------------ -------------
Net cash provided by operating activities........... 55,948 26,059 168,481 125,351
---------- ---------- ------------ -------------
Cash flows from investing activities:
Acquisition of radio station.............................. -- -- -- (804,000)
Purchases of property and equipment....................... -- (8,169) (4,730) (65,757)
---------- ---------- ------------ -------------
Cash used for investing activities........................ -- (8,169) (4,730) (869,757)
---------- ---------- ------------ -------------
Cash flows from financing activities:
Repayment of note payable to stockholder.................. (45,000) (45,000) (90,000) (165,000)
Proceeds from borrowings from stockholder................. -- 28,303 -- 895,538
---------- ---------- ------------ -------------
Cash provided by financing activities..................... (45,000) (16,697) (90,000) 730,538
---------- ---------- ------------ -------------
Decrease in cash and cash equivalents....................... 10,948 1,193 73,751 (13,868)
Cash and cash equivalents at beginning of period............ 149,904 97,591 76,153 90,021
---------- ---------- ------------ -------------
Cash and cash equivalents at end of period.................. $ 160,852 $ 98,784 $ 149,904 $ 76,153
---------- ---------- ------------ -------------
---------- ---------- ------------ -------------
Supplemental disclosures of cash flow information:
Cash paid for interest.................................... $ -- $ -- $ -- $ --
---------- ---------- ------------ -------------
---------- ---------- ------------ -------------
Cash paid for income taxes................................ $ 15,798 $ 24,777 $ -- $ 24,777
---------- ---------- ------------ -------------
---------- ---------- ------------ -------------
Non-cash operating activities:
Trade revenue............................................. -- -- $ 84,113 $ 125,080
---------- ---------- ------------ -------------
---------- ---------- ------------ -------------
Trade expense............................................. -- -- $ 107,805 $ 159,890
---------- ---------- ------------ -------------
---------- ---------- ------------ -------------
</TABLE>
See Notes to Combined Financial Statements.
F-155
<PAGE>
K--COUNTRY, INC.
COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
The combined financial statements of K--Country, Inc. include the operations
of radio stations WEGC-FM, WJAD-FM, WKAK-FM and WALG-FM located in Albany, GA
and the operations of Albany Magazine. K--Country, Inc. owns radio stations
WKAK-FM and WALG-AM. WEGC-FM, WJAD-FM and the Albany Magazine are wholly owned
by the 89% owner of K--Country, Inc. All significant intercompany transactions
are eliminated. The combined operations are hereinafter referred to as the
"Company".
Effective January 1, 1998, the owner of K-Country, Inc. transferred the
operations of Albany Magazine to a family member. The transfer was recorded on a
historical cost basis. Accordingly the combined financial statements of
K-Country for the three months ended March 31, 1998 exclude the operations of
Albany Magazine.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Building......................................................... 27 years
Vehicles......................................................... 5 years
7-15
Studio and broadcasting equipment................................ years
Office furniture and fixtures.................................... 10 years
Program library.................................................. 7 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets primarily represent the excess of cost over the fair
market value of tangible net assets acquired. Intangible assets are stated at
cost and are being amortized using the straight-line method over
F-156
<PAGE>
K--COUNTRY, INC.
COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the estimated useful life of 15 years. The Company evaluates the carrying value
of intangibles periodically in relation to the projected future undiscounted net
cash flows of the related businesses.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amount at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to be
realized. Income tax expense is the total of tax payable for the period and the
change during the period in deferred tax assets and liabilities.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
ORGANIZATION COSTS
Organization costs are amortized using the straight-line method over a
useful life of 5 years.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
2. ACQUISITIONS
On July 23, 1996, the Company acquired the assets of WEGC-FM and WJAD-FM for
$804,000 of cash. The acquisition was accounted for as a purchase. Accordingly,
the accompanying combined financial statements include the results of operations
of the acquired stations from the date of acquisition. The purchase price was
allocated $267,850 to property and equipment and $536,150 to intangible assets.
The Company operated the WEGC-FM and WJAD-FM under a local marketing agreement
from May 1, 1996 to July 23, 1996.
F-157
<PAGE>
K--COUNTRY, INC.
COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1997 and June 30, 1997 consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
------------ -----------
<S> <C> <C>
Building.......................................................... $ 96,209 $ 96,209
Vehicles.......................................................... 93,783 93,783
Studio and broadcasting equipment................................. 665,965 665,965
Office furniture and fixtures..................................... 35,833 31,103
Program library................................................... 47,387 47,387
------------ -----------
939,177 934,447
Accumulated depreciation.......................................... (316,779) (257,736)
------------ -----------
622,398 676,711
Land.............................................................. 30,000 30,000
------------ -----------
Property and equipment, net....................................... $ 652,398 $ 706,711
------------ -----------
------------ -----------
</TABLE>
Depreciation expense for the six months ended December 31, 1997 and the year
ended June 30, 1997 was $59,043 and $114,873.
4. NOTE PAYABLE TO STOCKHOLDER
The Company is dependent on the controlling stockholder for financing. Note
payable to stockholder is payable on demand and is non-interest bearing.
5. EMPLOYEE 401-K PLAN
The Company has an elective contribution program for employees, where
contributions are withheld from employee salaries and remitted to the plan
administrator each month. The Company makes no contributions and only gives to
employees the service of withholding and remitting for their convenience.
6. INCOME TAXES
The Company's effective income tax rate differs from the statutory federal
income tax rate of 34% for the six months ended December 31, 1997 and the year
ended June 30, 1997 as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997
------------ ---------
<S> <C> <C>
Income tax benefit at federal statutory rate......................... $ 69,627 $ 27,531
State income taxes (net of federal benefit).......................... 11,592 3,616
Other................................................................ (15,690) (6,370)
------------ ---------
$ 65,529 $ 24,777
------------ ---------
------------ ---------
</TABLE>
Temporary differences are insignificant.
F-158
<PAGE>
K--COUNTRY, INC.
COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $3,750 for the six months
ended December 31, 1997 and $7,500 for the year ended June 30, 1997 under
operating leases for radio broadcasting facilities. Future minimum annual
payments under these non-cancelable operating leases and agreements as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
----------------
<S> <C>
1998........................................................................ $ 7,556
1999........................................................................ 7,650
2000........................................................................ 7,650
2001........................................................................ 7,650
Thereafter.................................................................. 44,284
----------------
$ 74,790
----------------
----------------
</TABLE>
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and note payable to stockholder approximates fair value due to
their short-term nature.
9. SUBSEQUENT EVENT:
In April 1998, the Company entered into an asset purchase agreement with
Cumulus Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media Inc.) to
sell the assets of the Company, subject to approval of the Federal
Communications Commission, for $3,300,000.
F-159
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Lesnick
Communications, Inc. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 20, 1998
F-160
<PAGE>
LESNICK COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31,
----------- ----------------------
<S> <C> <C> <C>
1998 1997 1996
----------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................................... $ 8,262 $ 7,678 $ 8,524
Accounts receivable, less allowance for doubtful accounts of $8,000 in
both 1997 and 1996...................................................... 57,102 77,560 63,332
Income tax receivable..................................................... 400 2,025 25,000
Prepaid expenses and other current assets................................. 650 3,300 3,099
----------- ---------- ----------
Total current assets.................................................. 66,414 90,563 99,955
Property and equipment, net................................................. 12,086 16,595 17,844
Intangible assets, net...................................................... 177,450 182,000 204,750
----------- ---------- ----------
Total assets.......................................................... $ 255,950 $ 289,158 $ 322,549
----------- ---------- ----------
----------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 46,113 $ 54,219 $ 50,710
Accrued expenses and other current liabilities............................ 33,169 22,748 12,304
Current portion of settlements payable.................................... 14,400 14,400 38,400
Loan from shareholder..................................................... 223,780 170,530 27,000
----------- ---------- ----------
Total current liabilities............................................. 317,462 261,897 128,414
Long-term settlements payable............................................... 13,600 17,200 31,600
----------- ---------- ----------
Total liabilities..................................................... 331,062 279,097 160,014
----------- ---------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value, 75,000 shares authorized, issued and
outstanding............................................................. 75,000 75,000 75,000
Retained earnings (deficit)............................................... (150,112) (64,939) 87,535
----------- ---------- ----------
Total stockholders' equity............................................ (75,112) 10,061 162,535
----------- ---------- ----------
Total liabilities and stockholders' equity............................ $ 255,950 $ 289,158 $ 322,549
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-161
<PAGE>
LESNICK COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
---------------------- ------------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
---------- ---------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.......................................... $ 68,841 $ 79,626 $ 438,062 $ 482,946
Less: agency commissions.......................... (4,668) (1,836) (12,947) (22,129)
---------- ---------- ----------- -----------
Net revenues................................ 64,173 77,790 425,115 460,817
---------- ---------- ----------- -----------
Operating expenses:
Programming..................................... 40,440 32,242 126,953 135,012
Sales and promotions............................ 22,510 20,436 147,619 155,647
Technical....................................... 9,259 6,994 23,082 21,474
General and administrative...................... 63,736 57,189 242,874 267,561
Depreciation and amortization................... 9,059 5,787 29,882 22,383
---------- ---------- ----------- -----------
Total operating expenses.................... 145,004 122,648 570,410 602,077
---------- ---------- ----------- -----------
Loss from operations.............................. (80,831) (44,858) (145,295) (141,260)
Interest income................................... -- -- 91 1,194
Interest expense.................................. 4,342 1,161 (5,645) (3,056)
Other expense..................................... -- -- -- (70,000)
---------- ---------- ----------- -----------
Loss before income taxes.......................... (85,173) (46,019) (150,849) (213,122)
Income tax expense (benefit)...................... -- 1,625 (1,625) 24,613
---------- ---------- ----------- -----------
Net loss.......................................... $ (85,173) $ (47,644) $ (152,474) $ (188,509)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-162
<PAGE>
LESNICK COMMUNICATIONS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS
STOCK (DEFICIT) TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1996................................................... $ 75,000 $ 276,044 $ 351,044
Net loss..................................................................... (188,509) (188,509)
---------- ---------- ----------
Balance at December 31, 1996................................................. 75,000 87,535 162,535
Net loss..................................................................... (152,474) (152,474)
---------- ---------- ----------
Balance at December 31, 1997................................................. $ 75,000 $ (64,939) $ 10,061
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-163
<PAGE>
LESNICK COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH FOR THE YEAR ENDED
31, DECEMBER 31,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (85,173) $ (47,644) $ (152,474) $ (188,509)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 9,059 7,674 29,882 22,383
Decrease (increase) in accounts receivable... 20,458 8,062 (14,228) 12,671
Decrease (increase) in income tax
receivable................................. 1,625 (4,375) 22,975 --
Decrease (increase) in prepaid expenses and
other current assets....................... 2,650 449 (201) 19,601
Increase (decrease) in accounts payable...... (8,106) 24,325 3,509 7,509
Increase (decrease) in accrued settlement
payments................................... (3,600) (21,000) (38,400) 70,000
Increase in accrued expenses and other
liabilities................................ 10,421 971 10,444 6,446
----------- ----------- ----------- -----------
Net cash used in operating activities...... (52,666) (31,538) (138,493) (49,899)
Cash flows from investing activities:
Purchases of property and equipment............ -- -- (5,883) (2,153)
----------- ----------- ----------- -----------
Cash used for investing activities......... -- -- (5,883) (2,153)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayment of borrowings........................ -- -- -- (4,324)
Proceeds from borrowings....................... 53,250 28,500 143,530 27,000
----------- ----------- ----------- -----------
Cash provided by financing activities...... 53,250 28,500 143,530 22,676
----------- ----------- ----------- -----------
Increase (decrease) in cash...................... 584 (3,038) (846) (29,376)
Cash at beginning of period...................... 7,678 8,524 8,524 37,900
----------- ----------- ----------- -----------
Cash at end of period............................ $ 8,262 $ 5,486 $ 7,678 $ 8,524
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Non-cash operating activities:
Trade revenue.................................. $ 24,724 $ 20,199 $ 97,096 $ 80,795
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Trade expense.................................. $ 22,601 $ 18,620 $ 90,405 $ 74,481
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-164
<PAGE>
LESNICK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Lesnick Communications, Inc. owns and operates radio station WTWR-FM (the
"Station" or the "Company") located in Monroe, Michigan.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Vehicles........................................................ 5 years
10-12
Broadcasting towers and equipment............................... years
Office furniture and equipment.................................. 7-12 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include goodwill, Federal Communications Commission
("FCC") license and favorable lease contracts. Intangible assets are stated at
cost and are being amortized using the straight-line method over the estimated
useful life or contract term for periods not exceeding 40 years. The Company
evaluates the carrying value of intangibles periodically in relation to the
projected future undiscounted net cash flows of the related businesses.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
Fees paid pursuant to various time brokerage agreements are amortized to
expense, respectively, over the term of the agreement using the straight-line
method.
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.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products
F-165
<PAGE>
LESNICK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
or services received as advertising air time is broadcast. Products and services
received are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Vehicles......................................................... $ 31,047 $ 31,047
Broadcasting towers and equipment................................ 141,962 141,962
Office furniture and equipment................................... 97,357 91,474
------------ ------------
270,366 264,483
Accumulated depreciation......................................... 253,771 246,639
------------ ------------
Property and equipment, net...................................... $ 16,595 $ 17,844
------------ ------------
------------ ------------
</TABLE>
Depreciation expense for the year ended December 31, 1997 and 1996 was
$7,132 and $4,183, respectively.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Goodwill, FCC license and others................................. $ 455,000 $ 455,000
Accumulated amortization......................................... (273,000) (250,250)
------------ ------------
Intangible assets, net........................................... $ 182,000 $ 204,750
------------ ------------
------------ ------------
</TABLE>
Amortization expense for the year ended December 31, 1997 and 1996 was
$22,750 and $18,200, respectively.
F-166
<PAGE>
LESNICK COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS
A stockholder of the Company provides cash for operations to the Station as
needed. At December 31, 1997 and 1996, the Company had a balance payable to the
stockholder of $170,530 and $27,000, respectively. The balance is payable on
demand of the stockholder. The interest rate applicable to the payable balance
was 8.5% for the two years ended December 31, 1997.
The Company leases the land on which the tower transmitter is located from a
stockholder of the Company. The Company was not required to pay monthly rent
payments during 1997 and 1996; however, rent expense was accrued for that
period. Rent expense for the tower site was $6,000 for each of the years ended
December 31, 1997 and 1996. Future rent expense will be $6,000 for each of the
next five years.
5. INCOME TAXES
In 1996, the Company recorded an income tax benefit for alternative minimum
taxes paid in prior years due to the carryforward of a portion of the 1996
income tax loss. The Company has established a valuation allowance against all
of its operating loss carryforwards following an assessment of the likelihood of
realizing such amounts. In arriving at the determination as to the amount of the
valuation allowance required, the Company considered its past operating history,
tax planning strategies and its expectation of the level and timing of future
taxable income. At December 31, 1997, the Company had net operating loss
carryforwards for income tax purposes of approximately $350,000.
6. COMMITMENTS AND CONTINGENCIES
During 1997, the Company settled two lawsuits which were filed during 1996.
The first lawsuit was settled in January 1997 for $20,000. The second lawsuit
was settled in May 1997 for $50,000. The Company paid $38,400 in relation to
these settlements in 1997. Future payments will be $14,400 in 1998 and 1999 and
$2,800 in 2000.
The Company incurred expenses of approximately $12,675 for the year ended
December 31, 1997 and $12,375 for the year ended December 31, 1996, under
operating leases for radio broadcasting facilities. Future minimum annual
payments under these non-cancelable operating leases and agreements as of
December 31, 1997 include payments of $9,675 in 1998.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash accounts receivables and accounts payable, and
long term settlements payable approximates fair value because of the short
maturity of these instruments.
8. SUBSEQUENT EVENT
In January 1998, the Company entered into an agreement with Cumulus
Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media Inc.) ("Cumulus")
to sell substantially all the assets of the Company to Cumulus, subject to
approval of the FCC.
F-167
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Louisiana Media Interests, Inc. and subsidiaries at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 9, 1998
F-168
<PAGE>
LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 31,472 $ 98,568 $ 15,528
Accounts receivable, less allowance for doubtful accounts of $ ,
$15,000 and $15,000, respectively.................................. 530,123 631,741 472,755
Prepaid expenses and other current assets............................ 15,308 23,997 12,212
------------- ------------ ------------
Total current assets............................................. 576,903 754,306 500,495
Property and equipment, net............................................ 1,136,950 1,056,060 370,276
Intangible assets, net................................................. 5,965,340 6,076,587 4,364,569
Other assets........................................................... 7,093 7,093 7,093
------------- ------------ ------------
Total assets..................................................... $ 7,686,286 $ 7,894,046 $ 5,242,433
------------- ------------ ------------
------------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................................................... $ 68,101 $ 72,980 $ 403
Accrued expenses and other current liabilities....................... 330,320 329,782 272,621
Current portion of long-term debt.................................... 1,362,858 1,266,429 245,174
------------- ------------ ------------
Total current liabilities........................................ 1,761,279 1,669,191 518,198
------------- ------------ ------------
Long-term debt, less current portion................................... 6,257,516 6,195,594 4,482,717
Preferred stock of subsidiary.......................................... 761,520 748,000 694,000
Commitments and contingencies
Stockholders' equity:
8% Convertible preferred stock, no par value, 100,000 shares
authorized, 10,000 issued and 10,000 outstanding (liquidation value
of $15.91 per share)............................................... -- -- 175,000
Common stock, no par value, 100,000 shares authorized, 91,000 issued
and outstanding at December 31, 1997; 75,500 issued and outstanding
at December 31, 1996............................................... 598,040 598,040 125,000
Treasury stock at cost............................................... (226,565) (79,063) (79,063)
Accumulated deficit.................................................. (1,465,504) (1,237,716) (673,419)
------------- ------------ ------------
Total stockholders' equity (deficit)............................. (1,094,029) (718,739) (452,482)
------------- ------------ ------------
Total liabilities and stockholders' equity (deficit)............. $ 7,686,286 $ 7,894,046 $ 5,242,433
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See Notes to Financial Statements
F-169
<PAGE>
LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, FOR THE YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues............................................. $ 824,235 $ 614,886 $ 3,362,885 $ 2,738,549 $ 1,937,337
Less: agency commissions............................. (71,531) (48,919) (298,763) (216,756) (147,038)
----------- ----------- ------------ ------------ ------------
Net revenues................................... 752,704 565,967 3,064,122 2,521,793 1,790,299
Operating expenses:
Programming........................................ 197,926 126,764 613,462 470,544 262,524
Sales and promotions............................... 189,277 121,064 696,540 532,788 360,018
Technical.......................................... 32,485 41,663 141,063 135,832 73,839
News............................................... 22,485 26,967 93,736 109,446 96,436
General and administrative......................... 196,131 154,094 1,008,404 727,272 441,223
Depreciation and amortization...................... 136,244 97,344 393,817 368,640 436,066
----------- ----------- ------------ ------------ ------------
Total operating expenses....................... 774,548 567,896 2,947,022 2,344,522 1,670,106
----------- ----------- ------------ ------------ ------------
Income from operations............................... (21,844) (1,929) 117,100 177,271 120,193
Interest expense..................................... 174,044 104,830 (543,717) (390,350) (363,944)
----------- ----------- ------------ ------------ ------------
Loss before income taxes and minority interest....... (195,888) (106,759) (426,617) (213,079) (243,751)
Income taxes......................................... -- -- -- -- --
Minority interest.................................... (31,900) (30,780) (121,680) (54,431) --
----------- ----------- ------------ ------------ ------------
Net loss............................................. (227,788) (137,539) (548,297) (267,510) (243,751)
Preferred dividends.................................. -- -- 16,000 16,000 16,000
----------- ----------- ------------ ------------ ------------
Net loss attributable to common shares............... $ (227,788) $ (137,539) $ (564,297) $ (283,510) $ (259,751)
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-170
<PAGE>
LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED COMMON TREASURY ACCUMULATED
STOCK STOCK STOCK DEFICIT TOTAL
----------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995...................... $ 175,000 $ 125,000 -- $ (130,158) $ 169,842
Repurchased 5,000 shares of common stock........ -- -- $ (39,062) -- (39,062)
Net loss........................................ -- -- -- (243,751) (243,751)
Preferred stock dividends....................... -- -- -- (16,000) (16,000)
----------- ---------- ---------- ------------- -----------
Balance at December 31, 1995.................... 175,000 125,000 (39,062) (389,909) (128,971)
Repurchased 5,000 shares of common stock........ -- -- (40,001) -- (40,001)
Net loss........................................ -- -- -- (267,510) (267,510)
Preferred stock dividends....................... -- -- -- (16,000) (16,000)
----------- ---------- ---------- ------------- -----------
Balance at December 31, 1996.................... 175,000 125,000 (79,063) (673,419) (452,482)
Conversion of preferred stock to common stock... (175,000) 175,000 -- -- --
Issuance of 4,500 shares of common stock........ -- 298,040 -- -- 298,040
Net loss........................................ -- -- -- (548,297) (548,297)
Preferred stock dividends....................... -- -- -- (16,000) (16,000)
----------- ---------- ---------- ------------- -----------
Balance at December 31, 1997.................... $ -- $ 598,040 $ (79,063) $ (1,237,716) $ (718,739)
----------- ---------- ---------- ------------- -----------
----------- ---------- ---------- ------------- -----------
</TABLE>
See Notes to Financial Statements.
F-171
<PAGE>
LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------------------ ---------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss........................................... $ (227,788) $ (137,539) $ (548,297) $ (267,510) $ (243,751)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization...................... 136,244 97,345 393,817 368,640 436,066
Minority interest.................................. 31,900 30,780 121,680 54,431 --
Stock-based compensation expense................... -- -- 278,040 20,000 --
(Increase) decrease in accounts receivable......... 101,618 78,205 (158,986) (152,432) (41,783)
(Increase) decrease in other long-term assets...... -- -- -- (8,000) (7,082)
(Increase) decrease in other current assets........ 8,689 (762) (11,785) (4,969) (7,243)
Increase (decrease) in accounts payable............ (4,879) 10,017 72,577 403 (58,250)
Increase (decrease) in other accrued liabilities... (8,192) (13,291) 65,831 82,794 119,964
----------- ----------- ------------- ----------- -----------
Net cash provided by operating activities...... 37,592 64,755 212,877 93,357 197,921
----------- ----------- ------------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................ (105,887) (9,550) (616,619) (127,625) (14,337)
Acquisition of radio stations...................... -- -- (550,000) (500,000) --
----------- ----------- ------------- ----------- -----------
Net cash used in investing activities.......... (105,887) (9,550) (1,166,619) (627,625) (14,337)
----------- ----------- ------------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings of notes payable, net..... 158,351 (3,472) 1,109,132 (194,439) (26,480)
Issuance of preferred stock of subsidiary.......... -- -- -- 676,000 --
Repurchase of treasury stock....................... (147,502) -- -- (40,001) (39,062)
Dividends paid on preferred stock of subsidiary.... (9,650) (20,900) (56,350) (36,431) --
Cash dividends paid................................ -- -- (16,000) (16,000) (16,000)
----------- ----------- ------------- ----------- -----------
Net cash (used in) provided by financing
activities................................... 1,199 (24,372) 1,036,782 389,129 (81,542)
----------- ----------- ------------- ----------- -----------
Net increase (decrease) in cash...................... (67,096) 30,833 83,040 (145,139) 102,042
Cash at beginning of period.......................... 98,568 15,528 15,528 160,667 58,625
----------- ----------- ------------- ----------- -----------
Cash at end of period................................ $ 31,472 $ 46,361 $ 98,568 $ 15,528 $ 160,667
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 153,344 $ 104,830 $ 496,035 $ 363,077 $ 251,599
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-172
<PAGE>
LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Louisiana Media Interests, Inc. and subsidiaries (the "Company") owns and
operates radio stations KKGB-FM, KBIU-FM, KYKZ-FM and KXZZ-AM in Lake Charles,
Louisiana.
The consolidated financial statements include the accounts of Louisiana
Media Interests, Inc. and all wholly owned subsidiaries. All significant
intercompany transactions are eliminated. The significant accounting principles
followed by the Company and the methods of applying those principles which
materially affect the determination of financial position, results of
operations, and cash flows are summarized below.
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 these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized. Revenues and expenses under these agreements were
insignificant during 1997; such revenues and expenses totaled $35,877 and
$36,945, respectively during 1996 and $29,807 and $32,926, respectively during
1995.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral for its accounts receivable. The Company
maintains reserves for potential credit losses based upon the expected
collectibility of all accounts receivable.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using an accelerated method over the estimated useful
lives of the property and equipment, ranging from 3 to 39 years.
F-173
<PAGE>
LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include FCC licenses, non-compete agreements,
organizational costs and goodwill. Intangible assets are recorded at cost and
amortized over their respective estimated useful lives. Amortization is
calculated using the straight-line method over a 15-year life. The Company
evaluates the carrying value of intangibles periodically in relation to the
projected future undiscounted net cash flows of the related businesses.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amount at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to be
realized. Income tax expense is the total of taxes payable for the period and
the change during the period in deferred tax assets and liabilities.
The Company files separate federal and state income tax returns.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, accounts payable and long-term debt, approximate fair
value.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of managment, all adjustments necessary for
a fair presentation of results of the interim periods have been made and such
adjustments were of a normal and recurring nature. The results of operations and
cash flows for the three months ended March 31, 1998 are not necessarily
indicative of the results that can be expected for the entire fiscal year ending
December 31, 1998.
2. ACQUISITIONS:
On July 15, 1997, the Company acquired KKGB-FM for $2,175,000 consisting of
cash of $550,000 and the issuance of a note payable of $1,625,000. The purchase
price was allocated to property and equipment ($115,798), intangibles
($1,959,202) and a covenant not to compete ($100,000).
On August 21, 1996, the Company acquired KBIU-FM and KXZZ-AM for $1,500,000
consisting of cash of $500,000 and the issuance of a note payable of $1,000,000.
The purchase price was allocated to property and equipment ($59,411) and
intangibles ($1,440,589). The Company operated these stations under a local
marketing agreement from February 1, 1996 to the acquisition date.
The unaudited 1997 and 1996 pro forma results of operations for these
acquisitions are shown below. The pro forma information was prepared as if the
acquisitions occurred at the beginning of each year. The
F-174
<PAGE>
LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS: (CONTINUED)
pro forma results may not be indicative of the results that would have been
reported if the transaction had actually occurred at the beginning of each year
presented, or of results that may be attained in the future.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net revenues...................................................... $ 3,311,427 $ 3,039,657
Income from operations............................................ 106,778 145,424
Net loss.......................................................... (692,283) (638,981)
</TABLE>
The acquisitions discussed above were accounted for as purchases.
Accordingly, the accompanying consolidated financial statements include the
results of operations of the acquired entities from the dates of acquisition.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Broadcasting towers and equipment................................ $ 356,802 $ 221,290
Buildings........................................................ 678,118 106,000
Office furniture and equipment................................... 42,525 33,524
------------ ------------
1,077,445 360,814
Accumulated depreciation......................................... (153,669) (107,036)
------------ ------------
923,776 253,778
Land............................................................. 132,284 116,498
------------ ------------
Property and equipment, net...................................... $1,056,060 $ 370,276
------------ ------------
------------ ------------
</TABLE>
Depreciation expense for 1997, 1996 and 1995 was $46,633, $57,307 and
$36,713, respectively.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
FCC licenses and goodwill........................................ $6,982,791 $5,023,589
Noncompete and organizational costs.............................. 179,193 79,193
------------ ------------
7,161,984 5,102,782
Accumulated amortization......................................... (1,085,397) (738,213)
------------ ------------
Intangible assets, net........................................... $6,076,587 $4,364,569
------------ ------------
------------ ------------
</TABLE>
Amortization expense for 1997, 1996 and 1995 was $347,184, $311,333 and
$399,353, respectively.
F-175
<PAGE>
LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The Company's effective income tax rate differs from the statutory federal
income tax rate as a follows:
<TABLE>
<CAPTION>
% OF % OF % OF
1997 PRE-TAX 1996 PRE-TAX 1995 PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
----------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income tax benefit at federal statutory
rate................................. $ (186,421) (34.0) $ (90,953) (34.0) $ (82,875) (34.0)
State income taxes (net of federal
benefit)............................. (14,475) (2.6) (6,955) (2.6) (6,435) (2.6)
Other nondeductible items.............. 1,428 0.3 1,400 0.5 1,962 0.8
Minority interest expense.............. 41,371 7.5 18,507 6.9 -- --
Change in valuation allowance.......... 158,097 28.8 78,001 29.2 87,348 35.8
----------- ----- ---------- ----- ---------- -----
$ -- -- $ -- -- $ -- --
----------- ----- ---------- ----- ---------- -----
----------- ----- ---------- ----- ---------- -----
</TABLE>
Significant components of the deferred tax asset (liabilities) are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards.................................... $ 329,316 $ 185,694
Allowance for doubtful accounts..................................... 5,100 5,100
Other items......................................................... 27,865 13,390
---------- ----------
Net deferred tax asset.............................................. 362,281 204,184
---------- ----------
Less valuation allowance............................................ (362,281) (204,184)
---------- ----------
Total net deferred tax asset........................................ $ -- $ --
---------- ----------
---------- ----------
</TABLE>
The net deferred tax asset at December 31, 1997 and 1996 is fully offset by
a valuation allowance. The amount of the valuation allowance is reviewed
periodically by management and is determined based on management's assessment of
the Company's ability to generate future taxable income and realize the tax
benefits associated with the deferred tax assets.
Net operating losses expire as follows:
<TABLE>
<S> <C>
2009.............................................................. $ 114,158
2010.............................................................. 238,040
2011.............................................................. 193,962
2012.............................................................. 422,417
---------
$ 968,577
---------
---------
</TABLE>
F-176
<PAGE>
LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Note payable to former owner of KYKZ at 9.4%, payable in monthly
installments through February 2011.............................. $ 3,616,798 $ 3,748,468
Note payable to former owner under non-compete agreement; payable
in monthly installments of $1,110 through 2010.................. 100,000 --
Note payable at 9.55%, due December 1998.......................... 71,144 27,847
Note payable at 8.625%, secured by certain assets of the Company,
due December 2001............................................... 546,617 50,263
Note payable to former owner of KBIU and KXZZ at 8%, due August
2001............................................................ 787,656 848,313
Note payable to former owner of KKGB at 8.5%, due September
2009............................................................ 1,598,609 --
Notes payable upon demand to stockholders at rates ranging from
12% to 18%...................................................... 725,000 53,000
Capital lease obligation, due in monthly installments of $476
through November 2000........................................... 16,199 --
------------ ------------
7,462,023 4,727,891
Less: Current portion of long-term debt........................... (1,266,429) (245,174)
------------ ------------
$ 6,195,594 $ 4,482,717
------------ ------------
------------ ------------
</TABLE>
Maturities of debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1998............................................................................ $ 1,266,429
1999............................................................................ 490,071
2000............................................................................ 510,765
2001............................................................................ 1,020,178
2002............................................................................ 465,281
Thereafter...................................................................... 3,709,299
------------
$ 7,462,023
------------
------------
</TABLE>
7. RELATED PARTY TRANSACTIONS:
The Company paid management fees to a related party of $120,711 and $127,290
during 1997 and 1996, respectively.
8. STOCKHOLDERS' EQUITY:
In December 1997, the 10,000 issued and outstanding voting shares of
convertible preferred stock were converted to 11,000 shares of the Company's
common stock at a conversion price $15.91 per share.
In February 1998, the Company repurchased 10,000 shares of common stock for
$147,502 in cash. In January 1996, the Company repurchased 5,000 shares of
common stock for $79,063 in cash. These
F-177
<PAGE>
LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY: (CONTINUED)
repurchases were made under stock purchase agreements by and bewteen certain
stockholders and the Company at a price mutually agreed to by both parties.
9. PREFERRED STOCK OF SUBSIDIARY:
In July 1996, KBIU Acquisition, Inc., a subsidiary of the Company, issued
96,572 shares of preferred stock for $676,000 in cash in connection with the
acquisition of KBIU-FM. Dividends on the preferred stock are payable by the
Company at an annual rate of 10% on a quarterly basis plus 8% cumulative at
redemption and are reported as minority interest in the statements of
operations. The preferred stock has a stated redemption value equal to the
original par value of the stock plus accrued but unpaid dividends. Unpaid
dividends payable upon redemption of the stock were $72,000 and $18,000 at
December 31, 1997 and 1996, respectively. The Company has the right to
repurchase the stock at any time after July 18, 1999 but prior to July 18, 2001
at which time the stated redemption value plus accrued dividends must be paid.
10. LEASES:
The Company leases certain equipment under various operating leases. Rent
expense under operating leases for 1997, 1996 and 1995 was $78,058, $34,447 and
$29,832, respectively. Future minimum annual payments under these non-cancelable
operating leases and agreements as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
PAYMENT
---------
<S> <C>
1998............................................................................... $ 77,660
1999............................................................................... 77,660
2000............................................................................... 77,660
2001............................................................................... 61,570
2002............................................................................... 32,863
</TABLE>
11. STOCK COMPENSATION:
During 1997 and 1996, the Company awarded common stock to a stockholder and
an employee for services rendered. Participants are fully vested in the shares
issued at date of grant which totaled 4,500 during 1997, 1,000 of which were
issued in both January and December 1997 and 2,500 shares were issued in October
1997. The Company recognized compensation expense of $278,040 and $20,000, for
the years ended December 31, 1997 and 1996, respectively, representing the
estimated fair value of the shares awarded at the date of grant.
12. SALE OF STOCK:
In February 1998, the Company and its stockholders entered into an agreement
with Cumulus Media Inc. ("Cumulus") to sell all of the issued and outstanding
stock of the Company, subject to approval of the Federal Communications
Commission, to Cumulus for $14,848,000.
F-178
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in partners' capital and of cash flows present fairly,
in all material respects, the financial position of M&M Partners (the
"Partnership") at November 30, 1997 and December 31, 1996, and the results of
its operations and its cash flows for the eleven months ended November 30, 1997,
and for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 24, 1998
F-179
<PAGE>
M&M PARTNERS
BALANCE SHEETS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 171 $ 144
Accounts receivable, less allowance
for doubtful accounts of $25..................................................... 689 386
Deposit on broadcast property...................................................... 100 --
Prepaid and other current assets................................................... 11 3
------ ------
Total current assets........................................................... 971 533
------ ------
Property and equipment, net.......................................................... 573 589
Intangible assets, net............................................................... 2,336 2,641
------ ------
Total assets................................................................... $ 3,880 $ 3,763
------ ------
------ ------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities........................................... $ 111 $ 45
Related party notes payable........................................................ -- 1,245
Current portion of notes payable................................................... 100 1,432
------ ------
Total current liabilities...................................................... 211 2,722
Commitments and contingencies
Notes payable........................................................................ -- 100
------ ------
Total liabilities.............................................................. 211 2,822
------ ------
Partners' capital.................................................................... 3,669 941
------ ------
Total liabilities and partners' capital........................................ $ 3,880 $ 3,763
------ ------
------ ------
</TABLE>
See Notes to Financial Statements.
F-180
<PAGE>
M&M PARTNERS
STATEMENTS OF OPERATIONS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE ELEVEN FOR THE YEAR FOR THE YEAR
MONTHS ENDED ENDED ENDED
NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
--------------- ------------- -------------
<S> <C> <C> <C>
Revenues........................................................... $ 3,295 $ 2,332 $ 1,531
Less: agency commissions........................................... (354) (264) (177)
------ ------ ------
Net revenues................................................. 2,941 2,068 1,354
Operating expenses:
Programming...................................................... 554 401 238
Sales and promotions............................................. 375 247 152
Technical........................................................ 21 21 16
General and administrative....................................... 789 702 429
Trade............................................................ 526 238 108
Time brokerage fees.............................................. 70 48 --
Depreciation and amortization.................................... 485 335 222
------ ------ ------
Total operating expenses..................................... 2,820 1,992 1,165
------ ------ ------
Income from operations............................................. 121 76 189
Interest expense, net.............................................. (114) (118) (152)
Other income....................................................... 2 2 8
------ ------ ------
Net income (loss)............................................ $ 9 $ (40) $ 45
------ ------ ------
------ ------ ------
</TABLE>
See Notes to Financial Statements.
F-181
<PAGE>
M&M PARTNERS
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN 000'S)
<TABLE>
<S> <C>
Balance at December 31, 1994........................................................ $ 71
Partner contribution................................................................ 478
Net income.......................................................................... 45
---------
Balance at December 31, 1995........................................................ 594
Partner contribution................................................................ 672
Partner withdrawal.................................................................. (285)
Net loss............................................................................ (40)
---------
Balance at December 31, 1996........................................................ 941
Partner contribution................................................................ 2,898
Partner withdrawal.................................................................. (179)
Net income.......................................................................... 9
---------
Balance at November 30, 1997........................................................ $ 3,669
---------
---------
</TABLE>
See Notes to Financial Statements.
F-182
<PAGE>
M&M PARTNERS
STATEMENTS OF CASH FLOWS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE ELEVEN FOR THE YEAR FOR THE YEAR
MONTHS ENDED ENDED ENDED
NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
--------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ 9 $ (40) $ 45
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization................................ 485 335 222
Increase in accounts receivable.............................. (303) (93) (58)
Increase in prepaid and other current assets................. (8) -- --
Increase in accounts payable and accrued liabilities......... 66 8 26
------ ------ ------
Net cash provided by operating activities.................. 249 210 235
------ ------ ------
Cash flows from investing activities:
Acquisitions of broadcast properties............................. (35) (2,000) --
Deposit on broadcast property.................................... (100) -- --
Purchases of property and equipment.............................. (129) (3) (73)
------ ------ ------
Net cash used in investing activities...................... (264) (2,003) (73)
------ ------ ------
Cash flows from financing activities:
Proceeds from related party note payable......................... -- 1,245 68
Payments of related party note payable........................... (1,245) (56) --
Proceeds from notes payable...................................... -- 254 --
Payments of notes payable........................................ (1,432) -- (603)
Partner contributions............................................ 2,898 672 478
Partner withdrawal............................................... (179) (285) --
------ ------ ------
Net cash provided by (used in) investing activities........ 42 1,830 (57)
------ ------ ------
Net increase in cash and cash equivalents.......................... 27 37 105
Cash and cash equivalents at beginning of year..................... 144 107 2
------ ------ ------
Cash and cash equivalents at end of year........................... $ 171 $ 144 $ 107
------ ------ ------
------ ------ ------
Supplemental disclosures of cash flow information:
Cash paid for interest........................................... $ 114 $ 118 $ 152
------ ------ ------
------ ------ ------
Non-cash operating activities:
Trade revenue.................................................... $ 523 $ 238 $ 108
------ ------ ------
Trade expense.................................................... $ 526 $ 238 $ 108
------ ------ ------
------ ------ ------
</TABLE>
See Notes to Financial Statements.
F-183
<PAGE>
M&M PARTNERS
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN 000'S)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
M&M Partners (The "Partnership") was organized for the purpose of owning and
operating radio broadcasting stations in and around Columbus, Georgia. The
Partnership consists of two general partner interests whose ownership interests
are allocated 99% and 1%, respectively.
Until January 6, 1998, the Partnership owned and operated four stations
WVRK-FM, WPNX-AM, WMLF-AM and WGSY-FM (the "Stations") and operated one station,
WAGH-FM, under a time brokerage agreement ("TBA"). The Partnership has placed
$100 on deposit with the licensor of WAGH-FM pending completion of a stock
purchase agreement between the parties.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated using accelerated methods over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Buildings.................................................... 31.5 years
Broadcasting towers and equipment............................ 5-6 years
Office furniture and equipment............................... 5-10 years
Leasehold improvement........................................ Term of
lease
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets consist of FCC licenses which are stated at cost and
amortized using the straight-line method over 15 years. The Partnership
evaluates the carrying value of intangibles periodically in relation to the
projected future undiscounted net cash flows of the related businesses.
F-184
<PAGE>
M&M PARTNERS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
Income or loss of the Partnership is included in the tax returns of the
individual partners. Accordingly, federal income taxes are not recognized by the
Partnership.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TIME BROKERAGE
The Partnership operates station WAGH-FM under a TBA whereby the stations'
operating revenues and expenses are controlled by the Partnership and,
accordingly, are reflected in the Partnership's financial statements over the
term of the TBA. A TBA fee is paid to the licensee of the station on a monthly
basis.
TRADE AGREEMENTS
The Partnership enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Partnership uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
2. ACQUISITIONS:
In March 1997, the Partnership acquired station WMLF-AM licensed to
Columbus, Georgia for approximately $35 in total consideration. In July 1996,
the Partnership acquired station WGSY-FM licensed to Phoenix City, Alabama for
$1,950 in total consideration. The acquisitions were accounted for using the
purchase method of accounting.
The Partnership's results of operations for the eleven months ended November
30, 1997 and for the year ended December 31, 1996 include the results of
operations of WGSY-FM and WMLF-AM from their respective dates of acquisition.
The following unaudited pro forma statement of operations data give effect to
the acquisitions as if they had occurred on January 1, 1996. In addition,
depreciation and amortization
F-185
<PAGE>
M&M PARTNERS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
2. ACQUISITIONS: (CONTINUED)
has been increased each period to reflect initial purchase price allocations as
if the acquisitions had occurred on January 1, 1996.
<TABLE>
<CAPTION>
PRO FORMA
------------------------------
<S> <C> <C>
FOR THE
ELEVEN MONTHS FOR THE
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1997 1996
--------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Net revenues.................................................... $ 2,946 $ 2,486
------ ------
------ ------
Income from operations.......................................... $ 121 $ 181
------ ------
------ ------
Net income...................................................... $ 9 $ 32
------ ------
------ ------
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Buildings........................................................ $ 241 $ 241
Broadcasting towers and equipment................................ 659 616
Office furniture and equipment................................... 307 189
Leasehold improvements........................................... 70 70
----- -----
1,277 1,116
Accumulated depreciation......................................... (731) (554)
Land............................................................. 27 27
----- -----
Property and equipment, net...................................... $ 573 $ 589
----- -----
----- -----
</TABLE>
Depreciation expense for the periods ended November 30, 1997 and December
31, 1996 and 1995 was $177, $91 and $25, respectively.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
FCC licenses..................................................... $ 4,623 $ 4,620
Accumulated amortization......................................... (2,287) (1,979)
------ ------
Intangible assets, net........................................... $ 2,336 $ 2,641
------ ------
------ ------
</TABLE>
Amortization expense for the periods ended November 30, 1997 and December
31, 1996 and 1995 was $308, $244 and $197, respectively.
F-186
<PAGE>
M&M PARTNERS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
5. RELATED PARTY TRANSACTIONS:
JTM, Inc., which is under common ownership, provides accounting and payroll
services to the Partnership in exchange for advertising time for other
businesses operated by JTM, Inc. The value of these transactions, which are
recorded as trade revenue and trade expense, were approximately $16.5 for the
eleven months ended November 30, 1997 and $18 for the years ended December 31,
1996 and 1995.
The majority partner provides space for radio broadcasting facilities for
which rent expense is allocated based on the estimated fair value of rental
expense for similar facilities. Rent allocations included in expense were $73,
$51 and $46 for the eleven months ended November 30, 1997 and the two years
ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Related party note payable, interest accrues at the applicable
short-term federal rate prescribed by the Internal Revenue
Service with the balance of principal and interest due upon
demand......................................................... $ -- $ 1,245
------ ------
------ ------
</TABLE>
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Line of credit loan, interest at prime
(8.5% at November 30, 1997), principal
and interest payments due monthly.............................. $ 50 $ 804
Line of credit loan, interest at prime
(8.5% at November 30, 1997), principal
and interest payments due monthly.............................. 50 728
------ ------
Less current maturities.......................................... 100 1,532
(100) (1,432)
------ ------
$ - $ 100
------ ------
------ ------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Partnership is involved from time to time in various other claims and
lawsuits which arise in the ordinary course of business. The Partnership is
vigorously contesting all such matters and believes that their ultimate
resolution will not have a material adverse effect on its financial position,
results of operations or cash flows.
The Partnership incurred expenses of approximately $28, $20 and $15,
respectively for the eleven months ended November 30, 1997 and the two years
ended December 31, 1996 and 1995 under operating leases for equipment and
broadcast towers and a time brokerage arrangement. Future minimum annual
F-187
<PAGE>
M&M PARTNERS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
payments under these non-cancelable operating leases and agreements as of
November 30, 1997, are as follows:
<TABLE>
<S> <C>
1998.................................................................. $ 30
1999.................................................................. 5
---
$ 35
---
---
</TABLE>
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to their short term nature. The
fair value of notes payable are estimated based on current market rates and
approximate the carrying value.
9. SUBSEQUENT EVENTS
On January 6, 1998, the assets of the Partnership were sold to Cumulus
Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) for $12.75
million.
F-188
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Midland
Broadcasters, Inc. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Chicago, Illinois
May 12, 1998
F-189
<PAGE>
MIDLAND BROADCASTERS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 265,189 $ 205,723 $ 81,364
Accounts receivable, less allowance for doubtful accounts of $30,000,
$30,000 and $26,000, respectively................................... 420,521 391,343 343,890
Receivable from shareholder and related party......................... 19,561 20,230 35,391
Prepaid expenses and other current assets............................. 31,427 6,456 4,343
------------ ------------ ------------
Total current assets.............................................. 736,698 623,752 464,988
Property and equipment, net............................................. 688,271 708,403 770,783
Intangible assets, net of accumulated amortization of $109,916, $100,032
and $60,498 respectively.............................................. 483,101 492,985 532,519
------------ ------------ ------------
Total assets...................................................... $ 1,908,070 $ 1,825,140 $ 1,768,290
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..................................... $ 75,652 $ 113,259 $ 81,449
Accounts payable...................................................... 79,603 35,559 27,208
Accrued wages and commissions......................................... 107,246 101,456 90,430
Accrued and other current liabilities................................. 53,888 37,113 19,618
------------ ------------ ------------
Total current liabilities............................................. 316,389 287,387 218,705
Long-term debt.......................................................... 813,048 817,779 950,434
------------ ------------ ------------
Total liabilities................................................. 1,129,437 1,105,166 1,169,139
------------ ------------ ------------
Commitments and contingent liabilities.................................. -- -- --
Stockholders' equity:
Common stock, $100 par value, 10,000 shares authorized,
601 issued and outstanding.......................................... 60,100 60,100 60,100
Additional paid-in capital............................................ 99,001 99,001 99,001
Retained earnings..................................................... 619,532 560,873 440,050
------------ ------------ ------------
Total stockholders' equity........................................ 778,633 719,974 599,151
------------ ------------ ------------
Total liabilities and stockholders' equity........................ $ 1,908,070 $ 1,825,140 $ 1,768,290
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-190
<PAGE>
MIDLAND BROADCASTERS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues....................................... $ 740,540 $ 757,883 $ 3,206,055 $ 2,853,570 $ 2,567,786
Less: agency commissions....................... (66,990) (69,534) (286,605) (248,813) (228,924)
---------- ---------- ------------ ------------ ------------
Net revenues............................... 673,550 688,349 2,919,450 2,604,757 2,338,862
---------- ---------- ------------ ------------ ------------
Operating expenses:
Programming and promotions................... 197,765 193,190 917,724 867,754 678,529
Sales........................................ 145,225 147,377 686,589 626,850 576,668
Technical.................................... 11,262 8,954 38,091 34,123 45,442
General and administrative................... 174,033 156,665 834,052 685,775 610,220
Depreciation and amortization................ 45,305 49,771 211,560 209,228 132,100
---------- ---------- ------------ ------------ ------------
Total operating expenses................. 573,590 555,957 2,688,016 2,423,730 2,042,959
---------- ---------- ------------ ------------ ------------
Income from operations......................... 99,960 132,392 231,434 181,027 295,903
Interest expense............................... 21,116 23,131 88,586 104,724 60,802
Interest income................................ (2,315) (1,055) (6,438) (4,215) (6,839)
---------- ---------- ------------ ------------ ------------
Net income..................................... $ 81,159 $ 110,316 $ 149,286 $ 80,518 $ 241,940
---------- ---------- ------------ ------------ ------------
---------- ---------- ------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-191
<PAGE>
MIDLAND BROADCASTERS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1995...................................... $ 60,100 $ 99,001 $ 437,823 $ 596,924
Net income...................................................... 241,940 241,940
Dividends....................................................... (195,876) (195,876)
--------- ---------- ----------- -----------
Balance at December 31, 1995.................................... 60,100 99,001 483,887 642,988
Net income...................................................... 80,518 80,518
Dividends....................................................... (124,355) (124,355)
--------- ---------- ----------- -----------
Balance at December 31, 1996.................................... 60,100 99,001 440,050 599,151
Net income...................................................... 149,286 149,286
Dividends....................................................... (28,463) (28,463)
--------- ---------- ----------- -----------
Balance at December 31, 1997.................................... $ 60,100 $ 99,001 $ 560,873 $ 719,974
--------- ---------- ----------- -----------
--------- ---------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-192
<PAGE>
MIDLAND BROADCASTERS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEAR
ENDED MARCH 31, ENDED DECEMBER 31,
----------------------- ---------------------------------------
1998 1997 1997 1996 1995
----------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income................................... $ 81,159 $ 110,316 $ 149,286 $ 80,518 $ 241,940
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 45,305 49,771 211,560 209,228 132,100
(Increase) decrease in accounts
receivable............................... (29,178) (97,804) (47,453) 142,099 (193,154)
Decrease in shareholder receivable......... 669 1,790 15,161 4,130 119,275
(Increase) decrease in prepaid expenses and
other assets............................. (24,970) (27,215) (2,113) 3,235 (3,252)
Increase (decrease) in accounts payable.... 44,042 39,307 8,351 (38,295) 43,812
Increase (decrease) in accrued and other
liabilities.............................. 21,146 42,433 28,521 (47,113) 90,676
----------- ---------- ----------- ----------- -------------
Net cash provided by operating activities.... 138,173 118,598 363,313 353,802 431,397
----------- ---------- ----------- ----------- -------------
Cash flows from investing activities:
Purchases of property and equipment.......... (23,679) (51,631) (121,574) (240,064) (380,659)
Proceeds from sale of assets................. 8,390 8,554 11,928 45,662 73,280
Acquisition of KDVV-FM....................... -- -- -- -- (725,000)
Acquisition of other stations................ -- -- -- -- (75,000)
----------- ---------- ----------- ----------- -------------
Cash used for investing activities........... (15,289) (43,077) (109,646) (194,402) (1,107,379)
----------- ---------- ----------- ----------- -------------
Cash flows from financing activities:
Proceeds from borrowings..................... 35 6,827 6,827 185,727 989,349
Repayment of long-term obligations........... (40,953) (30,863) (107,672) (208,940) (136,931)
Dividends paid............................... (22,500) -- (28,463) (124,355) (195,876)
Payment of note to shareholder............... -- -- -- -- (109,453)
----------- ---------- ----------- ----------- -------------
Cash used for financing activities........... (63,418) (24,036) (129,308) (147,568) 547,089
----------- ---------- ----------- ----------- -------------
Increase (decrease) in cash and cash
equivalents.................................. 59,466 51,485 124,359 11,832 (128,893)
Cash and cash equivalents at beginning of
period....................................... 205,723 81,364 81,364 69,532 198,425
----------- ---------- ----------- ----------- -------------
Cash and cash equivalent at end of period...... $ 265,189 $ 132,849 $ 205,723 $ 81,364 $ 69,532
----------- ---------- ----------- ----------- -------------
----------- ---------- ----------- ----------- -------------
Supplemental disclosure of cash information:
Cash paid for interest....................... $ 21,116 $ 23,131 $ 88,586 $ 104,724 $ 60,802
----------- ---------- ----------- ----------- -------------
----------- ---------- ----------- ----------- -------------
Non-cash operating and financing activities:
Trade revenue................................ $ 37,933 $ 58,296 $ 303,893 $ 284,557 $ 229,064
----------- ---------- ----------- ----------- -------------
----------- ---------- ----------- ----------- -------------
Trade expense................................ ($ 30,343) ($ 27,080) ($ 303,859) ($ 274,278) ($ 173,760)
----------- ---------- ----------- ----------- -------------
----------- ---------- ----------- ----------- -------------
Trade acquisition of assets.................. ($ 2,374) ($ 6,263) ($ 31,845) ($ 43,021) ($ 70,400)
----------- ---------- ----------- ----------- -------------
----------- ---------- ----------- ----------- -------------
</TABLE>
See Notes to Financial Statements.
F-193
<PAGE>
MIDLAND BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Midland Broadcasters, Inc. (the "Company") owns and operates radio stations
KMAJ-AM, KMAJ-FM, KDVV-FM and KTOP-AM located in Topeka, Kansas.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are capitalized or expensed, respectively, when used in the broadcast
operations. If the Company uses exchanged products or services before
advertising air time is provided, a trade liability is recognized.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral for its accounts receivable.
The Company reserves for potential credit losses based upon the expected
collectibility of all accounts receivable.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets,
F-194
<PAGE>
MIDLAND BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
are capitalized at cost and depreciated using accelerated methods over their
estimated useful lives as follows:
<TABLE>
<S> <C>
Broadcasting towers and equipment............................... 5-15 years
Buildings....................................................... 15-39
years
Office furniture and equipment.................................. 5-7 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets primarily include goodwill and FCC licenses. Intangible
assets are stated at cost and are being amortized using the straight-line method
over estimated useful lives of 15 years. Amortization expense was $39,534,
$39,535 and $20,963 in 1997, 1996 and 1995, respectively. The Company evaluates
the carrying value of intangibles periodically in relation to the projected
future undiscounted net cash flows of the related businesses.
INCOME TAXES
The Company's shareholders elected S Corporation status. In lieu of
corporate income taxes, the Company's taxable income or loss is reported by its
shareholders.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
2. ACQUISITION
In June 1995, the Company acquired KDVV-FM in Topeka, Kansas for $725,000 in
cash. The purchase price was allocated to property and equipment ($321,323) and
intangibles ($403,677). The acquisition was accounted for as a purchase.
Accordingly, the accompanying financial statements include the results of
operations of the acquired entity from the date of the acquisition. Had this
Company been acquired at the beginning of the year, the results of operations
would have not changed materially.
F-195
<PAGE>
MIDLAND BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Broadcasting towers and equipment.......................................... $ 851,085 $ 785,920
Buildings.................................................................. 250,198 239,820
Automobiles................................................................ 99,709 99,709
Office furniture and equipment............................................. 274,394 247,717
------------ ------------
1,475,386 1,373,166
Accumulated depreciation................................................... (871,909) (707,309)
------------ ------------
603,477 665,857
Land....................................................................... 104,926 104,926
------------ ------------
Property and equipment, net................................................ $ 708,403 $ 770,783
------------ ------------
------------ ------------
</TABLE>
Depreciation expense for 1997, 1996 and 1995 was $172,026, $169,693 and
$111,137, respectively.
4. RELATED PARTY TRANSACTIONS:
In June 1995, the Company sold KMAJ-AM to FR Corporation (a related party)
for $50,000. FR Corporation also acquired KTOP-AM in June 1995 from an unrelated
party for $25,000 in cash. In October 1995, FR Corporation sold KMAJ-AM and
KTOP-AM to the Company for $75,000 and then ceased operations. The Company and
FR Corporation were operated independently during the period June 1995 to
October 1995. The financial statements of the Company include the operations of
KMAJ-AM, KDVV-FM and KTOP-AM only for the periods they were owned by the
Company, and thus do not include the results of operations of KMAJ-AM and
KTOP-AM during the time they were operated by FR Corporation. Revenues of FR
Corporation were $158,880 (unaudited) and net loss was $2,001 (unaudited) for
the five month operations of KMAJ-AM and KTOP-AM.
In November 1995, the Company purchased from a related party land and real
property for $195,000.
F-196
<PAGE>
MIDLAND BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
BANK LOANS: 1997 1996
- ------------------------------------------------------------------------------ ---------- ------------
<S> <C> <C>
NationsBank, principal amount of $740,000, with monthly payments of $9,525
(including principal and interest) with final payment due December 2005. The
interest rate is Topeka Base rate plus 0.75%, which resulted in 8.75% at
December 31, 1997........................................................... $ 617,964 $ 679,491
NationsBank, principal amount of $75,000, with monthly payments of $1,612
(including principal and interest) with final payment due June 12, 2000. The
interest rate is 10.5% fixed................................................ 35,779 54,836
NationsBank, principal amount of $29,881, with monthly payments of $725
(including principal and interest) with final payment due August 27,
2000.The interest rate is 7.59% fixed....................................... 22,257 28,269
Capitol Federal Savings, principal amount of $263,500, with monthly payments
of $2,634 (including principal and interest) with final payment due November
10, 2010.The interest rate is 8.75% fixed.This note is collateralized by a
mortgage on part of the Company's real property............................. 244,894 254,602
Santa Fe Credit Union, principal amount of $15,451 with monthly payments of
$500 (including principal and interest). The interest rate 8.25% fixed.This
note is collateralized by an automobile owned by the Company................ 10,144 14,685
---------- ------------
Long term debt................................................................ 931,038 1,031,883
Less: current maturities...................................................... 113,259 81,449
---------- ------------
$ 817,779 $ 950,434
---------- ------------
---------- ------------
</TABLE>
The notes with NationsBank are collateralized by substantially all of the
assets of the Company and a pledge of stock and personal guaranty by the
majority stockholder.
The note with Santa Fe Credit Union was paid in full in March, 1998 in
advance of its original maturity.
As of December 31, 1997, the Company had no additional available credit
lines.
Long term debt expires as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 113,259
1999.............................................................. 112,748
2000.............................................................. 95,468
2001.............................................................. 96,371
2002.............................................................. 105,150
Thereafter........................................................ 408,042
---------
$ 931,038
---------
---------
</TABLE>
F-197
<PAGE>
MIDLAND BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value because of the short maturity of these
instruments. The carrying amount of notes payable approximates fair value based
on current market rates.
7. CONTINGENCIES
The Company is the guarantor of a note dated May 20, 1997 in the original
amount of $505,993 between Nations Bank and Frederick P. Reynolds, Jr., current
controlling stockholder.
8. SUBSEQUENT EVENT
In April 1998, the Company signed a letter of intent with Cumulus Media Inc.
to sell the assets of the Company.
F-198
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of income and retained earnings and of cash flows present
fairly, in all material respects, the combined financial position of The
Midwestern Broadcasting Company's radio stations, WWWM-FM and WLQR-AM at October
31, 1997 and December 31, 1996, and the results of their operations and their
cash flows for the period January 1, 1997 to October 31, 1997 and for each of
the two years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Toledo, Ohio
February 11, 1998
F-199
<PAGE>
THE MIDWESTERN BROADCASTING COMPANY
RADIO STATIONS WWWM-FM AND WLQR-AM
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 310,134 $ 95,279
Marketable securities, at fair value............................................... 303,546 544,510
Trade accounts receivable, less allowance of $10,000 in 1997 and $10,000 in 1996... 593,249 397,661
Amounts due from related parties................................................... 63,431 170,722
Amount due from shareholders....................................................... 79,500 37,620
Prepaid expenses................................................................... 10,431 25,615
Income tax receivable.............................................................. 7,177 7,750
Interest receivable................................................................ 5,018
------------ ------------
Total current assets........................................................... 1,367,468 1,284,175
Property and equipment:
Land and land improvements......................................................... 85,040 85,040
Buildings and leasehold improvements............................................... 168,510 153,028
Transmitter, towers, antenna system, and other equipment........................... 307,821 313,751
Furniture and fixtures............................................................. 160,409 159,418
Automobiles and other vehicles..................................................... 54,858 54,858
------------ ------------
776,638 766,095
Less accumulated depreciation...................................................... 550,705 522,117
------------ ------------
225,933 243,978
------------ ------------
$ 1,593,401 $1,528,153
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-200
<PAGE>
THE MIDWESTERN BROADCASTING COMPANY
RADIO STATIONS WWWM-FM AND WLQR-AM
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STATIONS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............................................. $ 15,860 $ 71,084
Amounts due to affiliates.......................................................... 470,951 426,566
Employees' compensation, payroll taxes, and commissions............................ 83,761 83,292
Income taxes....................................................................... 9,800 418
Current maturities of long-term liabilities........................................ 4,539 4,389
Deferred barter revenue............................................................ 89,055 86,882
------------ ------------
Total current liabilities...................................................... 673,966 672,631
Long-term liabilities:
Notes payable to bank.............................................................. 36,863 38,003
Capital lease obligations.......................................................... 12,355 15,349
------------ ------------
49,218 53,352
Less current maturities............................................................ 4,539 4,389
------------ ------------
44,679 48,963
Stations' equity:
Contributed equity................................................................. 105,702 105,702
Retained earnings.................................................................. 769,054 700,857
------------ ------------
874,756 806,559
------------ ------------
$ 1,593,401 $1,528,153
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-201
<PAGE>
THE MIDWESTERN BROADCASTING COMPANY
RADIO STATIONS WWWM-FM AND WLQR-AM
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE PERIOD YEAR ENDED
JANUARY 1, TO DECEMBER 31,
OCTOBER 31, --------------------------
1997 1996 1995
--------------- ------------ ------------
<S> <C> <C> <C>
Operating revenues:
Local announcements............................................... $ 1,234,931 $ 1,561,720 $ 1,893,321
Regional announcements............................................ 618,134 545,996 797,467
Barter revenue.................................................... 172,656 239,395 333,300
National announcements............................................ 454,405 342,953 403,487
Remotes........................................................... 37,111 39,779 105,195
Political announcements........................................... 4,206
Other............................................................. 446 6,957
--------------- ------------ ------------
2,517,237 2,734,495 3,539,727
Less: agency and national representative commissions.............. 279,227 317,038 408,451
--------------- ------------ ------------
2,238,010 2,417,457 3,131,276
--------------- ------------ ------------
Operating costs and expenses:
Engineering....................................................... 110,848 117,195 91,620
Production........................................................ 443,054 647,557 717,461
Selling........................................................... 560,613 619,285 781,565
General and administrative........................................ 626,268 825,500 825,606
--------------- ------------ ------------
1,740,783 2,209,537 2,416,252
--------------- ------------ ------------
Other income (expense):
Investment income................................................. 13,070 31,556 27,938
Interest expense.................................................. (4,573) (5,992) (4,180)
Miscellaneous..................................................... (18,788) (7,941) (877)
--------------- ------------ ------------
(10,291) 17,623 22,881
--------------- ------------ ------------
Income before local income taxes.................................... 486,936 225,543 737,905
Provision for local income taxes.................................... 9,800 6,000 16,000
--------------- ------------ ------------
Net income.......................................................... 477,136 219,543 721,905
Retained earnings at beginning of year.............................. 700,857 716,705 347,768
Dividends and distributions......................................... (408,939) (235,391) (352,968)
--------------- ------------ ------------
Retained earnings at end of year.................................... $ 769,054 $ 700,857 $ 716,705
--------------- ------------ ------------
--------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-202
<PAGE>
THE MIDWESTERN BROADCASTING COMPANY
RADIO STATIONS WWWM-FM AND WLQR-AM
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD YEAR ENDED
JANUARY 1, TO DECEMBER 31,
OCTOBER 31, ----------------------
1997 1996 1995
--------------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.............................................................. $ 477,136 $ 219,543 $ 721,905
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization......................................... 49,678 53,510 37,326
Provision for losses on accounts receivable........................... 20,084
Interest income from marketable securities............................ (906)
Loss on disposal of property, plant and equipment..................... 995
Barter revenue........................................................ (172,656) (239,395) (333,300)
Barter expense........................................................ 174,829 187,317 277,828
Changes in operating assets and liabilities:
Trade accounts and other receivables.................................. (189,997) 233,534 (74,890)
Amounts due related parties and shareholders.......................... (36,917) (121,408) (26,683)
Intercompany payable/receivable....................................... 146,713 (71,876) 5,287
Prepaid expenses...................................................... 15,184 (6,304) (5,259)
Other assets.......................................................... 3,250 873
Accounts payable and accrued expenses................................. (45,373) (28,516) (12,556)
--------------- ---------- ----------
Net cash provided by operating activities............................... 418,686 229,655 610,615
--------------- ---------- ----------
Cash flows from investing activities
Purchases of property and equipment................................... (32,628) (51,176) (111,503)
Sales (purchases) of marketable securities, net....................... 241,870 (544,510)
--------------- ---------- ----------
Net cash provided by (used in) investing activities..................... 209,242 (595,686) (111,503)
--------------- ---------- ----------
Cash flows from financing activities
Principal payments on note payable to bank and capital lease
obligations........................................................... (4,134) (1,366) (631)
Proceeds from issuance of debt.......................................... 40,000
Dividends and distributions............................................. (408,939) (235,391) (352,968)
--------------- ---------- ----------
Net cash used in financing activities................................... (413,073) (236,757) (313,599)
--------------- ---------- ----------
Increase (decrease) in cash and cash equivalents........................ 214,855 (602,788) 185,513
Cash and cash equivalents at beginning of period........................ 95,279 698,067 512,554
--------------- ---------- ----------
Cash and cash equivalents at end of period.............................. $ 310,134 $ 95,279 $ 698,067
--------------- ---------- ----------
--------------- ---------- ----------
Supplemental schedule of non-cash activities
Equipment acquired under capital leases................................. $ -- $ 15,349 $ --
--------------- ---------- ----------
--------------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-203
<PAGE>
THE MIDWESTERN BROADCASTING COMPANY
RADIO STATIONS WWWM-FM AND WLQR-AM
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Midwestern Broadcasting Company (the "Company") owns and operates radio
stations WWWM-FM and WLQR-AM (the "Stations") located in Toledo, Ohio. At the
close of business on November 12, 1997, the stations were sold to Cumulus
Broadcasting, Inc., a wholly owned subsidiary of Cumulus Media Inc. For
accounting purposes, the acquisition date has been designated as of the close of
business on October 31, 1997. The combined financial statements present the
operations of the Stations on a "carved out" basis. The results of operations
for the period from November 1, 1997 through November 12, 1997 were not
considered significant. In addition, there were no significant differences
between the balance sheet at October 31, 1997 and November 12, 1997.
The significant accounting principles followed by the Stations and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
BASIS OF PRESENTATION
The combined financial statements include the assets and liabilities of the
Stations and the results of their operations.
CASH EQUIVALENTS
The Stations consider all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities consist of U.S. Government debt securities and have
original maturities of six months. Management considers all marketable
securities to be "available for sale" as defined by Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Such securities are carried at market value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for additions and
improvements that add materially to productive capacity or extend the useful
life of an asset are capitalized, and expenditures for maintenance and repairs
are charged to operations. When property is retired or otherwise disposed of,
the related accounts for cost and depreciation are relieved, and any gain or
loss resulting from the disposal is included in results of operations.
Depreciation is computed by accelerated and straight-line methods. Useful lives
ranged from 5 to 20 years for land improvements; 5 to 45 years for buildings and
leasehold improvements; 5 to 10 years for transmitting equipment, towers,
antennas, and furniture; and 5 to 12 years for automobiles and other vehicles.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
F-204
<PAGE>
THE MIDWESTERN BROADCASTING COMPANY
RADIO STATIONS WWWM-FM AND WLQR-AM
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BARTER TRANSACTIONS
Goods and services received in exchange for commercial broadcasts are
recorded at fair value when received, and the related revenue is recorded when
the advertisement is broadcast. The Stations recorded $10,000, $1,700 and $7,000
of fixed assets obtained through various barter transactions during 1997, 1996
and 1995, respectively.
INCOME TAXES
Midwestern Broadcasting is a Subchapter S corporation for federal and state
income tax purposes. As a result, the shareholders of Midwestern include their
pro-rata share of Midwestern's taxable income in their respective personal
income tax returns. Therefore, federal and state income tax provisions have not
been recorded for the Stations.
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 that period.
Actual results could differ from those estimates.
2. LONG-TERM LIABILITIES
During 1995, the Stations borrowed $40,000 from a bank under a term note.
The note bears interest at a fixed interest rate of 10.75% per annum and is
payable in equal monthly installments of principal and interest of $448 over
fifteen years. At October 31, 1996 the balance is $36,863.
The Stations entered into a capital lease for certain equipment during 1996.
The liability under the lease was $12,355 and $15,349 at October 31, 1997 and
December 31, 1996, respectively. The equipment is included in furniture and
fixtures and has a net book value of $11,831 and $15,028 at October 31, 1997 and
December 31, 1996, respectively. Amortization of the capital lease asset is
included in depreciation expense.
F-205
<PAGE>
THE MIDWESTERN BROADCASTING COMPANY
RADIO STATIONS WWWM-FM AND WLQR-AM
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM LIABILITIES (CONTINUED)
Future minimum payments for all long-term obligations as of October 31, 1997
are as follows:
<TABLE>
<CAPTION>
NOTES CAPITALIZED
PAYABLE LEASES
--------- -----------
<S> <C> <C>
1998................................................................... $ 1,239 $ 4,680
1999................................................................... 1,524 4,680
2000................................................................... 1,696 4,680
2001................................................................... 1,888 390
2002................................................................... 2,101
Future Years........................................................... 28,415
--------- -----------
$ 36,863 14,430
--------- -----------
Amount representing interest........................................... 2,075
-----------
Present value of minimum lease payments................................ $ 12,355
-----------
-----------
</TABLE>
Total interest payments were $4,573, $5,992 and $4,180 in 1997, 1996 and
1995, respectively.
3. RELATED PARTIES
Stratford Research, a company affiliated through common ownership and
management, provides market research and consulting services to the Stations.
Consulting fees charged during 1997, 1996 and 1995 to the Stations totaled
$43,000, $71,000 and $98,000, respectively, and are included in general and
administrative expenses. Certain expenditures are incurred by the Stations and
charged to Stratford. At October 31, 1997 and December 31, 1996 and 1995, the
Stations had a receivable from Stratford totaling $6,611, $3,438 and $10,388,
respectively, which is included in amounts due from related parties.
During 1997 and 1996, the shareholders of the Company incurred travel and
other personal expenses in excess of dividends paid, resulting in a net $31,864
and $38,000 receivable due from shareholders as of October 31, 1997 and December
31, 1996, respectively.
F-206
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of Mustang Broadcasting Company
at December 31, 1997, and the results of its operations and its cash flows for
the year in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 5, 1998
F-207
<PAGE>
MUSTANG BROADCASTING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 49,508 $ 51,353
Accounts receivable, less allowance for doubtful accounts of $5,000................. 123,752 160,167
Prepaid expenses.................................................................... 125 227
----------- ------------
Total current assets............................................................ 173,385 211,747
----------- ------------
Property and equipment, net........................................................... 283,175 295,303
Intangible assets, net................................................................ 350,041 362,606
----------- ------------
Total asset..................................................................... $ 806,601 $ 869,656
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................................................... $ -- $ 4,067
Accrued expenses.................................................................... 45,882 40,793
Current portion of debt............................................................. 21,540 21,540
Current portion of stockholder advances............................................. 429,483 429,483
----------- ------------
Total current liabilities....................................................... 496,905 495,883
----------- ------------
Long-term debt........................................................................ 27,012 31,134
Stockholder advances.................................................................. 299,280 299,280
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, $.01 par value, 100,000 shares authorized, 68,500 issued and
outstanding....................................................................... 685 685
Additional paid-in-capital.......................................................... 684,315 684,315
Accumulated deficit................................................................. (701,596) (641,641)
----------- ------------
Total stockholder's equity (deficit)............................................ (16,596) 43,359
----------- ------------
Total liabilities and stockholder's equity (deficit)............................ $ 806,601 $ 869,656
----------- ------------
----------- ------------
</TABLE>
See Notes to Financial Statements.
F-208
<PAGE>
MUSTANG BROADCASTING COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------ FOR THE YEAR ENDED
1998 1997 DECEMBER 31, 1997
----------- ----------- ------------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues............................................................ $ 210,303 $ 251,171 $ 1,139,924
Less: agency commissions.......................................... (6,976) (9,389) (46,753)
----------- ----------- ------------------
Net revenues.................................................. 203,327 241,782 1,093,171
Operating expenses:
Programming....................................................... 83,119 80,442 334,345
Sales and promotions.............................................. 84,805 100,035 436,741
Technical......................................................... 16,587 17,259 68,058
General and administrative........................................ 52,813 56,146 238,628
Depreciation and amortization..................................... 24,693 24,168 96,673
----------- ----------- ------------------
Total operating expenses...................................... 262,017 278,050 1,174,445
----------- ----------- ------------------
Loss from operations................................................ (58,690) (36,268) (81,274)
Interest expense.................................................... (1,265) (14,323) (36,096)
----------- ----------- ------------------
Net loss............................................................ $ (59,955) $ (50,591) $ (117,370)
----------- ----------- ------------------
----------- ----------- ------------------
</TABLE>
See Notes to Financial Statements.
F-209
<PAGE>
MUSTANG BROADCASTING COMPANY
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1997...................................... $ 520 $ 519,480 $ (524,271) $ (4,271)
Issuance of common stock........................................ 165 164,835 -- 165,000
Net loss........................................................ -- -- (117,370) (117,370)
----- ---------- ------------ -----------
Balance at December 31, 1997.................................... $ 685 $ 684,315 $ (641,641) $ 43,359
----- ---------- ------------ -----------
----- ---------- ------------ -----------
</TABLE>
See Notes to Financial Statements.
F-210
<PAGE>
MUSTANG BROADCASTING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------ FOR THE YEAR ENDED
1998 1997 DECEMBER 31, 1997
----------- ----------- ------------------
<S> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss.......................................................... $ (59,955) $ (50,591) $ (117,370)
Adjustments to reconcile net loss to cash provided by operating
activities:
Depreciation and amortization................................... 24,693 24,168 96,673
Loss on disposal of assets...................................... -- -- 21,616
Changes in assets and liabilities:
Accounts receivable............................................. 36,415 5,797 19,984
Prepaid expenses and other current assets....................... 102 (5,849) 13,203
Accounts payable................................................ (4,067) (7,749) (8,837)
Accrued and other liabilities................................... 5,089 (16,660) (11,252)
----------- ----------- ----------
Net cash provided by (used for) operating activities.............. 2,277 (50,884) 14,017
----------- ----------- ----------
Cash flows from investing activities:
Capital expenditures.............................................. -- -- (23,769)
----------- ----------- ----------
Net cash used for investing activities............................ -- -- (23,769)
----------- ----------- ----------
Cash flows from financing activities:
Net repayment of borrowings....................................... (4,122) (3,211) (4,625)
Proceeds from issuance of stock................................... -- -- 165,000
Net repayment of advances from stockholder........................ -- -- (182,888)
----------- ----------- ----------
Net cash used for financing activities............................ (4,122) (3,211) (22,513)
----------- ----------- ----------
Net decrease in cash and cash equivalents........................... (1,845) (54,095) (32,265)
Cash and cash equivalents at beginning of period.................... 51,353 83,618 83,618
----------- ----------- ----------
Cash and cash equivalents at end of period.......................... $ 49,508 $ 29,523 $ 51,353
----------- ----------- ----------
----------- ----------- ----------
Supplemental disclosure of cash flow information:
Interest paid....................................................... $ 1,265 $ 14,323 $ 36,096
----------- ----------- ----------
----------- ----------- ----------
Non-cash operating activities:
Trade revenue..................................................... $ 24,968 $ 18,720 $ 93,878
----------- ----------- ----------
----------- ----------- ----------
Trade expense..................................................... $ 24,968 $ 18,720 $ 93,878
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See Notes to Financial Statements.
F-211
<PAGE>
MUSTANG BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Mustang Broadcasting Company (the "Company") owns and operates radio
stations KEXO-AM, KKNN-FM, KQIX-FM, KQIL AM/FM located in Grand Junction, CO.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
5-15
Office furniture and equipment................................... years
Leasehold improvement............................................ 39 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include organizational costs, goodwill and Federal
Communications Commission ("FCC") licenses. Intangible assets are stated at cost
and are being amortized using the straight-line method over the estimated useful
life or contract term for periods not exceeding 15 years. The Company evaluates
the carrying value of intangibles periodically in relation to the projected
future undiscounted cash flows of the related businesses.
INCOME TAXES
The Company has elected to be treated as a Subchapter S Corporation for
federal and state income tax purposes. Under this election, the income or loss
of the Company is included in the tax return of the stockholder. Accordingly,
federal and state income taxes are not included in the accompanying financial
statements.
F-212
<PAGE>
MUSTANG BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Pro forma results reflecting the treatment of the Company as a tax paying
entity are not included since the Company incurred a net loss for the year ended
December 31, 1997.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
FAIR VALUE OF FINANCIAL STATEMENTS
The carrying amounts of the Company's financial instruments, including cash,
accounts receivable accounts payable, short-term and long-term debt, approximate
fair value.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
2. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Equipment......................................................... $ 272,476
Office Furniture and Leasehold improvements....................... 30,340
---------
302,816
Accumulated depreciation.......................................... (132,789)
---------
170,027
Land.............................................................. 125,276
---------
Property and equipment, net....................................... $ 295,303
---------
---------
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $46,412.
F-213
<PAGE>
MUSTANG BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INTANGIBLE ASSETS:
Intangible assets at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Organization costs................................................ $ 105,263
Goodwill and FCC license.......................................... 438,124
---------
543,387
Accumulated amortization.......................................... (180,781)
---------
Intangible assets, net............................................ $ 362,606
---------
---------
</TABLE>
Amortization expense for the year ended December 31, 1997 was $50,261.
4. LONG-TERM DEBT:
At December 31, 1997, the Company had a note payable for $52,674 with Alpine
Bank related to equipment purchases. The note bears interest at 9.25% and the
final payment is due on October 2, 2000.
The Company also receives advances from its sole stockholder to be used in
business operations. At December 31, 1997, net advances were $728,763. Of this
amount, $343,763 is due on demand and has been classified as a current
liability. The remaining $385,000 is outstanding pursuant to a promissory note
payable and is due in quarterly installments with the balance due April 15,
1999. No interest is paid or accrued related to the stockholder advances.
A summary of the future maturities of long-term debt follows:
<TABLE>
<S> <C>
1998.............................................................. $ 451,023
1999.............................................................. 320,820
2000.............................................................. 9,594
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $32,836 for the year ended
December 31, 1997 under operating leases for radio broadcasting facilities.
Future minimum annual payments under these non-cancelable operating leases and
agreements as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 26,309
1999............................................................... 3,278
2000............................................................... 3,278
2001............................................................... 3,278
Thereafter......................................................... 42,616
</TABLE>
6. SUBSEQUENT EVENT (UNAUDITED):
In February 1998, the Company entered into an agreement to sell certain
assets, subject to approval of the Federal Communications Commission, to Cumulus
Media Inc. for approximately $2,800,000.
F-214
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
New Frontier Communications, Inc.
We have audited the balance sheets of New Frontier Communications, Inc. as
of December 31, 1997 and 1996, and the related statements of operations,
stockholders' deficit, and cash flows for the years ended December 31, 1997,
1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of New Frontier Communications,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years ended December 31, 1997, 1996 and 1995, in conformity
with generally accepted accounting principles.
/s/ JOHNSON, MILLER & CO.
Odessa, Texas
February 24, 1998
F-215
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
MARCH 31, ------------ ------------
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................................. $ 232,307 $ 388,925 118,189
Receivables
Trade (note B)...................................................... 144,246 686,003 689,987
Current maturities of notes receivable (note C)..................... 5,517 5,108 4,023
Affiliates.......................................................... 549,504 67,693 --
Prepaid expenses...................................................... 93,725 113,107 52,728
------------ ------------ ------------
Total current assets.............................................. 1,025,299 1,260,836 864,927
PROPERTY AND EQUIPMENT (notes A5 and D)................................. 1,435,247 1,505,691 1,281,154
GOODWILL, LICENSES AND OPERATING RIGHTS
(net of accumulated amortization of $507,041 in 1997 and $295,942 in
1996) (notes A6 and E)................................................ 2,199,779 2,244,784 1,826,981
NOTES RECEIVABLE--less current maturities (note C)...................... 27,050 28,475 14,077
------------ ------------ ------------
$ 4,687,375 $ 5,039,786 3,987,139
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term debt (note G)......................... $ 338,360 $ 369,995 246,504
Accounts payable (note F)............................................. 117,077 183,735 206,641
Accrued liabilities
Interest............................................................ 45,308 123,376 --
Wages............................................................... -- 87,170 67,625
Other............................................................... 2,581 19,321 29,612
Advance from affiliates............................................... 118,759 116,675 --
------------ ------------ ------------
Total current liabilities......................................... 622,085 900,272 550,382
LONG-TERM DEBT, less current maturities (note G)........................ 4,587,938 4,646,346 3,922,241
DEFERRED INCOME TAX LIABILITY (note J).................................. 68,360 71,919 26,651
------------ ------------ ------------
5,278,383 5,618,537 4,499,274
------------ ------------ ------------
STOCKHOLDERS' DEFICIT
Common stock, no par value;
1,000,000 shares authorized,
560,000 shares issued and outstanding............................... 315,000 315,000 315,000
Accumulated deficit................................................... (906,008) (893,751) (827,135)
------------ ------------ ------------
(591,008) (578,751) (512,135)
------------ ------------ ------------
$ 4,687,375 $ 5,039,786 3,987,139
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-216
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Broadcast revenue.......................... $ 132,596 $ 884,434 $ 4,642,280 3,539,479 2,245,326
Local marketing agreement.................. 681,981 -- -- -- --
------------ ------------ ------------ ------------ ------------
814,577 884,434 4,642,280 3,539,479 2,245,326
Costs and expenses
Direct expenses.......................... 117,995 232,497 410,290 351,210 211,335
Engineering.............................. 30,388 267,676 192,044 111,213 75,959
Programming (note H)..................... 22,390 48,658 801,943 496,046 326,620
Marketing................................ 6,743 99,548 1,315,784 951,446 752,828
Administrative........................... 397,820 120,401 968,263 802,281 544,409
Depreciation and amortization............ 115,449 69,968 485,883 298,303 108,211
------------ ------------ ------------ ------------ ------------
Total operating expenses............. 690,785 838,748 4,174,207 3,010.499 2,019,362
------------ ------------ ------------ ------------ ------------
Operating profit..................... 123,792 45,686 468,073 528,980 225,964
------------ ------------ ------------ ------------ ------------
Other (income) expenses
Loss on disposal of assets............... -- 2,500 33,850 -- 13,076
Interest and financing................... 146,521 110,106 497,234 363,733 167,363
Other.................................... (6,913) -- (1,926) (1,724) 10,209
------------ ------------ ------------ ------------ ------------
139,608 112,606 529,158 362,009 190,648
------------ ------------ ------------ ------------ ------------
(Loss) earnings before income tax.......... (15,816) (66,920) (61,085) 166,971 35,316
Income tax benefit (expense)
Current.................................. -- 34,290 39,737 (32,824) (7,207)
Deferred................................. 3,559 (4,099) (45,268) (26,651) --
------------ ------------ ------------ ------------ ------------
3,559 30,191 (5,531) (59,475) (7,207)
------------ ------------ ------------ ------------ ------------
NET (LOSS) EARNINGS.................. $ (12,257) $ (36,729) $ (66,616) 107,496 28,109
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
(Loss) earnings per share.................. $ (.02) $ (.06) $ (.12) .19 .05
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-217
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NUMBER
OF SHARES COMMON ACCUMULATED
ISSUED STOCK DEFICIT TOTAL
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Balances at December 31, 1994.................................... 560,000 $ 315,000 (962,740) (647,740)
Net earnings..................................................... -- -- 28,109 28,109
----------- ---------- ------------ ----------
Balances at December 31, 1995.................................... 560,000 315,000 (934,631) (619,631)
Net earnings..................................................... -- -- 107,496 107,496
----------- ---------- ------------ ----------
Balances at December 31, 1996.................................... 560,000 315,000 (827,135) (512,135)
Net loss......................................................... -- -- (66,616) (66,616)
----------- ---------- ------------ ----------
Balances at December 31, 1997.................................... 560,000 $ 315,000 (893,751) (578,751)
----------- ---------- ------------ ----------
----------- ---------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-218
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- --------------------------------
1998 1997 1997 1996 1995
--------- ---------- --------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net (loss) earnings................................... $ (12,257) $ (36,729) $ (66,616) 107,496 28,109
Adjustments to reconcile net (loss) earnings to net
cash provided by operating activities:
Depreciation and amortization..................... 115,449 74,539 485,883 298,303 108,211
Decrease (increase) in accounts receivable........ 59,946 169,143 3,984 (307,645) (55,008)
Increase in prepaid expense....................... 19,382 (28,947) (60,379) (28,337) (1,719)
(Decrease) increase in accounts payable........... (66,658) (76,506) (22,906) (41,974) 55,616
Increase in accrued interest payable.............. (78,068) -- 123,376 -- --
Increase in wages payable......................... (87,170) (24,008) 19,545 42,736 2,926
Loss on disposal of assets........................ -- 2,500 33,850 -- 13,076
(Decrease) increase in other accrued
liabilities..................................... (16,740) 2,298 (10,291) 22,405 7,207
Increase in deferred income tax liability......... (3,559) 4,099 45,268 26,651 --
Donation of fixed assets to charity............... -- -- 22,041 -- --
--------- ---------- --------- ---------- ---------
Net cash provided by operating activities....... (69,675) 86,389 573,755 119,635 158,418
--------- ---------- --------- ---------- ---------
Cash flows from investing activities:
Acquisition of property and equipment................. -- -- (31,972) (24,452) (55,562)
Acquisition of radio stations......................... -- -- (28,013) -- --
Loan made to employees................................ -- -- (33,583) -- (21,752)
Principal payments received on employee loan.......... 1,016 970 18,100 3,652 --
--------- ---------- --------- ---------- ---------
Net cash used in investing activities........... 1,016 970 (75,468) (20,800) (77,314)
--------- ---------- --------- ---------- ---------
Cash flows from financing activities:
Loan proceeds......................................... -- -- 94,438 1,607,301 125,505
Principal payments under note obligations............. (90,043) (81,587) (280,588) (1,526,499) (195,949)
Payment of loan fees.................................. -- -- (90,383) (107,341) --
Advance from affiliates, net.......................... 2,084 -- 48,982 -- --
--------- ---------- --------- ---------- ---------
Net cash provided by financing activities....... (87,959) (81,587) (227,551) (26,539) (70,444)
--------- ---------- --------- ---------- ---------
Net increase in cash and cash equivalents............... (156,618) 5,772 270,736 72,296 10,660
Cash and cash equivalents at beginning of year.......... 388,925 118,189 118,189 45,893 35,233
--------- ---------- --------- ---------- ---------
Cash and cash equivalents at end of year................ $ 232,307 $ 123,961 $ 388,925 118,189 45,893
--------- ---------- --------- ---------- ---------
--------- ---------- --------- ---------- ---------
Cash paid during the year for:
Interest.............................................. $ 146,624 $ 110,106 $ 373,858 363,733 167,363
Noncash investing and financing activities:
Detail of radio station purchases
Assets acquired
Property, plant and equipment..................... $ -- $ -- $ 517,676 1,084,500 --
Goodwill, licenses and operating rights........... -- -- 588,527 1,557,035 --
--------- ---------- --------- ---------- ---------
Total consideration............................. -- -- 1,106,203 2,641,535 --
Less: Issuance of long-term debt...................... -- -- 1,033,746 2,641,535 --
Cancellation of noncompete agreement.............. -- -- 44,444 -- --
--------- ---------- --------- ---------- ---------
Cash paid......................................... $ -- $ -- $ 28,013 -- --
--------- ---------- --------- ---------- ---------
--------- ---------- --------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-219
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. GENERAL
New Frontier Communications, Inc. (the Company) is an Arizona Corporation
organized in 1989. Its principal business is the operation of five radio
stations, KGEE, KODM, KMND, KNFM and KBAT, in Midland/Odessa, Texas.
2. CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company considers cash
on hand and cash on deposit in banks to be cash and cash equivalents.
3. ACCOUNTS RECEIVABLE
The Company has set up an allowance for specific accounts deemed
uncollectible at year end.
4. REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
5. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and depreciated principally on
the straight-line method over the estimated useful lives of the assets. Major
additions and betterments are capitalized while replacements, maintenance and
repairs that do not improve or extend the life of the respective assets are
expensed. When the assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any resulting
gain or loss is charged or credited to operations.
6. GOODWILL, LICENSES AND OPERATING RIGHTS
The Company's intangible assets result from station acquisitions and are
being amortized on the straight-line basis over estimated useful lives of 2 to
40 years.
7. BARTER TRANSACTIONS
Revenue from such transactions is recorded at the time the commercials are
broadcast, and barter expense is recorded at the time the services are used. If
the services or products have not been received at the date the commercial is
aired, a receivable is reported. On the other hand, if services or products are
received before the date the commercial is aired, a liability is reported.
Revenue from barter transactions totaled approximately $669,000 in 1997,
$481,000 in 1996, and $380,000 in 1995. Expenses from barter transactions
totaled approximately $635,000 in 1997, $490,000 in 1996, and $420,000 in 1995.
F-220
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
8. INCOME TAXES
The Company has elected C Corporation status under the Internal Revenue
Code. Provisions for income taxes are based on amounts reported in the
statements of earnings and include deferred taxes on temporary differences in
the recognition of income and expense for tax and financial statement purposes.
Deferred taxes are computed using the asset and liability approach as prescribed
in Financial Accounting Standards Board Statement No. 109, ACCOUNTING FOR INCOME
TAXES.
9. USE OF ESTIMATES
In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
10. EARNINGS PER SHARE
Net loss/earnings per share is determined by dividing net loss/earnings by
the weighted average number of common shares outstanding for the period. The
computation of fully diluted net loss/earnings per share was antidilutive in
each of the periods presented; therefore, the amounts reported as primary and
fully diluted are the same.
11. RECLASSIFICATIONS, NOT MATERIAL
Certain reclassifications have been made to conform to the 1997
presentation.
12. INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
NOTE B--ACCOUNTS RECEIVABLE
Receivables consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Regular trade.......................................................... $ 686,003 689,987
Barter trade........................................................... -- --
---------- ---------
Net receivables...................................................... $ 686,003 689,987
---------- ---------
---------- ---------
</TABLE>
F-221
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE C--NOTE RECEIVABLE
In November 1995, the Company purchased two vehicles through a finance
company for the personal use of two employees. The payments, including interest,
are being made by the two employees. The amounts of the notes receivable are for
the same amounts as the notes payable. The balance on the notes receivable is
$23,998 and $9,585 respectively at December 31, 1997.
Schedule of long-term notes receivable for the years following December 31,
1997:
<TABLE>
<S> <C>
1998............................................................... $ 5,108
1999............................................................... 5,981
2000............................................................... 20,157
2001............................................................... 2,337
---------
$ 33,583
---------
---------
</TABLE>
NOTE D--PROPERTY AND EQUIPMENT
The classification of the Company's property and equipment, and their
estimated useful lives, are as follows:
<TABLE>
<CAPTION>
ESTIMATED
1997 1996 USEFUL LIFE
------------ ---------- -----------
<S> <C> <C> <C>
Land................................................. $ 10,000 10,000
Buildings............................................ 30,000 65,010 31.5 years
Transmitter equipment................................ 946,301 752,558 5-20 years
Studio equipment..................................... 760,247 511,880 5-20 years
Office furniture and equipment....................... 430,535 387,537 3-10 years
Antenna.............................................. 110,913 110,913 6-15 years
Vehicles............................................. 60,566 28,066 3-5 years
------------ ----------
2,348,562 1,865,964
Less accumulated depreciation.................... 842,871 584,810
------------ ----------
$ 1,505,691 1,281,154
------------ ----------
------------ ----------
</TABLE>
Depreciation expense was $269,220 in 1997, $181,938 in 1996 and $75,360 in
1995.
NOTE E--GOODWILL, LICENSES AND OPERATING RIGHTS
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
License agreements, less accumulated amortization of $278,369 and $201,200............ $ 988,678 777,847
Goodwill, less accumulated amortization of $135,771 and $78,214....................... 926,291 908,321
Non-compete agreements and deferred charges, less accumulated amortization of $92,901
and $16,528......................................................................... 329,815 140,813
------------ ------------
$ 2,244,784 1,826,981
------------ ------------
------------ ------------
</TABLE>
F-222
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE E--GOODWILL, LICENSES AND OPERATING RIGHTS (CONTINUED)
Amortization expense charged to operations in 1997 was $216,663, in 1996 was
$116,365, and in 1995 was $32,851.
NOTE F--ACCOUNTS PAYABLE
Payables consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Regular trade.......................................................... $ 121,751 101,581
Barter trade........................................................... 40,048 70,979
Agencies and royalties................................................. 21,936 34,081
---------- ---------
$ 183,735 206,641
---------- ---------
---------- ---------
</TABLE>
NOTE G--LONG-TERM OBLIGATIONS
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Note payable to FINOVA Capital Corporation at Citibank Prime plus 2.5%,
payable in quarterly installments with final payment of $2,692,650 due on
5/1/01. Interest is payable monthly. Payment schedule is as follows:
1/1/98 - 4/1/98 $75,000
7/1/98 81,250
10/1/98 - 7/1/99 100,000
10/1/99 - 7/1/00 112,500
10/1/00 - 4/1/01 166,700
5/1/01 Remaining balance 2,629,650
All existing and after-acquired property of Borrower, including accountings,
equipment, inventory, and all proceeds of the foregoing have been pledged as
collateral for all three FINOVA notes. $ 4,211,000 --
</TABLE>
F-223
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE G--LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
Note payable to FINOVA Capital Corporation at Citibank Prime plus 2.5%,
payable in seventeen consecutive quarterly installments on the first
business day of each quarter commencing with the first business day of the
fourth quarter following the closing with final payment of $1,902,895 due on
5/1/01. Monthly interest payment commences 5/1/96. Payment schedule is as
follows:
<S> <C> <C>
4/1/97 $50,000
7/1/97 - 4/1/98 75,000
7/1/98 - 4/1/99 81,250
7/1/99 - 4/1/00 93,750
7/1/00 - 4/1/01 112,500
5/1/01 Remaining balance 1,902,895
All existing and after-acquired property of Borrower, including accountings,
equipment, inventory, and all proceeds of the foregoing have been pledged as
collateral for all three FINOVA notes. -- 3,386,000
Note payable to FINOVA Capital Corporation at Citibank Prime plus 2.5%,
payable in full on May 1, 2001. Interest is payable monthly. Collateral as
stated in above note. 614,000 614,000
Revolving note payable to FINOVA Capital Corporation at Citibank Prime plus
2.5%, payable in full on May 1, 2001 with interest payable monthly.
Collateral as stated in above note. ........................................ 124,121 100,000
Note payable to finance company at 12.00%, due in monthly principal and
interest installment of $514. The note is unsecured. ....................... $ 2,981 --
Note payable to finance company at 11%, due in monthly principal and
interest installments of $4,000. The note is unsecured. .................... 19,469 --
Note payable to bank at 11.50%, due in monthly principal and interest
installments of $1,157. The note is secured by accounts receivable,
equipment and fixtures. .................................................... 2,631 15,443
</TABLE>
F-224
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE G--LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
Note payable to finance company at 8.75%, due in monthly principal and
interest installments of $439. The note is secured by a vehicle. (See Note
C).......................................................................... 23,998 --
<S> <C> <C>
Note payable to finance company at 14% due in monthly principal and interest
installments of $275. The note is secured by a vehicle. (See Note C). ...... 9,585 --
Note payable to finance company at 13.75%, due in monthly principal and
interest installments of $526. The note is unsecured........................ 3,032 --
Note payable to a finance company at 12.6%, due in monthly principal and
interest installments of $943. The note is secured by equipment............. 5,524 15,384
Other....................................................................... -- 37,914
------------ ------------
5,016,341 4,168,745
Less current maturities................................................. 369,995 246,504
------------ ------------
$ 4,646,346 3,922,241
------------ ------------
------------ ------------
</TABLE>
Aggregate maturities of long-term debt for the five years following December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 369,995
1999............................................................ 418,482
2000............................................................ 524,357
2001............................................................ 3,703,507
---------
$5,016,341
---------
---------
</TABLE>
As part of the FINOVA debt agreements, the Company must comply with certain
restrictive covenants, including restrictions on capital expenditures, operating
leases, involvement in mergers or acquisitions and must comply with certain
financial ratios. At December 31, 1997, the Company was in compliance with these
various covenants.
NOTE H--RELATED PARTY TRANSACTIONS
The Company's majority stockholder also operates a radio station in Arizona.
This station provides programming research and consulting to the Company at
cost. Such consulting charges totalled approximately $32,000 in 1997 and $15,000
in 1996, and have been included in the Company's operating expenses.
Another employee of this related party, also a stockholder of the Company,
provides programming consulting to the Company at no charge. The consulting
services provided have an estimated market value between approximately $4,800
and $3,600 for the years ended December 31, 1997 and 1996.
F-225
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE H--RELATED PARTY TRANSACTIONS (CONTINUED)
The Company's current trade payables include balances owed the Arizona
station of approximately $19,210 at December 31, 1996.
NOTE I--OPERATING LEASES AND COMMITMENTS
The Company conducts its operations utilizing leased facilities and
equipment consisting of a sales and production office, antenna space, computer
and software. The operating lease covering the office space provides that the
Company pay taxes and a portion of the annual increments to operating expenses
applicable to the leased premises. The leases provide for renewals for various
periods at stipulated rates. Total rental expenses were approximately $124,000,
$99,000, and $46,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, of which a substantial portion was provided by advertising
services rendered in both years.
The minimum rental commitments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 82,459
1999.............................................................................. 65,228
2000.............................................................................. 24,795
2001.............................................................................. 9,500
----------
$ 181,982
----------
----------
</TABLE>
The Company renewed a license agreement to use a rating service's market
share information for advertising sales through March, 1999. The noncancelable
agreement requires the following minimum annual payments:
<TABLE>
<S> <C>
1998............................................................... $ 22,314
1999............................................................... 5,672
---------
$ 27,986
---------
---------
</TABLE>
NOTE J--TAXES
The income tax provision reconciled to the tax computed at the Company's
effective statutory rate was as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Tax at statutory rate (34%)............................................. $ (20,769) 56,770
Non-deductible portion of meals--entertainment.......................... 3,035 3,583
Other................................................................... (6,056) (878)
Limitation of net operating loss carryback.............................. 29,321 --
---------- ---------
$ 5,531 59,475
---------- ---------
---------- ---------
</TABLE>
F-226
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE J--TAXES (CONTINUED)
Deferred tax liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Deferred tax assets
Excess tax basis over book basis of intangibles....................... $ 10,982 36,905
Net operating loss carryforward....................................... 21,560 --
---------- ---------
32,542 36,905
Less allowance.................................................... 21,560 --
---------- ---------
10,982 36,905
Deferred tax liability
Excess book basis over tax basis of property and equipment............ (82,901) (63,556)
---------- ---------
Net deferred tax liability............................................ $ (71,919) (26,651)
---------- ---------
---------- ---------
</TABLE>
NOTE K--ACQUISITIONS
On May 1, 1997, the Company entered into negotiations to purchase KBAT, a
privately owned radio station. Between May 1, 1997 and the date of closing, the
Company operated the radio station under a local marketing agreement. On August
1, 1997, the Company purchased substantially all the assets of KBAT. The
aggregate purchase price was approximately $1,106,000, including related
acquisition costs. The aggregate purchase price, which was financed by
substantially long-term debt, has been allocated to the assets of the company
based on their respective market values. The excess of the purchase price over
the underlying assets acquired, approximately $75,000, was allocated to goodwill
and is being amortized over 15 years.
For financial statement purposes, the acquisition was accounted for as a
purchase. Accordingly, the assets of the acquired business are included in the
financial statement since the date of acquisition. The unaudited proforma
results below assume the acquisition occurred at the beginning of the fiscal
years ending December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Net sales.......................................................... $ 4,762,507 3,900,159
Operating income................................................... 473,319 544,717
Net earnings....................................................... (75,191) 81,768
Net (loss) earnings per share
Primary.......................................................... (.13) .18
</TABLE>
Pro forma data does not purport to be indicative of the results that would
have been obtained had these events actually occurred at the beginning of the
periods presented and is not intended to be a projection of future results under
the ownership and management of the Company.
NOTE L--STOCK SALE AGREEMENT
Effective December 17, 1997, the Company's stockholders entered into a Stock
Sale Agreement (the Agreement) with Cumulus Holdings, Inc., an Illinois
corporation. The Agreement provides for the sale of
F-227
<PAGE>
NEW FRONTIER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE L--STOCK SALE AGREEMENT (CONTINUED)
100% of the outstanding capital stock of the Company to Cumulus. In
consideration for 100% of the Company's stock, Cumulus will pay the stockholders
a purchase price as follows:
-- on December 17, 1997, Cumulus deposited with an earnest money escrow
agent, the amount of $750,000 in the form of an irrevocable letter of
credit,
-- on the closing date, Cumulus will deposit with a retainage agent, in
cash, the amount of $500,000. The retainage deposit shall be placed in
an interest-bearing account and will be released to the Company's
stockholders on the first anniversary of the closing date if Cumulus has
not submitted an indemnification claim,
-- on the closing date, Cumulus will pay to the Company's stockholders the
amount of $13,000,000 less an amount equal to the total of the Company's
long-term debt and other liabilities (except certain lease obligations),
-- on the closing date, Cumulus will pay to the Company's stockholders an
amount equal to the Company's cash at closing plus adjusted accounts
receivable and prepaid expenses and deposits.
The closing date will occur no later than the tenth business day after the
FCC approval. If closing does not occur because of a breach by Cumulus, the
earnest money deposit will be paid to the Company's stockholders; and, if the
closing does not occur because of a breach by the Company's stockholders, the
earnest money deposit will be returned to Cumulus.
Concurrent with the execution of the Agreement, the Company's stockholders
and Cumulus entered into a Local Marketing Agreement (the LMA) in which Cumulus
will purchase airtime on the Company's stations effective January 1, 1998. The
agreement will expire on the earliest of December 31, 1998 or the closing of the
sale. In consideration for the airtime, Cumulus will pay monthly amounts ranging
from $73,000 to $81,334. In addition, Cumulus will reimburse the Company certain
station expenses, estimated to be $43,675 monthly. At December 31, 1997, the
Company had received advances on these payments from Cumulus of $116,675.
Concurrent with the closing date, the Company's President (and one of it's
stockholders), will execute a noncompete agreement whereby he will agree not to
compete with Cumulus in the markets served by the stations. In consideration for
the noncompete agreement, in addition to his portion of the purchase price, he
will receive $500,000.
F-228
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of the Radio Stations
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of changes in net investment of parent and of
cash flows present fairly, in all material respects, the financial position of
Ninety Four Point One, Inc. (a subsidiary of Petracom Broadcasting, Inc.) and
KAYD AM/FM (a division of Petracom Broadcasting of Rockford, Inc.) (the "Radio
Stations") at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Radio Stations' management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Atlanta, Georgia
February 20, 1998, except as
to Note 7, which is as of
March 6, 1998
F-229
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCASTING OF ROCKFORD, INC.)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------ --------------------
<S> <C> <C> <C>
1998 1997 1996
------------ --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 192 $ 91 $ 81
Accounts receivable, less allowance for doubtful accounts of $110, $101 and
$108, respectively.......................................................... 469 641 634
Trade receivables............................................................. 22 40 23
Prepaid expenses and other current assets..................................... 33 13 18
------------ --------- ---------
Total current assets...................................................... 716 785 756
Property and equipment, net..................................................... 756 733 685
Intangible assets, net.......................................................... 124 136 189
------------ --------- ---------
Total assets.............................................................. $ 1,596 $ 1,654 $ 1,630
------------ --------- ---------
------------ --------- ---------
LIABILITIES AND NET INVESTMENT OF PARENT
Current liabilities:
Accounts payable.............................................................. $ 96 $ 76 $ 90
Trade payables................................................................ 52 74 71
Accrued expenses and other current liabilities................................ 58 25 7
------------ --------- ---------
Total current liabilities................................................. 206 175 168
Net investment of parent........................................................ 1,390 1,479 1,462
Commitments and contingencies (Note 6).......................................... -- -- --
------------ --------- ---------
Total liabilities and net investment of parent............................ $ 1,596 $ 1,654 $ 1,630
------------ --------- ---------
------------ --------- ---------
</TABLE>
See Notes to Financial Statements.
F-230
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCASTING OF ROCKFORD, INC.)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues..................................................... $ 926 $ 816 $ 3,821 $ 3,840 $ 2,934
Less: commissions.......................................... 112 103 396 506 309
--------- --------- --------- ----------- ---------
814 713 3,425 3,334 2,625
Barter and trade revenues.................................... 53 93 351 345 404
--------- --------- --------- ----------- ---------
Total net revenues..................................... 867 806 3,776 3,679 3,029
--------- --------- --------- ----------- ---------
Operating expenses:
Operating.................................................. 23 21 98 57 96
Selling, general and administrative........................ 541 509 2,439 2,391 2,145
Programming................................................ 190 168 763 650 602
Depreciation and amortization.............................. 47 45 185 186 264
--------- --------- --------- ----------- ---------
Total operating expenses............................... 801 743 3,485 3,284 3,107
--------- --------- --------- ----------- ---------
Income (loss) from operations................................ 66 63 291 395 (78)
Other (expense) income:
Interest expense........................................... (105) (91) (380) (336) (239)
Other...................................................... (12) (1) (22) (12) 24
--------- --------- --------- ----------- ---------
Net (loss) income...................................... $ (51) $ (29) $ (111) $ 47 $ (293)
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
See Notes to Financial Statements.
F-231
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCASTING OF ROCKFORD, INC.)
COMBINED STATEMENT OF CHANGES IN NET INVESTMENT OF PARENT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at January 1, 1995.......................................................... $ 836
Net loss............................................................................ (293)
Net transfers from Parent........................................................... 1,109
---------
Balance at December 31, 1995........................................................ 1,652
Net income.......................................................................... 47
Net transfers to Parent............................................................. (237)
---------
Balance at December 31, 1996........................................................ 1,462
Net loss............................................................................ (111)
Net transfers from Parent........................................................... 128
---------
Balance at December 31, 1997........................................................ $ 1,479
---------
---------
</TABLE>
See Notes to Financial Statements.
F-232
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCASTING OF ROCKFORD, INC.)
COMBINED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED MARCH 31,
------------------------ -------------------------------
1998 1997 1997 1996 1995
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net (loss) income.................................................. $ (51) $ (29) $ (111) $ 47 $ (293)
Adjustments to reconcile net (loss) income to net cash provided
by (used for) operating activities:
Depreciation................................................. 33 31 132 141 168
Amortization................................................. 14 14 53 45 96
Net trade (revenue) expense.................................. (6) (42) (14) 91 41
Gain on sale of fixed assets................................. -- (2) (2) -- --
Minority interest share of net loss.......................... -- -- -- -- 22
Forgiveness of debt.......................................... -- -- -- -- (44)
Changes in assets and liabilities:
(Increase) decrease in net investment of parent............ (38) -- 128 (237) 1,109
Decrease (increase) in accounts receivable................. 172 55 (7) (110) (79)
(Increase) decrease in prepaid expenses and other
current assets........................................... (20) -- 5 9 (7)
Increase (decrease) in accounts payable.................... 20 19 (14) (16) (101)
Increase (decrease) in accrued expenses and other
current liabilities...................................... 33 23 18 (38) 45
----- ----- --------- --------- ---------
Net cash provided by (used for) operating activities..... 157 69 188 (68) 957
----- ----- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment.............................. (56) (39) (187) (65) (253)
Proceeds from sale of fixed assets............................... -- 9 9 -- --
----- ----- --------- --------- ---------
Net cash used for investing activities................... (56) (30) (178) (65) (253)
----- ----- --------- --------- ---------
Cash flows from financing activities:
Payments on long-term debt....................................... -- -- -- (9) (516)
----- ----- --------- --------- ---------
Cash used for financing activities....................... -- -- -- (9) (516)
----- ----- --------- --------- ---------
Increase (decrease) in cash........................................ 101 39 10 (142) 188
Cash at beginning of year.......................................... 91 81 81 223 35
----- ----- --------- --------- ---------
Cash at end of year................................................ $ 192 $ 120 $ 91 $ 81 $ 223
----- ----- --------- --------- ---------
----- ----- --------- --------- ---------
</TABLE>
See Notes to Financial Statements.
F-233
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCSTING OF ROCKFORD, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying combined financial statements present the financial
position, results of operations, changes of net investment of parent and cash
flows of Ninety Four One, Inc. and KAYD AM/FM. Ninety Four Point One, Inc. owns
and operates the KQXY and KQHN radio stations in Beaumont, Texas. Petracom
Broadcasting of Rockford, Inc. owns and operates the KAYD AM/FM radio stations
in Beaumont, Texas (collectively the "Radio Stations").
Throughout the periods presented, the Radio Stations' operations were
conducted and accounted for as subsidiaries or divisions of Petracom Holdings,
Inc. ("Holdings"). These financial statements have been derived from the
historical accounting records of the Radio Stations and include all revenues and
expenses directly attributable to the Radio Station, including allocations for
the costs of general and administrative expenses performed on behalf of the
Radio Stations by Holdings. As more fully described in Note 2, a pro forma
provision for income taxes for the year ended December 31, 1997 was made to
reflect the provision for income taxes of the Radio Stations if they were a
separate taxpayer. See Note 5 for a description of the allocation methodology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 RECOGNITION
Advertising revenue is recognized in the period during which the spots are
aired. Revenues from other sources are recognized in the period when the
services are provided.
PROPERTY AND EQUIPMENT
Property and equipment, is recorded at cost. Depreciation is computed over
the estimated useful lives of the assets which range from 5 to 20 years on a
straight line basis.
INTANGIBLE ASSETS
Intangible assets are stated at cost and are being amortized using the
straight-line method over the estimated useful life. The Radio Stations evaluate
the recoverability of goodwill annually to determine if the expected
undiscounted future cash flows from goodwill is inadequate to exceed the
carrying value. In those instances, the carrying value would be reduced and an
impairment loss would be recognized. The Radio Stations did not recognize any
impairment loss during the years ended December 31, 1997, 1996 and 1995.
F-234
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCSTING OF ROCKFORD, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Radio Stations' operating results have been included in the consolidated
tax returns filed by Holdings and no effect for income taxes has been recorded
in the historical results of operations. A pro forma adjustment for income taxes
has been made for the year ended December 31, 1997 as if the Radio Stations were
a separate taxpayer.
TRADE TRANSACTIONS
The Radio Stations trade certain advertising time in exchange for various
goods and services. These transactions are recorded at the estimated fair value
of the goods or services received. The related revenue is recognized when the
advertisements are broadcast while expenses are recognized when the goods or
services are received or used.
FINANCIAL INSTRUMENTS
Management estimates that the fair value of all financial instruments
approximates their carrying value at December 31, 1997.
EARNINGS PER SHARE
Due to the historical organization and capital structure of the Radio
Stations, earning per share information is not considered relevant.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
necessary for a fair presentation of results of the interim periods have been
made and such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
F-235
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCSTING OF ROCKFORD, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS) (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE --------------------
(YEARS) 1997 1996
--------------- --------- ---------
<S> <C> <C> <C>
Land........................................................ 20 $ 194 $ 153
Building and improvements................................... 20 155 150
Broadcasting towers and equipment........................... 10 541 499
Office furniture and equipment.............................. 5 725 632
Motor vehicles.............................................. 5 74 70
Construction in progress.................................... -- 7 21
--------- ---------
1,696 1,525
Accumulated depreciation and amortization................... (963) (840)
--------- ---------
$ 733 $ 685
--------- ---------
--------- ---------
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
AMORTIZATION DECEMBER 31,
PERIOD --------------------
(YEARS) 1997 1996
----------------- --------- ---------
<S> <C> <C> <C>
Deferred financing costs.................................... 7-8 $ 143 $ 143
Customer list............................................... 5 125 125
Goodwill.................................................... 5 25 25
Organizational costs........................................ 5 12 12
--------- ---------
305 305
Accumulated amortization.................................... (169) (116)
--------- ---------
$ 136 $ 189
--------- ---------
--------- ---------
</TABLE>
The amortization of deferred financing costs is recorded as interest expense
in the statement of operations.
5. RELATED PARTY TRANSACTIONS
The financial statements include significant transactions with Holdings
involving functions and services that were provided to or for the Radio
Stations. The costs of these functions and services have been directly charged
or allocated to the Radio Stations using methods that management believes are
reasonable. Such charges and allocations are not necessarily indicative of costs
which may have been incurred if the Radio Stations had been a separate entity.
Allocated costs for the years ended December 31, 1997, 1996 and 1995 were $137,
$117 and $128, respectively.
F-236
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCSTING OF ROCKFORD, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS) (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The Radio Stations have operating lease agreements for broadcasting
facilities and equipment. Rental expense for the years ended December 31, 1997,
1996 and 1995 was $93, $59 and $26, respectively. Future minimum annual payments
under these noncancelable operating leases as of December 31, 1997, are as
follows:
<TABLE>
<S> <C>
1998............................................................... $ 23
1999............................................................... 3
---
$ 26
---
---
</TABLE>
7. SUBSEQUENT EVENT
On March 6, 1998, Holdings entered into an asset purchase agreement to sell
substantially all of the assets of the Radio Stations. The sale is expected to
close in the second quarter 1998.
F-237
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of Pamplico Broadcasting, L.P. (the "Partnership") at
December 31, 1997, and the results of its operations and its cash flows for the
year ended December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 13, 1998
F-238
<PAGE>
PAMPLICO BROADCASTING, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------- ------------------
1998 1997
--------------- ------------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash....................................................................... $ 4,169 $ --
Accounts receivable, less allowance for doubtful accounts of $53,127 and
$53,127, respectively.................................................... 24,133 91,915
Other current assets....................................................... 1,000 1,000
--------------- ----------
Total current assets................................................... 29,302 92,915
Property and equipment, net.................................................. 399,480 413,197
Intangible assets, net....................................................... 466,931 473,888
--------------- ----------
Total assets........................................................... $ 895,713 $ 980,000
--------------- ----------
--------------- ----------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable........................................................... $ 65,395 $ 89,051
Accrued and other current liabilities...................................... 123,653 73,653
Deferred liabilities....................................................... 50,000 50,000
Demand notes............................................................... 3,524,799 3,476,993
Due to affiliate........................................................... 98,092 63,700
--------------- ----------
Total current liabilities.............................................. 3,861,939 3,753,397
--------------- ----------
Commitments and contingencies
Partners' capital (deficit):
Beginning capital (deficit)................................................ (2,773,397) (2,229,399)
Partner contributions...................................................... -- 31,974
Current year loss.......................................................... (192,829) (575,972)
--------------- ----------
Total partners' capital (deficit)...................................... (2,966,226) (2,773,397)
--------------- ----------
Total liabilities and partners' capital................................ $ 895,713 $ 980,000
--------------- ----------
--------------- ----------
</TABLE>
See Notes to Financial Statements.
F-239
<PAGE>
PAMPLICO BROADCASTING, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED
-------------------------- DECEMBER 31,
1998 1997 1997
------------ ------------ ------------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues.......................................................... $ 111,568 $ 216,110 $ 1,046,516
Less: agency commissions........................................ -- -- (51,325)
Income from time brokerage agreement.............................. 15,000 -- --
------------ ------------ ------------------
Net revenues................................................ 126,568 216,110 995,191
Operating expenses:
Sales and promotions............................................ 24,911 29,864 132,143
Technical....................................................... 88,909 74,896 293,412
General and administrative...................................... 87,978 102,116 416,506
Trade........................................................... 53,350 75,628 440,082
------------ ------------ ------------------
Total operating expenses.................................... 255,148 282,504 1,282,143
------------ ------------ ------------------
Loss from operations.............................................. (128,580) (66,394) (286,952)
Other income (expense):
Interest expense................................................ (51,631) (39,422) (270,944)
Other........................................................... (12,618) (2,680) (18,076)
------------ ------------ ------------------
Net loss.......................................................... $ (192,829) $ (108,496) $ (575,972)
------------ ------------ ------------------
------------ ------------ ------------------
</TABLE>
See Notes to Financial Statements.
F-240
<PAGE>
PAMPLICO BROADCASTING, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED
------------------------ DECEMBER 31,
1998 1997 1997
----------- ----------- ------------------
<S> <C> <C> <C>
(UNAUDITED)
Cash flows used in operating activities:
Net loss.......................................................... $ (192,829) $ (108,496) $ (575,972)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 22,013 17,105 68,419
Decrease/(increase) in accounts receivable.................... 67,782 (736) 16,092
Increase in other current assets.............................. -- -- (1,000)
Decrease in accounts payable.................................. (23,656) (36,414) (33,165)
Increase in accrued and other current liabilities............. 50,000 -- 73,653
Increase/(decrease) in payable to affiliate................... 33,432 33,836 (36,158)
----------- ----------- ----------
Net cash used in operating activities....................... (43,258) (94,705) (488,131)
----------- ----------- ----------
Cash flows used in investing activities--
Purchases of property and equipment............................... (379) (20,076) (291,554)
----------- ----------- ----------
Cash flows from financing activities:
Proceeds of borrowings of notes payable, net...................... 47,806 103,671 747,711
Proceeds from partner contributions............................... -- 16,574 31,974
----------- ----------- ----------
Net cash provided by financing activities................... 47,806 129,245 779,685
----------- ----------- ----------
Increase in cash.................................................... 4,169 5,464 --
Cash at beginning of period......................................... -- -- --
----------- ----------- ----------
Cash at end of period............................................... $ 4,169 $ 5,464 $ --
----------- ----------- ----------
----------- ----------- ----------
Supplemental disclosures of cash flow information:
Interest paid..................................................... $ 51,631 $ 39,422 $ 197,291
----------- ----------- ----------
----------- ----------- ----------
Non-cash operating activities:
Trade revenue..................................................... $ 53,350 $ 75,628 $ 440,082
----------- ----------- ----------
----------- ----------- ----------
Trade expense..................................................... $ 53,350 $ 75,628 $ 440,082
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See Notes to Financial Statements.
F-241
<PAGE>
PAMPLICO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Pamplico Broadcasting, L.P. (the "Partnership") is a limited partnership
whose partners include a general partner and two limited partners. The
Partnership owns and operates radio stations WMXT-FM, WBZF-FM, WYNA-FM and
maintains a management operating lease for WWFN (the "Stations") located in
Florence, SC.
The significant accounting principles followed by the Partnership and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
The Partnership is entirely dependent on the continued financial support of
its partners to meet its obligations as they come due.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Partnership enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Partnership uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Broadcasting towers and equipment............................ 7 years
Office furniture and equipment............................... 5 years
Term of
Leasehold improvement........................................ lease
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include Federal Communications Commission ("FCC")
licenses. Intangible assets are stated at cost and are being amortized using the
straight-line method over a fifteen year period. The
F-242
<PAGE>
PAMPLICO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Partnership evaluates the carrying value of intangibles periodically in relation
to the projected future undiscounted net cash flows of the related businesses.
FEDERAL INCOME TAXES
The Partnership is not a taxpaying entity for Federal income tax purposes,
and thus no income tax expense or benefit have been recorded.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, accounts payable, and
demand notes approximates fair value due to their short-term nature.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments were of a
normal and recurring nature. The results of operations and cash flows for the
three months ended March 31, 1998 are not necessarily indicative of the results
that can be expected for the entire fiscal year ending December 31, 1998.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Broadcasting towers and equipment............................................... $ 631,341
Office furniture and equipment.................................................. 26,016
Leasehold improvements.......................................................... 12,317
------------
669,674
Accumulated depreciation........................................................ (256,477)
------------
Property and equipment, net..................................................... $ 413,197
------------
------------
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $36,753.
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
FCC licenses.................................................................... $ 550,000
Accumulated amortization........................................................ (76,112)
------------
Intangible assets, net.......................................................... $ 473,888
------------
------------
</TABLE>
Amortization expense for the year ended December 31, 1997 was $31,666.
F-243
<PAGE>
PAMPLICO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DEMAND NOTES:
Demand notes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
Note payable at prime rate minus 1%, due February 1998, and secured by
substantially all assets of the Partnership and the personal stock of a
certain partner.......................................................... $ 1,900,000
Note payable at 9.25%, total payment due January, 1998..................... 190,143
Note payable on demand to partners at prime rate plus 1%................... 1,386,850
-----------------
$ 3,476,993
-----------------
-----------------
</TABLE>
5. RELATED PARTIES:
The Partnership entered into several transactions with an affiliate owned by
two of the same partners as the Partnership. At December 31, 1997, $63,700 was
owed to the affiliate.
Of the $1,386,850 note payable to partners, $715,000 was loaned to the
Partnership during 1997 to be used in the daily operations of the Partnership.
The loans are payable on demand at prime plus 1%.
6. COMMITMENTS AND CONTINGENCIES:
The Partnership incurred expenses of approximately $57,042 for the year
ended December 31, 1997 under operating leases for radio broadcasting
facilities. Future minimum annual payments under these non-cancelable operating
leases and agreements as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
PAYMENTS
----------
<S> <C>
1998.............................................................................. $ 57,000
1999.............................................................................. 55,800
2000.............................................................................. 55,800
2001.............................................................................. --
Thereafter........................................................................ --
----------
$ 168,600
----------
----------
</TABLE>
7. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT:
In February 1998, the Partnership entered into an asset purchase agreement
with Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media
Inc.) ("Cumulus") to sell all of the assets of the Partnership to Cumulus,
subject to approval of the FCC. In conjunction with the sale, the Partnership
entered into a time-brokerage agreement ("TBA") with Cumulus effective March 16,
1998. Under the terms of the TBA, Cumulus has the night to broadcast certain
programming and sell advertising on the stations until the earlier of the
closing or termination of the asset purchase agreement. In exchange, Cumulus has
agreed to pay the Partnership a monthly fee of $ .
F-244
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations and accumulated deficit and of cash flows present fairly, in all
material respects, the financial position of Phoenix Broadcast Partners, Inc. at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 16, 1998
F-245
<PAGE>
PHOENIX BROADCAST PARTNERS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- ------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents..............................................
$ -- $ 543 $ --
Accounts receivable, less allowance for
doubtful accounts of $26,606, $35,300 and $25,413, respectively...... 70,516 100,704 75,057
----------- ----------- -----------
Total current assets............................................... 70,516 101,247 75,057
Property and equipment, net.............................................. 149,403 163,410 181,643
Intangible assets, net................................................... 573,225 586,054 637,271
Due from related party................................................... 14,750 14,950 14,250
Other assets............................................................. 3,274 3,274 3,274
----------- ----------- -----------
Total assets....................................................... $ 811,168 $ 868,935 $ 911,495
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable........................................................... $ 661,000 $ 661,000 $ 661,000
Due to related party................................................... 617,720 604,728 423,917
Accounts payable....................................................... 56,509 59,475 48,757
Accrued interest....................................................... 331,329 313,547 243,267
Other current liabilities.............................................. 137,424 134,293 155,564
----------- ----------- -----------
Total current liabilities.......................................... 1,803,982 1,773,043 1,532,505
Long-term liabilities.................................................... 94,721 96,625 104,239
----------- ----------- -----------
Total liabilities.................................................. 1,898,703 1,869,668 1,636,744
----------- ----------- -----------
Commitments and contingencies
Stockholders' deficit:
Common stock, $1 par value; 7,500 shares
authorized; 7,500 issued and outstanding; 1,000 fully paid........... 1,000 1,000 1,000
Paid-in capital........................................................ 320,668 320,668 320,668
Accumulated deficit.................................................... (1,409,203) (1,322,401) (1,046,917)
----------- ----------- -----------
Total stockholders' deficit........................................ (1,087,535) (1,000,733) (725,249)
----------- ----------- -----------
Total liabilities and stockholders' deficit........................ $ 811,168 $ 868,935 $ 911,495
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Financial Statements
F-246
<PAGE>
PHOENIX BROADCAST PARTNERS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
---------------------------- ----------------------------
1998 1997 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues.............................................. $ 128,652 $ 148,365 $ 777,905 $ 636,638
Less: agency commissions.............................. (5,589) (7,262) (46,633) (27,060)
------------- ------------- ------------- -------------
Net revenues.................................. 123,063 141,103 731,272 609,578
------------- ------------- ------------- -------------
Operating expenses:
Programming......................................... 54,187 57,888 267,448 205,132
Sales and promotions................................ 39,719 43,451 222,603 141,430
Technical and engineering........................... 12,665 16,503 81,492 81,182
General and administrative.......................... 48,277 31,524 171,130 175,805
Bad debt expense.................................... 4,200 12,996 47,059 41,727
Depreciation and amortization....................... 26,836 23,542 94,069 90,697
------------- ------------- ------------- -------------
Total operating expenses...................... 185,884 185,904 883,801 735,973
------------- ------------- ------------- -------------
Loss from operations.................................. (62,821) (44,801) (152,529) (126,395)
Other income.......................................... -- -- 7,645 --
Interest expense.................................... (23,981) (32,650) (130,600) (102,580)
------------- ------------- ------------- -------------
Loss before income taxes............................ (86,802) (77,451) (275,484) (228,975)
Income taxes........................................ -- -- -- --
------------- ------------- ------------- -------------
Net loss.............................................. (86,802) (77,451) (275,484) (228,975)
Accumulated deficit at beginning of period............ (1,322,401) (1,046,917) (1,046,917) (817,942)
------------- ------------- ------------- -------------
Accumulated deficit at end of period.................. $ (1,409,203) $ (1,124,368) ($ 1,322,401) ($ 1,046,917)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-247
<PAGE>
PHOENIX BROADCAST PARTNERS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
---------------------------- ------------------------
1998 1997 1997 1996
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss............................................... $ (86,802) $ (77,451) $ (275,484) $ (228,975)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization...................... 26,836 23,542 94,069 90,697
Decrease (increase) in accounts receivable......... 30,188 3,305 (25,647) (18,905)
Increase (decrease) in accounts payable............ (2,966) 9,432 10,718 21,412
Increase in accrued interest....................... 17,782 26,528 70,280 59,095
Decrease in long term liabilities.................. (1,904) (1,904) (7,614) (7,614)
Increase in due to related parties, net............ 13,192 9,580 180,111 53,624
Increase (decrease) in accrued expenses and
other............................................ 3,131 25,164 (21,271) 44,298
------------- ------------- ----------- -----------
Net cash provided by (used for) operating activities..... (543) 18,196 25,162 13,632
------------- ------------- ----------- -----------
Cash flows from investing activities:
Purchase of intangible assets.......................... -- -- -- (1,500)
Purchases of property and equipment.................... -- (2,227) (24,619) (12,904)
------------- ------------- ----------- -----------
Net cash used for investing activities................... -- (2,227) (24,619) (14,404)
------------- ------------- ----------- -----------
Net increase (decrease) in cash.......................... (543) 15,969 543 (772)
Cash at beginning of period.............................. 543 -- -- 772
------------- ------------- ----------- -----------
Cash at end of period.................................... $ -- $ 15,969 $ 543 $ --
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid for taxes.................................... $ -- $ -- $ -- $ --
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
Cash paid for interest................................. $ -- $ $ 30,496 $ 14,070
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-248
<PAGE>
PHOENIX BROADCAST PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Phoenix Broadcast Partners, Inc. (the "Company"), a C corporation, owns and
operates radio stations WZAT-FM and WSGA-AM in Savannah, Georgia.
The Company shares common owners and officers with WGUL-FM, Inc. (WGUL), a
radio station operating in Palm Harbor, Florida, which provides certain services
to the Company. As more fully described in Note 2, the Company has significant
transactions with WGUL, its owners and other related parties and is dependent
upon its owners and the related parties for continued financial support.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized. Trade activities were not significant during 1997 and
1996.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral for its accounts receivable. The Company maintains
reserves for potential credit losses based upon the expected collectibility of
all accounts receivable.
F-249
<PAGE>
PHOENIX BROADCAST PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using accelerated methods over the estimated useful
lives of the respective assets, generally 5 to 7 years. Leasehold improvements
are amortized on the straight-line basis over the shorter of their estimated
useful life or the lease term.
Maintenance, repairs and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight line basis over their
respective estimated useful lives of 15 years. The Company evaluates the
carrying value of intangibles periodically in relation to the projected future
undiscounted net cash flows of the related businesses.
INCOME TAXES
The Company files separate federal and state income tax returns on the cash
basis of accounting.
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amount at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable earnings. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount more likely than not to be
realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, accounts payable and notes payable, approximate fair value
due to their short term nature.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
F-250
<PAGE>
PHOENIX BROADCAST PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. RELATED PARTY TRANSACTIONS:
The due to/(from) related parties at December 31, 1997 and 1996 consist of
the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Advances due from shareholder....................................... $ (14,950) $ (14,250)
----------- -----------
----------- -----------
Advances due to shareholders........................................ $ 40,710 $ 40,710
Note payable to shareholders........................................ 293,700 293,700
Accrued interest on note payable.................................... 64,205 39,417
Balance due to WGUL................................................. 206,113 50,090
----------- -----------
$ 604,728 $ 423,917
----------- -----------
----------- -----------
</TABLE>
The Company shares its owners and officers with WGUL which has from time to
time paid for certain expenses on behalf of the Company. During 1997, WGUL
advanced $156,023 of working capital to the Company. During 1996, WGUL advanced
$29,335 of working capital to the Company.
Advances due from shareholder present an amount advanced to an
employee/shareholder of the Company for investment in an unrelated business
entity. The advance is unsecured and does not accrue interest.
Advances due to shareholders represent amounts received from certain
shareholders in 1996 and 1995. The amounts received were used primarily to fund
the operating activities of the Company and its capital expenditures. The
advances are due on demand and do not accrue interest.
Note payable to shareholders represents a promissory note entered into on
June 20, 1995 between the Company and its principal shareholders. The note is
secured on all equipment, accounts receivable and intangible assets of the
Company, subordinate to Lewis Broadcasting Corporation's security interest. The
note is payable on demand and accrues simple interest at Prime. The weighted
average interest rate on this note for the year ended December 31, 1997 and 1996
was 8.27% and 8.44% respectively.
Interest expense on the note payable was $24,788 and $24,289 in 1997 and
1996 respectively.
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Leasehold improvements............................................... $ 36,113 $ 24,113
Broadcasting equipment............................................... 227,993 215,374
Office furniture and equipment....................................... 36,500 36,500
----------- ----------
300,606 275,987
Accumulated depreciation............................................. (137,196) (94,344)
----------- ----------
Property and equipment, net.......................................... $ 163,410 $ 181,643
----------- ----------
----------- ----------
</TABLE>
Depreciation expense for 1997 and 1996 was $42,852 and $39,305,
respectively.
F-251
<PAGE>
PHOENIX BROADCAST PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INTANGIBLE ASSETS:
Intangible assets at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
FCC licenses........................................................ $ 635,000 $ 635,000
Other............................................................... 134,757 134,757
----------- -----------
769,757 769,757
Accumulated amortization............................................ (183,703) (132,486)
----------- -----------
Intangible assets, net.............................................. $ 586,054 $ 637,271
----------- -----------
----------- -----------
</TABLE>
Amortization expense for 1997 and 1996 was $51,217 and $51,392,
respectively.
5. NOTE PAYABLE:
The Note Payable balance at December 31. 1997 and 1996 is represented by the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Lewis Broadcasting Corporation Note, matured on
June 10, 1995; fixed interest rate of 10%;
secured by accounts receivable, tangible assets
and intangible assets of the Company................................ $ 661,000 $ 661,000
---------- ----------
---------- ----------
</TABLE>
The Lewis Broadcasting Corporation (Lewis) note matured on June 10, 1995,
however the Company defaulted on the loan repayment. Consequently, Lewis
notified the Company and its shareholders on July 15, 1995 of the default and
tendered the requisite notice to pursue remedy under the terms of the note. In
connection with the default, Lewis filed a suit against the Company and its
shareholders seeking specific performance of the default remedies under the
note. (See Note 9 Commitments and Contingencies)
As a consequence of the default, interest at a rate of 10% per annum is
still accruing on the outstanding note and interest with a late charge of 5% of
the outstanding principal at the date of default and attorneys' fees at the rate
of 15% on the foregoing outstanding principal and interest. Interest, late
charges and attorneys' fees amounted to $70,889 and $76,015 in 1997 and 1996,
respectively.
6. LONG TERM LIABILITIES:
Long term liabilities consist of obligations due, under an employment
contract, to a former employee and consist of the following:
- $93,757 under the employment contract payable in semi-annual installments
of $3,825 for principal and 6% simple interest commencing January 1994 and
maturing January 2014, and
- $50,000 bonus payable in ten equal annual installments of $5,000
commencing May 1994.
The Company has not been making payments in accordance with the terms set
out in the contract and consequently has recorded a liability of $127,932 and
$129,432 at December 31, 1997 and 1996 respectively,
F-252
<PAGE>
PHOENIX BROADCAST PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG TERM LIABILITIES: (CONTINUED)
of which $31,307 and $25,193, representing the portion currently payable, has
been recorded in accrued liabilities as of December 31, 1997 and 1996,
respectively.
Interest expense on the employment contract obligation amounted to $5,036
and $5,126 for the years ended December 31, 1997 and 1996, respectively.
7. INCOME TAXES:
The Company's effective income tax rate differs from the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C> <C> <C>
Income tax benefit at federal statutory rate................. $ (93,665) (34.0%) $ (77,852) (34.0%)
State income taxes (net of federal benefit).................. (10,902) (4.0%) (9,060) (4.0%)
Non-deductible items......................................... 60 -- 60 --
Change in valuation allowance................................ 104,507 -- 86,852 --
----------- --------- ---------- ---------
$ -- --% $ -- --%
----------- --------- ---------- ---------
----------- --------- ---------- ---------
</TABLE>
Significant items giving rise to deferred taxes as of December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards.................................... $ 176,340 $ 112,204
Accounts receivable................................................. (38,227) (27,526)
Depreciation and amortization....................................... 26,643 27,252
Accounts payable and accrued liabilities............................ 216,949 170,370
Other............................................................... -- (5,102)
----------- -----------
Net deferred tax asset.............................................. 381,705 277,198
Less valuation allowance............................................ (381,705) (277,198)
----------- -----------
Total net deferred tax asset........................................ $ -- $ --
----------- -----------
----------- -----------
</TABLE>
The net deferred tax asset at December 31, 1997 and 1996 is fully offset by
the valuation allowance. The amount of the valuation allowance is reviewed
periodically by management and is determined based on management's assessment of
the Company's ability to generate future taxable income and realize the tax
benefits associated with the deferred tax assets.
Net operating losses expire as follows:
<TABLE>
<S> <C>
2009..... $ 69,955
2010..... 97,291
2011..... 129,536
2012..... 168,639
---------
$ 465,421
---------
---------
</TABLE>
F-253
<PAGE>
PHOENIX BROADCAST PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
If certain substantial changes in the Company's ownership should occur,
there would be an annual limitation on the amount of the operating loss
carryforwards which can be utilized.
8. DEFINED CONTRIBUTION PLAN:
Effective August 1997, the Company in conjunction with WGUL adopted a
qualified profit sharing plan under Section 401(k) of the Internal Revenue Code.
All employees meeting eligibility requirements are qualified for participation
in the plan. Participants of the plan may contribute 1% to 15% of their annual
compensation, up to $10,000 for the year, through payroll deductions. The
Company has the option to provide a matching and discretionary contribution each
year. For fiscal 1997, the total matching contribution was $2,214. No
discretionary contributions were made in 1997.
9. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES AND LICENSING AGREEMENTS
The Company leases its station studios and certain equipment under various
operating leases and enters into licensing agreements to obtain the rights to
broadcast shows. Rent expense under operating leases and payments under the
licensing agreements for the years ended December 31, 1997 and 1996 amounted to
$48,250 and $34,009 respectively. Future minimum annual payments under these
non-cancelable operating leases and agreements as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998............................................................... $ 51,300
1999............................................................... 36,000
2000............................................................... 12,000
Thereafter......................................................... --
---------
$ 99,300
---------
---------
</TABLE>
CONTINGENCIES
The Company is party to a lawsuit relating to the default on the note
payable to Lewis. The Lewis note was originally executed by Gulf Atlantic, the
previous owners of the radio stations, and as security for the note, Gulf
Atlantic executed a security agreement conveying to Lewis a first priority
interest in all of the operating assets of WZAT-FM and WSGA-AM. In conjunction
with the execution of the promissory note and the security agreement, Gulf
Atlantic and the Company's shareholders executed an option agreement granting
Lewis an irrevocable right to purchase both radio stations for $650,000, less
any amounts remaining to be paid on the note plus a $100,000 non-compete fee as
well as the right of first refusal on the sale of the stations' operational
assets and business. Upon the Company's default on the note, Lewis notified the
Company and its shareholders of the default and tendered requisite notice of its
intention to exercise its rights under the option agreement. Lewis also filed a
suit against the Company and its shareholders to seek specific performance of
exercising the option under the option agreement and collection of all amounts
due under the note. Through a counterclaim for declaratory judgment, the Company
obtained a court ruling concluding that the option agreement is void as a matter
of law. The court ruling, however, upheld Lewis' claim that the Company and its
shareholders are indebted to Lewis for the principal and interest due under the
promissory note together with reasonable attorneys' fees of
F-254
<PAGE>
PHOENIX BROADCAST PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
15% of all outstanding principal and interest amounts owed. Lewis has appealed
the court's decision with respect to the option agreement being void and is
awaiting a decision from the appellate court. Management expects to prevail in
the appellate court decision.
10. SUBSEQUENT EVENTS
On March 16, 1998, the Company entered into a 1 year Local Marketing
Agreement (LMA) with Cumulus Broadcasting, Inc., a wholly owned subsidiary of
Cumulus Media Inc., in return for a monthly license fee.
The Company has also commenced negotiations with Cumulus Broadcasting, Inc.,
to sell certain assets of WZAT-FM, subject to approval of the Federal
Communications Commission, in return for consideration of approximately $3.5
million.
The Company has also commenced negotiation with Lewis regarding a proposed
settlement agreement for $1,700,000. The proposed settlement agreement will
satisfy the Company's obligations with respect to the following: (1) all
principal, interest, late fees, origination fees and attorneys' fees related to
the Lewis note referred to in Note 9 above; (2) rent and late fees related to
the lease of the Company's antenna and tower from Lewis for the period up
through the date of the proposed settlement agreement and through May, 1998; (3)
all obligations of the Company and its shareholders to pay Lewis some proceeds
from the proposed sale of the Company to Cumulus Broadcasting, Inc. under the
option agreement as discussed in Note 9 above; and (4) any and all remaining
obligations of the Company with respect to the note and option agreement with
Lewis.
11. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF ACCOUNTANTS' REPORT
On April 8, 1998, the Company signed an agreement with Lewis to settle the
suit referred to in Note 9. The terms of the agreement were substantially the
same as those outlined in Note 10.
On April 8, 1998, the Company signed the agreement with Cumulus
Broadcasting, Inc. to sell certain assets of WZAT-FM, as outlined in the second
paragraph of Note 10.
On April 13, 1998, a suit was filed against the Company and others alleging
violation of the plaintiff's rights under Title IX of the Organized Crime
Control Act of 1970. The plaintiff is asking for treble damages in the amount of
$1.5 million from each of the defendants. Management believes that the Company
will prevail in this matter.
F-255
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Republic Corporation
Montgomery, Alabama
We have audited the consolidated balance sheets of Republic Corporation and
subsidiary (radio broadcasting operations only) as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
stockholder's equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Republic Corporation and subsidiary (radio broadcasting operations only) as of
December 31, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Montgomery, Alabama
March 2, 1998
F-256
<PAGE>
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
MARCH 31, --------- ---------
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 313 $ 247 $ 257
Accounts receivable, net of allowance for doubtful accounts of $547, $521,
and $479, respectively..................................................... 159 1,515 1,449
Other current assets......................................................... 47 246 172
State income taxes receivable................................................ 44 44 47
Due from Cumulus Media Inc................................................... 661
----------- --------- ---------
Total current assets..................................................... 1,224 2,052 1,925
Other assets:
Land, building and equipment, net............................................ 2,997 2,397 2,167
Investment in equity investee................................................ 621 628 633
Intangible assets and other.................................................. 11,912 12,152 13,103
----------- --------- ---------
Total assets............................................................. $ 16,754 $ 17,229 $ 17,828
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................................. $ 189 $ 131 $ 263
Accrued expenses............................................................. 518 693 484
----------- --------- ---------
Total current liabilities................................................ 707 824 747
Deferred tax liability......................................................... 272 272 4,123
----------- --------- ---------
Total liabilities........................................................ 979 1,096 4,870
----------- --------- ---------
Stockholder's Equity:
Common stock, $0.01 par; 500,000 shares authorized,
50,000 shares issued and outstanding....................................... 1 1 1
Contributed capital.......................................................... 8,003 8,003 8,003
Retained earnings............................................................ 7,771 8,129 4,954
----------- --------- ---------
Total stockholder's equity............................................... 15,775 16,133 12,958
----------- --------- ---------
Total liabilities and stockholder's equity..................................... $ 16,754 $ 17,229 $ 17,828
----------- --------- ---------
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-257
<PAGE>
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Advertising.............................................. $ 1,192 $ 2,478 $ 11,677 $ 10,959 $ 11,047
LMA Income............................................... 811
Other.................................................... 4 4 14 161 36
--------- --------- --------- --------- ---------
Total revenue........................................ 2,007 2,482 11,691 11,120 11,083
Less commissions......................................... 155 504 2,360 2,114 2,090
--------- --------- --------- --------- ---------
Net revenues......................................... 1,852 1,978 9,331 9,006 8,993
--------- --------- --------- --------- ---------
Expenses:
Selling, general, and administrative..................... 1,429 1,356 6,323 5,990 5,981
Amortization............................................. 238 238 954 954 844
Depreciation............................................. 83 83 252 251 267
Reorganization expenses.................................. 438
--------- --------- --------- --------- ---------
Total expenses....................................... 1,750 1,677 7,529 7,195 7,530
--------- --------- --------- --------- ---------
Operating income..................................... 102 301 1,802 1,811 1,463
--------- --------- --------- --------- ---------
Other income (expense):
Interest income.......................................... 1 2 11 14 13
Equity in loss of equity investee........................ (15) (9) (32) (41) (62)
--------- --------- --------- --------- ---------
Total other income (expense)......................... (14) (7) (21) (27) (49)
--------- --------- --------- --------- ---------
Income before provision for (benefit from) income
taxes.............................................. 88 294 1,781 1,784 1,414
Provision for (benefit from) income taxes.................. 11 (3,770) (3,724) 561 464
--------- --------- --------- --------- ---------
Net income........................................... $ 77 $ 4,064 $ 5,505 $ 1,223 $ 950
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share (basic and diluted):
Net income........................................... $ 1.54 $ 81.28 $ 110.10 $ 24.46 $ 19.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-258
<PAGE>
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON CONTRIBUTED RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994....................................... $ 1 $ 236 $ 8,655 $ 8,892
Change in ownership step-up, net of taxes........................ 7,767 7,767
Dividends to former parent....................................... (3,231) (3,231)
Net distributions to stockholder................................. (1,284) (1,284)
Net income....................................................... 950 950
----------- ----------- ----------- ------------
Balance, December 31, 1995....................................... 1 8,003 5,090 13,094
Net distributions to stockholder................................. (1,359) (1,359)
Net income....................................................... 1,223 1,223
----------- ----------- ----------- ------------
Balance, December 31, 1996....................................... 1 8,003 4,954 12,958
Net distributions to stockholder................................. (2,330) (2,330)
Net income....................................................... 5,505 5,505
----------- ----------- ----------- ------------
Balance, December 31, 1997....................................... $ 1 $ 8,003 $ 8,129 $ 16,133
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-259
<PAGE>
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income..................................................... $ 77 $ 4,064 $ 5,505 $ 1,223 $ 950
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization.............................. 321 321 1,206 1,205 1,111
Equity in loss of investee................................. 15 9 32 41 62
Deferred income taxes...................................... (3,851) (3,851) (311) (261)
(Gain) loss on sale of land, buildings, and equipment...... (3) (3) (2) 6 (4)
Changes in:
Accounts receivable, net................................. 1,356 257 (66) 34 (311)
Other current assets..................................... 199 (65) 79 (72) (47)
Due from Cumulus Media Inc............................... (811)
Accounts payable and accrued expenses.................... (117) (186) 77 126 265
State income taxes receivable............................ 47 3 (35) (24)
--------- --------- --------- --------- ---------
Net cash provided by operating activities........................ 1,037 593 2,983 2,217 1,741
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchases of land, buildings, and equipment.................... (681) (43) (662) (913) (271)
Proceeds from sale of land, buildings, and equipment........... 3 3 26 4
Contribution to equity investee................................ (8) (2) (27) (25) (35)
--------- --------- --------- --------- ---------
Net cash used in investing activities............................ (686) (42) (663) (938) (302)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net distributions to stockholder............................... (435) (384) (2,330) (1,359) (1,284)
Advance from Cumulus Media Inc................................. 150
--------- --------- --------- --------- ---------
Net cash used in financing activities............................ (285) (384) (2,330) (1,359) (1,284)
--------- --------- --------- --------- ---------
(Decrease) increase in cash and cash equivalents............... 66 167 (10) (80) 155
Cash and cash equivalents, beginning of period................... 247 257 257 337 182
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period......................... $ 313 $ 424 $ 247 $ 257 $ 337
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosure of cash flow information:
Income taxes paid.............................................. $ 42 $ 144 $ 137
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-260
<PAGE>
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
Republic Corporation (the Company) was formed on February 17, 1995, at which
time The Colonial Company (TCC) effected a divisive reorganization and
transferred ownership of Colonial Broadcasting Company, Inc. (CBC) to the
Company's stockholder which is one of the three previous owners of TCC. The
Company's stockholder then contributed CBC to the Company.
The Company is engaged in radio broadcasting, operating four radio stations:
WLWI-FM, WMSP-AM, WMXS-FM, and WNZZ-AM in Montgomery, Alabama; and operating one
radio station, WUSY-FM, in Chattanooga, Tennessee.
On January 10, 1998, the stockholder of the Company entered into a Stock
Purchase Agreement (the Stock Purchase Agreement) with Cumulus Holdings, Inc.
(Cumulus) pursuant to which Cumulus will acquire all of the outstanding shares
of the Company. Prior to or concurrent with the acquisition by Cumulus, the
Company will repay all long term debt and spin-off all non-broadcasting assets
and liabilities to the stockholder of the Company.
These consolidated financial statements have been prepared to reflect the
broadcasting assets and liabilities of the Company to be acquired by Cumulus
pursuant to the Stock Purchase Agreement. The Company's only asset, for all
periods presented, is the investment in its wholly owned broadcasting
subsidiary, CBC. These financial statements exclude the non-broadcasting assets
to be spun-off to the stockholder of the Company (which include CBC's two
subsidiaries, CBC Realty, Inc. and Radio Management Services, Inc., as well as
certain related party receivables and cash surrender value of life insurance)
and all long term debt.
Historically, the CBC broadcasting operations have been managed, financed,
and accounted for on an independent stand alone basis, requiring no allocation
of overhead costs by the Company. The broadcasting operations will continue to
be managed and operated autonomously after the spin-off, with no material
financial commitments, guarantees, or contingent liabilities with the spun-off,
non-broadcasting operations. These financial statements exclude all unrelated,
non-broadcasting expenses incurred by the Company at the holding company level.
In connection with the Stock Purchase Agreement, Republic and Cumulus
entered into a Local Programming and Marketing Agreement (the LMA) which became
effective on February 11, 1998. The LMA provides that all advertising revenue is
the property of Cumulus and that Cumulus will reimburse Republic for the
operating expenses of the radio broadcasting operations. As a result, the
interim financials for the three months ended March 31, 1998 include advertising
revenue for the period from January 1, 1998 through February 10, 1998 and LMA
Income (representing reimbursement of the operating expenses) for the period
from February 11, 1998 through March 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements and notes
to the consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, CBC. All significant intercompany balances and
transactions have been eliminated.
BASIS IN NET ASSETS CONTRIBUTED--The February 17, 1995 divisive
reorganization of TCC and the resulting contribution of CBC to the Company was a
change in control which resulted in the removal of CBC's due from TCC of $3,231
through a noncash dividend and a new basis of accounting for CBC, the
F-261
<PAGE>
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
primary effect of which was a step-up in basis for Federal Communications
Commission (FCC) rights of $12,481, or $7,767 net of deferred taxes.
INCOME RECOGNITION--Advertising income is recognized as services are
provided. Barter transactions are reported at the estimated fair market value of
the product or services received. Barter revenue is reported when commercials
are broadcast, and merchandise or services received as consideration are
reported when used or received.
CASH AND CASH EQUIVALENTS--For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
LAND, BUILDINGS, AND EQUIPMENT--Land, buildings, and equipment are stated at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method for financial statement purposes and straight-line and
accelerated methods for income tax purposes. Costs for maintenance and repairs
are expensed when incurred; betterments and improvements which materially
prolong the lives of assets are capitalized. The cost of assets sold or
otherwise disposed of and the related accumulated depreciation are removed from
the accounts and the gain or loss on such disposition is included in income.
INVESTMENT IN EQUITY INVESTEE--The investment in equity investee, in which
CBC does not exercise control and has a 50% or less ownership interest, is
carried at cost and adjusted for equity in undistributed earnings or losses
since the date of acquisition or investment.
INTANGIBLE ASSETS--Intangible assets are recorded at a stepped-up basis in
connection with the change in ownership described in Note 2. These assets are
being amortized using the straight-line method predominately over a period of 15
years.
ACCOUNTING FOR INCOME TAXES--Effective January 1, 1997, the Company elected
to be taxed as an S Corporation for federal and state income tax purposes. Under
the provisions of the Internal Revenue Code, an S Corporation generally is not
subject to federal income tax because its taxable income or loss accrues to the
individual stockholder. Accordingly, no current federal income tax expense is
recognized by the Company for 1997. The Company files tax returns in the State
of Tennessee, which does not recognize S Corporations for income tax purposes.
Prior to its S Corporation election, the Company utilized an asset and
liability approach for financial accounting and reporting for income taxes.
Deferred tax assets are recognized only to the extent of their anticipated
realization. Deferred income taxes reflect the future tax consequences of
differences between the tax basis of assets and liabilities and the amounts
reported for the financial statements. The radio broadcasting operations have
historically been included in the consolidated income tax returns filed with the
Company. Income tax expense for 1996 and 1995 has been calculated on a separate
tax return basis.
EARNINGS PER SHARE--Earnings per share of common stock is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the period. The weighted average number of shares used in the
computation for 1997, 1996, and 1995 was 50,000 each year.
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 amounts
F-262
<PAGE>
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates.
INTERIM FINANCIAL DATA (UNAUDITED)--The interim financial data as of March
31, 1998 and for each of the three months ended March 31, 1998 and 1997 is
unaudited. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments necessary for a fair presentation of results of the
interim periods have been made and such adjustments were of a normal and
recurring nature. The results of operations and cash flows for the three months
ended March 31, 1998 are not necessarily indicative of the results that can be
expected for the entire fiscal year ending December 31, 1998.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. SFAS No.
128 establishes standards for computing and presenting earnings per share (EPS).
This Statement simplifies the standards for computing earnings per share
previously found in Accounting Principles Bulletin Opinion No. 15, EARNINGS PER
SHARE, and replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997.
The Company does not anticipate that any other recently issued accounting
standards will have a material impact on its financial position, results of
operations, or cash flows.
4. LAND, BUILDINGS, AND EQUIPMENT
Land, buildings, and equipment consists of the following at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land....................................................................... $ 128 $ 128
Development in process..................................................... 1,081 789
Buildings and improvements................................................. 69 69
Furniture and fixtures..................................................... 227 219
Equipment.................................................................. 3,302 3,148
Land improvements.......................................................... 67 67
Leasehold improvements..................................................... 320 313
--------- ---------
5,194 4,733
Accumulated depreciation................................................... (2,797) (2,566)
--------- ---------
$ 2,397 $ 2,167
--------- ---------
--------- ---------
</TABLE>
F-263
<PAGE>
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. INVESTMENT IN EQUITY INVESTEE
The following sets forth the condensed unaudited financial information of
investment in equity investee at December 31, 1997 and 1996. A comparison of the
Company's investment (through CBC) in Montgomery Tower Partners along with the
Company's portion of Montgomery Tower Partners' capital is as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
BALANCE SEPARATE BALANCE SEPARATE
PERCENT SHEET ENTITY SHEET ENTITY
INTEREST INVESTMENT EQUITY INVESTMENT EQUITY
----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Montgomery Tower Partners................................. 50% $ 628 $ 628 $ 633 $ 633
--- ----- ----- ----- -----
--- ----- ----- ----- -----
</TABLE>
Shown below is condensed financial information relating to the Company's
investment in equity investee based on the entity's separate financial
reporting.
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Assets............................................................................... $ 1,299
Liabilities.......................................................................... 24
---------
Partners' capital.................................................................... $ 1,275
---------
---------
Revenue.............................................................................. $ 91
---------
---------
Net loss............................................................................. $ (64)
---------
---------
Republic Corporation's share of:
Partners' capital.................................................................. $ 628
---------
---------
Equity in loss of investee......................................................... $ (32)
---------
---------
</TABLE>
6. INTANGIBLE ASSETS AND OTHER
Unamortized intangible assets and other consist of the following at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Federal Communications Commission rights................................ $ 12,083 $ 13,031
Brokers' fees and other................................................. 69 72
--------- ---------
$ 12,152 $ 13,103
--------- ---------
--------- ---------
</TABLE>
F-264
<PAGE>
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. OPERATING LEASES
The Company leases office facilities and equipment under operating leases.
Future minimum lease payments as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
FOR THE YEAR ENDING DECEMBER 31:
- ------------------------------------------------------------------------------------
1998.............................................................................. $ 159
1999.............................................................................. 148
2000.............................................................................. 148
2001.............................................................................. 148
2002.............................................................................. 147
Thereafter........................................................................ 609
-----------
$ 1,359
-----------
-----------
</TABLE>
Rent expense amounted to $254, $240 and $233 for the years ended December
31, 1997, 1996, and 1995, respectively.
8. INCOME TAXES
As discussed in Note 2, effective January 1, 1997, the Company elected to be
taxed as an S Corporation for federal and state income tax purposes. Prior to
that election, the Company used an asset and liability approach for financial
accounting and reporting for income taxes.
The provision for (benefit from) income taxes is composed of the following
at December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal......................................................... $ 760 $ 610
State........................................................... $ 127 112 115
--------- --------- ---------
Total......................................................... 127 872 725
--------- --------- ---------
Deferred:
Federal......................................................... (3,756) (278) (219)
State........................................................... (95) (33) (42)
--------- --------- ---------
Total......................................................... (3,851) (311) (261)
--------- --------- ---------
$ (3,724) $ 561 $ 464
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-265
<PAGE>
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. INCOME TAXES (CONTINUED)
The components of the Company's net deferred tax liability as of December
31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets;
Allowance for bad debts.................................................... $ 14 $ 175
Pension accrual in excess of contributions................................. 2 36
Other...................................................................... 26
--------- ---------
Total deferred tax asset................................................. 16 237
--------- ---------
Deferred tax liabilities:
Accelerated tax depreciation............................................... 8 109
Intangible assets--FCC rights.............................................. 274 4,143
Equity investment.......................................................... 6 108
--------- ---------
Total deferred tax liability............................................. 288 4,360
--------- ---------
Net deferred tax liability............................................... $ 272 $ 4,123
--------- ---------
--------- ---------
</TABLE>
At the time of the S Corporation election, it was determined by management
that any built-in gains as a result of the tax basis of the Company's net assets
would not be realized during the prescribed holding period. Therefore, the net
deferred tax liability, excluding the portion related to the State of Tennessee,
was written off, through the recognition of a deferred benefit in the 1997
statement of income.
9. EMPLOYEE BENEFIT PLAN
The Company and its subsidiary are participants in a pension plan with
related companies. This plan covers most employees who have met certain age and
length of service requirements. The Company's policy is to contribute annually
an amount that can be deducted for federal income tax purposes using the frozen
entry age actuarial method. Actuarial computations for financial reporting
purposes are based on the projected unit credit method.
F-266
<PAGE>
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
9. EMPLOYEE BENEFIT PLAN (CONTINUED)
Employee pension benefit plan status at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation............................................. $ 801 $ 577
--------- ---------
--------- ---------
Vested benefit obligation.................................................. $ 737 $ 549
--------- ---------
--------- ---------
Projected benefit obligation for service rendered to date.................. $ 1,278 $ 965
Plan assets at fair value.................................................. 1,240 888
--------- ---------
Projected benefit obligation in excess of plan assets.................... (38) (77)
Unrecognized transition asset.............................................. (18) (20)
Unrecognized prior service cost............................................ (40) (43)
Unrecognized gain.......................................................... (13) 53
--------- ---------
Accrued pension cost..................................................... $ (109) $ (87)
--------- ---------
--------- ---------
</TABLE>
Net pension cost includes the following components for the years ended
December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----- -----
<S> <C> <C> <C>
Service cost............................................................. $ 75 $ 73 $ 56
Interest cost............................................................ 88 70 61
Return on plan assets.................................................... (286) (90) (48)
Net amortization and deferral............................................ 196 18 (7)
--- --- ---
Net pension cost....................................................... $ 73 $ 71 $ 62
--- --- ---
--- --- ---
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.25%, 7.75%, and 7.75% for 1997,
1996, and 1995, respectively. The rate of increase in future compensation levels
used was 4.25%, 4.75%, and 5.00% for 1997, 1996, and 1995, respectively, and the
expected long-term rate of return was 9% for all years.
10. RELATED PARTY TRANSACTIONS
The Company entered into lease agreements with an affiliate for its office
facilities in Montgomery. Rent expense under these agreements was $167, $141,
and $137 for the years ended December 31, 1997, 1996, and 1995, respectively,
and future rent obligations were $1,340 and $1,477, respectively, at December
31, 1997 and 1996.
The Company received $101, $117, and $69 in advertising revenue from related
parties during the years ended December 31, 1997, 1996, and 1995, respectively.
The Company maintains cash and cash equivalent amounts in an affiliated
financial institution. The book value of the accounts totaled $219 and $224 at
December 31, 1997 and 1996, respectively.
F-267
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Savannah Communications, L.P.
We have audited the accompanying balance sheets of Savannah Communications,
L.P. (the "Partnership") as of December 31, 1997 and 1996, and the related
statements of operations, partners' capital and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Savannah Communications,
L.P. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. The Partnership has experienced
losses since its inception in 1995 and is in default on certain of its long-term
debt, raising substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
February 27, 1998
F-268
<PAGE>
SAVANNAH COMMUNICATIONS, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
MARCH 31, ------------ ------------
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................................. $ 60,011 $ 3,812 $ 9,265
Accounts receivable, net of allowance for doubtful accounts of
$23,824, $14,815 and $10,556, respectively.......................... 97,152 177,899 267,995
Accounts receivable, partners......................................... 110,000
Prepaid expenses...................................................... 1,687 2,805 8,804
------------ ------------ ------------
Total current assets.............................................. 158,850 184,516 396,064
Property and equipment, net of accumulated depreciation................. 1,385,009 1,427,694 1,592,468
Intangible assets, net of accumulated amortization...................... 3,352,022 3,464,139 3,073,085
------------ ------------ ------------
Total assets...................................................... $ 4,895,881 $ 5,076,349 $ 5,061,617
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities and long-term debt in default...................... $ 2,800,000 $ 2,800,000 $ 2,800,000
Accounts payable...................................................... 64,158 81,797 118,236
Cash advances from affiliate.......................................... 52,876 52,876 32,876
Cash advances from partners........................................... 55,000 -- --
Accrued expenses...................................................... 85,336 51,220 39,783
------------ ------------ ------------
Total current liabilities......................................... 3,057,370 2,985,893 2,990,895
Long-term debt, less current maturities and debt in default............. 600,000 600,000 150,000
Partners' capital....................................................... 1,238,511 1,490,456 1,920,722
------------ ------------ ------------
Total liabilities and partners' capital........................... $ 4,895,881 $ 5,076,349 $ 5,061,617
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-269
<PAGE>
SAVANNAH COMMUNICATIONS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
--------------------------- ---------------------------
1998 1997 1997 1996
------------- ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Advertising........................................... $ 30,763 $ 282,410 $ 1,405,307 $ 1,785,059
Income from local Marketing Agreement................. 73,992 -- -- --
Less commissions...................................... (2,878) (25,899) (147,772) (216,604)
------------- ------------ ------------- ------------
Net revenues...................................... 101,877 256,511 1,257,535 1,568,455
------------- ------------ ------------- ------------
Operating expenses:
Promotion............................................. 1,000 10,947 32,511 66,349
Programming........................................... 26,118 110,437 553,475 439,130
Selling, general and administrative................... 79,887 154,229 898,676 744,145
Depreciation and amortization......................... 160,523 119,529 507,168 149,480
Local management agreement fees....................... -- 12,000 12,000 365,813
------------- ------------ ------------- ------------
267,528 407,142 2,003,830 1,764,917
------------- ------------ ------------- ------------
Operating loss.................................... (165,651) (150,631) (746,295) (196,462)
------------- ------------ ------------- ------------
Other income (expense):
Interest expense...................................... (83,294) (85,247) (366,450) (67,642)
Other, net............................................ (3,000) (514) 14,621 (47,411)
------------- ------------ ------------- ------------
(86,294) (85,761) (351,829) (115,053)
------------- ------------ ------------- ------------
Net loss.......................................... $ (251,945) $ (236,392) $ (1,098,124) $ (311,515)
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-270
<PAGE>
SAVANNAH COMMUNICATIONS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<S> <C>
Partners' capital, December 31, 1995............................................ $1,313,349
Capital contributions......................................................... 918,888
Net loss...................................................................... (311,515)
----------
Partners' capital, December 31, 1996............................................ 1,920,722
Capital contributions......................................................... 667,858
Net loss...................................................................... (1,098,124)
----------
Partners' capital, December 31, 1997............................................ $1,490,456
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-271
<PAGE>
SAVANNAH COMMUNICATIONS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEARS ENDED DECEMBER
ENDED MARCH 31, 31,
---------------------------- ----------------------------
1998 1997 1997 1996
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (251,945) $ (236,392) $ (1,098,124) $ (311,515)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation...................................... 58,194 61,563 255,048 77,585
Amortization of intangibles....................... 102,329 57,966 252,128 71,895
Changes in operating assets and liabilities:
Accounts receivable............................. 80,083 41,174 90,096 (10,611)
Prepaid expenses................................ 1,118 (23,430) 5,999 (8,804)
Accounts payable and accrued expenses........... (16,477) (72,209) (25,002) 134,754
------------- ------------- ------------- -------------
Net cash from (used by) operating
activities.................................. 6,256 (171,328) (519,855) (46,696)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Acquisition of business, including related costs.... (729,410) (729,410) (4,450,000)
Organization costs.................................. (4,046) (4,046) (61,579)
Purchases of property and equipment................. (5,057) (104,883)
------------- ------------- ------------- -------------
Net cash used in investing activities......... (5,057) (733,456) (733,456) (4,616,462)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt, net of loan fees...... 450,000 450,000 2,775,134
Cash advances from affiliate........................ 20,000 32,876
Cash advances from partners......................... 55,000 -- -- --
Proceeds from capital contributions................. 450,000 777,858 808,888
------------- ------------- ------------- -------------
Net cash provided by financing activities..... 55,000 900,000 1,247,858 3,616,898
------------- ------------- ------------- -------------
Net increase (decrease) in cash............... 56,199 (4,784) (5,453) (1,046,260)
Cash, beginning of period............................. 3,812 9,265 9,265 1,055,525
------------- ------------- ------------- -------------
Cash, end of period................................... $ 60,011 $ 4,481 $ 3,812 $ 9,265
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Supplemental disclosure of cash flow information:
Cash paid for interest.............................. $ 34,128 $ 64,750 $ 329,372 $ 51,966
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-272
<PAGE>
SAVANNAH COMMUNICATIONS, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION:
Savannah Communications, L.P. (the "Partnership") was formed to acquire, own
and operate radio stations servicing the Savannah, Georgia area. The Partnership
commenced operations effective October 1995, at which time it entered into a
local marketing agreement (LMA) permitting the Partnership to program and market
two stations, WBMQ-AM and WIXV-FM, prior to acquiring them on July 31, 1996. The
Partnership entered into an LMA commencing August 1996 with respect to another
station, WSFG-FM, prior to acquiring it on February 28, 1997.
The Partnership's financial statements have been prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses for the period presented. They also affect
the disclosures of contingencies. Actual results could differ from those
estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective assets. Expenditures for repairs are expensed
while major additions are capitalized.
INTANGIBLE ASSETS
Intangible assets are stated at cost and amortized on a straight-line basis
over their estimated useful lives, as follows:
FCC broadcast licenses over 15 years.
Goodwill over 15 years.
Organization costs over five years.
On an ongoing basis, management evaluates the recoverability of the net
carrying value of intangible assets by reference to the Partnership's
undiscounted anticipated future cash flows.
REVENUE RECOGNITION
Revenue from the sale of air-time is recognized at the time the related
program or advertisement is broadcast. Barter transactions are reported at the
estimated fair market value of the product or services received. Barter revenue
is reported when commercials are broadcast, and merchandise or services received
as consideration are reported as expense when used or received.
ALLOCATIONS AND DISTRIBUTIONS
The profits and losses of the Partnership are allocated and cash flow from
operations or cash from capital transactions, if any, will be distributed to the
partners in accordance with the terms of the partnership agreement.
F-273
<PAGE>
SAVANNAH COMMUNICATIONS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
No provision for federal or state income taxes has been provided as the
partners report their pro rata share of the partnership profits or losses on
their tax returns.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
2. ACQUISITIONS:
On July 31, 1996, the Partnership acquired substantially all of the assets
of two radio stations for $4,450,000, including related costs. The Partnership
operated the two stations under an LMA from October 1995 until the acquisition.
On February 28, 1997, the Partnership acquired substantially all of the assets
of a third radio station for $729,410, including related costs. The Partnership
operated this station under an LMA from August 1996 until the acquisition.
The 1997 and 1996 acquisitions were accounted for as purchase transactions
and, accordingly, the purchase price was allocated to assets based on their
estimated fair value with the excess of the purchase price over the fair value
of the identifiable tangible and intangible assets acquired reflected as
goodwill, as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
Property and equipment.............................................. $ 90,274 $ 1,571,407
FCC broadcast licenses.............................................. 100,000 1,999,000
Goodwill............................................................ 539,136 879,593
---------- ------------
Purchase price, including related costs............................. $ 729,410 $ 4,450,000
---------- ------------
---------- ------------
</TABLE>
Had the acquisition of the two stations acquired in July 1996 occurred at
the beginning of that year, there would be no effect on revenue and an
immaterial effect on net loss reported for 1996 because the Partnership operated
the stations under an LMA from the beginning of the year until the acquisition.
Had the acquisition of the station acquired in February 1997 occured at the
beginning of 1996, there would be no effect on revenue and an immaterial effect
on net loss reported for 1997 because the Partnership operated the station under
an LMA from the beginning of 1997 until the acquisiiton. It is estimated that
revenue for 1996 would have increased by approximately $67,000 (revenue prior to
the LMA commencing August 1996) and that the effect on net loss for 1996 would
be immaterial.
F-274
<PAGE>
SAVANNAH COMMUNICATIONS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Land and improvements............................................. $ 279,685 $ 279,685
Buildings......................................................... 260,690 260,690
Tower and antenna................................................. 790,297 712,397
Furniture and equipment........................................... 420,539 408,165
Other............................................................. 9,116 9,116
------------ ------------
1,760,327 1,670,053
Less accumulated depreciation..................................... (332,633) (77,585)
------------ ------------
$ 1,427,694 $ 1,592,468
------------ ------------
------------ ------------
</TABLE>
4. INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
FCC broadcast licenses............................................ $ 2,099,000 $ 1,999,000
Goodwill.......................................................... 1,418,729 879,593
Deferred financing costs.......................................... 176,970 176,970
Organization costs................................................ 93,463 89,417
------------ ------------
3,788,162 3,144,980
Less accumulated amortization..................................... (324,023) (71,895)
------------ ------------
$ 3,464,139 $ 3,073,085
------------ ------------
------------ ------------
</TABLE>
5. LONG-TERM DEBT:
Long-term debt consisted of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Bank note payable, quarterly payments ranging from $50,000 to $125,000 commencing
January 1, 1998 with a balloon payment of $1,275,000 due October 1, 2002, bearing
interest at the bank's reference rate plus 2.5% (reference rate was 8.5% at December
31, 1997), collateralized by substantially all assets of the Partnership............ $ 2,800,000 $ 2,800,000
Note payable, due September 2001, interest payable quarterly at 10%................... 150,000 150,000
Note payable, due February 2002, interest payable monthly at 9%....................... 450,000
------------ ------------
3,400,000 2,950,000
Less current maturities and long-term debt in default................................. (2,800,000) (2,800,000)
------------ ------------
$ 600,000 $ 150,000
------------ ------------
------------ ------------
</TABLE>
F-275
<PAGE>
SAVANNAH COMMUNICATIONS, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT: (CONTINUED)
The bank note is subject to certain restrictive financial covenants,
including the maintenance of minimum broadcast operating cash flow amounts, and
limitations on additional indebtedness, capital expenditures, lease agreements,
investments and distributions to partners. The Partnership was in violation of
certain of these financial covenants at December 31, 1997 and 1996.
Additionally, the Partnership did not make the first required principal payment
of $50,000 due January 1, 1998. As a result of these matters, the noteholder has
the right to demand payment. Therefore, the entire principal balance has been
classified as current at December 31, 1997 and 1996. Interest payments on this
note are current.
The carrying amount reported for long-term debt approximates fair value.
6. OPERATING LEASES:
The Partnership leases a vehicle and a tower site under operating leases
with future minimum rental payments as follows:
<TABLE>
<CAPTION>
<S> <C>
1998............................................................... $ 57,700
1999............................................................... 56,600
2000............................................................... 58,700
2001............................................................... 60,900
Thereafter......................................................... 13,200
</TABLE>
Rental expense charged to operations was $56,800 and $50,500 for the years
ended December 31, 1997 and 1996.
7. RELATED PARTY TRANSACTIONS:
Included in other expenses are fees paid to the general partner in the
amounts of $19,400 and $43,800 in 1997 and 1996, respectively.
Cash advances from an affiliate are non-interest bearing and have no fixed
due dates. It is anticipated that these advances will be repaid upon completion
of the events described in Note 8.
Accounts receivable, partners at December 31, 1996 were collected in January
1997.
8. SUBSEQUENT EVENTS:
On January 14, 1998, the Partnership entered into an agreement to sell
substantially all of the assets associated with its three radio stations for
$5,250,000 in cash. The party agreeing to purchase the stations began
programming and marketing all three stations on that date under an LMA. Subject
to FCC approval, the Partnership expects to consummate this sale in the second
quarter of 1998.
F-276
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of changes in owner's equity (deficit) in
stations and of cash flows present fairly, in all material respects, the
financial position of Savannah Valley Broadcasting Radio Properties at December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 27, 1998
F-277
<PAGE>
SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------ --------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
ASSETS
<S> <C> <C> <C>
Current assets:
Cash.................................................................. $ -- $ -- $ --
Short term investments................................................ -- -- 199,000
Accounts receivable, less allowance for
doubtful accounts of $58,000, $58,000 and $25,000, respectively..... 170,000 11,000 560,000
Receivable from Cumulus............................................... 80,000 85,000 --
Prepaid expenses and other current assets............................. 69,000 3,000 34,000
------------ ------------ ------------
Total current assets.............................................. 319,000 99,000 793,000
Property and equipment, net............................................. 302,000 649,000 787,000
Intangible assets, net.................................................. 2,416,000 2,435,000 2,640,000
------------ ------------ ------------
Total assets...................................................... $ 3,037,000 $ 3,183,000 $ 4,220,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND OWNER'S EQUITY (DEFICIT) IN STATIONS
Current liabilities:
Line of credit........................................................ $ 717,000 $ 866,000 $ 1,142,000
Current portion of notes payable...................................... 2,000,000 2,280,000 20,000
Related party note payable............................................ 50,000 50,000 50,000
Due to related party.................................................. -- -- 174,000
Accounts payable...................................................... 35,000 30,000 77,000
Accrued legal fees.................................................... -- 81,000 --
Accrued and other current liabilities................................. 186,000 54,000 23,000
------------ ------------ ------------
Total current liabilities......................................... 2,988,000 3,361,000 1,486,000
------------ ------------ ------------
Long-term liabilities:
Notes payable, less current portion................................... -- -- 2,280,000
------------ ------------ ------------
Total liabilities................................................. 2,988,000 3,361,000 3,766,000
------------ ------------ ------------
Commitments and contingencies
Owner's equity (deficit) in stations.................................... 49,000 (178,000) 454,000
------------ ------------ ------------
Total liabilities and owner's equity (deficit) in stations........ $ 3,037,000 $ 3,183,000 $ 4,220,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Combined Financial Statements.
F-278
<PAGE>
SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
----------------------- ----------------------------------------
1998 1997 1997 1996 1995
----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $ 248,000 $ 767,000 $ 2,283,000 $ 3,351,000 $ 3,380,000
Less: agency commissions.................... (26,000) (84,000) (258,000) (309,000) (427,000)
Income from time brokerage agreement........ 60,000 -- 118,000 -- --
----------- ---------- ------------ ------------ ------------
Net revenues............................ 282,000 683,000 2,143,000 3,042,000 2,953,000
Operating expenses:
Programming................................. 94,000 233,000 829,000 1,368,000 1,339,000
Sales and promotions........................ 41,000 156,000 590,000 607,000 665,000
Technical................................... 26,000 61,000 188,000 216,000 224,000
General and administrative.................. 130,000 152,000 604,000 705,000 729,000
Depreciation and amortization............... 74,000 87,000 352,000 362,000 354,000
----------- ---------- ------------ ------------ ------------
Total operating expenses................ 365,000 689,000 2,563,000 3,258,000 3,311,000
----------- ---------- ------------ ------------ ------------
Loss from operations.......................... (83,000) (6,000) (420,000) (216,000) (358,000)
Donation expense, net....................... (217,000) -- -- -- --
Interest expense, net....................... (75,000) (49,000) (246,000) (287,000) (253,000)
----------- ---------- ------------ ------------ ------------
Net loss...................................... $ (375,000) $ (55,000) $ (666,000) $ (503,000) $ (611,000)
----------- ---------- ------------ ------------ ------------
----------- ---------- ------------ ------------ ------------
</TABLE>
See Notes to Combined Financial Statements.
F-279
<PAGE>
SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES
COMBINED STATEMENTS OF CHANGES IN OWNER'S EQUITY (DEFICIT) IN STATIONS
<TABLE>
<S> <C>
Balance at January 1, 1995...................................................... $1,540,000
Distribution to owner........................................................... (12,000)
Net loss........................................................................ (611,000)
---------
Balance at December 31, 1995.................................................... 917,000
Distribution from partnership................................................... 40,000
Net loss........................................................................ (503,000)
---------
Balance at December 31, 1996.................................................... 454,000
Contribution of related party obligation........................................ 174,000
Distribution to owner........................................................... (140,000)
Net loss........................................................................ (666,000)
---------
Balance at December 31, 1997.................................................... $(178,000)
---------
---------
</TABLE>
See Notes to Combined Financial Statements.
F-280
<PAGE>
SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------- FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996 1995
----------- ---------- ----------- -----------
1997
-----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $ (375,000) $ (55,000) $ (666,000) $ (503,000) $ (611,000)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Donation of station, net....................... 217,000 -- -- -- --
Depreciation and amortization.................. 74,000 84,000 352,000 362,000 354,000
Decrease (increase) in accounts receivable,
net.......................................... (159,000) 68,000 549,000 44,000 (34,000)
Decrease (increase) in receivable from
Cumulus...................................... 61,000 -- (85,000) -- --
Decrease (increase) in prepaid expenses and
other current assets......................... (66,000) (53,000) 31,000 (4,000)
Increase in due to related party............... -- -- -- 70,000 10,000
(Decrease) increase in accounts payable........ 5,000 (31,000) (47,000) 20,000 57,000
Increase (decrease) in accrued and other
liabilities.................................. 132,000 (18,000) 112,000 (19,000) 88,000
----------- ---------- ----------- ----------- -----------
Net cash (used in) provided by operating
activities............................... (168,000) (5,000) 246,000 (26,000) (140,000)
----------- ---------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment............ -- -- (9,000) (8,000) (362,000)
Purchase (sale) of short-term investment,
net.......................................... -- -- 199,000 148,000 (35,000)
----------- ---------- ----------- ----------- -----------
Cash (used for) provided by investing
activities............................... -- -- 190,000 140,000 (397,000)
----------- ---------- ----------- ----------- -----------
Cash flows from financing activities:
(Decrease) increase in notes payable........... -- (5,000) (20,000) (89,000) 390,000
Contribution from owner........................ 317,000 -- -- -- --
Distribution from partnership.................. -- 5,000 -- 40,000 --
Dividends and distributions.................... -- -- (140,000) -- (12,000)
Borrowings (payments) on line of credit........ (149,000) 43,000 (276,000) (98,000) --
Payments on borrowings from related party...... -- -- -- -- 50,000
----------- ---------- ----------- ----------- -----------
Cash (used for) provided by financing
activities............................... 168,000 43,000 (436,000) (147,000) 428,000
----------- ---------- ----------- ----------- -----------
Net change in cash............................. -- 38,000 -- (33,000) (109,000)
----------- ---------- ----------- ----------- -----------
Cash at beginning of period.................... -- -- -- 33,000 142,000
----------- ---------- ----------- ----------- -----------
Cash at end of period.......................... $ -- $ 38,000 $ -- $ -- $ 33,000
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
Non-cash operating activities:
Trade revenue.................................. $ 23,127 $ 44,062 $ 121,000 $ 276,000 $ 315,000
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
Trade expense.................................. $ 78,709 $ 55,720 $ 108,000 $ 239,000 $ 315,000
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest......................... $ 46,000 $ 92,000 $ 200,000 $ 293,000 $ 310,000
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
Contribution of related party obligation....... $ -- $ 174,000 $ 174,000 $ -- --
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
Payment of legal fees by third party........... $ 81,000 $ -- $ -- $ -- $ --
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
Payment of notes payable and accrued interest
by owner..................................... $ 286,000 $ -- $ -- $ -- $ --
----------- ---------- ----------- ----------- -----------
----------- ---------- ----------- ----------- -----------
</TABLE>
See Notes to Combined Financial Statements.
F-281
<PAGE>
SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Savannah Valley Broadcasting Radio Properties (the "Company") consists of
radio stations WBBQ-AM/FM and WZNY-FM ("the Stations") located in Augusta,
Georgia which are owned and operated by common related ownership. The
combination of the financial statements includes the accounts of WBBQ-AM/FM and
WZNY-FM due to common ownership of the Stations.
In September, 1997, Savannah Valley Broadcasting Radio Properties entered
into an agreement with Cumulus Broadcasting, Inc. (a wholly owned subsidiary of
Cumulus Media Inc.) ("Cumulus"), to sell the assets of Savannah Valley
Broadcasting Radio Properties, subject to approval of the Federal Communication
Commission, to Cumulus. Effective September 4, 1997, the Stations have been
operating under time brokerage agreements ("TBAs") with Cumulus. Under these
TBAs, the Stations have agreed to sell certain broadcast time on the Stations
and Cumulus has agreed to provide programming to and sell advertising on the
Stations during the purchased time. Accordingly, during the TBA period, revenue
derived from the advertising sold during the purchased time and certain expenses
of the Stations are recorded by Cumulus in exchange for a TBA fee. This TBA fee
has been reflected in the combined statement of operations. The Stations retain
responsibility for ultimate control of the Stations in accordance with FCC
policies.
As of December 31, 1997, Savannah Valley Broadcasting Radio Properties has a
term note payable and a line of credit of $2,000,000 and $866,000, respectively.
The original maturity dates of these instruments were extended by the bank to
April 15, 1998 in anticipation of the closing of the sale to Cumulus. These
financial statements have been prepared assuming the sale will close by April
15, 1998, or that Savannah Valley Broadcasting Radio Properties will have the
ability to extend or refinance these debt instruments.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SHORT-TERM INVESTMENTS
The Company accounts for short term investments in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115") which requires investment securities
to be classified as either held to maturity, trading or available for sale.
Short term investments are comprised of mutual funds with no stated maturity
date and are therefore classified as current.
F-282
<PAGE>
SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
At December 31, 1996, the Company held available for sale mutual funds of
$199,000. The difference between the fair value and the cost basis of these
investments is not significant at December 31, 1996. These investments were sold
during 1997. As the carrying value approximated the respective fair value, no
gain or loss was recognized on the sale.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed primarily using accelerated methods of depreciation
over the estimated useful lives of the respective assets, generally five to
thirty-nine years.
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include Federal Communications Commission ("FCC") license.
Intangible assets are stated at cost and are being amortized using the
straight-line method over 15 years. The Company evaluates the carrying value of
intangibles periodically in relation to the projected future undiscounted net
cash flows of the related businesses.
INCOME TAXES
The Company is operated as pass-through entities for Federal tax purposes.
Under this election the income or loss of the entities is included in the tax
returns of the individual shareholders. Accordingly, federal income taxes are
not included in the accompanying financial statements.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, and accounts payable
approximate fair value due to their short-term nature. The fair value of notes
payable is based on current market rates and approximates the carrying value.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in
F-283
<PAGE>
SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
accordance with generally accepted accounting principles for interim financial
information and with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments necessary for a fair presentation of results of the
interim periods have been made and such adjustments were of a normal and
recurring nature. The results of operations and cash flows for the three months
ended March 31, 1998 are not necessarily indicative of the results that can be
expected for the entire fiscal year ending December 31, 1998.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Building and improvements....................................... $ 601,000 $ 596,000
Broadcasting towers and equipment............................... 1,324,000 1,324,000
Office furniture and equipment.................................. 456,000 458,000
------------- -------------
2,381,000 2,378,000
Accumulated depreciation........................................ (1,864,000) (1,723,000)
Land............................................................ 132,000 132,000
------------- -------------
Property and equipment, net..................................... $ 649,000 $ 787,000
------------- -------------
------------- -------------
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $145,000, $155,000 and $147,000, respectively.
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
FCC licenses...................................................... $ 3,106,000 $ 3,106,000
Accumulated amortization.......................................... (671,000) (466,000)
------------ ------------
Intangible assets, net............................................ $ 2,435,000 $ 2,640,000
------------ ------------
------------ ------------
</TABLE>
Amortization expense for the years ended December 31, 1997, 1996 and 1995
was $207,000 for each of these years, respectively.
4. RELATED PARTY TRANSACTIONS:
As of December 31, 1997 and 1996, the Company has a note payable to a former
owner in the amount of $50,000 related to the re-purchase of stock from him.
This note is due upon demand and bears interest at 6% per annum, payable on June
30 and December 31 of each year.
F-284
<PAGE>
SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS: (CONTINUED)
As of December 31, 1996, the Company had a payable to a related entity.
During 1997, this entity was donated to charity. The payable balance remaining
at the time of donation of $174,000 was forgiven and has therefore been
accounted for as a contribution to the owner of the stations.
5. NOTES PAYABLE
In October 1994, and as amended October 1996, the Company entered into a
Master Note Agreement (the "Agreement") with a bank which provided for a
$2,000,000 term note and a $1,240,000 line of credit. Both the term note and the
line of credit bear interest at the adjusted prime rate (8.5% at December 31,
1997) and are secured by substantially all of the Station's assets. Accrued
interest is payable monthly. The original maturities of these notes of October
27, 1997 have been extended through April 15, 1998, at which time all principal
and accrued interest is due and payable. The balance of the term note and line
of credit as of December 31, 1997 are $2,000,000 and $866,000, respectively.
In March 1995, the Company entered into a note agreement with a bank which
provided for a note payable in the amount of $425,000. The note is payable in
120 monthly installments of principal and interest through April 2001. The
interest rate on this note was 7.8% at December 31, 1997. The note is secured by
substantially all of the Station's assets. Subsequent to December 31, 1997, the
principal balance of the note and all remaining accrued interest was paid in
full; therefore, the balance of this note of $280,000 as of December 31, 1997
has been classified as current.
In September 1997, the assets of WZNY were transferred from the Company to
the Company's sole shareholder causing an event of default under the note
agreements with the bank. In October 1997, the Company and the Company's sole
shareholder entered into an agreement with the bank, whereby, the bank waived
this default and permitted the transfer of the assets of WZNY as well as the
assumption of the obligation of payments on the notes by the Company's sole
shareholder. This agreement does not release the Company from its obligations
under the original note agreements, nor does it affect the original collateral
securing the notes.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Notes payable consist of:
Term loan payable to a bank............................................... $ 2,000,000 $ 2,000,000
Note payable to a bank.................................................... 280,000 300,000
------------ ------------
Less: current portion..................................................... (2,280,000) (20,000)
------------ ------------
Long term portion......................................................... $ -- $ 2,280,000
------------ ------------
------------ ------------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $33,000, $48,000 and $103,000
for the years ended December 31, 1997, 1996 and 1995, respectively, under
operating leases for radio broadcasting facilities. Future minimum annual
payments under these non-cancelable operating leases and agreements as of
December 31, 1997, are $55,000 for 1998 and $54,000 for 1999.
F-285
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in members' equity and of cash flows present fairly,
in all material respects, the financial position of Seacoast Radio Company, LLC
(the "Company") at December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1997 in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 24, 1998
F-286
<PAGE>
SEACOAST RADIO COMPANY, LLC
BALANCE SHEETS (DOLLARS IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents....................................................................... $ 15 $ 44
Accounts receivable, less allowance for doubtful accounts of $8................................. 104 82
Prepaid and other current assets................................................................ 4 4
--------- ---------
Total current assets.......................................................................... 123 130
--------- ---------
Property and equipment, net....................................................................... 137 176
Intangible assets, net............................................................................ 205 223
--------- ---------
Total assets.................................................................................. $ 465 $ 529
--------- ---------
--------- ---------
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........................................................... $ 13 $ 15
Related party payable........................................................................... 112 90
Current portion of long-term debt............................................................... 284 50
--------- ---------
Total current liabilities..................................................................... 409 155
Long-term debt.................................................................................... 44 330
--------- ---------
Total liabilities............................................................................. 453 485
--------- ---------
Commitments and contingencies
Members' equity................................................................................... 12 44
--------- ---------
Total liabilities and members' equity......................................................... $ 465 $ 529
--------- ---------
--------- ---------
</TABLE>
See Notes to Financial Statements.
F-287
<PAGE>
SEACOAST RADIO COMPANY, LLC
STATEMENTS OF OPERATIONS (DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Revenues.......................................................................................... $ 820 $ 752
Less: agency commissions.......................................................................... (80) (66)
--------- ---------
Net revenues.................................................................................. 740 686
--------- ---------
Operating expenses:
Programming..................................................................................... 131 89
Sales and promotions............................................................................ 101 92
Technical....................................................................................... 15 18
General and administrative...................................................................... 168 165
Trade........................................................................................... 65 71
Depreciation and amortization................................................................... 58 56
--------- ---------
Total operating expenses...................................................................... 538 491
--------- ---------
Income from operations............................................................................ 202 195
Interest expense, net............................................................................. (34) (37)
--------- ---------
Net income........................................................................................ $ 168 $ 158
--------- ---------
--------- ---------
</TABLE>
See Notes to Financial Statements.
F-288
<PAGE>
SEACOAST RADIO COMPANY, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DOLLARS IN 000'S)
<TABLE>
<S> <C>
Balance at January 1, 1996........................................... $ (72)
Dividend to members.................................................. (42)
Net income........................................................... 158
---------
Balance at December 31, 1996......................................... 44
Dividend to members.................................................. (200)
Net income........................................................... 168
---------
Balance at December 31, 1997......................................... $ 12
---------
---------
</TABLE>
See Notes to Financial Statements.
F-289
<PAGE>
SEACOAST RADIO COMPANY, LLC
STATEMENTS OF CASH FLOWS (DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Cash flows from operating activities:
Net income...................................................................................... $ 168 $ 158
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................................... 58 56
Increase in accounts receivable................................................................. (23) (41)
Decrease in prepaid expenses and other current assets........................................... -- 2
Increase (decrease) in accounts payable......................................................... 20 (31)
--------- ---------
Net cash provided by operating activities..................................................... 223 144
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment............................................................. (1) (17)
Net cash used for investing activities........................................................ (1) (17)
Cash flows from financing activities:
Proceeds from borrowing......................................................................... -- 18
Repayments of borrowing......................................................................... (51) (59)
Dividends to members............................................................................ (200) (42)
--------- ---------
Net cash used in financing activities......................................................... (251) (83)
--------- ---------
(Decrease) increase in cash and cash equivalents.................................................. (29) 44
Cash and cash equivalents at beginning of year.................................................... 44 --
--------- ---------
Cash and cash equivalents at end of year.......................................................... $ 15 $ 44
--------- ---------
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid for interest.......................................................................... $ 34 $ 38
--------- ---------
--------- ---------
Non-cash operating activities:
Trade revenue................................................................................... $ 65 $ 71
--------- ---------
--------- ---------
Trade expense................................................................................... $ 65 $ 71
--------- ---------
--------- ---------
</TABLE>
See Notes to Financial Statements.
F-290
<PAGE>
SEACOAST RADIO COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN 000'S)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Seacoast Radio Company, LLC ("the Company") is engaged in the operation of
WDAI-FM, a radio broadcasting station in Surfside Beach, South Carolina.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Broadcasting tower and equipment.................................. 5-7 years
Office furniture and equipment.................................... 5-7 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include FCC licenses. Intangible assets are stated at cost
and are being amortized using the straight-line method over the estimated useful
life of up to 15 years. The Company evaluates the carrying value of intangibles
periodically in relation to the projected future undiscounted net cash flows of
the related station.
INCOME TAXES
The Company has organized in the state of South Carolina as a Limited
Liability Company and is treated as a partnership for federal and state income
tax purposes. Consequently, income taxes are not payable by, or provided for,
the Company. Members are taxed individually on their share of the Company's
earnings. The Company's net income or loss is allocated equally among the
members.
F-291
<PAGE>
SEACOAST RADIO COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as advertising air time is
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Broadcasting tower and equipment................................. $ 200 $ 199
Office furniture and equipment................................... 6 6
----- -----
206 205
Accumulated depreciation......................................... (107) (67)
Land............................................................. 38 38
----- -----
Property and equipment, net...................................... $ 137 $ 176
----- -----
----- -----
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was $40
and $38, respectively.
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
FCC license...................................................... $ 260 $ 260
Accumulated amortization......................................... (55) (37)
----- -----
Intangible assets, net........................................... $ 205 $ 223
----- -----
----- -----
</TABLE>
Amortization expense for the years ended December 31, 1997 and 1996 was $18
and $18, respectively.
4. RELATED PARTY TRANSACTIONS:
The Company has a related party payable to the Sunny Broadcasters, Inc.,
("Sunny"), a company under common control, totaling $112 and $90 at December 31,
1997 and 1996, respectively.
F-292
<PAGE>
SEACOAST RADIO COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
4. RELATED PARTY TRANSACTIONS: (CONTINUED)
Sunny performs certain corporate and accounting functions for the Company
and allocates corporate overhead expenses to the Company based on estimated
hours expended on the operations of the station. Corporate overhead allocations
were approximately $84 and $86 for the years ended December 31, 1997 and 1996,
respectively, including rent expense of $7 for each of the periods ended
December 31, 1997 and 1996.
5. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Long-term debt consists of the following:
Note payable, interest at prime plus 1% (9.5% at December 31, 1997) $4
principal plus interest due monthly, balance due July 2, 1998. $ 274 $ 318
Installment loan, payable in 60 monthly installments of $1 including
interest at 9.25%, final payment due September 2001, collateralized by
equipment. 42 47
Installment loan, payable in 60 monthly installments of $.4 including
interest at 8.95%, final payment due August 2000, collateralized by
automobile. 12 15
----- -----
328 380
Less current portion (284) (50)
----- -----
$ 44 $ 330
----- -----
----- -----
</TABLE>
The note payable is payable in 42 monthly installments with interest only
due the first six months; principal payments of $3 plus interest at prime plus
one percent the next twelve months; $3.5 principal plus interest the next twelve
months; $4 principal plus interest the next twelve months with the final
installment on July 2, 1998 to include all unpaid principal and interest due on
the loan. The debt is collateralized by substantially all assets of the Company.
The Company's long-term debt agreement contains certain restrictions and
covenants. Under these restrictions, the Company must obtain the consent of the
lender to borrow from others, make any loan or advance to any individual,
partnership, corporation or other entity, sell, assign, dispose of, or transfer
any assets of the Company or make capital expenditures in excess of $50 per
year. In addition, the Company must maintain a specified cash flow debt coverage
ratio.
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998......................................................... $ 284
1999......................................................... 11
2000......................................................... 10
2001......................................................... 23
---------
$ 328
---------
---------
</TABLE>
F-293
<PAGE>
SEACOAST RADIO COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
6. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $7 for the year ended
December 31, 1997 and 1996, under operating leases for radio broadcasting
facilities. There are no future minimum annual payments under this cancelable
operating lease.
The Company is involved in various other claims and lawsuits which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable and accrued expenses approximates fair value due to their
short-term nature. The fair value of long-term debt is estimated based on
current market rates and approximates the carrying value.
8. OTHER TRANSACTIONS:
On October 11, 1997, the Company entered into an asset purchase agreement to
sell all of the Company's assets to Cumulus Broadcasting, Inc. (a wholly-owned
subsidiary of Cumulus Media Inc.) for $4 million.
F-294
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Sunny Broadcasters,
Inc. the ("Company") at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 24, 1998
F-295
<PAGE>
SUNNY BROADCASTERS, INC.
BALANCE SHEETS (DOLLARS IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................................... $ 38 $ 58
Accounts receivable, less allowance for doubtful accounts of $8............................... 168 151
Related party receivable...................................................................... 112 90
Prepaid and other current assets.............................................................. 19 19
--------- ---------
Total current assets........................................................................ 337 318
Property and equipment, net..................................................................... 501 599
Intangible assets, net.......................................................................... 114 124
--------- ---------
Total assets................................................................................ $ 952 $ 1,041
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities...................................................... $ 48 $ 47
Trade payable................................................................................. 8 --
Current portion of notes payable.............................................................. 13 12
Current portion notes payable--stockholders................................................... 678 97
--------- ---------
Total current liabilities................................................................... 747 156
Commitments and contingencies
Long-term liabilities:
Notes payable................................................................................. 129 142
Note payable--stockholders.................................................................... 192 869
--------- ---------
Total liabilities........................................................................... 1,068 1,167
--------- ---------
Stockholders' equity:
Common stock, $10 par value, 100,000 shares authorized, 100 shares issued and outstanding..... 10 10
Additional paid-in-capital.................................................................... 400 400
Accumulated deficit........................................................................... (362) (372)
Less treasury stock, at cost.................................................................. (164) (164)
--------- ---------
Total stockholders' equity.................................................................. (116) (126)
--------- ---------
Total liabilities and stockholders' equity.................................................. $ 952 $ 1,041
--------- ---------
--------- ---------
</TABLE>
See Notes to Financial Statements.
F-296
<PAGE>
SUNNY BROADCASTERS, INC.
STATEMENTS OF OPERATIONS (DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Revenues....................................................................................... $ 1,359 $ 1,268
Less: agency commissions....................................................................... (111) (101)
--------- ---------
Net revenues............................................................................... 1,248 1,167
Operating expenses:
Programming.................................................................................. 253 227
Sales and promotions......................................................................... 182 174
Technical.................................................................................... 27 29
General and administrative................................................................... 271 256
Trade........................................................................................ 117 131
Depreciation and amortization................................................................ 117 113
--------- ---------
Total operating expenses................................................................... 967 930
--------- ---------
Income from operations......................................................................... 281 237
Other income and expense:
Interest expense............................................................................. (99) (107)
--------- ---------
Net income..................................................................................... $ 182 $ 130
--------- ---------
--------- ---------
</TABLE>
See Notes to Financial Statements.
F-297
<PAGE>
SUNNY BROADCASTERS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN 000'S)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN- ACCUMULATED TREASURY
STOCK CAPITAL DEFICIT STOCK TOTAL
------------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996................................ $ 10 $ 400 $ (500) $ (164) $ (254)
Dividends................................................. -- -- (2) -- (2)
Net income................................................ -- -- 130 -- 130
--- ----- ----- ----- ---------
Balance at December 31, 1996.............................. 10 400 (372) (164) (126)
Dividends................................................. -- -- (172) -- (172)
Net income................................................ -- -- 182 -- 182
--- ----- ----- ----- ---------
Balance at December 31, 1997.............................. $ 10 $ 400 $ (362) $ (164) $ (116)
--- ----- ----- ----- ---------
--- ----- ----- ----- ---------
</TABLE>
See Notes to Financial Statements.
F-298
<PAGE>
SUNNY BROADCASTERS, INC.
STATEMENT OF CASH FLOWS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Cash flows from operating activities:
Net income.................................................................................. $ 182 $ 130
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................................. 117 113
Increase in accounts receivable........................................................... (17) (60)
(Increase) decrease in receivable from related party...................................... (22) 21
Increase (decrease) in accounts payable................................................... 1 (39)
Increase in accounts payable--trades...................................................... 8 --
--------- ---------
Net cash provided by operating activities............................................... 269 165
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment......................................................... (9) (27)
--------- ---------
Net cash used for investing activities.................................................. (9) (27)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowing..................................................................... -- 39
Repayments of borrowing..................................................................... (108) (118)
Dividends paid to stockholders.............................................................. (172) (2)
--------- ---------
Net cash used for financing activities.................................................. (280) (81)
--------- ---------
(Decrease) increase in cash and cash equivalents.............................................. (20) 57
Cash and cash equivalents at beginning of year................................................ 58 1
--------- ---------
Cash and cash equivalents at end of year...................................................... $ 38 $ 58
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information
Cash paid for interest...................................................................... $ 93 $ 100
--------- ---------
--------- ---------
Non-cash operating activities:
Trade revenue............................................................................... $ 109 $ 131
--------- ---------
--------- ---------
Trade expense............................................................................... $ 117 $ 131
--------- ---------
--------- ---------
</TABLE>
See Notes to Financial Statements.
F-299
<PAGE>
SUNNY BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 (DOLLARS IN 000'S)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Sunny Broadcasters, Inc. (the "Company") owns and operates the radio station
WSYN-FM in Surfside Beach, South Carolina.
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Buildings and improvements........................................ 31 years
Broadcasting tower and equipment.................................. 5-7 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include Federal Communications Commission ("FCC") license
and organization costs. Intangible assets are stated at cost and are being
amortized using the straight-line method over the estimated useful life or
contract term for periods not exceeding 20 years. The Company evaluates the
carrying value of intangibles periodically in relation to the projected future
undiscounted net cash flows of the related stations.
INCOME TAXES
The Company has elected to be treated as an S Corporation for federal income
tax purposes. Under this election the income or loss of the S Corporation is
included in the tax returns of the individual shareholders. Accordingly, federal
income taxes are not included in the accompanying financial statement.
F-300
<PAGE>
SUNNY BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 (DOLLARS IN 000'S)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
2. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Building and improvements........................................ $ 171 $ 171
Broadcasting tower and equipment................................. 704 695
----- -----
875 866
Accumulated depreciation......................................... (672) (565)
Land............................................................. 298 298
----- -----
Property and equipment, net...................................... $ 501 $ 599
----- -----
----- -----
</TABLE>
Depreciation expense for the year ended December 31, 1997 and the year ended
December 31, 1996 and $107 and $103, respectively.
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
FCC license...................................................... $ 190 $ 190
Organization expense............................................. 2 2
----- -----
192 192
Accumulated amortization......................................... (78) (68)
----- -----
Intangible assets, net........................................... $ 114 $ 124
----- -----
----- -----
</TABLE>
Amortization expense for the year ended December 31, 1997 and the year ended
December 31, 1996 was $10 and $10, respectively.
F-301
<PAGE>
SUNNY BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 (DOLLARS IN 000'S)
4. RELATED PARTY TRANSACTIONS:
The Company has receivables due from Seacoast Radio Company, LLC
("Seacoast"), which is under common ownership, totalling $112 and $90 at
December 31, 1997 and 1996, respectively.
Sunny performs certain corporate and accounting functions for Seacoast and
allocates corporate overhead expenses to Seacoast based upon estimated hours
expended on the operations of Seacoast. Corporate overhead allocations were
approximately $84 and $86 for the years ended December 31, 1997 and 1996,
respectively, including rent income for each of the periods ended December 31,
1997 and 1996.
5. NOTES PAYABLE:
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Note payable $150 principal, principal and interest due in 35 monthly installments of
$1.5, interest at 7.5%, balance of $109 plus accrued interest due July 1999. Note
collateralized by land and building................................................ $ 122 $ 129
Note payable, $26 principal, principal and interest due in 60 monthly installments of
$.5, interest at 9.25%, through September 2001. Note collateralized by
equipment.......................................................................... 20 25
----- -----
142 154
Less current portion................................................................. (13) (12)
----- -----
$ 129 $ 142
----- -----
----- -----
</TABLE>
The Company's note payable agreement contains certain restrictions and
covenants. Under these restrictions, the Company must obtain the consent of the
lender to borrow from others, make any loan or advance to any individual,
partnership, corporation or other entity, sell, assign, dispose of, or transfer
any assets of the company or make capital expenditures in excess of $50 per
fiscal year. In addition, the Company must maintain a specified cash flow debt
coverage ratio.
Maturities of notes payable are as follows:
<TABLE>
<S> <C>
1998................................................................. $ 13
1999................................................................. 116
2000................................................................. 7
2001................................................................. 6
---------
$ 142
---------
---------
</TABLE>
F-302
<PAGE>
SUNNY BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 (DOLLARS IN 000'S)
6. NOTE PAYABLE-STOCKHOLDERS
Notes payable-stockholders consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Note payable to stockholders, $755 principal, payable in 102 monthly installments of
$6 plus interest at prime plus 1%, which equaled 9.5% at December 31, 1997, final
payment due September 1998, collateralized by substantially all assets of the
Company............................................................................ $ 654 $ 729
Note payable to former stockholder, $277 principal, principal and interest due in 120
monthly installment of $3.4, interest at 8.5% through December 2004. Note secured
by the personal guarantees of the stockholders..................................... 216 237
----- -----
870 966
Less current portion................................................................. (678) (97)
----- -----
$ 192 $ 869
----- -----
----- -----
</TABLE>
The note payable to former stockholder is comprised of $164 due from the
Company for the repurchase of 333 1/3 shares of outstanding common stock into
treasury and $113 of dividends payable to the same stockholder.
Maturities of notes payable to stockholders are as follows:
<TABLE>
<S> <C>
1998................................................................. $ 678
1999................................................................. 26
2000................................................................. 28
2001................................................................. 31
2002................................................................. 33
Thereafter........................................................... 74
---------
$ 870
---------
---------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
The Company is involved in various other claims and lawsuits which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable and accrued liabilities approximates fair value due to their
short term nature. The fair value of notes payable are estimated based on
current market rates and approximate the carrying value.
F-303
<PAGE>
SUNNY BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996 (DOLLARS IN 000'S)
9. OTHER TRANSACTIONS:
On October 11, 1997, the Company entered into an asset purchase agreements
to sell all of the assets of the Company to Cumulus Broadcasting, Inc. (a
wholly-owned subsidiary of Cumulus Media Inc.) for $4 million.
F-304
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Tallahassee
Broadcasting, Inc., (the "Company") at December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. 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
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 20, 1998
F-305
<PAGE>
TALLAHASSEE BROADCASTING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 6,857 $ 6,653
Accounts receivable, less allowance for doubtful accounts of $3,698 and $7,693.... 2,008 37,761
Other current assets.............................................................. 18,001 19,517
------------- ------------
Total current assets.......................................................... 26,866 63,931
Property and equipment, net......................................................... 542,014 581,014
Other assets........................................................................ 3,404 3,404
------------- ------------
Total assets.................................................................. $ 572,284 $ 648,349
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 52,711 $ 68,533
Accrued property taxes............................................................ 27,870 27,870
Accrued compensation.............................................................. 2,848 29,322
Due to related parties, net....................................................... 1,837,278 1,843,178
------------- ------------
Total current liabilities..................................................... 1,920,707 1,968,903
------------- ------------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $1.00 par value, 500 shares authorized, issued and outstanding...... 500 500
Accumulated deficit............................................................... (1,348,923) (1,321,054)
------------- ------------
Total stockholders' equity (deficit).......................................... (1,348,423) (1,320,554)
------------- ------------
Total liabilities and stockholders' equity (deficit).......................... $ 572,284 $ 648,349
------------- ------------
------------- ------------
</TABLE>
See Notes to Financial Statements.
F-306
<PAGE>
TALLAHASSEE BROADCASTING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
------------------------ ------------------
1998 1997 1997
----------- ----------- ------------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues............................................................ $ -- $ 227,855 $ 794,377
Less: agency commissions.......................................... -- (17,485) (75,516)
----------- ----------- ------------------
Net revenues.................................................. -- 210,370 718,861
Operating expenses:
Sales and promotions.............................................. 3,659 48,566 307,705
Programming....................................................... 1,418 57,510 197,185
Engineering....................................................... 513 13,364 55,327
General and administrative........................................ 9,841 76,553 385,229
Depreciation...................................................... 39,000 39,000 170,107
----------- ----------- ------------------
Total operating expenses...................................... 54,431 234,993 1,115,553
----------- ----------- ------------------
Loss from operations................................................ (54,431) (24,623) (396,692)
Other income........................................................ 26,562 11,155 39,494
----------- ----------- ------------------
Loss before income taxes............................................ (27,869) (13,468) (357,198)
Income taxes benefit................................................ -- -- --
----------- ----------- ------------------
Net loss............................................................ $ (27,869) $ (13,468) $ (357,198)
----------- ----------- ------------------
----------- ----------- ------------------
</TABLE>
See Notes to Financial Statements.
F-307
<PAGE>
TALLAHASSEE BROADCASTING, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
----------- ------------- -------------
<S> <C> <C> <C>
Balance at January 1, 1997............................................... $ 500 $ (963,856) $ (963,356)
Net loss................................................................. -- (357,198) (357,198)
----- ------------- -------------
Balance at December 31, 1997............................................. $ 500 $ (1,321,054) $ (1,320,554)
----- ------------- -------------
----- ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-308
<PAGE>
TALLAHASSEE BROADCASTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
------------------------ ------------------
1998 1997 1997
----------- ----------- ------------------
<S> <C> <C> <C>
(UNAUDITED)
Cash flows provided by operating activities:
Net loss.......................................................... $ (27,869) $ (13,468) $ (357,198)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.................................................... 39,000 42,281 170,107
Loss on equipment disposals..................................... -- 15,947 15,947
Provision for doubtful accounts................................. (4,001) -- 7,693
(Increase) decrease in accounts receivable...................... 39,754 (38,903) 77,210
(Increase) decrease in other current assets..................... 1,516 (15,312) (17,509)
Decrease in other assets........................................ -- 2,500 2,500
Increase (decrease) in accounts payable......................... (15,822) 27,617 66,187
Decrease in accrued property taxes.............................. -- -- 27,870
Decrease in accrued compensation................................ (26,474) (47,098) (17,776)
Increase (decrease) in due to related parties................... (5,900) 35,671 28,883
----------- ----------- ----------
Net cash provided by operating activities..................... 204 9,235 3,914
----------- ----------- ----------
Cash flows used in investing activities:
Purchases of property and equipment............................... -- (5,828) (5,828)
----------- ----------- ----------
Cash used in investing activities............................. -- (5,828) (5,828)
----------- ----------- ----------
Increase (decrease) in cash......................................... 204 3,407 (1,914)
Cash and cash equivalents at beginning of period.................... 6,653 8,576 8,567
----------- ----------- ----------
Cash and cash equivalents at end of period.......................... $ 6,857 $ 11,983 $ 6,653
----------- ----------- ----------
----------- ----------- ----------
Non-cash operating activities:
Trade revenue..................................................... $ 0 $ 51,386 $ 127,141
----------- ----------- ----------
----------- ----------- ----------
Trade expense..................................................... $ 0 $ 12,981 $ 127,141
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See Notes to Financial Statements.
F-309
<PAGE>
TALLAHASSEE BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Tallahassee Broadcasting Inc., a Florida corporation (the "Company"), owns
and operates the radio station WGLF-FM (the "Station") located in Tallahassee,
FL.
The Company shares common owners and officers with Timm Enterprises, Inc.
("Timm"), which provides certain services to the Station. As more fully
described in Note 2, the accompanying financial statements include expense
allocations from Timm for such services. In addition, the Company participates
in a centralized cash management program sponsored by Timm. The Company has
significant transactions with related parties and is dependent upon the related
parties and its owners for continued financial support.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated using the straight-line method over estimated useful lives
ranging from 5 to 40 years.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
F-310
<PAGE>
TALLAHASSEE BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
The Company files consolidated federal and state income tax returns with an
affiliated company that shares common owners and officers, Sterling
Communications Corporation. The Company has provided for federal income taxes on
a stand-alone basis based on an informal tax allocation agreement between the
two companies.
Deferred tax assets and liabilities are determined based on differences
between financial reporting and the tax basis of assets and liabilities using
the enacted tax rates and laws. Deferred income tax expense or benefit is based
on the changes in the asset or liability from period to period. Future tax
benefits, such as net operating loss carryforwards, are recognized to the extent
that realization of such benefits is more likely than not.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to their short-term nature.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
2. RELATED PARTY TRANSACTIONS:
Due to related parties consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Net balance due to Timm......................................... $ 449,413
Advances due to other affiliates................................ 859,311
Advances due to shareholder..................................... 306,154
Accrued rent payable to shareholder............................. 228,300
---------
$1,843,178
---------
---------
</TABLE>
The Company participates in a centralized cash management program with Timm.
Accordingly, the Company's cash receipts and disbursements are controlled
centrally by Timm, and the net activity under this program is reflected in the
net balance due to Timm above. Additionally, the Company has been charged a fee
from Timm for certain services performed on behalf of the Station, including
management, employee benefit and accounting services. Management believes that
the fees charged have been allocated to the Station on a reasonable basis
(principally on the ratio of the Station's revenue to the combined revenues of
all affiliates receiving such services). Such fees totalled $66,674 in 1997.
F-311
<PAGE>
TALLAHASSEE BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. RELATED PARTY TRANSACTIONS: (CONTINUED)
Advances due to other affiliates represent amounts received from certain
affiliated companies who share common owners and officers. Amounts received were
used primarily to fund operating activities of the Station, including the
construction of the Station's broadcasting equipment. The advances are due on
demand and do not accrue interest.
During the period September 1994 through December 1996, the Station received
advances from a shareholder of the Company totalling $306,154. Such advances are
due on demand and do not accrue interest.
The Station leases its studio facility from a shareholder under the terms of
an informal leasing arrangement which management considers to be at arms-length.
Such leasing arrangement requires monthly rent payments of $2,000 and is
expected to terminate upon the closing of the sale with Cumulus. The Company
recorded rent expense of $24,000 during 1997 and has recorded an accrued rent
payable to the shareholder of $228,300 at December 31, 1997. In addition, the
Company pays the property taxes associated with this facility. Property taxes in
1997 totalled $7,097 and have been accrued at December 31, 1997.
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Broadcasting tower and equipment................................ $1,339,500
Building and improvements....................................... 51,931
Studio equipment................................................ 119,920
Furniture and other equipment................................... 235,434
---------
1,746,785
Accumulated depreciation........................................ (1,222,771)
---------
524,014
Land............................................................ 57,000
---------
Property and equipment, net..................................... $ 581,014
---------
---------
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $170,107.
4. INCOME TAXES:
The Company's effective income tax rate differs from the statutory federal
income tax rate as follows:
<TABLE>
<S> <C> <C>
Income tax benefit at federal statutory rate.............. $(121,447) (34.0%)
State income taxes (net of federal benefit)............... (12,862) (3.6%)
Non-deductible items...................................... 980 .3%
Change in valuation allowance............................. 133,329 37.3%
--------- ---------
$ -- --%
--------- ---------
--------- ---------
</TABLE>
F-312
<PAGE>
TALLAHASSEE BROADCASTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES: (CONTINUED)
The significant components of the deferred income tax expense (benefit) for
the year ended December 31, 1997 were as follows:
<TABLE>
<S> <C>
Provision for doubtful accounts................................... $ 2,221
Depreciation...................................................... (12,498)
Net operating loss carryforwards.................................. (123,052)
Increase in the valuation allowance for deferred tax assets....... 133,329
---------
$ --
---------
---------
</TABLE>
Significant components of the deferred tax asset (liabilities) are as
follows:
<TABLE>
<S> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards.................................. $ 704,059
Allowance for doubtful accounts................................... 2,895
Depreciation...................................................... (51,522)
---------
Net deferred tax asset............................................ 655,432
Less valuation allowance.......................................... (655,432)
---------
Total net deferred tax asset...................................... $ --
---------
---------
</TABLE>
The net deferred tax asset at December 31, 1997 is fully offset by a
valuation allowance. The amount of the valuation allowance is reviewed
periodically by management and is determined based on management's assessment of
the Company's ability to generate future taxable income and realize the tax
benefits associated with the deferred tax assets.
Net operating losses expire as follows:
<TABLE>
<S> <C>
2007............................................................ $ 39,155
2008............................................................ 285,929
2009............................................................ 494,791
2010............................................................ 415,522
2011............................................................ 308,562
2012............................................................ 327,047
---------
$1,871,006
---------
---------
</TABLE>
5. SUBSEQUENT EVENTS:
On October 31, 1997, the Company entered into an asset purchase agreement
with Cumulus Broadcasting, Inc. ("Cumulus") to sell substantially all of the
assets and liabilities of the Station to Cumulus. The sale is subject to certain
events that must occur prior to closing which include, among other things,
obtaining the approval of the Federal Communications Commission. In conjunction
with the sale, the Company entered into a time-brokerage agreement ("TBA") with
Cumulus effective November 1, 1997. Under the terms of the TBA, Cumulus has the
right to broadcast certain programming and sell advertising on the Station until
the earlier of the closing or termination of the asset purchase agreement. In
exchange, Cumulus has agreed to pay the Company a monthly fee of $5,000. TBA
fees totaled $10,000 during 1997 and are recorded as a component of other
income.
F-313
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of Tryon-Seacoast
Communications, Inc. at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 20, 1998
F-314
<PAGE>
TRYON-SEACOAST COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 20,088 $ 13,869 $ 10,251
Accounts receivable, less allowance for
doubtful accounts of $26,600, $26,600 and $21,606,
respectively........................................................... 156,229 185,503 260,327
----------- ----------- -----------
Total current assets............................................... 176,317 199,372 270,578
Property and equipment, net................................................ 184,747 194,266 162,632
Intangible assets, net..................................................... 116,410 118,331 53,331
Other assets............................................................... 27,500 28,000 3,362
----------- ----------- -----------
Total assets....................................................... $ 504,974 $ 539,969 $ 489,903
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities................................. $ 219,396 $ 188,803 $ 182,458
Line of credit........................................................... 125,000 125,000 125,000
Current maturities, long-term debt....................................... 55,193 55,193 36,608
----------- ----------- -----------
Total current liabilities.......................................... 399,589 368,996 344,066
----------- ----------- -----------
Noncurrent liabilities:
Note payable--stockholders............................................... 54,900 54,900 54,900
Long term debt........................................................... 601,180 612,315 590,085
----------- ----------- -----------
Total noncurrent liabilities....................................... 656,080 667,215 644,985
----------- ----------- -----------
Commitments and contingencies
Stockholders' deficit:
Common stock, no par value, 4,000 shares authorized, 200 shares issued
and outstanding........................................................ -- -- --
Additional paid-in-capital............................................... 61,000 61,000 --
Accumulated deficit...................................................... (611,695) (557,242) (499,148)
----------- ----------- -----------
Total stockholders' deficit........................................ (550,695) (496,242) (499,148)
----------- ----------- -----------
Total liabilities and stockholders' deficit........................ $ 504,974 $ 539,969 $ 489,903
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-315
<PAGE>
TRYON-SEACOAST COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
------------------------ --------------------------
1998 1997 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues................................................... $ 262,476 $ 268,115 $ 1,196,630 $ 1,289,985
Less: Agency commissions................................... (13,398) (12,782) (61,045) (65,422)
----------- ----------- ------------ ------------
Net revenues....................................... 249,078 255,333 1,135,585 1,224,563
Operating expenses:
Programming.............................................. 69,534 68,503 255,462 247,771
Sales and promotions..................................... 72,376 88,327 388,961 341,231
Technical................................................ 29,047 22,359 102,170 95,840
General and administrative............................... 93,706 78,424 326,201 332,498
Depreciation and amortization............................ 11,440 10,658 33,882 45,838
----------- ----------- ------------ ------------
Total operating expenses........................... 276,103 268,271 1,106,676 1,063,178
----------- ----------- ------------ ------------
Income (loss) from operations.............................. (27,025) (12,938) 28,909 161,385
Interest income............................................ 198 324 1,689 883
Interest expense........................................... (27,626) (34,370) (88,692) (95,440)
----------- ----------- ------------ ------------
Income (loss) before income taxes.......................... (54,453) (46,984) (58,094) 66,828
Income tax expense (benefit)............................... -- -- -- --
----------- ----------- ------------ ------------
Net income (loss).................................. $ (54,453) $ (46,984) $ (58,094) $ 66,828
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-316
<PAGE>
TRYON-SEACOAST COMMUNICATIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN- ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996...................................... $ -- $ -- $ (565,976) $ (565,976)
Net income...................................................... 66,828 66,828
----------- ----------- ------------ -----------
Balance at December 31, 1996.................................... -- -- (499,148) (499,148)
Stockholder contribution........................................ -- 61,000 -- 61,000
Net loss........................................................ (58,094) (58,094)
----------- ----------- ------------ -----------
Balance at December 31, 1997.................................... $ -- $ 61,000 $ (557,242) $ (496,242)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
See Notes to Financial Statements.
F-317
<PAGE>
TRYON-SEACOAST COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
---------- ---------- ---------- ----------
<CAPTION>
UNAUDITED
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $ (54,453) $ (46,984) $ (58,094) $ 66,828
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 11,440 10,658 33,882 45,838
Provision for doubtful accounts............................. -- -- 4,994 2,563
Decrease (increase) in accounts receivable.................. 29,274 69,905 69,830 (25,305)
Increase (decrease) in accounts payable and other
liabilities............................................... 30,593 (23,679) 6,345 (29,542)
---------- ---------- ---------- ----------
Net cash provided by operating activities................. 16,854 9,900 56,957 60,382
---------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of radio station.................................... -- -- (40,000) --
Purchases of property and equipment............................. -- -- (14,956) (7,115)
Payment of escrow deposit....................................... -- -- (25,000) --
Other........................................................... 500 -- 362 846
---------- ---------- ---------- ----------
Net cash provided by (used in) investing activities....... 500 -- (79,594) (6,269)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Principal payments for debt reduction........................... (11,135) (7,240) (34,745) (51,199)
Stockholder contribution........................................ -- -- 61,000 --
---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities....... (11,135) (7,240) 26,255 (51,199)
---------- ---------- ---------- ----------
Increase in cash and cash equivalents............................. 6,219 2,660 3,618 2,914
Cash and cash equivalents at beginning of period.................. 13,869 10,251 10,251 7,337
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period........................ $ 20,088 $ 12,911 $ 13,869 $ 10,251
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Supplemental disclosures of cash flow information:
Cash paid for interest.......................................... $ 21,744 $ 28,488 $ 82,810 $ 95,440
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash paid for income taxes...................................... $ -- $ -- $ -- $ --
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-318
<PAGE>
TRYON-SEACOAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Tryon-Seacoast Communications, Inc. (the "Company") is engaged in the
operation of radio broadcasting stations in central Maine. The Company has
stations licensed in Gardiner, Maine (WABK-FM and WFAU-FM), Augusta, Maine
(WKCG-FM) and Madison, Maine (WIGY-FM).
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Purchases of property and equipment are capitalized at cost and depreciated
on an accelerated basis over their estimated useful lives as follows:
<TABLE>
<S> <C>
Building and improvements......................................... 15 years
Broadcasting towers and equipment................................. 5-7 years
Office furniture and equipment.................................... 5 years
Automobiles....................................................... 5 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include goodwill and FCC licenses. Intangible assets are
stated at cost and are being amortized using the straight-line method over the
estimated useful life of 15 years. The Company evaluates the carrying value of
intangibles periodically in relation to the projected future undiscounted net
cash flows of the related businesses.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as advertising air time is
broadcast.
F-319
<PAGE>
TRYON-SEACOAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in broadcast operations. If the Company uses exchanged
products or services before advertising air time is provided, a trade liability
is recognized. Trade revenues were $119,937 and $118,347 for the years ended
December 31, 1997 and 1996, respectively. Trade expenses approximate trade
revenues for each period.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
2. ACQUISITIONS:
In November 1997, the Company acquired WIGY-FM in Madison, Maine for
$125,000 consisting of $40,000 paid in cash and the assumption of debt. The
station was operated by the Company under a local marketing agreement from May
1997 through the date of acquisition. The acquisition was accounted for as a
purchase. Pro forma results of operations have not been presented as the effect
of the acquisition was not material in relation to the Company's reported
results of operations.
During 1997, the Company entered into an asset purchase agreement to
purchase WCME-FM from Bay Communications Co. for $537,000. The closure of the
sale is contingent upon Federal Communications Commission (FCC) approval. The
Company paid an escrow deposit of $25,000 related to this transaction, which has
been classified as other assets at December 31, 1997 in the accompanying balance
sheet.
F-320
<PAGE>
TRYON-SEACOAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
Building and improvements....................................... $ 158,945 $ 145,170
Broadcast towers and equipment.................................. 1,137,032 1,090,613
Office furniture and equipment.................................. 221,920 221,598
Automobiles..................................................... 49,414 49,414
------------- -------------
1,567,311 1,506,795
Less--Accumulated depreciation.............................. (1,414,530) (1,385,648)
------------- -------------
152,781 121,147
Land............................................................ 41,485 41,485
------------- -------------
Property and equipment, net..................................... $ 194,266 $ 162,632
------------- -------------
------------- -------------
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was
$28,882 and $40,835, respectively.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
Goodwill, FCC licenses and others....................................................... $ 240,668 $ 170,668
Accumulated amortization................................................................ (122,337) (117,337)
----------- -----------
Intangible assets, net.................................................................. $ 118,331 $ 53,331
----------- -----------
----------- -----------
</TABLE>
Amortization expense for the years ended December 31, 1997 and 1996 was
$5,000 and $5,003, respectively.
5. RELATED PARTY TRANSACTIONS:
During 1997, stockholders of the Company contributed $61,000 to fund
operations. This contribution is a transfer of capital to the Company and,
accordingly, is recorded as additional paid-in capital as of December 31, 1997.
Stockholders of the Company provide cash for operations as needed. At
December 31, 1997 and 1996, the Company had notes payable due to stockholders of
$54,900. These notes payable are due March 1999 ($40,800) and November 1999
($14,100). The interest rate applicable to the payable balance was 8% for the
two years ended December 31, 1997.
Included in long-term debt at December 31, 1997 and 1996, is a note payable
of $300,421 due to a trust of which a stockholder of the Company is a
beneficiary. (See Note 7).
F-321
<PAGE>
TRYON-SEACOAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $1,441 and $4,538 for the
years ended December 31, 1997 and 1996, respectively, under operating leases for
radio broadcasting facilities and other operating leases. Future minimum annual
payments under these non-cancelable operating leases and agreements as of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 5,651
1999............................................................... 5,701
2000............................................................... 1,789
2001............................................................... 1,479
2002............................................................... 1,529
Thereafter......................................................... 2,245
---------
$ 18,394
---------
---------
</TABLE>
7. DEBT:
Following is a summary of long-term debt at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable to bank, due March 1, 2003, payable in monthly
installments of $5,903, including interest at a variable interest
rate of prime + 2.5% (11% at December 31, 1997), secured by the
assets of the Company............................................... $ 291,527 $ 326,272
Note payable to bank, due December 31, 2006, payable in monthly
installments of $573, including interest at a variable interest
rate, (11% at December 31, 1997).................................... 38,166 --
Note payable to seller, non interest bearing, due in annual
installments of $12,465 payable November 1998, 1999, and 2000,
secured by an interest in the assets of WIGY-FM..................... 37,394 --
Note payable variable interest rate of prime + 2.5% requiring payments
of interest only, secured by the assets of the Company.............. 300,421 300,421
Less--Current maturities included in current liability................ (55,193) (36,608)
---------- ----------
$ 612,315 $ 590,085
---------- ----------
---------- ----------
</TABLE>
The Company also maintains a $150,000 line of credit at a financial
institution of which $25,000 was unused at December 31, 1997 and 1996. The
interest rate applied to outstanding balances is prime plus 2.5% (11% at
December 31, 1997). This line of credit is secured by certain fixed assets and
accounts receivable of the Company and is personally guaranteed by two officers
of the Company.
F-322
<PAGE>
TRYON-SEACOAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. DEBT: (CONTINUED)
Maturities for long-term debt in subsequent years from December 31, 1997 are
as follows:
<TABLE>
<S> <C>
1998.............................................................................. $ 55,193
1999.............................................................................. 61,459
2000.............................................................................. 65,051
2001.............................................................................. 60,988
2002 and thereafter............................................................... 424,817
---------
$ 667,508
---------
---------
</TABLE>
8. INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, these deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities applying enacted
statutory tax rates in effect for the year in which the differences are expected
to reverse.
In 1996, the Company utilized prior year net operating losses to offset
taxable income of $82,826. The Company has established a valuation allowance
against all of its operating loss carryforwards following an assessment of the
likelihood of realizing such amounts. In arriving at the determination as to the
amount of the valuation allowance required, the Company considered its past
operating history, tax planning strategies and its expectation of the level and
timing of future taxable income. At December 31, 1997, the Company had net
operating loss carryforwards for federal income tax purposes of approximately
$96,000. Other temporary differences at December 31, 1997 and 1996 are
insignificant.
9. PENDING SALE:
In December 1997, the Company entered into an agreement with Cumulus
Broadcasting, Inc., a wholly owned subsidiary of Cumulus Media Inc., to sell the
assets of the Company, including the assets of WCME-FM, subject to the approval
of the FCC, to Cumulus for $4,000,000.
F-323
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Value Radio
Corporation at August 30, 1997 and August 31, 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
August 30, 1997, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 24, 1998
F-324
<PAGE>
VALUE RADIO CORPORATION
BALANCE SHEETS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
AUGUST 30, AUGUST 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 167 $ 102
Accounts receivable, less allowance for doubtful accounts of $25 and $3, respectively... 606 222
Prepaid expenses........................................................................ 23 7
----------- -----------
Total current assets................................................................ 796 331
----------- -----------
Property and equipment, net............................................................... 1,570 739
Intangible assets, net.................................................................... 3,952 170
Other assets.............................................................................. 715 251
----------- -----------
Total assets........................................................................ $ 7,033 $ 1,491
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................................................ $ 191 $ 52
Trade payable, net...................................................................... 77 18
Note payable to stockholder............................................................. 250 --
Current portion of notes payable........................................................ 1,807 696
----------- -----------
Total current liabilities........................................................... 2,325 766
----------- -----------
Notes payable............................................................................. 4,300 22
----------- -----------
Total liabilities 6,625 788
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 1,000 shares authorized, 591 shares issued and
outstanding........................................................................... 55 55
Retained earnings....................................................................... 353 648
----------- -----------
Total stockholders' equity.......................................................... 408 703
----------- -----------
Total liabilities and stockholders' equity.......................................... $ 7,033 $ 1,491
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements.
F-325
<PAGE>
VALUE RADIO CORPORATION
STATEMENTS OF OPERATIONS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-------------------------------------
AUGUST 30, AUGUST 31, AUGUST 31,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues...................................................................... $ 3,607 $ 2,259 $ 2,148
Less: agency commissions...................................................... (226) (105) (124)
----------- ----------- -----------
Net revenues............................................................ 3,381 2,154 2,024
----------- ----------- -----------
Operating expenses:
Programming................................................................. 728 488 438
Sales and promotions........................................................ 836 631 626
Technical................................................................... 150 100 106
General and administration.................................................. 470 316 341
Trade....................................................................... 278 153 162
Depreciation and amortization............................................... 624 174 77
----------- ----------- -----------
Total operating expenses................................................ 3,086 1,862 1,750
----------- ----------- -----------
Income from operations........................................................ 295 292 274
Other income (expense), net................................................... (1) (22) 2
Interest expense, net......................................................... (418) (36) (36)
----------- ----------- -----------
Net income (loss)............................................................. $ (124) $ 234 $ 240
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-326
<PAGE>
VALUE RADIO CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at August 31, 1994.................................................. 580 $ 18 $ 324 $ 342
Sale of stock............................................................... 11 37 -- 37
Net income.................................................................. -- -- 240 240
--- --- ----- ---------
Balance at August 31, 1995.................................................. 591 55 564 619
Distribution to stockholders................................................ -- -- (150) (150)
Net income.................................................................. -- -- 234 234
--- --- ----- ---------
Balance at August 31, 1996.................................................. 591 55 648 703
Distribution to stockholders................................................ -- -- (171) (171)
Net loss.................................................................... -- -- (124) (124)
--- --- ----- ---------
Balance at August 30, 1997.................................................. 591 $ 55 $ 353 $ 408
--- --- ----- ---------
--- --- ----- ---------
</TABLE>
See Notes to Financial Statements.
F-327
<PAGE>
VALUE RADIO CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-----------------------------------------
AUGUST 30, AUGUST 31, AUGUST 31,
1997 1996 1995
----------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................... $ (124) $ 234 $ 240
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization................................................. 624 174 77
Provision for doubtful accounts 22 -- --
Decrease (increase) in accounts receivable.................................... (384) 34 (73)
Decrease (increase) in prepaid expenses....................................... (16) (1) 1
(Increase) in other assets.................................................... (464) (22) (15)
(Decrease) increase in accounts payable and accrued liabilities............... 139 (1) 2
(Decrease) increase in trade payable, net..................................... 59 (18) 8
----------- ----- -----
Net cash provided by (used in) operating activities......................... (144) 400 240
----------- ----- -----
Cash flows from investing activities:
Acquisition of broadcast properties............................................. (5,200) (500) --
Purchase of property and equipment.............................................. (59) (160) (111)
----------- ----- -----
Net cash used in investing activities....................................... (5,259) (660) (111)
----------- ----- -----
Cash flows from financing activities:
Proceeds from sale of stock..................................................... -- -- 37
Distribution to stockholders.................................................... (171) (150) --
Proceeds from note payable to stockholder....................................... 250 -- --
Proceeds from notes payable..................................................... 6,085 678 34
Repayment of notes payable...................................................... (696) (211) (199)
----------- ----- -----
Net cash provided by (used in) financing activities......................... 5,468 317 (128)
----------- ----- -----
Increase in cash and cash equivalents............................................. 65 57 1
Cash and cash equivalents at beginning of year.................................... 102 45 44
----------- ----- -----
Cash and cash equivalents at end of year.......................................... $ 167 $ 102 $ 45
----------- ----- -----
----------- ----- -----
Non-cash operating and financing activities:
Trade revenue................................................................... $ 194 $ 196 $ 168
----------- ----- -----
----------- ----- -----
Trade expense................................................................... $ 278 $ 153 $ 162
----------- ----- -----
----------- ----- -----
Supplemental cash information:
Cash paid for interest.......................................................... $ 355 $ 34 $ 36
----------- ----- -----
----------- ----- -----
</TABLE>
See Notes to Financial Statements.
F-328
<PAGE>
VALUE RADIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN 000'S)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Value Radio Corporation (the "Company") is an S-Corporation organized for
the purpose of owning and operating radio broadcasting stations in and around
the Appleton/Oshkosh, Wisconsin area. On August 30, 1997, the Company owned and
operated five stations, WOSH-AM, WVBO-FM, WOGB-FM, WUSW-AM and WNAM-FM (the
"Stations").
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on an accelerated basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
15-39
Buildings................................................... years
Broadcasting towers and equipment........................... 5-10 years
Office furniture and equipment.............................. 5-10 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include Federal Communications Commission ("FCC") licenses
and are stated at cost and are being amortized using the straight-line method
over the estimated useful life of 15 years. The Company evaluates the carrying
value of intangibles periodically in relation to the projected future
undiscounted net cash flows of the related businesses.
INCOME TAXES
Income or loss of the S-Corporation is included in the tax returns of the
individual stockholders. Accordingly, federal and state income taxes are not
recognized by the Company.
F-329
<PAGE>
VALUE RADIO CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
2. ACQUISITION AND SWAP
In January 1997, the Company acquired the partnership interest in WUSW-AM
and WNAM-FM (the "Partnership") for the total consideration of approximately
$5.2 million. In conjunction with the acquisition of the Partnership, the
Company acquired the remaining ownership interest in Valley Radio Results
Partnership, an entity which provided the sales department for both the
Partnership and the Company, and has subsequently dissolved Valley Radio Results
into the Company.
In April 1996, the Company swapped the assets of WFDL-FM for the assets of
WOGB-FM and paid total consideration of approximately $0.5 million. The
acquisition and the swap were accounted for using the purchase method of
accounting.
The Company's results of operations for the periods ended August 30, 1997
and August 31, 1996 include the results of operations of WUSW-AM, WNAM-FM and
WOGB-FM from their respective dates of acquisition and the results of WFDL-FM
until its date of disposition. The following unaudited pro forma statement of
operations data give effect to the acquisitions as if they had occurred on
September 1, 1995. In addition, depreciation and amortization has been increased
each period to reflect initial purchase price allocations as if the transactions
had occurred on September 1, 1995.
<TABLE>
<CAPTION>
PRO FORMA FOR THE
YEAR ENDED
------------------------
<S> <C> <C>
AUGUST 30, AUGUST 31,
1997 1996
----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Net revenues......................................................... $ 3,925 $ 3,557
----------- -----------
----------- -----------
Operating income..................................................... $ 305 $ 338
----------- -----------
----------- -----------
Net income (loss).................................................... $ 160 $ 142
----------- -----------
----------- -----------
</TABLE>
F-330
<PAGE>
VALUE RADIO CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AUGUST 30, AUGUST 31,
1997 1996
----------- -----------
<S> <C> <C>
Land and buildings................................................ $ 435 $ 346
Broadcasting towers and equipment................................. 1,716 911
Office furniture and equipment.................................... 662 289
----------- -----
2,813 1,546
Accumulated depreciation.......................................... (1,243) (807)
----------- -----
Property and equipment, net....................................... $ 1,570 $ 739
----------- -----
----------- -----
</TABLE>
Depreciation expense for the three years ended August 30, 1997 was $436,
$169 and $77, respectively.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
AUGUST 30, AUGUST 31,
1997 1996
----------- -------------
<S> <C> <C>
FCC licenses...................................................... $ 4,145 $ 175
Accumulated amortization.......................................... (193) (5)
----------- -----
Intangible assets, net............................................ $ 3,952 $ 170
----------- -----
----------- -----
</TABLE>
Amortization expense for the three years ended August 30, 1997 was $188, $5
and $0, respectively.
5. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
AUGUST 30, AUGUST 31,
1997 1996
------------- -------------
<S> <C> <C>
Cash Surrender value of life insurance............................ $ 110 $ 105
Investment in Radio Results....................................... -- 109
Note receivable................................................... 560 --
Deposits.......................................................... 45 37
----- -----
Other assets...................................................... $ 715 $ 251
----- -----
----- -----
</TABLE>
Prior to the January 1997 acquisition of the Partnership, the Company did
not have majority ownership in Valley Radio Results and; accordingly, accounted
for its investment in Radio Results using the equity method of accounting.
F-331
<PAGE>
VALUE RADIO CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
6. RELATED PARTY TRANSACTIONS:
Certain of the Company's stockholders are also stockholders in Mid-West
Management, Inc. ("Mid-West"), which provides accounting services, benefits
administration, legal assistance and programming consulting to the Company.
Mid-West allocates expenses to the Company, on a monthly basis, based on
estimated hours expended. Allocations were $46, $44 and $40 for the periods
ended August 30, 1997 and August 31, 1996 and 1995, respectively.
At August 30, 1997, the Company had a note payable due of $250 to a
stockholder, bearing interest at 9% and due on demand.
7. LONG-TERM DEBT
Long-term debt consists of the following at August 30, 1997:
<TABLE>
<CAPTION>
AUGUST 30, AUGUST 31,
1997 1996
----------- -----------
<S> <C> <C>
Note payable, $4,300 principal, interest only due the first six
months at 8.1%, interest and principal due monthly through
January 2002.................................................... $ 4,300 $ --
Note payable, $1,320 principal, interest at 8%, due quarterly,
principal due July 1998......................................... 1,292 --
Line of credit, interest at 9.25% due monthly, principal due on
demand.......................................................... 100 --
Note payable, $401 principal, interest at 8%, due quarterly,
principal due July 1998......................................... 392 --
Note payable, $678 principal, interest and principal due monthly
through 1998, interest at prime plus 3/4% (9% at August 31,
1996)........................................................... -- 678
Note payable, interest at 8%, $1.4 due monthly through November
1998............................................................ 23 40
----------- -----------
6,107 718
Less: current maturities.......................................... (1,807) (696)
----------- -----------
$ 4,300 $ 22
----------- -----------
----------- -----------
</TABLE>
A summary of the future maturities of long-term debt follows:
<TABLE>
<S> <C>
1998........................................................... $ 1,807
1999........................................................... --
2000........................................................... --
2001........................................................... --
2002........................................................... --
Thereafter..................................................... 4,300
-----------
$ 6,107
-----------
-----------
</TABLE>
F-332
<PAGE>
VALUE RADIO CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
8. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $42 for the year ended
December 31, 1997 and $22 for the year ended December 31, 1996, under operating
leases for radio broadcasting facilities.
Future minimum annual payments under these non-cancelable operating leases
and agreements as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
PAYMENT
AUGUST 31,
-------------
<S> <C>
1998.......................................................................... $ 44
1999.......................................................................... 35
2000.......................................................................... 19
2001.......................................................................... 4
-----
$ 102
-----
-----
</TABLE>
The Company is also involved in various other claims and lawsuits which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable and accrued liabilities approximates fair value due to their
short term nature. The fair value of notes payable is estimated based on current
market rates and approximates the carrying value.
10. SUBSEQUENT EVENT:
On August 31, 1997, the Company, through a series of simultaneous
transactions, sold the Stations to Cumulus Broadcasting, Inc. (a wholly-owned
subsidiary of Cumulus Media Inc.) ("Cumulus") for $12.15 million. WOSH-AM,
WVBO-FM and WOGB-FM (the "Swapped Stations") were swapped, in a tax related
transaction, with a third party, who simultaneously sold the Swapped Stations to
Cumulus. WUSW-AM and WNAM-FM were sold directly to Cumulus by the Company. These
financial statements report the financial position and results of operations of
the five Stations which were subsequently sold to Cumulus, as of and for the
period ended August 30, 1997, the last day of ownership of the Stations by the
Company.
F-333
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in shareholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Wilks
Broadcast Acquisitions, Inc. at August 31, 1997 and December 31, 1996, and the
results of its operations and its cash flows for the eight months ended August
31, 1997 and each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 16, 1998
F-334
<PAGE>
WILKS BROADCAST ACQUISITIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 292,714 $ 55,372
Accounts receivable, less allowance for doubtful accounts of $113,525 and $73,114,
respectively..................................................................... 764,689 836,475
Prepaid expenses and other current assets.......................................... 25,371 17,087
------------ ------------
Total current assets........................................................... 1,082,774 908,934
Property and equipment, net.......................................................... 1,447,487 1,768,059
Intangible assets, net............................................................... 4,048,587 4,249,003
Other assets......................................................................... 94,660 80,887
------------ ------------
Total assets................................................................... $ 6,673,508 $7,006,883
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of note payable.................................................... $ 347,910 $ 225,544
Related party note payable......................................................... 3,232,348 3,201,097
Accounts payable................................................................... 114,982 113,079
Accrued and other current liabilities.............................................. -- 9,307
------------ ------------
Total current liabilities...................................................... 3,695,240 3,549,027
------------ ------------
Long-term liabilities:
Note payable, less current portion................................................. 3,039,941 3,274,456
------------ ------------
Total long-term liabilities.................................................... 3,039,941 3,274,456
------------ ------------
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, no par value, 200 shares authorized, 100 issued and outstanding...... 25,000 25,000
Retained earnings (deficit)........................................................ (86,673) 158,400
------------ ------------
Total shareholders' equity (deficit)........................................... (61,673) 183,400
------------ ------------
Total liabilities and shareholders' equity (deficit)........................... $ 6,673,508 $7,006,883
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
F-335
<PAGE>
WILKS BROADCAST ACQUISITIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE EIGHT FOR THE YEAR ENDED
MONTHS ENDED DECEMBER 31,
AUGUST 31, --------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Revenues.............................................................. $ 2,624,507 $ 3,410,871 $ 1,479,090
Less: agency commissions............................................ (22,716) (19,544) (5,803)
------------- ------------ ------------
Net revenues................................................... 2,601,791 3,391,327 1,473,287
Operating expenses:
Programming......................................................... 101,794 151,701 103,434
Sales and promotions................................................ 329,393 555,725 210,809
Technical........................................................... 34,779 47,349 23,944
General and administrative.......................................... 1,402,526 1,475,659 664,129
Depreciation and amortization....................................... 554,181 572,014 242,238
------------- ------------ ------------
Total operating expenses....................................... 2,422,673 2,802,448 1,244,554
------------- ------------ ------------
Income from operations................................................ 179,118 588,879 228,733
Interest expense...................................................... 424,191 352,221 131,123
------------- ------------ ------------
Net income (loss)..................................................... $ (245,073) $ 236,658 $ 97,610
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-336
<PAGE>
WILKS BROADCAST ACQUISITIONS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
EARNINGS
COMMON STOCK (DEFICIT) TOTAL
-------------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1, 1995.............................................. $ 25,000 ($ 146,668) ($ 121,668)
Net income.............................................................. -- 97,610 97,610
------- ----------- -----------
Balance at December 31, 1995............................................ 25,000 (49,058) (24,058)
Net income.............................................................. -- 236,658 236,658
Distribution to shareholder............................................. -- (29,200) (29,200)
------- ----------- -----------
Balance at December 31, 1996............................................ 25,000 158,400 183,400
Net loss................................................................ -- (245,073) (245,073)
------- ----------- -----------
Balance at August 31, 1997.............................................. $ 25,000 ($ 86,673) ($ 61,673)
------- ----------- -----------
------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-337
<PAGE>
WILKS BROADCAST ACQUISITIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE EIGHT FOR THE YEAR ENDED
MONTHS ENDED DECEMBER 31,
AUGUST 31, ------------------------
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................................... ($ 245,073) $ 236,658 $ 97,610
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization..................................... 554,181 572,014 242,238
Decrease in accounts receivable, net.............................. 71,786 (470,562) (216,617)
(Increase) decrease in prepaid expenses
and other current assets........................................ (8,284) (53,287) 2,213
Decrease in other assets.......................................... (13,773) (22,256) --
Increase (decrease) increase in accounts payable.................. 1,903 49,822 (7,852)
Increase (decrease) in accrued and other liabilities.............. (9,307) 9,307 (1,067)
------------- ----------- -----------
Net cash provided by operating activities......................... 351,433 321,696 116,525
------------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment................................... (33,193) (317,366) (21,643)
Acquisitions of broadcasting properties............................... -- (5,009,438) --
------------- ----------- -----------
Cash used for investing activities.................................... (33,193) (5,326,804) (21,643)
------------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings.............................................. 31,251 5,048,807 --
Repayment of borrowings............................................... (112,149) -- (68,073)
Distribution to shareholder........................................... -- (29,200) --
------------- ----------- -----------
Cash (used for) provided by financing activities...................... (80,898) 5,019,607 (68,073)
------------- ----------- -----------
Increase in cash and cash equivalents................................... 237,342 14,499 26,809
Cash and cash equivalents at beginning of period........................ 55,372 40,873 14,064
------------- ----------- -----------
Cash and cash equivalents at end of period.............................. $ 292,714 $ 55,372 $ 40,873
------------- ----------- -----------
------------- ----------- -----------
Supplemental disclosure of cash information:
Cash paid for interest................................................ $ 424,191 $ 352,221 $ 131,123
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-338
<PAGE>
WILKS BROADCAST ACQUISITIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Wilks Broadcast Acquisitions, Inc. (the "Company") owns and operates radio
stations on the Augusta, Georgia and South Carolina border. The Company owns and
operates radio stations WEKL-FM, WUUS-FM, WRXR-FM, and WGUS-AM ("the Stations").
The significant accounting principles followed by the Company and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Trade revenues and
trade expenses are recognized in equal amounts at the fair market value of
products or services received as advertising air time is broadcast or as
services are received. Trade revenues and expenses for the eight months ended
August 31, 1997 and the years ended December 31, 1996 and 1995 were $320,652,
$433,105 and $138,341, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using accelerated methods over the estimated useful
lives of the respective assets of five to fifteen years. Leasehold improvements
are amortized on the straight-line basis over their estimated useful lives of
thirty-nine years.
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets consist of FCC licenses. Intangible assets are recorded at
cost and amortized over 15 years.
F-339
<PAGE>
WILKS BROADCAST ACQUISITIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
The Company has elected to be treated as an S-Corporation for federal income
tax purposes. Under this election the income or loss of the S-Corporation is
included in the tax returns of the individual shareholders. Accordingly, federal
and state income taxes are not included in the accompanying financial statements
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to their short-term nature. The
fair value of notes payable are estimated based on current market rates and
approximate the carrying value.
2. ACQUISITIONS
In March 1996, the Company entered into an asset purchase agreement to
acquire stations WUUS-FM (formerly WKBG-FM) and WRXR-FM in Augusta, Georgia for
$5,000,000 in cash plus specific acquisition costs.
The acquisitions discussed above were accounted for under the purchase
method of accounting. Under the purchase method of accounting, the purchase
price was allocated, on the closing date, to the assets acquired and liabilities
assumed based on their respective fair values.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Broadcasting towers and equipment................................ $ 1,987,243 $1,954,050
Buildings........................................................ 65,000 65,000
Office furniture and equipment................................... 176,366 176,366
Leasehold improvements........................................... 193,844 193,844
------------ ------------
2,422,453 2,389,260
Accumulated depreciation......................................... (974,966) (621,201)
------------ ------------
Property and equipment, net...................................... $ 1,447,487 $1,768,059
------------ ------------
------------ ------------
</TABLE>
Depreciation expense was $353,765, $388,708, and $145,693 for the eight
months ended August 31, 1997 and the years ended December 31, 1996 and 1995,
respectively.
F-340
<PAGE>
WILKS BROADCAST ACQUISITIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
FCC licenses..................................................... $ 4,509,298 $4,509,298
Accumulated amortization......................................... (460,711) (260,295)
------------ ------------
Intangible assets, net........................................... $ 4,048,587 $4,249,003
------------ ------------
------------ ------------
</TABLE>
Amortization expense was $200,416, $183,306, and $96,545 for the eight
months ended August 31, 1997 and the years ended December 31, 1996 and 1995,
respectively.
5. RELATED PARTY NOTES PAYABLE:
The Company has notes payable to a related party. As of August 31, 1997 and
December 31, 1996, the balances of these notes payable were $3,232,348 and
$3,201,097 respectively. The notes are due upon demand and bear interest at
rates ranging from 7% to 10%. Interest payments were $209,747, $176,406 and
$125,698 for the eight months ended August 31, 1997 and the years ended December
31, 1996 and 1995, respectively.
6. LONG-TERM DEBT
In July, 1996, the Company entered into a $3,500,000 term loan agreement
(the "Agreement") with a bank for the purpose of acquiring two radio stations,
WRXR-FM and WUUS-FM (formerly WKBG-FM). The term loan requires monthly interest
and principal payments beginning July 1, 1996 with the final payment due March
31, 2004 and bears interest at the one month LIBOR Rate plus 2.25% (7.94% at
August 31, 1997). The term loan is secured by substantially all of the company's
assets as well as a pledge of the common stock of the corporation. The Agreement
contains certain restrictive covenants, which among other things, require the
maintenance of a funded debt to cash flow and pro forma debt service ratio,
minimum net worth and limitations on dispositions of assets. The current portion
of $347,910 represents amounts due one year past the balance sheet date of
August 31, 1997. Subsequent to year end, all principal and remaining accrued
interest was paid by the Company.
A summary of the future maturities of long-term debt as of August 31, are as
follows:
<TABLE>
<S> <C>
Four months ended December 31, 1997............................. $ 100,667
1998............................................................ 385,974
1999............................................................ 444,038
2000............................................................ 487,671
2001............................................................ 533,881
2002............................................................ 587,164
Thereafter...................................................... 848,456
---------
$3,387,851
Less--current portion........................................... 347,910
---------
$3,039,941
---------
---------
</TABLE>
F-341
<PAGE>
WILKS BROADCAST ACQUISITIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of $27,209, $31,245, and $18,267 for the eight
months ended August 31, 1997 and the years ended December 31, 1996 and 1995,
respectively, under operating leases for radio broadcasting facilities,
broadcasting equipment automobiles, and land. Future minimum annual payments
under these non-cancelable operating leases and agreements as of August 31, are
as follows:
<TABLE>
<S> <C>
1997........................................................... $ 9,358
1998........................................................... 31,913
1999........................................................... 23,853
2000........................................................... 19,017
2001........................................................... 19,017
Thereafter..................................................... 275,900
---------
$ 379,058
---------
---------
</TABLE>
8. SUBSEQUENT EVENT:
On September 1, 1997, the Stations were acquired by Cumulus Broadcasting,
Inc. (a wholly-owned subsidiary of Cumulus Media Inc.) pursuant to an asset
purchase agreement with the Company for a purchase price of $15,500,000.
F-342
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Lewis Broadcasting Corporation
In our opinion, the accompanying balance sheets and the related statements
of income, of changes in owners' net investment and of cash flows present
fairly, in all material respects, the financial position of WJCL-FM (a division
of Lewis Broadcasting Corporation) at December 31, 1997 and 1996, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Atlanta, Georgia
February 27, 1998
F-343
<PAGE>
WJCL-FM
(A DIVISION OF LEWIS BROADCASTING CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Accounts receivable--trade (less allowance for doubtful accounts of $1,532,
$19,494 and $15,668, respectively)........................................ $ 42,085 $ 370,387 $ 297,688
----------- ---------- ----------
Total current assets........................................................ 42,085 370,387 297,688
Equipment and other fixed assets, net....................................... 18,338 20,353 29,981
----------- ---------- ----------
Total assets................................................................ $ 60,423 $ 390,740 $ 327,669
----------- ---------- ----------
----------- ---------- ----------
LIABILITIES AND OWNERS' NET INVESTMENT
Accounts payable............................................................ $ $ 8,693 $ 6,208
Accrued expenses............................................................ 23,107 13,484
----------- ---------- ----------
Total current liabilities................................................... 31,800 19,692
Owners' net investment...................................................... 60,423 358,940 307,977
----------- ---------- ----------
Total liabilities and owners' net investment................................ $ 60,423 $ 390,740 $ 327,669
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See notes to financial statements.
F-344
<PAGE>
WJCL-FM
(A DIVISION OF LEWIS BROADCASTING CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------------- --------------------------
1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues................................................. $ -- $ 318,925 $ 1,800,955 $ 1,924,745
Less: agency commissions............................... -- (38,529) (236,084) (261,440)
------------ ------------ ------------ ------------
Net revenues....................................... -- 280,396 1,564,871 1,663,305
------------ ------------ ------------ ------------
Operating expense
Programming............................................ 88,366 379,521 393,565
Sales and promotions................................... 86,917 413,957 459,593
Technical.............................................. 18,985 29,686 52,024 57,623
General and administrative............................. 12,502 97,936 622,857 621,430
Depreciation........................................... 2,015 3,900 13,043 8,333
------------ ------------ ------------ ------------
33,502 306,805 1,481,402 1,540,544
Other income............................................. 11,430
------------ ------------ ------------ ------------
Net income (loss)........................................ $ (22,072) $ (26,409) $ 83,469 $ 122,761
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma adjustments (unaudited)
Net income (loss) before pro forma adjustment............ $ (22,072) $ (26,409) $ 83,469 $ 122,761
Pro forma adjustment for provision (benefit) for federal
and state income taxes.................................. (8,387) (10,035) 31,685 46,600
------------ ------------ ------------ ------------
Pro forma net income (loss).............................. $ (13,685) $ (16,374) $ 51,784 $ 76,161
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
F-345
<PAGE>
WJCL-FM
(A DIVISION OF LEWIS BROADCASTING CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
----------------------- -----------------------
1998 1997 1997 1996
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)............................................. $ (22,072) $ (26,409) $ 83,469 $ 122,761
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 2,015 3,900 13,043 8,333
(Increase) decrease in accounts receivable.................. 328,302 80,141 (72,699) 15,297
Increase (decrease) in accounts payable..................... (8,693) 2,360 2,485 (5,091)
Increase (decrease) in accrued expenses..................... (23,107) 1,699 9,623 919
---------- ----------- ---------- -----------
Net cash provided by operating activities....................... 276,445 61,691 35,921 142,219
---------- ----------- ---------- -----------
Net cash used in investing activities:
Purchases of equipment and other fixed assets................. (3,415) (36,172)
---------- ----------- ---------- -----------
Net cash used in financing activities:
Distributions to owners....................................... (276,445) (61,691) (32,506) (106,047)
---------- ----------- ---------- -----------
Change in cash.................................................. -- -- -- --
Cash balance, beginning of period............................... -- -- -- --
---------- ----------- ---------- -----------
Cash balance, end of period..................................... $ -- $ -- $ -- $ --
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
See notes to financial statements.
F-346
<PAGE>
\
WJCL-FM
(A DIVISION OF LEWIS BROADCASTING CORPORATION)
STATEMENTS OF CHANGES IN OWNERS' NET INVESTMENT
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
1997 1996
---------- -----------
<S> <C> <C>
Owners' net investment, beginning........................................................ $ 307,977 $ 291,263
Net income............................................................................... 83,469 122,761
Net distributions to owners.............................................................. (32,506) (106,047)
---------- -----------
Owners' net investment, ending........................................................... $ 358,940 $ 307,977
---------- -----------
---------- -----------
</TABLE>
See notes to financial statements.
F-347
<PAGE>
WJCL-FM
(A DIVISION OF LEWIS BROADCASTING CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
WJCL-FM (the Business) is a division of Lewis Broadcasting Corporation
(Corporation). Lewis Broadcasting Corporation also owns and operates television
stations in Savannah and Columbus, Georgia, and Columbia, South Carolina. The
Business operates an FM radio station in Savannah, Georgia.
These financial statements have been derived from the historical accounting
records of Lewis Broadcasting Corporation and present the financial position and
results of operations as if the Business were a separate company. Accordingly,
the net investment in the Business (owners' net investment) is shown in lieu of
stockholders' equity.
The significant accounting principles followed by the Business and the
methods of applying these principles which materially affect the determination
of financial position, changes in owners' net investment and results of
operations are summarized as follows:
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE TRANSACTIONS
The Business trades unsold commercial advertising time for various goods and
services. These transactions are recorded at the estimated fair value of the
goods or services received. The related revenue is recognized when commercials
are broadcast; goods or services received are recorded as assets or expenses
when received or used, respectively. Trade revenues were $55,556 and $64,806 for
the years ended December 31, 1997 and 1996, respectively.
INCOME TAXES
Lewis Broadcasting Corporation, of which WJCL-FM is a division, is an S
corporation, and therefore, Lewis Broadcasting Corporation's stockholders are
subject to taxes on the income of the Corporation.
Proforma net income reflects the treatment of the business as a tax paying
entity assuming an estimated statutory rate of 38%. It is not necessarily
indicative of the actual results had the Business in fact been a tax paying
entity.
DEPRECIATION
Equipment and other fixed assets are being depreciated over five years using
accelerated methods.
USE OF ESTIMATES
The preparation of financial statements in accordance 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 liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
F-348
<PAGE>
WJCL-FM
(A DIVISION OF LEWIS BROADCASTING CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for each of the three
months ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation of results of the interim periods have been made and
such adjustments were of a normal and recurring nature. The results of
operations and cash flows for the three months ended March 31, 1998 are not
necessarily indicative of the results that can be expected for the entire fiscal
year ending December 31, 1998.
2. PENDING SALE OF BUSINESS
On December 23, 1997 Lewis Broadcasting Corporation entered into an asset
purchase agreement with affiliates of Cumulus Media Inc. (Cumulus) to sell the
WJCL-FM station license and other station assets. The assignment of the station
license and the transfer of the station assets is conditioned and subject to the
prior consent and approval of the Federal Communication Commission (FCC).
Effective January 1, 1998, WJCL-FM has been operating under a local marketing
agreement ("LMA") with Cumulus. Under an LMA, WJCL-FM has agreed to sell certain
broadcast time on WJCL-FM and Cumulus has agreed to provide programming to and
sell advertising on WJCL-FM during the purchased time. Accordingly, during the
LMA period, revenue derived from the advertising sold during the purchased time
and certain expenses of WJCL-FM are recorded by Cumulus in exchange for a LMA
fee. This LMA fee has been reflected in the combined statement of operations as
other income. WJCL-FM retains responsibility for ultimate control of WJCL-FM in
accordance with FCC policies.
3. RELATED PARTY TRANSACTIONS
As part of a combined group, the Business is allocated various corporate
overhead costs. The allocation method requires management to estimate the
incremental overhead costs incurred as a result of servicing the Business.
Corporate overhead allocations were approximately $289,509 and $255,434 for the
years ended December 31, 1997 and 1996, respectively. The Business also leases a
broadcasting tower from an affiliate on a month to month basis, which amounted
to $30,000 per year for the years ended December 31, 1997 and 1996,
respectively.
The Business participates in Lewis Broadcasting Corporation's centralized
cash management system. Accordingly, all cash received and disbursed that
relates to operations of the Business is accounted for by Lewis Broadcasting
Corporation and the net of such activity is reflected in the owners' net
investment account in the accompanying balance sheet.
F-349
<PAGE>
WJCL-FM
(A DIVISION OF LEWIS BROADCASTING CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
4. EQUIPMENT AND OTHER FIXED ASSETS
Equipment and other fixed assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Equipment and other fixed assets...................................... $ 114,289 $ 110,903
Accumulated depreciation.............................................. (93,936) (80,922)
---------- ----------
$ 20,353 $ 29,981
---------- ----------
---------- ----------
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable and accounts payable approximate
fair value because of the short maturity of these instruments.
6. RETIREMENT PLAN
The Business participates in the Lewis Broadcasting Corporation National
Automobile Dealership Association Retirement Trust (NADART) Salary Deferral
401(k) Profit-Sharing Plan (the Plan), a defined contribution plan operated by
NADART which covers all employees who qualify and elect to participate. The
normal cost is funded by contributions from participants at a required rate of
2% of their compensation on a pre-tax basis. In addition to this required
contribution, participants may make additional contributions not to exceed
$9,500 in both 1997 and 1996. The Business makes a matching contribution equal
to the required 2% contribution made by all participants.
F-350
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of income, of changes in owner's equity and of cash flows
present fairly, in all material respects, the financial position of WKKO-FM,
WRQN-FM, WTOD-AM and WIMX-FM (the "Stations") at November 9, 1997, and the
results of their operations and their cash flows for the period from June 30,
1997 through November 9, 1997 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Stations'
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
Effective June 29, 1997, 62nd Street Broadcasting LLC (62nd Street) acquired
the Stations from Fritz Broadcasting, Inc. As discussed in Note 2 to the
financial statements, the acquisition was accounted for as a purchase.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 6, 1998
F-351
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying combined statements of income, of changes
in owner's equity and of cash flows present fairly, in all material respects,
the results of the operations and the cash flows of WKKO-FM, WRQN-FM, WTOD-AM
and WIMX-FM (the "Stations") for the period from January 1, 1997 through June
29, 1997 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Stations' management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Effective June 29, 1997, 62nd Street Broadcasting LLC (62nd Street) acquired
the Stations from Fritz Broadcasting, Inc. As discussed in Note 2 to the
financial statements, the acquisition was accounted for as a purchase.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
February 6, 1998
F-352
<PAGE>
WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM
(A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
SUCCESSOR
-------------
<S> <C>
NOVEMBER 9,
1997
-------------
ASSETS
Current assets:
Cash............................................................................................. $ 30,137
Accounts receivable, less allowance for doubtful accounts of $45,311............................. 1,368,757
Related party receivable......................................................................... 145,443
Prepaid expenses and other current assets........................................................ 6,638
-------------
Total current assets......................................................................... 1,550,975
Property and equipment, net...................................................................... 2,825,890
Intangible assets, net........................................................................... 26,364,694
-------------
Total assets................................................................................. $ 30,741,559
-------------
-------------
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable................................................................................. $ 77,786
Accrued expenses and other current liabilities................................................... 199,460
Capital lease obligations........................................................................ 2,632
-------------
Total current liabilities.................................................................... 279,878
-------------
Commitments and contingencies
Owner's equity:
Owner's capital.................................................................................. 29,922,401
Retained earnings................................................................................ 539,280
-------------
Total owner's equity......................................................................... 30,461,681
-------------
Total liabilities and owner's equity......................................................... $ 30,741,559
-------------
-------------
</TABLE>
See Notes to Combined Financial Statements.
F-353
<PAGE>
WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM
(A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC)
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------------- -----------------
<S> <C> <C>
JUNE 30, 1997 JANUARY 1, 1997
TO TO
NOVEMBER 9, JUNE 29,
1997 1997
--------------- -----------------
Revenues...................................................................... $ 3,012,950 $ 3,362,862
Less: agency commissions.................................................... (393,697) (440,241)
--------------- -----------------
Net revenues............................................................ 2,619,253 2,922,621
Operating expenses:
Sales and promotions........................................................ 416,081 519,646
Programming................................................................. 392,442 530,953
Technical................................................................... 35,107 63,138
Sports and news............................................................. 18,557 24,124
General and administrative.................................................. 351,720 461,555
Depreciation and amortization............................................... 830,510 173,248
--------------- -----------------
Total operating expenses................................................ 2,044,417 1,772,664
--------------- -----------------
Income from operations........................................................ 574,836 1,149,957
Interest expense.............................................................. 1,009 143,309
--------------- -----------------
Income before income taxes.................................................... 573,827 1,006,648
Single business tax and other sale and local income taxes..................... 34,547 39,434
--------------- -----------------
Net income.................................................................... $ 539,280 $ 967,214
--------------- -----------------
--------------- -----------------
</TABLE>
See Notes to Combined Financial Statements.
F-354
<PAGE>
WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM
(A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC)
COMBINED STATEMENTS OF CHANGES IN OWNER'S EQUITY
<TABLE>
<S> <C>
PREDECESSOR
Balance at January 1, 1997..................................................... $2,902,405
Net income..................................................................... 967,214
----------
Balance at June 29, 1997....................................................... 3,869,619
----------
----------
SUCCESSOR
Acquisition of the station at June 30, 1997.................................... 29,922,401
Net income..................................................................... 539,280
----------
Balance at November 9, 1997.................................................... $30,461,681
----------
----------
</TABLE>
See Notes to Combined Financial Statements.
F-355
<PAGE>
WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM
(A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------- --------------
<S> <C> <C>
JANUARY 1,
JUNE 30, 1997 1997
TO TO
NOVEMBER 9, JUNE 29,
1997 1997
------------- --------------
Cash flows from operating activities:
Net income....................................................................... $ 539,280 $ 967,214
Adjustments to reconcile net income to net cash provided by operating activities,
net of effects from acquisition:
Depreciation and amortization................................................ 830,510 173,248
Increase in accounts receivable.............................................. (1,446,356) (6,830)
Increase in related party receivable......................................... (145,443) (472,859)
Decrease (increase) in prepaid expenses and other current assets............. (6,638) 18,213
Increase in accounts payable................................................. 77,786 6,482
Increase (decrease) in accrued expenses and other current liabilities........ 196,009 (419,025)
------------- --------------
Net cash provided by operating activities.................................. 45,148 266,443
------------- --------------
Cash flows from financing activities:
Principal payments under capital lease obligations............................... (15,011) (175,908)
------------- --------------
Cash used for financing activities............................................... (15,011) (175,908)
------------- --------------
Increase in cash................................................................... 30,137 90,535
Cash at beginning of period........................................................ -- 61,813
------------- --------------
Cash at end of period.............................................................. $ 30,137 $ 152,348
------------- --------------
------------- --------------
</TABLE>
See Notes to Combined Financial Statements.
F-356
<PAGE>
WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM
(A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
62nd Street Broadcasting LLC (62nd Street) owns and operates radio stations
WKKO-FM, WRQN-FM, WTOD-AM, and WIMX-FM (the "Stations" or the "Company") located
in Toledo, Ohio. At the close of business on June 29, 1997, 62nd Street acquired
the stations from Fritz Broadcasting, Inc. ("Fritz"). As a result of the change
in ownership, the financial position, results of operations and cash flows of
the Stations subsequent to the date of the acquisition are labeled "Successor"
in the accompanying combined financial statements, and the results of operations
and cash flows of the Stations for the period prior to the acquisition are
labeled "Predecessor".
The significant accounting principles followed by the Successor and
Predecessor and the methods of applying those principles which materially affect
the determination of financial position, results of operations, and cash flows
are summarized below.
USE OF ESTIMATES
The preparation of financial statements in accordance 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 periods
presented. Actual results could differ from these estimates.
CASH
The Successor and the Predecessor paid approximately $1,009 and $143,309,
respectively, in 1997 for interest.
RELATED PARTY RECEIVABLE
Related party receivable includes cash held by 62nd Street on behalf of the
Company in a centralized cash management system.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
--------- -------------
<S> <C> <C>
Building........................................................... 39 years 40 years
Broadcasting towers and equipment.................................. 5 years 5--20 years
Office furniture and equipment..................................... 5 years 5-20 years
Vehicles........................................................... 5 years 5 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
F-357
<PAGE>
WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM
(A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTANGIBLE ASSETS
Intangible assets include goodwill and FCC licenses. Intangible assets are
stated at cost and are being amortized using the straight-line method over the
estimated useful life or contract term for periods not exceeding 15 years for
the Successor and 40 years for the Predecessor. The Company evaluates the
carrying value of intangibles periodically in relation to the projected future
undiscounted net cash flows of the related businesses.
INCOME TAXES
The Company operated as an S Corporation under the provisions of the
Internal Revenue Code during the ownership by Fritz and as a Limited Liability
Company during the ownership by 62nd Street. Accordingly, no provision for
income taxes has been made since income or losses of the Company were allocated
to the owner.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
Fees paid pursuant to various time brokerage agreements are amortized to
expense, respectively, over the term of the agreement using the straight-line
method.
TRADE AGREEMENTS
The Company enters into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Company uses
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
2. ACQUISITION:
Effective June 29, 1997, 62nd Street acquired selected assets from Fritz
which included a building, furniture and fixtures, vehicles, and broadcast
licenses of WKKO-FM, WRQN-FM, WTOD-AM and WIMX-FM in Toledo, Ohio for $30
million in cash plus various other direct acquisition costs. A substantial
portion of the purchase price was allocated to broadcast licenses, intangibles
and goodwill. As part of the purchase agreement, 62nd Street will collect
accounts receivable related to Fritz's operations of the stations and remit
payments to Fritz for such receivables. This agreement expires in March 1998 at
which time Fritz will be responsible for collecting any remaining receivables.
The acquisition discussed above was accounted for as a purchase business
combination by 62nd Street. 62nd Street elected, under generally accepted
accounting principles, to pushdown the acquisition basis to the Company level
through a non-cash capital contribution to the Company. Accordingly, the
accompanying combined financial statements include the results of operations of
the Stations from the date of acquisition. The effect of the acquisition on the
results of operations is to primarily increase depreciation and amortization
expense.
F-358
<PAGE>
WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM
(A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SUCCESSOR
------------
<S> <C>
NOVEMBER 9,
1997
------------
Building........................................................................ $ 418,500
Broadcasting towers and equipment............................................... 1,960,000
Office furniture and equipment.................................................. 335,000
Vehicles........................................................................ 40,000
------------
2,753,500
Accumulated depreciation........................................................ (174,110)
Land............................................................................ 246,500
------------
Property and equipment, net..................................................... $ 2,825,890
------------
------------
</TABLE>
Successor depreciation expense for the period ended November 9, 1997 was
$174,110, and Predecessor depreciation expense for the period ended June 29,
1997 was $54,902.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
SUCCESSOR
-------------
<S> <C>
NOVEMBER 9,
1997
-------------
Goodwill, FCC licenses and call letters........................................ $ 27,000,000
Other.......................................................................... 21,094
-------------
27,021,094
Accumulated amortization....................................................... (656,400)
-------------
Intangible assets, net......................................................... $ 26,364,694
-------------
-------------
</TABLE>
Successor amortization expense for the period ended November 9, 1997 was
$656,400, and the Predecessor amortization expense for the period ended June 29,
1997 was $118,346.
F-359
<PAGE>
WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM
(A WHOLLY OWNED ENTITY OF 62ND STREET BROADCASTING LLC)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following at
November 9, 1997:
<TABLE>
<CAPTION>
SUCCESSOR
----------
<S> <C>
Accrued sales commission.......................................................... $ 97,554
Accrued payroll................................................................... 26,089
Accrued license fees.............................................................. 16,441
Accrued taxes..................................................................... 34,547
Other accrued expenses............................................................ 24,829
----------
$ 199,460
----------
----------
</TABLE>
6. RELATED PARTY TRANSACTIONS:
The Company participates in 62nd Street's centralized cash management
system. Accordingly, cash received from the Company's operations is pooled
centrally and allocated by 62nd Street based on operational, working capital and
capital expenditure requirements. The Company has no available lines of credit
or other sources of financing.
7. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $6,160 for the period ended
November 9, 1997 under operating leases for radio broadcasting facilities.
Future minimum annual payments, adjusted based upon formulas related to the
Consumer Price Index, under the operating lease for the broadcast tower
approximate $7,200.
The Company also has a vehicle under a capital lease with a cost of $15,795
and accumulated depreciation of $13,163.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value due to their short-term nature.
9. EMPLOYEE BENEFIT PLAN:
Fritz sponsored a defined contribution 401(k) plan that covered all
employees meeting a one-year eligibility period. Contributions to the plan
included employee contributions and an employer amount determined on a yearly
basis by management.
Employer contributions to the plan for the period ended June 29, 1997
amounted to approximately $13,000.
10. SUBSEQUENT EVENTS:
Effective November 9, 1997, all of the assets of the Company were sold to
Cumulus Broadcasting, Inc. (a wholly-owned subsidiary of Cumulus Media Inc.).
F-360
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of changes in owner's equity and of cash
flows present fairly, in all material respects, the financial position of
WWFG-FM and WOSC-FM (the "Stations") at December 31, 1997, and the results of
their operations and their cash flows for the period from August 1, 1997 through
December 31, 1997 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Stations' management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 18, 1998
F-361
<PAGE>
WWFG-FM AND WOSC-FM
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash.............................................................................................. $ 1,361
Accounts receivable, less allowance for doubtful accounts of $44,596.............................. 242,570
Due from related party............................................................................ 92,218
Prepaid expenses and other current assets......................................................... 11,782
------------
Total current assets............................................................................ 347,931
Property and equipment, net......................................................................... 699,679
Intangible assets, net.............................................................................. 6,636,945
------------
Total assets.................................................................................... $7,684,555
------------
------------
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable.................................................................................. $ 35,633
Accrued expenses and other current liabilities.................................................... 22,434
Capital lease obligation.......................................................................... 11,963
------------
Total current liabilities....................................................................... 70,030
------------
Owner's equity:
Owner's equity.................................................................................... 7,750,000
Accumulated deficit............................................................................... (135,475)
------------
Total owner's equity............................................................................ 7,614,525
------------
Total liabilities and owner's equity............................................................ $7,684,555
------------
------------
</TABLE>
See Notes to Combined Financial Statements.
F-362
<PAGE>
WWFG-FM AND WOSC-FM
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
AUGUST 1, 1997
TO DECEMBER 31,
1997
---------------
<S> <C>
Revenues......................................................................................... $ 639,973
Less: agency commissions....................................................................... (20,556)
---------------
Net revenues............................................................................... 619,417
Operating expenses:
Sales.......................................................................................... 166,411
Programming.................................................................................... 111,394
Other operating expenses....................................................................... 121,563
General and administrative..................................................................... 204,594
Depreciation and amortization.................................................................. 150,930
---------------
Total operating expenses..................................................................... 754,892
---------------
Net loss......................................................................................... $ (135,475)
---------------
---------------
</TABLE>
See Notes to Combined Financial Statements.
F-363
<PAGE>
WWFG-FM AND WOSC-FM
COMBINED STATEMENT OF CHANGES IN OWNER'S EQUITY
<TABLE>
<S> <C>
Acquisition of the station at August 1, 1997.................................... $7,750,000
Net loss for the period from August 1, 1997 to December 31, 1997................ (135,475)
---------
Balance at December 31, 1997.................................................... $7,614,525
---------
---------
</TABLE>
See Notes to Combined Financial Statements.
F-364
<PAGE>
WWFG-FM AND WOSC-FM
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
AUGUST 1, 1997
TO DECEMBER 31,
1997
---------------
<S> <C>
Cash flows from operating activities:
Net loss....................................................................................... $ (135,475)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization................................................................ 150,930
Decrease in accounts receivable.............................................................. 85,763
Increase in due to related party............................................................. (85,146)
Increase in prepaid expenses and other current assets........................................ 9,594
Decrease in accounts payable................................................................. (218)
Decrease in accrued expenses and other current liabilities................................... (8,265)
---------------
Net cash provided by operating activities.................................................. 17,324
---------------
Cash flows from investing activities:
Purchase of property, plant and equipment...................................................... (1,700)
---------------
Net cash used for investing activities..................................................... (1,700)
---------------
Cash flows from financing activities:
Principal payments under long-term obligations................................................. (14,263)
---------------
Net cash used by financing activities...................................................... (14,263)
---------------
Increase in cash................................................................................. 1,361
Cash at beginning of period...................................................................... --
---------------
Cash at end of period............................................................................ $ 1,361
---------------
---------------
Supplemental disclosure of cash flow information
Cash payments for interest..................................................................... $ --
---------------
---------------
Non-cash operating activities:
Trade revenue.................................................................................. $ 52,547
---------------
---------------
Trade expense.................................................................................. $ 74,729
---------------
---------------
</TABLE>
See Notes to Combined Financial Statements.
F-365
<PAGE>
WWFG-FM AND WOSC-FM
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Capstar Radio Broadcasting Partners, Inc. ("Capstar") owns and operates
radio stations WWFG-FM and WOSC-FM (the "Stations") located in Salisbury,
Maryland. Effective August 1, 1997, Capstar acquired the stations from Benchmark
Communications Radio Limited Partnership, Inc., L.P. ("Benchmark"). Benchmark
was the general partner of Benchmark Radio Acquisition Fund IV Limited
Partnership ("BRAF IV") which owned the stations.
The accompanying combined financial statements reflect the "carve-out"
combined financial position, combined results of operations and combined cash
flows of the Stations for the periods presented. The financial information
included herein does not necessarily reflect what the financial position and
results of operations of the Stations would have been had they operated as a
stand alone entity during the periods covered, and may not be indicative of
future operations or financial position.
The significant accounting principles followed and the methods of applying
those principles which materially affect the determination of financial
position, results of operations, and cash flows are summarized below.
USE OF ESTIMATES
The preparation of financial statements in accordance 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 periods
presented. Actual results could differ from these estimates.
PROPERTY AND EQUIPMENT
Purchases of property and equipment, including additions and improvements
and expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at cost
and depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
15-39
Broadcasting towers and equipment............................................... years
Office furniture and equipment.................................................. 7 years
Music library................................................................... 5 years
Vehicles........................................................................ 5 years
Leasehold improvements.......................................................... 39 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include goodwill and FCC licenses. Intangible assets are
stated at cost and are being amortized using the straight-line method over the
estimated useful life for periods not exceeding 40 years. The Stations evaluate
the carrying value of intangibles periodically in relation to the projected
future undiscounted net cash flows of the related businesses.
F-366
<PAGE>
WWFG-FM AND WOSC-FM
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
Capstar accounts for income taxes in accordance with the liability method
and the stations are included in the consolidated return of the parent. Capstar
has not recorded a tax liability since it was not assured it could realize a
benefit for its loss in the future.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
TRADE AGREEMENTS
The Stations enter into trade agreements which give rise to sales of
advertising air time in exchange for products and services. Sales from trade
agreements are recognized at the fair market value of products or services
received as advertising air time is broadcast. Products and services received
are expensed when used in the broadcast operations. If the Stations use
exchanged products or services before advertising air time is provided, a trade
liability is recognized.
2. ACQUISITIONS:
On July 31, 1997, Capstar acquired selected assets from Benchmark which
included a building, broadcasting equipment, furniture and fixtures, vehicles,
and broadcast licenses of WWFG-FM and WOSG-FM in Salisbury, Maryland for
approximately $7.8 million in cash plus various other direct acquisition costs.
The allocation of the purchase price included approximately $6.7 million to FCC
licenses and goodwill.
The acquisition discussed above was accounted for as a purchase business
combination by Capstar. Capstar elected under generally accepted accounting
principles, to pushdown the acquisition to the Stations level through a non-cash
capital contribution to the Stations. Accordingly, the accompanying combined
financial statements include the results of operations of the acquired Stations.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Broadcasting equipment.............................................................................. $ 547,008
Office furniture and equipment...................................................................... 94,803
Tower............................................................................................... 79,809
Leasehold improvements.............................................................................. 18,489
Music library....................................................................................... 39,006
Vehicles............................................................................................ 1,632
------------
Total property and equipment...................................................................... 780,747
Accumulated depreciation............................................................................ (81,068)
------------
Property and equipment, net....................................................................... $ 699,679
------------
------------
</TABLE>
Depreciation expense was $81,068.
F-367
<PAGE>
WWFG-FM AND WOSC-FM
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
FCC licenses and call letters....................................................................... $6,674,807
Goodwill............................................................................................ 32,000
------------
Total intangible assets............................................................................. 6,706,807
Accumulated amortization............................................................................ (69,862)
------------
Intangible assets, net.............................................................................. $6,636,945
------------
------------
</TABLE>
Amortization expense was $69,862.
5. RELATED PARTY TRANSACTIONS:
The Stations participate in a Capstar centralized cash management system.
Accordingly, cash received from the Station's operations is pooled centrally and
allocated by Capstar based on operational, working capital and capital
expenditure requirements. The Stations have no available lines of credit or
other sources of financing. At December 31, 1997, the Stations had a receivable
from Capstar of $92,218. Capstar provides the stations certain corporate, legal
and accounting services. No amount is included in the combined financial
statements of the Stations as the cost of such services was insignificant.
6. COMMITMENTS AND CONTINGENCIES:
Capstar incurred expenses of approximately $31,000 for the period ended
December 31, 1997, under operating leases for radio broadcasting facilities,
office space, and computers. Future minimum annual payments, adjusted based upon
formulas related to the Consumer Price Index, under the operating leases for the
broadcast facilities approximate $60,200 through 2002.
The Company also has broadcast equipment under capital lease with a cost of
$110,000 at December 31, 1997 and accumulated depreciation of $63,000.
7. PROFIT SHARING PLAN:
The employees of the Stations were included in a 401(k) profit sharing plan
sponsored by Capstar.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to their short-term nature.
9. SUBSEQUENT EVENT:
On January 22, 1998, the Stations entered into a local management agreement
with Cumulus Broadcasting, Inc. ("Cumulus"), a wholly-owned subsidiary of
Cumulus Media Inc. In addition, the Company entered into an agreement with
Cumulus to sell the assets of the Company, subject to the approval of the
federal communications commission, for approximately $7,500,000.
F-368
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE U.S. UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF CLASS A COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY THE SHARES OF CLASS A COMMON STOCK 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 SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................ 5
Risk Factors...................................... 17
Use of Proceeds................................... 24
Dividend Policy................................... 24
Capitalization.................................... 25
Dilution.......................................... 26
Unaudited Pro Forma Combined Financial
Statements...................................... 27
Selected Historical Financial Data................ 50
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 51
Business.......................................... 58
Pending Acquisitions.............................. 79
Management........................................ 80
Certain Relationships and Related Transactions.... 88
Principal and Selling Stockholders................ 89
Description of Capital Stock...................... 90
Description of Credit Facility and Notes.......... 97
Shares Eligible for Future Sale................... 99
Underwriting...................................... 100
Certain United States Tax Consequences to
Non-United States Holders of Class A Common
Stock........................................... 104
Legal Matters..................................... 108
Experts........................................... 108
Additional Information............................ 109
Index to Financial Statements..................... F-1
</TABLE>
---------------------
UNTIL , 1998, 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.
SHARES
[LOGO]
CUMULUS MEDIA INC.
CLASS A COMMON STOCK
-------------------
PROSPECTUS
, 1998
-------------------
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
BT ALEXs BROWN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold, nor may
offers to buy be accepted, prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
<PAGE>
PROSPECTUS
[ALTERNATE PAGE FOR INTERNATIONAL COMMON STOCK PROSPECTUS]
SUBJECT TO COMPLETION, DATED MAY 18, 1998
<TABLE>
<S> <C> <C>
[LOGO] Shares
CUMULUS MEDIA INC.
Class A Common Stock
</TABLE>
------------------------
Of the shares of Class A Common Stock, par value $.01 per share (the "Class
A Common Stock") offered hereby, shares are being sold by Cumulus Media Inc.
(the "Company") and shares are being sold by the Selling Stockholder (as
defined herein). Of the shares of Class A Common Stock being offered,
shares are being offered outside the U.S. and Canada (the "International
Offering") by the International Managers and shares are being offered in a
concurrent offering in the U.S. and Canada (the "U.S. Offering") by the U.S.
Underwriters (together with the International Managers, the "Underwriters"). The
International Offering and the U.S. Offering are collectively referred to as the
"Stock Offerings." The offering price and underwriting discounts and commissions
for each of the Stock Offerings will be identical.
Upon consummation of the Reorganization (as defined herein), the Company's
authorized capital stock will include Class A Common Stock, Class B Common
Stock, par value $.01 per share (the "Class B Common Stock") and Class C Common
Stock, par value $.01 per share (the "Class C Common Stock" and, together with
the Class A Common Stock and the Class B Common Stock, the "Common Stock").
Except with respect to voting and conversion, the rights of holders of Class A
Common Stock, Class B Common Stock and Class C Common Stock are identical.
Except upon the occurrence of certain events, holders of Class B Common Stock
are not entitled to vote, whereas each share of Class A Common Stock entitles
its holder to one vote and subject to certain exceptions, each share of Class C
Common Stock entitles its holder to ten votes. Under certain circumstances and
subject to prior governmental approval, shares of Class B Common Stock are
convertible into shares of Class A Common Stock and/or shares of Class C Common
Stock on a one-for-one basis at the option of the holder, and shares of Class C
Common Stock are convertible into shares of Class A Common Stock on a
one-for-one basis at the option of the holder. Following the Stock Offerings,
existing stockholders of the Company, including the officers and directors of
the Company, will continue to own approximately % of the Common Stock
(representing % of the voting stock) and will have the ability to control the
Company. See "Description of Capital Stock."
Concurrently with the Stock Offerings, the Company is offering $
million of % Series A Cumulative Exchangeable Redeemable Preferred Stock Due
2009 (the "Series A Preferred Stock") (the "Preferred Stock Offering"), $
million of which are being offered directly by the Company, and not through the
Underwriters, to The Northwestern Mutual Life Insurance Company the sole owner
of the NML Preferred Stock (as defined herein) which had an accreted value as of
May 15, 1998 of $33,989,840, at a purchase price equal to the price to public
and $ million of % Senior Subordinated Notes Due 2008 (the "Notes")(the
"Debt Offering" and, together with the Stock Offerings and the Preferred Stock
Offering, the "Offerings"). Consummation of each Offering is contingent upon
consummation of each of the other Offerings. A portion of the proceeds of the
Offerings will be used to repay the Credit Facility (as defined herein) for
which affiliates of Lehman Brothers, Inc. act as arranger and lender.
Prior to the Stock Offerings, there has been no public market for the Class
A Common Stock of the Company. It is anticipated that the initial public
offering price will be between $ and $ per share. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price.
The Class A Common Stock of the Company is expected to be approved for
inclusion in the Nasdaq National Market under the symbol "CMLS". There can be no
assurance that an active public market for the Class A Common Stock will develop
or be maintained after consummation of the Stock Offerings.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE CLASS A COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(3)................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the International Managers and the U.S.
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Stock Offerings payable by the Company
estimated to be $ .
(3) The Company has granted the International Managers a 30-day option to
purchase up to an additional shares of Class A Common Stock on the
same terms and conditions as set forth above solely to cover
over-allotments, if any. The U.S. Underwriters have been granted a similar
option to purchase up to additional shares solely to cover
over-allotments, if any. If both options are exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to the
Company, will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Class A Common Stock offered by this Prospectus are offered by
the International Managers subject to prior sale, to withdrawal, cancellation,
or modification of the offer without notice, to delivery to and acceptance by
the International Managers and to certain further conditions. It is expected
that delivery of the shares will be made at the offices of Lehman Brothers Inc.,
New York, New York, on or about , 1998.
------------------------
LEHMAN BROTHERS
BEAR, STEARNS INTERNATIONAL LIMITED
BT ALEXs BROWN INTERNATIONAL
CREDIT LYONNAIS
, 1998
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL COMMON STOCK PROSPECTUS]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE INTERNATIONAL MANAGERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF CLASS A COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY THE SHARES OF CLASS A COMMON STOCK 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 SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary................................ 5
Risk Factors...................................... 17
Use of Proceeds................................... 24
Dividend Policy................................... 24
Capitalization.................................... 25
Dilution.......................................... 26
Unaudited Pro Forma Combined Financial
Statements...................................... 27
Selected Historical Financial Data................ 50
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 51
Business.......................................... 58
Pending Acquisitions.............................. 79
Management........................................ 80
Certain Relationships and Related Transactions.... 88
Principal and Selling Stockholders................ 89
Description of Capital Stock...................... 90
Description of Credit Facility and Notes.......... 97
Shares Eligible for Future Sale................... 99
Underwriting...................................... 100
Certain United States Tax Consequences to
Non-United States Holders of Class A Common
Stock........................................... 104
Legal Matters..................................... 108
Experts........................................... 108
Additional Information............................ 109
Index to Financial Statements..................... F-1
</TABLE>
---------------------
UNTIL , 1998, 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.
SHARES
[LOGO]
CUMULUS MEDIA INC.
CLASS A COMMON STOCK
-------------------
PROSPECTUS
, 1998
-------------------
LEHMAN BROTHERS
BEAR, STEARNS
INTERNATIONAL LIMITED
BT ALEXs BROWN
INTERNATIONAL
CREDIT LYONNAIS SECURITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH
JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 18, 1998
PRELIMINARY PROSPECTUS
[LOGO]
$
CUMULUS MEDIA INC.
% SENIOR SUBORDINATED NOTES DUE 2008
The % Senior Subordinated Notes due 2008 (the "Notes") are being offered
hereby (the "Debt Offering") by Cumulus Media Inc. (the "Company"). Interest on
the Notes is payable semi-annually in arrears on and of each year,
commencing , 1998. The Notes will mature on , 2008. The Notes will
be redeemable at the option of the Company, in whole or in part, at any time on
or after , 2003 at the redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of redemption. In addition, on or
before , 2001, the Company may redeem up to 35% of the original aggregate
principal amount of the Notes at a redemption price of % of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
redemption, with the net proceeds of one or more Equity Offerings, (as defined
herein), PROVIDED, HOWEVER, that at least 65% of the original aggregate
principal amount of Notes remains outstanding following such redemption. The
Notes will not be subject to any sinking fund requirement. Upon the occurrence
of a Change of Control (as defined herein), the Company is required to make an
offer to repurchase the Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
There can be no assurance that the Company will have the financial resources
necessary to repurchase the Notes upon a change of control. See "Description of
Notes."
The Notes will be general unsecured obligations of the Company, subordinated
in right of payment to all existing and future Senior Debt (as defined herein)
of the Company, including all borrowings of the Company under the Credit
Facility (as defined herein). On a pro forma basis after giving effect to the
Transactions (as defined herein) as if they had occurred on December 31, 1997,
the Company would have had outstanding approximately $ million of
Senior Debt that would effectively rank senior to the Notes. See "Description of
Notes -- Subordination." The Indenture (as defined herein) pursuant to which the
Notes will be issued permits the Company and its subsidiaries to incur
additional Indebtedness (as defined herein), including Senior Debt, subject to
certain limitations. See "Capitalization" and "Description of Notes."
Concurrently with the Debt Offering, the Company is offering $
million of % Series A Cumulative Exchangeable Redeemable Preferred Stock Due
2009, (the "Series A Preferred Stock" ) $ million of which is being offered
directly by the Company, and not through the Underwriters, to The Northwestern
Mutual Life Insurance Company, the sole owner of the NML Preferred Stock (as
defined herein) which had an accreted value as of May 15, 1998 of $33,989,840,
at a purchase price equal to the price to public (the "Preferred Stock
Offering") and shares of the Company's Class A Common Stock (the "Stock
Offering" and, together with the Debt Offering and the Preferred Stock Offering,
the "Offerings"). Consummation of each Offering is contingent upon consummation
of each of the other Offerings. A portion of the proceeds of the Offerings will
be used to repay the Credit Facility for which affiliates of Lehman Brothers
Inc. act as arranger and lender.
SEE "RISK FACTORS" ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN INVESTMENT IN THE
NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATIONS TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND THE
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
<S> <C> <C> <C>
Per Note........................................... % % %
Total.............................................. $ $ $
</TABLE>
(1) PLUS ACCRUED INTEREST, IF ANY, FROM THE DATE OF ISSUANCE.
(2) SEE "UNDERWRITING" FOR INDEMNIFICATION ARRANGEMENTS WITH THE UNDERWRITERS.
(3) BEFORE DEDUCTING EXPENSES OF THE DEBT OFFERING, PAYABLE BY THE COMPANY,
ESTIMATED AT $ .
--------------------------
THE NOTES ARE OFFERED BY BEAR, STEARNS & CO. INC. AND LEHMAN BROTHERS INC.,
AS UNDERWRITERS (THE "UNDERWRITERS"), SUBJECT TO PRIOR SALE, WHEN, AS AND IF
DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS, AND SUBJECT TO CERTAIN OTHER
CONDITIONS. THE UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW, CANCEL OR MODIFY THE
OFFER AND TO REJECT ORDERS IN WHOLE OR IN PART. IT IS EXPECTED THAT THE NOTES
WILL BE AVAILABLE FOR DELIVERY IN NEW YORK, NEW YORK, ON OR ABOUT , 1998
IN BOOK-ENTRY FORM THROUGH THE FACILITIES OF THE DEPOSITORY TRUST COMPANY.
BEAR, STEARNS & CO. INC. LEHMAN BROTHERS
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENTS, STABILIZING BIDS AND SHORT COVERING TRANSACTIONS AND THE
IMPLEMENTATION OF PENALTY BIDS. SEE "UNDERWRITING."
A-i
<PAGE>
THE DEBT OFFERING
<TABLE>
<S> <C>
ISSUER............................ Cumulus Media Inc.
SECURITIES OFFERED................ $ million in aggregate principal amount of % Senior
Subordinated Notes due 2008.
MATURITY.......................... , 2008.
INTEREST.......................... The Notes will bear interest at the rate of % per
annum, payable semi-annually in arrears on and
, commencing , 1998.
OPTIONAL REDEMPTION............... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
, 2003, at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, to the date of
redemption. In addition, on or before , 2001, the
Company may redeem up to 35% of the original aggregate
principal amount of the Notes at a redemption price of
% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption, with
the net proceeds of one or more Equity Offerings;
PROVIDED, HOWEVER, that at least 65% of the original
aggregate principal amount of the Notes remains
outstanding following such redemption. See "Description
of Notes -- Optional Redemption."
CHANGE OF CONTROL OFFER........... Upon the occurrence of a Change of Control, the Company
will be required to make an offer to repurchase the
Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to
the date of repurchase. See "Description of Notes --
Repurchase at the Option of Holders -- CHANGE OF
CONTROL."
RANKING........................... The Notes will be general unsecured obligations of the
Company, subordinated in right of payment to all
existing and future Senior Debt of the Company,
including all obligations of the Company under the
Credit Facility. On a pro forma basis, after giving
effect to the Transactions as if they had occurred on
December 31, 1997, the Company would have had
outstanding $ million of Senior Debt. The Notes will be
effectively subordinated to all Indebtedness of the
Company's subsidiaries ($ million, on a pro forma basis
at December 31, 1997). See "Description of Notes --
Subordination."
CERTAIN COVENANTS................. The Indenture pursuant to which the Notes will be issued
(the "Indenture") will contain certain covenants that,
among other things, limit the ability of the Company and
its Restricted Subsidiaries to incur additional
Indebtedness, pay dividends or make other distributions,
repurchase any capital stock or subordinated
Indebtedness, make certain investments, create certain
liens, enter into certain transactions with affiliates,
sell assets or enter into certain mergers and
consolidations. In addition, the Indenture will contain
a covenant limiting the lines
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
of business of certain Unrestricted Subsidiaries. See
"Description of Notes -- Certain Covenants."
SECURITY.......................... None.
USE OF PROCEEDS................... Approximately $ million of the net proceeds of
the Offerings will be used to finance the Pending
Acquisitions. The balance of the net proceeds of the
Offerings will be used to repay the principal amount of
Indebtedness currently outstanding under the Credit
Facility for which affiliates of Lehman Brothers Inc.
act as arranger and lender. See "Use of Proceeds" and
"Description of Credit Facility."
CONCURRENT OFFERINGS.............. Concurrently with the Debt Offering, the Company is
offering shares of its Class A Common Stock and
shares of its % Series A Cumulative Exchangeable
Redeemable Preferred Stock due 2009 (with a liquidation
preference of $1,000 per share). Each Offering is
conditioned upon consummation of each of the other
Offerings. See "Risk Factors -- Significant Capital
Requirements; Concurrent Offerings" and "Use of
Proceeds."
</TABLE>
- ------------------------
RISK FACTORS
An investment in the Notes offered hereby involves a high degree of risk.
Prospective purchasers of the Notes offered hereby should carefully consider the
factors set forth in "Risk Factors", as well as the other information set forth
in this Prospectus, before making an investment in the Notes.
A-2
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE NOTES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS
WELL AS THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE MAKING AN
INVESTMENT IN THE NOTES OFFERED HEREBY.
RISKS OF ACQUISITION STRATEGY
The Company intends to pursue growth through internal expansion and the
acquisition of radio broadcasting companies, radio station groups and individual
radio stations in mid-size and smaller markets. The Company cannot predict
whether it will be successful in pursuing such acquisition opportunities or what
the consequences of any such acquisitions would be. The Company is currently
evaluating certain acquisitions; however, other than as described in "Pending
Acquisitions," the Company currently has no binding commitments to acquire any
specific business or other material assets. Consummation of the Pending
Acquisitions and any subsequent acquisitions is subject to various conditions,
including FCC and other regulatory approvals including, in some cases,
expiration or termination of applicable waiting periods and possible review by
the U.S. Department of Justice ("DOJ") and the Federal Trade Commission ("FTC")
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). There can be no assurance that any of these conditions will be
satisfied. Consummation of the Pending Acquisitions and any subsequent
acquisitions will also be subject to FCC limits on the number of stations a
broadcaster may own in a given local market and other FCC rules or policies such
as the cross-interest policy, which may limit the Company's ability to acquire
stations in certain markets where one or more of the Company's shareholders has
other media interests. In addition, in two markets in which there are Pending
Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal
objections have been filed against the Company's FCC assignment applications and
certain FCC staff questions have been raised with respect to Pending
Acquisitions in several other markets. All such petitions, objections and FCC
staff inquiries must be resolved before FCC approval can be obtained and the
Pending Acquisitions can be consummated.
The consummation of the Offerings is not conditioned on the consummation of
any of the Pending Acquisitions. No assurances can be given that such
transactions will be consummated or that, if completed, they will be successful.
The Company's acquisition strategy involves numerous risks, including
difficulties in identifying targets and negotiating definitive purchase
agreements on satisfactory terms, 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 at acquired stations. See "Business --
Integration of Acquired Businesses." 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. In addition, there can be no
assurance that the Company will be able to acquire properties at valuations as
favorable as previous acquisitions. Depending upon the nature, size and timing
of future acquisitions, the Company may be required to raise financing in
addition to the financing necessary to consummate the Pending Acquisitions.
There can be no assurance that the Credit Facility, the Indenture, the
Certificate of Designation (as defined herein) or the Exchange Debenture
Indenture (as defined herein) or any other agreements to which the Company may
become a party will permit such additional financing or that such additional
financing will be available to the Company or, if available, that such financing
would be on terms acceptable to its management. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
LIMITED OPERATING HISTORY
The Company began operations in May 1997 and, consequently, has a limited
operating history and limited historical financial information upon which
investors may base their evaluation of the Company's performance.
A-3
<PAGE>
MANAGEMENT OF RAPID GROWTH
The Company has grown very rapidly, through acquisitions, which will place
significant demands on its administrative, operational and financial resources.
Although the Company has been successful to date in completing the integration
of many new properties, future performance and profitability, if any, will
depend in part on the Company's continued ability to integrate successfully the
operations and systems of acquired radio stations and radio groups, to hire
additional personnel, and to implement necessary enhancements to its management
systems to respond to changes in its business. The inability of the Company to
do any of the foregoing could have a material adverse effect on the Company. See
"Business."
NET LOSS
The Company had a net loss attributable to common stockholders of
approximately $6.2 million for the three months ended March 31, 1998 and $3.9
million for the period from inception on May 22, 1997 to December 31, 1997, and
additional losses can be expected to continue while the Company pursues its
strategy of acquiring and developing radio stations. Pro forma for the
Transactions, net loss attributable to common stockholders was approximately
$12.9 million for the three months ending March 31, 1998 and $35.6 million for
the year ended December 31, 1997. The Company expects to generate net income on
a historical basis for the year ending December 31, 1999. However, there can be
no assurance that the Company will be profitable in the future.
SIGNIFICANT CAPITAL REQUIREMENTS
If consummated, the Pending Acquisitions and other acquisitions for which
the Company has entered into letters of intent will require substantial capital.
The Company estimates that it will have significant capital requirements for the
remainder of 1998, including approximately $250.5 million for the consummation
of the Pending Acquisitions. The Company expects that the net proceeds from the
Offerings, together with internally generated cash flows and borrowings under
the Credit Facility, will provide sufficient funds for the Company to complete
the Pending Acquisitions. The amount of the Company's future capital
requirements will depend upon many factors, however, including the volume of
future acquisitions, as well as regulatory, technological and competitive
developments in the radio broadcasting industry, and may differ materially from
the Company's current estimates.
CONCURRENT OFFERINGS
The Company is currently offering the Notes, the Series A Preferred Stock
and Class A Common Stock pursuant to the Offerings. Consummation of each
Offering is contingent upon consummation of each of the other Offerings and
there can be no assurance that the Offerings will be consummated and, if so, on
what terms.
SUBSTANTIAL LEVERAGE
After giving effect to the Transactions, the Company will have consolidated
Indebtedness that is substantial in relation to its cash flow and stockholders'
equity. As of March 31, 1998, on a pro forma basis after giving effect to the
Transactions, the Company would have had outstanding, on a consolidated basis,
long-term Indebtedness (including current portion) of approximately $192.0
million, preferred stock subject to mandatory redemption of approximately $125.0
million and stockholders' equity of approximately $144.2 million. See
"Capitalization." The Credit Facility, the Indenture, the Certificate of
Designation and the Exchange Debenture Indenture limit the incurrence of
additional indebtedness by the Company and its subsidiaries, in each case
subject to certain significant exceptions.
The level of the Company's Indebtedness could have several important
consequences to the holders of the Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be dedicated to debt service and will not be available for other purposes;
(ii) the
A-4
<PAGE>
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions and general corporate or other purposes may be
impaired in the future; (iii) certain of the Company's borrowings will be at
variable rates of interest (including any borrowings under the Credit Facility),
which will expose the Company to the risk of increased interest rates; (iv) the
Company's leveraged position and the covenants contained in the Credit Facility,
the Indenture, the Certificate of Designation and the Exchange Debenture
Indenture could limit the Company's ability to compete, expand and make capital
improvements; (v) the Company's level of Indebtedness could make it more
vulnerable to economic downturns, limit its ability to withstand competitive
pressures and reduce its flexibility in responding to changing business and
economic conditions; and (vi) certain restrictive covenants contained in the
Credit Facility, the Indenture, the Certificate of Designation and the Exchange
Debenture Indenture limit the ability of Cumulus to pay dividends and make other
distributions to its stockholders.
ABILITY TO SERVICE DEBT OBLIGATIONS
The Company's ability to satisfy its debt service obligations, including the
Notes, will depend upon its future financial and operating performance, which,
in turn, is subject to prevailing economic conditions and financial, business,
competitive, legislative and regulatory 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, expansion and capital expenditures, sell assets, obtain
additional equity capital or restructure its debt. There can be no assurance
that the Company's operating results, cash flow and capital resources will be
sufficient for payment of its debt service and other obligations in the future.
In the absence of such operating results and resources, the Company could face
substantial liquidity problems and might be required to sell material assets or
operations to meet its debt service and other obligations, and there can be no
assurance as to the timing of such sales or the proceeds that the Company could
realize therefrom or that such sales could be effected on terms satisfactory to
the Company or at all. As a result of the net loss attributable to common
stockholders, earnings were insufficient to cover fixed charges and preferred
stock dividend requirements by $3,785 and $3,493 for the period from inception
on May 22, 1997 to December 31, 1997 and for the three months ended March 31,
1998. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS AND PREFERRED STOCK
The Credit Facility, the Indenture, the Certificate of Designation and the
Exchange Debenture Indenture contain certain covenants that restrict, among
other things, the ability of the Company and its subsidiaries to incur
additional indebtedness, pay dividends or make certain other restricted
payments, enter into certain transactions with affiliates, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. In addition,
the Credit Facility, the Indenture and the Exchange Debenture Indenture also
restrict the ability of the Company to incur liens or to consummate certain
asset sales. The Credit Facility also requires the Company to maintain specified
financial ratios and to satisfy certain financial condition tests. The Company's
ability to meet those financial ratios and financial condition tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet those tests. A breach of any of these covenants could result
in a default under the Credit Facility, the Indenture, the Certificate of
Designation and/or the Exchange Debenture Indenture. Upon the occurrence of an
event of 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. If Cumulus were unable to repay those
amounts, the lenders under the Credit Facility could proceed against the
collateral granted to them to secure that indebtedness. If the Indebtedness
under the Credit Facility were to be accelerated, there can be no assurance that
the assets of Cumulus would be sufficient to repay in full such Indebtedness and
the other Indebtedness of the Company, including the Notes. The ability of the
Company to comply with the restrictions and covenants in the Credit Facility,
the Indenture, the Certificate of Designation and the
A-5
<PAGE>
Exchange Debenture Indenture will be dependent upon the Company's future
performance and various other factors, such as legislative, business and
regulatory factors, certain of which are beyond its control. If the Company
fails to comply with the restrictions and covenants in the Credit Facility, the
Indenture, the Certificate of Designation or the Exchange Debenture Indenture,
the Company's obligation to repay the Notes, the Exchange Debentures and its
Indebtedness under the Credit Facility may be accelerated.
RANKING OF THE NOTES
The Notes will be unsecured senior subordinated obligations of the Company
and, as such, will be subordinated in right of payment to all future Senior Debt
of the Company, including Indebtedness under the Credit Facility. The Notes will
rank PARI PASSU in right of payment (or equally) with all other senior
subordinated indebtedness, if any, of the Company. As of March 31, 1998 on a pro
forma basis after giving effect to the Transactions, the Company would have had
approximately $42.0 million in aggregate principal amount of Indebtedness
outstanding which would have ranked senior in right of payment to the Notes (all
of which would have been secured) and no Indebtedness outstanding which would
have ranked PARI PASSU in right of payment (or equally) with the Notes. In
addition, on such a pro forma basis, at March 31, 1998, the Company would have
had over $145 million of borrowing availability under the Credit Facility and,
provided certain tests were met, would have been able to borrow additional
Senior Debt.
By reason of such subordination, in the event of the insolvency,
liquidation, reorganization, dissolution or other winding-up of the Company or
upon a default in payment with respect to, or the acceleration of, any Senior
Debt, the holders of such Senior Debt and any other creditors who are holders of
Senior Debt and creditors of subsidiaries must be paid in full before the
holders of the Notes may be paid. If the Company incurs additional PARI PASSU
debt, the holders of such debt would be entitled to share ratably with the
holders of the Notes in any proceeds distributed in connection with any
insolvency, liquidation, reorganization, dissolution or other winding-up of the
Company. This will have the effect of reducing the amount of proceeds paid to
holders of the Notes. In addition, no payments may be made with respect to the
principal of or interest on the Notes if a payment default exists with respect
to Designated Senior Debt (as defined herein) and, under certain circumstances,
no payments may be made with respect to the principal of or interest on the
Notes for certain periods of time if a non-payment default exists with respect
to Designated Senior Debt. See "Description of the Notes -- Subordination."
STRUCTURAL SUBORDINATION
The Company conducts its business through its subsidiaries and has no
operations of its own. Consequently, the Company will be dependent on the cash
flow of such subsidiaries and distributions thereof from such subsidiaries to
the Company in order to meet its debt service obligations. As a result of the
structure of the Company, the holders of the Notes will be structurally
subordinated to all creditors of those subsidiaries of the Company. The
Company's rights, and the rights of its creditors, to participate in the
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subject to the claims of any secured creditor of such subsidiary of any
holder of indebtedness of such subsidiary senior to that held by the Company. As
of December 31, 1997, on a pro forma basis after giving effect to the
Transactions, there would have been $ Indebtedness of the Company's
subsidiaries outstanding.
ASSET ENCUMBRANCES
The Company's obligations under the Credit Facility are secured by security
interests in substantially all of the current and future assets of the Company
and its domestic subsidiaries (including, to the extent permitted by applicable
law, FCC licenses held by such subsidiaries). In the event of a default on
secured Indebtedness (whether as a result of the failure to comply with a
payment or other covenant, a cross-
A-6
<PAGE>
default, or otherwise), the parties granted such security interests will have a
prior secured claim on the assets securing such indebtedness. Moreover, if such
parties should attempt to foreclose on their collateral, it is possible that
there may not be sufficient assets remaining after satisfaction in full of all
such Indebtedness to satisfy in full or in part the claims of the holders of the
Notes and the Company's financial condition and the value of the Notes could be
materially adversely affected. See "Description of Credit Facility and Notes."
PURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon a Change of Control (as defined herein), the Company may be required to
offer to purchase all of the outstanding Notes at 101% of the principal amount
thereof plus accrued and unpaid interest to the date of purchase. The source of
funds for any such purchase would be the Company's available cash or cash
generated from other sources. However, there can be no assurance that sufficient
funds would be available at the time of any Change of Control to make any
required purchases of Notes tendered or, if applicable, that restrictions in the
Credit Facility would permit the Company to make such required purchases. The
Credit Facility will require that the Company repay all amounts outstanding
under the Credit Facility prior to making any payments on the Notes upon a
Change of Control. The Indenture may not afford holders of Notes the right to
require the Company to repurchase the Notes in the event of certain
transactions, such as a highly leveraged transaction, that may adversely affect
holders of Notes if such transaction is not a transaction defined as a Change of
Control. Certain events involving a Change of Control may result in an event of
default under the Credit Facility or other Indebtedness of the Company that may
be incurred in the future. The Company's failure to purchase tendered Notes
would constitute an Event of Default under the Indenture and the Credit
Facility, which could have adverse consequences for the Company and the holders
of the Notes. The definition of "Change of Control" in the Indenture includes a
sale, lease, conveyance or other disposition of "all or substantially all" of
the assets of the Company and its Subsidiaries taken as a whole to a person or
group of persons. There is little case law interpreting the phrase "all or
substantially all" in the context of an indenture. Because there is no precise
established definition of this phrase, the ability of a holder of the Notes to
require the Company to repurchase such Notes as a result of a sale, lease,
conveyance or transfer of all or substantially all of the Company's assets to a
person or group of persons may be uncertain. See "Description of the Notes --
Repurchase at the Option of Holders."
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the obligation
of, or liens securing, the Notes in favor of other existing or future creditors
of the Company.
Under applicable provisions of Federal bankruptcy law or comparable
provisions of state fraudulent transfer laws and state corporation law statutes,
if, among other things, the Company, at the time it incurred the Indebtedness
evidenced by the Notes, (i)(a) was or is insolvent or rendered insolvent by
reason of such occurrence or (b) was or is engaged or about to become engaged in
a business or transaction for which the assets remaining with the Company
constituted unreasonably small capital or (c) intended or intends to incur, or
believed or believes that it would incur, debts beyond its ability to pay such
debts as they mature or (d) was a defendant in an action for money damages or
had a judgment for money damages docketed against it (if, in either case, after
final judgment, the judgment is unsatisfied), and (ii) the Company received or
receives less than reasonably equivalent value or fair consideration for the
incurrence of the Indebtedness evidenced by the Notes, any pledge or other
security interest securing such Indebtedness could be voided, or claims in
respect of the Notes or the other security interest securing such Indebtedness
could be voided, or claims in respect of the Notes could be subordinated to all
other debts of the Company. The voiding or subordination of any of such pledges
or other security interests or of any of such Indebtedness could result in
acceleration thereof. In addition, the payment of interest and
A-7
<PAGE>
principal by the Company pursuant to the Notes could be voided and required to
be returned to the person making such payment, or to a fund for the benefit of
the creditors of the Company.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company would be considered insolvent if (i)
the sum of its debts, including contingent liabilities, was greater than the
fair saleable value of all of its assets at a fair valuation or if the present
fair saleable value of its assets was less than the amount that would be
required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature or (ii) it could not
pay its debts as they become due.
On the basis of the pro forma financial information included in this
Prospectus and other factors, the Company believes that after giving effect to
the Indebtedness being incurred in connection with the Notes, the Company will
be solvent and will continue to be solvent after issuing the Notes, will have
sufficient capital for carrying on its business after such issuance and will be
able to pay its debts as they mature. There can be no assurance, however, as to
what standard a court would apply in making such determinations.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes will be new securities for which there currently is no established
trading market. The Company does not intend to apply for listing of the Notes on
any national securities exchange or for quotation of the Notes on any automated
dealer quotation system. Although the Underwriters have informed the Company
that they currently intend to make a market in the Notes, the Underwriters are
not obligated to do so, and any such market making may be discontinued at any
time without notice. The liquidity of any market for the Notes will depend upon
the number of holders of the Notes, the interest of securities dealers in making
a market in the Notes and other factors. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Notes. If an active
trading market for the Notes does not develop, the market price and liquidity of
the Notes may be adversely affected. If the Notes are traded, they may trade at
a discount from their initial offering price, depending upon prevailing interest
rates, the market for similar securities, the performance of the Company and
certain other factors. The liquidity of, and trading markets for, the Notes may
also be adversely affected by general declines in the market for non-investment
grade debt. Such declines may adversely affect the liquidity of, and trading
markets for, the Notes, independent of the financial performance of or prospects
for the Company.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Notes. There can be no assurance that the market, if any, for the
Notes will not be subject to similar disruptions. Any such disruptions may have
an adverse effect on the holders of the Notes.
BUSINESS RISKS
Future operations of the Company are subject to many variables which could
have a material adverse effect upon the Company's financial performance. These
variables include economic conditions, both generally and relative to the radio
broadcasting industry; shifts in population and other demographics; shifts in
audience tastes; the level of competition for advertising dollars with other
radio stations, television stations and other entertainment and communications
media; fluctuations in operating costs; technological changes and innovations;
changes in labor conditions; and changes in laws and governmental regulations
and policies and actions of federal regulatory bodies, including the DOJ, the
FTC and the FCC. Although the Company believes that substantially all of its
radio stations, now owned or to be acquired upon completion of the Pending
Acquisitions, are positioned to compete effectively in their respective markets,
there can be no assurance that any such station will be able to maintain or
increase its current audience ratings and advertising revenues. See "Business --
Competition." Radio broadcasting is also subject to
A-8
<PAGE>
competition from new media technologies that are being developed or introduced,
such as the delivery of audio programming by cable television systems and the
introduction of digital audio broadcasting ("DAB"). DAB may deliver by satellite
to nationwide and regional audiences multi-channel, multi-format digital radio
services with sound quality equivalent to compact discs and may sell
advertising. The Company cannot predict the effect, if any, that any such new
technologies may have on the radio broadcasting industry or the Company. See
"Business -- Competition."
COMPETITION
Radio broadcasting is a highly competitive business. The Company's radio
stations, now owned or to be acquired upon completion of the Pending
Acquisitions, compete for audiences and advertising revenues within their
respective markets directly with other radio stations, as well as with other
media, such as newspapers, magazines, cable and broadcast television, outdoor
advertising and direct mail. In addition, certain of the Company's stations
compete, and in the future other of the Company's stations may compete, with
groups of two or more stations operated by a single operator. Audience ratings
and market shares are subject to change and any adverse change in a particular
market could have a material adverse effect on the revenue of stations located
in that market. While the Company already competes with other stations with
comparable programming formats in many of its markets, if another radio station
in the market were to convert its programming format to a format similar to one
of the Company's stations, or launch aggressive promotional campaigns, or if a
new station were to adopt a competitive format, or if an existing competitor
were to strengthen its operations, the Company's stations could suffer a
reduction in ratings and/or advertising revenue and could require increased
promotional and other expenses, and consequently would have a lower Broadcast
Cash Flow. The Telecommunications Act of 1996 (the "Telecom Act") facilitates
the consolidation of ownership of other radio broadcasting stations in the
markets in which the Company operates or may operate in the future. Some of such
competing in-market consolidated owners may be larger and have substantially
more financial and other resources than the Company. In addition, increased
consolidation in mid-size and smaller markets may result in greater competition
for acquisition properties and a corresponding increase in purchase prices for
such properties paid by the Company. See "Business--Competition."
GOVERNMENTAL REGULATION OF BROADCASTING INDUSTRY
The broadcasting industry is subject to extensive and changing federal
regulation that, among other things, requires approval by the FCC for the
issuance, renewal, modification, transfer of control, or assignment of
broadcasting station operating licenses, limits the number of broadcasting
properties that the Company may acquire in any market, and regulates certain
operating practices of radio stations. Additionally, the Communications Act of
1934, as amended (the "Communications Act") and FCC rules impose limitations on
alien ownership and voting of the capital stock of the Company. The Telecom Act
creates significant new opportunities for broadcasting companies but also
creates uncertainties as to how the FCC and the courts will enforce and
interpret the Telecom Act.
The number of radio stations the Company may acquire or operate pursuant to
an LMA in any market, overall and in each service (i.e., AM or FM), is limited
by the Telecom Act and FCC rules and may vary depending upon whether the
interests in other radio stations or certain other media properties of certain
individuals or entities affiliated with the Company are attributable to those
individuals or entities under FCC rules. 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 5% or greater voting stockholders are generally attributable to
the Company. Certain of the Company's officers and directors, and at least one
stockholder of the Company, have attributable broadcast interests outside of
their involvement with the Company, which will limit the number of radio
stations that the Company may acquire or own in any market in which such
officers or directors (or stockholders) hold or acquire such outside
attributable broadcast interests. Moreover, under the FCC's
A-9
<PAGE>
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 interest in another media outlet in the same market, thereby
prohibiting a particular acquisition by the Company. The markets in which the
Company may be subject to restrictions on ownership include Atlanta, GA,
Nashville, TN and Rochester, MN.
The Company's business will be dependent upon maintaining its broadcasting
licenses issued by the FCC, which are ordinarily issued for a maximum term of
eight years. Although it is rare for the FCC to deny a license renewal
application, there can be no assurance that the future renewal applications of
the Company will be approved or that such renewals will not include conditions
or qualifications that could adversely affect the Company. Moreover,
governmental regulations and policies may change over time and there can be no
assurance that such changes would not have a material adverse impact upon the
Company. See "Business -- Federal Regulation of Radio Broadcasting."
REGULATORY APPROVALS
The consummation of radio broadcasting acquisitions requires prior approval
of the FCC with respect to the transfer of control or assignment of the
broadcast licenses of the acquired stations. Certain of the Pending Acquisitions
have not yet received FCC approval. Pending Acquisitions in two markets are
being challenged before the FCC by competitors. The FCC staff has also stated
that is currently reevaluating its policies and procedures relating to local
radio market concentration, even where proposed assignments would comply with
the FCC's multiple-ownership rules. The FCC has issued a Notice of Inquiry
which, among other things, seeks public comment on these issues. FCC approval of
a number of pending radio station acquisitions by various parties has been
delayed while this policy review is taking place. The FCC staff has informed the
Company that it has delayed action on several of its applications on this basis,
including pending applications to acquire stations in Augusta-Waterville, Maine
and one additional station in the Toledo, Ohio market. There can be no assurance
that the FCC will not prohibit or require the restructuring of future
acquisitions by the Company (including the Pending Acquisitions) as a result of
this policy review. In addition, the FCC staff has requested additional
information relating to whether the Company's Pending Acquisitions in one market
would comply with the FCC's cross-interest policy. There can be no assurance
that the FCC will approve future acquisitions by the Company (including the
Pending Acquisitions).
The consummation of certain of the Pending Acquisitions is also subject to
applicable waiting periods and possible review by the DOJ or the FTC under the
HSR Act and acquisitions that are not required to be reported under the HSR Act
may still be investigated by the FTC or the DOJ under the antitrust laws before
or after consummation. The DOJ has been active in reviewing radio broadcasting
acquisitions and has challenged a number of such transactions, some of which
have resulted in consent decrees requiring divestitures of certain stations,
terminations of LMAs and other relief. In general, the DOJ has more closely
scrutinized radio mergers and acquisitions that result in local market shares in
excess of 35% of radio advertising revenues, depending on format, signal
strength and other factors, although there is no hard-and-fast numerical rule
and certain transactions resulting in more than 35% market share have not been
challenged. The DOJ can be expected to continue to enforce the antitrust laws in
this manner, and there can be no assurance that one or more of the Pending
Acquisitions will not be the subject of an investigation or enforcement action
by the DOJ or the FTC. If the DOJ or the FTC investigates or challenges one or
more of the Pending Acquisitions or any subsequent acquisitions, the Company may
need to restructure such transactions or divest other existing stations in a
particular market. The Company is aware that the DOJ has opened an investigation
with respect to the Company's Pending Acquisition in two markets which
potentially affect the acquisition of up to an additional nine stations in the
aggregate. However, the Company believes that its operating practices and sales
and demand-driven pricing policies serve to expand advertising volume and
increase competition in a market while providing more choice to advertisers and
to listeners.
A-10
<PAGE>
POTENTIAL CONFLICTS OF INTEREST
Mr. Weening and Mr. Dickey each have direct interests in entities that have
entered into service agreements with the Company. These interests may give rise
to certain conflicts of interest with respect to transactions between these
entities and the Company.
TRANSACTIONS WITH AFFILIATES
QUAESTUS, an entity controlled by Mr. Weening, and Stratford Research, an
entity controlled by Mr. Dickey, have acted as the Company's financial and
strategic advisor and market research and programming advisor, respectively,
since the Company's inception. New advisory agreements between each of QUAESTUS
and Stratford Research and the Company will be entered into immediately prior to
the consummation of the Offerings. See "Certain Relationships and Related
Transactions."
EFFECTS OF ECONOMIC RECESSION
The Company derives substantially all of its revenue from the sale of
advertising time on its radio stations. The Company's broadcasting revenue could
be adversely affected by a future national recession, although in the most
recent national recession, in 1991, radio revenues in small radio markets ranked
below 100 were impacted less severely on average than those in the larger
markets. In addition, because a substantial portion of the Company's revenue is
derived from local advertisers, the Company's ability to generate advertising
revenue in specific markets could be adversely affected by local or regional
economic downturns. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Advertising Sales."
YEAR 2000 RISK
The Company has implemented a Year 2000 program to ensure that the Company's
computer systems and applications will function properly beyond 1999. The
Company believes that it has allocated adequate resources for this purpose and
expects its Year 2000 date conversion program to be successfully completed on a
timely basis. There can, however, be no assurance that this will be the case.
The Company does not expect to incur significant expenditures to address this
issue. The ability of third parties with whom the Company transacts business to
adequately address their Year 2000 issues is outside of the Company's control.
There can be no assurance that the failure of the Company or such third parties
to adequately address their respective Year 2000 issues will not have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations.
RELIANCE ON KEY PERSONNEL
The Company's business is managed by a small number of key management and
operating personnel, the loss of certain of whom could have a material adverse
effect on the Company. The Company believes that its future success will depend
in large part on its ability to attract and retain highly skilled and qualified
personnel and to expand, train and manage its employee base. The Company has
entered into employment agreements with Messrs. Weening, Dickey, Bungeroth and
Bonick which include provisions restricting the ability of Messrs. Weening,
Dickey, Bungeroth and Bonick to compete against the Company in certain
circumstances. The Company intends to arrange for "key-man" insurance on the
lives of Messrs. Weening, Dickey and Bungeroth. See "Management -- Employment
Agreements."
The Company also employs several on-air personalities with large loyal
audiences in their respective markets. 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, taken as a whole.
A-11
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to an Indenture (the "Indenture") between
the Company and Firstar Bank of Minnesota, N.A., as trustee (the "Trustee").
Copies of the Indenture will be made available to prospective purchasers of the
Notes upon request to [ ], [ ] of the Company at 330 East Kilbourn
Avenue, Milwaukee, Wisconsin 53202, Telephone: (414) 283-4500, Facsimile: (414)
283-4505. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Notes are subject to all such terms,
and Holders of the Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. The definitions of certain terms used in the following summary are
set forth below under "-- Certain Definitions."
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to Senior Debt. As of March 31, 1998, on a pro
forma basis after giving effect to the Transactions, the Company would have had
Senior Debt of approximately $42.0 million. The Indenture will permit the
incurrence of additional Senior Debt in the future.
For purposes of this section, the term "Company" means Cumulus Media Inc.
and not its Subsidiaries. As of the date of the Indenture, all of the Company's
Subsidiaries will be Restricted Subsidiaries. Under certain circumstances, the
Company will be able to designate current and future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many
of the restrictive covenants set forth in the Indenture. See "--Certain
Covenants."
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes and
any other payment obligations of the Company in respect of the Notes (including
any obligation to repurchase the Notes) will be subordinated in certain
circumstances in right of payment, as set forth in the Indenture, to the prior
payment in full in cash of all Senior Debt, whether outstanding on the date of
the Indenture or thereafter incurred.
Upon any payment or distribution of property or securities to creditors of
the Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, or in an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not a
claim for such interest would be allowed in a proceeding) before the Holders of
the Notes will be entitled to receive any payment with respect to the Notes, and
until all Obligations with respect to Senior Debt are paid in full, any
distribution to which the Holders of the Notes would be entitled shall be made
to the holders of Senior Debt (other than in each case, subject to certain
exceptions, that Holders of the Notes may receive securities that are
subordinated at least to the same extent as the Notes are subordinated to Senior
Debt (or securities issued in exchange for Senior Debt) and payments made from
the trust described under "-- Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment (whether by redemption, purchase,
retirement, defeasance or otherwise) upon or in respect of the Notes (except in
such subordinated securities or from the trust described under "-- Legal
Defeasance and Covenant Defeasance") if (i) a default in the payment of the
principal of, premium, if any, or interest on Designated Senior Debt occurs,
(ii) any other default on Senior Debt occurs and the maturity of such Senior
Debt is accelerated in accordance with its terms
A-12
<PAGE>
(together with clause (i), a "payment default") or (iii) any other default
occurs and is continuing with respect to Designated Senior Debt that permits, or
with the giving of notice or passage of time or both (unless cured or waived)
will permit, holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity ("nonpayment default") and (solely with
respect to this clause (iii)) the Trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Debt. Cash payments on the Notes shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived and (b)
in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived, the date on which the applicable Payment
Blockage Notice is retracted by written notice to the Trustee or 179 days after
the date on which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated or a default of the
type described in clause (vii) under the caption "Events of Default and
Remedies" has occurred and is continuing. No new period of payment blockage may
be commenced unless and until 360 days have elapsed since the date of
commencement of the payment blockage period resulting from the immediately prior
Payment Blockage Notice. No nonpayment default in respect of Designated Senior
Debt that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default shall have been cured or waived for
a period of no less than 181 days.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency of the Company, Holders of the Notes may recover
less ratably than creditors of the Company who are holders of Senior Debt. On a
pro forma basis, after giving effect to the Transactions, the principal amount
of Senior Debt outstanding at March 31, 1998, 1998 would have been approximately
$42.0 million, which includes $42.0 million of borrowings under the Credit
Facility. See "Description of Credit Facility." In addition, as of March 31,
1998, 1998 on a pro forma basis, the Company will have over $145 million of
undrawn availability under the Credit Facility. Although the Indenture contains
limitations on the amount of additional Indebtedness, including Senior Debt,
that the Company and its Subsidiaries may incur, under certain circumstances the
amount of such Indebtedness may be substantial and, in any case, such
Indebtedness may be Senior Debt. See "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $100.0 million,
all of which will be issued on the Issue Date. The Notes will mature on
, 2008. Interest on the Notes will accrue at the rate of % per annum
and will be payable semi-annually in arrears on and of each year,
commencing on , 1998, to Holders of the Notes of record on the immediately
preceding and . Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Principal, premium, if any, and interest on the Notes will be
payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, in the event the Notes do not remain
in book entry form, at the option of the Company, payment of interest may be
made by check mailed to the Holders of the Notes at their respective addresses
set forth in the applicable register of Holders of the Notes. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes will be fully
registered as to principal and interest in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof.
A-13
<PAGE>
OPTIONAL REDEMPTION
Except as otherwise described below, the Notes will not be redeemable at the
Company's option prior to , 2003. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -------------
<S> <C>
2003.............................................................................. %
2004.............................................................................. %
2005.............................................................................. %
2006 and thereafter............................................................... 100%
</TABLE>
Prior to , 2001, the Company may, at its option, on any one or
more occasions, redeem up to 35% of the original aggregate principal amount of
the Notes at a redemption price equal to % of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the redemption
date, with all or a portion of the net proceeds of one or more Equity Offerings
(as defined below); PROVIDED that at least 65% of the original aggregate
principal amount of the Notes remains outstanding immediately after the
occurrence of such redemption; and PROVIDED, FURTHER, that such redemption shall
occur within 90 days of the date of the closing of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means any public or
private sale of common stock of the Company pursuant to which the Company
receives net proceeds of at least $25.0 million, other than issuances of common
stock of the Company pursuant to employee benefit plans or as compensation to
employees.
SELECTION AND NOTICE
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed, or, if such
Notes are not so listed, on a pro rata basis, by lot or by such method as such
Trustee shall deem fair and appropriate; PROVIDED that no Note of $1,000 or less
shall be redeemed in part. Notices of redemption shall be mailed by first class
mail at least 30 but not more than 60 days before the redemption date to each
Holder of the Notes to be redeemed at its registered address. If any Note is to
be redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the Holder thereof upon cancellation of the original Note. On and
after the redemption date, interest will cease to accrue on the Notes or
portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of the Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
A-14
<PAGE>
cash equal to 101% of the aggregate principal amount of the Notes plus accrued
and unpaid interest, if any, thereon to the date of purchase (the "Change of
Control Payment"). Within 30 days following any Change of Control, the Company
will (i) mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offer to repurchase the Notes pursuant
to the procedures required by the Indenture and described in such notice on a
date no earlier than 30 days nor later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date") and (ii) (a) offer to repay in
full all Obligations under the Credit Facility and to repay in full all
Obligations of each lender who has accepted such offer or (b) obtain the
requisite consent under agreements evidencing Senior Debt to permit the purchase
of the Notes as described herein. The Company will comply with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all the Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the relevant Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of such Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
the Notes so tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each tendering Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
will not contain provisions that permit the Holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes (or portions thereof) validly tendered and not withdrawn under such Change
of Control Offer.
The Credit Facility will prohibit the Company from repurchasing any Notes
pursuant to a Change of Control Offer prior to the repayment in full of the
Senior Debt under the Credit Facility. Moreover, the occurrence of certain
change of control events identified in the Credit Facility will constitute a
default under the Credit Facility. Any future Credit Agreements or other
agreements relating to the Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. If a Change of Control were to
occur, the Company may not have sufficient available funds to pay the Change of
Control Payment for all Notes that might be delivered by Holders of the Notes
seeking to accept the Change of Control Offer after first satisfying its
obligations under the Credit Facility or other agreements relating to Senior
Debt. The failure of the Company to make or consummate the Change of Control
Offer or pay the Change of Control Payment when due will constitute a Default
under the Indenture and will otherwise give the Trustee and the Holders of the
Notes the rights described under "--Events of Default and Remedies."
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of the Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer,
A-15
<PAGE>
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company or the Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value (as
determined in good faith by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee, which determination shall be
conclusive evidence of compliance with this provision) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; PROVIDED that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (y) any non-cash
consideration received by the Company or any such Restricted Subsidiary from
such transferee that is converted by the Company or such Restricted Subsidiary
into cash within 30 days of closing such Asset Sale, shall be deemed to be cash
for purposes of this provision (to the extent of the cash received).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary may apply such Net Proceeds, at its
option, (a) to permanently reduce Senior Debt (and to correspondingly
permanently reduce commitments with respect thereto in the case of revolving
borrowings), or (b) to an investment in any one or more businesses, capital
expenditures or acquisitions of other assets, in each case, used or useful in a
Permitted Business. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce Senior Debt that is revolving debt or otherwise
invest such Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied as provided in the first
sentence of this paragraph will (after the expiration of the periods specified
in this paragraph) be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the
Company will be required to make an offer to all Holders of the Notes and, to
the extent required by the terms thereof, to all holders or lenders of Pari
Passu Indebtedness (an "Asset Sale Offer") to purchase the maximum principal
amount of the Notes and any such Pari Passu Indebtedness to which the Asset Sale
Offer applies that may be purchased out of the Excess Proceeds, at an offer
price in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture or the agreements governing the Pari Passu
Indebtedness, as applicable. A Holder of the Notes electing to have Notes
purchased pursuant to an Asset Sale Offer may only elect to have all of such
Notes purchased and may not elect to have only a portion of such Notes
purchased. To the extent that the aggregate principal amount of the Notes and
Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of the Notes
surrendered by Holders thereof and other Pari Passu Indebtedness surrendered by
holders or lenders thereof, collectively, exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes and the trustee or other lender
representative for the Pari Passu Indebtedness shall select the Pari Passu
Indebtedness to be purchased on a pro rata basis, based on the aggregate
principal amount thereof surrendered in such Asset Sale Offer. Upon completion
of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Credit Facility may prohibit the Company from purchasing any Notes from
the Net Proceeds of Asset Sales. Any future Credit Agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event an Asset Sale Offer
A-16
<PAGE>
occurs at a time when the Company is prohibited from purchasing the Notes, the
Company could seek the consent of its lenders to the purchase or could attempt
to refinance the Senior Debt that contains such prohibition. If the Company does
not obtain such a consent or repay such Senior Debt, the Company may remain
prohibited from purchasing the Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the Indenture
which would, in turn, constitute a default under the Credit Facility and
possibly a default under other agreements relating to Senior Debt. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of the Notes.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment to
holders of the Company's Equity Interests in connection with any merger or
consolidation involving the Company) to the direct or indirect holders of the
Company's Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent or other
Affiliate of the Company that is not a Wholly Owned Restricted Subsidiary of the
Company; (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the Notes, except at final maturity; or (iv) make any Restricted Investment (all
such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the test set
forth in the first paragraph of the covenant described below under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (2), (3),(5),(6) and (7) of the next succeeding paragraph), is less
than the sum of (i) (A) 100% of the aggregate Consolidated Cash Flow of the
Company (or, in the event such Consolidated Cash Flow shall be a deficit,
minus 100% of such deficit) accrued for the period beginning on the first
day of the Company's fiscal quarter commencing after the Issue Date and
ending on the last day of the Company's most recent fiscal quarter for which
financial information is available to the Company ending prior to the date
of such proposed Restricted Payment, taken as one accounting period, less
(B) 1.4 times Consolidated Interest Expense for the same period, PLUS (ii)
100% of the aggregate net cash proceeds and the fair market value of
marketable securities (as determined in good faith by the Company) received
by the Company from the issue or sale since the date of the Indenture of
Equity Interests of the Company or of debt securities of the Company that
have been converted into or exchanged for such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a Subsidiary of
the Company, other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock and other than the Common Stock issued in
the Common Stock Offering), PLUS (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash or
otherwise liquidated or repaid for cash, the lesser of
A-17
<PAGE>
(A) the net proceeds of such sale, liquidation or repayment and (B) the
amount of such Restricted Investment, PLUS (iv) $5.0 million.
The foregoing provisions will not prohibit (1) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
PROVIDED that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of subordinated Permitted Refinancing Debt or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock); PROVIDED that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (4) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Subsidiary of
the Company held by any of the Company's (or any of its Subsidiaries') employees
pursuant to any management equity subscription agreement or stock option
agreement in effect as of the date of the Indenture in connection with the
termination of such person's employment for any reason (including by reason of
death or disability); PROVIDED that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$500,000 in any twelve-month period; and PROVIDED FURTHER that no Default or
Event of Default shall have occurred and be continuing immediately after such
transaction; (5) repurchases of Equity Interests deemed to occur upon exercise
of stock options if such Equity Interests represent a portion of the exercise
price of such options; (6) (a) the issuance by the Company of shares of Series A
Preferred Stock as dividends paid in kind on the Series A Preferred Stock and
(b) commencing , 2003, the payment of cash dividends by the Company on the
Series A Preferred Stock or on any Preferred Stock issued in exchange for the
Series A Preferred Stock, or any dividends on such Preferred Stock to the extent
such dividends are made pursuant to the terms of the Certificate of Designation
of such Preferred Stock, so long as the Company would be able to Incur, on a pro
forma basis, an additional $1.00 of Indebtedness under "Certain Covenants --
Incurrence of Indebtedness and Issuance of Preferred Stock"; and (7) the
exchange of Series A Preferred Stock for Exchange Debentures in accordance with
the terms of the Certificate of Designation for such Series A Preferred Stock as
in effect on the Issue Date; PROVIDED, HOWEVER, that the Company may only effect
such exchange so long as the Company would be able to Incur, on a pro forma
basis, an additional $1.00 of Indebtedness under " -- Incurrence of Indebtedness
and Issuance of Preferred Stock."
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined in good faith by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee, which
determination shall be conclusive evidence of compliance with this provision) on
the date of the Restricted Payment of the asset(s) proposed to be transferred by
the Company or the applicable Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than five days after the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time
A-18
<PAGE>
of such designation and will reduce the amount available for Restricted Payments
under clause (c) of the first paragraph of the covenant "Restricted Payments."
All such outstanding Investments will be deemed to constitute Investments in an
amount equal to the greater of the fair market value or the book value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock if the Company's Leverage Ratio at the time of the incurrence of such
Indebtedness, after giving pro-forma effect thereto and to the use of proceeds
therefrom, is less than 7.0 to 1.0.
Notwithstanding the foregoing, the Indenture will not prohibit any of the
following (collectively, "Permitted Indebtedness"): (a) the Indebtedness
evidenced by the Notes; (b) the incurrence by the Company of Indebtedness
pursuant to Credit Agreements, so long as the aggregate principal amount of all
Indebtedness outstanding under all Credit Agreements does not, at any one time,
exceed $190 million, less the aggregate amount of all proceeds from all Asset
Sales that have been applied since the date of the Indenture to permanently
reduce the outstanding amount of such Indebtedness pursuant to the provisions
described under the caption "Repurchase at the Option of Holders -- Asset
Sales"; (c) all Indebtedness of the Company and its Restricted Subsidiaries in
existence as of the date of the Indenture; (d) intercompany Indebtedness between
or among the Company and any of its Wholly Owned Restricted Subsidiaries;
PROVIDED, HOWEVER, that (i) if the Company is the obligor on such Indebtedness,
such Indebtedness is expressly subordinate to the payment in full of all
Obligations with respect to the Notes and (ii)(A) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being held by
a Person other than the Company or a Wholly Owned Restricted Subsidiary and (B)
any sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in
each case, to constitute an incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be; (e) the incurrence by the
Company or its Restricted Subsidiaries of Indebtedness represented by Capital
Lease Obligations, mortgage financings or purchase money obligations, in each
case incurred for the purpose of financing all or any part of the purchase
price, lease or cost of construction or improvement of property, plant or
equipment used in a Permitted Business in an aggregate principal amount not to
exceed $15.0 million at any time outstanding; (f) the incurrence by the Company
or its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or
the net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the Indenture to be
incurred; (g) the incurrence by the Company or its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating or variable rate Indebtedness or
for the purpose of protecting against fluctuations in interest rates or the
value of foreign currencies purchased or received, in each case in respect of
Indebtedness that is permitted by the terms of the Indenture to be outstanding;
PROVIDED, HOWEVER, that in the case of Hedging Obligations that are incurred for
the purpose of fixing or hedging interest rate risks with respect to
Indebtedness, the notional principal amount of any such Hedging Obligation does
not exceed the principal amount of the Indebtedness to which such Hedging
Obligation relates and in the case of Hedging Obligations incurred for the
purpose of protecting against fluctuations in interest rates or the value of
foreign currencies purchased or received, such Hedging Obligations do not
increase the Indebtedness of the Company and its Restricted Subsidiaries
outstanding other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities
A-19
<PAGE>
and compensation payable thereunder; (h) Indebtedness incurred solely in respect
of performance, surety and similar bonds or completion guarantees, to the extent
that such incurrence does not result in the incurrence of any obligation for the
payment of borrowed money to others; (i) Indebtedness arising out of standby
letters of credit covering workers compensation, performance or similar
obligations in an aggregate amount not to exceed $500,000 at any time
outstanding; (j) any guarantee of the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the incurrence of
such Indebtedness incurred by such Restricted Subsidiary is permitted under the
terms of the Indenture; (k) the incurrence by the Company of additional
Indebtedness in an aggregate principal amount (or accreted value, as applicable)
at any time outstanding not to exceed $10.0 million; (l) the issuance of Series
A Preferred Stock issued as payment in kind dividends on the Series A Preferred
Stock outstanding on the Issue Date or issued subsequent to the Issue Date as
dividends permitted pursuant to this clause (l), to the extent such dividends
are made pursuant to the terms of the Certificate of Designation for such Series
A Preferred Stock as in effect on the Issue Date, on any Series A Preferred
Stock issued in exchange for the Series A Preferred Stock, or any dividends on
such Series A Preferred Stock to the extent such dividends are made pursuant to
the terms of the Certificate of Designation of such Preferred Stock; and (m) the
incurrence by the Company of Indebtedness in respect of Exchange Debentures
issued as payment in kind interest on Exchange Debentures issued on the exchange
of Series A Preferred Stock, to the extent such interest payments are made
pursuant to the terms of the Exchange Debenture Indenture.
The Indenture will provide that the Company will not permit any Unrestricted
Subsidiary to incur any Indebtedness other than Non-Recourse Debt; provided,
however, if any such Indebtedness ceases to be Non-Recourse Debt, such event
shall be deemed to constitute an incurrence of Indebtedness by the Company.
ASSET SWAPS
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, in one or a series of related
transactions, directly or indirectly, engage in any Asset Swaps, unless: (i) at
the time of entering into the agreement to swap assets and immediately after
giving effect to the proposed Asset Swap, no Default or Event of Default shall
have occurred and be continuing or would occur as a consequence thereof; (ii)
the Company would, after giving PRO FORMA effect to the proposed Asset Swap,
have been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Leverage Ratio in the covenant "Incurrence of Indebtedness and Issuance
of Preferred Stock"; (iii) the respective fair market values of the assets being
purchased and sold by the Company or any of its Restricted Subsidiaries (as
determined in good faith by the management of the Company or, if such Asset Swap
includes consideration in excess of $ million by the Board of Directors
of the Company, as evidenced by a Board Resolution) are substantially the same
at the time of entering into the agreement to swap assets; and (iv) at the time
of the consummation of the proposed Asset Swap, the percentage of any decline in
the fair market value (determined as aforesaid) 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 (determined as aforesaid) of the assets being disposed of by the Company
or its Restricted Subsidiaries, calculated from the time the agreement to swap
assets was entered into.
NO LAYERING
The Indenture will provide that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes; PROVIDED, HOWEVER, the foregoing
limitations will not apply to distinctions between categories of Indebtedness
that exist by reason of any Liens arising or created in accordance with the
provisions of the Indenture in respect of some but not all such Indebtedness.
A-20
<PAGE>
LIENS
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause
or suffer to exist or become effective any Lien securing Indebtedness of any
kind (other than Permitted Liens) upon any of its property or assets, now owned
or hereafter acquired.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture will provide that 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 encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(x) pay dividends
or make any other distributions to the Company or any of the Restricted
Subsidiaries of the Company (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (y) pay any
indebtedness owed to the Company or any Restricted Subsidiaries of the Company,
(ii) make loans or advances to the Company or any Restricted Subsidiaries of the
Company or (iii) transfer any of its properties or assets to the Company or any
Restricted Subsidiaries of the Company, except for such encumbrances or
restrictions existing under or by reason of (a) the Credit Facility as in effect
as of the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof or any other Credit Agreement, PROVIDED that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements, refinancings or other Credit Agreements are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the Credit Facility as in effect on the date of the
Indenture, (b) the Indenture and the Notes, (c) applicable law, (d) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except, in the case of Indebtedness, to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person and its
Subsidiaries, or the property or assets of the Person and its Subsidiaries, so
acquired, PROVIDED that, such Indebtedness or Disqualified Stock was permitted
by the terms of the Indenture to be incurred, (e) customary non-assignment
provisions in leases entered into in the ordinary course of business, (f)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, or (g) Permitted Refinancing Debt, PROVIDED that
the restrictions contained in the agreements governing such Permitted
Refinancing Debt are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets, in one or more related transactions, to another
Person, and the Company may not permit any of its Restricted Subsidiaries to
enter into any such transaction or series of transactions if such transaction or
series of transactions would, in the aggregate, result in a sale, assignment,
transfer, lease, conveyance, or other disposition of all or substantially all of
the properties or assets of the Company to another Person unless: (i) the
Company is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (the "Surviving Entity") is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia; (ii)
the Surviving Entity (if the Company is not the continuing obligor under the
Indenture) assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately before and after
A-21
<PAGE>
giving effect to such transaction or series of transactions no Default or Event
of Default exists; (iv) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (and treating any Indebtedness not
previously an obligation of the Company and its Subsidiaries which becomes the
obligation of the Company or any of its Subsidiaries as a result of such
transaction or series of transactions as having been incurred at the time of
such transaction or series of transactions), the Consolidated Net Worth of the
Company and its Subsidiaries or the Surviving Entity (if the Company is not the
continuing obligor under the Indenture) is equal to or greater than the
Consolidated Net Worth of the Company and its Subsidiaries immediately prior to
such transaction or series of transactions; and (v) the Company or the Surviving
Entity (if the Company is not the continuing obligor under the Indenture) will,
at the time of such transaction or series of transactions and after giving pro
forma effect thereto as if such transaction or series of transactions had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the test set forth
in the first paragraph of the covenant described above under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock." Notwithstanding the
restrictions described in the foregoing clauses (iv) and (v), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company, and any Wholly Owned Restricted Subsidiary
may consolidate with, merge into or transfer all or part of its properties and
assets to another Wholly Owned Restricted Subsidiary.
TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any of its Affiliates (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction or series of Affiliated Transactions
complies with clause (i) above and that such Affiliate Transaction or series of
Affiliated Transactions has been approved in good faith by a majority of the
members of the Board of Directors who are disinterested with respect to such
Affiliate Transaction or series of Affiliated Transactions, which resolution
shall be conclusive evidence of compliance with this provision, and (b) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10.0 million, the Company
delivers an Officer's Certificate certifying that such Affiliate Transaction or
series of related Affiliate Transactions complies with clause (i) above and that
such Affiliate Transaction or series of related Affiliate Transactions has been
approved in good faith by a resolution adopted by a majority of the members of
the Board of Directors of the Company who are disinterested with respect to such
Affiliate Transaction or series of related Affiliate Transactions and an opinion
as to the fairness to the Company or such Subsidiary of such Affiliate
Transaction or series of related Affiliate Transactions from a financial point
of view issued by an accounting, appraisal, engineering or investment banking
firm of national standing (which resolution and fairness opinion shall be
conclusive evidence of compliance with this provision); PROVIDED that the
foregoing provisions will not apply to the following: (1) transactions
contemplated by any employment agreement or other compensation plan or
arrangement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business; (2) transactions between or among the Company
and/or its Restricted Subsidiaries; (3) Restricted Payments and Permitted
Investments that are permitted by the provisions of the Indenture described
above under the caption "-- Restricted Payments"; (4) indemnification payments
made to officers, directors and employees of the Company or any Restricted
Subsidiary pursuant to charter, bylaw, statutory
A-22
<PAGE>
or contractual provisions; and (5) any agreement as in effect as of the Issue
Date or any transaction contemplated thereby.
ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED SUBSIDIARIES
The Indenture will provide that the Company (i) will not, and will not
permit any Wholly Owned Restricted Subsidiary of the Company to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly
Owned Restricted Subsidiary of the Company to any Person (other than the Company
or a Wholly Owned Restricted Subsidiary of the Company), unless (a) such
transfer, conveyance, sale, lease or other disposition is of all the Capital
Stock of such Wholly Owned Restricted Subsidiary and (b) the Net Proceeds from
such transfer, conveyance, sale, lease or other disposition are applied in
accordance with the covenant described above under the caption "--Asset Sales,"
and (ii) will not permit any Wholly Owned Restricted Subsidiary of the Company
to issue any of its Equity Interests (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person other
than to the Company or a Wholly Owned Restricted Subsidiary; PROVIDED that the
Company may, and may permit any Wholly Owned Restricted Subsidiary of the
Company to, take any of the actions referred to in (i) and (ii) above so long as
immediately after giving effect to such action no more than 10% of the
Consolidated Net Tangible Assets of the Company and its Subsidiaries is owned by
other than Wholly Owned Restricted Subsidiaries of the Company.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any material respect in any business other than a Permitted Business.
PAYMENTS FOR CONSENT
The Indenture will provide that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or is paid to all Holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
REPORTS
The Indenture will provide that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its consolidated Subsidiaries and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports, in each case within the time periods set forth in the Commission's
rules and regulations. In addition, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of such information
and report with the Commission for public availability within the time periods
set forth in the Commission's rules and regulations (unless the Commission will
not accept such a filing).
A-23
<PAGE>
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) a default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) a default in payment when due of the principal of or premium,
if any, and on the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) the failure by the Company or any of its
Restricted Subsidiaries to comply with the provisions described under the
caption "Repurchase at the Option of Holders" and "Certain Covenants"; (iv)
failure by the Company for 30 days after notice from the Trustee or the Holders
of at least 25% in aggregate principal amount of the Notes then outstanding to
comply with any of its other agreements in the Indenture or the Notes; (v) a
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there is then existing a Payment Default or the maturity of which
has been so accelerated, aggregates $5.0 million or more; (vi) the failure by
the Company or any of its Restricted Subsidiaries to pay final, non-appealable
judgments aggregating in excess of $5.0 million, which judgments remain unpaid
or discharged for a period of 60 days; and (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries or
any group of Subsidiaries that, taken together would constitute a Significant
Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the Notes then outstanding may declare
the principal of and accrued but unpaid interest on such Notes to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, with respect to
the Company or any Significant Subsidiary or any group of Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all outstanding Notes
will become due and payable without further action or notice. Holders of the
Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the Notes then outstanding may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest or premium on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, within
five business days of becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of such outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to such Notes concerning issuing
temporary Notes, registration of such Notes, mutilated,
A-24
<PAGE>
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default. In the event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default and Remedies" will no longer constitute an
Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall 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 Legal 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 Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to such Trustee
confirming that the Holders of the outstanding Notes 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; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
the Notes over the other creditors of the Company, or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or others;
and (viii) the Company must deliver to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption.
A-25
<PAGE>
Also, the Company is not required to transfer or exchange any Note for a period
of 15 days before a selection of the Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, the Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of the Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
(except as provided in the next succeeding sentence), (iii) reduce the rate of
or change the time for payment of interest on any Note, (iv) waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the Notes (except a rescission of acceleration of the Notes by the Holders of
at least a majority in principal amount of such Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of the Notes to receive payments of principal of or premium, if any,
or interest on the Notes or (vii) make any change in the foregoing amendment and
waiver provisions. In addition, any amendment to the provisions described under
"Repurchase at the Option of Holders" or the provisions of Article 10 of the
Indenture (which relate to subordination) will require the consent of the
Holders of at least 66 2/3% in principal amount of the Notes then outstanding if
such amendment would adversely affect the rights of Holders of such Notes.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Debt then
outstanding unless the holders of such Senior Debt (or any group or
representative thereof authorized to give a consent) consents to such change.
Notwithstanding the foregoing, without the consent of any Holder of the
Notes the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
secure the Notes or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in
A-26
<PAGE>
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest, it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of the Notes, unless such Holder shall have offered to
such Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
GOVERNING LAW
The Indenture and the Notes provide that they will be governed by the laws
of the State of New York.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition
(but excluding the creation of a Lien) of any assets including, without
limitation, by way of a sale and leaseback (PROVIDED that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the caption "-- Repurchase at the Option
of Holders -- Change of Control" and/or the provisions described above under the
caption "-- Certain Covenants -- Merger, Consolidation, or Sale of Assets" and
not by the provisions described above under "-- Repurchase at the Option of
Holders -- Asset Sales"), and (ii) the issue or sale by the Company or any of
its Restricted Subsidiaries of Equity Interests of any of the Company's
Subsidiaries (including the sale by the Company or a Restricted Subsidiary of
Equity Interests in an Unrestricted Subsidiary), in the case of either clause
(i) or (ii), whether in a single transaction or a series of related transactions
(a) that have a fair market value in excess of $1.0 million or (b) for net
proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following
shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned
Restricted Subsidiary of the Company to the Company or to another Wholly Owned
Restricted Subsidiary of the Company; (ii) an issuance of Equity Interests by a
Wholly Owned Restricted Subsidiary of the Company to the Company or to another
Wholly Owned
A-27
<PAGE>
Restricted Subsidiary of the Company; (iii) the making of a Restricted Payment
or Permitted Investment that is permitted by the covenant described above under
the caption "-- Certain Covenants -- Restricted Payments"; (iv) a disposition of
cash or Cash Equivalents; (v) a disposition of either obsolete equipment or
equipment that is damaged, worn out or otherwise no longer useful in the
business; (vi) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary; (vii) any sale and leaseback of an
asset within 90 days after the completion of construction or acquisition of such
asset; (viii) any surrender or waiver of contract rights or a settlement,
release or surrender of contract, tort or other claims of any kind or a grant of
any Lien not prohibited by the Indenture; (ix) any transfer of properties or
assets that is governed by the provisions of the Indenture described under the
caption "-- Certain Covenants -- Asset Swaps"; or (x) a disposition of inventory
in the ordinary course of business.
"ASSET SWAP" means the execution of a definitive agreement, subject only to
regulatory approval and other customary closing conditions, that the Company in
good faith believes will be satisfied, for a substantially concurrent purchase
and sale, or exchange, of assets used or useful in a Permitted Business between
the Company or any of its Restricted Subsidiaries and another person or group of
affiliated persons; provided that any amendment to or waiver of any closing
conditions which individually or in the aggregate is material to the Asset Swap
shall be deemed to be a new Asset Swap.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability company or
similar entity, any membership or similar interests therein and (v) any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, the issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and eurodollar
time deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year and overnight bank
deposits, in each case with any lender party to the Credit Facility or with any
domestic commercial bank having capital and surplus in excess of $500 million
and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above and (v)
commercial paper having a rating of at least P2 from Moody's Investors Service,
Inc. (or its successor) and a rating of at least A2 from Standard & Poor's
Ratings Services (or its successor) and (vi) investments in money market or
other mutual funds substantially all of whose assets comprise securities of
types described in clauses (ii) through (v) above.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" or group of related "persons" (a "Group") (as such terms
are used in Section
A-28
<PAGE>
13(d)(3) of the Exchange Act) other than a Principal or a Related Party of a
Principal, (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any purchase, sale, acquisition, disposition,
merger or consolidation) the result of which is that any "person" (as defined
above) or Group other than a Principal or a Related Party of a Principal becomes
the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act) of more than 50% of the aggregate voting power of all
classes of Capital Stock of the Company having the right to elect directors
under ordinary circumstances or (iv) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
"COMMISSION" means the Securities and Exchange Commission.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the sum of, without duplication, the Consolidated Net Income of such Person for
such period plus (i) provision for taxes based on income or profits of such
Person and its Subsidiaries for such period, to the extent that such provision
for taxes was included in computing such Consolidated Net Income, plus (ii)
Consolidated Interest Expense of such Person for such period, to the extent that
any such expense was deducted in computing such Consolidated Net Income, plus
(iii) consolidated depreciation, amortization and other non-cash charges of the
Person and its Subsidiaries deducted in computing Consolidated Net Income of
such Person for such period, plus (iv) cash payments with respect to any
non-cash charges previously added back pursuant to clause (iii). Notwithstanding
the foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum, without duplication of (i) the consolidated interest expense of
such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Interest Rate Hedging Agreements), (ii) the consolidated interest expense of
such Person and its Restricted Subsidiaries that was capitalized during such
period, (iii) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or any of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or any of its Restricted Subsidiaries (whether or
not such guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary) on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, times (b) a fraction, the numerator of which
is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; PROVIDED
that (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Restricted Subsidiary thereof, (ii) the Net
Income of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
government approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders,
A-29
<PAGE>
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iv) the cumulative effect of a change in accounting principles shall
be excluded, and (v) all other extraordinary gains and extraordinary losses
shall be excluded.
"CONSOLIDATED NET TANGIBLE ASSETS" of a Person means the consolidated total
assets of such Person and its consolidated Subsidiaries determined in accordance
with GAAP, less the sum of (i) all current liabilities and current liability
items, and (ii) all goodwill, trade names, trademarks, patents, organization
expense, unamortized debt discount and expense and other similar intangibles
properly classified as intangibles in accordance with GAAP.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock (or, in the case of the preferred
stock to be issued on the Issue Date in exchange for the NML Preferred Stock, to
the extent of cash received by the Company upon the original issuance of the NML
Preferred Stock), less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the date of the Indenture in the book value of any asset owned by
such Person or a consolidated Subsidiary of such Person, (y) all investments as
of such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of original issuance of the Notes or (ii) was nominated
for election or elected to such Board of Directors with the approval of (x)
two-thirds of the Continuing Directors who were members of such Board at the
time of such nomination or election or (y) two-thirds of those Directors who
were previously approved by Continuing Directors.
"CREDIT AGREEMENTS" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Facility) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, production payments, financings, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Agreements outstanding on the date on which the Notes
are first issued and authenticated under the Indenture (after giving effect to
the use of proceeds thereof) shall be deemed to have been incurred on such date
in reliance on the exception provided by clause (b) of the definition of
Permitted Indebtedness.
"CREDIT FACILITY" means that certain Credit Agreement, dated as of March 2,
1998, by and among the Company, Lehman Brothers Inc., as Arranger, and Lehman
Brothers Commercial Paper Inc., as Syndication Agent and Administrative Agent
and as a lender, and certain banks, financial institutions and other entities,
as lenders, providing for up to $190.0 million of Indebtedness, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, restated,
modified, renewed, refunded, replaced or refinanced, in whole or in part, from
time to time, whether or not with the same lenders or agents.
A-30
<PAGE>
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DESIGNATED SENIOR DEBT" means (i) the Credit Facility and (ii) any other
Senior Debt permitted under the Indenture the principal amount of which is $25.0
million or more and that has been designated by the Company as "Designated
Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, is convertible
or exchangeable for Indebtedness or Disqualified Stock or redeemable at the
option of the holder thereof, in whole or in part, on or prior to the date that
is 91 days after the date on which the Notes mature, PROVIDED HOWEVER, that any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof (or of any security into which it is convertible or for which it
is exchangeable) have the right to require the issuer to repurchase such Capital
Stock (or such security into which it is convertible or for which it is
exchangeable) upon the occurrence of any of the events constituting an Asset
Sale or a Change of Control shall not constitute Disqualified Stock if such
Capital Stock (and all such securities into which it is convertible or for which
it is exchangeable) provides that the issuer thereof will not repurchase or
redeem any such Capital Stock (or any such security into which it is convertible
or for which it is exchangeable) pursuant to such provisions prior to compliance
by the Company with the provisions of the Indenture described under the caption
"Repurchase at the Option of Holders--Change of Control" or "Repurchase at the
Option of Holders--Asset Sales," as the case may be.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements with respect to Indebtedness that
is permitted by the terms of the Indenture and (ii) other agreements or
arrangements designed to protect such Person against fluctuation in interest
rates or the value of foreign currencies purchased or received by such Person in
the ordinary course of business.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, (i) in respect of borrowed money, or (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or reimbursement agreements in respect thereof (other than letters of
credit securing obligations not constituting Indebtedness that are issued in the
ordinary course of business by a Person to the extent not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit) or bankers' acceptances, or (iii)
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or services, except any such balance that
constitutes an accrued expense or trade payable for such property or services,
or (iv) representing any Hedging Obligations, in each case if and to the extent
any of the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a
A-31
<PAGE>
balance sheet of such Person prepared in accordance with GAAP, as well as all
Indebtedness of others secured by a Lien on any asset of such Person (whether or
not such Indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any Indebtedness of any
other Person.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business and
extensions of trade credit in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not sold or disposed of.
"ISSUE DATE" means the date on which the Notes are originally issued.
"LEVERAGE RATIO" means the ratio of (i) the aggregate outstanding amount of
Indebtedness of the Company and its Subsidiaries as of the date of calculation
on a consolidated basis in accordance with GAAP (subject to the terms described
in the next paragraph) plus the aggregate liquidation preference of all
outstanding Disqualified Stock of the Company and preferred stock of the
Company's Subsidiaries (except preferred stock issued to the Company or a Wholly
Owned Subsidiary of the Company) on such date to (ii) the Consolidated Cash Flow
of the Company for the four full fiscal quarters (the "Four Quarter Period")
ending on or prior to the date of determination.
For purposes of this definition, (i) the amount of Indebtedness which is
issued at a discount shall be deemed to be the accreted value of such
Indebtedness at the end of the Four Quarter Period, whether or not such amount
is the amount then reflected on a balance sheet prepared in accordance with
GAAP, and (ii) the aggregate outstanding principal amount of Indebtedness of the
Company and its Subsidiaries and the aggregate liquidation preference of all
outstanding preferred stock of the Company's Subsidiaries for which such
calculation is made shall be determined on a pro forma basis as if the
Indebtedness and preferred stock giving rise to the need to perform such
calculation had been incurred and issued and the proceeds therefrom had been
applied, and all other transactions in respect of which such Indebtedness is
being incurred or preferred stock is being issued had occurred, on the first day
of the Four Quarter Period. In addition to the foregoing, for purposes of this
definition, Consolidated Cash Flow shall be calculated on a pro forma basis
after giving effect to (i) the incurrence of the Indebtedness of such Person and
its Subsidiaries and the issuance of the preferred stock of such Subsidiaries
(and the application of the proceeds therefrom) giving rise to the need to make
such calculation and any incurrence (and the application of the proceeds
therefrom) or repayment of other Indebtedness, other than the incurrence or
repayment of Indebtedness pursuant to working capital facilities, at any time
subsequent to the beginning of the Four Quarter Period and on or prior to the
date of determination, as if such incurrence or issuance (and the application of
the proceeds thereof), or the repayment, as the case may be, occurred on the
first day of the Four Quarter Period, (ii) any acquisition (including, without
limitation, any acquisition giving rise to the need to make such calculation as
a result of such Person or one of its Subsidiaries (including any Person that
becomes a Subsidiary as a result of such acquisition) incurring, assuming or
otherwise becoming liable for Indebtedness or such Person's Subsidiaries issuing
preferred stock) at any time on or subsequent to the first day of the Four
Quarter Period and on or prior to the date of determination, as if such
acquisition (including the incurrence, assumption or liability for any such
Indebtedness and the issuance of such preferred stock and also including any
Consolidated Cash Flow associated with such
A-32
<PAGE>
acquisition) occurred on the first day of the Four Quarter Period. For purposes
of this definition, whenever pro forma effect is to be given to a transaction,
the pro forma calculations shall be made in good faith by a responsible
financial or accounting officer of the Company consistent with Article 11 of
Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation
is in effect on the date of the Indenture. Furthermore, in calculating
"Consolidated Interest Expense" for purposes of the calculation of "Consolidated
Cash Flow," (i) interest on Indebtedness determined on a fluctuating basis as of
the date of determination (including Indebtedness actually incurred on the date
of the transaction giving rise to the need to calculate the Leverage Ratio) and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness as in effect on the date of determination and (ii) notwithstanding
(i) above, interest determined on a fluctuating basis, to the extent such
interest is covered by Hedging Obligations, shall be deemed to accrue at the
rate per annum resulting after giving effect to the operation of such
agreements.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement with respect to a lease not intended as
a security agreement).
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and after any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for taxes on such gain or loss, realized in
connection with (a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or Asset Swap or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or
loss, together with any related provision for taxes on such extraordinary or
nonrecurring gain or loss.
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale, but excluding cash amounts
placed in escrow, until such amounts are released to the Company), net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and expenses, and sales commissions) and
any relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Indebtedness under the Credit
Facility) secured by a Lien on the asset or assets that were the subject of such
Asset Sale and any reserve for adjustment in respect of the sale price of such
asset or assets established in accordance with GAAP and any reserve established
for future liabilities.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness), or (b) is directly or
indirectly liable (as a guarantor or otherwise); (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) the explicit terms of which provide that there is
no recourse against any of the assets of the Company or its Restricted
Subsidiaries.
A-33
<PAGE>
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PARI PASSU INDEBTEDNESS" means Indebtedness that ranks PARI PASSU in right
of payment to the Notes.
"PERMITTED BUSINESS" means the broadcasting business or any business that
is reasonably similar thereto or a reasonable extension, development or
expansion thereof or ancillary thereto.
"PERMITTED INDEBTEDNESS" has the meaning given in the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock."
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents or securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition; (c) any
Investment by the Company or any Restricted Subsidiary of the Company in a
Person if, as a result of such Investment, (i) such Person becomes a Wholly
Owned Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys all or
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) other
Investments in any Person or Persons having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (e) that are at the time outstanding without giving
effect to subsequent changes in value or increases or decreases attributable to
the accounting for the net income of such Investment, not to exceed $15.0
million; (f) any Investment acquired by the Company in exchange for Equity
Interests in the Company (other than Disqualified Stock); (g) any Investment
acquired by the Company or any of its Restricted Subsidiaries (A) in exchange
for any other Investment or accounts receivable held by the Company or any such
Restricted Subsidiary in connection with or as a result of a bankruptcy,
workout, reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (B) as a result of the transfer of title
with respect to any secured investment in default as a result of a foreclosure
by the Company or any of its Restricted Subsidiaries with respect to such
secured Investment; (h) Hedging Obligations permitted under the "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" covenant;
(i) loans and advances to officers, directors and employees for business-related
travel expenses, moving expenses and other similar expenses, in each case,
incurred in the ordinary course of business; and (j) any guarantees permitted to
be made pursuant to the covenant entitled "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
"PERMITTED LIENS" means (i) Liens securing Indebtedness of a Subsidiary or
Liens securing Senior Debt that is outstanding on the date of issuance of the
Notes and Liens securing Senior Debt that is permitted by the terms of the
Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company and Liens on property or assets of a Subsidiary
existing at the time it became a Subsidiary, PROVIDED that such Liens were in
existence prior to the contemplation of the acquisition and do not extend to any
assets other than the acquired property; (iv) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance or other kinds of social security, or to secure the
payment or performance of tenders, statutory or regulatory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (v) Liens existing on the date of
the Indenture; (vi) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, PROVIDED
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (vii) statutory liens of
A-34
<PAGE>
landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like
Liens arising in the ordinary course of business; (viii) judgment Liens not
giving rise to an Event of Default so long as any appropriate legal proceeding
that may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceeding may be
initiated shall not have expired; (ix) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (e) of the second paragraph of
the covenant entitled "--Certain Covenants-- Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with such
Indebtedness; (x) Liens incurred in the ordinary course of business of the
Company or any Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding and that (A) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (B) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Subsidiary; (xi) easements, rights-of-way, zoning and similar restrictions and
other similar encumbrances or title defects incurred or imposed, as applicable,
in the ordinary course of business and consistent with industry practices which,
in the aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto (as such
property is used by the Company or its Subsidiary) or interfere with the
ordinary conduct of the business of the Company or such Subsidiary; provided,
however, that any such Liens are not incurred in connection with any borrowing
of money or any commitment to loan any money or to extend any credit; and (xii)
customary Liens (other than any Lien imposed by ERISA) incurred or deposits made
in the ordinary course of business in connection with worker's compensation,
unemployment insurance and other types of social security legislation.
"PERMITTED REFINANCING DEBT" means any Indebtedness of the Company or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness (other than Indebtedness incurred under a Credit Agreement) of the
Company or any of its Restricted Subsidiaries; PROVIDED that: (i) the principal
amount of such Permitted Refinancing Debt does not exceed the principal amount
of the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Debt has a final maturity date on or
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Debt has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on terms
at least as favorable taken as a whole to the Holders of the Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"PRINCIPAL" means Richard W. Weening and Lewis W. Dickey, Jr..
"RELATED PARTY" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned subsidiary, or spouse or immediate family
member (in the case of an individual) of such principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means any direct or indirect Subsidiary of the
Company that is not an Unrestricted Subsidiary.
A-35
<PAGE>
"SENIOR DEBT" means (i) Indebtedness of the Company or any Subsidiary of
the Company under or in respect of any Credit Agreement, whether for principal,
interest (including interest accruing after the filing of a petition initiating
any proceeding pursuant to any bankruptcy law, whether or not the claim for such
interest is allowed as a claim in such proceeding), reimbursement obligations,
fees, commissions, expenses, indemnities or other amounts, and (ii) any other
Indebtedness permitted under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes. Notwithstanding
anything to the contrary in the foregoing sentence, Senior Debt will not include
(w) any liability for federal, state, local or other taxes owed or owing by the
Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates or (y) any Indebtedness that is incurred in violation of the
Indenture (other than Indebtedness under (i) the Credit Facility or (ii) any
other Credit Agreement that is incurred on the basis of a representation by the
Company to the applicable lenders that it is permitted to incur such
Indebtedness under the Indenture).
"SIGNIFICANT SUBSIDIARY" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the Indenture.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock, entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company which at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary or a Person becoming a Subsidiary through merger or
consolidation or Investment therein) to be an Unrestricted Subsidiary only if
(a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien
on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; (b) all the Indebtedness of such Subsidiary shall, at the date of
designation, and will at all times thereafter, consist of Non-Recourse Debt; (c)
the Company certifies that such designation complies with the "Limitation on
Restricted Payments" covenant; (d) such Subsidiary, either alone or in the
aggregate with all other Unrestricted Subsidiaries, does not operate, directly
or indirectly, all or substantially all of the business of the Company and its
Subsidiaries; (e) such Subsidiary does not, directly or indirectly, own any
Indebtedness of or Equity Interest in, and has no Investments in, the Company or
any Restricted Subsidiary; (f) such Subsidiary is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (1) to subscribe for additional Equity Interests or (2) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (g) on the date such
Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary with terms substantially less favorable to the
Company than those that might have been obtained from Persons who are not
Affiliates of the Company. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing with the Trustee a
resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions. If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an
A-36
<PAGE>
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred as of such date. The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, that immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof and the Company could incur
at least $1.00 of additional Indebtedness (excluding Permitted Indebtedness)
pursuant to the first paragraph of the "Incurrence of Indebtedness and Issuance
of Preferred Stock" covenant on a pro forma basis taking into account such
designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one--twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned, directly or indirectly, by such Person or by one or more
Wholly Owned Restricted Subsidiaries of such Person.
A-37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of , 1998 and as adjusted to give
effect to the sale of Class A Common Stock offered pursuant to the Stock
Offering, certain information regarding beneficial ownership of the Company's
Common Stock by (i) each person who is known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of common stock, (ii) each
director, (iii) each of the Named Executive Officers and (iv) all directors and
executive officers as a group. All persons listed have sole voting and
investment power with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK
-------------------------------------------------------------------------
PRIOR TO STOCK AFTER STOCK OFFERINGS
OFFERINGS
---------------------------- SHARES BEING ----------------------------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- --------------------------------------------------- ----------- --------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
State of Wisconsin Investment Board
NationsBanc Capital Corp.
Heller Equity Capital Corporation
The Northwestern Mutual Life Insurance Company
CML Holdings, LLC
QUAESTUS Management Corporation
DBBC of Georgia, LLC
Richard W. Weening
Lewis W. Dickey, Jr.
William M. Bungeroth
Richard J. Bonick, Jr.
Robert H. Sheridan, III
Ralph B. Everett
<CAPTION>
CLASS B COMMON STOCK(1)
----------------------------------------------------------
PRIOR TO STOCK AFTER STOCK OFFERINGS
OFFERINGS
---------------------------- ----------------------------
NAME NUMBER PERCENTAGE NUMBER PERCENTAGE
- --------------------------------------------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
State of Wisconsin Investment Board
NationsBanc Capital Corp.
Heller Equity Capital Corporation
The Northwestern Mutual Life Insurance Company
CML Holdings, LLC
QUAESTUS Management Corporation
DBBC of Georgia, LLC
Richard W. Weening
Lewis W. Dickey, Jr.
William M. Bungeroth
Richard J. Bonick, Jr.
Robert H. Sheridan, III
Ralph B. Everett
</TABLE>
- ------------------------
(1) Except upon the occurrence of certain events, holders of Class B Common
Stock are not entitled to vote, whereas each share of Class A Common Stock
entitles its holders to one vote. Under certain conditions and subject to
prior governmental approval, shares of Class B Common Stock are convertible
into shares of Class A Common Stock
(2) Less than 1%.
A-38
<PAGE>
DESCRIPTION OF CREDIT FACILITY
THE CREDIT FACILITY
GENERAL. In March 1998, the Company entered into a $190.0 million senior
credit facility with Lehman Brothers Inc., as Arranger and Lehman Commercial
Paper Inc., as Lender, Syndication Agent and Administrative Agent pursuant to
which the Company has available a revolving credit line of $110.0 million until
March 2, 2006, and an eight-year term loan facility of $80.0 million. The
proceeds of the borrowings under the Credit Facility have been used to finance
acquisitions and repay the Company's outstanding indebtedness under the Old
Credit Facility, and to secure outstanding Letters of Credit issued under the
Old Credit Facility in an aggregate amount equal to approximately $10.0 million.
As of March 27, 1998 approximately $120.0 million was outstanding under the
Credit Facility. See "Use of Proceeds."
SECURITY; GUARANTEES. The Company's obligations under the Credit Facility
are secured by substantially all of its assets in which a security interest may
lawfully be granted, (including to the extent permitted by applicable law, FCC
licenses held by the Company's subsidiaries) including, without limitation,
intellectual property, real property, and all of the capital stock of the
Company's direct and indirect domestic subsidiaries and 65% of the capital stock
of any foreign subsidiaries. The obligations under the Credit Facility are also
guaranteed by each of the domestic subsidiaries of the Company and are required
to be guaranteed by any additional subsidiaries acquired by the Company.
INTEREST RATES; FEES; REPAYMENTS. Both revolving credit and term loan
borrowings under the Credit Facility bear interest, at the Company's option, at
a rate equal to the Base Rate (as defined under the terms of the Credit
Facility) plus a margin ranging between 0.50% to 1.75%, or the Eurodollar Rate
(as defined under the terms of the Credit Facility) plus a margin ranging
between 1.50% to 2.75% (in each case dependent upon the leverage ratio of the
Company). A commitment fee calculated at a rate ranging from 0.375% to 0.50% per
annum (depending upon the Company's leverage ratio) of the average daily amount
available under the revolving line of credit and the amount available under the
term loan facility is payable quarterly in arrears fees in respect of letters of
credit issued under the Credit Facility equal to the lesser of (i) the interest
rate margin then applicable to Eurodollar Rate loans and (ii) 2.50%. In
addition, a fronting fee to be agreed to by the Company and the issuing bank of
such Letter of Credit calculated at a rate not to exceed 0.0125% per annum on
the maximum payable amount of each letter of credit is payable quarterly to the
issuing bank.
The revolving credit and term loan borrowings are repayable in equal
quarterly installments beginning in 2000. The scheduled annual amortization of
the term loans is $10.0 million in each of the years 2000 through 2002, $15.0
million in each of the years 2003 through 2005, and $5.0 million at maturity.
The scheduled annual reduction in availability under the revolving credit loans
is $10.0 million in each of the years 2000 and 2001, $15.0 million in 2002,
$20.0 million in year 2003, $25.0 million in each of the years 2004 and 2005,
and $5.0 million at maturity in 2006. Certain mandatory prepayments of the term
loan facility and the revolving credit line and reductions in the availability
of the revolving credit line are required to be made including: (i) subject to
certain exceptions (including the issuance of capital stock or the incurrence of
senior subordinated indebtedness prior to September 2, 1998) 100% of the net
proceeds from any issuance of capital stock in connection with an initial public
offering or incurrence of indebtedness; (ii) 100% of the net proceeds from
certain asset sales; and (iii) between 50% and 75% (dependent on the leverage
ratio of the Company) of the excess cash flow of the Company.
COVENANTS. The terms of the Credit Facility contain operating and financial
covenants, including, without limitation, requirements to maintain minimum
ratios of cash flow to debt service and maximum ratios of total debt to cash
flow and senior debt to cash flow. In addition, the terms of the Credit Facility
A-39
<PAGE>
restrict, among other things, the ability of the Company and its subsidiaries to
incur additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources--Sources of Liquidity."
EVENTS OF DEFAULT. The terms of the Credit Facility contain events of
default after expiration of applicable grace periods, including failure to make
payments on the Credit Facility, breach of covenants, breach of representations
and warranties, invalidity of the agreement governing the Credit Facility and
related documents, cross default under other agreements or conditions relating
to indebtedness of the Company or its subsidiaries, certain events of
liquidation, moratorium, insolvency, bankruptcy or similar events, enforcement
of security, certain litigation or other proceedings, and certain events
relating to changes in control.
Upon the occurrence of an event of default under the terms of the Credit
Facility, the majority of the banks may declare all amounts under the Credit
Facility to be due and payable and take certain other actions, including
enforcement of rights in respect of the collateral. The majority of the banks
extending credit under the term loan facility and the majority of the banks
under the revolving credit line may terminate the term loan facility and the
revolving credit line, respectively.
A-40
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement dated
, 1998 (the "Underwriting Agreement") among the Company and the
Underwriters, the Underwriters named below (collectively, the "Underwriters"),
acting through their representatives, Bear, Stearns & Co. Inc. and Lehman
Brothers Inc. (the "Representatives") have agreed, severally and not jointly, to
purchase from the Company and the Company has agreed to sell to the Underwriters
the respective principal amounts of Notes set forth opposite their names below.
<TABLE>
<CAPTION>
UNDERWRITERS PRINCIPAL AMOUNT
- ------------------------------------------------------------------------------------------------ ----------------
<S> <C>
Bear, Stearns & Co. Inc......................................................................... $
Lehman Brothers Inc.............................................................................
----------------
Total........................................................................................... $
----------------
----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, and that the Underwriters are
severally committed to take and pay for $ million aggregate principal
amount of Notes if any are taken. The Company has agreed to indemnify the
Underwriters against certain liabilities in connection with the offer and sale
of the Notes, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), and to contribute to payments that the Underwriters may
be required to make in respect thereof. The closing of each Offering is
conditioned upon the closing of each of the other Offerings.
The Underwriters propose to offer all or part of the Notes directly to the
public at the public offering price set forth on the cover page hereof and all
or part to certain dealers at a price which represents concessions not to exceed
% of the principal amount of the Notes. The Underwriters may allow, and any
such dealer may reallow, concessions to certain other dealers not to exceed %
of the principal amount of the Notes. After the initial public offering, the
public offering price and such concessions may be changed.
The Notes will constitute a new class of securities with no established
trading market. The Company does not intend to list the Notes on any national
securities exchange or to seek the admission thereof to trading in the Nasdaq
National Market. The Company has been advised by the Representatives that
following the completion of the Debt Offering, the Representatives intend to
make a market in the Notes. However, they are not obligated to do so and any
market-making activities with respect to the Notes may be discontinued at any
time without notice.
In order to facilitate the Debt Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the Notes
during and after the Debt Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Notes for their own
account by selling more Notes than have been sold to them by the Company. The
Underwriters may elect to cover any such short position by purchasing Notes in
the open market. In addition, the Underwriters may stabilize or maintain the
price of the Notes by bidding for or purchasing Notes in the open market and may
impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in the Debt Offering are reclaimed
if Notes previously distributed in the Debt Offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Notes at a
level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the Notes to the
A-41
<PAGE>
extent that it discourages resales thereof. No representation is made as to the
magnitude or effect of any such stabilization or other transactions. Such
transactions, if commenced may be discontinued at any time.
Lehman Brothers Inc. and Lehman Brothers Commercial Paper Inc., an affiliate
of Lehman Brothers Inc., act as Arranger, and Syndication Agent and
Administrative Agent, respectively, in connection with the Credit Facility and
will receive any repayment by the Company of amounts outstanding under the
Credit Facility from the proceeds of the Offerings. The Representatives will act
as representatives of the underwriters in the concurrent Stock Offering and the
concurrent Preferred Stock Offering. Each of the Representatives has engaged
from time to time and may in the future engage in general financing and banking
transactions with the Company or affiliates thereof.
The Debt Offering is being made pursuant to the provisions of Section
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc. Bear, Stearns & Co. Inc. ("Bear Stearns") has agreed to act as
Qualified Independent Underwriter for the Debt Offering, and as such has assumed
responsibilities of conducting due diligence and has reviewed and participated
in the preparation of the Registration Statement. The yield on the Notes will
not be lower than that recommended by Bear Stearns.
A-42
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
consequences of the acquisition, ownership and disposition of the Notes as of
the date hereof by a person who acquires the Notes from the Initial Purchasers.
Except where noted, it deals only with Notes held as capital assets and does not
deal with special situations, such as those of dealers in securities or
currencies, tax exempt organizations, individual retirement accounts and other
tax deferred accounts, financial institutions, life insurance companies, persons
holding Notes as a part of a hedging or conversion transaction or a straddle,
persons subject to the alternative minimum tax or holders of Notes whose
"functional currency" is not the U.S. dollar. Furthermore, the discussion below
is based upon the provisions of the Internal Revenue Code of 1986, as amended,
and regulations, rulings and judicial decisions thereunder as of the date
hereof, and such authorities may be repealed, revoked or modified so as to
result in federal income tax consequences different from those discussed below.
In addition, except as otherwise indicated, the following does not consider the
effect of any applicable foreign, state, local or other tax laws or estate or
gift tax considerations. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR
DISPOSITION OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS, AS WELL
AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
As used herein, a "United States Holder" of a Note means an initial holder
that is a citizen or resident of the United States, a corporation, partnership
or other entity created or organized in or 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 taxation regardless of its source, or a trust if
(i) a U.S. court is able to exercise primary supervision over the administration
of the trust and (ii) one or more U.S. trustees or fiduciaries have the
authority to control all substantial decisions of the trust. A "Non-United
States Holder" is a holder that is not a United States Holder.
The Company does not intend to treat the Notes, the Class A Common Stock and
the Series A Preferred Stock, all of which are being offered concurrently, as an
investment unit for United States federal income tax purposes.
STATED INTEREST ON NOTES
Except as set forth below, interest on a Note will generally be taxable to a
United States Holder as ordinary income at the time it is paid or accrued in
accordance with the United States Holder's method of accounting for tax
purposes.
MARKET DISCOUNT
If a United States Holder purchases a Note for an amount that is less than
its principal amount, the amount of the difference will be treated as "market
discount" for U.S. federal income tax purposes, unless such difference is less
than a specified DE MINIMIS amount. Under the market discount rules, a United
States Holder will be required to treat any partial principal payment on, or any
gain on the sale, exchange, retirement or other disposition of, a Note as
ordinary income to the extent of the market discount which has not previously
been included in income and is treated as having accrued on such Note at the
time of such payment or disposition. In addition, the United States Holder may
be required to defer, until the maturity of the Note or its earlier disposition
in a taxable transaction, the deduction of all or a portion of the interest
expense on any indebtedness incurred or continued to purchase or carry such
Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the United
States Holder elects to accrue on a constant interest method. A United States
Holder may elect to include market discount in income currently as it accrues
(on either a ratable or constant interest method), in which case the rule
described above regarding deferral of interest deductions will not apply. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first taxable year to
which
A-43
<PAGE>
the election applies and may not be revoked without the consent of the Internal
Revenue Service (the "IRS").
AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a Note for an amount in excess of the
principal amount will be considered to have purchased the Note at a "premium." A
United States Holder generally may elect to amortize the premium over the
remaining term of the Note on a constant yield method. However, if the Note is
purchased at a time when the Note may be optionally redeemed for an amount that
is in excess of its principal amount, special rules would apply that could
result in a deferral of the amortization of bond premium until later in the term
of the Note. The amount amortized in any year will be treated as a reduction of
the United States Holder's interest income from the Note. Bond premium on a Note
held by a United States Holder that does not make such an election will decrease
the gain or increase the loss otherwise recognized on disposition of the Note.
The election to amortize premium on a constant yield method, once made, applies
to all debt obligations held or subsequently acquired by the electing United
States Holder 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.
SALE, EXCHANGE AND RETIREMENT OF NOTES
Upon the sale, exchange, redemption, retirement or other disposition of a
Note, a United States Holder generally will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange, redemption,
retirement or other disposition and such holder's adjusted tax basis of the
Note. A United States Holder's adjusted tax basis in a Note will, in general, be
the United States Holder's cost therefor, increased by market discount
previously included in income by the United States Holder and reduced by any
amortized premium previously deducted from income by the United States Holder.
Except as described above with respect to market discount or except to the
extent the gain or loss is attributable to accrued but unpaid stated interest,
such gain or loss will be capital gain or loss. Under recently enacted
legislation, an individual United States Holder generally will be subject to tax
on the net amount of his or her capital gain realized on the sale or exchange of
a Note at a maximum rate of (i) 28% for a note held for more than one year but
not more than eighteen months and (ii) 20% for a Note held for more than
eighteen months. Special rules (and generally lower maximum rates) apply for
individuals whose taxable income is below certain levels. The deductibility of
capital losses is subject to limitations.
NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(i) no United States federal withholding tax will be imposed with
respect to the payment by the Company or its paying agent of principal,
premium, if any, or interest on a Note owned by a Non-United States Holder
(the "Portfolio Interest Exception"), provided (i) that such Non-United
States Holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote within the meaning of section 871(h)(3) of the Code and the
regulations thereunder, (ii) such Non-United States Holder is not a
controlled foreign corporation that is related, directly or indirectly, to
the Company through stock ownership, (iii) such Non-United States Holder is
not a bank whose receipt of interest on a Note is described in section
881(c)(3)(A) of the Code and (iv) such Non-United States Holder satisfies
the statement requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations thereunder.
A-44
<PAGE>
(ii) no United States federal withholding tax will be imposed generally
with respect to any gain or income realized by a Non-United States Holder
upon the sale, exchange, redemption, retirement or other disposition of a
Note; and
(iii) a Note beneficially owned by an individual who at the time of
death is a Non-United States Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote within the meaning of section 871(h)(3) of the Code and provided
that the interest payments with respect to such Note would not have been, if
received at the time of such individuals death, effectively connected with
the conduct of a United States trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Company with a statement to the effect that the beneficial owner is
not a United States Holder. Pursuant to current temporary U.S. Treasury
regulations, these requirements will be met if (1) the beneficial owner provides
his name and address, and certifies, under penalties of perjury, that he is not
a United States Holder (which certification may be made on an IRS Form W-8 (or
substitute form)) or (2) a financial institution holding the Note on behalf of
the beneficial owner certifies, under penalties of perjury, that such statement
has been received by it and furnishes a paying agent with a copy thereof.
United States Treasury Regulations recently issued by the Internal Revenue
Service, which will be effective for payments made after December 31, 1999
(subject to certain transition rules), made modifications to the certification
procedure applicable to Non-United States Holders. In general, these regulations
unify certain certification procedures and forms and clarify and modify reliance
standards. A Non-United States Holder should consult its own tax advisor
regarding the effect of the new Regulations.
If a Non-United States Holder cannot satisfy the requirements of the
Portfolio Interest Exception described in (a) above, payments on a Note made to
such Non-United States Holder will be subject to a 30% withholding tax unless
the beneficial owner of the Note provides the Company or its paying agent, as
the case may be, with a properly executed (1) IRS Form 1001 (or substitute form)
claiming an exemption from or reduction of withholding under the benefit of a
tax treaty or (2) IRS Form 4224 (or substitute form) stating that interest paid
on the Note is not subject to withholding tax because is is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States. Under recently finalized Treasury regulations, for payments made
after December 31, 1999, non-United States Holders will generally be required to
provide an IRS Form W-8 in lieu of IRS Form 1001 and IRS Form 4224, although
alternative documentation may be applicable in certain situations.
If a Non-United States Holder is engaged in a trade or business in the
United States and payment on a note is effectively connected with the conduct of
such trade or business, the Non-United States Holder, although exempt from
United States federal withholding tax as discussed above, will be subject to
United States federal income tax on such payment on a net income basis in the
same manner as if it were a United States Holder. In addition, if such Holder is
a foreign corporation, it may be subject to a branch profits tax equal to 30% of
its effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such payment on a Note will be included in such
foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of a Note generally will not be subject to United States federal
income tax unless (i) such gain or income is effectively connected with a trade
or business in the United States of the Non-United States Holder or (ii) in the
case of a Non-United States Holder who is an individual, such individual is
present in the United States for 183 days or more in the taxable year of such
sale, exchange, retirement or other disposition, and certain other conditions
are met.
A-45
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments on a
Note and to the proceeds of the sale of a Note made to United States Holders
other than certain exempt recipients (such as corporations). A 31% backup
withholding tax will apply to such payments if the United States Holder fails to
provide a taxpayer identification number or certification of foreign or other
exempt status or fails to report in full dividend and interest income.
No information reporting or backup withholding will be required with respect
to payments made by the Company or any paying agent to Non-United States Holders
if a statement described in (a)(iv) under "-- Non-United States Holders" has
been received and the payor does not have actual knowledge that the beneficial
owner is a United States person.
In addition, backup withholding and information reporting will not apply if
payments on a Note are paid or collected by a foreign office of a custodian,
nominee or other foreign agent on behalf of the beneficial owner of such Note,
or if a foreign office of a broker (as defined in applicable U.S. Treasury
regulations) pays the proceeds of the sale of a Note to the owner thereof. If,
however, such nominee, custodian agent or broker is, for United States federal
income tax purposes, a United States person, a controlled foreign corporation or
a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, such
payments will be subject to information reporting (but not backup withholding),
unless (1) such custodian, nominee, agent or broker has documentary evidence in
its records that the beneficial owner is not a United States person and certain
other conditions are met or (2) the beneficial owner otherwise establishes an
exemption. Temporary U.S. Treasury regulations provide that the U.S. Treasury is
considering whether backup withholding will apply with respect to payments of
principal, premium, if any, interest or the proceeds of a sale that are subject
to backup withholding under the current regulations.
Payments on a Note paid to the beneficial owner of a Note by a United States
office of a custodian, nominee or agent, or the payment by the United States
office of a broker of the proceeds of sale of a Note, will be subject to both
backup withholding and information reporting unless the beneficial owner
provides the statement referred to in (a)(iv) above and the payor does not have
actual knowledge that the beneficial owner is a United States person or
otherwise establishes an exemption.
In October 1997, United States Treasury Regulations were issued which alter
the foregoing rules in certain respects and which generally will apply to any
payments in respect of a Note or proceeds from the sale of a Note that are made
after December 31, 1999. Among other things, such regulations expand the number
of foreign intermediaries that are potentially subject to information reporting
and address certain documentary evidence requirements relating to exemption from
the general backup withholding requirements. Holders of the Notes should consult
their tax advisors concerning the possible application of such regulations to
any payments made on or with respect to the Notes.
Any amounts withheld under the backup withholding rules will be credited
toward such Holder's United States federal income tax liability, if any. To the
extent that the amounts withheld exceed the Holder's tax liability, the excess
may be refunded to the Holder provided the required information is furnished to
the IRS. In addition to providing the necessary information, the Holder must
file a United States tax return in order to obtain a refund of the excess
withholding.
A-46
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION TO OR MAKE ANY
REPRESENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CUMULUS
MEDIA INC. OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE NOTES
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE NOTES TO ANYONE IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE
INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................
Risk Factors..............................
Use of Proceeds...........................
Capitalization............................
Unaudited Pro Forma Combined Financial
Statements..............................
Selected Historical Financial Data........
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..............................
Business..................................
Pending Acquisitions......................
Management................................
Pending Acquisitions......................
Certain Relationships and Related
Transactions............................
Principal Stockholders....................
Description of Capital Stock..............
Description of Credit Facility............
Description of Notes......................
Underwriting..............................
Certain Federal Income Tax
Considerations..........................
Legal Matters.............................
Experts...................................
Additional Information....................
Index to Financial Statements............. F-1
</TABLE>
UNTIL , 1998, 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.
$
CUMULUS MEDIA INC.
% SENIOR SUBORDINATED
NOTES DUE 2008
--------------
PROSPECTUS
--------------
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH
JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 18, 1998
PRELIMINARY PROSPECTUS
[LOGO]
$
CUMULUS MEDIA INC.
% SERIES A CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK DUE 2009
------------------
Cumulus Media Inc. is offering $ million of its % Series A
Cumulative Exchangeable Redeemable Preferred Stock due 2009 (the "Series A
Preferred Stock"), $ million of which are being offered directly by the
Company, and not through the Underwriters (as defined herein), to The
Northwestern Mutual Life Insurance Company, the sole owner of the NML Preferred
Stock (as defined herein), which had an accreted value as of May 15, 1998 of
$33,989,840, at a purchase price equal to the price to public (the "Preferred
Stock Offering"). The Company will issue shares of the Series A Preferred
Stock. Each share of Series A Preferred Stock will have a liquidation preference
of $1,000 per share. All dividends will be cumulative from the date of issuance
of the Series A Preferred Stock and will be payable quarterly in arrears on
, , and of each year commencing on , 1998. On
or before , 2003, the Company may, at its option, pay dividends in cash
or in additional fully-paid and non-assessable shares of Series A Preferred
Stock having an aggregate liquidation preference equal to the amount of such
dividends. Thereafter, dividends may be paid in cash only. It is not expected
that the Company will pay any dividends in cash for the period ending on or
prior to , 2003. On any scheduled dividend payment date, the Company may,
at its option, but subject to certain conditions, exchange all but not less than
all of the shares of the Series A Preferred Stock for the Company's %
Subordinated Exchange Debentures Due 2009 (the "Exchange Debentures").
The Company will be required, subject to certain conditions, to redeem all
of the Series A Preferred Stock or the Exchange Debentures, as the case may be,
on , 2009. Except as described below, the Company may not redeem the
Series A Preferred Stock or the Exchange Debentures prior to , 2003. On
or after such date, the Company may, at its option, redeem the Series A
Preferred Stock or the Exchange Debentures, in whole or in part, for cash, at
the redemption prices set forth herein together with, in the case of the Series
A Preferred Stock, all accumulated and unpaid dividends to the date of
redemption, or in the case of the Exchange Debentures, all accrued and unpaid
interest to the date of redemption. Prior to , 2001, the Company may
redeem up to 35% of the original aggregate liquidation preference of the Series
A Preferred Stock or the original aggregate principal amount of the Exchange
Debentures, as the case may, be with the proceeds of one or more Equity
Offerings (as defined herein) at the redemption price set forth herein. Upon the
occurrence of a Change of Control (as defined herein), the Company will be
required to make an offer to purchase the Series A Preferred Stock or the
Exchange Debentures, for cash, at a price equal to 101% of the liquidation
preference or aggregate principal amount, as the case may be, thereof, together
with, in the case of the Series A Preferred Stock, all accumulated and unpaid
dividends to the date of purchase, or in the case of the Exchange Debentures,
all accrued and unpaid interest thereon. See "Description of the Series A
Preferred Stock and Exchange Debentures."
The Exchange Debentures will be general unsecured obligations of the
Company, subordinated in right of payment to all existing and future Exchange
Debenture Senior Debt (as defined herein) of the Company, including all
borrowings of the Company under the Company's credit facility (the "Credit
Facility") and the Notes (as defined herein). On a pro forma basis after giving
effect to the Transactions (as defined herein) as if they had occurred on
December 31, 1997, the Company would have had outstanding approximately
$ million of Exchange Debenture Senior Debt that would effectively rank
senior to the Exchange Debentures. See "Description of Series A Preferred
Stock--Subordination." The Exchange Debenture Indenture (as defined herein)
permits the Company and its subsidiaries to incur additional indebtedness,
including Exchange Debenture Senior Debt, subject to certain limitations. See
"Capitalization" and "Description of the Series A Preferred Stock and Exchange
Debentures."
Concurrently with the Preferred Stock Offering, $ million of %
Senior Subordinated Notes Due 2008 (the "Notes") and shares of the
Company's Class A Common Stock (the "Class A Common Stock") are being offered to
the public by the Company (the "Debt Offering" and the "Stock Offering",
respectively, and together with the Preferred Stock Offering, the "Offerings").
Consummation of each Offering is contingent upon the consummation of each of the
other Offerings. A portion of the proceeds of the Offerings will be used to
repay the Credit Facility for which affiliates of Lehman Brothers Inc. act as
arranger and lender.
------------------------------
SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN INVESTMENT IN THE
SERIES A PREFERRED STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATIONS TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE COMPANY(1)(3)
<S> <C> <C> <C>
Per Share of Exchangeable Preferred Stock............ % % %
Total................................................ $ $ $
</TABLE>
(1) Plus accumulated dividends, if any, from the date of issuance.
(2) See "Underwriting" for indemnification arrangements with the Underwriters.
(3) Before deducting expenses of the Preferred Stock Offering, payable by the
Company, estimated at $ .
The Series A Preferred Stock is offered by Bear, Stearns & Co. Inc. and
Lehman Brothers Inc., as Underwriters (the "Underwriters"), subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify the offer and to reject orders in whole or in part. It is
expected that the Series A Preferred Stock will be available for delivery in New
York, New York, on or about , 1998 in book-entry form through the
facilities of The Depository Trust Company.
BEAR, STEARNS & CO. INC. LEHMAN BROTHERS
The date of this Prospectus is , 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES A PREFERRED
STOCK, INCLUDING OVER-ALLOTMENTS, STABILIZING BIDS AND SHORT COVERING
TRANSACTIONS AND THE IMPLEMENTATION OF PENALTY BIDS. SEE "UNDERWRITING."
B-i
<PAGE>
THE PREFERRED STOCK OFFERING
<TABLE>
<S> <C>
ISSUER....................................... Cumulus Media Inc.
SECURITIES OFFERED........................... shares of % Series A Cumulative
Exchangeable Redeemable Preferred Stock due
2009. Each share of Series A Preferred Stock
will have a liquidation preference of $1,000
per share.
MATURITY..................................... , 2009.
DIVIDEND..................................... All dividends will be cumulative from the
date of issuance of the Series A Preferred
Stock and will be payable quarterly in
arrears on , , , and
of each year, commencing on
, 1998. On or before ,
2003, the Company may, at its option, pay
dividends in cash or in additional fully paid
and non-assessable shares of Series A
Preferred Stock having an aggregate
liquidation preference equal to the amount of
such dividends. After , 2003,
dividends may be paid only in cash.
VOTING RIGHTS................................ Holders of Series A Preferred Stock will have
no voting rights with respect to general
corporate matters except as provided by law
or, in certain limited circumstances, as set
forth in the Certificate of Designation (as
defined herein). See "Description of the
Series A Preferred Stock-- Voting Rights."
MANDATORY REDEMPTION......................... The Company is required, subject to certain
conditions, to redeem all of the Series A
Preferred Stock outstanding on ,
2009 at a redemption price equal to 100% of
the liquidation preference thereof, plus,
without duplication, accumulated and unpaid
dividends to the date of redemption.
OPTIONAL REDEMPTION.......................... Except as described below, the Company may
not redeem the Series A Preferred Stock prior
to , 2003. On or after such date,
the Company may, at its option redeem the
Series A Preferred Stock, in whole or in
part, at the redemption prices set forth
herein together with accumulated and unpaid
dividends, if any, to the date of redemption.
Prior to , 2001, the Company, at
its option, may redeem up to 35% of the
liquidation preference of the Series A
Preferred Stock, with the proceeds of one or
more Equity Offerings at a redemption price
equal to % of the original aggregate
liquidation preference thereof, together with
accumulated and
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
unpaid dividends, if any, to the date of
redemption.
CHANGE OF CONTROL............................ Upon the occurrence of a Change of Control,
the Company will be required to make an offer
to purchase the Series A Preferred Stock for
cash at a purchase price of 101% of the
liquidation preference thereof, together with
all accumulated and unpaid dividends to the
date of purchase.
RANKING...................................... The Series A Preferred Stock will rank (i)
senior to all other classes of Capital Stock
of the Company established after the issue
date of the Series A Preferred Stock which do
not expressly provide that such classes rank
on a parity with the Series A Preferred Stock
as to dividends and distributions upon the
liquidation, winding up and dissolution of
the Company and (ii) subject to certain
conditions, on a parity with any class of
Capital Stock established after the date of
issuance of the Series A Preferred Stock the
terms of which expressly provide that such
class or series will rank on a parity with
the Series A Preferred Stock as to dividends
and distributions upon the liquidation,
winding up and dissolution of the Company.
Creditors of the Company will have priority
over the Series A Preferred Stock with
respect to claims on the assets of the
Company. See "Description of the Series A
Preferred Stock and Exchange
Debentures--Series A Preferred Stock--Rank."
CERTAIN COVENANTS............................ The Certificate of Designation for the
issuance of the Preferred Stock will limit:
(i) the incurrence of additional indebtedness
by the Company and its Restricted
Subsidiaries; (ii) the redemption or
repurchase of Junior Securities (as defined
herein) or Parity Securities (as defined
herein) and the payment of dividends thereon;
(iii) certain investments; (iv)
consolidations or mergers; and (v) certain
transactions with affiliates. However, all
these limitations and prohibitions are
subject to a number of important
qualifications and exceptions. See
"Description of the Series A Preferred Stock
and Exchange Debentures-- Series A Preferred
Stock--Certain Covenants."
SECURITY..................................... None.
EXCHANGE FEATURE............................. On any scheduled dividend payment date,
subject to provisions of the Company's debt
instruments, the Company may, at its option,
exchange all but not less than all of the
shares of the Series A Preferred Stock then
outstanding for the
</TABLE>
B-2
<PAGE>
<TABLE>
<S> <C>
Company's Exchange Debentures. See
"Description of the Series A Preferred Stock
and Exchange Debentures--Series A Preferred
Stock--Exchange."
THE EXCHANGE DEBENTURES
THE EXCHANGE DEBENTURES...................... % Subordinated Exchange Debentures Due 2009.
MATURITY..................................... , 2009.
INTEREST..................................... Interest on the Exchange Debentures will be
payable semi-annually in cash (or on or prior
to , 2003, in additional Exchange
Debentures, at the option of the Company) in
arrears on and of each
year, commencing with the first such date
after the Exchange Date.
OPTIONAL REDEMPTION.......................... Except as described below, the Company may
not redeem the Exchange Debentures prior to
, 2003. On or after such date, the
Company may, at its option, redeem the
Exchange Debentures, in whole or in part, at
the redemption prices set forth herein
together with accrued and unpaid interest, if
any, to the date of redemption. Prior to
, 2001, the Company may, at its
option, redeem up to 35% of the original
aggregate principal amount of the Exchange
Debentures with the proceeds of one or more
Equity Offerings at a redemption price equal
to % of the principal amount of the
Exchange Debentures to be redeemed, together
with accrued and unpaid interest, if any, to
the date of redemption.
CHANGE OF CONTROL............................ Upon the occurrence of a Change of Control,
subject to certain restrictions in the
Company's debt instruments, the Company will
be required to make an offer to repurchase
the Exchange Debentures held by such holder
at a price equal to 101% of the principal
amount thereof, together with accrued and
unpaid interest, if any, to the date of
repurchase.
RANKING...................................... The Exchange Debentures will be unsecured and
will be subordinated in right of payment to
all existing and future Exchange Debenture
Senior Debt of the Company, including the
Credit Facility and the Notes, and will be
effectively subordinated to all obligations
of the subsidiaries of the Company. The
Exchange Debentures will rank senior to all
other Exchange Debenture Subordinated Debt
(as defined herein) of the
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
Company. The indenture under which the
Exchange Debentures will be issued (the
"Exchange Debenture Indenture") permits the
Company to incur additional indebtedness,
including Exchange Debenture Senior Debt,
subject to certain limitations. See "Risk
Factors" and "Description of the Exchangeable
Preferred Stock and Exchange
Debentures--Exchange
Debentures--Subordination and Ranking."
RESTRICTIVE COVENANTS........................ The Exchange Debenture Indenture will limit:
(i) the incurrence of additional indebtedness
by the Company and its Restricted
Subsidiaries (as defined); (ii) the payment
of dividends on, and redemption of, capital
stock of the Company and its Restricted
Subsidiaries and the redemption of certain
subordinated obligations of the Company and
its Restricted Subsidiaries; (iii)
investments; (iv) sales of assets and
Restricted Subsidiary stock; (v) certain
transactions with affiliates; (vi) the sale
or issuance of capital stock of Restricted
Subsidiaries; (vii) the creation and
existence of liens; and (viii)
consolidations, mergers and transfers of all
or substantially all of the Company's assets.
The Exchange Debenture Indenture will also
prohibit certain restrictions on
distributions from Restricted Subsidiaries.
However, all of these limitations and
prohibitions are subject to a number of
important qualifications and exceptions. See
"Description of the Series A Preferred Stock
and Exchange Debentures--Exchange
Debentures--Certain Covenants."
USE OF PROCEEDS.............................. Approximately $ million of the net
proceeds of the Offerings will be used to
finance the Pending Acquisitions. The balance
of the net proceeds of the Offerings will be
used to repay the principal amount of
Indebtedness currently outstanding under the
Credit Facility for which affiliates of
Lehman Brothers Inc. act as arranger and
lender. See "Use of Proceeds" and
"Description of Credit Facility and Notes."
CONCURRENT OFFERINGS......................... Concurrently with the Preferred Stock
Offering, the Company is offering
shares of its Class A Common Stock and
$ million aggregate principal amount of
its % Senior Subordinated Notes due 2008.
Each Offering is conditioned upon
consummation of each of the other Offerings.
See "Risk Factors--Concurrent Offerings" and
"Use of Proceeds."
</TABLE>
B-4
<PAGE>
RISK FACTORS
An investment in the Series A Preferred Stock offered hereby involves a high
degree of risk. Prospective purchasers of the Series A Preferred Stock offered
hereby should carefully consider the factors set forth in "Risk Factors", as
well as the other information set forth in this Prospectus, before making an
investment in the Series A Preferred Stock.
B-5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF SERIES A PREFERRED STOCK OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE SERIES A PREFERRED STOCK OFFERED
HEREBY.
RISKS OF ACQUISITION STRATEGY
The Company intends to pursue growth through internal expansion and the
acquisition of radio broadcasting companies, radio station groups and individual
radio stations in mid-size and smaller markets. The Company cannot predict
whether it will be successful in pursuing such acquisition opportunities or what
the consequences of any such acquisitions would be. The Company is currently
evaluating certain acquisitions; however, other than as described in "Pending
Acquisitions," the Company currently has no binding commitments to acquire any
specific business or other material assets. Consummation of the Pending
Acquisitions and any subsequent acquisitions is subject to various conditions,
including FCC and other regulatory approvals including, in some cases,
expiration or termination of applicable waiting periods and possible review by
the U.S. Department of Justice ("DOJ") and the Federal Trade Commission ("FTC")
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). There can be no assurances that any of these conditions will be
satisfied. Consummation of the Pending Acquisitions and any subsequent
acquisitions will also be subject to FCC limits on the number of stations a
broadcaster may own in a given local market and other FCC rules or policies such
as the cross-interest policy, which may limit the Company's ability to acquire
stations in certain markets where one or more of the Company's shareholders has
other media interests. In addition, in two markets in which there are Pending
Acquisitions (Dubuque, IA and Grand Junction, CO), petitions or informal
objections have been filed against the Company's FCC assignment applications and
certain FCC staff questions have been raised with respect ot Pending
Acquisitions in several other markets. All such petitions, objections and FCC
staff inquiries must be resolved before FCC approval can be obtained and the
Pending Acquisitions can be consummated.
The consummation of the Offerings is not conditioned on the consummation of
any of the Pending Acquisitions. No assurances can be given that such
transactions will be consummated or that, if completed, they will be successful.
The Company's acquisition strategy involves numerous risks, including
difficulties in identifying targets and negotiating definitive purchase
agreements on satisfactory terms, 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 at acquired stations. See "Business --
Integration of Acquired Businesses." 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. In addition, there can be no
assurance that the Company will be able to acquire properties at valuations as
favorable as previous acquisitions. Depending upon the nature, size and timing
of future acquisitions, the Company may be required to raise financing in
addition to the financing necessary to consummate the Pending Acquisitions.
There can be no assurance that the Credit Facility, the Indenture (as defined
herein), the Certificate of Designation or the Exchange Debenture Indenture or
any other agreements to which the Company may become a party will permit such
additional financing or that such additional financing will be available to the
Company or, if available, that such financing would be on terms acceptable to
its management. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
LIMITED OPERATING HISTORY
The Company began operations in May 1997 and, consequently, has a limited
operating history and limited historical financial information upon which
investors may base their evaluation of the Company's performance.
MANAGEMENT OF RAPID GROWTH
The Company has grown very rapidly, through acquisitions, which will place
significant demands on its administrative, operational and financial resources.
Although the Company has been successful to date in
B-6
<PAGE>
completing the integration of many new properties, future performance and
profitability, if any, will depend in part on the Company's continued ability to
integrate successfully the operations and systems of acquired radio stations and
radio groups, to hire additional personnel, and to implement necessary
enhancements to its management systems to respond to changes in its business.
NET LOSS
The Company had a net loss attributable to common stockholders of
approximately $6.2 million for the three months ended March 31, 1998 and $3.9
million for the period from inception on May 22, 1997 to December 31, 1997, and
additional losses can be expected to continue while the Company pursues its
strategy of acquiring and developing radio stations. Pro forma for the
Transactions, net loss attributable to common stockholders was approximately
$12.9 million for the three months ending March 31, 1998 and $35.6 million for
the year ended December 31, 1997. The Company expects to generate net income on
a historical basis for the year ending December 31, 1999. However, there can be
no assurance that the Company will be profitable in the future.
SIGNIFICANT CAPITAL REQUIREMENTS
If consummated, the Pending Acquisitions and other acquisitions for which
the Company has entered into letters of intent will require substantial capital.
The Company estimates that it will have significant capital requirements for the
remainder of 1998, including approximately $250.5 million for the consummation
of the Pending Acquisitions. The Company expects that the net proceeds from the
Offerings, together with internally generated cash flows and borrowings under
the Credit Facility, will provide sufficient funds for the Company to complete
the Pending Acquisitions. The amount of the Company's future capital
requirements will depend upon many factors, however, including the volume of
future acquisitions, as well as regulatory, technological and competitive
developments in the radio broadcasting industry, and may differ materially from
the Company's current estimates.
CONCURRENT OFFERINGS
The Company is currently offering the Series A Preferred Stock, the Notes
and the Class A Common Stock pursuant to the Offerings. Consummation of each
Offering is contingent upon consummation of each other Offering and there can be
no assurance that the Offerings will be consummated and, if so, on what terms.
SUBSTANTIAL LEVERAGE
After giving effect to the Transactions, the Company will have consolidated
Indebtedness that is substantial in relation to its cash flow and stockholders'
equity. As of March 31, 1998, on a pro forma basis after giving effect to the
Transactions, the Company would have had outstanding, on a consolidated basis,
long-term Indebtedness (including current portion) of approximately $192.0
million, preferred stock subject to mandatory redemption of approximately $125.0
million and stockholders' equity of approximately $144.2 million. See
"Capitalization." The Credit Facility, the Indenture, the Certificate of
Designation and the Exchange Debenture Indenture limit the incurrence of
additional Indebtedness by the Company and its subsidiaries, in each case
subject to certain significant exceptions.
The level of the Company's Indebtedness could have several important
consequences to the holders of the Series A Preferred Stock, including, but not
limited to, the following: (i) a substantial portion of the Company's cash flow
from operations will be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions and general corporate or
other purposes may be impaired in the future; (iii) certain of the Company's
borrowings will be at variable rates of interest (including any borrowings under
the Credit Facility), which will expose the Company to the risk of increased
interest rates; (iv) the Company's leveraged position and the covenants
contained in the Credit Facility, the Indenture, the Certificate of Designation
and the Exchange Debenture Indenture could limit the Company's ability to
compete, expand and make capital improvements; (v) the Company's level of
Indebtedness could make it more vulnerable to economic downturns, limit its
ability to withstand competitive pressures and reduce its flexibility in
B-7
<PAGE>
responding to changing business and economic conditions; and (vi) certain
restrictive covenants contained in the Credit Facility, the Indenture, the
Certificate of Designation and the Exchange Debenture Indenture limit the
ability of Cumulus to pay dividends and make other distributions to its
stockholders.
ABILITY TO SERVICE DEBT OBLIGATIONS
The Company's ability to satisfy its debt service obligations, including the
Exchange Debentures, and pay dividends on the Series A Preferred Stock will
depend upon its future financial and operating performance, which, in turn, is
subject to prevailing economic conditions and financial, business, competitive,
legislative and regulatory 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, expansion and capital expenditures, sell assets, obtain additional
equity capital or restructure its debt. There can be no assurance that the
Company's operating results, cash flow and capital resources will be sufficient
for payment of its debt service and other obligations in the future. In the
absence of such operating results and resources, the Company could face
substantial liquidity problems and might be required to sell material assets or
operations to meet its debt service and other obligations, and there can be no
assurance as to the timing of such sales or the proceeds that the Company could
realize therefrom or that such sales could be effected on terms satisfactory to
the Company or at all. As a result of the net loss attributable to common
stockholders, earnings were insufficient to cover fixed charges and preferred
stock dividend requirements by $3,785 and $3,493 for the period from inception
on May 22, 1997 to December 31, 1997 and for the three months ended March 31,
1998. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS AND PREFERRED STOCK
The Credit Facility, the Indenture, the Certificate of Designation and the
Exchange Debenture Indenture contain certain covenants that restrict, among
other things, the ability of the Company and its subsidiaries to incur
additional Indebtedness, pay dividends or make certain other restricted
payments, enter into certain transactions with affiliates, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. In addition,
the Credit Facility, the Indenture and the Exchange Debenture Indenture also
restrict the ability of the Company to incur liens or to consummate certain
asset sales. The Credit Facility also requires the Company to maintain specified
financial ratios and to satisfy certain financial condition tests. The Company's
ability to meet those financial ratios and financial condition tests can be
affected by events beyond its control, and there can be no assurance that the
Company will meet those tests. A breach of any of these covenants could result
in a default under the Credit Facility, the Indenture, the Certificate of
Designation and/or the Exchange Debenture Indenture. Upon the occurrence of an
event of 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. If Cumulus were unable to repay those
amounts, the lenders under the Credit Facility could proceed against the
collateral granted to them to secure that Indebtedness. If the Indebtedness
under the Credit Facility were to be accelerated, there can be no assurance that
the assets of Cumulus would be sufficient to repay in full such Indebtedness and
the other Indebtedness of the Company, including the Exchange Debentures. The
ability of the Company to comply with the restrictions and covenants in the
Credit Facility, the Indenture, the Certificate of Designation and the Exchange
Debenture Indenture will be dependent upon the Company's future performance and
various other factors, such as legislative, business and regulatory factors,
certain of which are beyond its control. If the Company fails to comply with the
restrictions and covenants in the Credit Facility, the Indenture, the
Certificate of Designation or the Exchange Debenture Indenture, the Company's
obligation to repay the Notes, the Exchange Debentures and its Indebtedness
under the Credit Facility may be accelerated.
B-8
<PAGE>
REDEMPTION OF SERIES A PREFERRED STOCK UPON CHANGE OF CONTROL
Upon a Change of Control, the Company may be required to offer to purchase
all of the outstanding shares of the Series A Preferred Stock or the Exchange
Debentures at 101% of the principal amount or liquidation preference thereof, as
the case may be, plus accrued and unpaid dividends or interest to the date of
purchase. The source of funds for any such purchase would be the Company's
available cash or cash generated from other sources. However, there can be no
assurance that sufficient funds would be available at the time of any Change of
Control to make any required purchases of Series A Preferred Stock tendered or,
if applicable, that restrictions in the Credit Facility or the Indenture would
permit the Company to make such required purchases. The Credit Facility and the
Indenture will require that the Company repay all amounts outstanding under the
Credit Facility and the Notes prior to making any payments on the Series A
Preferred Stock upon a Change of Control. The Certificate of Designation may not
afford holders of Series A Preferred Stock the right to require the Company to
repurchase the Series A Preferred Stock in the event of certain transactions,
such as a highly leveraged transaction, that may adversely affect holders of
Series A Preferred Stock if such transaction is not a transaction defined as a
Change of Control. Certain events involving a Change of Control may result in an
event of default under the Credit Facility or the Indenture or other
Indebtedness of the Company that may be incurred in the future. The Company's
failure to purchase tendered Series A Preferred Stock would constitute an Event
of Default under the Indenture and the Credit Facility, which could have adverse
consequences for the Company and the holders of the Series A Preferred Stock.
The definition of "Change of Control" includes a sale, lease, conveyance or
other disposition of "all or substantially all" of the assets of the Company and
its Subsidiaries taken as a whole to a person or group of persons. There is
little case law interpreting the phrase "all or substantially all" in the
context of an indenture. Because there is no precise established definition of
this phrase, the ability of a holder of the Series A Preferred Stock to require
the Company to repurchase such Series A Preferred Stock as a result of a sale,
lease, conveyance or transfer of all or substantially all of the Company's
assets to a person or group of persons may be uncertain. See "Description of
Capital Stock -- Description of the Series A Preferred Stock -- Repurchase at
the Option of Holders."
SUBORDINATION OF THE EXCHANGE DEBENTURES
The Exchange Debentures will be subordinated in right of payment to all
Exchange Debenture Senior Debt of the Company. In the event of bankruptcy,
liquidation or reorganization of the Company, the assets of the Company will be
available to pay obligations on the Exchange Debentures only after all Exchange
Debenture Senior Debt has been paid in full and there may not be sufficient
assets remaining to pay amounts due on any or all of the Exchange Debentures
then outstanding. In addition, Indebtedness outstanding under the Credit
Facility is secured by substantially all of the assets of the Company and its
subsidiaries in which a security interest may lawfully be granted. Additional
Exchange Debenture Senior Debt may be incurred by the Company from time to time
subject to certain restrictions contained in the Credit Facility and the
Indenture.
TAX CONSEQUENCES OF DISTRIBUTIONS WITH RESPECT TO THE SERIES A PREFERRED STOCK
AND EXCHANGE DEBENTURES; POTENTIAL FOR UNPLANNED DEEMED DIVIDEND INCOME AND
ORIGINAL ISSUE DISCOUNT
If the redemption price of the Series A Preferred Stock exceeds its issue
price by more than a DE MINIMIS (or negligible) amount, such excess may be
treated as a constructive distribution with respect to the Series A Preferred
Stock of additional stock over the term of the Series A Preferred Stock using a
constant interest rate method similar to that used for accruing original issue
discount. In addition, because the issue price of the Series A Preferred Stock
distribution in lieu of payment of cash dividends (the "Dividend Shares") will
be equal to the fair market value of the Series A Preferred Stock at the time of
distribution, it is possible depending on its fair market value at the time,
that such Dividend Shares will be issued with a redemption premium large enough
to be considered a dividend as described above. In such event, holders would be
required to include such premium in income as a distribution over some period in
B-9
<PAGE>
advance of receiving the cash attributable to such income, and such Series A
Preferred Stock might trade separately, which might adversely affect the
liquidity of the Series A Preferred Stock.
The Company may, at its option and under certain circumstances, issue
Exchange Debentures in exchange for the Series A Preferred Stock. Any such
exchange will be a taxable event to holders of the Series A Preferred Stock.
Furthermore, the Exchange Debentures may in certain circumstances be treated as
having been issued with original issue discount for U.S. federal income tax
purposes. In such event, holders of Exchange Debentures will be required to
include such original issue discount (as ordinary income) in income over the
life of the Exchange Debentures, in advance of the receipt of cash attributable
to such income.
HOLDING COMPANY STRUCTURE-; DEPENDENCE UPON OPERATIONS OF SUBSIDIARIES
The Company conducts its business through its subsidiaries and has no
operations of its own. Consequently, the Company will be dependent upon the cash
flow of such subsidiaries and distributions thereof from such subsidiaries to
the Company in order to pay the liquidation preference of and dividends when due
on the Series A Preferred Stock and interest and principal when due to holders
of the Exchange Debentures. The Company's subsidiaries will have no obligation,
contingent or otherwise, to make any funds available to the Company for payment
of the aggregate liquidation preference and dividends on the Series A Preferred
Stock or interest or principal on the Exchange Debentures. Under the Indenture,
the Credit Facility, the Certificate of Designation and the Exchange Debenture
Indenture, the Company's subsidiaries will be restricted in their ability to
incur debt in the future.
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the obligation
of, or liens securing, the Exchange Debentures in favor of other existing or
future creditors of the Company.
Under applicable provisions of Federal bankruptcy law or comparable
provisions of state fraudulent transfer laws and state corporation law statutes,
if, among other things, the Company, at the time it incurred the Indebtedness
evidenced by the Exchange Debentures, (i)(a) was or is insolvent or rendered
insolvent by reason of such occurrence or (b) was or is engaged or about to
become engaged in a business or transaction for which the assets remaining with
the Company constituted unreasonably small capital or (c) intended or intends to
incur, or believed or believes that it would incur, debts beyond its ability to
pay such debts as they mature or (d) was a defendant in an action for money
damages or had a judgment for money damages docketed against it (if, in either
case, after final judgment, the judgment is unsatisfied), and (ii) the Company
received or receives less than reasonably equivalent value or fair consideration
for the incurrence of the Indebtedness evidenced by the Exchange Debentures, any
pledge or other security interest securing such Indebtedness could be voided, or
claims in respect of the Exchange Debentures or the other security interest
securing such Indebtedness could be voided, or claims in respect of the Exchange
Debentures could be subordinated to all other debts of the Company. The voiding
or subordination of any of such pledges or other security interests or of any of
such Indebtedness could result in acceleration thereof. In addition, the payment
of interest and principal by the Company pursuant to the Exchange Debentures
could be voided and required to be returned to the person making such payment,
or to a fund for the benefit of the creditors of the Company.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company would be considered insolvent if (i)
the sum of its debts, including contingent liabilities, was greater than the
fair saleable value of all of its assets at a fair valuation or if the present
fair saleable value of its assets was less than the amount that would be
required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature or (ii) it could not
pay its debts as they become due.
On the basis of the pro forma financial information included in this
Prospectus and other factors, the Company believes that after giving effect to
the Indebtedness being incurred in connection with the Notes,
B-10
<PAGE>
the Company will be solvent and will continue to be solvent after issuing the
Exchange Debentures, will have sufficient capital for carrying on its business
after such issuance and will be able to pay its debts as they mature. There can
be no assurance, however, as to what standard a court would apply in making such
determinations.
ABSENCE OF PUBLIC MARKET FOR THE SERIES A PREFERRED STOCK
The Series A Preferred Stock will be new securities for which there
currently is no established trading market. The Company does not intend to apply
for listing of the Series A Preferred Stock on any national securities exchange
or for quotation of the Series A Preferred Stock on any automated dealer
quotation system. Although the Underwriters have informed the Company that they
currently intend to make a market in the Series A Preferred Stock and, if
issued, the Exchange Debentures, the Underwriters are not obligated to do so,
and any such market making may be discontinued at any time without notice. The
liquidity of any market for the Series A Preferred Stock and, if issued, the
Exchange Debentures will depend upon the number of holders of the Series A
Preferred Stock, the interest of securities dealers in making a market in the
Series A Preferred Stock and, if issued, the Exchange Debentures and other
factors. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Series A Preferred Stock and, if issued, the
Exchange Debentures. If an active trading market for the Series A Preferred
Stock and, if issued, the Exchange Debentures does not develop, the market price
and liquidity of the Series A Preferred Stock and, if issued, the Exchange
Debentures may be adversely affected. If the Series A Preferred Stock are
traded, they may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities, the
performance of the Company and certain other factors. The liquidity of, and
trading markets for, the Series A Preferred Stock and, if issued, the Exchange
Debentures may also be adversely affected by general declines in the market for
non-investment grade debt. Such declines may adversely affect the liquidity of,
and trading markets for, the Series A Preferred Stock, independent of the
financial performance of or prospects for the Company.
BUSINESS RISKS
Future operations of the Company are subject to many variables which could
have a material adverse effect upon the Company's financial performance. These
variables include economic conditions, both generally and relative to the radio
broadcasting industry; shifts in population and other demographics; shifts in
audience tastes; the level of competition for advertising dollars with other
radio stations, television stations and other entertainment and communications
media; fluctuations in operating costs; technological changes and innovations;
changes in labor conditions; and changes in laws and governmental regulations
and policies and actions of federal regulatory bodies, including the DOJ, the
FTC and the FCC. Although the Company believes that substantially all of its
radio stations, now owned or to be acquired upon completion of the Pending
Acquisitions, are positioned to compete effectively in their respective markets,
there can be no assurance that any such station will be able to maintain or
increase its current audience ratings and advertising revenues. See "Business --
Competition." Radio broadcasting is also subject to competition from new media
technologies that are being developed or introduced, such as the delivery of
audio programming by cable television systems and the introduction of digital
audio broadcasting ("DAB"). DAB may deliver by satellite to nationwide and
regional audiences multi-channel, multi-format digital radio services with sound
quality equivalent to compact discs and may sell advertising. The Company cannot
predict the effect, if any, that any such new technologies may have on the radio
broadcasting industry or the Company. See "Business -- Competition."
COMPETITION
Radio broadcasting is a highly competitive business. The Company's radio
stations, now owned or to be acquired upon completion of the Pending
Acquisitions, compete for audiences and advertising revenues within their
respective markets directly with other radio stations, as well as with other
media, such as newspapers, magazines, cable and broadcast television, outdoor
advertising and direct mail. In addition, certain of the Company's stations
compete, and in the future other of the Company's stations may compete, with
groups of two or more stations operated by a single operator. Audience ratings
and market
B-11
<PAGE>
shares are subject to change, and any adverse change in a particular market
could have a material adverse effect on the revenue of stations located in that
market. While the Company already competes with other stations with comparable
programming formats in many of its markets, if another radio station in the
market were to convert its programming format to a format similar to one of the
Company's stations, or launch aggressive promotional campaigns, or if a new
station were to adopt a competitive format, or if an existing competitor were to
strengthen its operations, the Company's stations could suffer a reduction in
ratings and/or advertising revenue and could require increased promotional and
other expenses, and consequently would have a lower Broadcast Cash Flow (as
defined under "Certain Definitions and Market and Industry Data"). The
Telecommunications Act of 1996 (the "Telecom Act") facilitates the consolidation
of ownership of other radio broadcasting stations in the markets in which the
Company operates or may operate in the future. Some of such competing in-market
consolidated owners may be larger and have substantially more financial and
other resources than the Company. In addition, increased consolidation in
mid-size and smaller markets may result in greater competition for acquisition
properties and a corresponding increase in purchase prices for such properties
paid by the Company. See "Business-- Competition."
GOVERNMENTAL REGULATION OF BROADCASTING INDUSTRY
The broadcasting industry is subject to extensive and changing federal
regulation that, among other things, requires approval by the FCC for the
issuance, renewal, modification, transfer of control, or assignment of
broadcasting station operating licenses, limits the number of broadcasting
properties that the Company may acquire in any market, and regulates certain
operating practices of radio stations. Additionally, the Communications Act of
1934, as amended (the "Communications Act") and FCC rules impose limitations on
alien ownership and voting of the capital stock of the Company. The Telecom Act
creates significant new opportunities for broadcasting companies but also
creates uncertainties as to how the FCC and the courts will enforce and
interpret the Telecom Act.
The number of radio stations the Company may acquire or operate pursuant to
an LMA in any market, overall and in each service (i.e., AM or FM), is limited
by the Telecom Act and FCC rules and may vary depending upon whether the
interests in other radio stations or certain other media properties of certain
individuals or entities affiliated with the Company are attributable to those
individuals or entities under FCC rules. 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 5% or greater voting stockholders are generally attributable to
the Company. Certain of the Company's officers and directors, and at least one
stockholder of the Company, have attributable broadcast interests outside of
their involvement with the Company, which will limit the number of radio
stations that the Company may acquire or own in any market in which such
officers or directors (or stockholders) hold or acquire such outside
attributable broadcast interests. 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
interest in another media outlet in the same market, thereby prohibiting a
particular acquisition by the Company. The markets in which the Company may be
subject to restricitons on ownership include Atlanta, GA, Nashville, TN and
Rochester, MN.
The Company's business will be dependent upon maintaining its broadcasting
licenses issued by the FCC, which are ordinarily issued for a maximum term of
eight years. Although it is rare for the FCC to deny a license renewal
application, there can be no assurance that the future renewal applications of
the Company will be approved or that such renewals will not include conditions
or qualifications that could adversely affect the Company. Moreover,
governmental regulations and policies may change over time and there can be no
assurance that such changes would not have a material adverse impact upon the
Company. See "Business -- Federal Regulation of Radio Broadcasting."
REGULATORY APPROVALS
The consummation of radio broadcasting acquisitions requires prior approval
of the FCC with respect to the transfer of control or assignment of the
broadcast licenses of the acquired stations. Certain of the
B-12
<PAGE>
Pending Acquisitions have not yet received FCC approval. Pending Acquisitions in
two markets are being challenged before the FCC by competitors. The FCC staff
has also stated that it is currently reevaluating its policies and procedures
relating to local radio market concentration, even where proposed assignments
would comply with the FCC's multiple-ownership rules. The FCC has issued a
Notice of Inquiry which, among other things, seeks public comment on these
issues. FCC approval of a number of pending radio station acquisitions by
various parties has been delayed while this policy review is taking place. The
FCC staff has informed the Company that it has delayed action on several of its
applications on this basis, including pending applications to acquire stations
in Augusta-Waterville, Maine and one additional station in the Toledo, Ohio
market. There can be no assurance that the FCC will not prohibit or require the
restructuring of future acquisitions by the Company (including the Pending
Acquisitions) as a result of this policy review. In addition, the FCC staff has
requested additional information relating to whether the Company's Pending
Acquisitions in one market would comply with the FCC's cross-interest policy.
There can be no assurance that the FCC will approve future acquisitions by the
Company (including the Pending Acquisitions).
The consummation of certain of the Pending Acquisitions is also subject to
applicable waiting periods and possible review by the DOJ or the FTC under the
HSR Act, and acquisitions that are not required to be reported under the HSR Act
may still be investigated by the FTC or the DOJ under the antitrust laws before
or after consummation. The DOJ has been active in reviewing radio broadcasting
acquisitions and has challenged a number of such transactions, some of which
have resulted in consent decrees requiring divestitures of certain stations,
terminations of LMAs and other relief. In general, the DOJ has more closely
scrutinized radio mergers and acquisitions that result in local market shares in
excess of 35% of radio advertising revenues, depending on format, signal
strength and other factors, although there is no hard-and-fast numerical rule
and certain transactions resulting in more than 35% market share have not been
challenged. The DOJ can be expected to continue to enforce the antitrust laws in
this manner, and there can be no assurance that one or more of the Pending
Acquisitions will not be the subject of an investigation or enforcement action
by the DOJ or the FTC. If the DOJ or the FTC investigates or challenges one or
more of the Pending Acquisitions or any subsequent acquisitions, the Company may
need to restructure such transactions or divest other existing stations in a
particular market. The Company is aware that the DOJ has opened an investigation
with respect to the Company's Pending Acquisition in two markets which
potentially affect the acquisition of up to an additional nine stations in the
aggregate. However, the Company believes that its operating and sales practices
and demand-driven pricing policies serve to expand advertising volume and
increase competition in a market while providing more choice to advertisers and
to listeners.
POTENTIAL CONFLICTS OF INTEREST
Mr. Weening and Mr. Dickey each have direct interests in entities that have
entered into service agreements with the Company. These interests may give rise
to certain conflicts of interest with respect to transactions between these
entities and the Company.
TRANSACTIONS WITH AFFILIATES
QUSTUS, an entity controlled by Mr. Weening, and Stratford Research, an
entity controlled by Mr. Dickey, have acted as the Company's financial and
strategic advisor and market research and programming advisor, respectively,
since the Company's inception. New advisory agreements between each of QUSTUS
and Stratford Research and the Company will be entered into immediately prior to
the consummation of the Offerings. See "Certain Relationships and Related
Transactions."
EFFECTS OF ECONOMIC RECESSION
The Company derives substantially all of its revenue from the sale of
advertising time on its radio stations. The Company's broadcasting revenue could
be adversely affected by a future national recession, although in the most
recent national recession, in 1991, radio revenues in small radio markets ranked
below 100 were impacted less severely on average than those in the larger
markets. In addition, because a
B-13
<PAGE>
substantial portion of the Company's revenue is derived from local advertisers,
the Company's ability to generate advertising revenue in specific markets could
be adversely affected by local or regional economic downturns. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Advertising Sales."
YEAR 2000 RISK
The Company has implemented a Year 2000 program to ensure that the Company's
computer systems and applications will function properly beyond 1999. The
Company believes that it has allocated adequate resources for this purpose and
expects its Year 2000 date conversion program to be successfully completed on a
timely basis. There can, however, be no assurance that this will be the case.
The Company does not expect to incur significant expenditures to address this
issue. The ability of third parties with whom the Company transacts business to
adequately address their Year 2000 issues is outside of the Company's control.
There can be no assurance that the failure of the Company or such third parties
to adequately address their respective Year 2000 issues will not have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations.
RELIANCE ON KEY PERSONNEL
The Company's business is managed by a small number of key management and
operating personnel, the loss of certain of whom could have a material adverse
effect on the Company. The Company believes that its future success will depend
in large part on its ability to attract and retain highly skilled and qualified
personnel and to expand, train and manage its employee base. The Company has
entered into employment agreements with Messrs. Weening, Dickey, Bungeroth and
Bonick which include provisions restricting the ability of Messrs. Weening,
Dickey, Bungeroth and Bonick to compete against the Company in certain
circumstances. The Company intends to arrange for "key-man" insurance on the
lives of Messrs. Weening, Dickey and Bungeroth. See "Management -- Employment
Agreements."
The Company also employs several on-air personalities with large loyal
audiences in their respective markets. 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, taken as a whole.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Preferred Stock Offering, the Company will have
outstanding shares of Series A Preferred Stock. Of these shares, the
shares of Series A Preferred Stock offered hereby will be freely
transferable without restriction (subject to any FCC consent that might be
required) under the Securities Act of 1933, as amended (the "Securities Act") or
further registration under the Securities Act, except that shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 promulgated
under the Securities Act ("Rule 144"), may generally only be sold subject to
certain restrictions as to timing, manner and volume.
Future sales of substantial amounts of Preferred Stock, or the perception
that such sales could occur, may affect the market price of the Preferred Stock
prevailing from time to time. See "Shares Eligible for Future Sale" and
"Underwriting."
DIVIDEND POLICY
The Company does not anticipate paying any dividends except for the payment
of scheduled dividends on the Series A Preferred Stock. The Company has never
declared or paid any cash dividends on its capital stock and does not anticipate
paying cash dividends on the Series A Preferred Stock prior to ,
2003. In addition, the Indenture, the Credit Facility, the Certificate of
Designation and the Exchange Debenture Indenture will restrict the ability of
the Company to pay dividends. See "Dividend Policy."
B-14
<PAGE>
DESCRIPTION OF THE SERIES A PREFERRED STOCK
AND EXCHANGE DEBENTURES
SERIES A PREFERRED STOCK
The Series A Preferred Stock will be issued by the Company pursuant to a
Statement of Resolutions Fixing Terms relating to the Series A Preferred Stock
(the "Certificate of Designation"). The summary contained herein of certain
provisions of the Series A Preferred Stock does not purport to be complete and
is qualified in its entirety by reference to the provisions of the Certificate
of Designation. Definitions of certain capitalized terms used in the Certificate
of Designation and in the following summary are set forth below under
"--Exchange Debentures--Certain Definitions." Notwithstanding the foregoing,
with respect to terms used in the Certificate of Designation (i) the words
"Voting Rights Triggering Event" shall be substituted for the words "Default or
Event of Default" when used in the definition of "Unrestricted Subsidiary", (ii)
references to "Asset Sales" in the definition of "Disqualified Capital Stock"
and "Permitted Investments" shall be deleted, (iii) the words "asset sale" shall
be substituted for the defined term "Asset Sale" in the definition of " Net
Income" and (iv) the words "Issue Date" shall be substituted for the words "the
date on which the Exchange Debentures are first issued" in the definitions of
"Consolidated Net Worth", "Credit Agreements" and "Leverage Ratio."
GENERAL
The Board of Directors of the Company intends to adopt resolutions creating
a maximum of shares of Series A Preferred Stock, which consist of the
shares of Series A Preferred Stock to be issued in the Preferred Stock Offering
plus additional shares of Series A Preferred Stock which, among other
things, may be used to pay certain dividends on the Series A Preferred Stock
issued in the Preferred Stock Offering at the election of the Company. The
Company will file a Statement of Resolutions Fixing Terms with respect thereto
with the Secretary of State of the State of Illinois as required by Illinois
law. Subject to certain conditions, the Series A Preferred Stock will be
exchangeable for Exchange Debentures at the option of the Company on any
dividend payment date. The Series A Preferred Stock, when issued and paid for by
the Underwriters in accordance with the terms of the Underwriting Agreement (as
defined under "Underwriting"), will be fully paid and non-assessable, and the
holders thereof will not have any subscription or preemptive rights related
thereto. will be the transfer agent and registrar for the
Series A Preferred Stock.
RANK
The Series A Preferred Stock will, with respect to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of the
Company, rank (i) senior to all other classes of Capital Stock of the Company
established after the date of the Issue Date by the Board of Directors of the
Company the terms of which do not expressly provide that it ranks on a parity
with the Series A Preferred Stock as to dividend distributions and distributions
upon the liquidation, winding-up and dissolution of the Company (collectively
referred to with the Common Stock of the Company as "Junior Securities"); and
(ii) subject to certain conditions, on a parity with each series of preferred
stock existing on the date of the Prospectus the terms of which do not expressly
provide that it ranks junior to any preferred stock as to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of the
Company, and any class of Capital Stock established after the Issue Date 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 Series A Preferred Stock as
to dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to as "Parity Securities").
Creditors of the Company will have priority over the Series A Preferred Stock
with respect to claims on the assets of the Company. In addition, creditors and
stockholders of the Company's Subsidiaries will have priority over the Series A
Preferred Stock with respect to claims on the assets of such Subsidiaries. The
Series A Preferred Stock will be subject to the issuance of new classes of
Junior Securities and Parity Securities, PROVIDED that the Company may not issue
B-15
<PAGE>
any new class of Parity Securities without the approval of the holders of at
least 50% of the shares of Series A Preferred Stock then outstanding, voting or
consenting, as the case may be, separately as one class, except that without the
approval of the holders of Series A Preferred Stock, the Company may issue and
have outstanding shares of Parity Securities issued from time to time in
exchange for, or the proceeds of which are used to redeem or repurchase, any or
all of the shares of Series A Preferred Stock or other Parity Securities.
DIVIDENDS
Series A Preferred Stock Holders 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 Series A Preferred Stock at a rate per
annum equal to % of the liquidation preference per share of the Series A
Preferred Stock. All dividends will be cumulative whether or not earned or
declared on a daily basis from the Issue Date and will be payable quarterly in
arrears on , , and of each year,
commencing on , 1998. On or before , 2003 the Company may,
at its option, pay dividends in cash or in additional fully paid and
non-assessable shares of Series A Preferred Stock having an aggregate
liquidation preference equal to the amount of such dividends. After ,
2003, dividends may be paid only in cash. It is not expected that the Company
will pay any dividends in cash for any period ending on or prior to ,
2003. The terms of certain debt instruments of the Company, including the Credit
Facility and the Notes, restrict the payment of cash dividends by the Company,
and future agreements may provide the same. See "Risk Factors--Substantial
Leverage," "Risk Factors--Restrictions Imposed by Terms of Indebtedness and
Preferred Stock," and "Description of Credit Facility and Notes."
No full dividends may be declared or paid or funds set apart for the payment
of dividends on any Parity Securities for any period unless full cumulative
dividends shall have been or contemporaneously are 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 Series A Preferred Stock. If full dividends are
not so paid, the Series A Preferred Stock will share dividends pro rata with the
Parity Securities. No dividends may be paid or set apart for such payment on
Junior Securities (except dividends on Junior Securities in additional shares of
Junior Securities) and no Junior Securities or Parity Securities 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 on
the Series A Preferred Stock.
OPTIONAL REDEMPTION
The Series A Preferred Stock may be redeemed for cash (subject to
contractual and other restrictions with respect thereto, the Business
Corporation Act of Illinois and to the legal availability of funds therefor) at
any time on or after , 2003, in whole or in part, at the option of the
Company, at the following redemption prices (expressed as percentages of the
liquidation preference thereof) if redeemed during the 12-month period beginning
on of each of the years set forth below, in each case together with an
amount in cash equal to all accumulated and unpaid dividends (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):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------- -------------
<S> <C>
2003.................................................................................. %
2004.................................................................................. %
2005.................................................................................. %
2006.................................................................................. %
2007 and thereafter................................................................... 100%
</TABLE>
B-16
<PAGE>
Prior to , 2001, the Company may, at its option, on any one or
more occasions, redeem up to 35% of the original aggregate liquidation
preference of the Series A Preferred Stock, in whole or in part, at the option
of the Company, at a redemption price equal to % of the liquidation
preference thereof, plus an amount in cash equal to all accumulated and unpaid
dividends thereon (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), with the proceeds of one or more Equity Offerings
(as defined below); PROVIDED that at least 65% of the original aggregate
liquidation preference of the Series A Preferred Stock remains outstanding
immediately after the occurrence of such redemption; and PROVIDED FURTHER that
such redemption shall occur within 90 days of the date of the closing of such
Equity Offering.
As used in the preceding paragraph, "Equity Offering" means any public or
private sale of the common stock of the Company pursuant to which the Company
receives net proceeds of at least $25.0 million, other than issuances of common
stock of the Company pursuant to employee benefit plans or as compensation to
employees.
No optional redemption may be authorized or made (i) unless prior thereto or
contemporaneously therewith full unpaid cumulative dividends shall have been
paid or a sum set apart for such payment on the Series A Preferred Stock or (ii)
at less than 101% of the liquidation preference of the Series A Preferred Stock
at any time when the Company is making an offer to purchase shares of Series A
Preferred Stock under a Change of Control Offer (as defined) in accordance with
the provisions of "--Repurchase at the Option of Series A Preferred Stock
Holders--Change of Control."
In the event of partial redemptions of Series A Preferred Stock, the shares
to be redeemed will be determined PRO RATA or by lot, as determined by the
Company, except that the Company may redeem such shares held by any holders of
fewer than 100 shares (or shares held by holders who would hold less than 100
shares as a result of such redemption), without regard to any PRO RATA
redemption requirement. The terms of certain debt instruments of the Company,
including the Credit Facility and the Notes, restrict, directly or indirectly,
the ability of the Company to redeem the Series A Preferred Stock, and future
agreements to which the Company or its subsidiaries are parties may provide the
same. See "Description of Credit Facility and Notes."
MANDATORY REDEMPTION
On , 2009, the Company will be required to redeem (subject to the
Business Corporation Act of Illinois and the legal availability of funds
therefor) all outstanding shares of Series A Preferred Stock at a price equal to
the then effective liquidation preference thereof, plus an amount in cash equal
to all accumulated and unpaid dividends to the date of redemption.
PROCEDURES FOR REDEMPTIONS
On and after a redemption date, unless the Company defaults in the payment
of the applicable redemption price, dividends will cease to accrue on shares of
Series A 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. The Company will send a written notice of redemption by first
class mail to each holder of record of shares of Series A Preferred Stock, not
fewer than 30 days nor more than 60 days prior to the date fixed for such
redemption. Shares of Series A Preferred Stock issued and reacquired will, upon
compliance with the applicable requirements of Illinois law, have the status of
authorized but unissued shares of preferred stock of the Company undesignated as
to series and may with any and all other authorized but unissued shares of
preferred stock of the Company be designated or redesignated and issued or
reissued, as the case may be, as part of any series of preferred stock of the
Company, except that any issuance or reissuance of shares of Series A Preferred
Stock must be in compliance with the Certificate of Designation.
B-17
<PAGE>
REPURCHASE AT THE OPTION OF SERIES A PREFERRED STOCK HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of the Series A
Preferred Stock will have the right to require the Company to repurchase all or
any part of such Holder's Series A Preferred Stock pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate liquidation preference thereof, plus an amount in cash
equal to all accumulated and unpaid dividends per share (including an amount in
cash equal to a prorated dividend for the period from the dividend payment date
immediately prior to the repurchase date to the repurchase date), if any, to the
date of repurchase (subject to the right of Series A Preferred Stock Holders of
record on the relevant record date to receive dividends due on the relevant
dividend payment date); PROVIDED, HOWEVER, that notwithstanding the occurrence
of a Change of Control, the Company shall not be obligated to purchase the
Series A Preferred Stock pursuant to this covenant in the event that it has
exercised its right to redeem all of the Series A Preferred Stock as described
under "--Optional Redemption."
In the event that at the time of such Change of Control, the terms of any
Credit Agreement restricts or prohibits the repurchase of Series A Preferred
Stock pursuant to this covenant, then prior to the mailing of the notice to
Series A Preferred Stock Holders provided for in the immediately following
paragraph but in any event within 30 days following any Change of Control
(unless the Company has exercised its right to redeem all the Series A Preferred
Stock as described under "--Optional Redemption"), the Company shall (i) repay
in full all Obligations under such Credit Agreements or offer to repay in full
all Obligations under such Credit Agreements and repay the Obligations of each
lender who has accepted such offer or (ii) obtain the requisite consent under
the agreements governing the Exchange Debenture Senior Debt to permit the
repurchase of the Series A Preferred Stock as provided for in the immediately
following paragraph.
The Company shall, within 30 days following any Change of Control (or at the
Company's option, prior to such Change of Control but after the public
announcement thereof), mail a notice to each Series A Preferred Stock Holder
stating: (1) that a Change of Control has occurred or will occur and that such
Series A Preferred Stock Holder has (or upon such occurrence will have) the
right to require the Company to purchase such Series A Preferred Stock Holder's
Series A Preferred Stock at a purchase price in cash equal to 101% of the
aggregate liquidation preference thereof, plus an amount in cash equal to all
accumulated and unpaid dividends per share (including an amount in cash equal to
a prorated dividend for the period from the dividend payment date immediately
prior to the repurchase date to the repurchase date), if any, to the date of
redemption (subject to the right of Series A Preferred Stock Holders of record
on a record date to receive dividends on the relevant dividend payment date);
(2) the circumstances and relevant facts and financial information regarding
such Change of Control; (3) the repurchase date (which shall be no earlier than
30 days nor later than 60 days from the date such notice is mailed); (4) the
instructions determined by the Company, consistent with this covenant, that an
Series A Preferred Stock Holder must follow in order to have its Series A
Preferred Stock repurchased; and (5) that, if such offer is made prior to such
Change of Control, payment is conditioned on the occurrence of such Change of
Control.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Series A Preferred Stock pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this paragraph by virtue thereof.
The occurrence of a Change of Control would constitute a default under the
Credit Facility. Future Indebtedness of the Company may contain prohibitions of
certain events which would constitute a Change of Control or require such
Indebtedness to be repurchased upon a Change of Control. Moreover, the
B-18
<PAGE>
exercise by the Series A Preferred Stock Holders of their right to require the
Company to repurchase the Series A Preferred Stock could cause a default under
such Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the Series A Preferred Stock Holders upon a repurchase
may be limited by the Company's then existing financial resources. There can be
no assurance that sufficient funds will be available when necessary to make any
required repurchases.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of Series A Preferred Stock will be entitled to be paid,
out of the assets of the Company available for distribution, the liquidation
preference 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 Securities, 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 Series A Preferred Stock
and all other Parity Securities are not paid in full, the holders of the Series
A Preferred Stock and the Parity Securities will share equally and ratably in
any distribution of assets of the Company in proportion to the full liquidation
preference and accumulated and unpaid dividends 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 Series A
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 or into one or more
corporations will be deemed to be a liquidation, dissolution or winding-up of
the Company.
The Certificate of Designation does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the Series A
Preferred Stock, although such liquidation preference will be substantially in
excess of the par value of such shares of Series A Preferred Stock. In addition,
the Company is not aware of any provision of Illinois law or any controlling
decision of the courts of the State of Illinois (the state of incorporation of
the Company) that requires a restriction upon any surplus of the Company solely
because the liquidation preference of the Series A Preferred Stock will exceed
its par value. Consequently, there will be no restriction upon any surplus of
the Company solely because the liquidation preference of the Series A Preferred
Stock will exceed the par value and there will be no remedies available to
holders of the Series A Preferred Stock before or after the payment of any
dividend, other than in connection with the liquidation of the Company, solely
by reason of the fact that such dividend would reduce the surplus of the Company
to an amount less than the difference between the liquidation preference of the
Series A Preferred Stock and its par value.
VOTING RIGHTS
Series A Preferred Stock Holders will have no voting rights with respect to
general corporate matters except as required by law or as set forth in the
Certificate of Designation. The Certificate of Designation will provide that (a)
if (i) dividends on the Series A Preferred Stock are in arrears and unpaid (and,
in the case of dividends payable after , 2003, are not paid in cash)
for four consecutive quarterly periods, (ii) the Company fails to discharge any
redemption obligation with respect to the Series A Preferred Stock (whether or
not the Company is permitted to do so by the terms of the Credit Facility, the
Notes or any other obligation of the Company), (iii) the Company fails to make
an offer to purchase all of the outstanding shares of Series A Preferred Stock
following a Change of Control (whether or not the Company is permitted to do so
by the terms of the Credit Facility, the Notes or any other obligation of the
B-19
<PAGE>
Company) or fails to purchase shares of Series A Preferred Stock from holders
who elect to have such shares repurchased pursuant to the Change of Control
Offer, (iv) a breach or violation of the provisions described under the caption
"--Certain Covenants" occurs and the breach or violation continues for a period
of 60 days or more after the Company receives notice thereof specifying the
default from holders of 25% of the Series A Preferred Stock then outstanding, or
(v) a default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Certificate of Designation, which default (A) is caused by
a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (B) results in
the acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there is then existing a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more, then the number of directors constituting the Board of
Directors of the Company will be adjusted to permit the holders of the majority
of the then outstanding Series A Preferred Stock, voting separately as a class,
to elect two directors, and (b) the approval of holders of a majority of the
outstanding shares of Series A Preferred Stock, voting as a separate class, will
be required for (i) any merger, consolidation or sale of all or substantially
all of the assets of the Company except as permitted pursuant to the covenant
below under "--Certain Covenants--Merger or Consolidation" and (ii) for any
modification of the Certificate of Designation or the Exchange Debenture
Indenture. Each such event described in clause (a) above is referred to herein
as a "Voting Rights Triggering Event." Voting rights arising as a result of a
Voting Rights Triggering Event will continue until such time as all dividends in
arrears on the Series A Preferred Stock are paid in full (and after ,
2003, paid in cash) and any failure, breach or default referred to in clause (a)
is remedied.
In addition, the Certificate of Designation will provide that the Company
will not authorize any class of Parity Securities without the affirmative vote
or consent of holders of at least 50% of the shares of Series A Preferred Stock
then outstanding, voting or consenting, as the case may be, as one class. The
Certificate of Designation will also provide that the Company may not amend the
Certificate of Designation so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of shares of the Series A
Preferred Stock, or authorize the issuance of any additional shares of Series A
Preferred Stock, without the affirmative vote or consent of the holders of at
least 50% of the then outstanding shares of Series A Preferred Stock, voting or
consenting, as the case may be, as one class. The Certificate of Designation
will also provide that, except as set forth above, (a) the creation,
authorization or issuance of any shares of Junior Securities or Parity
Securities, (b) the decrease in the amount of authorized capital stock of any
class, including any Series A Preferred Stock or (c) the increase in the amount
of authorized capital stock of any class of Junior Securities shall not require
the consent of the holders of Series A Preferred Stock and shall not be deemed
to affect adversely the rights, preferences, privileges or voting rights of
holders of shares of Series A Preferred Stock.
Under Illinois law, holders of Series A Preferred Stock will be entitled to
vote as a class upon a proposed amendment to the Articles of Incorporation,
whether or not entitled to vote thereon by the Articles 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 or
such class so as to affect them adversely.
CERTAIN COVENANTS
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Certificate of Designation will provide that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise
B-20
<PAGE>
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and that the
Company will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; PROVIDED,
HOWEVER, that the Company may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if the Company's Leverage Ratio at the time
of the incurrence of such Indebtedness, after giving pro-forma effect thereto
and to the use of proceeds therefrom, is less than 7.0 to 1.0.
Notwithstanding the foregoing, the Certificate of Designation will not
prohibit any of the following (collectively, "Permitted Indebtedness"): (a) the
Indebtedness evidenced by the Notes; (b) the incurrence by the Company of
Indebtedness pursuant to Credit Agreements, so long as the aggregate principal
amount of all Indebtedness outstanding under all Credit Agreements does not, at
any one time, exceed $190.0 million, less the aggregate amount of all mandatory
prepayments of principal applied since the date of the Certificate of
Designation to permanently reduce the outstanding amount of such Indebtedness;
(c) all Indebtedness of the Company and its Restricted Subsidiaries in existence
as of the date of the Certificate of Designation; (d) intercompany Indebtedness
between or among the Company and any of its Wholly Owned Restricted
Subsidiaries; PROVIDED, HOWEVER, that (i) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinate to the payment in full
of all Obligations with respect to the Exchange Debentures and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Wholly Owned
Restricted Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence
of such Indebtedness by the Company or such Restricted Subsidiary, as the case
may be; (e) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of financing
all or any part of the purchase price, lease or cost of construction or
improvement of property, plant or equipment used in a Permitted Business in an
aggregate principal amount not to exceed $15.0 million at any time outstanding;
(f) the incurrence by the Company or its Restricted Subsidiaries of Permitted
Refinancing Debt in exchange for, or the net proceeds of which are used to
refund, refinance or replace Indebtedness (other than intercompany Indebtedness)
that was permitted by the Certificate of Designation to be incurred; (g) the
incurrence by the Company or its Restricted Subsidiaries of Hedging Obligations
that are incurred for the purpose of fixing or hedging interest rate risk with
respect to any floating or variable rate Indebtedness or for the purpose of
protecting against fluctuations in interest rates or the value of foreign
currencies purchased or received, in each case in respect of Indebtedness that
is permitted by the terms of the Certificate of Designation to be outstanding;
PROVIDED, HOWEVER, that in the case of Hedging Obligations that are incurred for
the purpose of fixing or hedging interest rate risks with respect to
Indebtedness, the notional principal amount of any such Hedging Obligation does
not exceed the principal amount of the Indebtedness to which such Hedging
Obligation relates and in the case of Hedging Obligations incurred for the
purpose of protecting against fluctuations in interest rates or the value of
foreign currencies purchased or received, such Hedging Obligations do not
increase the Indebtedness of the Company and its Restricted Subsidiaries
outstanding other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payable thereunder; (h)
Indebtedness incurred solely in respect of performance, surety and similar bonds
or completion guarantees, to the extent that such incurrence does not result in
the incurrence of any obligation for the payment of borrowed money to others;
(i) Indebtedness arising out of standby letters of credit covering workers
compensation, performance or similar obligations in an aggregate amount not to
exceed $500,000 at any time outstanding; (j) any guarantee of the Company of
Indebtedness or other obligations of any of its Restricted Subsidiaries so long
as the incurrence of such Indebtedness incurred by such Restricted Subsidiary is
permitted under the terms of the Certificate of Designation; (k) the incurrence
by the Company of additional Indebtedness in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding not to exceed $10.0
million; and (l) the issuance of Series A Preferred Stock issued as payment in
kind dividends on the Series A Preferred Stock outstanding on the Issue Date or
issued
B-21
<PAGE>
subsequent to the Issue Date as dividends permitted pursuant to this clause (l),
to the extent such dividends are made pursuant to the terms of the Certificate
of Designation for such Series A Preferred Stock as in effect on the Issue Date,
on any Preferred Stock issued in exchange for the Series A Preferred Stock, or
any dividends on such Preferred Stock to the extent such dividends are made
pursuant to the terms of the Certificate of Designation of such Preferred Stock.
The Certificate of Designation will provide that the Company will not permit
any Unrestricted Subsidiary to incur any Indebtedness other than Non-Recourse
Debt; provided, however, if any such Indebtedness ceases to be Non-Recourse
Debt, such event shall be deemed to constitute an incurrence of Indebtedness by
the Company.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Certificate of Designation will provide that the Company may not
consolidate or merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets, in one or more related
transactions, to another Person, and the Company may not permit any of its
Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions would, in the
aggregate, result in a sale, assignment, transfer, lease, conveyance, or other
disposition of all or substantially all of the properties or assets of the
Company to another Person unless: (i) the Company is the surviving corporation
or the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made (the "Surviving Entity") is a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (ii) the Series A Preferred Stock shall be
converted into or exchanged for and shall become shares of the Surviving Entity,
having in respect of such successor, transferee or resulting corporation
substantially the same powers, preferences and relative participating, optional
or other special rights, and the qualifications, limitations or restrictions
thereon that the Series A Preferred Stock had immediately prior to such
transaction; (iii) immediately after such transaction, no Voting Rights
Triggering Event, and no event that after the giving of notice or lapse of time
or both would become a Voting Rights Triggering Event, shall have occurred and
be continuing; and (iv) the Company or the Surviving Entity will, at the time of
such transaction or series of transactions and after giving pro forma effect
thereto as if such transaction or series of transactions had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock." Notwithstanding the restrictions
described in the foregoing clause (iv), any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company, and any Wholly Owned Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to another Wholly Owned Restricted Subsidiary.
RESTRICTED PAYMENTS
The Certificate of Designation will provide that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
(i) declare or pay any dividend or make any distribution on account of any
Junior Securities (other than dividends or distributions payable in Junior
Securities (other than Disqualified Stock)), (ii) purchase, redeem or otherwise
acquire or retire for value any Junior Securities or (iii) make any Investment
(other than a Permitted Investment) in any Person (all such dividends,
distributions, purchases, redemptions, acquisitions, retirements and Investments
being collectively referred to as "Restricted Payments"), unless, at the time of
and after giving effect to such Junior Payment:
(a) no Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof;
B-22
<PAGE>
(b) all dividends on the Series A Preferred Stock payable on dividend
payment dates after , 2003, have been declared and paid in cash;
and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Certificate of Designation (excluding Restricted
Payments permitted by clause (2) of the next succeeding paragraph), is less
than the sum of (i) (A) 100% of the aggregate Consolidated Cash Flow of the
Company (or, in the event such Consolidated Cash Flow shall be a deficit,
minus 100% of such deficit) accrued for the period beginning on the first
day of the Company's fiscal quarter commencing after the Issue Date and
ending on the last day of the Company's most recent fiscal quarter for which
financial information is available to the Company ending prior to the date
of such proposed Restricted Payment, taken as one accounting period, less
(B) 1.4 times Consolidated Interest Expense for the same period, PLUS (ii)
100% of the aggregate net cash proceeds and the fair market value of
marketable securities (as determined in good faith by the Company) received
by the Company from the issue or sale since the Issue Date of Equity
Interests of the Company or of debt securities of the Company that have been
converted into or exchanged for such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of the
Company, other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock and other than the Common Stock issued in
the Stock Offerings), PLUS (iii) to the extent that any Restricted
Investment that was made after the date of the Exchange Debenture Indenture
is sold for cash or otherwise liquidated or repaid for cash, the lesser of
(A) the net proceeds of such sale, liquidation or repayment and (B) the
amount of such Restricted Investment, PLUS (iv) $5.0 million.
The foregoing provisions will not prohibit: (1) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Certificate of Designation; (2) the redemption, repurchase, retirement or other
acquisition of any Junior Securities or Parity Securities of the Company in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of other Junior Securities or Parity
Securities of the Company (other than any Disqualified Stock); (3) the
repurchase, redemption or other acquisition or retirement for value of any
Junior Securities or Parity Securities of the Company or any Subsidiary of the
Company held by any of the Company's (or any of its Subsidiaries') employees
pursuant to any management equity subscription agreement or stock option
agreement in connection with the termination of such person's employment for any
reason (including by reason of death or disability); PROVIDED that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Junior
Securities or Parity Securities shall not exceed $500,000 in any twelve-month
period; and PROVIDED FURTHER that no Voting Rights Triggering Event shall have
occurred and be continuing immediately after such transaction; and (4)
repurchases of Junior Securities or Parity Securities deemed to occur upon
exercise of stock options if such Junior Securities or Parity Securities
represent a portion of the exercise price of such options.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Voting Rights Triggering Event. For purposes of making such determination, all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under clause (c) of the first paragraph
of the covenant "Restricted Payments." All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greater of the fair
market value or the book value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.
B-23
<PAGE>
TRANSACTIONS WITH AFFILIATES
The Certificate of Designation will provide that the Company will not, and
will not permit any of its Restricted Subsidiaries to, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any of its Affiliates (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, such Affiliate Transaction or
series of Affiliated Transactions has been approved in good faith by a majority
of the members of the Board of Directors who are disinterested with respect to
such Affiliate Transaction or series of Affiliated Transactions, and (b) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10.0 million, such Affiliate
Transaction or series of related Affiliate Transactions has been approved in
good faith by a resolution adopted by a majority of the members of the Board of
Directors of the Company who are disinterested with respect to such Affiliate
Transaction or series of related Affiliate Transactions and an opinion as to the
fairness to the Company or such Subsidiary of such Affiliate Transaction or
series of related Affiliate Transactions from a financial point of view has been
issued to the Company by an accounting, appraisal, engineering or investment
banking firm of national standing PROVIDED that the foregoing provisions will
not apply to the following: (1) transactions contemplated by any employment
agreement or other compensation plan or arrangement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business, (2)
transactions between or among the Company and/or its Restricted Subsidiaries,
(3) Restricted Payments and Permitted Investments that are permitted by the
provisions of the Certificate of Designation described above under the caption
"--Restricted Payments", (4) indemnification payments made to officers,
directors and employees of the Company or any Restricted Subsidiary pursuant to
charter, bylaw, statutory or contractual provisions and (5) any agreement in
effect as of the Issue Date or any transaction contemplated thereby.
REPORTS. The Certificate of Designation will provide that, whether or not
required by the rules and regulations of the Commission, so long as any shares
of Series A Preferred Stock are outstanding, the Company will furnish Series A
Preferred Stock Holders, (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by the Company certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company was required to file such reports, in
each case within the time periods set forth in the Commission's rules and
regulations. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of such information and reports
with the Commission for public availability within the time periods set forth in
the Commission's rules and regulations (unless the Commission will not accept
such filing).
EXCHANGE
The Company may at its option exchange all, but not less than all, of the
then outstanding shares of Series A Preferred Stock into Exchange Debentures on
any dividend payment date, PROVIDED that on the date of such exchange: (a) there
are no contractual impediments to such exchange; (b) such exchange would comply
with the Business Corporation Act of Illinois; (c) immediately after giving
effect to such exchange, no Default or Event of Default (each as defined in the
Exchange Debenture Indenture) would exist under the Exchange Debenture
Indenture; and (d) the Company shall have delivered a written
B-24
<PAGE>
opinion of counsel, dated the date of exchange, regarding the satisfaction of
the conditions set forth in clauses (a) and (b) and certain other matters. The
Company shall send a written notice of exchange by mail to each holder of record
of shares of Series A Preferred Stock, which notice shall state, among other
things, (i) that the Company is exercising its option to exchange the Series A
Preferred Stock for Exchange Debentures pursuant to the Certificate of
Designation and (ii) the date of exchange (the "Exchange Date"), which date
shall not be less than 30 days nor more than 60 days following the date on which
such notice is mailed. On the Exchange Date, holders of outstanding shares of
Series A Preferred Stock will be entitled to receive a principal amount of
Exchange Debentures equal to the liquidation preference per share, plus an
amount in cash equal to all accrued and unpaid dividends (including an amount in
cash equal to a prorated dividend for the period from the dividend payment date
immediately prior to the Exchange Date to the Exchange Date), as provided below.
The Exchange Debentures will be issued in registered form, without coupons.
Exchange Debentures issued in exchange for Series A Preferred Stock will be
issued in principal amounts of $1,000 and integral multiples thereof to the
extent possible, and will also be issued in principal amounts less than $1,000
so that each holder of Series A Preferred Stock will receive certificates
representing the entire amount of Exchange Debentures to which his shares of
Series A Preferred Stock entitle him, provided that the Company may, at its
option, pay cash in lieu of issuing an Exchange Debenture in a principal amount
less than $1,000. On and after the Exchange Date, dividends will cease to accrue
on the outstanding shares of Series A Preferred Stock, and all rights of the
holders of Series A Preferred Stock (except the right to receive the Exchange
Debentures, an amount in cash equal to the accrued and unpaid dividends to the
Exchange Date and if the Company so elects, cash in lieu of any Exchange
Debenture which is in an amount that is not an integral multiple of $1,000) will
terminate. The person entitled to receive the Exchange Debentures issuable upon
such exchange will be treated for any purposes as the registered holder of such
Exchange Debentures.
The Credit Facility contains limitations with respect to the Company's
ability to issue the Exchange Debentures, and any future Credit Agreements or
other agreements relating to indebtedness to which the Company or any of its
Subsidiaries become a party may contain similar limitations. See "Description of
Credit Facility and Notes."
The Company intends to comply with the provisions of Rule 13e-4 promulgated
pursuant to the Exchange Act in connection with any exchange, to the extent
applicable.
TRANSFER AGENT AND REGISTRAR. Firstar Trust Company is the transfer agent
and registrar for the Series A Preferred Stock.
EXCHANGE DEBENTURES
GENERAL
The Exchange Debentures, if issued, will be issued under an indenture (the
"Exchange Debenture Indenture") between the Company and U.S. Bank Trust National
Association, as trustee (the "Trustee"). The terms of the Exchange Debentures
include those stated in the Exchange Debenture Indenture and those made part of
the Exchange Debenture Indenture by reference to The Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The Exchange Debentures will be
subject to all such terms, and prospective holders of the Exchange Debentures
are referred to the Exchange Debenture Indenture and the Trust Indenture Act for
a statement of such terms. The following summary of certain provisions of the
Exchange Debenture Indenture does not purport to be complete and is qualified in
its entirety by reference to the Exchange Debenture Indenture, including the
definitions therein of certain terms. Definitions of certain capitalized terms
used in the Exchange Debenture Indenture and in the following summary are set
forth below under "--Certain Definitions."
B-25
<PAGE>
The Exchange Debentures, if issued, will be general unsecured obligations of
the Company, subordinated to all existing and future Exchange Debenture Senior
Debt, including the Notes and the Credit Facility. The Exchange Debentures will
be issued in fully registered form only in denominations of $1,000 and integral
multiples thereof (other than as described in "--Series A Preferred
Stock--Exchange" or with respect to additional Exchange Debentures issued in
lieu of cash interest as described herein).
PRINCIPAL, MATURITY AND INTEREST
The Exchange Debentures will mature on , 2009. Interest
on the Exchange Debentures will accrue at a rate of % 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 , 2003, in additional Exchange Debentures, at the
option of the Company) in arrears on and of each year, commencing
with the first such date after the Exchange Date, to Exchange Debenture Holders
of record on the immediately preceding and . Interest on the
Exchange Debentures will be computed on the basis of a 360-day year of twelve
30-day months. Principal, premium, if any, and interest on the Exchange
Debentures will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest may be made by check mailed to the Exchange
Debenture Holders at their respective addresses set forth in the register of
Exchange Debenture Holders. Until otherwise designated by the Company, the
Company's office or agency will be the office of the Trustee maintained for such
purpose. The Company may change such office without prior notice to holders of
the Exchange Debentures, and the Company or any of its Subsidiaries may act as
Paying Agent or Registrar.
SUBORDINATION
The Indebtedness evidenced by the Exchange Debentures will be unsecured and
subordinated in right of payment, as set forth in the Exchange Debenture
Indenture, to the payment when due of all existing and future Exchange Debenture
Senior Debt of the Company, including the Company's obligations under the Credit
Facility and the Notes, will rank PARI PASSU (or equal to) in right of payment
with all existing and future Exchange Debenture Pari Passu Debt of the Company
and will be senior in right of payment to all existing and future Exchange
Debenture Subordinated Debt of the Company.
Although the Exchange Debenture Indenture contains limitations on the amount
of additional Indebtedness which the Company may incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Exchange Debenture Indebtedness may be Exchange Debenture Senior
Debt. See "--Certain Covenants--Limitation on Indebtedness" below.
Only Indebtedness of the Company that is Exchange Debenture Senior Debt will
rank senior to the Exchange Debentures in accordance with the provisions of the
Indenture. The Exchange Debentures will in all respects rank PARI PASSU (or
equal) with all other Exchange Debenture Pari Passu Debt of the Company.
Upon any payment or distribution of property or securities to creditors of
the Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, or in an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Exchange
Debenture Senior Debt will be entitled to receive payment in full of all
Obligations due in respect of such Exchange Debenture Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Exchange Debenture Senior Debt, whether or not a claim for such
interest would be allowed in a proceeding) before the Holders of the Exchange
Debentures will be entitled to receive any payment with respect to the Exchange
Debentures, and until all Obligations with respect to Exchange Debenture Senior
Debt are paid in full, any distribution to which the Holders of the Exchange
Debentures would be entitled shall be made to the holders of Exchange Debenture
Senior Debt (except in each case that Holders of the Exchange Debentures may
receive securities that are subordinated at least to the same extent as the
Exchange Debentures are subordinated to Exchange Debenture Senior Debt (or
securities issued in
B-26
<PAGE>
exchange for Exchange Debenture Senior Debt) and payments made from the trust
described under
"--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment (whether by redemption, purchase,
retirement, defeasance or otherwise) upon or in respect of the Exchange
Debentures (except in such subordinated securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Exchange
Debenture Senior Debt occurs, (ii) any other default on Designated Exchange
Debenture Senior Debt occurs and the maturity of such Designated Exchange
Debenture Senior Debt is accelerated in accordance with its terms (together with
clause (i), a "payment default") or (iii) any other default occurs and is
continuing with respect to Designated Exchange Debenture Senior Debt that
permits, or with the giving of notice or passage of time or both (unless cured
or waived) will permit, holders of the Designated Exchange Debenture Senior Debt
as to which such default relates to accelerate its maturity ("non-payment
default") and (solely with respect to this clause (iii)) the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Company or the
holders of any Designated Exchange Debenture Senior Debt. Cash payments on the
Exchange Debentures shall be resumed (a) in the case of a payment default, upon
the date on which such default is cured or waived and (b) in case of a
non-payment default, the earliest of the date on which such non-payment default
is cured or waived, the date on which the applicable Payment Blockage Notice is
retracted by written notice to the Trustee or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity of any
Designated Exchange Debenture Senior Debt has been accelerated or a default of
the type described in clause (vii) under the caption "Events of Default and
Remedies" has occurred and is continuing. No new period of payment blockage may
be commenced unless and until 360 days have elapsed since the date of
commencement of the payment blockage period resulting from the immediately prior
Payment Blockage Notice. No non-payment default in respect of Designated
Exchange Debenture Senior Debt that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of no less than 181 days.
The Exchange Debenture Indenture will further require that the Company
promptly notify holders of Exchange Debenture Senior Debt if payment of the
Exchange Debentures is accelerated because of an Event of Default.
By reason of such subordination provisions contained in the Exchange
Debenture Indenture, in the event of insolvency, (i) creditors of the Company
who are holders of Exchange Debenture Senior Debt may recover more, ratably,
than the Exchange Debenture Holders, and (ii) trade creditors of the Company who
are not holders of Exchange Debenture Senior Debt or of Exchange Debenture Pari
Passu Debt (including the Exchange Debentures) may recover less, ratably, than
holders of Exchange Debenture Senior Debt and may recover more, ratably, than
the holders of Exchange Debenture Pari Passu Debt.
OPTIONAL REDEMPTION
Except as set forth below, the Exchange Debentures may not be redeemed at
the option of the Company prior to , 2003. Thereafter, the Exchange
Debentures will be subject to redemption for cash at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' notice to each
holder of Exchange Debentures to be redeemed, at the following redemption prices
(expressed as percentages of principal amount) if redeemed during the
twelve-month period beginning on of each of the years indicated below,
in each case together with any accrued and unpaid interest thereon to the
applicable redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------- -----------
<S> <C>
2003.................................................................................. %
2004.................................................................................. %
2005.................................................................................. %
2006.................................................................................. %
2007 and thereafter................................................................... 100.00%
</TABLE>
B-27
<PAGE>
Prior to , 2001, the Company may, at its option, on any one or
more occasions redeem up to 35% of the original aggregate principal amount of
the Exchange Debentures at a redemption price equal to % of the principal
amount thereof, plus an amount in cash equal to all accrued and unpaid interest,
if any, thereon to the redemption date, with all or a portion of the net
proceeds of one or more Equity Offerings (as defined below); PROVIDED that at
least 65% of the original aggregate principal amount of the Exchange Debentures
remains outstanding immediately after the occurrence of such redemption; and
PROVIDED, FURTHER, that such redemption shall occur within 90 days of the date
of the closing of such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means any public or
private sale of common stock of the Company pursuant to which the Company
receives net proceeds of at least $25 million other than issuances of common
stock of the Company pursuant to employee benefit plans or as compensation to
employees.
No optional redemption of Exchange Debentures may be authorized or made at
less than 101% of the principal amount thereof at any time when the Company is
making or purchasing Exchange Debentures under a Change of Control Offer in
accordance with the provisions of "--Repurchase at the Option of Exchange
Debenture Holders--Change of Control."
If less than all of the Exchange Debentures are to be redeemed at any time,
selection of Exchange Debentures for redemption will be made by the Trustee on a
PRO RATA basis, by lot or by such method as the Trustee will deem fair and
appropriate; provided that no Exchange Debentures of $1,000 or less will be
redeemed in part. Notices of redemption will be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Exchange
Debenture Holder to be redeemed at its registered address. If any Exchange
Debenture is to be redeemed in part only, the notice of redemption that relates
to such Exchange Debenture will state the portion of the principal amount
thereof to be redeemed. A new Exchange Debenture in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Exchange
Debenture Holder thereof upon cancellation of the original Exchange Debenture.
On and after the redemption date, interest will cease to accrue on Exchange
Debentures or portions of them called for redemption unless the Company defaults
in the payment thereof.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Exchange
Debenture Holders," the Company is not required to make any mandatory
redemption, purchase or sinking fund payments with respect to the Exchange
Debentures prior to the maturity date.
REPURCHASE AT THE OPTION OF EXCHANGE DEBENTURE HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of the Exchange
Debentures will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Exchange
Debentures pursuant to the offer described below (the "Change of Control Offer")
at an offer price in cash equal to 101% of the aggregate principal amount of the
Exchange Debentures plus accrued and unpaid interest, if any, thereon to the
date of purchase (the "Change of Control Payment"). Within 30 days following any
Change of Control (unless the Company has exercised its rights to redeem all the
Exchange Debentures), the Company will (i) mail a notice to each Exchange
Debenture Holder describing the transaction or transactions that constitute the
Change of Control and offer to repurchase the Exchange Debentures pursuant to
the procedures required by the Exchange Debenture Indenture and described in
such notice on a date no earlier than 30 days nor later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date") and (ii) (a)
offer to repay in full all Obligations under the Credit Facility and Obligations
in respect of the Notes and to repay in full all Obligations of each lender and
each Holder of Notes who has accepted such offer or (b) obtain the
B-28
<PAGE>
requisite consent under agreements evidencing Exchange Debenture Senior Debt to
permit the purchase of the Exchange Debentures as described herein. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Exchange
Debentures as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Exchange Debentures or portions thereof
properly tendered pursuant to the Change of Control Offer, (ii) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of all
the Exchange Debentures or portions thereof so tendered and (iii) deliver or
cause to be delivered to the Trustee the relevant Exchange Debentures so
accepted together with an Officers' Certificate stating the aggregate principal
amount of such Exchange Debentures or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of the Exchange
Debentures so tendered the Change of Control Payment for such Exchange
Debentures, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each tendering Holder a new Note equal in
principal amount to any unpurchased portion of the Exchange Debentures
surrendered, if any; PROVIDED that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Exchange
Debenture Indenture will not contain provisions that permit the Holders of the
Exchange Debentures to require that the Company repurchase or redeem the
Exchange Debentures in the event of a takeover, recapitalization or similar
transaction.
The Company will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the Exchange
Debenture Indenture applicable to a Change of Control Offer made by the Company
and purchases all Exchange Debentures (or portions thereof) validly tendered and
not withdrawn under such Change of Control Offer.
The Credit Facility will prohibit the Company from repurchasing any Exchange
Debentures pursuant to a Change of Control Offer prior to the repayment in full
of all Obligations under the Credit Facility. Moreover, the occurrence of
certain change of control events identified in the Credit Facility will
constitute a default under the Credit Facility. Any future Credit Agreements or
other agreements relating to Exchange Debenture Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. If a Change of
Control were to occur, the Company may not have sufficient available funds to
pay the Change of Control Payment for all Exchange Debentures that might be
delivered by Holders of the Exchange Debentures seeking to accept the Change of
Control Offer after first satisfying its obligations under the Credit Facility
or other agreements relating to Exchange Debenture Senior Debt. The failure of
the Company to make or consummate the Change of Control Offer or pay the Change
of Control Payment when due will constitute a Default under the Exchange
Debenture Indenture and will otherwise give the Trustee and the Holders of the
Exchange Debentures the rights described under "--Events of Default and
Remedies."
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of the Exchange Debentures to require
the Company to repurchase such Exchange Debentures as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
B-29
<PAGE>
ASSET SALES
The Exchange Debenture Indenture will provide that the Company will not, and
will not permit any of its Restricted Subsidiaries to, engage in an Asset Sale
unless (i) the Company or the Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the fair
market value (as determined in good faith by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee, which
determination shall be conclusive evidence of compliance with this provision) of
the assets or Equity Interests issued or sold or otherwise disposed of and (ii)
at least 75% of the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of cash or Cash Equivalents; PROVIDED that
the amount of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Exchange Debentures or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability and (y) any non-cash consideration received by the Company or any such
Restricted Subsidiary from such transferee that is converted by the Company or
such Restricted Subsidiary into cash within 30 days of closing such Asset Sale,
shall be deemed to be cash for purposes of this provision (to the extent of the
cash received).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary may apply such Net Proceeds, at its
option, (a) to permanently reduce Exchange Debenture Senior Debt (and to
correspondingly permanently reduce commitments with respect thereto in the case
of revolving borrowings), or (b) to an investment in any one or more businesses,
capital expenditures or acquisitions of other assets, in each case, used or
useful in a Permitted Business. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce Exchange Debenture Senior Debt that
is revolving debt or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Exchange Debenture Indenture. Any Net Proceeds from Asset
Sales that are not applied as provided in the first sentence of this paragraph
will (after the expiration of the periods specified in this paragraph) be deemed
to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the
Company will be required to make an offer to all Holders of the Exchange
Debentures and, to the extent required by the terms thereof, to all holders or
lenders of Exchange Debenture Pari Passu Debt (an "Asset Sale Offer") to
purchase the maximum principal amount of the Exchange Debentures and any such
Exchange Debenture Pari Passu Debt to which the Asset Sale Offer applies that
may be purchased out of the Excess Proceeds, at an offer price in cash equal to
100% of the principal amount thereof plus accrued and unpaid interest thereon to
the date of purchase, in accordance with the procedures set forth in the
Exchange Debenture Indenture or the agreements governing the Exchange Debenture
Pari Passu Debt, as applicable. To the extent that the aggregate principal
amount of the Exchange Debentures and Exchange Debenture Pari Passu Debt
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of the Exchange Debentures surrendered by Holders
thereof and other Exchange Debenture Pari Passu Debt surrendered by holders or
lenders thereof, collectively, exceeds the amount of Excess Proceeds, the
Trustee shall select the Exchange Debentures and the trustee or other lender
representative for the Exchange Debenture Pari Passu Debt shall select the
Exchange Debenture Pari Passu Debt to be purchased on a pro rata basis, based on
the aggregate principal amount thereof surrendered in such Asset Sale Offer.
Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
The Credit Facility may prohibit the Company from purchasing any Exchange
Debentures from the Net Proceeds of Asset Sales. Any future Credit Agreements or
other agreements relating to Exchange Debenture Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event an
Asset Sale Offer occurs at a time when the Company is prohibited from purchasing
the Exchange Debentures, the Company could seek the consent of its lenders to
the purchase
B-30
<PAGE>
or could attempt to refinance the Exchange Debenture Senior Debt that contains
such prohibition. If the Company does not obtain such a consent or repay such
Exchange Debenture Senior Debt, the Company may remain prohibited from
purchasing the Exchange Debentures. In such case, the Company's failure to
purchase tendered Exchange Debentures would constitute an Event of Default under
the Exchange Debenture Indenture which would, in turn, constitute a default
under the Credit Facility and possibly a default under other agreements relating
to Exchange Debenture Senior Debt. In such circumstances, the subordination
provisions in the Exchange Debenture Indenture would likely restrict payments to
the Holders of the Exchange Debentures.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Exchange Debenture Indenture will provide that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other payment or distribution on
account of the Company's Equity Interests (including, without limitation, any
payment to holders of the Company's Equity Interests in connection with any
merger or consolidation involving the Company) to the direct or indirect holders
of the Company's Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for
value any Equity Interests of the Company or any direct or indirect parent or
other Affiliate of the Company that is not a Wholly Owned Restricted Subsidiary
of the Company; (iii) make any principal payment on, or purchase, redeem,
defease or otherwise acquire or retire for value any Exchange Debenture
Subordinated Debt, except at final maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the test set
forth in the first paragraph of the covenant described below under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Exchange Debenture Indenture (excluding Restricted
Payments permitted by clauses (2), (3) and (5) of the next succeeding
paragraph), is less than the sum of (i) (A) 100% of the aggregate
Consolidated Cash Flow of the Company (or, in the event such Consolidated
Cash Flow shall be a deficit, minus 100% of such deficit) accrued for the
period beginning on the first day of the Company's fiscal quarter commencing
after the Issue Date and ending on the last day of the Company's most recent
fiscal quarter for which financial information is available to the Company
ending prior to the date of such proposed Restricted Payment, taken as one
accounting period, less (B) 1.4 times Consolidated Interest Expense for the
same period, PLUS (ii) 100% of the aggregate net cash proceeds and the fair
market value of marketable securities (as determined in good faith by the
Company) received by the Company from the issue or sale since the date of
the Exchange Debenture Indenture of Equity Interests of the Company or of
debt securities of the Company that have been converted into or exchanged
for such Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Subsidiary of the Company, other than Disqualified
Stock or debt securities that have been converted into Disqualified Stock
and other than the Common Stock issued in the Common Stock Offering), PLUS
(iii) to the extent that any Restricted Investment that was made after the
date of the Exchange Debenture
B-31
<PAGE>
Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (A) the net proceeds of such sale, liquidation or repayment and
(B) the amount of such Restricted Investment, PLUS (iv) $5.0 million.
The foregoing provisions will not prohibit (1) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the Exchange
Debenture Indenture; (2) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of other Equity Interests of the Company (other than any
Disqualified Stock); PROVIDED that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(3) the defeasance, redemption or repurchase of Exchange Debenture Subordinated
Debt with the net cash proceeds from an incurrence of subordinated Permitted
Refinancing Debt or the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); PROVIDED that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(4) the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of the Company or any Subsidiary of the Company held by any
of the Company's (or any of its Subsidiaries') employees pursuant to any
management equity subscription agreement or stock option agreement in effect as
of the date of the Exchange Debenture Indenture in connection with the
termination of such person's employment for any reason (including by reason of
death or disability); PROVIDED that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$500,000 in any twelve-month period; and PROVIDED FURTHER that no Default or
Event of Default shall have occurred and be continuing immediately after such
transaction; and (5) repurchases of Equity Interests deemed to occur upon
exercise of stock options if such Equity Interests represent a portion of the
exercise price of such options.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined in good faith by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee, which
determination shall be conclusive evidence of compliance with this provision) on
the date of the Restricted Payment of the asset(s) proposed to be transferred by
the Company or the applicable Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than five days after the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under clause (c) of the first paragraph of the covenant
"Restricted Payments." All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the greater of the fair market
value or the book value of such Investments at the time of such designation.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Exchange Debenture Indenture will provide that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise
B-32
<PAGE>
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "Incur") any Indebtedness (including Acquired Debt) and that the
Company will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; PROVIDED,
HOWEVER, that the Company may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if the Company's Leverage Ratio at the time
of the incurrence of such Indebtedness, after giving pro-forma effect thereto
and to the use of proceeds therefrom, is less than 7.0 to 1.
Notwithstanding the foregoing, the Exchange Debenture Indenture will not
prohibit any of the following (collectively, "Permitted Indebtedness"): (a) the
Indebtedness evidenced by the Exchange Debentures; (b) the incurrence by the
Company of Indebtedness pursuant to Credit Agreements or the Notes, so long as
the aggregate principal amount of all Indebtedness outstanding under all Credit
Agreements does not, at any one time, exceed $190 million, less the aggregate
amount of all proceeds from all Asset Sales that have been applied since the
date of the Exchange Debenture Indenture to permanently reduce the outstanding
amount of such Indebtedness pursuant to the provisions described under the
caption "Repurchase at the Option of Holders--Asset Sales"; (c) all Indebtedness
of the Company and its Restricted Subsidiaries in existence as of the date of
the Exchange Debenture Indenture; (d) intercompany Indebtedness between or among
the Company and any of its Wholly Owned Restricted Subsidiaries; PROVIDED,
HOWEVER, that (i) if the Company is the obligor on such Indebtedness, such
Indebtedness is expressly subordinate to the payment in full of all Obligations
with respect to the Exchange Debentures and (ii)(A) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being held by
a Person other than the Company or a Wholly Owned Restricted Subsidiary and (B)
any sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in
each case, to constitute an incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be; (e) the incurrence by the
Company or its Restricted Subsidiaries of Indebtedness represented by Capital
Lease Obligations, mortgage financings or purchase money obligations, in each
case incurred for the purpose of financing all or any part of the purchase
price, lease or cost of construction or improvement of property, plant or
equipment used in a Permitted Business in an aggregate principal amount not to
exceed $15.0 million at any time outstanding; (f) the incurrence by the Company
or its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or
the net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the Exchange
Debenture Indenture to be incurred; (g) the incurrence by the Company or its
Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose
of fixing or hedging interest rate risk with respect to any floating or variable
rate Indebtedness or for the purpose of protecting against fluctuations in
interest rates or the value of foreign currencies purchased or received, in each
case in respect of Indebtedness that is permitted by the terms of the Exchange
Debenture Indenture to be outstanding; PROVIDED, HOWEVER, that in the case of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risks with respect to Indebtedness, the notional principal amount
of any such Hedging Obligation does not exceed the principal amount of the
Indebtedness to which such Hedging Obligation relates and in the case of Hedging
Obligations incurred for the purpose of protecting against fluctuations in
interest rates or the value of foreign currencies purchased or received, such
Hedging Obligations do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations in
foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder; (h) Indebtedness incurred solely in respect of
performance, surety and similar bonds or completion guarantees, to the extent
that such incurrence does not result in the incurrence of any obligation for the
payment of borrowed money to others; (i) Indebtedness arising out of standby
letters of credit covering workers compensation, performance or similar
obligations in an aggregate amount not to exceed $500,000 at any time
outstanding; (j) any guarantee of the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the incurrence of
such Indebtedness incurred by such Restricted Subsidiary is permitted under the
terms of the Exchange Debenture Indenture; (k) the incurrence by the Company of
additional Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at
B-33
<PAGE>
any time outstanding not to exceed $10.0 million; and (l) the incurrence by the
Company of Indebtedness in respect of Exchange Debentures issued as payment in
kind interest on Exchange Debentures issued on the exchange of Series A
Preferred Stock, to the extent such interest payments are made pursuant to the
terms of the Exchange Debenture Indenture.
The Exchange Debenture Indenture will provide that the Company will not
permit any Unrestricted Subsidiary to incur any Indebtedness other than
Non-Recourse Debt; provided, however, if any such Indebtedness ceases to be
Non-Recourse Debt, such event shall be deemed to constitute an incurrence of
Indebtedness by the Company.
ASSET SWAPS
The Exchange Debenture Indenture will provide that the Company will not, and
will not permit any of its Restricted Subsidiaries to, in one or a series of
related transactions, directly or indirectly, engage in any Asset Swaps, unless:
(i) at the time of entering into the agreement to swap assets and immediately
after giving effect to the proposed Asset Swap, no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence thereof;
(ii) the Company would, after giving PRO FORMA effect to the proposed Asset
Swap, have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Leverage Ratio in the covenant "Incurrence of Indebtedness and
Issuance of Preferred Stock"; (iii) the respective fair market values of the
assets being purchased and sold by the Company or any of its Restricted
Subsidiaries (as determined in good faith by the management of the Company or,
if such Asset Swap includes consideration in excess of $ million by the
Board of Directors of the Company, as evidenced by a Board Resolution) are
substantially the same at the time of entering into the agreement to swap
assets; and (iv) at the time of the consummation of the proposed Asset Swap, the
percentage of any decline in the fair market value (determined as aforesaid) 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 (determined as aforesaid) of the assets being
disposed of by the Company or its Restricted Subsidiaries, calculated from the
time the agreement to swap assets was entered into.
LIENS
The Exchange Debenture Indenture will provide that the Company will not, and
will not permit any of its Restricted Subsidiaries to, create, incur, assume or
otherwise cause or suffer to exist or become effective any Lien securing
Indebtedness of any kind (other than Permitted Liens) upon any of its property
or assets, now owned or hereafter acquired.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Exchange Debenture Indenture will provide that 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 encumbrance
or restriction on the ability of any Restricted Subsidiary to (i)(x) pay
dividends or make any other distributions to the Company or any of the
Restricted Subsidiaries of the Company (1) on its Capital Stock or (2) with
respect to any other interest or participation in, or measured by, its profits,
or (y) pay any indebtedness owed to the Company or any Restricted Subsidiaries
of the Company, (ii) make loans or advances to the Company or any Restricted
Subsidiaries of the Company or (iii) transfer any of its properties or assets to
the Company or any Restricted Subsidiaries of the Company, except for such
encumbrances or restrictions existing under or by reason of (a) the Credit
Facility as in effect as of the date of the Exchange Debenture Indenture, and
any amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof or any other Credit Agreements,
PROVIDED that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements, refinancings or other Credit Agreements
are no more restrictive with respect to such dividend and other payment
restrictions than those contained in the Credit Facility as in effect on the
date
B-34
<PAGE>
of the Exchange Debenture Indenture, (b) the Indenture and the Notes; (c) the
Exchange Debenture Indenture and the Exchange Debentures, (d) applicable law,
(e) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except, in the case of Indebtedness, to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person and its
Subsidiaries, or the property or assets of the Person and its Subsidiaries, so
acquired, PROVIDED that, such Indebtedness or Disqualified Stock was permitted
by the terms of the Exchange Debenture Indenture to be incurred, (f) by reason
of customary non-assignment provisions in leases entered into in the ordinary
course of business, (g) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired, or (h) Permitted Refinancing
Debt, PROVIDED that the restrictions contained in the agreements governing such
Permitted Refinancing Debt are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Exchange Debenture Indenture will provide that the Company may not
consolidate or merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets, in one or more related
transactions, to another Person, and the Company may not permit any of its
Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions would, in the
aggregate, result in a sale, assignment, transfer, lease, conveyance, or other
disposition of all or substantially all of the properties or assets of the
Company to another Person unless (i) the Company is the surviving corporation or
the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made (the "Surviving Entity") is a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (ii) the Surviving Entity (if the Company
is not the continuing obligor under the Exchange Debenture Indenture) assumes
all the obligations of the Company under the Exchange Debentures and the
Exchange Debenture Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately before and after
giving effect to such transaction or series of transactions no Default or Event
of Default exists; (iv) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (and treating any Indebtedness not
previously an obligation of the Company and its Subsidiaries which becomes the
obligation of the Company or any of its Subsidiaries as a result of such
transaction or series of transactions as having been incurred at the time of
such transaction or series of transactions), the Consolidated Net Worth of the
Company and its Subsidiaries or the Surviving Entity (if the Company is not the
continuing obligor under the Exchange Debenture Indenture) is equal to or
greater than the Consolidated Net Worth of the Company and its Subsidiaries
immediately prior to such transaction or series of transactions; and (v) the
Company or the Surviving Entity (if the Company is not the continuing obligor
under the Exchange Debenture Indenture) will, at the time of such transaction or
series of transactions and after giving pro forma effect thereto as if such
transaction or series of transactions had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the test set forth in the first paragraph of
the covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock." Notwithstanding the restrictions described in the
foregoing clauses (iv) and (v), any Restricted Subsidiary may consolidate with,
merge into or transfer all or part of its properties and assets to the Company,
and any Wholly Owned Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to another Wholly Owned
Restricted Subsidiary.
B-35
<PAGE>
TRANSACTIONS WITH AFFILIATES
The Exchange Debenture Indenture will provide that the Company will not, and
will not permit any of its Restricted Subsidiaries to, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any of its Affiliates (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction or series of Affiliated
Transactions complies with clause (i) above and that such Affiliate Transaction
or series of Affiliated Transactions has been approved in good faith by a
majority of the members of the Board of Directors who are disinterested with
respect to such Affiliate Transaction or series of Affiliated Transactions,
which resolution shall be conclusive evidence of compliance with this provision,
and (b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, the
Company delivers an Officer's Certificate certifying that such Affiliate
Transaction or series of related Affiliate Transactions complies with clause (i)
above and that such Affiliate Transaction or series of related Affiliate
Transactions has been approved in good faith by a resolution adopted by a
majority of the members of the Board of Directors of the Company who are
disinterested with respect to such Affiliate Transaction or series of related
Affiliate Transactions and an opinion as to the fairness to the Company or such
Subsidiary of such Affiliate Transaction or series of related Affiliate
Transactions from a financial point of view issued by an accounting, appraisal,
engineering or investment banking firm of national standing (which resolution
and fairness opinion shall be conclusive evidence of compliance with this
provision); PROVIDED that the foregoing provisions will not apply to the
following: (1) transactions contemplated by any employment agreement or other
compensation plan or arrangement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business, (2) transactions
between or among the Company and/or its Restricted Subsidiaries, (3) Restricted
Payments and Permitted Investments that are permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments," (4)
indemnification payments made to officers, directors and employees of the
Company or any Restricted Subsidiary pursuant to charter, bylaw, statutory or
contractual provisions and (5) any agreement as in effect as of the Issue Date
or any transaction contemplated thereby.
B-36
<PAGE>
ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED SUBSIDIARIES
The Exchange Debenture Indenture will provide that the Company (i) will not,
and will not permit any Wholly Owned Subsidiary of the Company to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly
Owned Subsidiary of the Company to any Person (other than the Company or a
Wholly Owned Subsidiary of the Company), unless (a) such transfer, conveyance,
sale, lease or other disposition is of all the Capital Stock of such Wholly
Owned Subsidiary and (b) the Net Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with the covenant described
above under the caption "--Asset Sales," and (ii) will not permit any Wholly
Owned Subsidiary of the Company to issue any of its Equity Interests (other
than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a Wholly Owned
Subsidiary; provided that the Company may, and may permit any Wholly Owned
Subsidiary of the Company to, take any of the actions referred to in (i) and
(ii) above so long as immediately after giving effect to such action, no more
than 10% of the Consolidated Net Tangible Assets of the Company and its
Subsidiaries is owned by other than Wholly Owned Subsidiaries of the Company.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any material respect in any business other than a Permitted Business.
PAYMENTS FOR CONSENT
The Exchange Debenture Indenture will provide that neither the Company nor
any of its Subsidiaries will, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
of any Exchange Debentures for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Exchange Debenture Indenture
or the Exchange Debentures unless such consideration is offered to be paid or is
paid to all Holders of the Exchange Debentures that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
REPORTS
The Exchange Debenture Indenture will provide that, whether or not required
by the rules and regulations of the Commission, so long as any Exchange
Debentures are outstanding, the Company will furnish to the Holders of Exchange
Debentures (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of the Company and
its consolidated Subsidiaries and, with respect to the annual information only,
a report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports, in each case within the
time periods set forth in the Commission's rules and regulations. In addition,
whether or not required by the rules and regulations of the Commission, the
Company will file a copy of such information and report with the Commission for
public availability within the time periods set forth in the Commission's rules
and regulations (unless the Commission will not accept such a filing).
EVENTS OF DEFAULT AND REMEDIES
The Exchange Debenture Indenture will provide that each of the following
constitutes an Event of Default: (i) a default for 30 days in the payment when
due of interest on the Exchange Debentures (whether or not prohibited by the
subordination provisions of the Exchange Debenture Indenture); (ii) a default in
payment when due of the principal of or premium, if any, on the Exchange
Debentures (whether
B-37
<PAGE>
or not prohibited by the subordination provisions of the Exchange Debenture
Indenture); (iii) the failure by the Company or any of its Restricted
Subsidiaries to comply with the provisions described under the caption
"Repurchase at the Option of Holders" and "Certain Covenants"; (iv) failure by
the Company for 30 days after notice from the Trustee or the Holders of at least
25% in aggregate principal amount of the Exchange Debentures then outstanding to
comply with any of its other agreements in the Exchange Debenture Indenture or
the Exchange Debentures; (v) a default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Exchange Debenture Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there is then existing a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more; (vi) the failure by the Company or
any of its Restricted Subsidiaries to pay final, non-appealable judgments
aggregating in excess of $5.0 million, which judgments remain unpaid or
discharged for a period of 60 days; and (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries or
any group of Subsidiaries that, taken together would constitute a Significant
Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the Exchange Debentures then outstanding
may declare the principal of and accrued but unpaid interest on such Exchange
Debentures to be due and payable immediately. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company or any Significant Subsidiary or any
group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Exchange Debentures will become due and payable
without further action or notice. Holders of the Exchange Debentures may not
enforce the Exchange Debenture Indenture or the Exchange Debentures except as
provided in the Exchange Debenture Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the Exchange Debentures then
outstanding may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Exchange Debentures notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Exchange
Debentures then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Exchange Debentures waive any existing Default or Event of
Default and its consequences under the Exchange Debenture Indenture except a
continuing Default or Event of Default in the payment of interest or premium on,
or the principal of, the Exchange Debentures.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Exchange Debenture Indenture, and the Company is
required, within five business days of becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or Event
of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Exchange Debentures
("Legal Defeasance") except for (i) the rights of Holders of such outstanding
Exchange Debentures to receive payments in respect of the principal of, premium,
if any, and interest on such Exchange Debentures when such payments are due from
the trust referred to below, (ii) the Company's obligations with respect to such
Exchange Debentures concerning issuing
B-38
<PAGE>
temporary Exchange Debentures, registration of such Exchange Debentures,
mutilated, destroyed, lost or stolen Exchange Debentures and the maintenance of
an office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Exchange Debenture Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Exchange
Debenture Indenture ("Covenant Defeasance") and thereafter any omission to
comply with such obligations shall not constitute a Default or Event of Default.
In the event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default and Remedies" will no longer constitute an
Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Exchange Debentures, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Exchange Debentures on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Exchange Debentures are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
such Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the date
of the Exchange Debenture Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall 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 Legal 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 Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to such Trustee
confirming 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 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; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Exchange Debenture Indenture) to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries is bound; (vi) the Company must have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of the Exchange Debentures over the other creditors of
the Company, or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Exchange Debentures in accordance with the
Exchange Debenture Indenture. The Registrar and the Trustee may require a
Holder, among other things, to furnish
B-39
<PAGE>
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Exchange
Debenture Indenture. The Company is not required to transfer or exchange any
Note selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of the Exchange
Debenture to be redeemed.
The registered Holder of an Exchange Debenture will be treated as the owner
of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Exchange
Debenture Indenture or the Exchange Debentures may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Exchange Debentures then outstanding (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, the Exchange Debentures), and any existing default or compliance with
any provision of the Exchange Debenture Indenture or the Exchange Debentures may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Exchange Debentures (including consents obtained in
connection with a tender offer or exchange offer for the Exchange Debentures).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Exchange Debentures held by a non-consenting Holder): (i)
reduce the principal amount of the Exchange Debentures whose Holders must
consent to an amendment, supplement or waiver, (ii) reduce the principal of or
change the fixed maturity of any Exchange Debenture or alter the provisions with
respect to the redemption of the Exchange Debentures (except as provided in the
next succeeding sentence), (iii) reduce the rate of or change the time for
payment of interest on any Exchange Debenture, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Exchange Debentures (except a rescission of acceleration of the Exchange
Debentures by the Holders of at least a majority in principal amount of such
Exchange Debentures and a waiver of the payment default that resulted from such
acceleration), (v) make any Exchange Debenture payable in money other than that
stated in the Exchange Debentures, (vi) make any change in the provisions of the
Exchange Debenture Indenture relating to waivers of past Defaults or the rights
of Holders of the Exchange Debentures to receive payments of principal of or
premium, if any, or interest on the Exchange Debentures or (vii) make any change
in the foregoing amendment and waiver provisions. In addition, any amendment to
the provisions described under "Repurchase at the Option of Holders" or the
provisions of Article 10 of the Exchange Debenture Indenture (which relate to
subordination) will require the consent of the Holders of at least 66 2/3% in
principal amount of the Exchange Debentures then outstanding if such amendment
would adversely affect the rights of Holders of such Exchange Debentures.
However, no amendment may be made to the subordination provisions of the
Exchange Debenture Indenture that adversely affects the rights of any holder of
Exchange Debenture Senior Debt then outstanding unless the holders of such
Exchange Debenture Senior Debt (or any group or representative thereof
authorized to give a consent) consents to such change.
Notwithstanding the foregoing, without the consent of any Holder of the
Exchange Debentures the Company and the Trustee may amend or supplement the
Exchange Debenture Indenture or the Exchange Debentures to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Exchange Debentures in
addition to or in place of certificated Exchange Debentures, to provide for the
assumption of the Company's obligations to Holders of the Exchange Debentures in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Exchange Debentures or that
does not adversely affect the legal rights under the Exchange Debenture
Indenture of any such Holder, to secure the Exchange Debentures or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Exchange Debenture Indenture under the Trust Indenture Act.
B-40
<PAGE>
CONCERNING THE TRUSTEE
The Exchange Debenture Indenture contains certain limitations on the rights
of the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest,
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Exchange Debenture Indenture provides that in
case an Event of Default shall occur (which shall not be cured), the Trustee
will be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Exchange Debenture Indenture at the request of any Holder of the
Exchange Debentures, unless such Holder shall have offered to such Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
GOVERNING LAW
The Exchange Debenture Indenture and the Exchange Debentures provide that
they will be governed by the laws of the State of New York.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Certificate of
Designation and in the Exchange Debenture Indenture. Reference is made to the
Certificate of Designation and the Exchange Debenture Indenture for a full
definition of all such terms, as well as any other capitalized terms used herein
for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition (but
excluding the creation of a Lien) of any assets including, without limitation,
by way of a sale and leaseback (PROVIDED that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Exchange Debenture Indenture described above under the caption "-- Repurchase at
the Option of Holders -- Change of Control" and/or the provisions described
above under the caption "-- Certain Covenants -- Merger, Consolidation, or Sale
of Assets" and not by the provisions described above under "-- Repurchase at the
Option of Holders -- Asset Sales"), and (ii) the issue or sale by the Company or
any of its Restricted Subsidiaries of Equity Interests of any of the Company's
Subsidiaries (including the sale by the Company or a Restricted Subsidiary of
Equity Interests in an Unrestricted Subsidiary), in the case of either clause
(i) or (ii), whether
B-41
<PAGE>
in a single transaction or a series of related transactions (a) that have a fair
market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing, the following shall not be deemed to be
Asset Sales: (i) a transfer of assets by the Company to a Wholly Owned
Restricted Subsidiary of the Company or by a Wholly Owned Restricted Subsidiary
of the Company to the Company or to another Wholly Owned Restricted Subsidiary
of the Company; (ii) an issuance of Equity Interests by a Wholly Owned
Restricted Subsidiary of the Company to the Company or to another Wholly Owned
Restricted Subsidiary of the Company; (iii) the making of a Restricted Payment
or Permitted Investment that is permitted by the covenant described above under
the caption "-- Certain Covenants -- Restricted Payments"; (iv) a disposition of
cash or Cash Equivalents; (v) a disposition of either obsolete equipment or
equipment that is damaged, worn out or otherwise no longer useful in the
business; (vi) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary; (vii) any sale and leaseback of an
asset within 90 days after the completion of construction or acquisition of such
asset; (viii) any surrender or waiver of contract rights or a settlement,
release or surrender of contract, tort or other claims of any kind or a grant of
any Lien not prohibited by the Exchange Debenture Indenture; (ix) any transfer
of properties or assets that is governed by the provisions of the Exchange
Debenture Indenture described under the caption "--Certain Covenants--Asset
Swaps"; or (x) a disposition of inventory in the ordinary course of business.
"ASSET SWAP" means the execution of a definitive agreement, subject only to
regulatory approval and other customary closing conditions, that the Company in
good faith believes will be satisfied, for a substantially concurrent purchase
and sale, or exchange, of assets used or useful in a Permitted Business between
the Company or any of its Restricted Subsidiaries and another person or group of
affiliated persons; provided that any amendment to or waiver of any closing
conditions which individually or in the aggregate is material to the Asset Swap
shall be deemed to be a new Asset Swap.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of interest
implicit in such transaction, determined in accordance with GAAP) of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such sale and leaseback transaction (including any period
for which such lease has been extended or may, at the option of the lessor, be
extended).
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability company or
similar entity, any membership or similar interests therein and (v) any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, the issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and eurodollar
time deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding one year and overnight bank
deposits, in each case with any lender party to the Credit Facility or with any
domestic commercial bank having capital and surplus in excess of $500 million
and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above and (v)
commercial paper having a rating of at least P2 from Moody's Investors Service,
Inc. (or its successor) and a rating of at least A2 from Standard & Poor's
Ratings Services (or its successor) and
B-42
<PAGE>
(vi) investments in money market or other mutual funds substantially all of
whose assets comprise securities of types described in clauses (ii) through (v)
above.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" or group of related "persons" (a "Group") (as such terms
are used in Section 13(d)(3) of the Exchange Act) other than a Principal or a
Related Party of a Principal, (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any purchase, sale, acquisition,
disposition, merger or consolidation) the result of which is that any "person"
(as defined above) or Group other than a Principal or a Related Party of a
Principal becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act) of more than 35% of the aggregate voting
power of all classes of Capital Stock of the Company having the right to elect
directors under ordinary circumstances or (iv) the first day on which a majority
of the members of the Board of Directors of the Company are not Continuing
Directors.
"COMMISSION" means the Securities and Exchange Commission.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the sum of, without duplication, the Consolidated Net Income of such Person for
such period plus (i) provision for taxes based on income or profits of such
Person and its Subsidiaries for such period, to the extent that such provision
for taxes was included in computing such Consolidated Net Income, plus (ii)
Consolidated Interest Expense of such Person for such period, to the extent that
any such expense was deducted in computing such Consolidated Net Income, plus
(iii) consolidated depreciation, amortization and other non-cash charges of the
Person and its Subsidiaries deducted in computing Consolidated Net Income of
such Person for such period plus (iv) cash payments with respect to any non-cash
charges previously added back pursuant to clause (iii). Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum, without duplication of (i) the consolidated interest expense of
such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), (ii) the consolidated interest expense of such Person
and its Restricted Subsidiaries that was capitalized during such period, (iii)
any interest expense on Indebtedness of another Person that is guaranteed by
such Person or any of its Restricted Subsidiaries or secured by a Lien on assets
of such Person or any of its Restricted Subsidiaries (whether or not such
guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Restricted Subsidiary) on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; PROVIDED
that (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to
B-43
<PAGE>
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior government approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded, and (v) all other extraordinary gains and extraordinary
losses shall be excluded.
"CONSOLIDATED NET TANGIBLE ASSETS" of a Person means the consolidated total
assets of such Person and its consolidated Subsidiaries determined in accordance
with GAAP, less the sum of (i) all current liabilities and current liability
items, and (ii) all goodwill, trade names, trademarks, patents, organization
expense, unamortized debt discount and expense and other similar intangibles
properly classified as intangibles in accordance with GAAP.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock (or, in the case of the preferred
stock to be issued on the Issue Date in exchange for the NML Preferred Stock, to
the extent of cash received by the Company upon the original issuance of the NML
Preferred Stock), less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the date on which the Exchange Debentures are first issued in the
book value of any asset owned by such Person or a consolidated Subsidiary of
such Person, (y) all investments as of such date in unconsolidated Subsidiaries
and in Persons that are not Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of original issuance of the Exchange Debentures or (ii)
was nominated for election or elected to such Board of Directors with the
approval of (x) two-thirds of the Continuing Directors who were members of such
Board at the time of such nomination or election or (y) two-thirds of those
Directors who were previously approved by Continuing Directors.
"CREDIT AGREEMENTS" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Facility) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, production payments, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Indebtedness under
Credit Agreements outstanding on the date on which the Exchange Debentures are
first issued and authenticated under the Exchange Debenture Indenture (after
giving effect to the use of proceeds thereof) shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (b) of the
definition of Permitted Indebtedness.
B-44
<PAGE>
"CREDIT FACILITY" means that certain Credit Agreement, dated as of March 2,
1998 by and among the Company, Lehman Brothers Inc., as Arranger, and Lehman
Brothers Commercial Paper Inc., as Syndication Agent and Administrative Agent
and as a lender, and certain banks, financial institutions and other entities,
as lenders, providing for up to $190 million of Indebtedness, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, restated,
modified, renewed, refunded, replaced or refinanced, in whole or in part, from
time to time, whether or not with the same lenders or agents.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, is convertible
or exchangeable for Indebtedness or Disqualified Stock or redeemable at the
option of the holder thereof, in whole or in part, on or prior to the date that
is 91 days after the date on which the Exchange Debentures mature, PROVIDED
HOWEVER, that any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof (or of any security into which it is convertible or
for which it is exchangeable) have the right to require the issuer to repurchase
such Capital Stock (or such security into which it is convertible or for which
it is exchangeable) upon the occurrence of any of the events constituting an
Asset Sale or a Change of Control shall not constitute Disqualified Stock if
such Capital Stock (and all such securities into which it is convertible or for
which it is exchangeable) provides that the issuer thereof will not repurchase
or redeem any such Capital Stock (or any such security into which it is
convertible or for which it is exchangeable) pursuant to such provisions prior
to compliance by the Company with the provisions of the Exchange Debenture
Indenture described under the caption "Repurchase at the Option of Holders--
Change of Control" or "Repurchase at the Option of Holders--Asset Sales," as the
case may be.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXCHANGE DEBENTURE DESIGNATED SENIOR DEBT" means (i) the Credit Facility,
(ii) the Notes and (iii) any other Senior Debt permitted under the Exchange
Debenture Indenture the principal amount of which is $25.0 million or more and
that has been designated by the Company as "Exchange Debenture Designated Senior
Debt."
"EXCHANGE DEBENTURE HOLDER" means the Person in whose name an Exchange
Debenture is registered.
"EXCHANGE DEBENTURE PARI PASSU DEBT" means the Exchange Debentures and any
other Indebtedness of the Company that (i) specifically provides that such
Indebtedness is to rank PARI PASSU with the Exchange Debentures or is otherwise
entitled "Senior Subordinated" Indebtedness and (ii) is not expressly
subordinated by its terms in right of payment to any Indebtedness of the Company
that is not Exchange Debenture Senior Debt.
"EXCHANGE DEBENTURE SENIOR DEBT" means (i) Indebtedness of the Company or
any Subsidiary of the Company under or in respect of any Credit Agreement and
the Notes, whether for principal, interest (including interest accruing after
the filing of a petition initiating any proceeding pursuant to any bankruptcy
law, whether or not the claim for such interest is allowed as a claim in such
proceeding), reimbursement obligations, fees, commissions, expenses, indemnities
or other amounts, and (ii) any other Indebtedness permitted under the terms of
the Exchange Debenture Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Exchange Debentures. Notwithstanding
anything to the contrary in the foregoing sentence, Exchange Debenture Senior
Debt will not include (w) any liability for federal, state, local or other taxes
owed or owing by the Company, (x) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates or (y) any Indebtedness that is incurred in
violation of the Exchange Debenture
B-45
<PAGE>
Indenture (other than Indebtedness under (i) the Credit Facility or (ii) any
other Credit Agreement that is incurred on the basis of a representation by the
Company to the applicable lenders that it is permitted to incur such
Indebtedness under the Exchange Debenture Indenture).
"EXCHANGE DEBENTURE SUBORDINATED DEBT" means any Indebtedness of the Company
(whether outstanding on the date of the Exchange Debenture Indenture or
thereafter Incurred) which is expressly subordinate in right of payment to the
Exchange Debentures pursuant to a written agreement.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements with respect to Indebtedness that
is permitted by the terms of the Exchange Debenture Indenture and (ii) other
agreements or arrangements designed to protect such Person against fluctuation
in interest rates or the value of foreign currencies purchased or received by
such Person in the ordinary course of business.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, (i) in respect of borrowed money, or (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or reimbursement agreements in respect thereof (other than letters of
credit securing obligations not constituting Indebtedness that are issued in the
ordinary course of business by a Person to the extent not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit) or bankers' acceptances, or (iii)
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or services, except any such balance that
constitutes an accrued expense or trade payable for such property or services,
or (iv) representing any Hedging Obligations, in each case if and to the extent
any of the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any Indebtedness of any other Person.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business and
extensions of trade credit in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not sold or disposed of.
"ISSUE DATE" means the date on which the Series A Preferred Stock was
originally issued.
B-46
<PAGE>
"LEVERAGE RATIO" means the ratio of (i) the aggregate outstanding amount of
Indebtedness of the Company and its Subsidiaries as of the date of calculation
on a consolidated basis in accordance with GAAP (subject to the terms described
in the next paragraph) plus the aggregate liquidation preference of all
outstanding Disqualified Stock of the Company and preferred stock of the
Company's Subsidiaries (except preferred stock issued to the Company or a Wholly
Owned Subsidiary of the Company) on such date to (ii) the Consolidated Cash Flow
of the Company for the four full fiscal quarters (the "Four Quarter Period")
ending on or prior to the date of determination.
For purposes of this definition, (i) the amount of Indebtedness which is
issued at a discount shall be deemed to be the accreted value of such
Indebtedness at the end of the Four Quarter Period, whether or not such amount
is the amount then reflected on a balance sheet prepared in accordance with
GAAP, and (ii) the aggregate outstanding principal amount of Indebtedness of the
Company and its Subsidiaries and the aggregate liquidation preference of all
outstanding preferred stock of the Company's Subsidiaries for which such
calculation is made shall be determined on a pro forma basis as if the
Indebtedness and preferred stock giving rise to the need to perform such
calculation had been incurred and issued and the proceeds therefrom had been
applied, and all other transactions in respect of which such Indebtedness is
being incurred or preferred stock is being issued had occurred, on the first day
of the Four Quarter Period. In addition to the foregoing, for purposes of this
definition, Consolidated Cash Flow shall be calculated on a pro forma basis
after giving effect to (i) the incurrence of the Indebtedness of such Person and
its Subsidiaries and the issuance of the preferred stock of such Subsidiaries
(and the application of the proceeds therefrom) giving rise to the need to make
such calculation and any incurrence (and the application of the proceeds
therefrom) or repayment of other Indebtedness, other than the incurrence or
repayment of Indebtedness pursuant to working capital facilities, at any time
subsequent to the beginning of the Four Quarter Period and on or prior to the
date of determination, as if such incurrence or issuance (and the application of
the proceeds thereof), or the repayment, as the case may be, occurred on the
first day of the Four Quarter Period, (ii) any acquisition (including, without
limitation, any acquisition giving rise to the need to make such calculation as
a result of such Person or one of its Subsidiaries (including any Person that
becomes a Subsidiary as a result of such acquisition) incurring, assuming or
otherwise becoming liable for Indebtedness or such Person's Subsidiaries issuing
preferred stock) at any time on or subsequent to the first day of the Four
Quarter Period and on or prior to the date of determination, as if such
acquisition (including the incurrence, assumption or liability for any such
Indebtedness and the issuance of such preferred stock and also including any
Consolidated Cash Flow associated with such acquisition) occurred on the first
day of the Four Quarter Period. For purposes of this definition, whenever pro
forma effect is to be given to a transaction, the pro forma calculations shall
be made in good faith by a responsible financial or accounting officer of the
Company consistent with Article 11 of Regulation S-X, promulgated pursuant to
the Securities Act, as such Regulation is in effect on the date on which the
Exchange Debentures are first issued. Furthermore, in calculating "Consolidated
Interest Expense" for purposes of the calculation of "Consolidated Cash Flow,"
(i) interest on Indebtedness determined on a fluctuating basis as of the date of
determination (including Indebtedness actually incurred on the date of the
transaction giving rise to the need to calculate the Leverage Ratio) and which
will continue to be so determined thereafter shall be deemed to have accrued at
a fixed rate per annum equal to the rate of interest on such Indebtedness as in
effect on the date of determination and (ii) notwithstanding (i) above, interest
determined on a fluctuating basis, to the extent such interest is covered by
Hedging Obligations, shall be deemed to accrue at the rate per annum resulting
after giving effect to the operation of such agreements.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction other than a
precautionary financing statement with respect to a lease not intended as a
security agreement).
B-47
<PAGE>
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and after any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for taxes on such gain or loss, realized in
connection with (a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or Asset Swap or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or
loss, together with any related provision for taxes on such extraordinary or
nonrecurring gain or loss.
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale, but excluding cash amounts
placed in escrow, until such amounts are released to the Company), net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and expenses, and sales commissions) and
any relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Indebtedness under any Credit
Agreement) secured by a Lien on the asset or assets that were the subject of
such Asset Sale and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP and any reserve
established for future liabilities.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness), or (b) is directly or
indirectly liable (as a guarantor or otherwise); and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) the explicit terms of which provide that there is
no recourse against any of the assets of the Company or its Restricted
Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED BUSINESS" means the broadcasting business or any business that is
reasonably similar thereto or a reasonable extension, development or expansion
thereof or ancillary thereto.
"PERMITTED INDEBTEDNESS" has the meaning given in the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock."
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents or securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition; (c) any
Investment by the Company or any Restricted Subsidiary of the Company in a
Person if, as a result of such Investment, (i) such Person becomes a Wholly
Owned Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys all or
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) other
Investments in any Person or Persons having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to
B-48
<PAGE>
this clause (e) that are at the time outstanding without giving effect to
subsequent changes in value or increases or decreases attributable to the
accounting for the net income of such Investment, not to exceed $15.0 million;
(f) any Investment acquired by the Company in exchange for Equity Interests in
the Company (other than Disqualified Stock); (g) any Investment acquired by the
Company or any of its Restricted Subsidiaries (A) in exchange for any other
Investment or accounts receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment or
accounts receivable or (B) as a result of the transfer of title with respect to
any secured investment in default as a result of a foreclosure by the Company or
any of its Restricted Subsidiaries with respect to such secured Investment; (h)
Hedging Obligations permitted under the "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant; (i) loans and advances
to officers, directors and employees for business-related travel expenses,
moving expenses and other similar expenses, in each case, incurred in the
ordinary course of business; and (j) any guarantees permitted to be made
pursuant to the covenant entitled "Certain Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock."
"PERMITTED LIENS" means (i) Liens securing Indebtedness of a Subsidiary or
Liens securing Exchange Debenture Senior Debt that is outstanding on the date of
issuance of the Exchange Debentures and Liens securing Exchange Debenture Senior
Debt that is permitted by the terms of the Exchange Debenture Indenture to be
incurred; (ii) Liens in favor of the Company; (iii) Liens on property existing
at the time of acquisition thereof by the Company or any Subsidiary of the
Company and Liens on property or assets of a Subsidiary existing at the time it
became a Subsidiary, PROVIDED that such Liens were in existence prior to the
contemplation of the acquisition and do not extend to any assets other than the
acquired property; (iv) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance or
other kinds of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business; (v) Liens existing on the date of the Exchange Debenture
Indenture; (vi) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, PROVIDED
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (vii) statutory liens of
landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like
Liens arising in the ordinary course of business; (viii) judgment Liens not
giving rise to an Event of Default so long as any appropriate legal proceeding
that may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceeding may be
initiated shall not have expired; (ix) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (e) of the second paragraph of
the covenant entitled "--Certain Covenants-- Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with such
Indebtedness; (x) Liens incurred in the ordinary course of business of the
Company or any Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding and that (A) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (B) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Subsidiary; (xi) easements, rights-of-way, zoning and similar restrictions and
other similar encumbrances or title defects incurred or imposed, as applicable,
in the ordinary course of business and consistent with industry practices which,
in the aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto (as such
property is used by the Company or its Subsidiary) or interfere with the
ordinary conduct of the business of the Company or such Subsidiary; provided,
however, that any such Liens are not incurred in connection with any borrowing
of money or any commitment to loan any money or to extend any credit; and (xii)
customary Liens (other than any Lien imposed by ERISA) incurred or deposits made
in the ordinary course of business in connection with worker's compensation,
unemployment insurance and other types of social security legislation.
B-49
<PAGE>
"PERMITTED REFINANCING DEBT" means any Indebtedness of the Company or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness (other than Indebtedness incurred under a Credit Agreement) of the
Company or any of its Restricted Subsidiaries; PROVIDED that: (i) the principal
amount of such Permitted Refinancing Indebtedness does not exceed the principal
amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased
or refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date on or later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is Exchange Debenture Subordinated Debt, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Exchange
Debentures on terms at least as favorable taken as a whole to the Holders of the
Exchange Debentures as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"PRINCIPAL" means Richard W. Weening and Lewis W. Dickey, Jr.
"RELATED PARTY" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned subsidiary, or spouse or immediate family
member (in the case of an individual) of such principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means any direct or indirect Subsidiary of the
Company that is not an Unrestricted Subsidiary.
"SERIES A PREFERRED STOCK HOLDER" means the Person in whose name a share of
Series A Preferred Stock is registered.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the Exchange Debenture Indenture.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock, entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company which at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary or a Person becoming a Subsidiary through merger or
consolidation or Investment therein) to be an Unrestricted Subsidiary only if
(a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien
on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary
B-50
<PAGE>
to be so designated or otherwise an Unrestricted Subsidiary; (b) all the
Indebtedness of such Subsidiary shall, at the date of designation, and will at
all times thereafter, consist of Non-Recourse Debt; (c) the Company certifies
that such designation complies with the "Limitation on Restricted Payments"
covenant; (d) such Subsidiary, either alone or in the aggregate with all other
Unrestricted Subsidiaries, does not operate, directly or indirectly, all or
substantially all of the business of the Company and its Subsidiaries; (e) such
Subsidiary does not, directly or indirectly, own any Indebtedness of or Equity
Interest in, and has no investments in, the Company or any Restricted
Subsidiary; (f) such Subsidiary is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (1) to subscribe for additional Equity Interests or (2) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; and (g) on the date such Subsidiary
is designated an Unrestricted Subsidiary, such Subsidiary is not a party to any
agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary with terms substantially less favorable to the Company
than those that might have been obtained from Persons who are not Affiliates of
the Company. Any such designation by the Board of Directors of the Company shall
be evidenced to the Trustee by filing with the Trustee a resolution of the Board
of Directors of the Company giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Exchange Debenture
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
as of such date. The Board of Directors of the Company may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that
immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof and the Company could incur at least $1.00 of additional Indebtedness
(excluding Permitted Indebtedness) pursuant to the first paragraph of the
"Incurrence of Indebtedness and Issuance of Preferred Stock" covenant on a pro
forma basis taking into account such designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned, directly or indirectly, by such Person or by one or more
Wholly Owned Restricted Subsidiaries of such Person.
B-51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Preferred Stock Offering, the Company will have
outstanding shares of Series A Preferred Stock. Of these shares, the
shares of Series A Preferred Stock offered hereby will be freely
transferable without restriction (subject to any FCC consent that might be
required) or further registration under the Securities Act, except that any
shares purchased by "affiliates" of the Company, as that term is defined in Rule
144 may generally only be sold subject to certain restrictions as to timing,
manner and volume.
In general, under Rule 144 as currently in effect, a shareholder, including
an Affiliate, who has beneficially owned his or her restricted securities (as
that term is defined in Rule 144) for at least one year from the later of the
date such securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate is entitled to sell, within any three-month
period, a number of such shares that does not exceed the greater of 1% of the
then outstanding shares of Series A Preferred Stock or the average weekly
trading volume in the Series A Preferred Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at the time of sale and has not been an Affiliate of
the Company for at least three months prior to the sale is entitled to sell the
shares immediately without compliance with the foregoing requirements under Rule
144.
Prior to the Preferred Stock Offering, there has been no public market for
the Series A Preferred Stock. No prediction can be made as to the effect, if
any, that market sales of shares of Series A Preferred Stock or the availability
of shares for sale will have on the market price of the Series A Preferred Stock
prevailing from time to time. Nevertheless, sales of significant numbers of
shares of Series A Preferred Stock in the public market could adversely affect
the market price of the Series A Preferred Stock and could impair the Company's
ability to raise capital through an offering of its equity securities. See
"Underwriting."
B-52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of , 1998 and as adjusted to
give effect to the sale of Class A Common Stock offered pursuant to the Stock
Offering, certain information regarding beneficial ownership of the Company's
Common Stock by (i) each person who is known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of common stock, (ii) each
director, (iii) each of the Named Executive Officers and (iv) all directors and
executive officers as a group. All persons listed have sole voting and
investment power with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK
-------------------------------------------------------------------------------------------
PRIOR TO STOCK AFTER STOCK OFFERINGS
OFFERINGS
---------------------------------- SHARES BEING ----------------------------------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ---------------------------- --------------- ----------------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
State of Wisconsin
Investment Board
NationsBanc Capital Corp.
Heller Equity Capital
Corporation
The Northwestern Mutual Life
Insurance Company
CML Holdings, LLC
QUAESTUS Management
Corporation
DBBC of Georgia, LLC
Richard W. Weening
Lewis W. Dickey, Jr.
William M. Bungeroth
Richard J. Bonick, Jr.
Robert H. Sheridan, III
Ralph B. Everett
<CAPTION>
CLASS B COMMON STOCK(1)
----------------------------------------------------------------------
PRIOR TO STOCK AFTER STOCK OFFERINGS
OFFERINGS
---------------------------------- ----------------------------------
NAME NUMBER PERCENTAGE NUMBER PERCENTAGE
- ---------------------------- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
State of Wisconsin
Investment Board
NationsBanc Capital Corp.
Heller Equity Capital
Corporation
The Northwestern Mutual Life
Insurance Company
CML Holdings, LLC
QUAESTUS Management
Corporation
DBBC of Georgia, LLC
Richard W. Weening
Lewis W. Dickey, Jr.
William M. Bungeroth
Richard J. Bonick, Jr.
Robert H. Sheridan, III
Ralph B. Everett
</TABLE>
- ------------------------
(1) Except upon the occurrence of certain events, holders of Class B Common
Stock are not entitled to vote, whereas each share of Class A Common Stock
entitles its holder to one vote. Under certain conditions and subject to
prior governmental approval, shares of Class B Common Stock are convertible
into shares of Class A Common Stock.
(2) Less than 1%.
B-53
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement dated
, 1998 (the "Underwriting Agreement") among the Company and the
Underwriters, the Underwriters named below (collectively, the "Underwriters"),
acting through their representatives, Bear, Stearns & Co., Inc. and Lehman
Brothers Inc. (the "Representatives") have agreed, severally and not jointly, to
purchase from the Company and the Company has agreed to sell to the Underwriters
the number of shares of the Series A Preferred Stock set forth opposite their
names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Bear, Stearns & Co. Inc........................................................................
Lehman Brothers Inc............................................................................
-----------------
Total........................................................................................
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, and that the Underwriters are
severally committed to take and pay for all of the Shares of Series A Preferred
Stock if any are taken. The closing of the Stock Offering and the Debt Offering
are conditions to the closing of the Preferred Stock Offering. The Company has
agreed to indemnify the Underwriters against certain liabilities in connection
with the offer and sale of the Series A Preferred Stock, including liabilities
under the Securities Act, and to contribute to payments that the Underwriters
may be required to make in respect thereof.
The Underwriters propose to offer all or part of the Series A Preferred
Stock directly to the public at the public offering price set forth on the cover
page hereof and all or part to certain dealers at a price which represents
concessions not to exceed % of the principal amount of the Series A Preferred
Stock. The Underwriters may allow, and any such dealer may reallow, concessions
to certain other dealers not to exceed % of the principal amount of the
Series A Preferred Stock. After the initial public offering, the public offering
price and such concessions may be changed.
The Series A Preferred Stock will constitute a new class of securities with
no established trading market. The Company does not intend to list the Series A
Preferred Stock on any national securities exchange or to seek the admission
thereof to trading in the Nasdaq National Market. The Company has been advised
by the Representatives that following the completion of the Preferred Stock
Offering, the Representatives intend to make a market in the Series A Preferred
Stock. However, they are not obligated to do so and any market-making activities
with respect to the Series A Preferred Stock may be discontinued at any time
without notice.
In order to facilitate the Preferred Stock Offering, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Series A Preferred Stock during and after the Preferred Stock Offering.
Specifically, the Underwriters may over-allot or otherwise create a short
position in the Series A Preferred Stock for their own account by selling more
Series A Preferred Stock than have been sold to them by the Company. The
Underwriters may elect to cover any such short position by purchasing Series A
Preferred Stock in the open market. In addition, the Underwriters may stabilize
or maintain the price of the Series A Preferred Stock by bidding for or
purchasing shares of the Series A Preferred Stock in the open market and may
impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in the Preferred Stock Offering
are reclaimed
B-54
<PAGE>
if Series A Preferred Stock previously distributed in the Preferred Stock
Offering are repurchased in connection with stabilization transactions or
otherwise. The effect of these transactions may be to stabilize or maintain the
market price of the Series A Preferred Stock at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the Series A Preferred Stock to the extent that it
discourages resales thereof. No representation is made as to the magnitude or
effect of any such stabilization or other transactions. Such transactions, if
commenced may be discontinued at any time.
Lehman Brothers Inc. and Lehman Brothers Commercial Paper Inc., an affiliate
of Lehman Brothers Inc., act as Arranger, and Syndication Agent and
Administrative Agent, respectively, in connection with the Credit Facility and
will receive any repayment by the Company of amounts outstanding under the
Credit Facility from the proceeds of the Offerings. Lehman Brothers Inc. and
Bear, Stearns & Co. Inc. ("Bear Stearns") will act as representatives of the
Underwriters in the concurrent Debt Offering and the concurrent Stock Offering.
Each of the Representatives has engaged from time to time and may in the future
engage in general financing and banking transactions with the Company or
affiliates thereof.
The Preferred Stock Offering is being made pursuant to the provisions of
Section 2710(c)(8) of the Conduct Rules of the National Association of
Securities Dealers, Inc. Bear Stearns has agreed to act as Qualified Independent
Underwriter for the Preferred Stock Offering, and as such has assumed
responsibilities of conducting due diligence and has reviewed and participated
in the preparation of the Registration Statement. The public offering price of
the Series A Preferred Stock will not be higher than the price recommended by
Bear Stearns.
B-55
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax consequences generally applicable to purchasers of the Preferred Stock
offered hereby. The federal income tax considerations set forth below are based
upon currently existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable Treasury Regulations ("Treasury Regulations"),
judicial authority, and current administrative rulings and pronouncements of the
Internal Revenue Service (the "IRS"). There can be no assurance that the IRS
will not take a contrary view, and no ruling from the IRS has been, or will be,
sought on the issues discussed herein. Legislative, judicial, or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the tax consequences discussed
below. This discussion applies only to a person who is an initial beneficial
owner of the Series A Preferred Stock and (i) an individual citizen or resident
of the United States for U.S. federal income tax purposes, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income tax regardless of source,
(iv) a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust, or (v) any other
person whose income or gain in respect of the Series A Preferred Stock or
Exchange Debentures is effectively connected with the conduct of a United States
trade or business (or, if applicable, attributable to a permanent establishment
situated in the United States (a "Holder").
The summary is not a complete analysis or description of all potential
federal tax considerations that may be relevant to, or of the actual tax effect
that any of the matters described herein will have on, particular Holders, and
does not address foreign, state, local or other tax consequences. This summary
does not address the federal income tax consequences to (a) special classes of
taxpayers (such as S corporations, mutual funds, insurance companies, financial
institutions, small business investment companies, foreign companies,
nonresident alien individuals, regulated investment companies, real estate
investment trusts, dealers in securities or currencies, broker-dealers and
tax-exempt organizations) who are subject to special treatment under the federal
income tax laws, (b) Holders that hold the Series A Preferred Stock as part of a
position in a "straddle", or as part of a "hedging", "conversion", or other
integrated investment transaction for federal income tax purposes, (c) Holders
that do not hold the Series A Preferred Stock, and the Exchange Debentures that
may be issued in redemption of the Series A Preferred Stock as capital assets
within the meaning of section 1221 of the Code or (d) Holders whose functional
currency is not the U.S. dollar. Furthermore, estate and gift tax consequences
are not discussed herein. The Company does not intend to treat the Series A
Preferred Stock, the Notes and the Class A Common Stock, all of which are being
offered concurrently, as an investment unit for United States federal income tax
purposes.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH PROSPECTIVE PURCHASER OF
THE SERIES A PREFERRED STOCK IS STRONGLY URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO HIS OR HER PARTICULAR TAX SITUATION AND AS TO ANY
FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY
POSSIBLE CHANGES IN TAX LAW) AFFECTING THE PURCHASE, HOLDING AND DISPOSITION OF
THE SERIES A PREFERRED STOCK OR THE EXCHANGE DEBENTURES.
DIVIDENDS ON THE SERIES A PREFERRED STOCK
Dividends paid on the Series A Preferred Stock (including dividends paid
through the issuance of additional shares of Series A Preferred Stock) will be
taxable as ordinary income to the extent of the Company's current or accumulated
earnings and profits (as determined for federal income tax purposes). To the
extent that the amount of distributions paid on the Series A Preferred Stock
exceeds the Company's
B-56
<PAGE>
current or accumulated earnings and profits, the distributions will be treated
as a return of capital, thus reducing the Holder's adjusted tax basis in such
Series A Preferred Stock and increasing the amount of gain (or reducing the
amount of loss) that may be realized by such Holder upon a sale or exchange of
the Series A Preferred Stock. The amount of any distribution which exceeds the
Holder's adjusted basis in the Series A Preferred Stock will be taxed as capital
gain, and generally will be long-term capital gain if the Holder's holding
period for such Series A 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.
DIVIDENDS RECEIVED DEDUCTION. Dividends paid to a corporate Holder who owns
less than 20 percent of the Company (by vote or value) will be eligible for the
70 percent dividends-received deduction under section 243 of the Code, subject
to the limitations contained in sections 246 and 246A of the Code. In general,
the dividends-received deduction is available only if the stock in respect of
which the dividend is paid is held for at least 46 days during the 90-day period
that begins 45 days before the stock becomes ex-dividend with respect to the
dividend (91 days during the 180-day period that begins 90 days before the stock
becomes ex-dividend with respect to a dividend in the case of a dividend
attributable to a period or periods aggregating more than 366 days). Under
section 246(c) of the Code, a taxpayer's holding period for these purposes is
reduced by periods during which the taxpayer's risk of loss with respect to the
stock is considered diminished by reason of the existence of options, contracts
to sell and similar transactions. The dividends-received deduction will also not
be available if the taxpayer is under an obligation to make related payments
with respect to positions in substantially similar or related property. The
dividends-received deduction is limited to specified percentages of a corporate
Holder's taxable income and may be reduced or eliminated if the corporate Holder
has indebtedness "directly attributable" to its investment in the stock.
Prospective corporate purchasers of the Series A Preferred Stock should consult
their own tax advisors to determine whether these limitations might apply to
them.
For purposes of computing its alternative minimum tax, dividends eligible
for the 70 percent dividends-received deduction are included in a corporate
Holder's "adjusted current earnings." If such adjusted current earnings exceed
the corporate Holder's alternative minimum taxable income (determined without
regard to the adjustments for adjusted current earnings or the alternative tax
net operating loss deduction), 75 percent of the excess is added to the Holder's
alternative minimum taxable income.
EXTRAORDINARY DIVIDENDS. Under section 1059 of the Code, if a corporate
Holder receives an "extraordinary dividend" from the Company with respect to the
Series A Preferred Stock which it has not held for more than two years on the
dividend announcement date, the basis of the Series A Preferred Stock will be
reduced (but not below zero) by the non-taxed portion of the dividend. The
reduction in basis is treated as occurring at the beginning of the ex-dividend
date of the extraordinary dividend to which the reduction relates. If, because
of the limitation on reducing basis below zero, any amount of the non-taxed
portion of an extraordinary dividend has not been applied to reduce basis, such
amount will be treated as gain from the sale or exchange of the Series A
Preferred Stock in the year in which the extraordinary dividend is received.
Generally, the non-taxed portion of an extraordinary dividend is the amount
excluded from income under section 243 of the Code (relating to the
dividends-received deduction). An extraordinary dividend on the Series A
Preferred Stock generally would include any dividend that (i) equals or exceeds
five percent of the Holder's adjusted tax basis in the Series A Preferred Stock,
treating all dividends having ex-dividend dates within an 85-day period as one
dividend or (ii) exceeds 20 percent of the Holder's adjusted tax basis in the
Series A Preferred Stock, treating all dividends having ex-dividend dates within
a 365-day period as one dividend. In determining whether a dividend paid on the
Series A Preferred Stock is an extraordinary dividend, a Holder may elect to use
the fair market value of such stock rather than its adjusted tax basis for
purposes of determining the applicable percentage limitation if the Holder is
able to establish to the satisfaction of the IRS the fair market value of the
Series A Preferred Stock as of the day before the ex-dividend date. An
extraordinary dividend would also include any amount treated as a dividend in
the case of a redemption of the Series A Preferred Stock that is either non-pro
rata
B-57
<PAGE>
as to all holders of Company stock or part of a partial liquidation, without
regard to the period the Holder held the stock. Corporate Holders should see
"Redemption of the Series A Preferred Stock" for a discussion of when a
redemption of the Series A Preferred Stock will constitute an extraordinary
dividend.
Certain "qualified preferred dividends," however, are not considered
extraordinary dividends. A qualified preferred dividend is any fixed dividend
payable with respect to preferred stock which (i) provides for fixed preferred
dividends payable not less frequently than annually and (ii) is not in arrears
as to dividends when acquired, provided, however, that the actual rate of return
(as determined under section 1059(e)(3) of the Code) on such stock does not
exceed 15 percent. If a qualified preferred dividend announced within two years
of the date of acquisition of the preferred stock exceeds the five percent (or
20 percent) threshold for extraordinary dividend status described above, (i)
section 1059(a) will not apply (and no reduction in basis will be required) if
the Holder holds the stock for more than five years and (ii) if the Holder
disposes of the stock before it has been held for more than five years, the
aggregate reduction in basis under section 1059(a) will not exceed the excess of
the qualified preferred dividends paid on such stock during the period held by
the Holder over the qualified preferred dividends that would have been paid
during such period on the basis of the stated rate of return, as determined
under section 1059(e)(3) of the Code. The length of time that a Holder is deemed
to have held stock for purposes of section 1059 of the Code is determined under
principles similar to those contained in section 246(c) of the Code discussed
above.
PREFERRED STOCK DISCOUNT
The Series A Preferred Stock is subject to mandatory redemption on
, 2009 (the "Mandatory Redemption"). In addition, on or after
, 2003 and subject to certain restrictions, the Series A Preferred
Stock is redeemable at any time at the option of the Company at specified
redemption prices (the "Optional Redemption"). See "Preferred Stock--Optional
Redemption" and "Mandatory Redemption." Pursuant to section 305(c) of the Code,
Holders of Series A Preferred Stock generally may be required to treat a portion
of the difference between the Series A Preferred Stock's issue price and its
redemption price as constructive distributions of property includible in income
on a periodic basis. For purposes of determining whether such constructive
distribution treatment applies, the Mandatory Redemption and the Optional
Redemption are tested separately. Constructive distribution treatment is
required if either (or both) of these tests is satisfied.
Section 305(c) of the Code provides that the entire amount of a redemption
premium with respect to preferred stock that is subject to mandatory redemption
is treated as being distributed to the Holders of such preferred stock on an
economic accrual basis. Preferred stock generally is considered to have a
redemption premium for this purpose if the price at which it must be redeemed
(the "Redemption Price") exceeds its issue price by more than a DE MINIMIS
amount. For this purpose, such excess (the "Series A Preferred Stock Discount")
will be treated as zero if it is less than 1/4 of 1% of the Redemption Price
multiplied by the number of complete years from the date of issuance of the
stock until the stock must be redeemed. Series A Preferred Stock Discount is
taxable as a constructive distribution to the Holder (treated as a dividend to
the extent of the Company's current and accumulated earnings and profits and
otherwise subject to the treatment described above for distributions) over the
term of the Series A Preferred Stock using a constant interest rate method
similar to that employed for accruing original issue discount pursuant to the
Code.
Series A Preferred Stock Discount will arise due to the Optional Redemption
feature only if, based on all of the facts and circumstances as of the date the
Series A Preferred Stock is issued, redemption pursuant to the Optional
Redemption is more likely than not to occur. Even if redemption were more likely
than not to occur, however, constructive distribution treatment would not result
if the redemption premium were solely in the nature of a penalty for premature
redemption. For this purpose, a penalty for premature redemption is a premium
paid as a result of changes in economic or market conditions over which neither
the issuer not the Holder has legal or practical control, such as changes in
prevailing
B-58
<PAGE>
dividend rates. The Treasury Regulations provide a safe harbor pursuant to which
constructive distribution treatment will not result from an issuer call right if
(i) the issuer and the Holder are unrelated, (ii) there are no arrangements that
effectively require the issuer to redeem the stock and (iii) exercise of the
option to redeem would not reduce the yield of the stock. Although the issue is
not free from doubt, the Company believes that the Series A Preferred Stock
should not be considered to have been issued with Series A Preferred Stock
Discount by reason of the Optional Redemption feature.
Any additional shares of Series A Preferred Stock distributed by the Company
in lieu of cash dividend payments on the Series A Preferred Stock ("Dividend
Shares") received by Holders of the Series A Preferred Stock may bear Series A
Preferred Stock Discount depending upon the issue price of such shares (I.E.,
the fair market value of the Dividend Shares on the date of their issuance). A
Holder's initial tax basis in Dividend Shares will equal the fair market value
of such Dividend Shares on their date of distribution. Depending on the fair
market value of the Series A Preferred Stock on the date of issuance, Holders
may be required to include additional Series A Preferred Stock Discount in
income based on the difference between (x) the fair market value of such shares
on the date of their issuance and (y) the amount payable on redemption of such
shares, unless the difference is DE MINIMUS, as described above. If shares of
Series A Preferred Stock (including Dividend Shares) bear Series A Preferred
Stock Discount, such shares generally will have different tax characteristics
from other shares of Series A Preferred Stock (including other Dividend Shares)
and might trade separately, which might adversely affect the liquidity of such
shares.
REDEMPTION OF THE PREFERRED STOCK
A redemption of shares of the Series A Preferred Stock for cash or for
Exchange Debentures will be a taxable event. A redemption of shares of the
Series A Preferred Stock for cash will be treated as a dividend to the extent of
the Company's current or accumulated earnings and profits, unless the redemption
(i) results in a "complete termination" of the Holder's stock interest in the
Company under section 302(b) (3) of the Code, or (ii) is "not essentially
equivalent to a dividend" with respect to the Holder under section 302(b)(l) of
the Code. In determining whether the redemption is treated as a dividend, the
Holder must take into account not only stock he or she actually owns, but also
stock constructively owned within the meaning of section 318 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 these purposes, a redemption of Series A Preferred Stock from a
Holder whose actual and constructive ownership of Company Common Stock does not
result in such Holder having actual or practical control of the Company should
satisfy the "not essentially equivalent to a dividend" test of section
302(b)(l).
If the redemption of the Series A Preferred Stock for cash or for Exchange
Debentures 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 (or the issue price of the Exchange Debentures (as described
under "--Issue Price of Exchange Debentures")) received and the Holder's
adjusted tax basis in the Series A Preferred Stock redeemed. This gain or loss
would be long-term capital gain or loss. See the discussion under "Disposition
of the Series A Preferred Stock," regarding certain rules applicable to such
gain or loss.
If a redemption of the Series A Preferred Stock is treated as a distribution
rather than a sale or exchange, the amount of the distribution will be measured
by the amount of cash (or the issue price of the Exchange Debentures) received
by a Holder. As described above, the distribution will be taxable as a dividend
to the extent of the Company's earnings and profits. The amount of the
distribution in excess of the Company's earnings and profits will reduce the
Holder's basis in the redeemed Series A Preferred Stock, and, to the extent the
amount of the distribution exceeds such basis, will result in capital gain. If a
Holder is left with basis in the redeemed Series A Preferred Stock, such basis
will be transferred to any remaining stock holdings in the Company.
Under section 1059 of the Code, as discussed above, the term extraordinary
dividend includes any non-liquidating redemption of stock that is treated as a
divided that is (i) non-pro rata as to all holders of
B-59
<PAGE>
the stock of the Company or (ii) which would not be treated as a dividend if
options had not be taken into account, in both cases, irrespective of the
holding period. Consequently, to the extent an exchange of the Series A
Preferred Stock constitutes a dividend, it will constitute an extraordinary
dividend to a corporate Holder.
DISPOSITION OF THE PREFERRED STOCK
Unless a nonrecognition provision applies, the sale or other disposition of
Series A Preferred Stock will be a taxable event for U.S. federal income tax
purposes. In such event, in general, a Holder of Series A Preferred Stock will
recognize gain or loss equal to the difference between (i) the amount of cash
plus the fair market value of property received and (ii) the Holder's tax basis
in the Series A Preferred Stock. A Holder's tax basis in the Series A Preferred
Stock will equal the initial tax basis of such stock. A corporate Holder's tax
basis may be adjusted by virtue of an extraordinary dividend, as discussed
above. Any such gain or loss will generally be capital gain or loss. Recently
enacted legislation includes substantial changes to the federal taxation of
capital gains recognized by individuals, including a 20% maximum tax rate for
certain gains from the sale of capital assets held for more than 18 months. The
deduction for capital losses is subject to certain limitations. Prospective
investors should consult their tax advisors regarding the treatment of capital
gains and losses.
INTEREST ON THE EXCHANGE NOTES
Except as set forth below, interest on the Exchange Debentures will be
taxable to a Holder as ordinary interest income at the time such amounts are
accrued or received, in accordance with the Holder's method of accounting for
U.S. federal income tax purposes.
ORIGINAL ISSUE DISCOUNT. The Exchange Debentures may be issued with
original issue discount ("OID") equal to the excess of their "stated redemption
price at maturity" over their "issue price" if such excess is greater than a DE
MINIMIS amount. Holders of Exchange Debentures will be subject to special tax
accounting rules, as described in greater detail below. Holders of Exchange
Debentures should be aware that they generally must include OID in gross income
for U.S. federal income tax purposes on an annual basis under a constant yield
accrual method. As a result, such Holders will include OID in income in advance
of the receipt of cash attributable to that income. However, Holders of Exchange
Debentures generally will not be required to include separately in income cash
payments received on such Exchange Debentures, even if denominated as interest,
to the extent such payments do not constitute qualified stated interest (as
defined below). The Company will report to Holders of any OID Exchange
Debentures on a timely basis the reportable amount of OID and interest income
based on its understanding of applicable law.
The "stated redemption price at maturity" of a debt instrument is the sum of
its principal amount plus all other payments required thereunder, other than
payments of "qualified stated interest." For this purpose, "qualified stated
interest" means stated interest that is unconditionally payable in cash or in
property (other than the debt instruments of the issuer), at least annually at a
single fixed rate during the entire term of the debt instrument that
appropriately takes into account the length of the intervals between payments).
If the Exchange Debentures are issued at a time when the Company has the right
to make interest payments with additional Exchange Debentures in lieu of cash,
none of the stated interest on such Exchange Debentures will be treated as
qualified stated interest. The "issue price" of an Exchange Debenture will be
determined as described under "--Issue Price of Exchange Debentures."
The amount of OID includible in income by the initial Holder of an Exchange
Debenture is the sum of the "daily portions" of OID with respect to the Exchange
Debenture for each day during the taxable year or portion of the taxable year in
which such Holder held such Exchange Debenture ("accrued OID"). The daily
portion is determined by allocating to each day in any "accrual period" a pro
rata portion of the OID allocable to that accrual period. The "accrual period"
for an Exchange Debenture may be of any
B-60
<PAGE>
length and may vary in length over the term of the Exchange Debenture, provided
that each accrual period is no longer than one year and each scheduled payment
of principal or interest occurs on the first day or the final day of an accrual
period. The amount of OID allocable to any accrual period is an amount equal to
the excess, if any, of (a) the product of the Exchange Debenture's adjusted
issue price at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual period and
properly adjusted for the length of the accrual period) over (b) the sum of any
qualified stated interest allocable to the accrual period. OID allocable to a
final accrual period is the difference between the amount payable at maturity
(other than a payment of qualified stated interest) and the adjusted issue price
at the beginning of the final accrual period. Special rules will apply for
calculating OID for an initial short accrual period. The "adjusted issue price"
of an Exchange Debenture at the beginning of any accrual period is equal to its
issue price increased by the accrued OID for each prior accrual period
(determined without regard to the amortization of any bond premium, as described
below) and reduced by any payments made on such Exchange Debenture (other than
qualified stated interest) on or before the first day of the accrual period.
Under these rules, a United States Holder will have to include in income
increasingly greater amounts of OID in successive accrual periods.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
CONSEQUENCES OF OWNING EXCHANGE DEBENTURES.
ISSUE PRICE OF EXCHANGE DEBENTURES
The issue price of an Exchange Debenture would be equal to (i) its fair
market value as of the exchange date if the Exchange Debentures are traded on an
established securities market on or at any time during a specified period or
(ii) the fair market value at the exchange date of the Exchangeable Series A
Preferred Stock if such Exchangeable Series A Preferred Stock is traded on an
established securities market during a specified period but the Exchange
Debentures are not. If neither the Exchangeable Series A Preferred Stock nor the
Exchange Debentures are so traded, the issue price of the Exchange Debentures
would be determined under Section 1274 of the Code, in which case the issue
price would be the stated principal amount of the Exchange Debentures provided
that the yield on the Exchange Debentures is equal to or greater than the
"applicable federal rate" in effect at the time the Exchange Debentures are
issued. If the yield on the Exchange Debentures is less than such applicable
federal rate, its issue price under section 1274 of the Code would be equal to
the present value as of the issue date of all payments to be made on the
Exchange Debentures, discounted at the applicable federal rate. It can not be
determined at the present time whether the Series A Preferred Stock or the
Exchange Debentures will be, at the relevant time, traded on an established
securities market within the meaning of the Regulations or whether the yield on
the Exchange Debentures will equal or exceed the applicable federal rate.
ELECTION
A Holder of Exchange Debentures, subject to certain limitations, may elect
to include all interest and discount on the Exchange Debentures in gross income
under the constant yield method. For this purpose, interest includes stated and
unstated interest, acquisition discount, and OID and DE MINIMIS OID, as adjusted
by any amortizable bond premium.
AMORTIZABLE BOND PREMIUM
If the Series A Preferred Stock is exchanged for Exchange Debentures at a
time when the "issue price" of the Exchange Debentures exceeds the amount
payable at maturity of the Exchange Debenture, such excess will constitute
amortizable bond premium that the Holder may elect to amortize under the
constant yield method over the term of the Exchange Debenture. A Holder who
elects to amortize bond premium must reduce the tax basis in the Exchange
Debenture by the amount of the aggregate amortization allowable for amortizable
bond premium. Amortizable bond premium will be treated under the Code as an
offset to interest income on the related debt instrument for federal income tax
purposes.
B-61
<PAGE>
DISPOSITION OF THE EXCHANGE DEBENTURES
Unless a nonrecognition provision applies, the sale, exchange, redemption
(including pursuant to an offer by the Company) or other disposition of an
Exchange Debenture, will be a taxable event for U.S. federal income tax
purposes. In such event, in general, a Holder of Exchange Debentures will
recognize gain or loss equal to the difference between (i) the amount of cash
plus the fair market value of property received (except to the extent
attributable to accrued interest on the Exchange Debentures which will be
treated as such if not previously included in income) and (ii) the Holders's tax
basis in the Exchange Debentures (as increased by any OID previously included in
income by the Holder and decreased by any amortizable bond premium, if any,
deducted over the term of the Exchange Debentures). Any such gain or loss
generally will be long-term capital gain or loss. At the time of sale, exchange,
disposition, retirement or redemption, a Holder of the Exchange Debentures must
also include in income any previously accrued but unrecognized OID.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
The Exchange Debentures will be treated as "applicable high yield discount
obligations" ("AHYDO"), under section 163(e) of the Code if they have a term of
more than five years, have a yield to maturity that equals or exceeds five
percentage points over the "applicable federal rate" for the month in which the
Exchange Debentures are issued and 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 five years or more 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. For purposes of determining whether an Exchange Debenture is an AHYDO,
Holders are bound by the issuer's determination of the appropriate accrual
period. Under sections 163(e) and 163(i) of the Code, a C corporation that is an
issuer of a debt obligation subject to the AHYDO rules may not deduct any
portion of OID until such portion is actually paid.
In addition, if the Exchange Debentures are AHYDOs and the yield to maturity
of the Exchange Debentures exceeds the sum of the AFR plus six percentage
points, a portion of the OID under the Exchange Debentures, equal to the product
of the total OID under the Exchange Debentures times the ratio of (a) the excess
of the yield to maturity over the sum of the AFR plus six percentage points to
(b) the yield to maturity, will not be deductible by the issuer and will be
treated for some purposes as dividends to the holders of the Exchange Debentures
(to the extent that such amounts would have been treated as dividends to the
holders of Exchange Debentures if they had been distribution's with respect to
the issuer's stock). Amounts treated as dividends will be nondeductible by the
issuer, and may qualify for the dividends-received deduction for corporate
Holders.
Because the amount of OID, if any, attributable to the Exchange Debentures
will be determined at such time that the Exchange Debentures are issued and the
AFR at such time is not predictable, it is impossible to determine at the
present time whether the Exchange Debentures will be treated as AHYDOs.
BACKUP WITHHOLDING
Under section 3406 of the Code and applicable Treasury Regulations, a
noncorporate Holder of the Series A Preferred Stock or the Exchange Debentures
may be subject to backup withholding at the rate of 31 percent with respect to
"reportable payments," which include interest and dividends paid on or the
proceeds of a sale, exchange or redemption of Series A Preferred Stock or the
Exchange Debentures, as the case may be. The payor will be required to deduct
and withhold the prescribed amounts if (i) the payee fails to furnish a Taxpayer
identification Number ("TIN") to the payor in the manner required, (ii) the IRS
notifies the payor that the TIN furnished by the payee is incorrect, (iii) there
has been a "notified payee
B-62
<PAGE>
underreporting" described in section 3406(c) of the Code or (iv) there has been
a failure of the payee to certify under penalty of perjury that the payee is not
subject to withholding under section 3406(a) (l)(C) of the Code. As a result, if
any one of the events listed above occurs, the payor will be required to
withhold an amount equal to 31 percent from any dividend or interest payment
made with respect to the Series A Preferred Stock or the Exchange Debentures or
any payment or proceeds of a redemption of the Series A Preferred Stock or the
Exchange Debentures to a noncorporate Holder. Amounts paid as backup withholding
do not constitute an additional tax and will be credited against the Holder's
federal income tax liability, so long as the required information is provided to
the IRS. The payor generally will report to the Holders of the Series A
Preferred Stock and the Exchange Debentures and to the IRS the amount of any
"reportable payments" for each calendar year and the amount of tax withheld, if
any, with respect to payment on those securities.
B-63
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION TO OR MAKE ANY
REPRESENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CUMULUS
MEDIA INC. OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE NOTES
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE NOTES TO ANYONE IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE
INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................
Risk Factors...................................
Use of Proceeds................................
Capitalization.................................
Unaudited Pro Forma Combined Financial
Statements...................................
Selected Historical Financial Data.............
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................
Business.......................................
Pending Acquisitions...........................
Management.....................................
Pending Acquisitions...........................
Certain Relationships and Related
Transactions.................................
Principal Stockholders.........................
Description of Capital Stock...................
Description of Credit Facility.................
Description of Notes...........................
Underwriting...................................
Certain Federal Income Tax Considerations......
Legal Matters..................................
Experts........................................
Additional Information.........................
Index to Financial Statements.................. F-1
</TABLE>
Until ____________, 1998, 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.
$
[LOGO]
CUMULUS MEDIA INC.
% SERIES A CUMULATIVE
EXCHANGEABLE REDEEMABLE
PREFERRED STOCK
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the Class A Common Stock, the Notes, and the Series A Preferred Stock being
registered, all of which will be paid by the Registrant. All amounts are
estimates except the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.................................................. $ 102,660
NASD filing fee................................................... 30,500
Nasdaq National Market listing fee................................ *
Blue Sky fees and expenses........................................ *
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Transfer agent and registrar fees................................. *
Printing and engraving expenses................................... *
Miscellaneous expenses *
---------
Total........................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The general effect of the provisions in the Company's Articles of
Incorporation and Illinois Law is to provide that the Company shall indemnify
its directors and officers against all liabilities and expenses actually and
reasonably incurred in connection with the defense or settlement of any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) in which they have become involved by
reason of their status as corporate directors or officers, if they acted in good
faith and in the reasonable belief that their conduct was neither unlawful (in
the case of criminal proceedings) nor opposed to the best interests of the
Company. With respect to legal proceedings by or in the right of the Company in
which a director or officer is adjudged liable for improper performance of his
duty to the Company or another enterprise which such person served in a similar
capacity at the request of the Company, indemnification is limited by such
provisions of that amount which is permitted by the court.
The Company will maintain officers' and directors' liability insurance which
will insure against liabilities that officers and directors of the Company may
incur in such capacities. The company has also entered into indemnification
agreements with its directors and officers.
The Underwriting Agreements will provide for indemnification of the
directors and officers of the Company signing the Registration Statement and
certain controlling persons of the Company against certain liabilities,
including those arising under the Securities Act in certain instances, of the
Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Upon the initial formation of the Company in April 1997, 1,000 shares of
common stock of the Company were issued to Media LLC for nominal consideration.
On November 17, 1997, the Company issued 16,250 shares of NML Preferred
Stock to NML for $16,250,000. On February 5, 1998, the Company issued an
additional 16,250 shares of NML Preferred Stock to NML for $16,250,000.
All of the above transactions were exempt from registration pursuant to
Section 4(2) of the Securities Act. The transactions did not involve a public
offering because of the limited number of offerees, the financial sophistication
of such offerees, and the fact that no underwriters or investment bankers
participated in such transactions.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1** Form of U.S. Underwriting Agreement between the Registrant and the U.S.
Underwriters.
1.2** Form of International Underwriting Agreements between the Registrant and the
International Managers
1.3** Form of Underwriting Agreement between the Registrant and the Underwriters ( %
Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009)
1.4** Form of Underwriting Agreement between the Registrant and the Underwriters ( %
Senior Subordinated Notes)
3.1** Articles of Incorporation of the Registrant
3.2** Form of Amended and Restated Articles of Incorporation of the Registrant
3.3** Bylaws of the Registrant
3.4*** Form of Amended and Restated Bylaws of Registrant
3.5** Form of Certificate of Designation with respect to Series A Cumulative
Exchangeable Redeemable Preferred Stock Due 2009.
4.1*** Form of Class A Common Stock Certificate
4.2*** Form of 12% Class A Cumulative Preferred Stock Certificate
5.1*** Opinion of Paul, Hastings, Janofsky & Walker LLP as to the validity of the Common
Stock
10.1** Credit Facility dated March 2, 1998 among the Registrant, Lehman Brothers Inc. and
Lehman Commercial Paper Inc.
10.2*** First Amendment, dated , 1998, to the Credit Facility among the
Registrant, Lehman Brothers Inc. and Lehman Commercial Paper.
10.3** Form of Indenture dated , 1998, between the Registrant and
, as Trustee.
10.4** Form of Exchange Debenture Indenture, dated , 1998, between the
Registrant and , as Trustee.
10.5*** Employment Agreement between the Registrant and Richard W. Weening
10.6*** Employment Agreement between the Registrant and Lewis W. Dickey, Jr.
10.7** Employment Agreement between the Registrant and William M. Bungeroth
10.8** Employment Agreement between the Registrant and Richard J. Bonick, Jr.
10.9*** Cumulus Media Inc. 1998 Employee Stock Purchase Plan
10.10* Local Programming and Marketing Agreement dated December 17, 1997 between the
Cumulus Broadcasting, Inc. and New Frontier Communications, Inc.
10.11* Local Programming and Marketing Agreement dated January 1, 1998 between Cumulus
Broadcasting, Inc. and Westwind Broadcasting, Inc.
10.12* Local Marketing Agreement dated February 10, 1998 between Cumulus Broadcasting,
Inc. and Wiskes/Abaris Communications KQIZ Partnership
10.13* Time Brokerage Agreement dated December 15, 1997 between Cumulus Broadcasting,
Inc. and Clearly Superior Radio, L.L.C.
10.14* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting,
Inc. and Lyle Evans d/b/a Brillion Radio Company
10.15* Program Service and Time Brokerage Agreement dated October 31, 1997 between
Cumulus Broadcasting, Inc. and Tallahassee Broadcasting Company
10.16* Local Marketing Agreement dated January 14, 1998 between Cumulus Broadcasting,
Inc. and Savannah Communications, L.P.
10.17* Local Programming and Marketing Agreement dated December 23, 1997, between Cumulus
Broadcasting, Inc. and Lewis Broadcasting Corporation
10.18* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting,
Inc. and Jon A. LeDuc
10.19* Program Services and Time Brokerage Agreement dated February 12, 1998 between
Cumulus Broadcasting, Inc. and Pamplico Broadcasting, L.P.
10.20* Asset Purchase Agreement dated December 1, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and West Jewell Management, Inc.
10.21* Asset Purchase Agreement dated October 30, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, and KIKR Inc.
10.22* Asset Purchase Agreement dated December 5, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, and Wiskes/Abaris Communications KQIZ Partnership
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.23* Asset Purchase Agreement dated January 30, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Pacific Broadcasting of Beaumont, Inc., Beaumont
Skyware Inc., and Richard Dames
10.24* Asset Purchase Agreement dated December 30, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, and Sovereign Communications Corporation
10.25* Asset Purchase Agreement dated December 19, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Tryon-Seacoast Communications, Inc., Seacoast
Broadcasting, Inc., and Kennebec-Tryon Communications Corp.
10.26* Asset Purchase Agreement dated February 18, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, and George H. Buck, Jr., d/b/a WHSC Radio
10.27* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, and Pamplico Broadcasting L.P.
10.28* Asset Purchase Agreement dated October 8, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Connor FM Broadcasting Co., Connor Broadcasting
Corp., J. Parker Connor and Susan C. Connor
10.29* Stock Purchase Agreement dated December 17, 1997 among Cumulus Holdings, Inc.,
Tommy R. Vascocu, Elizabeth L. Young, Michael L. Owens, Alan Owens, Robert
Podolsky, Larry Daniels, Sonja Erskine, and Jeffrey D. Erskine
10.30* Stock Purchase Agreement dated February 17, 1998 among Cumulus Holdings, Inc. and
John M. Borders, Don L. Turner, Jerry Goos and Kan-D Land, Inc.
10.31* Asset Purchase Agreement dated December 15, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Clearly Superior Radio, L.L.C., 3-D
Communications Corporation and Dennis F. Doelitzsch
10.32* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Lyle R. Evans d/b/a Brillion Radio Company
10.33* Asset Purchase Agreement dated January 14, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Savannah Communications, L.P.
10.34* Asset Purchase Agreement dated December 23, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Lewis Broadcasting Corporation
10.35* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Jon A. LeDuc and American Communications Company,
Inc.
10.36* Asset Purchase Agreement dated January, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Lesnick Communications, Inc. and Mrs. Betty Carey
10.37* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Big Country Broadcasting, Inc., and Tye
Broadcasting, Inc.
10.38* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Arbor Radio, L.P.
10.39* Asset Purchase Agreement dated March 5, 1997 between Wilks Broadcast Acquisitions,
Inc. and Cumulus Media, LLC
10.40* Asset Purchase Agreement dated August 15, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and M & M Partners
10.41* Stock Purchase Agreement dated October 16, 1997 between Cumulus Holdings, Inc. and
Philip T. Kelly
10.42* Stock Purchase Agreement dated November 7, 1997 between Cumulus Holdings, Inc. and
James Maurer
10.43* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Carolina Broadcasting, Inc., and Georgetown
Radio, Inc.
10.44* Asset Purchase Agreement dated October 9, 1997 among Seacoast Radio Company, LLC,
Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation
10.45* Asset Purchase Agreement dated October 9, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation
10.46* Asset Purchase Agreement dated June 26, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Venice Michel and Venice Broadcasting Corporation
10.47* Agreement of Sale dated September 4, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Medical College of Georgia Foundation
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.48* Program Service and Time Brokerage Agreement dated August 18, 1997 between Cumulus
Broadcasting, Inc. and Tally Radio, LLC
10.49* Asset Purchase Agreement dated August 18, 1997 among Tally Radio, LLC and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
10.50* Asset Purchase Agreement dated August 18, 1997 among HVS Partners and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
10.51* Asset Purchase Agreement dated August 25, 1997 among HVS Partners and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
10.52* Letter Agreement dated January 16, 1998 between Benchmark Radio Acquisition Fund
IV Limited Partnership, Cumulus Broadcasting, Inc. and Cumulus Licensing Corp.
10.53* WZNY Agreement of Sale dated September 4, 1997 among George G. Weiss and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
10.54* Asset Purchase Agreement dated May 1, 1997 between HVS Partners and Cumulus Media,
LLC
10.55* Asset Purchase Agreement dated April 30, 1997 among Hara Broadcasting, Inc. and
DLM Communications, Inc. and Cumulus Media, LLC
10.56* Asset Purchase Agreement dated June 24, 1997 among 62nd Street Broadcasting of
Toledo, L.L.C., 62nd Street Broadcasting of Toledo License, L.L.C., 62nd Street
Broadcasting, L.L.C., Cumulus Broadcasting, Inc. and Cumulus Licensing
Corporation
10.57* Local Marketing Agreement dated February 15, 1998 among Cumulus Broadcasting,
Inc., Pacific Broadcasting of Beaumont, Inc., and Beaumont Skyware Inc.
10.58* Local Marketing Agreement dated December 31, 1997 between Cumulus Broadcasting,
Inc. and Sovereign Communications Corporation and Madison Radio Group Inc.
10.59* Asset Purchase Agreement dated March 23, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Esprit Communications Corporation.
10.60* Purchase Agreement dated November 20, 1996 between IQ Radio, Inc. and Taylor
Country Broadcasting, Inc.
10.61* Assignment and Assumption Agreement dated January 20, 1998 among Taylor Country
Broadcasting, Inc., Cumulus Licensing Corp. and Cumulus Broadcasting, Inc.
10.62* Asset Purchase Agreement dated January 2, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Westwind Broadcasting Inc.
10.63* Asset Purchase Agreement dated March 16, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and P and T Broadcasting, Inc.
10.64* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Crystal Radio Group, Inc.
10.65* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Ocmulgee Broadcasting Co., Inc.
10.66* Local Marketing Agreement dated March 16, 1998 between Cumulus Broadcasting, Inc.
and Phoenix Broadcast Partners, Inc.
10.67* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value
Radio Corporation (WVBO-FM/WOSH-FM/WOGB-FM)
10.68* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value
Radio Corporation (WUSW-FM/WNAM-AM)
10.69** Asset Purchase Agreement dated February 26, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Mustang Broadcasting Company
10.70** Asset Purchase Agreement dated March , 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Robert Brooks d/b/a Brooks Broadcasting Company
and K-Country, Inc.
10.71** Asset Purchase Agreement dated March 24, 1998 among WSEA, Inc., Cumulus
Broadcasting, Inc., and Cumulus Licensing Corporation
10.72** Asset Purchase Agreement dated March 30, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Mountain Wireless, Inc.
10.73** Asset Purchase Agreement dated February 5, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Castle Broadcasting Limited Partnership
10.74** Asset Purchase Agreement dated March 5, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Missouri River Broadcasting, Inc. and JKJ
Broadcasting, Inc.
10.75** Asset Purchase Agreement dated March 11, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Clarendon Country Broadcasting, Co. Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.76** Services Agreement dated May 1, 1998 by and between QUAESTUS Management
Corporation and Cumulus Media Inc.
12.1* Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividend Requirements
21.1** Subsidiaries of the Company
23.1** Consent of Price Waterhouse LLP
23.2** Consent of Coopers & Lybrand L.L.P.
23.3** Consent of Coopers & Lybrand L.L.P.
23.4** Consent of Johnson, Miller & Co.
23.5** Consent of McGladrey & Pullen, LLP
23.6** Consent of Plante & Moran, LLP
23.7** Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.1)
24.1* Powers of Attorney, included on page II-6
25.1** Statement of Eligibility of the Trustee for the % Senior Subordinated Notes
25.2** Statement of Eligibility of the Trustee for the % Series A Cumulative
Exchangeable Redeemable Preferred Stock due 2009
27.1**** Financial Data Schedule
99.1* Affidavit to dispense with consent of certain directors
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
*** To be filed by amendment.
****All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS.
(a) The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted against
the Registrant by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
(Section 230.424(b)(1) or (4) or Section 230.497(h)) shall be deemed to be
part of this Registration Statement as of the time the Commission declared
it effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement for the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on May , 1998.
CUMULUS MEDIA INC.
BY: /S/ RICHARD W. WEENING
-----------------------------------------
Richard W. Weening
EXECUTIVE CHAIRMAN
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
Executive Chairman,
/s/ RICHARD W. WEENING Treasurer and Director
- ------------------------------ (Principal Executive May , 1998
Richard W. Weening Officer)
/s/ RICHARD W. WEENING Executive Vice Chairman and
- ------------------------------ Director
Richard W. Weening, as May , 1998
Attorney-in-Fact for Lewis W.
Dickey, Jr.
/s/ RICHARD W. WEENING President and Director
- ------------------------------
Richard W. Weening, as May , 1998
Attorney-in-Fact for William
M. Bungeroth
/s/ RICHARD W. WEENING Vice President and Chief
- ------------------------------ Financial Officer
Richard W. Weening, as (Principal Accounting May , 1998
Attorney-in-Fact for Richard Officer)
J. Bonick, Jr.
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
NO. DESCRIPTION NUMBER
- --------- --------------------------------------------------------------------------------------------- -------------
<S> <C> <C>
1.1** Form of U.S. Underwriting Agreement between the Registrant and the U.S. Underwriters.
1.2** Form of International Underwriting Agreements between the Registrant and the International
Managers
1.3** Form of Underwriting Agreement between the Registrant and the Underwriters ( % Series A
Cumulative Exchangeable Redeemable Preferred Stock due 2009)
1.4** Form of Underwriting Agreement between the Registrant and the Underwriters ( % Senior
Subordinated Notes)
3.1** Articles of Incorporation of the Registrant
3.2** Form of Amended and Restated Articles of Incorporation of the Registrant
3.3** Bylaws of the Registrant
3.4*** Form of Amended and Restated Bylaws of Registrant
3.5** Form of Certificate of Designation with respect to Series A Cumulative Exchangeable
Redeemable Preferred Stock Due 2009.
4.1*** Form of Class A Common Stock Certificate
4.2*** Form of 12% Class A Cumulative Preferred Stock Certificate
5.1*** Opinion of Paul, Hastings, Janofsky & Walker LLP as to the validity of the Common Stock
10.1** Credit Facility dated March 2, 1998 among the Registrant, Lehman Brothers Inc. and Lehman
Commercial Paper Inc.
10.2*** First Amendment, dated , 1998, to the Credit Facility among the Registrant, Lehman
Brothers Inc. and Lehman Commercial Paper.
10.3** Form of Indenture dated , 1998, between the Registrant and , as
Trustee.
10.4** Form of Exchange Debenture Indenture, dated , 1998, between the Registrant and
, as Trustee.
10.5*** Employment Agreement between the Registrant and Richard W. Weening
10.6*** Employment Agreement between the Registrant and Lewis W. Dickey, Jr.
10.7** Employment Agreement between the Registrant and William M. Bungeroth
10.8** Employment Agreement between the Registrant and Richard J. Bonick, Jr.
10.9*** Cumulus Media Inc. 1998 Employee Stock Purchase Plan
10.10* Local Programming and Marketing Agreement dated December 17, 1997 between the Cumulus
Broadcasting, Inc. and New Frontier Communications, Inc.
10.11* Local Programming and Marketing Agreement dated January 1, 1998 between Cumulus Broadcasting,
Inc. and Westwind Broadcasting, Inc.
10.12* Local Marketing Agreement dated February 10, 1998 between Cumulus Broadcasting, Inc. and
Wiskes/Abaris Communications KQIZ Partnership
10.13* Time Brokerage Agreement dated December 15, 1997 between Cumulus Broadcasting, Inc. and
Clearly Superior Radio, L.L.C.
10.14* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting, Inc. and Lyle
Evans d/b/a Brillion Radio Company
10.15* Program Service and Time Brokerage Agreement dated October 31, 1997 between Cumulus
Broadcasting, Inc. and Tallahassee Broadcasting Company
10.16* Local Marketing Agreement dated January 14, 1998 between Cumulus Broadcasting, Inc. and
Savannah Communications, L.P.
10.17* Local Programming and Marketing Agreement dated December 23, 1997, between Cumulus
Broadcasting, Inc. and Lewis Broadcasting Corporation
10.18* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting, Inc. and Jon
A. LeDuc
10.19* Program Services and Time Brokerage Agreement dated February 12, 1998 between Cumulus
Broadcasting, Inc. and Pamplico Broadcasting, L.P.
10.20* Asset Purchase Agreement dated December 1, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and West Jewell Management, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
NO. DESCRIPTION NUMBER
- --------- --------------------------------------------------------------------------------------------- -------------
<S> <C> <C>
10.21* Asset Purchase Agreement dated October 30, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, and KIKR Inc.
10.22* Asset Purchase Agreement dated December 5, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, and Wiskes/Abaris Communications KQIZ Partnership
10.23* Asset Purchase Agreement dated January 30, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Pacific Broadcasting of Beaumont, Inc., Beaumont Skyware Inc., and
Richard Dames
10.24* Asset Purchase Agreement dated December 30, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, and Sovereign Communications Corporation
10.25* Asset Purchase Agreement dated December 19, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Tryon-Seacoast Communications, Inc., Seacoast Broadcasting, Inc.,
and Kennebec-Tryon Communications Corp.
10.26* Asset Purchase Agreement dated February 18, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, and George H. Buck, Jr., d/b/a WHSC Radio
10.27* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, and Pamplico Broadcasting L.P.
10.28* Asset Purchase Agreement dated October 8, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Connor FM Broadcasting Co., Connor Broadcasting Corp., J. Parker
Connor and Susan C. Connor
10.29* Stock Purchase Agreement dated December 17, 1997 among Cumulus Holdings, Inc., Tommy R.
Vascocu, Elizabeth L. Young, Michael L. Owens, Alan Owens, Robert Podolsky, Larry Daniels,
Sonja Erskine, and Jeffrey D. Erskine
10.30* Stock Purchase Agreement dated February 17, 1998 among Cumulus Holdings, Inc. and John M.
Borders, Don L. Turner, Jerry Goos and Kan-D Land, Inc.
10.31* Asset Purchase Agreement dated December 15, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Clearly Superior Radio, L.L.C., 3-D Communications Corporation and
Dennis F. Doelitzsch
10.32* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Lyle R. Evans d/b/a Brillion Radio Company
10.33* Asset Purchase Agreement dated January 14, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Savannah Communications, L.P.
10.34* Asset Purchase Agreement dated December 23, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Lewis Broadcasting Corporation
10.35* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Jon A. LeDuc and American Communications Company, Inc.
10.36* Asset Purchase Agreement dated January, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Lesnick Communications, Inc. and Mrs. Betty Carey
10.37* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Big Country Broadcasting, Inc., and Tye Broadcasting, Inc.
10.38* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Arbor Radio, L.P.
10.39* Asset Purchase Agreement dated March 5, 1997 between Wilks Broadcast Acquisitions, Inc. and
Cumulus Media, LLC
10.40* Asset Purchase Agreement dated August 15, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and M & M Partners
10.41* Stock Purchase Agreement dated October 16, 1997 between Cumulus Holdings, Inc. and Philip T.
Kelly
10.42* Stock Purchase Agreement dated November 7, 1997 between Cumulus Holdings, Inc. and James
Maurer
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
NO. DESCRIPTION NUMBER
- --------- --------------------------------------------------------------------------------------------- -------------
<S> <C> <C>
10.43* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Carolina Broadcasting, Inc., and Georgetown Radio, Inc.
10.44* Asset Purchase Agreement dated October 9, 1997 among Seacoast Radio Company, LLC, Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
10.45* Asset Purchase Agreement dated October 9, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation
10.46* Asset Purchase Agreement dated June 26, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Venice Michel and Venice Broadcasting Corporation
10.47* Agreement of Sale dated September 4, 1997 among Cumulus Broadcasting, Inc., Cumulus Licensing
Corporation and Medical College of Georgia Foundation
10.48* Program Service and Time Brokerage Agreement dated August 18, 1997 between Cumulus
Broadcasting, Inc. and Tally Radio, LLC
10.49* Asset Purchase Agreement dated August 18, 1997 among Tally Radio, LLC and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
10.50* Asset Purchase Agreement dated August 18, 1997 among HVS Partners and Cumulus Broadcasting,
Inc. and Cumulus Licensing Corporation
10.51* Asset Purchase Agreement dated August 25, 1997 among HVS Partners and Cumulus Broadcasting,
Inc. and Cumulus Licensing Corporation
10.52* Letter Agreement dated January 16, 1998 between Benchmark Radio Acquisition Fund IV Limited
Partnership, Cumulus Broadcasting, Inc. and Cumulus Licensing Corp.
10.53* WZNY Agreement of Sale dated September 4, 1997 among George G. Weiss and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
10.54* Asset Purchase Agreement dated May 1, 1997 between HVS Partners and Cumulus Media, LLC
10.55* Asset Purchase Agreement dated April 30, 1997 among Hara Broadcasting, Inc. and DLM
Communications, Inc. and Cumulus Media, LLC
10.56* Asset Purchase Agreement dated June 24, 1997 among 62nd Street Broadcasting of Toledo,
L.L.C., 62nd Street Broadcasting of Toledo License, L.L.C., 62nd Street Broadcasting,
L.L.C., Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation
10.57* Local Marketing Agreement dated February 15, 1998 among Cumulus Broadcasting, Inc., Pacific
Broadcasting of Beaumont, Inc., and Beaumont Skyware Inc.
10.58* Local Marketing Agreement dated December 31, 1997 between Cumulus Broadcasting, Inc. and
Sovereign Communications Corporation and Madison Radio Group Inc.
10.59* Asset Purchase Agreement dated March 23, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Esprit Communications Corporation.
10.60* Purchase Agreement dated November 20, 1996 between IQ Radio, Inc. and Taylor Country
Broadcasting, Inc.
10.61* Assignment and Assumption Agreement dated January 20, 1998 among Taylor Country Broadcasting,
Inc., Cumulus Licensing Corp. and Cumulus Broadcasting, Inc.
10.62* Asset Purchase Agreement dated January 2, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Westwind Broadcasting Inc.
10.63* Asset Purchase Agreement dated March 16, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and P and T Broadcasting, Inc.
10.64* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing
Corporation and Crystal Radio Group, Inc.
10.65* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc., Cumulus Licensing
Corporation and Ocmulgee Broadcasting Co., Inc.
10.66* Local Marketing Agreement dated March 16, 1998 between Cumulus Broadcasting, Inc. and Phoenix
Broadcast Partners, Inc.
10.67* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value Radio
Corporation (WVBO-FM/WOSH-FM/WOGB-FM)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
NO. DESCRIPTION NUMBER
- --------- --------------------------------------------------------------------------------------------- -------------
<S> <C> <C>
10.68* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value Radio
Corporation (WUSW-FM/WNAM-AM)
10.69** Asset Purchase Agreement dated February 26, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Mustang Broadcasting Company
10.70** Asset Purchase Agreement dated March , 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Robert Brooks d/b/a Brooks Broadcasting Company and K-Country, Inc.
10.71** Asset Purchase Agreement dated March 24, 1998 among WSEA, Inc., Cumulus Broadcasting, Inc.,
and Cumulus Licensing Corporation
10.72** Asset Purchase Agreement dated March 30, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Mountain Wireless, Inc.
10.73** Asset Purchase Agreement dated February 5, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Castle Broadcasting Limited Partnership
10.74** Asset Purchase Agreement dated March 5, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Missouri River Broadcasting, Inc. and JKJ Broadcasting, Inc.
10.75** Asset Purchase Agreement dated March 11, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Clarendon Country Broadcasting Co., Inc.
10.76** Services Agreement dated May 1, 1998 by and between QUAESTUS Management Corporation and
Cumulus Media Inc.
12.1* Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend
Requirements
21.1** Subsidiaries of the Company
23.1** Consent of Price Waterhouse LLP
23.2** Consent of Coopers & Lybrand L.L.P.
23.3** Consent of Coopers & Lybrand L.L.P.
23.4** Consent of Johnson, Miller & Co.
23.5** Consent of McGladrey & Pullen, LLP
23.6** Consent of Plante & Moran, LLP
23.7** Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.1)
24.1* Powers of Attorney, included on page II-6
25.1** Statement of Eligibility of Trustee for % Senior Subordinated Notes
25.2** Statement of Eligibility of Trustee for % Series A Cumulative Exchangeable Redeemable
Preferred Stock due 2009
27.1** ** Financial Data Schedule
99.1* Affidavit to dispense with consent of certain directors
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
*** To be filed by amendment.
****All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
Exhibit 1.1
STB DRAFT
5/07/98
________ Shares
CUMULUS MEDIA INC.
Class A Common Stock
U.S. UNDERWRITING AGREEMENT
___, 1998
LEHMAN BROTHERS INC.
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN INCORPORATED,
As Representatives of the several
U.S. Underwriters named in Schedule 1,
pc/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Cumulus Media Inc., an Illinois corporation (the "Company"), and the
State of Wisconsin Investment Board (the "Selling Stockholder"), propose to sell
an aggregate of _______ shares (the "Firm Stock") of the Company's Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"). Of the
______ shares of the Firm Stock, ________ are being sold by the Company and
_______ by the Selling Stockholder. In addition, the Company proposes to grant
to the Underwriters named in Schedule 1 hereto (the "U.S. Underwriters") an
option to purchase up to an additional _______ shares of the Class A Common
Stock on the terms and for the purposes set forth in Section 3 (the "Option
Stock"). The Firm Stock and the Option Stock, if purchased, are hereinafter
collectively called the "Stock." This is to confirm the agreement concerning the
purchase of the Stock from the Company by the U.S. Underwriters and the Selling
Stockholder.
It is understood by all parties that the Company and the Selling
Stockholder are concurrently entering into an agreement dated the date hereof
(the "International Underwriting Agreement"), providing for the sale by the
Company and the Selling Stockholder of an aggregate of ____________ shares of
Class A Common Stock (including the over-allotment option thereunder) (the
"International Stock") through arrangements with certain underwriters outside
the United States (the "International Managers"), for whom Lehman Brothers
International (Europe), Bear Stearns International Limited, BT Alex. Brown
International, division of Bankers Trust International PLC and Credit Lyonnais
Securities are acting as lead managers. The U.S. Underwriters and the
International Managers simultaneously are entering into an agreement between the
U.S. and international underwriting syndicates (the "Agreement Between U.S.
Underwriters and International Managers") which provides for, among other
things, the transfer
<PAGE>
2
of shares of Class A Common Stock between the two syndicates. Two forms of
prospectus are to be used in connection with the offering and sale of shares of
Class A Common Stock contemplated by the foregoing, one relating to the Stock
and the other relating to the International Stock. The latter form of prospectus
will be identical to the former except for certain substitute pages as included
in the registration statement and amendments thereto referred to below. Except
as used in Sections 3, 4, 5, 11 and 12 herein, and except as the context may
otherwise require, references herein to the Stock shall include all the shares
of the Class A Common Stock which may be sold pursuant to either this Agreement
or the International Underwriting Agreement, and references herein to any
prospectus whether in preliminary or final form, and whether as amended or
supplemented, shall include both the U.S. and the international versions
thereof.
It is additionally understood by all parties that the Company is
concurrently entering into an agreement (the "Debt Underwriting Agreement"),
dated the date hereof, providing for the sale by the Company of $100,000,000
principal amount of its % Senior Subordinated Notes due 2008 to Bear, Stearns &
Co. Inc. and Lehman Brothers Inc., as underwriters, as well as an agreement (the
"Preferred Stock Underwriting Agreement"), dated the date hereof, providing for
the sale by the Company of $100,000,000 aggregate liquidation preference of its
__% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 to
Bear, Stearns & Co. Inc. and Lehman Brothers Inc., as underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-1, and amendments
thereto, with respect to the Stock have (i) been prepared by the
Company in conformity with the requirements of the United States
Securities Act of 1933, as amended, (the "Securities Act") and the
rules and regulations (the "Rules and Regulations") of the United
States Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the Securities
Act and (iii) become effective under the Securities Act; a second
registration statement on Form S-1 with respect to the Stock (i) may
also be prepared by the Company in conformity with the requirements
of the Securities Act and the Rules and Regulations and (ii) if to
be so prepared, will be filed with the Commission under the
Securities Act pursuant to Rule 462(b) of the Rules and Regulations
on the date hereof. Copies of the first such registration statement
and the amendments to such registration statement, together with the
form of any such second registration statement, have been delivered
by the Company to you as the representatives (the "Representatives")
of the U.S. Underwriters. As used in this Agreement, "Effective
Time" means (i) with respect to the first such registration
statement, the date and the time as of which such registration
statement, or the most recent post-effective amendment thereto, if
any, was declared effective by the Commission and (ii) with respect
to any second registration statement, the date and time as of which
such second registration statement is filed with the Commission, and
"Effective Times" is the collective reference to both Effective
Times; "Effective Date" means (i) with respect to the first such
registration statement, the date of the Effective Time of such
registration statement and (ii)
<PAGE>
3
with respect to any second registration statement, the date of the
Effective Time of such second registration statement, and "Effective
Dates" is the collective reference to both Effective Dates;
"Preliminary Prospectus" means each prospectus included in any such
registration statement, or amendments thereof, before it became
effective under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the Representatives
pursuant to Rule 424(a) of the Rules and Regulations; "Primary
Registration Statement" means the first registration statement
referred to in this Section 1(a), as amended at its Effective Time,
"Rule 462(b) Registration Statement" means the second registration
statement, if any, referred to in this Section 1(a), as filed with
the Commission, and "Registration Statements" means both the Primary
Registration Statement and any Rule 462(b) Registration Statement,
including in each case all information contained in the final
prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations in accordance with Section 6.(a) hereof and
deemed to be a part of the Registration Statements as of the
Effective Time of the Primary Registration Statement pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations; and
"Prospectus" means such final prospectus, as first filed with the
Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the
Rules and Regulations. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus.
(b) The Primary Registration Statement conforms (and the Rule
462(b) Registration Statement, if any, the Prospectus and any
further amendments or supplements to the Registration Statements or
the Prospectus, when they become effective or are filed with the
Commission, as the case may be, will conform) in all respects to the
requirements of the Securities Act and the Rules and Regulations and
do not and will not, as of the applicable effective date (as to the
Registration Statements and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
that no representation or warranty is made as to information
contained in or omitted from the Registration Statements or the
Prospectus in reliance upon and in conformity with written
information furnished to the Company through the Representatives by
or on behalf of any U.S. Underwriter specifically for inclusion
therein.
(c) The Company and each of its subsidiaries (as defined in
Section 17) have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, are duly qualified to do business
and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of
property or the conduct of their respective businesses requires such
qualification, and have all power and authority necessary to own or
hold their respective properties and to conduct the businesses in
which they are engaged; and none of the subsidiaries of the
<PAGE>
4
Company is a "significant subsidiary", as such term is defined in
Rule 405 of the Rules and Regulations.
(d) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable and
(except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims.
(e) The unissued shares of the Stock to be issued and sold by
the Company to the U.S. Underwriters hereunder and under the
International Underwriting Agreement have been duly and validly
authorized and, when issued and delivered against payment therefor
as provided herein and in the International Underwriting Agreement,
will be duly and validly issued, fully paid and non-assessable; and
the Stock will conform to the description thereof contained in the
Prospectus.
(f) The execution, delivery and performance of this Agreement
and the International Underwriting Agreement will not conflict with
or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the
properties or assets of the Company or any of its subsidiaries is
subject, nor will such actions result in any violation of the
provisions of the charter or by-laws of the Company or any of its
subsidiaries or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or
assets; and except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the United
States Securities Exchange Act of 1934, as amended, (the "Exchange
Act") and applicable state or foreign securities laws in connection
with the purchase and distribution of the Stock by the U.S.
Underwriters and the International Managers, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution,
delivery and performance of this Agreement, or the International
Underwriting Agreement, by the Company and the consummation of the
transactions contemplated hereby and thereby.
(g) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned
or to be owned by such person or to require the
<PAGE>
5
Company to include such securities in the securities registered
pursuant to the Registration Statements or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act.
(h) Except as described in the Prospectus, the Company has not
sold or issued any shares of Class A Common Stock during the
six-month period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A under, or Regulations D or S of, the
Securities Act, other than shares issued pursuant to employee
benefit plans, qualified stock options plans or other employee
compensation plans or pursuant to outstanding options, rights or
warrants.
(i) Neither the Company nor any of its subsidiaries has
sustained, since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference with
its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since such date, there has not
been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any material adverse change,
or any development involving a prospective material adverse change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus.
(j) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statements
or included in the Prospectus present fairly the financial condition
and results of operations of the entities purported to be shown
thereby, at the dates and for the periods indicated, and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved.
(k) Each of Price Waterhouse, LLP, Johnson & Miller, LLP,
McGladrey & Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran,
LLP, who have certified certain financial statements of the Company,
whose report appears in the Prospectus and who have delivered the
initial letter referred to in Section 9.(f) hereof, are independent
public accountants as required by the Securities Act and the Rules
and Regulations.
(l) The Company and each of its subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each
case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as do not materially
affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the
Company and its subsidiaries; and all real property and buildings
held under lease by the Company
<PAGE>
6
and its subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material and do
not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries.
(m) The Company and each of its subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the
value of their respective properties and as is customary for
companies engaged in similar businesses in similar industries.
(n) The Company and each of its subsidiaries own or possess
adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark registrations,
service mark registrations, copyrights and licenses necessary for
the conduct of their respective businesses and have no reason to
believe that the conduct of their respective businesses will
conflict with, and have not received any notice of any claim of
conflict with, any such rights of others.
(o) There are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which
any property or asset of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of
its subsidiaries, might have a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations, business or prospects of the Company and its
subsidiaries; and to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(p) There are no contracts or other documents which are
required to be described in the Prospectus or filed as exhibits to
either of the Registration Statements by the Securities Act or by
the Rules and Regulations which have not been described in the
Prospectus or filed as exhibits to either of the Registration
Statements.
(q) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other
hand, which is required to be described in the Prospectus which is
not so described.
(r) No labor disturbance by the employees of the Company
exists or, to the knowledge of the Company is imminent which might
be expected to have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries.
(s) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations
and published interpretations
<PAGE>
7
thereunder ("ERISA"); no "reportable event" (as defined in ERISA)
has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company
has not incurred and does not expect to incur liability under (i)
Title IV of ERISA with respect to termination of, or withdrawal
from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that
is intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(t) The Company has filed all federal, state and local income
and franchise tax returns required to be filed through the date
hereof and has paid all taxes due thereon, and no tax deficiency has
been determined adversely to the Company or any of its subsidiaries
which has had (nor does the Company have any knowledge of any tax
deficiency which, if determined adversely to the Company or any of
its subsidiaries, might have) a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations, business or prospects of the Company and its
subsidiaries.
(u) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or
granted any securities, (ii) incurred any liability or obligation,
direct or contingent, other than liabilities and obligations which
were incurred in the ordinary course of business, (iii) entered into
any transaction not in the ordinary course of business or (iv)
declared or paid any dividend on its capital stock.
(v) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are
recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access
to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(w) The statistical and market-related data included in the
Prospectus are based or derived from sources which the Company and
its subsidiaries believe to be reliable and accurate.
(x) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any
material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition
<PAGE>
8
contained in any material indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which it is a party or
by which it is bound or to which any of its properties or assets is
subject or (iii) is in violation in any material respect of any law,
ordinance, governmental rule, regulation or court decree to which it
or its properties or assets may be subject or has failed to obtain
any material license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of
its properties or assets or to the conduct of its business.
(y) Each of the radio stations owned, operated, programmed, or
to which sales and marketing services are provided, by the Company
and its subsidiaries is validly licensed by the Federal
Communications Commission (the "FCC") and no administrative or
judicial proceedings are pending before or, to the knowledge of the
Company or its subsidiaries, threatened by the FCC with respect to
such licenses; the Company and its subsidiaries possess adequate
certificates, authorizations, consents, orders, approvals, licenses
or permits which are in full force and effect issued by other
appropriate governmental agencies or bodies necessary to the
ownership of their respective properties and the conduct of the
businesses now operated by them and have not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority, consent, order, approval, license or permit
and the Company and its subsidiaries are in compliance in all
material respects with the Communications Act of 1934, as amended,
and the rules, regulations and policies of the FCC.
(z) Neither the Company nor any of its subsidiaries, nor any
director, officer, agent, employee or other person associated with
or acting on behalf of the Company or any of its subsidiaries, has
used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political
activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(aa) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
toxic wastes, medical wastes, hazardous wastes or hazardous
substances by the Company or any of its subsidiaries (or, to the
knowledge of the Company, any of their predecessors in interest) at,
upon or from any of the properties now or previously owned or leased
by the Company or its subsidiaries in violation of any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit
or which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit,
except for any violation or remedial action which would not have, or
could not be reasonably likely to have, singularly or in the
aggregate with all such violations and remedial actions, a material
adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the
Company and its subsidiaries; there has been no
<PAGE>
9
material spill, discharge, leak, emission, injection, escape,
dumping or release of any kind onto such property or into the
environment surrounding such property of any toxic wastes, medical
wastes, solid wastes, hazardous wastes or hazardous substances due
to or caused by the Company or any of its subsidiaries or with
respect to which the Company or any of its subsidiaries have
knowledge, except for any such spill, discharge, leak, emission,
injection, escape, dumping or release which would not have or would
not be reasonably likely to have, singularly or in the aggregate
with all such spills, discharges, leaks, emissions, injections,
escapes, dumpings and releases, a material adverse effect on the
general affairs, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries;
and the terms "hazardous wastes", "toxic wastes", "hazardous
substances" and "medical wastes" shall have the meanings specified
in any applicable local, state, federal and foreign laws or
regulations with respect to environmental protection.
(bb) Neither the Company nor any subsidiary is an "investment
company" within the meaning of such term under the United States
Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder.
(cc) The Company has no reason to believe that, after giving
effect to the Pending Acquisitions (as defined in the Registration
Statement), any of the representations, warranties and agreements
contained in this Section 1 would not be true and correct.
2. Representations, Warranties and Agreements of the Selling
Stockholder. The Selling Stockholder represents, warrants and agrees that:
(a) The Selling Stockholder has, and immediately prior to the
First Delivery Date (as defined in Section 5 hereof) the Selling
Stockholder will have good and valid title to the shares of Stock to
be sold by the Selling Stockholder hereunder and under the
International Underwriting Agreement on such date, free and clear of
all liens, encumbrances, equities or claims; and upon delivery of
such shares and payment therefor pursuant hereto and thereto, good
and valid title to such shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several
Underwriters and the International Managers.
[(b) The Selling Stockholder has placed in custody under a
custody agreement (the "Custody Agreement" and, together with all
other similar agreements executed by the other Selling Stockholders,
the "Custody Agreements") with [insert name of custodian], as
custodian (the "Custodian"), for delivery under this Agreement,
certificates in negotiable form (with signature guaranteed by a
commercial bank or trust company having an office or correspondent
in the United States or a member firm of the New York or American
Stock Exchanges) representing the shares of Stock to be sold by the
Selling Stockholder hereunder.
<PAGE>
10
(c) The Selling Stockholder has duly and irrevocably executed
and delivered a power of attorney (the "Power of Attorney"
appointing the Custodian and one or more other persons, as
attorneys-in-fact, with full power of substitution, and with full
authority (exercisable by any one or more of them) to execute and
deliver this Agreement and to take such other action as may be
necessary or desirable to carry out the provisions hereof on behalf
of the Selling Stockholder.]
(d) The Selling Stockholder has full right, power and
authority to enter into this Agreement and the International
Underwriting Agreement, [the Power of Attorney and the Custody
Agreement]; the execution, delivery and performance of this
Agreement and the International Underwriting Agreement[, the Power
of Attorney and the Custody Agreement] by the Selling Stockholder
and the consummation by the Selling Stockholder of the transactions
contemplated hereby and thereby will not conflict with or result in
a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Selling
Stockholder is a party or by which the Selling Stockholder is bound
or to which any of the property or assets of the Selling Stockholder
is subject, nor will such actions result in any violation of any
statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Selling
Stockholder or the property or assets of the Selling Stockholder;
and, except for the registration of the Stock under the Securities
Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state or foreign securities laws in connection with the
purchase and distribution of the Stock by the Underwriters and the
International Managers, no consent, approval, authorization or order
of, or filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and
performance of this Agreement or the International Underwriting
Agreement[, the Power of Attorney or the Custody Agreement] by the
Selling Stockholder and the consummation by the Selling Stockholder
of the transactions contemplated hereby and thereby.
(e) The Registration Statement and the Prospectus and any
further amendments or supplements thereto will, when they become
effective or are filed with the Commission, as the case may be, not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided that no representation
or warranty is made as to information contained in or omitted from
the Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically
for inclusion therein.
(f) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result
in the stabilization or
<PAGE>
11
manipulation of the price of any security of the Company to
facilitate the sale or resale of the shares of the Stock.
3. Purchase of the Stock by the U.S. Underwriters.
On the basis of the representations and warranties contained in, and
subject to the terms and conditions of, this Agreement, the Company agrees to
sell _______ shares of the Firm Stock and the Selling Stockholder hereby agrees
to sell _____ shares of the Firm Stock to the several U.S. Underwriters and each
of the U.S. Underwriters, severally and not jointly, agrees to purchase the
number of shares of the Firm Stock set opposite that U.S. Underwriter's name in
Schedule 1 hereto. The respective purchase obligations of the U.S. Underwriters
with respect to the Firm Stock shall be rounded among the U.S. Underwriters to
avoid fractional shares, as the Representatives may determine.
In addition, the Company grants to the U.S. Underwriters an option
to purchase up to _______ shares of Option Stock. Such option is granted solely
for the purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 5 hereof. Shares of Option Stock shall be
purchased severally for the account of the U.S. Underwriters in proportion to
the number of shares of Firm Stock set opposite the name of such U.S.
Underwriters in Schedule 1 hereto. The respective purchase obligations of each
U.S. Underwriter with respect to the Option Stock shall be adjusted by the
Representatives so that no U.S. Underwriter shall be obligated to purchase
Option Stock other than in 100 share amounts.
The price of both the Firm Stock and any Option Stock shall be
$_____ per share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on the First Delivery Date or the Second Delivery Date (as hereinafter
defined), as the case may be, except upon payment for all the Stock to be
purchased on such Delivery Date as provided herein.
4. Offering of Stock by the U.S. Underwriters.
Upon authorization by the Representatives of the release of the Firm
Stock, the several U.S. Underwriters propose to offer the Firm Stock for sale
upon the terms and conditions set forth in the Prospectus; provided, however,
that no Stock registered pursuant to the Rule 462(b) Registration Statement, if
any, shall be offered prior to the Effective Time thereof.
5. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Lehman Brothers Inc. at Three
World Financial Center, New York, New York 10285, at 10:00 A.M., New York City
time, on the [third][fourth] full business day following the date of this
Agreement or at such other date or place as shall be determined by agreement
between the Representatives and the Company. This date and time are sometimes
referred to as the "First Delivery Date." On the First Delivery Date, the
Company shall deliver or cause to be delivered certificates representing the
Firm Stock to the Representatives for the account of each U.S. Underwriter
against payment to or upon the order of the Company of the purchase price by
certified or official bank check or checks payable in New York Clearing House
<PAGE>
12
(next-day) funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each U.S. Underwriter hereunder. Upon delivery, the Firm Stock
shall be registered in such names and in such denominations as the
Representatives shall request in writing not less than two full business days
prior to the First Delivery Date. For the purpose of expediting the checking and
packaging of the certificates for the Firm Stock, the Company shall make the
certificates representing the Firm Stock available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement the option granted in Section 3 may be exercised by written notice
being given to the Company by the Representatives. Such notice shall set forth
the aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Representatives, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 5
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each U.S. Underwriter against payment to or
upon the order of the Company and the Selling Stockholder of the purchase price
by certified or official bank check or checks payable in New York Clearing House
(next-day) funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each U.S. Underwriter hereunder. Upon delivery, the Option Stock
shall be registered in such names and in such denominations as the
Representatives shall request in the aforesaid written notice. For the purpose
of expediting the checking and packaging of the certificates for the Option
Stock, the Company and the Selling Stockholder shall make the certificates
representing the Option Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Second Delivery Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Rule 462(b) Registration Statement, if
necessary, in a form approved by the Representatives and to file
such Rule 462(b) Registration Statement with the Commission on the
date hereof; to prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than 10:00 A.M., New York City
<PAGE>
13
time, on the day following the execution and delivery of this
Agreement; to make no further amendment or any supplement to the
Registration Statements or to the Prospectus prior to the Second
Delivery Date except as permitted herein; to advise the
Representatives, promptly after it receives notice thereof, of the
time when any amendment to either Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or
any amended Prospectus has been filed and to furnish the
Representatives with copies thereof; to advise the Representatives,
promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus,
of the suspension of the qualification of the Stock for offering or
sale in any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statements or
the Prospectus or for additional information; and, in the event of
the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus
or suspending any such qualification, to use promptly its best
efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the U.S. Underwriters a signed copy of each of the
Registration Statements as originally filed with the Commission, and
each amendment thereto filed with the Commission, including all
consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives in New York
City such number of the following documents as the Representatives
shall request: (i) conformed copies of the Registration Statements
as originally filed with the Commission and each amendment thereto
(in each case excluding exhibits other than this Agreement and the
computation of per share earnings) and (ii) each Preliminary
Prospectus, the Prospectus (not later than 10:00 A.M., New York City
time, of the day following the execution and delivery of this
Agreement) and any amended or supplemented Prospectus (not later
than 10:00 A.M., New York City time, on the day following the date
of such amendment or supplement); and, if the delivery of a
prospectus is required at any time after the Effective Time of the
Primary Registration Statement in connection with the offering or
sale of the Stock (or any other securities relating thereto) and if
at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to comply
with the Securities Act, to notify the Representatives and, upon
their request, to prepare and furnish without charge to each U.S.
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time request of an amended or
supplemented Prospectus which will correct such statement or
omission or effect such compliance;
<PAGE>
14
(d) To file promptly with the Commission any amendment to the
Registration Statements or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by
the Commission;
(e) Prior to filing with the Commission (i) any Preliminary
Prospectus, (ii) any amendment to either of the Registration
Statements or supplement to the Prospectus or (iii) any Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish a copy
thereof to the Representatives and counsel for the U.S. Underwriters
and obtain the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date of the
Primary Registration Statement, to make generally available to the
Company's security holders and to deliver to the Representatives an
earnings statement of the Company and its subsidiaries (which need
not be audited) complying with Section 11(a) of the Securities Act
and the Rules and Regulations (including, at the option of the
Company, Rule 158);
(g) For a period of five years following the Effective Date of
the Primary Registration Statement, to furnish to the
Representatives copies of all materials furnished by the Company to
its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal
national securities exchange or automatic quotation system upon
which the Class A Common Stock may be listed or quoted pursuant to
requirements of or agreements with such exchange or system or to the
Commission pursuant to the Exchange Act or any rule or regulation of
the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request and to comply with such laws so as
to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of the Stock;
(i) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which
is designed to, or could be expected to, result in the disposition
or purchase by any person at any time in the future of) any shares
of Class A Common Stock or securities convertible into or
exchangeable for Class A Common Stock (other than the shares of
Class A Common Stock and shares issued pursuant to employee benefit
plans, qualified stock option plans or other employee compensation
plans existing on the date hereof or pursuant to currently
outstanding options, warrants or rights), or sell or grant options,
rights or warrants with respect to any shares of Class A Common
Stock or securities convertible into or exchangeable for Class A
Common Stock (other than the grant of options pursuant to option
plans existing on the date
<PAGE>
15
hereof), or (2) enter into any swap or other derivatives transaction
that transfers to another, in whole or in part, any of the economic
benefits or risks of ownership of such shares of Class A Common
Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Class A Common Stock or other
securities, in cash or otherwise, in each case without the prior
written consent of the Representatives; and to cause each officer,
director and stockholder of the Company to furnish to the
Representatives, prior to the First Delivery Date, a letter or
letters, in form and substance satisfactory to counsel for the U.S.
Underwriters, pursuant to which each such person shall agree not to,
directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which
is designed to, or could be expected to, result in the disposition
or purchase by any person at any time in the future of) any shares
of Class A Common Stock or securities convertible into or
exchangeable for Class A Common Stock or (2) enter into any swap or
other derivatives transaction that transfers to another, in whole or
in part, any of the economic benefits or risks or ownership of such
shares of Class A Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of
Class A Common Stock or other securities, in cash or otherwise, in
each case for a period of 180 days from the date of the Prospectus,
without the prior written consent of the Representatives;
(j) Prior to filing with the Commission any reports pursuant
to Rule 463 of the Rules and Regulations, to furnish a copy thereof
to the counsel for the U.S. Underwriters and receive and consider
its comments thereon, and to deliver promptly to the Representatives
a signed copy of each such report filed by it with the Commission;
(k) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus;
(l) To take such steps as shall be necessary to ensure that
neither the Company nor any subsidiary shall become an "investment
company" within the meaning of such term under the United States
Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder.
7. Further Agreements of the Selling Stockholder. The Selling
Stockholder agrees:
(a) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which
is designated to, or could be expected to, result in the disposition
or purchase by any person at any time in the future of) any shares
of Class A Common Stock or securities convertible into or
exchangeable for Class A Common Stock (other than the Stock), or (2)
enter into any swap or other derivatives transaction that transfers
to another, in whole or in part, any of the economic benefits or
risks of ownership of such shares of Class A Common Stock, whether
any such transaction described in clause (1) or (2)
<PAGE>
16
above is to be settled by delivery of Class A Common Stock or other
securities, in cash or otherwise, in each case without the prior
written consent of the Representatives.
(b) That the Stock to be sold by the Selling Stockholder
hereunder, [which is represented by the certificates held in custody
for the Selling Stockholder], is subject to the interest of the
Underwriters, [that the arrangements made by the Selling Stockholder
for such custody are to that extent irrevocable,] and that the
obligations of the Selling Stockholder hereunder shall not be
terminated by any act of the Selling Stockholder, by operation of
law or the occurrence of any other event.
(c) To deliver to the Representative prior to the First
Delivery Date a properly contemplated and executed United States
Treasury Department or Form W-9.
8. Expenses. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statements and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statements as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus, all as provided in
this Agreement; (d) the costs of reproducing and distributing this Agreement and
the Agreement Between U.S. Underwriters and International Managers; (e) the
costs of distributing the terms of agreement relating to the organization of the
domestic underwriting syndicate and selling group to the members thereof by
mail, telex or other means of communication; (f) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of sale of the Stock; (g) any applicable listing or other
fees; (h) the fees and expenses of qualifying the Stock under the securities
laws of the several jurisdictions as provided in Section 6.(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the U.S. Underwriters); and (i) all other costs and
expenses incident to the performance of the obligations of the Company under
this Agreement; provided that, except as provided in this Section 8 and in
Section 13, the U.S. Underwriters shall pay their own costs and expenses,
including the costs and expenses of their counsel, any transfer taxes on the
Stock which they may sell and the expenses of advertising any offering of the
Stock made by the U.S. Underwriters.
9. Conditions of U.S. Underwriters' Obligations. The respective
obligations of the U.S. Underwriters hereunder are subject to the accuracy, when
made and on each Delivery Date, of the representations and warranties of the
Company contained herein, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Rule 462(b) Registration Statement, if any, and the
Prospectus shall have been timely filed with the Commission in
accordance with Section
<PAGE>
17
6.(a); no stop order suspending the effectiveness of either of the
Registration Statements or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and any request of the Commission for
inclusion of additional information in either of the Registration
Statements or the Prospectus or otherwise shall have been complied
with.
(b) No U.S. Underwriter shall have discovered and disclosed to
the Company on or prior to such Delivery Date that either of the
Registration Statements or the Prospectus or any amendment or
supplement thereto contains any untrue statement of a fact which, in
the opinion of Simpson Thacher & Bartlett, counsel for the U.S.
Underwriters, is material or omits to state any fact which, in the
opinion of such counsel, is material and is required to be stated
therein or is necessary to made the statements therein not
misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the
International Underwriting Agreement, the Stock, the Registration
Statements and the Prospectus, and all other legal matters relating
to this Agreement and the International Underwriting Agreements, and
the transactions contemplated hereby and thereby shall be
satisfactory in all respects to counsel for the U.S. Underwriters,
and the Company shall have furnished to such counsel all documents
and information that they may reasonably request to enable them to
pass upon such matters.
(d) Paul, Hastings, Janofsky & Walker LLP shall have furnished
to the Representatives its written opinion, as counsel to the
Company, addressed to the U.S. Underwriters and dated such Delivery
Date, in form and substance satisfactory to the Representatives, to
the effect that:
(i) The Company and each of its subsidiaries have been
duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions
of incorporation, are duly qualified to do business and are in
good standing as foreign corporations in each jurisdiction in
which their respective ownership or lease of property or the
conduct of their respective businesses requires such
qualification and have all power and authority necessary to
own or hold their respective properties and conduct the
businesses in which they are engaged;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of
capital stock of the Company (including the shares of Stock
being delivered on such Delivery Date) have been duly and
validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof
contained in the Prospectus; and all of the issued shares of
capital stock of each subsidiary of the Company have been duly
and validly authorized and issued and are
<PAGE>
18
fully paid, non-assessable and (except for directors'
qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities
or claims;
(iii) There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the
voting or transfer of, any shares of the Stock pursuant to the
Company's charter or by-laws or any agreement or other
instrument known to such counsel;
(iv) The Company and each of its subsidiaries have good
and marketable title in fee simple to all real property owned
by them and good and marketable title to all personal property
owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of
such property and do not materially interfere with the use
made and proposed to be made of such property by the Company
and its subsidiaries; and all real property and buildings held
under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(v) To the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property or
asset of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its
subsidiaries, might have a material adverse effect on the
consolidated financial position, stockholders' equity, results
of operations, business or prospects of the Company and its
subsidiaries; and, to the best of such counsel's knowledge, no
such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(vi) The Primary Registration Statement was declared
effective under the Securities Act as of the date and time
specified in such opinion, the Rule 462(b) Registration
Statement, if any, was filed with the Commission on the date
specified therein, the Prospectus was filed with the
Commission pursuant to the subparagraph of Rule 424(b) of the
Rules and Regulations specified in such opinion on the date
specified therein and no stop order suspending the
effectiveness of either of the Registration Statements has
been issued and, to the knowledge of such counsel, no
proceeding for that purpose is pending or threatened by the
Commission;
(vii) The Registration Statements, as of their
respective Effective Dates, and the Prospectus, as of its
date, and any further amendments or supplements thereto, as of
their respective dates, made by the Company
<PAGE>
19
prior to such Delivery Date (other than the financial
statements and other financial data contained therein, as to
which such counsel need express no opinion) complied as to
form in all material respects with the requirements of the
Securities Act and the Rules and Regulations;
(viii) The statements contained in the Prospectus under
the captions "Risk Factors - Governmental Regulation of
Broadcast Industry," "Business - Federal Regulation of Radio
Broadcasting" and "Certain Federal Income Tax Consequences",
insofar as they describe federal statutes, rules and
regulations, constitute a fair summary thereof;
(ix) To the best of such counsel's knowledge, there are
no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the
Registration Statements by the Securities Act or by the Rules
and Regulations which have not been described or filed as
exhibits to the Registration Statements;
(x) This Agreement and the International Underwriting
Agreement have each been duly authorized, executed and
delivered by the Company;
(xi) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the
compliance by the Company with all of the provisions of this
Agreement and the International Underwriting Agreement and the
consummation of the transactions contemplated hereby and
thereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such
counsel to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is
bound or to which any of the properties or assets of the
Company or any of its subsidiaries is subject, nor will such
actions result in any violation of the provisions of the
charter or by-laws of the Company or any of its subsidiaries
or any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or
any of their properties or assets; and, except for the
registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state or foreign securities laws in connection with
the purchase and distribution of the Stock by the U.S.
Underwriters and the International Managers, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement and the International Underwriting Agreement by the
<PAGE>
20
Company and the consummation of the transactions contemplated
hereby and thereby; and
(xii) To the best of such counsel's knowledge, there are
no contracts, agreements or understandings between the Company
and any person granting such person the right to require the
Company to file a registration statement under the Securities
Act with respect to any securities of the Company owned or to
be owned by such person or to require the Company to include
such securities in the securities registered pursuant to the
Registration Statements or in any securities being registered
pursuant to any other registration statement filed by the
Company under the Securities Act.
(xiii) Each of the radio stations owned, operated,
programmed or marketed by the Company and its subsidiaries is
validly licensed by the FCC and no administrative or judicial
proceedings are pending before or, to the knowledge of such
counsel, threatened by the FCC with respect to such licenses;
the Company and its subsidiaries possess adequate
certificates, authorizations, consents, orders, approvals,
licenses or permits which are in full force and effect issued
by other appropriate governmental agencies or bodies necessary
to the ownership of their respective properties and the
conduct of the businesses now operated by them and have not
received any notice of proceedings relating to the revocation
or modification of any such certificate, authority or permit.
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of New York and the
Illinois Business Corporation Act and that such counsel is not
admitted in the State of Illinois; (ii) rely (to the extent such
counsel deems proper and specifies in its opinion), as to matters
involving the application of the laws of the State of Illinois upon
the opinion of other counsel of good standing, provided that such
other counsel is satisfactory to counsel for the U.S. Underwriters
and furnishes a copy of its opinion to the Representatives; and
(iii) in giving the opinion referred to in Section 9.(d)(iv), state
that no examination of record titles for the purpose of such opinion
has been made, and that it is relying upon a general review of the
titles of the Company and its subsidiaries, upon opinions of local
counsel and abstracts, reports and policies of title companies
rendered or issued at or subsequent to the time of acquisition of
such property by the Company or its subsidiaries, upon opinions of
counsel to the lessors of such property and, in respect of matters
of fact, upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that it
believes that both the U.S. Underwriters and it are justified in
relying upon such opinions, abstracts, reports, policies and
certificates. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the U.S.
Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that (x) such
counsel has acted as counsel to the
<PAGE>
21
Company in connection with the preparation of the Registration
Statements, and (y) based on the foregoing, no facts have come to
the attention of such counsel which lead it to believe that the
Registration Statements, as of their respective Effective Dates,
contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading, or that the
Prospectus contains any untrue statement of a material fact or omits
to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
foregoing opinion and statement may be qualified by a statement to
the effect that such counsel does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained
in the Registration Statements or the Prospectus except for the
statements made in the Prospectus under the captions "Description of
Capital Stock," "Risk Factors - Governmental Regulation of
Broadcasting Industry," "Business - Federal Regulation of
Broadcasting Industry" and "Certain Federal Income Tax
Consequences", insofar as such statements relate to the Stock and
concern legal matters.
(e) The counsel for Selling Stockholder shall have furnished
to the Representatives its written opinion, as counsel to the
Selling Stockholder, addressed to the Underwriters and dated the
First Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) The Selling Stockholder has full right, power and
authority to enter into this Agreement and the International
Underwriting Agreement, [the Power of Attorney and the Custody
Agreement,] the execution, delivery and performance of this
Agreement and the International Underwriting Agreement [, the
Power of Attorney and the Custody Agreement] by the Selling
Stockholder and the consummation by the Selling Stockholder of
the transactions contemplated hereby and thereby will not
conflict with or result in a breach of violation of any of the
terms or provisions of, or constitute a default under, any
statute, any indenture, mortgage deed of trust, loan agreement
or other agreement or instrument known to such counsel to
which the Selling Stockholder is a party or by which the
Selling Stockholder is bound or to which any of the property
or assets of the Selling Stockholder is subject, nor will such
actions result in any violation of any statute or any order,
rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the
Selling Stockholder or the property or assets of the Selling
Stockholder; and, except for the registration of the Stock
under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state or
foreign securities laws in connection with the purchase and
distribution of the Stock by the Underwriters and the
International Managers, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body is
<PAGE>
22
required for the execution, delivery and performance of this
Agreement or the International Underwriting Agreement[, the
Power of Attorney or the Custody Agreement] by the Selling
Stockholder and the consummation by the Selling Stockholder of
the transactions contemplated hereby and thereby;
(ii) This Agreement and the International Underwriting
Agreement have been duly executed and delivered by or on
behalf of the Selling Stockholder;
[(iii) A Power of Attorney and a Custody Agreement have
been duly authorized, executed and delivered by the Selling
Stockholder and constitute valid and binding agreements of the
Selling Stockholder;] and
(iv) Upon payment for, and delivery of, the shares of
Stock to be sold by the Selling Stockholder under this
Agreement and the International Underwriting Agreement in
accordance with the terms hereof and thereof, the Underwriters
and the International Managers will acquire all of the rights
of the Selling Stockholder in such Shares free of any adverse
claim (within the meaning of the Uniform Commercial Code).
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of New York and the
General Corporation Law of the State of Wisconsin and (ii) rendering
the opinion in Section above, rely upon a certificate of the Selling
Stockholder in respect of matters of fact as to ownership of, and
the absence of adverse claims regarding, the shares of Stock sold by
the Selling Stockholder, provided that such counsel shall furnish
copies thereof to the Representatives and state that it believes
that both the Underwriters and it are justified in relying upon such
certificate. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters
and dated the First Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that (x) such
counsel has acted as counsel to the Selling Stockholder on a regular
basis and has acted as counsel to the Selling Stockholder in
connection with the preparation of the Registration Statement and
(y) based on the foregoing, no facts have come to the attention of
such counsel which lead it to believe that the Registration
Statement, as of the Effective Date contained any untrue statement
of a material fact relating to the Selling Stockholder or omitted to
state such a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or
that the Prospectus contains any untrue statement of a material fact
relating to the Selling Stockholder or omits to state such a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under
which they were made, not misleading. The foregoing opinion and
statement may be qualified by a statement to the effect that such
counsel does not assume any responsibility for
<PAGE>
23
the accuracy, completeness or fairness of the statements contained
in the Registration Statement or the Prospectus.
(f) With respect to the letter of each of Price Waterhouse,
LLP, Johnson & Miller, LLP, McGladrey & Pullen, LLP, Coopers &
Lybrand, LLP and Plant & Moran, LLP delivered to the Representatives
concurrently with the execution of this Agreement (each, an "initial
letter"), the Company shall have furnished to the Representatives a
letter (each, a "bring-down letter") of such accountants, addressed
to the U.S. Underwriters and dated such Delivery Date (i) confirming
that they are independent public accountants within the meaning of
the Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule
2-01 of Regulation S-X of the Commission, (ii) stating, as of the
date of the bring-down letter (or, with respect to matters involving
changes or developments since the respective dates as of which
specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date of the bring-down
letter), the conclusions and findings of such firm with respect to
the financial information and other matters covered by the initial
letter and (iii) confirming in all material respects the conclusions
and findings set forth in the initial letter.
(g) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board,
its President or a Vice President and its chief financial officer
stating that:
(i) The representations, warranties and agreements of
the Company in Section 1 are true and correct as of such
Delivery Date; the Company has complied with all its
agreements contained herein; and the conditions set forth in
Section 7(a) have been fulfilled;
(ii) (A) Neither the Company nor any of its subsidiaries
has sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference
with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the
Prospectus or (B) since such date there has not been any
change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus;
and
(iii) They have carefully examined the Registration
Statements and the Prospectus and, in their opinion (A) the
Registration Statements, as of their respective Effective
Dates, and the Prospectus, as of each of the Effective Dates,
did not include any untrue statement of a material fact and
<PAGE>
24
did not omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading, and (B) since the Effective Date of the Primary
Registration Statement, no event has occurred which should
have been set forth in a supplement or amendment to either of
the Registration Statements or the Prospectus.
(h) The Selling Stockholder [(or the Custodian or one or more
attorneys in fact on behalf of the Selling Stockholders)] shall have
furnished to the Representatives on the First Delivery Date a
certificate, dated the First Delivery Date, signed by, or on behalf
of, the Selling Stockholder [(or the Custodian or one or more
attorneys in fact)] stating that the representations, warranties and
agreements of the Selling Stockholder contained herein are true and
correct as of the First Delivery Date and that the Selling
Stockholder has complied with all agreements contained herein to be
performed by the Selling Stockholder at or prior to the First
Delivery Date.
(i) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included or incorporated by reference in the Prospectus
any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the
Prospectus or (ii) since such date there shall not have been any
change in the capital stock or long-term debt of the Company or any
of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such
case described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it impracticable
or inadvisable to proceed with the public offering or the delivery
of the Stock being delivered on such Delivery Date on the terms and
in the manner contemplated in the Prospectus.
(j) Subsequent to the execution and delivery of this Agreement
(i) no downgrading shall have occurred in the rating accorded the
Company's debt securities or preferred stock by any "nationally
recognized statistical rating organization", as that term is defined
by the Commission for purposes of Rule 436(g)(2) of the Rules and
Regulations and (ii) no such organization shall have publicly
announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Company's debt
securities or preferred stock.
(k) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall
<PAGE>
25
have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or
governmental authority having jurisdiction, (ii) a banking
moratorium shall have been declared by Federal or state authorities,
(iii) the United States shall have become engaged in hostilities,
there shall have been an escalation in hostilities involving the
United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic,
political or financial conditions (or the effect of international
conditions on the financial markets in the United States shall be
such) as to make it, in the judgment of a majority in interest of
the several U.S. Underwriters, impracticable or inadvisable to
proceed with the public offering or delivery of the Stock being
delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(l) The Stock has been duly authorized for quotation on the
National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market System, subject only to official notice
of issuance.
(m) The closing under the International Underwriting Agreement
shall have occurred concurrently with the closing hereunder on the
First Delivery Date.
(n) The closing under the Debt Underwriting Agreement shall
have occurred concurrently with the closing hereunder on the First
Delivery Date.
(o) The closing under the Preferred Stock Underwriting
Agreement shall have occurred concurrently with the closing
hereunder on the First Delivery Date.
(p) The Reorganization (as defined in the Registration
Statement) shall have been consummated prior to the First Delivery
Date.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance satisfactory to counsel
for the U.S. Underwriters.
10. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each U.S.
Underwriter, its officers and employees and each person, if any, who controls
any U.S. Underwriter within the meaning of the Securities Act, from and against
any loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of Stock), to which that U.S.
Underwriter, officer, employee or controlling person may become subject, under
the Securities Act or otherwise, insofar as such loss, claim, damage, liability
or action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary Prospectus,
either of the Registration Statements or the Prospectus, or in any amendment or
supplement thereto, or (B) in any blue sky application or other document
prepared
<PAGE>
26
or executed by the Company (or based upon any written information furnished by
the Company) specifically for the purpose of qualifying any or all of the Stock
under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any Preliminary
Prospectus, either of the Registration Statements or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the statements therein
not misleading or (iii) any act or failure to act, or any alleged act or failure
to act, by any U.S. Underwriter in connection with, or relating in any manner
to, the Stock or the offering contemplated hereby, and which is included as part
of or referred to in any loss, claim, damage, liability or action arising out of
or based upon matters covered by clause (i) or (ii) above (provided that the
Company shall not be liable in the case of any matter covered by this clause
(iii) to the extent that it is determined in a final judgement by a court of
competent jurisdiction that such loss, claim, damage, liability or action
resulted directly from any such act or failure to act undertaken or omitted to
be taken by such U.S. Underwriter through its gross negligence or wilful
misconduct), and shall reimburse each U.S. Underwriter and each such officer,
employee and controlling person promptly upon demand for any legal or other
expenses reasonably incurred by that U.S. Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or
supplement, or in any Blue Sky Application in reliance upon and in conformity
with the written information furnished to the Company through the
Representatives by or on behalf of any U.S. Underwriter specifically for
inclusion therein and described in Section 10.(f). The foregoing indemnity
agreement is in addition to any liability which the Company may otherwise have
to any U.S. Underwriter or to any officer, employee or controlling person of
that U.S. Underwriter.
(b) The Selling Stockholder shall indemnify and hold harmless each
Underwriter, its officers and employees and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any actin in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of stock), to which that Underwriter,
officer, employee or controlling person may become subject, under the Securities
act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, any material fact required to be stated therein or necessary
to make the statements therein not misleading, and shall reimburse each
Underwriter, its officers and employees and each such controlling person for any
legal or other expenses reasonably incurred by that Underwriter, its officers,
employees or controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that the Selling Stockholder
shall not be liable in any such case to
<PAGE>
27
the extent that any such loss, claim, damage, liability or action arises out of,
or is based upon, any untrue statement or alleged untrue statement or omission
or alleged omission made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company through
the Representatives by or on behalf of any Underwriter specifically for
inclusion therein. The foregoing indemnity agreement is in addition to any
liability which the Selling Stockholder may otherwise have to any Underwriter or
any officer, employee or controlling person of that Underwriter.
(c) Each U.S. Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees, each of its
directors and each person, if any, who controls the Company within the meaning
of the Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the Company or any
such director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary Prospectus,
either of the Registration Statements or the Prospectus, or in any amendment or
supplement thereto, or (B) in any Blue Sky Application or (ii) the omission or
alleged omission to state in any Preliminary Prospectus, either of the
Registration Statements or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
the written information furnished to the Company through the Representatives by
or on behalf of that U.S. Underwriter specifically for inclusion therein and
described in Section 10.(f), and shall reimburse the Company and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability
which any U.S. Underwriter may otherwise have to the Company or any such
director, officer or controlling person.
(d) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 10.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under
<PAGE>
28
this Section 10 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that the Representatives shall have
the right to employ counsel to represent jointly the Representatives and those
other U.S. Underwriters and their respective officers, employees and controlling
persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the U.S. Underwriters against the Company. No
indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld), settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment of the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss of
liability by reason of such settlement or judgment.
(e) If the indemnification provided for in this Section 10 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 10.(a) or 10.(b), 10.(c) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Stockholder on the one hand and the U.S.
Underwriters on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and the U.S. Underwriters on the other with respect to the
statements or omissions which resulted in such loss, claim, damage or liability,
or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholder on the one hand and the U.S. Underwriters on the other with respect
to such offering shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Stock purchased under this Agreement (before
deducting expenses) received by the Company and the Selling Stockholder, on the
one hand, and the total underwriting discounts and commissions received by the
U.S. Underwriters with respect to the shares of the Stock purchased under this
Agreement, on the other hand, bear to the total gross proceeds from the offering
of the shares of the Stock under this Agreement, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company, the Selling Stockholder or the U.S.
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the U.S. Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 10.(e) were to be determined
by pro rata allocation (even if the U.S. Underwriters were treated as one entity
for such purpose) or by
<PAGE>
29
any other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 10.(e) shall be deemed to include,
for purposes of this Section 10.(e), any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Section 10.(e),
no U.S. Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Stock underwritten by it and
distributed to the public was offered to the public exceeds the amount of any
damages which such U.S. Underwriter has otherwise paid or become liable to pay
by reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The U.S.
Underwriters' obligations to contribute as provided in this Section 10.(e) are
several in proportion to their respective underwriting obligations and not
joint.
(f) The U.S. Underwriters severally confirm that the statements with
respect to the public offering of the Stock set forth on the cover page of, and
under the caption "Underwriting" in, the Prospectus are correct and constitute
the only information furnished in writing to the Company by or on behalf of the
U.S. Underwriters specifically for inclusion in the Registration Statements and
the Prospectus.
11. Defaulting U.S. Underwriters.
If, on either Delivery Date, any U.S. Underwriter defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting U.S. Underwriters shall be obligated to purchase the Stock which
the defaulting U.S. Underwriter agreed but failed to purchase on such Delivery
Date in the respective proportions which the number of shares of the Firm Stock
set opposite the name of each remaining non-defaulting U.S. Underwriter in
Schedule 1 hereto bears to the total number of shares of the Firm Stock set
opposite the names of all the remaining non-defaulting U.S. Underwriters in
Schedule 1 hereto; provided, however, that the remaining non-defaulting U.S.
Underwriters shall not be obligated to purchase any of the Stock on such
Delivery Date if the total number of shares of the Stock which the defaulting
U.S. Underwriter or U.S. Underwriters agreed but failed to purchase on such date
exceeds 9.09% of the total number of shares of the Stock to be purchased on such
Delivery Date, and any remaining non-defaulting U.S. Underwriter shall not be
obligated to purchase more than 110% of the number of shares of the Stock which
it agreed to purchase on such Delivery Date pursuant to the terms of Section 4.
If the foregoing maximums are exceeded, the remaining non-defaulting U.S.
Underwriters, or those other underwriters satisfactory to the Representatives
who so agree, shall have the right, but shall not be obligated, to purchase, in
such proportion as may be agreed upon among them, all the Stock to be purchased
on such Delivery Date. If the remaining U.S. Underwriters or other underwriters
satisfactory to the Representatives do not elect to purchase the shares which
the defaulting U.S. Underwriter or U.S. Underwriters agreed but failed to
purchase on such Delivery Date, this Agreement (or, with respect to the Second
Delivery Date, the obligation of the U.S. Underwriters to purchase, and of the
Company to sell, the Option Stock) shall terminate without liability on the part
of any non-defaulting U.S. Underwriter or the Company, except that the Company
will continue to be liable for the payment of expenses to the
<PAGE>
30
extent set forth in Sections 8 and 13. As used in this Agreement, the term "U.S.
Underwriter" includes, for all purposes of this Agreement unless the context
requires otherwise, any party not listed in Schedule 1 hereto who, pursuant to
this Section 11, purchases Firm Stock which a defaulting U.S. Underwriter agreed
but failed to purchase.
Nothing contained herein shall relieve a defaulting U.S. Underwriter
of any liability it may have to the Company and the Selling Stockholder for
damages caused by its default. If other underwriters are obligated or agree to
purchase the Stock of a defaulting or withdrawing U.S. Underwriter, either the
Representatives or the Company may postpone the First Delivery Date for up to
seven full business days in order to effect any changes that in the opinion of
counsel for the Company or counsel for the U.S. Underwriters may be necessary in
the Registration Statement, the Prospectus or in any other document or
arrangement.
12. Effective Date and Termination.
(a) This Agreement shall become effective at 11:00 A.M., New York
City time, on the first full business day following the Effective Date, or at
such earlier time after the Registration Statement becomes effective as the
Representatives shall release the Firm Stock for initial public offering. The
Representatives shall notify the Company immediately after they have taken any
action which causes this Agreement to become effective. Until this Agreement is
effective, it may be terminated by the Company by notice to the Representatives
or by the Representatives by notice to the Company. For purposes of this
Agreement, the release of the initial public offering of the Stock shall be
deemed to have been made when the Representatives release, by telegram or
otherwise, firm offers of the Stock to securities dealers or release for
publication a newspaper advertisement relating to the Stock, whichever occurs
first.
(b) The obligations of the Underwriters hereunder may be terminated
by the Representatives by notice given to and received by the Company and the
Selling Stockholder prior to delivery of and payment for the Firm Stock if,
prior to that time, any of the events described in Sections 9.(i), 9.(j) or
9.(k) shall have occurred or if the Underwriters shall decline to purchase the
Stock for any reason permitted under this Agreement.
13. Reimbursement of U.S. Underwriters' Expenses. If (a) the Company
shall fail to tender the Stock for delivery to the U.S. Underwriters for any
reason permitted under this Agreement, or (b) the U.S. Underwriters shall
decline to purchase the Stock for any reason permitted under this Agreement
(including the termination of this Agreement pursuant to Section 10), the
Company shall reimburse the U.S. Underwriters for the fees and expenses of their
counsel and for such other out-of-pocket expenses as shall have been incurred by
them in connection with this Agreement and the proposed purchase of the Stock,
and upon demand the Company and the Selling Stockholder shall pay the full
amount thereof to the Representatives. If this Agreement is terminated pursuant
to Section 11 by reason of the default of one or more U.S. Underwriters, neither
the Company nor the Selling Stockholder shall be obligated to reimburse any
defaulting U.S. Underwriter on account of those expenses.
14. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
<PAGE>
31
(a) if to the U.S. Underwriters, shall be delivered or sent by
mail, telex or facsimile transmission to Lehman Brothers Inc., Three
World Financial Center, New York, New York 10285, Attention:
Syndicate Department (Fax: 212-528-8822);
(b) if to the Company, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set
forth in the Primary Registration Statement, Attention: Richard
Weening (Fax: (414-283-4505);
(c) if to the Selling Stockholder, shall be delivered or sent
by mail, telex or facsimile transmission to the Selling Stockholder
at [____________, Attention: ______ (Fax:_________);
provided, however, that any notice to U.S. Underwriter pursuant to Section
10.(d) shall be delivered or sent by mail, telex or facsimile transmission to
such U.S. Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and the
Selling Stockholder shall be entitled to act and rely upon any request, consent,
notice or agreement given or made on behalf of the U.S. Underwriters by Lehman
Brothers Inc.
15. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the U.S. Underwriters, the Company,
the Selling Stockholder and their respective personal representative and
successors. This Agreement and the terms and provisions hereof are for the sole
benefit of only those persons, except that (A) the representations, warranties,
indemnities and agreements of the Company, and the Selling Stockholder,
contained in this Agreement shall also be deemed to be for the benefit of the
officers and employees of each U.S. Underwriter and the person or persons, if
any, who control each U.S. Underwriter within the meaning of Section 15 of the
Securities Act and for the benefit of each International Manager (and
controlling persons thereof) who offers or sells any shares of Class A Common
Stock in accordance with the terms of the Agreement Between U.S. Underwriters
and International Managers and (B) the indemnity agreement of the U.S.
Underwriters contained in Section 10.(b), 10.(c) of this Agreement shall be
deemed to be for the benefit of directors, officers and employees of the Company
and any person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section 15, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Principal Subsidiary, the Selling
Stockholder and the U.S. Underwriters contained in this Agreement or made by or
on behalf of them, respectively, pursuant to this Agreement, shall survive the
delivery of and payment for the Stock and shall remain in full force and effect,
regardless of any investigation made by or on behalf of any of them or any
person controlling any of them.
<PAGE>
32
17. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
33
If the foregoing correctly sets forth the agreement between the
Company and the U.S. Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
CUMULUS MEDIA INC.
By:
--------------------------------
STATE OF WISCONSIN INVESTMENT BOARD
Accepted:
LEHMAN BROTHERS INC. By:
BEAR, STEARNS & CO. INC. --------------------------------
BT ALEX. BROWN INC.
For themselves and as Representatives
of the several U.S. Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By:
----------------------------
Authorized Representative
<PAGE>
34
SCHEDULE 1
Number of
U.S. Underwriters Shares
Lehman Brothers Inc..........................................
Bear, Stearns & Co. Inc......................................
BT Alex. Brown Inc...........................................
--------
Total................................................... ========
<PAGE>
Exhibit 1.2
STB DRAFT
5/08/98
________ Shares
CUMULUS MEDIA INC.
Class A Common Stock
INTERNATIONAL UNDERWRITING AGREEMENT
___, 1998
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
BEAR, STEARNS INTERNATIONAL LIMITED
BT ALEX. BROWN INTERNATIONAL,
DIVISION OF BANKERS TRUST INTERNATIONAL PLC
CREDIT LYONNAIS SECURITIES
As Lead Managers of the several
International Managers named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Cumulus Media Inc., an Illinois corporation (the "Company"), and the
State of Wisconsin Investment Board (the "Selling Stockholder"), propose to sell
an aggregate of _______ shares (the "Firm Stock") of the Company's Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"). Of the
______ shares of the Firm Stock, ________ are being sold by the Company and
_______ by the Selling Stockholder. In addition, the Company proposes to grant
to the International Managers named in Schedule 1 hereto (the "International
Managers") an option to purchase up to an additional _______ shares of the Class
A Common Stock on the terms and for the purposes set forth in Section 3 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the agreement
concerning the purchase of the Stock from the Company and the Selling
Stockholder by the International Managers.
It is understood by all parties that the Company and the Selling
Stockholder are concurrently entering into an agreement dated the date hereof
(the "U.S. Underwriting Agreement"), providing for the sale by the Company and
the Selling Stockholder of an aggregate of ____________ shares of Class A Common
Stock (including the over-allotment option thereunder) (the "U.S. Stock")
through arrangements with certain underwriters in the United States and Canada
(the "U.S. Underwriters"), for whom Lehman Brothers Inc., Bear Stearns & Co.,
Inc. and BT Alex. Brown Incorporated are acting as representatives. The U.S.
Underwriters and the International Managers simultaneously are entering into an
agreement between the U.S. and international underwriting syndicates (the
"Agreement Between U.S. Underwriters and
<PAGE>
2
International Managers") which provides for, among other things, the transfer of
shares of Class A Common Stock between the two syndicates. Two forms of
prospectus are to be used in connection with the offering and sale of shares of
Class A Common Stock contemplated by the foregoing, one relating to the Stock
and the other relating to the U.S. Stock. The latter form of prospectus will be
identical to the former except for certain substitute pages as included in the
registration statement and amendments thereto referred to below. Except as used
in Sections 3, 4, 5, 11 and 12 herein, and except as the context may otherwise
require, references herein to the Stock shall include all the shares of the
Class A Common Stock which may be sold pursuant to either this Agreement or the
U.S. Underwriting Agreement, and references herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall include
both the international and the U.S. versions thereof.
It is additionally understood by all parties that the Company is
concurrently entering into an agreement (the "Debt Underwriting Agreement"),
dated the date hereof, providing for the sale by the Company of $100,000,000
principal amount of its % Senior Subordinated Notes due 2008 to Bear, Stearns &
Co. Inc. and Lehman Brothers Inc., as underwriters, as well as an agreement (the
"Preferred Stock Underwriting Agreement"), dated the date hereof, providing for
the sale by the Company of $100,000,000 aggregate liquidation preference of its
__% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 to
Bear, Stearns & Co. Inc. and Lehman Brothers Inc., as underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-1, and amendments
thereto, with respect to the Stock have (i) been prepared by the
Company in conformity with the requirements of the United States
Securities Act of 1933, as amended, (the "Securities Act") and the
rules and regulations (the "Rules and Regulations") of the United
States Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the Securities
Act and (iii) become effective under the Securities Act; a second
registration statement on Form S-1 with respect to the Stock (i) may
also be prepared by the Company in conformity with the requirements
of the Securities Act and the Rules and Regulations and (ii) if to
be so prepared, will be filed with the Commission under the
Securities Act pursuant to Rule 462(b) of the Rules and Regulations
on the date hereof. Copies of the first such registration statement
and the amendments to such registration statement, together with the
form of any such second registration statement, have been delivered
by the Company to you as the Lead Managers of the International
Managers (the "Lead Managers"). As used in this Agreement,
"Effective Time" means (i) with respect to the first such
registration statement, the date and the time as of which such
registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission and (ii)
with respect to any second registration statement, the date and time
as of which such second registration statement is filed with the
Commission, and "Effective Times" is the collective reference to
both Effective Times; "Effective Date" means (i) with respect to the
first such registration
<PAGE>
3
statement, the date of the Effective Time of such registration
statement and (ii) with respect to any second registration
statement, the date of the Effective Time of such second
registration statement, and "Effective Dates" is the collective
reference to both Effective Dates; "Preliminary Prospectus" means
each prospectus included in any such registration statement, or
amendments thereof, before it became effective under the Securities
Act and any prospectus filed with the Commission by the Company with
the consent of the Lead Managers pursuant to Rule 424(a) of the
Rules and Regulations; "Primary Registration Statement" means the
first registration statement referred to in this Section 1(a), as
amended at its Effective Time, "Rule 462(b) Registration Statement"
means the second registration statement, if any, referred to in this
Section 1(a), as filed with the Commission, and "Registration
Statements" means both the Primary Registration Statement and any
Rule 462(b) Registration Statement, including in each case all
information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations in
accordance with Section 6.(a) hereof and deemed to be a part of the
Registration Statements as of the Effective Time of the Primary
Registration Statement pursuant to paragraph (b) of Rule 430A of the
Rules and Regulations; and "Prospectus" means such final prospectus,
as first filed with the Commission pursuant to paragraph (1) or (4)
of Rule 424(b) of the Rules and Regulations. The Commission has not
issued any order preventing or suspending the use of any Preliminary
Prospectus.
(b) The Primary Registration Statement conforms (and the Rule
462(b) Registration Statement, if any, the Prospectus and any
further amendments or supplements to the Registration Statements or
the Prospectus, when they become effective or are filed with the
Commission, as the case may be, will conform) in all respects to the
requirements of the Securities Act and the Rules and Regulations and
do not and will not, as of the applicable effective date (as to the
Registration Statements and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; provided
that no representation or warranty is made as to information
contained in or omitted from the Registration Statements or the
Prospectus in reliance upon and in conformity with written
information furnished to the Company through the Lead Managers by or
on behalf of any International Manager specifically for inclusion
therein.
(c) The Company and each of its subsidiaries (as defined in
Section 17) have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation, are duly qualified to do business
and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of
property or the conduct of their respective businesses requires such
qualification, and have all power and authority necessary to own or
hold their respective properties and to conduct the businesses in
which they are engaged; and none of the subsidiaries of the
<PAGE>
4
Company is a "significant subsidiary", as such term is defined in
Rule 405 of the Rules and Regulations.
(d) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable and
(except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims.
(e) The unissued shares of the Stock to be issued and sold by
the Company to the International Managers hereunder and under the
U.S. Underwriting Agreement have been duly and validly authorized
and, when issued and delivered against payment therefor as provided
herein and in the U.S. Underwriting Agreement, will be duly and
validly issued, fully paid and non-assessable; and the Stock will
conform to the description thereof contained in the Prospectus.
(f) The execution, delivery and performance of this Agreement
and the U.S. Underwriting Agreement will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries is bound or to which any of the properties or
assets of the Company or any of its subsidiaries is subject, nor
will such actions result in any violation of the provisions of the
charter or by-laws of the Company or any of its subsidiaries or any
statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties or assets; and
except for the registration of the Stock under the Securities Act
and such consents, approvals, authorizations, registrations or
qualifications as may be required under the United States Securities
Exchange Act of 1934, as amended, (the "Exchange Act") and
applicable state or foreign securities laws in connection with the
purchase and distribution of the Stock by the International Managers
and the U.S. Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement, or the U.S. Underwriting
Agreement, by the Company and the consummation of the transactions
contemplated hereby and thereby.
(g) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned
or to be owned by such person or to require the
<PAGE>
5
Company to include such securities in the securities registered
pursuant to the Registration Statements or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act.
(h) Except as described in the Prospectus, the Company has not
sold or issued any shares of Class A Common Stock during the
six-month period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A under, or Regulations D or S of, the
Securities Act, other than shares issued pursuant to employee
benefit plans, qualified stock options plans or other employee
compensation plans or pursuant to outstanding options, rights or
warrants.
(i) Neither the Company nor any of its subsidiaries has
sustained, since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference with
its business from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since such date, there has not
been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any material adverse change,
or any development involving a prospective material adverse change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus.
(j) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statements
or included in the Prospectus present fairly the financial condition
and results of operations of the entities purported to be shown
thereby, at the dates and for the periods indicated, and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved.
(k) Each of Price Waterhouse, LLP, Johnson & Miller, LLP,
McGladrey & Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran,
LLP, who have certified certain financial statements of the Company,
whose report appears in the Prospectus and who have delivered the
initial letter referred to in Section 9.(f) hereof, are independent
public accountants as required by the Securities Act and the Rules
and Regulations.
(l) The Company and each of its subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each
case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as do not materially
affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the
Company and its subsidiaries; and all real property and buildings
held under lease by the Company
<PAGE>
6
and its subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material and do
not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries.
(m) The Company and each of its subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the
value of their respective properties and as is customary for
companies engaged in similar businesses in similar industries.
(n) The Company and each of its subsidiaries own or possess
adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark registrations,
service mark registrations, copyrights and licenses necessary for
the conduct of their respective businesses and have no reason to
believe that the conduct of their respective businesses will
conflict with, and have not received any notice of any claim of
conflict with, any such rights of others.
(o) There are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party
or of which any property or asset of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, might have a material adverse
effect on the consolidated financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries; and to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(p) There are no contracts or other documents which are
required to be described in the Prospectus or filed as exhibits to
either of the Registration Statements by the Securities Act or by
the Rules and Regulations which have not been described in the
Prospectus or filed as exhibits to either of the Registration
Statements.
(q) No relationship, direct or indirect, exists between or
among the Company on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company on the other
hand, which is required to be described in the Prospectus which is
not so described.
(r) No labor disturbance by the employees of the Company
exists or, to the knowledge of the Company is imminent which might
be expected to have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries.
(s) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations
and published interpretations
<PAGE>
7
thereunder ("ERISA"); no "reportable event" (as defined in ERISA)
has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company
has not incurred and does not expect to incur liability under (i)
Title IV of ERISA with respect to termination of, or withdrawal
from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that
is intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(t) The Company has filed all federal, state and local income
and franchise tax returns required to be filed through the date
hereof and has paid all taxes due thereon, and no tax deficiency has
been determined adversely to the Company or any of its subsidiaries
which has had (nor does the Company have any knowledge of any tax
deficiency which, if determined adversely to the Company or any of
its subsidiaries, might have) a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations, business or prospects of the Company and its
subsidiaries.
(u) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or
granted any securities, (ii) incurred any liability or obligation,
direct or contingent, other than liabilities and obligations which
were incurred in the ordinary course of business, (iii) entered into
any transaction not in the ordinary course of business or (iv)
declared or paid any dividend on its capital stock.
(v) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are
recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access
to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(w) The statistical and market-related data included in the
Prospectus are based or derived from sources which the Company and
its subsidiaries believe to be reliable and accurate.
(x) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any
material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition
<PAGE>
8
contained in any material indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which it is a party or
by which it is bound or to which any of its properties or assets is
subject or (iii) is in violation in any material respect of any law,
ordinance, governmental rule, regulation or court decree to which it
or its properties or assets may be subject or has failed to obtain
any material license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of
its properties or assets or to the conduct of its business.
(y) Each of the radio stations owned, operated, programmed, or
to which sales and marketing services are provided, by the Company
and its subsidiaries is validly licensed by the Federal
Communications Commission (the "FCC") and no administrative or
judicial proceedings are pending before or, to the knowledge of the
Company or its subsidiaries, threatened by the FCC with respect to
such licenses; the Company and its subsidiaries possess adequate
certificates, authorizations, consents, orders, approvals, licenses
or permits which are in full force and effect issued by other
appropriate governmental agencies or bodies necessary to the
ownership of their respective properties and the conduct of the
businesses now operated by them and have not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authority, consent, order, approval, license or permit
and the Company and its subsidiaries are in compliance in all
material respects with the Communications Act of 1934, as amended,
and the rules, regulations and policies of the FCC.
(z) Neither the Company nor any of its subsidiaries, nor any
director, officer, agent, employee or other person associated with
or acting on behalf of the Company or any of its subsidiaries, has
used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political
activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(aa) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
toxic wastes, medical wastes, hazardous wastes or hazardous
substances by the Company or any of its subsidiaries (or, to the
knowledge of the Company, any of their predecessors in interest) at,
upon or from any of the properties now or previously owned or leased
by the Company or its subsidiaries in violation of any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit
or which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit,
except for any violation or remedial action which would not have, or
could not be reasonably likely to have, singularly or in the
aggregate with all such violations and remedial actions, a material
adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the
Company and its subsidiaries; there has been no
<PAGE>
9
material spill, discharge, leak, emission, injection, escape,
dumping or release of any kind onto such property or into the
environment surrounding such property of any toxic wastes, medical
wastes, solid wastes, hazardous wastes or hazardous substances due
to or caused by the Company or any of its subsidiaries or with
respect to which the Company or any of its subsidiaries have
knowledge, except for any such spill, discharge, leak, emission,
injection, escape, dumping or release which would not have or would
not be reasonably likely to have, singularly or in the aggregate
with all such spills, discharges, leaks, emissions, injections,
escapes, dumpings and releases, a material adverse effect on the
general affairs, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries;
and the terms "hazardous wastes", "toxic wastes", "hazardous
substances" and "medical wastes" shall have the meanings specified
in any applicable local, state, federal and foreign laws or
regulations with respect to environmental protection.
(bb) Neither the Company nor any subsidiary is an "investment
company" within the meaning of such term under the United States
Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder.
(cc) The Company has no reason to believe that, after giving
effect to the Pending Acquisitions (as defined in the Registration
Statement), any of the representations, warranties and agreements
contained in this Section 1 would not be true and correct.
2. Representations, Warranties and Agreements of the Selling
Stockholder. The Selling Stockholder represents, warrants and agrees that:
(a) The Selling Stockholder has, and immediately prior to the
First Delivery Date (as defined in Section 5 hereof) the Selling
Stockholder will have good and valid title to the shares of Stock to
be sold by the Selling Stockholder hereunder and under the U.S.
Underwriting Agreement on such date, free and clear of all liens,
encumbrances, equities or claims; and upon delivery of such shares
and payment therefor pursuant hereto and thereto, good and valid
title to such shares, free and clear of all liens, encumbrances,
equities or claims, will pass to the several International Managers
and the Underwriters.
[(b) The Selling Stockholder has placed in custody under a
custody agreement (the "Custody Agreement" and, together with all
other similar agreements executed by the other Selling Stockholders,
the "Custody Agreements") with [insert name of custodian], as
custodian (the "Custodian"), for delivery under this Agreement,
certificates in negotiable form (with signature guaranteed by a
commercial bank or trust company having an office or correspondent
in the United States or a member firm of the New York or American
Stock Exchanges) representing the shares of Stock to be sold by the
Selling Stockholder hereunder.
<PAGE>
10
(c) The Selling Stockholder has duly and irrevocably executed
and delivered a power of attorney (the "Power of Attorney"
appointing the Custodian and one or more other persons, as
attorneys-in-fact, with full power of substitution, and with full
authority (exercisable by any one or more of them) to execute and
deliver this Agreement and to take such other action as may be
necessary or desirable to carry out the provisions hereof on behalf
of the Selling Stockholder.]
(d) The Selling Stockholder has full right, power and
authority to enter into this Agreement and the U.S. Underwriting
Agreement, [the Power of Attorney and the Custody Agreement]; the
execution, delivery and performance of this Agreement and the U.S.
Underwriting Agreement[, the Power of Attorney and the Custody
Agreement] by the Selling Stockholder and the consummation by the
Selling Stockholder of the transactions contemplated hereby and
thereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Selling Stockholder is a party
or by which the Selling Stockholder is bound or to which any of the
property or assets of the Selling Stockholder is subject, nor will
such actions result in any violation of any statute or any order,
rule or regulation of any court or governmental agency or body
having jurisdiction over the Selling Stockholder or the property or
assets of the Selling Stockholder; and, except for the registration
of the Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the Exchange Act and applicable state or foreign securities
laws in connection with the purchase and distribution of the Stock
by the International Managers and the Underwriters, no consent,
approval, authorization or order of, or filing or registration with,
any such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement or the U.S.
Underwriting Agreement[, the Power of Attorney or the Custody
Agreement] by the Selling Stockholder and the consummation by the
Selling Stockholder of the transactions contemplated hereby and
thereby.
(e) The Registration Statement and the Prospectus and any
further amendments or supplements thereto will, when they become
effective or are filed with the Commission, as the case may be, not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided that no representation
or warranty is made as to information contained in or omitted from
the Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through
the Lead Managers by or on behalf of any International Manager
specifically for inclusion therein.
(f) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result
in the stabilization or
<PAGE>
11
manipulation of the price of any security of the Company to
facilitate the sale or resale of the shares of the Stock.
3. Purchase of the Stock by the International Managers
On the basis of the representations and warranties contained in, and
subject to the terms and conditions of, this Agreement, the Company agrees to
sell _______ shares of the Firm Stock and the Selling Stockholder hereby agrees
to sell _____ shares of the Firm Stock to the several International Managers and
each of the International Managers, severally and not jointly, agrees to
purchase the number of shares of the Firm Stock set opposite that International
Manager's name in Schedule 1 hereto. The respective purchase obligations of the
International Managers with respect to the Firm Stock shall be rounded among the
International Managers to avoid fractional shares, as the Lead Managers may
determine.
In addition, the Company grants to the International Managers an
option to purchase up to _______ shares of Option Stock. Such option is granted
solely for the purpose of covering over-allotments in the sale of Firm Stock and
is exercisable as provided in Section 5 hereof. Shares of Option Stock shall be
purchased severally for the account of the International Managers in proportion
to the number of shares of Firm Stock set opposite the name of such
International Managers in Schedule 1 hereto. The respective purchase obligations
of each International Managers with respect to the Option Stock shall be
adjusted by the Lead Managers so that no International Managers shall be
obligated to purchase Option Stock other than in 100 share amounts.
The price of both the Firm Stock and any Option Stock shall be
$_____ per share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on the First Delivery Date or the Second Delivery Date (as hereinafter
defined), as the case may be, except upon payment for all the Stock to be
purchased on such Delivery Date as provided herein.
4. Offering of Stock by the International Managers.
Upon authorization by the Lead Managers of the release of the Firm
Stock, the several International Managers propose to offer the Firm Stock for
sale upon the terms and conditions set forth in the Prospectus; provided,
however, that no Stock registered pursuant to the Rule 462(b) Registration
Statement, if any, shall be offered prior to the Effective Time thereof.
5. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Lehman Brothers Inc. at Three
World Financial Center, New York, New York 10285, at 10:00 A.M., New York City
time, on the [third][fourth] full business day following the date of this
Agreement or at such other date or place as shall be determined by agreement
between the Lead Managers and the Company. This date and time are sometimes
referred to as the "First Delivery Date." On the First Delivery Date, the
Company shall deliver or cause to be delivered certificates representing the
Firm Stock to the Lead Managers for the account of each International Manager
against payment to or upon the order of the Company of
<PAGE>
12
the purchase price by certified or official bank check or checks payable in New
York Clearing House (next-day) funds. Time shall be of the essence, and delivery
at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each International Manager hereunder. Upon
delivery, the Firm Stock shall be registered in such names and in such
denominations as the Lead Managers shall request in writing not less than two
full business days prior to the First Delivery Date. For the purpose of
expediting the checking and packaging of the certificates for the Firm Stock,
the Company shall make the certificates representing the Firm Stock available
for inspection by the Lead Managers in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement the option granted in Section 3 may be exercised by written notice
being given to the Company by the Lead Managers. Such notice shall set forth the
aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Lead Managers, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 5
(or at such other place as shall be determined by agreement between the Lead
Managers and the Company) at 10:00 A.M., New York City time, on the Second
Delivery Date. On the Second Delivery Date, the Company shall deliver or cause
to be delivered the certificates representing the Option Stock to the Lead
Managers for the account of each International Manager against payment to or
upon the order of the Company and the Selling Stockholder of the purchase price
by certified or official bank check or checks payable in New York Clearing House
(next-day) funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each International Manager hereunder. Upon delivery, the Option
Stock shall be registered in such names and in such denominations as the Lead
Managers shall request in the aforesaid written notice. For the purpose of
expediting the checking and packaging of the certificates for the Option Stock,
the Company and the Selling Stockholder shall make the certificates representing
the Option Stock available for inspection by the Lead Managers in New York, New
York, not later than 2:00 P.M., New York City time, on the business day prior to
the Second Delivery Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Rule 462(b) Registration Statement, if
necessary, in a form approved by the Lead Managers and to file such
Rule 462(b) Registration Statement with the Commission on the date
hereof; to prepare the Prospectus in a form approved by the Lead
Managers and to file such Prospectus pursuant to
<PAGE>
13
Rule 424(b) under the Securities Act not later than 10:00 A.M., New
York City time, on the day following the execution and delivery of
this Agreement; to make no further amendment or any supplement to
the Registration Statements or to the Prospectus prior to the Second
Delivery Date except as permitted herein; to advise the Lead
Managers, promptly after it receives notice thereof, of the time
when any amendment to either Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the Lead Managers
with copies thereof; to advise the Lead Managers, promptly after it
receives notice thereof, of the issuance by the Commission of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statements or the Prospectus or
for additional information; and, in the event of the issuance of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Lead Managers and to
counsel for the International Managers a signed copy of each of the
Registration Statements as originally filed with the Commission, and
each amendment thereto filed with the Commission, including all
consents and exhibits filed therewith;
(c) To deliver promptly to the Lead Managers in New York City
such number of the following documents as the Lead Managers shall
request: conformed copies of the Registration Statements as
originally filed with the Commission and each amendment thereto (in
each case excluding exhibits other than this Agreement and the
computation of per share earnings) and each Preliminary Prospectus,
the Prospectus (not later than 10:00 A.M., New York City time, of
the day following the execution and delivery of this Agreement) and
any amended or supplemented Prospectus (not later than 10:00 A.M.,
New York City time, on the day following the date of such amendment
or supplement); and, if the delivery of a prospectus is required at
any time after the Effective Time of the Primary Registration
Statement in connection with the offering or sale of the Stock (or
any other securities relating thereto) and if at such time any event
shall have occurred as a result of which the Prospectus as then
amended or supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary to
amend or supplement the Prospectus in order to comply with the
Securities Act, to notify the Lead Managers and, upon their request,
to prepare and furnish without charge to each International Manager
and to any dealer in securities as many copies as the Lead Managers
may from time to time request of an amended
<PAGE>
14
or supplemented Prospectus which will correct such statement or
omission or effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statements or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Lead
Managers, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any Preliminary
Prospectus, any amendment to either of the Registration Statements
or supplement to the Prospectus or any Prospectus pursuant to Rule
424 of the Rules and Regulations, to furnish a copy thereof to the
Lead Managers and counsel for the International Managers and obtain
the consent of the Lead Managers to the filing;
(f) As soon as practicable after the Effective Date of the
Primary Registration Statement, to make generally available to the
Company's security holders and to deliver to the Lead Managers an
earnings statement of the Company and its subsidiaries (which need
not be audited) complying with Section 11(a) of the Securities Act
and the Rules and Regulations (including, at the option of the
Company, Rule 158);
(g) For a period of five years following the Effective Date of
the Primary Registration Statement, to furnish to the Lead Managers
copies of all materials furnished by the Company to its shareholders
and all public reports and all reports and financial statements
furnished by the Company to the principal national securities
exchange or automatic quotation system upon which the Class A Common
Stock may be listed or quoted pursuant to requirements of or
agreements with such exchange or system or to the Commission
pursuant to the Exchange Act or any rule or regulation of the
Commission thereunder;
(h) Promptly from time to time to take such action as the Lead
Managers may reasonably request to qualify the Stock for offering
and sale under the securities laws of such jurisdictions as the Lead
Managers may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the
Stock;
(i) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which
is designed to, or could be expected to, result in the disposition
or purchase by any person at any time in the future of) any shares
of Class A Common Stock or securities convertible into or
exchangeable for Class A Common Stock (other than the shares of
Class A Common Stock and shares issued pursuant to employee benefit
plans, qualified stock option plans or other employee compensation
plans existing on the date hereof or pursuant to currently
outstanding options, warrants or rights), or sell or
<PAGE>
15
grant options, rights or warrants with respect to any shares of
Class A Common Stock or securities convertible into or exchangeable
for Class A Common Stock (other than the grant of options pursuant
to option plans existing on the date hereof), or (2) enter into any
swap or other derivatives transaction that transfers to another, in
whole or in part, any of the economic benefits or risks of ownership
of such shares of Class A Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of
Class A Common Stock or other securities, in cash or otherwise, in
each case without the prior written consent of the Lead Managers;
and to cause each officer, director and stockholder of the Company
to furnish to the Lead Managers, prior to the First Delivery Date, a
letter or letters, in form and substance satisfactory to counsel for
the International Managers pursuant to which each such person shall
agree not to, directly or indirectly, (1) offer for sale, sell,
pledge or otherwise dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result in the
disposition or purchase by any person at any time in the future of)
any shares of Class A Common Stock or securities convertible into or
exchangeable for Class A Common Stock or (2) enter into any swap or
other derivatives transaction that transfers to another, in whole or
in part, any of the economic benefits or risks or ownership of such
shares of Class A Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of
Class A Common Stock or other securities, in cash or otherwise, in
each case for a period of 180 days from the date of the Prospectus,
without the prior written consent of the Lead Managers;
(j) Prior to filing with the Commission any reports pursuant
to Rule 463 of the Rules and Regulations, to furnish a copy thereof
to the counsel for the International Managers and receive and
consider its comments thereon, and to deliver promptly to the Lead
Managers a signed copy of each such report filed by it with the
Commission;
(k) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus;
(l) To take such steps as shall be necessary to ensure that
neither the Company nor any subsidiary shall become an "investment
company" within the meaning of such term under the United States
Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder.
7. Further Agreements of the Selling Stockholder. The Selling
Stockholder agrees:
(a) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device which
is designated to, or could be expected to, result in the disposition
or purchase by any person at any time in the future of) any shares
of Class A Common Stock or securities convertible into or
exchangeable for Class A Common Stock (other than the Stock), or (2)
enter into
<PAGE>
16
any swap or other derivatives transaction that transfers to another,
in whole or in part, any of the economic benefits or risks of
ownership of such shares of Class A Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by
delivery of Class A Common Stock or other securities, in cash or
otherwise, in each case without the prior written consent of the
Lead Managers.
(b) That the Stock to be sold by the Selling Stockholder
hereunder, [which is represented by the certificates held in custody
for the Selling Stockholder], is subject to the interest of the
International Managers, [that the arrangements made by the Selling
Stockholder for such custody are to that extent irrevocable,] and
that the obligations of the Selling Stockholder hereunder shall not
be terminated by any act of the Selling Stockholder, by operation of
law or the occurrence of any other event.
(c) To deliver to the Lead Managers prior to the First
Delivery Date a properly contemplated and executed United States
Treasury Department or Form W-9.
(8) Expenses. The Company agrees to pay the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statements and any amendments and
exhibits thereto; the costs of distributing the Registration Statements as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus, all as provided in
this Agreement; the costs of reproducing and distributing this Agreement and the
Agreement Between U.S. Underwriters and International Managers; the costs of
distributing the terms of agreement relating to the organization of the domestic
underwriting syndicate and selling group to the members thereof by mail, telex
or other means of communication; the filing fees incident to securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of sale of the Stock; any applicable listing or other fees; the fees and
expenses of qualifying the Stock under the securities laws of the several
jurisdictions as provided in Section 6.(h) and of preparing, printing and
distributing a Blue Sky Memorandum (including related fees and expenses of
counsel to the International Managers); and all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement; provided that, except as provided in this Section 8 and in Section
13, the International Managers shall pay their own costs and expenses, including
the costs and expenses of their counsel, any transfer taxes on the Stock which
they may sell and the expenses of advertising any offering of the Stock made by
the International Managers.
9. Conditions of International Managers' Obligations. The respective
obligations of the International Managers hereunder are subject to the accuracy,
when made and on each Delivery Date, of the representations and warranties of
the Company contained herein, to the performance by the Company of its
obligations hereunder, and to each of the following additional terms and
conditions:
<PAGE>
17
(a) The Rule 462(b) Registration Statement, if any, and the
Prospectus shall have been timely filed with the Commission in
accordance with Section 6.(a); no stop order suspending the
effectiveness of either of the Registration Statements or any part
thereof shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission; and any
request of the Commission for inclusion of additional information in
either of the Registration Statements or the Prospectus or otherwise
shall have been complied with.
(b) No International Manager shall have discovered and
disclosed to the Company on or prior to such Delivery Date that
either of the Registration Statements or the Prospectus or any
amendment or supplement thereto contains any untrue statement of a
fact which, in the opinion of Simpson Thacher & Bartlett, counsel
for the International Managers, is material or omits to state any
fact which, in the opinion of such counsel, is material and is
required to be stated therein or is necessary to made the statements
therein not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the U.S.
Underwriting Agreement, the Stock, the Registration Statements and
the Prospectus, and all other legal matters relating to this
Agreement and the U.S. Underwriting Agreements, and the transactions
contemplated hereby and thereby shall be satisfactory in all
respects to counsel for the International Managers, and the Company
shall have furnished to such counsel all documents and information
that they may reasonably request to enable them to pass upon such
matters.
(d) Paul, Hastings, Janofsky & Walker LLP shall have furnished
to the Lead Managers its written opinion, as counsel to the Company,
addressed to the International Managers and dated such Delivery
Date, in form and substance satisfactory to the Lead Managers, to
the effect that:
(i) The Company and each of its subsidiaries have been
duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions
of incorporation, are duly qualified to do business and are in
good standing as foreign corporations in each jurisdiction in
which their respective ownership or lease of property or the
conduct of their respective businesses requires such
qualification and have all power and authority necessary to
own or hold their respective properties and conduct the
businesses in which they are engaged;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of
capital stock of the Company (including the shares of Stock
being delivered on such Delivery Date) have been duly and
validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof
contained in the
<PAGE>
18
Prospectus; and all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid, non-assessable and
(except for directors' qualifying shares) are owned directly
or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(iii) There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the
voting or transfer of, any shares of the Stock pursuant to the
Company's charter or by-laws or any agreement or other
instrument known to such counsel;
(iv) The Company and each of its subsidiaries have good
and marketable title in fee simple to all real property owned
by them and good and marketable title to all personal property
owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of
such property and do not materially interfere with the use
made and proposed to be made of such property by the Company
and its subsidiaries; and all real property and buildings held
under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(v) To the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property or
asset of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its
subsidiaries, might have a material adverse effect on the
consolidated financial position, stockholders' equity, results
of operations, business or prospects of the Company and its
subsidiaries; and, to the best of such counsel's knowledge, no
such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(vi) The Primary Registration Statement was declared
effective under the Securities Act as of the date and time
specified in such opinion, the Rule 462(b) Registration
Statement, if any, was filed with the Commission on the date
specified therein, the Prospectus was filed with the
Commission pursuant to the subparagraph of Rule 424(b) of the
Rules and Regulations specified in such opinion on the date
specified therein and no stop order suspending the
effectiveness of either of the Registration Statements has
been issued and, to the knowledge of such counsel, no
proceeding for that purpose is pending or threatened by the
Commission;
<PAGE>
19
(vii) The Registration Statements, as of their
respective Effective Dates, and the Prospectus, as of its
date, and any further amendments or supplements thereto, as of
their respective dates, made by the Company prior to such
Delivery Date (other than the financial statements and other
financial data contained therein, as to which such counsel
need express no opinion) complied as to form in all material
respects with the requirements of the Securities Act and the
Rules and Regulations;
(viii) The statements contained in the Prospectus under
the captions "Risk Factors Governmental Regulation of
Broadcast Industry," "Business Federal Regulation of Radio
Broadcasting" and "Certain Federal Income Tax Consequences",
insofar as they describe federal statutes, rules and
regulations, constitute a fair summary thereof;
(ix) To the best of such counsel's knowledge, there are
no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the
Registration Statements by the Securities Act or by the Rules
and Regulations which have not been described or filed as
exhibits to the Registration Statements;
(x) This Agreement and the U.S. Underwriting Agreement
have each been duly authorized, executed and delivered by the
Company;
(xi) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the
compliance by the Company with all of the provisions of this
Agreement and the U.S. Underwriting Agreement and the
consummation of the transactions contemplated hereby and
thereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such
counsel to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is
bound or to which any of the properties or assets of the
Company or any of its subsidiaries is subject, nor will such
actions result in any violation of the provisions of the
charter or by-laws of the Company or any of its subsidiaries
or any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or
any of their properties or assets; and, except for the
registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state or foreign securities laws in connection with
the purchase and distribution of the Stock by the
International Managers and the U.S. Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement and the U.S.
<PAGE>
20
Underwriting Agreement by the Company and the consummation of
the transactions contemplated hereby and thereby; and
(xii) To the best of such counsel's knowledge, there are
no contracts, agreements or understandings between the Company
and any person granting such person the right to require the
Company to file a registration statement under the Securities
Act with respect to any securities of the Company owned or to
be owned by such person or to require the Company to include
such securities in the securities registered pursuant to the
Registration Statements or in any securities being registered
pursuant to any other registration statement filed by the
Company under the Securities Act.
(xiii) Each of the radio stations owned, operated,
programmed or marketed by the Company and its subsidiaries is
validly licensed by the FCC and no administrative or judicial
proceedings are pending before or, to the knowledge of such
counsel, threatened by the FCC with respect to such licenses;
the Company and its subsidiaries possess adequate
certificates, authorizations, consents, orders, approvals,
licenses or permits which are in full force and effect issued
by other appropriate governmental agencies or bodies necessary
to the ownership of their respective properties and the
conduct of the businesses now operated by them and have not
received any notice of proceedings relating to the revocation
or modification of any such certificate, authority or permit.
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of New York and the
Illinois Business Corporation Act and that such counsel is not
admitted in the State of Illinois; (ii) rely (to the extent such
counsel deems proper and specifies in its opinion), as to matters
involving the application of the laws of the State of Illinois upon
the opinion of other counsel of good standing, provided that such
other counsel is satisfactory to counsel for the International
Managers and furnishes a copy of its opinion to the Lead Managers;
and (iii) in giving the opinion referred to in Section 9.(d)(iv),
state that no examination of record titles for the purpose of such
opinion has been made, and that it is relying upon a general review
of the titles of the Company and its subsidiaries, upon opinions of
local counsel and abstracts, reports and policies of title companies
rendered or issued at or subsequent to the time of acquisition of
such property by the Company or its subsidiaries, upon opinions of
counsel to the lessors of such property and, in respect of matters
of fact, upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that it
believes that both the International Managers and it are justified
in relying upon such opinions, abstracts, reports, policies and
certificates. Such counsel shall also have furnished to the Lead
Managers a written statement, addressed to the International
Managers and dated such Delivery Date, in form and substance
satisfactory to the Lead Managers, to the effect that (x) such
counsel has acted as
<PAGE>
21
counsel to the Company in connection with the preparation of the
Registration Statements, and (y) based on the foregoing, no facts
have come to the attention of such counsel which lead it to believe
that the Registration Statements, as of their respective Effective
Dates, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or
that the Prospectus contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
foregoing opinion and statement may be qualified by a statement to
the effect that such counsel does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained
in the Registration Statements or the Prospectus except for the
statements made in the Prospectus under the captions "Description of
Capital Stock," "Risk Factors - Governmental Regulation of
Broadcasting Industry," "Business - Federal Regulation of
Broadcasting Industry" and "Certain Federal Income Tax
Consequences", insofar as such statements relate to the Stock and
concern legal matters.
(e) The counsel for Selling Stockholder shall have furnished
to the Lead Managers its written opinion, as counsel to the Selling
Stockholder, addressed to the International Managers and dated the
First Delivery Date, in form and substance satisfactory to the Lead
Managers, to the effect that:
(i) The Selling Stockholder has full right, power and
authority to enter into this Agreement and the U.S.
Underwriting Agreement, [the Power of Attorney and the Custody
Agreement,] the execution, delivery and performance of this
Agreement and the U.S. Underwriting Agreement [, the Power of
Attorney and the Custody Agreement] by the Selling Stockholder
and the consummation by the Selling Stockholder of the
transactions contemplated hereby and thereby will not conflict
with or result in a breach of violation of any of the terms or
provisions of, or constitute a default under, any statute, any
indenture, mortgage deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the
Selling Stockholder is a party or by which the Selling
Stockholder is bound or to which any of the property or assets
of the Selling Stockholder is subject, nor will such actions
result in any violation of any statute or any order, rule or
regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Selling
Stockholder or the property or assets of the Selling
Stockholder; and, except for the registration of the Stock
under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state or
foreign securities laws in connection with the purchase and
distribution of the Stock by the International Managers and
the Underwriters, no consent, approval, authorization or order
of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
<PAGE>
22
delivery and performance of this Agreement or the U.S.
Underwriting Agreement[, the Power of Attorney or the Custody
Agreement] by the Selling Stockholder and the consummation by
the Selling Stockholder of the transactions contemplated
hereby and thereby;
(ii) This Agreement and the U.S. Underwriting Agreement
have been duly executed and delivered by or on behalf of the
Selling Stockholder;
[(iii) A Power of Attorney and a Custody Agreement have
been duly authorized, executed and delivered by the Selling
Stockholder and constitute valid and binding agreements of the
Selling Stockholder;] and
(iv) Upon payment for, and delivery of, the shares of
Stock to be sold by the Selling Stockholder under this
Agreement and the U.S. Underwriting Agreement in accordance
with the terms hereof and thereof, the International Managers
and the Underwriters will acquire all of the rights of the
Selling Stockholder in such Shares free of any adverse claim
(within the meaning of the Uniform Commercial Code).
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of New York and the
General Corporation Law of the State of Wisconsin and (ii) rendering
the opinion in Section above, rely upon a certificate of the Selling
Stockholder in respect of matters of fact as to ownership of, and
the absence of adverse claims regarding, the shares of Stock sold by
the Selling Stockholder, provided that such counsel shall furnish
copies thereof to the Lead Managers and state that it believes that
both the International Managers and it are justified in relying upon
such certificate. Such counsel shall also have furnished to the Lead
Managers a written statement, addressed to the International
Managers and dated the First Delivery Date, in form and substance
satisfactory to the Lead Managers, to the effect that (x) such
counsel has acted as counsel to the Selling Stockholder on a regular
basis and has acted as counsel to the Selling Stockholder in
connection with the preparation of the Registration Statement and
(y) based on the foregoing, no facts have come to the attention of
such counsel which lead it to believe that the Registration
Statement, as of the Effective Date contained any untrue statement
of a material fact relating to the Selling Stockholder or omitted to
state such a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or
that the Prospectus contains any untrue statement of a material fact
relating to the Selling Stockholder or omits to state such a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under
which they were made, not misleading. The foregoing opinion and
statement may be qualified by a statement to the effect that such
counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus.
<PAGE>
23
(f) With respect to the letter of each of Price Waterhouse,
LLP, Johnson & Miller, LLP, McGladrey & Pullen, LLP, Coopers &
Lybrand, LLP and Plant & Moran, LLP delivered to the Lead Managers
concurrently with the execution of this Agreement (each, an "initial
letter"), the Company shall have furnished to the Lead Managers a
letter (each, a "bring-down letter") of such accountants, addressed
to the International Managers and dated such Delivery Date (i)
confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii) stating,
as of the date of the bring-down letter (or, with respect to matters
involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date of the
bring-down letter), the conclusions and findings of such firm with
respect to the financial information and other matters covered by
the initial letter and (iii) confirming in all material respects the
conclusions and findings set forth in the initial letter.
(g) The Company shall have furnished to the Lead Managers a
certificate, dated such Delivery Date, of its Chairman of the Board,
its President or a Vice President and its chief financial officer
stating that:
(i) The representations, warranties and agreements of
the Company in Section 1 are true and correct as of such
Delivery Date; the Company has complied with all its
agreements contained herein; and the conditions set forth in
Section 7(a) have been fulfilled;
(ii) (A) Neither the Company nor any of its subsidiaries
has sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference
with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the
Prospectus or (B) since such date there has not been any
change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus;
and
(iii) They have carefully examined the Registration
Statements and the Prospectus and, in their opinion (A) the
Registration Statements, as of their respective Effective
Dates, and the Prospectus, as of each of the Effective Dates,
did not include any untrue statement of a material fact and
did not omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading, and (B) since the Effective Date of the Primary
Registration Statement, no event has
<PAGE>
24
occurred which should have been set forth in a supplement or
amendment to either of the Registration Statements or the
Prospectus.
(h) The Selling Stockholder [(or the Custodian or one or more
attorneys in fact on behalf of the Selling Stockholders)] shall have
furnished to the Lead Managers on the First Delivery Date a
certificate, dated the First Delivery Date, signed by, or on behalf
of, the Selling Stockholder [(or the Custodian or one or more
attorneys in fact)] stating that the representations, warranties and
agreements of the Selling Stockholder contained herein are true and
correct as of the First Delivery Date and that the Selling
Stockholder has complied with all agreements contained herein to be
performed by the Selling Stockholder at or prior to the First
Delivery Date.
(i) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included or incorporated by reference in the Prospectus
any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the
Prospectus or since such date there shall not have been any change
in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such
case described in clause (i) or (ii), is, in the judgment of the
Lead Managers, so material and adverse as to make it impracticable
or inadvisable to proceed with the public offering or the delivery
of the Stock being delivered on such Delivery Date on the terms and
in the manner contemplated in the Prospectus.
(j) Subsequent to the execution and delivery of this Agreement
no downgrading shall have occurred in the rating accorded the
Company's debt securities or preferred stock by any "nationally
recognized statistical rating organization", as that term is defined
by the Commission for purposes of Rule 436(g)(2) of the Rules and
Regulations and no such organization shall have publicly announced
that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities or
preferred stock.
(k) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission,
by such exchange or by any other regulatory body or governmental
authority having jurisdiction, a banking moratorium shall have been
declared by Federal
<PAGE>
25
or state authorities, the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities
involving the United States or there shall have been a declaration
of a national emergency or war by the United States or there shall
have occurred such a material adverse change in general economic,
political or financial conditions (or the effect of international
conditions on the financial markets in the United States shall be
such) as to make it, in the judgment of a majority in interest of
the several International Managers, impracticable or inadvisable to
proceed with the public offering or delivery of the Stock being
delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(l) The Stock has been duly authorized for quotation on the
National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market System, subject only to official notice
of issuance.
(m) The closing under the U.S. Underwriting Agreement shall
have occurred concurrently with the closing hereunder on the First
Delivery Date.
(n) The closing under the Debt Underwriting Agreement shall
have occurred concurrently with the closing hereunder on the First
Delivery Date.
(o) The closing under the Preferred Stock Underwriting
Agreement shall have occurred concurrently with the closing
hereunder on the First Delivery Date.
(p) The Reorganization (as defined in the Registration
Statement) shall have been consummated prior to the First Delivery
Date.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance satisfactory to counsel
for the International Managers.
10. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each International
Manager, its officers and employees and each person, if any, who controls any
International Manager within the meaning of the Securities Act, from and against
any loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of Stock), to which that International
Manager, officer, employee or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, either
of the Registration Statements or the Prospectus, or in any amendment or
supplement thereto, or (B) in any blue sky application or other document
prepared or executed by the Company (or based upon any written information
furnished by the Company) specifically for the purpose of qualifying any or all
of the Stock under the securities laws of any state or other jurisdiction (any
such application, document or information being
<PAGE>
26
hereinafter called a "Blue Sky Application"), the omission or alleged omission
to state in any Preliminary Prospectus, either of the Registration Statements or
the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading or (iii) any act or failure to act, or any
alleged act or failure to act, by any International Manager in connection with,
or relating in any manner to, the Stock or the offering contemplated hereby, and
which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon matters covered by clause (i)
or (ii) above (provided that the Company shall not be liable in the case of any
matter covered by this clause (iii) to the extent that it is determined in a
final judgement by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such act or failure to
act undertaken or omitted to be taken by such International Manager through its
gross negligence or wilful misconduct), and shall reimburse each International
Manager and each such officer, employee and controlling person promptly upon
demand for any legal or other expenses reasonably incurred by that International
Manager, officer, employee or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of, or is based upon,
any untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, or in any Blue Sky
Application in reliance upon and in conformity with the written information
furnished to the Company through the Lead Managers by or on behalf of any
International Manager specifically for inclusion therein and described in
Section 10.(f). The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any International Manager or
to any officer, employee or controlling person of that International Manager.
(b) The Selling Stockholder shall indemnify and hold harmless each
International Manager, its officers and employees and each person, if any, who
controls any International Manager within the meaning of the Securities Act,
from and against any loss, claim, damage or liability, joint or several, or any
actin in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of stock), to which
that International Manager, officer, employee or controlling person may become
subject, under the Securities act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any amendment or supplement thereto, any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse each International Manager, its officers and
employees and each such controlling person for any legal or other expenses
reasonably incurred by that International Manager, its officers, employees or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Selling Stockholder shall not
be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or
<PAGE>
27
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or in any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company through the Lead
Manager by or on behalf of any International Manager, specifically for inclusion
therein. The foregoing indemnity agreement is in addition to any liability which
the Selling Stockholder may otherwise have to any International Manager or any
officer, employee or controlling person of that International Manager.
(c) Each International Manager, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees, each of its
directors and each person, if any, who controls the Company within the meaning
of the Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the Company or any
such director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, either
of the Registration Statements or the Prospectus, or in any amendment or
supplement thereto, or (B) in any Blue Sky Application or the omission or
alleged omission to state in any Preliminary Prospectus, either of the
Registration Statements or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
the written information furnished to the Company through the Lead Managers by or
on behalf of that International Manager specifically for inclusion therein and
described in Section 10.(f), and shall reimburse the Company and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability
which any International Manager may otherwise have to the Company or any such
director, officer or controlling person.
(d) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 10.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided,
<PAGE>
28
however, that the Lead Managers shall have the right to employ counsel to
represent jointly the Lead Managers and those other International Managers and
their respective officers, employees and controlling persons who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by the International Managers against the Company. No indemnifying party
shall (i) without the prior written consent of the indemnified parties (which
consent shall not be unreasonably withheld), settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding, or (ii) be
liable for any settlement of any such action effected without its written
consent (which consent shall not be unreasonably withheld), but if settled with
its written consent or if there be a final judgment of the plaintiff in any such
action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss of liability by reason of such
settlement or judgment.
(e) If the indemnification provided for in this Section 10 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 10.(a) or 10.(b), 10.(c) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect the relative benefits received by
the Company and the Selling Stockholder on the one hand and the International
Managers on the other from the offering of the Stock or if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and the International Managers on the other with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or action
in respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholder on the one
hand and the International Managers on the other with respect to such offering
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Stock purchased under this Agreement (before deducting expenses)
received by the Company and the Selling Stockholder, on the one hand, and the
total underwriting discounts and commissions received by the International
Managers with respect to the shares of the Stock purchased under this Agreement,
on the other hand, bear to the total gross proceeds from the offering of the
shares of the Stock under this Agreement, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company, the Selling Stockholder or the International Managers,
the intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the International Managers agree that it would not be just and equitable if
contributions pursuant to this Section 10.(e) were to be determined by pro rata
allocation (even if the International Managers were treated as one entity for
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party
<PAGE>
29
as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 10.(e) shall be deemed to include,
for purposes of this Section 10.(e), any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Section 10.(e),
no International Manager shall be required to contribute any amount in excess of
the amount by which the total price at which the Stock underwritten by it and
distributed to the public was offered to the public exceeds the amount of any
damages which such International Manager has otherwise paid or become liable to
pay by reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
International Managers' obligations to contribute as provided in this Section
10.(e) are several in proportion to their respective underwriting obligations
and not joint.
(f) The International Managers severally confirm that the statements
with respect to the public offering of the Stock set forth on the cover page of,
and under the caption "Underwriting" in, the Prospectus are correct and
constitute the only information furnished in writing to the Company by or on
behalf of the International Managers specifically for inclusion in the
Registration Statements and the Prospectus.
11. Defaulting International Managers.
If, on either Delivery Date, any International Manager defaults in
the performance of its obligations under this Agreement, the remaining
non-defaulting International Managers shall be obligated to purchase the Stock
which the defaulting International Manager agreed but failed to purchase on such
Delivery Date in the respective proportions which the number of shares of the
Firm Stock set opposite the name of each remaining non-defaulting International
Manager in Schedule 1 hereto bears to the total number of shares of the Firm
Stock set opposite the names of all the remaining non-defaulting International
Managers in Schedule 1 hereto; provided, however, that the remaining
non-defaulting International Managers shall not be obligated to purchase any of
the Stock on such Delivery Date if the total number of shares of the Stock which
the defaulting International Manager or International Managers agreed but failed
to purchase on such date exceeds 9.09% of the total number of shares of the
Stock to be purchased on such Delivery Date, and any remaining non-defaulting
International Manager shall not be obligated to purchase more than 110% of the
number of shares of the Stock which it agreed to purchase on such Delivery Date
pursuant to the terms of Section 4. If the foregoing maximums are exceeded, the
remaining non-defaulting International Managers, or those other underwriters
satisfactory to the Lead Managers who so agree, shall have the right, but shall
not be obligated, to purchase, in such proportion as may be agreed upon among
them, all the Stock to be purchased on such Delivery Date. If the remaining
International Managers or other underwriters satisfactory to the Lead Managers
do not elect to purchase the shares which the defaulting International Manager
or International Managers agreed but failed to purchase on such Delivery Date,
this Agreement (or, with respect to the Second Delivery Date, the obligation of
the International Managers to purchase, and of the Company to sell, the Option
Stock) shall terminate without liability on the part of any non-defaulting
International Manager or the Company, except that the Company will continue to
be liable for the payment of expenses to the extent set forth
<PAGE>
30
in Sections 8 and 13. As used in this Agreement, the term "International
Manager" includes, for all purposes of this Agreement unless the context
requires otherwise, any party not listed in Schedule 1 hereto who, pursuant to
this Section 11, purchases Firm Stock which a defaulting International Manager
agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting International
Manager of any liability it may have to the Company and the Selling Stockholder
for damages caused by its default. If other underwriters are obligated or agree
to purchase the Stock of a defaulting or withdrawing International Manager,
either the Lead Managers or the Company may postpone the First Delivery Date for
up to seven full business days in order to effect any changes that in the
opinion of counsel for the Company or counsel for the International Managers may
be necessary in the Registration Statement, the Prospectus or in any other
document or arrangement.
12. Effective Date and Termination.
(a) This Agreement shall become effective at 11:00 A.M., New York
City time, on the first full business day following the Effective Date, or at
such earlier time after the Registration Statement becomes effective as the Lead
Managers shall release the Firm Stock for initial public offering. The Lead
Managers shall notify the Company immediately after they have taken any action
which causes this Agreement to become effective. Until this Agreement is
effective, it may be terminated by the Company by notice to the Lead Managers or
by the Lead Managers by notice to the Company. For purposes of this Agreement,
the release of the initial public offering of the Stock shall be deemed to have
been made when the Lead Managers release, by telegram or otherwise, firm offers
of the Stock to securities dealers or release for publication a newspaper
advertisement relating to the Stock, whichever occurs first.
(b) The obligations of the International Managers hereunder may be
terminated by the Lead Managers by notice given to and received by the Company
and the Selling Stockholder prior to delivery of and payment for the Firm Stock
if, prior to that time, any of the events described in Sections 9.(i), 9.(j) or
9.(k), or shall have occurred or if the International Managers shall decline to
purchase the Stock for any reason permitted under this Agreement.
13. Reimbursement of International Managers' Expenses. If the
Company shall fail to tender the Stock for delivery to the International
Managers for any reason permitted under this Agreement, or the International
Managers shall decline to purchase the Stock for any reason permitted under this
Agreement (including the termination of this Agreement pursuant to Section 10),
the Company shall reimburse the International Managers for the fees and expenses
of their counsel and for such other out-of-pocket expenses as shall have been
incurred by them in connection with this Agreement and the proposed purchase of
the Stock, and upon demand the Company and the Selling Stockholder shall pay the
full amount thereof to the Lead Managers. If this Agreement is terminated
pursuant to Section 11 by reason of the default of one or more International
Managers, neither the Company nor the Selling Stockholder shall be obligated to
reimburse any defaulting International Manager on account of those expenses.
14. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
<PAGE>
31
(a) if to the International Managers, shall be delivered or
sent by mail, telex or facsimile transmission to Lehman Brothers
International (Europe), Three World Financial Center, New York, New
York 10285, Attention: Syndicate Department (Fax: 212-528-8822);
(b) if to the Company, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set
forth in the Primary Registration Statement, Attention: Richard
Weening (Fax: (414-283-4505);
(c) if to the Selling Stockholder, shall be delivered or sent
by mail, telex or facsimile transmission to the Selling Stockholder
at [____________, Attention: ______ (Fax:_________);
provided, however, that any notice to any International Manager pursuant to
Section 10.(d) shall be delivered or sent by mail, telex or facsimile
transmission to such International Manager at its address set forth in its
acceptance telex to the Lead Managers, which address will be supplied to any
other party hereto by the Lead Managers upon request. Any such statements,
requests, notices or agreements shall take effect at the time of receipt
thereof. The Company and the Selling Stockholder shall be entitled to act and
rely upon any request, consent, notice or agreement given or made on behalf of
the International Managers by Lehman Brothers Inc.
15. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the International Managers, the
Company, the Selling Stockholder and their respective personal representative
and successors. This Agreement and the terms and provisions hereof are for the
sole benefit of only those persons, except that the representations, warranties,
indemnities and agreements of the Company, and the Selling Stockholder,
contained in this Agreement shall also be deemed to be for the benefit of the
officers and employees of each International Manager and the person or persons,
if any, who control each International Manager within the meaning of Section 15
of the Securities Act and for the benefit of each U.S. Underwriter (and
controlling persons thereof) who offers or sells any shares of Class A Common
Stock in accordance with the terms of the Agreement Between International
Managers and International Managers and the indemnity agreement of the
International Managers contained in Section 10.(b), 10.(c) of this Agreement
shall be deemed to be for the benefit of directors, officers and employees of
the Company and any person controlling the Company within the meaning of Section
15 of the Securities Act. Nothing in this Agreement is intended or shall be
construed to give any person, other than the persons referred to in this Section
15, any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Principal Subsidiary, the Selling
Stockholder and the International Managers contained in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement, shall survive
the delivery of and payment for the Stock and shall remain in full force and
effect, regardless of any investigation made by or on behalf of any of them or
any person controlling any of them.
<PAGE>
32
17. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, "business day" means any day on which the New York
Stock Exchange, Inc. is open for trading and "subsidiary" has the meaning set
forth in Rule 405 of the Rules and Regulations.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
33
If the foregoing correctly sets forth the agreement between the
Company and the International Managers, please indicate your acceptance in the
space provided for that purpose below.
Very truly yours,
CUMULUS MEDIA INC.
By: ________________________________
STATE OF WISCONSIN INVESTMENT BOARD
Accepted:
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
BEAR, STEARNS INTERNATIONAL LIMITED
BT ALEX. BROWN INTERNATIONAL,
DIVISION OF BANKERS TRUST INTERNATIONAL PLC
CREDIT LYONNAIS SECURITIES
For themselves and as Lead Managers
of the several International Managers named
in Schedule 1 hereto
By LEHMAN BROTHERS INTERNATIONAL (EUROPE)
By: _________________________________________
Authorized Representative
<PAGE>
SCHEDULE 1
Number of
International Managers Shares
- ---------------------- ----------
Lehman Brothers International(Europe).......................
Bear, Stearns International Limited.........................
BT Alex. Brown International, division of Bankers Trust
International PLC..........................................
Credit Lyonnais Securities..................................
----------
Total............................................ ==========
<PAGE>
Exhibit 1.3
DRAFT
05/07/98
CUMULUS MEDIA INC.
$100,000,000
___% Series A Cumulative Exchangeable
Redeemable Preferred Stock due 2009
UNDERWRITING AGREEMENT
___________, 1998
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS, INC.
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Dear Sirs:
Cumulus Media Inc., a corporation organized and existing under the
laws of Illinois (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the several underwriters named in Schedule I
hereto (the "Underwriters") 100,000 shares of its ___% Series A Cumulative
Exchangeable Redeemable Preferred Stock due 2009, liquidation preference $1,000
per share (the "Series A Preferred Stock"), to be issued under a certificate of
designation (the "Certificate of Designation") dated , 1998. Under certain
circumstances set forth in the Certificate of Designation, the Series A
Preferred Stock may be exchanged for the Company's __% Subordinated Exchange
Debentures due 2009 (the "Exchange Debentures").
It is understood by all parties that the Company is concurrently
entering into agreements dated the date hereof, providing for the sale by the
Company of an aggregate of ____ Shares of its Class A Common Stock (including
the over-allotment options thereunder) (the "Equity Underwriting Agreements")
through arrangements with certain underwriters for whom Lehman Brothers Inc.,
Bear, Stearns & Co. and BT Alex. Brown Incorporated (or affiliates thereof) are
acting as representatives and with certain international managers for whom
Lehman Brothers International (Europe), Bear, Stearns International Limited, BT
Alex Brown International, division of Bankers Trust International PLC and Credit
Lyonnais
<PAGE>
2
Securities are acting as lead managers. It is additionally understood by all
parties that the Company is also entering into an agreement (the "Debt
Underwriting Agreement"), dated the date hereof, providing for the sale by the
Company of an aggregate of $100,000,000 principal amount of its __% Senior
Subordinated Notes due 2008 to Bear, Stearns & Co. Inc. and Lehman Brothers
Inc., as underwriters.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have filed an
amendment or amendments thereto, on Form S-1 (No. 333-48849), for the
registration of the Series A Preferred Stock under the Securities Act of 1933,
as amended (the "Act"). Such registration statement, including the prospectus,
financial statements and schedules, exhibits and all other documents filed as a
part thereof, as amended at the time of effectiveness of the registration
statement, including any information deemed to be a part thereof as of the time
of effectiveness pursuant to paragraph (b) of Rule 430A or Rule 434 of the Rules
and Regulations of the Commission under the Act (the "Regulations"), is herein
called the "Registration Statement" and the prospectus, in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations or filed as part
of the Registration Statement at the time of effectiveness if no Rule 424(b) or
Rule 434 filing is required, is herein called the "Prospectus". The term
"preliminary prospectus" as used herein means a preliminary prospectus as
described in Rule 430 of the Regulations.
(b) At the time of the effectiveness of the Registration Statement
or the effectiveness of any post-effective amendment to the Registration
Statement, when the Prospectus is first filed with the Commission pursuant to
Rule 424(b) or Rule 434 of the Regulations, when any supplement to or amendment
of the Prospectus is filed with the Commission and at the Closing Date (as
hereinafter defined), the Registration Statement and the Prospectus and any
amendments thereof and supplements thereto complied or will comply in all
material respects with the applicable provisions of the Act and the Regulations
and does not or will not contain an untrue statement of a material fact and does
not or will not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein (i) in the case of the
Registration Statement, not misleading and (ii) in the case of the Prospectus,
in light of the circumstances under which they were made, not misleading. When
any related preliminary prospectus was first filed with the Commission (whether
filed as part of the registration statement for the registration of the Series A
Preferred Stock or any amendment thereto or pursuant to Rule 424(a) of the
Regulations) and when any amendment thereof or supplement thereto was first
filed with the Commission, such preliminary prospectus and any amendments
thereof and supplements thereto complied in all material respects with the
applicable provisions of the Act and the Regulations and did not contain an
untrue statement of a material fact and did not omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein in light of the circumstances under which they were made not misleading.
No representation and warranty is made in this subsection (b), however, with
respect to any information contained in or omitted from the Registration
Statement or the Prospectus or any related preliminary
<PAGE>
3
prospectus or any amendment thereof or supplement thereto in reliance upon and
in conformity with information furnished in writing to the Company by or on
behalf of any Underwriter through you as herein stated expressly for use in
connection with the preparation thereof. If Rule 434 is used, the Company will
comply with the requirements of Rule 434.
(c) All of the issued and outstanding shares of capital stock of the
Company and its subsidiaries have been duly authorized, validly issued and are
fully paid and nonassessable, were issued in compliance with federal and state
laws and were not issued in violation of any preemptive or similar rights. All
shares of capital stock of the Company's subsidiaries are owned, directly or
indirectly, by the Company free and clear of any material lien, encumbrance,
claim, security interest, restriction on transfer, stockholders' agreement,
voting trust or other restrictions. The Company's equity capitalization is as
set forth in the Prospectus and any amendment or supplement thereto and on
December 31, 1997, after giving pro forma effect to the issuance and sale of the
Series A Preferred Stock pursuant hereto and the other transactions described
therein, the Company would have had an authorized and outstanding capitalization
as set forth in the Prospectus under the caption "Capitalization," subject to
the notes and assumptions included therein.
(d) Except as set forth in the Prospectus, there are not currently
any outstanding material subscriptions, rights, warrants, calls, commitments of
sale or options to acquire, or instruments convertible into or exchangeable for,
capital stock or other equity interests of the Company or any of its
subsidiaries.
(e) Each of Price Waterhouse, LLP, Johnson & Miller, LLP, MgGladrey
& Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran, LLP who have certified
the financial statements and supporting schedules included in the Registration
Statement, are independent public accountants as required by the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Regulations.
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth in
the Registration Statement and the Prospectus, there has been no material
adverse change or any development involving a prospective material adverse
change in the business, prospects, properties, operations, condition (financial
or other), net worth or results of operations of the Company and its
subsidiaries taken as a whole, whether or not arising from transactions in the
ordinary course of business, and since the date of the latest balance sheet
presented in the Registration Statement and the Prospectus, neither the Company
nor any of its subsidiaries has incurred or undertaken any liabilities or
obligations, direct or contingent, which are material to the Company and its
subsidiaries taken as a whole, except for liabilities or obligations which are
reflected in the Registration Statement and the Prospectus.
(g) This Agreement and the transactions contemplated herein have
been duly and validly authorized by the Company and this Agreement has been duly
and validly executed and delivered by the Company.
<PAGE>
4
(h) The execution, delivery, and performance of this Agreement, the
Certificate of Designation and the indenture pursuant to which the Exchange
Debentures will be issued (the "Exchange Debenture Indenture") and the
consummation of the transactions contemplated hereby and thereby do not and will
not (i) conflict with or result in a breach of any of the terms and provisions
of, or constitute a default (or an event which with notice or lapse of time, or
both, would constitute a default) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to, any agreement, instrument, franchise,
license or permit to which the Company or any of its subsidiaries is a party or
by which any of such corporations or their respective properties or assets may
be bound or (ii) violate or conflict with any provision of the certificate of
incorporation or by-laws of the Company or any of its subsidiaries or any
judgment, decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their respective properties or assets. No
consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any public, governmental or regulatory
agency or body having jurisdiction over the Company or any of its subsidiaries
or any of their respective properties or assets is required for the execution,
delivery and performance of this Agreement, the Certificate of Designation or
the Exchange Debenture Indenture or the consummation of the transactions
contemplated hereby and thereby, including the issuance, sale and delivery of
the Series A Preferred Stock to be issued, sold and delivered by the Company
hereunder, except the registration under the Act of the Series A Preferred Stock
and such consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the Series
A Preferred Stock by the Underwriters.
(i) Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation. Each of the Company and its subsidiaries is duly
qualified and in good standing as a foreign corporation in each jurisdiction in
which the character or location of its properties (owned, leased or licensed) or
the nature or conduct of its business makes such qualification necessary, except
for those failures to be so qualified or in good standing which will not in the
aggregate have a material adverse effect on the Company and its subsidiaries
taken as a whole. Each of the Company and its subsidiaries has all requisite
power and authority, and all necessary consents, approvals, authorizations,
orders, registrations, qualifications, licenses and permits of and from all
public, regulatory or governmental agencies and bodies, to own, lease and
operate its properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus, and no such consent,
approval, authorization, order, registration, qualification, license or permit
contains a materially burdensome restriction not adequately disclosed in the
Registration Statement and the Prospectus.
(j) The Certificate of Designation has been duly authorized by all
necessary corporate and stockholder action and, on the Closing Date will have
been duly executed by the Company and filed with the Secretary of State of the
state of Illinois.
<PAGE>
5
(k) The shares of Series A Preferred Stock have been duly authorized
and, when executed and issued in accordance with the provisions of the
Certificate of Designation and delivered to and paid for by the purchasers
thereof, will be entitled to the benefits of the Certificate of Designation and
will be validly issued and free and clear of all liens and restrictions on
transfer and will constitute binding obligations of the Company, enforceable in
accordance with their respective terms except as (i) enforceability thereof may
be limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
(l) The Exchange Debenture Indenture has been duly authorized by the
Company and, if and when duly executed and delivered by the Company, will be a
valid and binding agreement of the Company, enforceable in accordance with its
terms except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditor's rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. The Exchange Debenture Indenture
conforms to the requirements of the Trust Indenture Act of 1939, as amended.
(m) The Exchange Debentures have been duly authorized by the Company
and, if and when executed, authenticated and issued in accordance with the
provisions of the Exchange Debenture Indenture, will be entitled to the benefits
of the Exchange Debenture Indenture and will be validly issued and free and
clear of all liens and restrictions on transfer and will constitute binding
obligations of the Company, enforceable in accordance with their respective
terms except as (i) enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(n) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company or any of its subsidiaries is a
party or to which any property of the Company or any of its subsidiaries is
subject or which is pending or, to the knowledge of the Company, contemplated
against the Company or any of its subsidiaries which might result in any
material adverse change or any development involving a material adverse change
in the business, prospects, properties, operations, condition (financial or
other), net worth or results of operations of the Company and its subsidiaries
taken as a whole or which is required to be disclosed in the Registration
Statement and the Prospectus.
(o) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which constitutes or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Series A Preferred Stock to facilitate the sale
or resale of the Series A Preferred Stock.
(p) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly the
<PAGE>
6
financial position of the Company as of the dates indicated and the results of
its operations for the periods specified; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis; and the supporting schedules included in the Registration Statement and
Prospectus present fairly the information required to be stated therein.
(q) Neither the Company, nor any of its subsidiaries, are, nor upon
consummation of the transactions contemplated hereby will be, subject to
registration as an "investment company" under the Investment Company Act of
1940, as amended.
(r) Neither the Company nor any of its subsidiaries nor, to the
Company's knowledge, any other party, is now, or is reasonably expected by the
Company or any of its subsidiaries to be, in violation or breach of, or default
(disregarding any grace or notice provision) with respect to any material
provision of any contract, agreement, instrument, lease, license, policy,
arrangement, or understanding to which the Company or any of its subsidiaries is
a party, which violation, breach or default or violations, breaches or defaults,
singly or in the aggregate has, or can reasonably be expected in the future to
have, a material adverse effect on the business, prospects, properties, assets,
operations, condition (financial or other), net worth or results of operations
of the Company and its subsidiaries taken as a whole; and each such contract,
agreement, instrument, lease, license, policy, arrangement and understanding is
in full force and is the legal, valid and binding obligation of the Company or
its subsidiaries, as the case may be, and, to the Company's knowledge, the other
parties thereto, and is enforceable as to the Company or its subsidiaries, as
the case may be, and, to the Company's knowledge, the other parties thereto in
accordance with its terms subject, as to enforceability, to applicable
bankruptcy, reorganization, moratorium or other similar laws of general
application affecting the rights of creditors generally, except where such
failure to be in full force or to be a legal, valid and binding obligation or to
be enforceable, as the case may be, has not had, or would not reasonably be
expected in the future to have, a material adverse effect on the business,
prospects, properties, assets, operations, condition (financial or other), net
worth or results of operations of the Company and its subsidiaries taken as a
whole.
(s) The Company and its subsidiaries have good and marketable title
to all real property and material assets disclosed in the Registration Statement
and Prospectus as being owned by them, free and clear of all liens, mortgages,
claims, security interests or other encumbrances, except such as are disclosed
in the Registration Statement and Prospectus and except for liens incurred in
the ordinary course of business which do not materially affect the use or value
thereof; property held under lease by the Company or its subsidiaries is held by
them under valid, subsisting and binding leases with only such exceptions with
respect to any particular lease as do not interfere in any material respect with
the conduct of the business of the Company and its subsidiaries taken as a whole
or as do not materially affect the value of such property as used by the Company
or are not material in amount and do not interfere in any material respect with
the use of the property or the conduct of the business of the Company and its
subsidiaries taken as a whole.
<PAGE>
7
(t) The Company and its subsidiaries have filed all necessary
federal, state, local and foreign income, franchise and sales tax returns and
have paid all taxes shown thereon as due, and the Company has no knowledge of
any tax deficiency which has been asserted against the Company or any of its
subsidiaries which would materially and adversely affect the business or
properties of the Company and its subsidiaries, taken as whole. To the Company's
knowledge, tax liabilities in the aggregate are adequately provided for on the
consolidated books of the Company. The Company has not received notice of any
material proposed additional tax assessments against it or any of its
subsidiaries.
(u) Neither the Company nor any of its subsidiaries is in violation
of any law, ordinance, governmental rule or regulation including, without
limitation, federal, state and local rules and regulations relating to the
protection of the environment or concerning the handling, storage, disposal or
discharge of toxic materials (collectively, "Environmental Laws") or court
decree or order to which it or any of its property is subject, except for such
violations which (individually or in the aggregate) do not or will not have a
material adverse effect on the business, prospects, properties, assets,
operations, condition (financial or other), net worth or results of operations
of the Company and its subsidiaries taken as a whole. Each of the Company and
its subsidiaries has obtained any permits, consents and authorizations required
to be obtained by it under applicable laws, rules, ordinances or regulations
including, without limitation, Environmental Laws and any such permits, consents
and authorizations remain in full force and effect, except as to any of the
foregoing the absence of which (individually or in the aggregate) will not have
a material adverse effect on the business, prospects, properties, assets,
operations, condition (financial or other), net worth or results of operations
of the Company and its subsidiaries taken as a whole. There is no pending or, to
the Company's or any of its subsidiaries' knowledge, threatened, action or
proceeding against the Company or any of its subsidiaries alleging violations of
any applicable laws, rules, ordinances or regulations including, without
limitation, any Environmental Laws, other than any such actions or proceedings
which, individually or in the aggregate, if adversely determined, is not
reasonably likely to have a material adverse effect on the business, prospects,
properties, assets, operations, condition (financial or other), net worth or
results of operations of the Company and its subsidiaries taken as a whole.
(v) No default or event of default with respect to any Indebtedness
(as such term is defined in the Certificate of Designation) entitling the
holders thereof to accelerate the maturity thereof exists or will exist as a
result of the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby and each of the Company and its
subsidiaries has duly performed or observed all material obligations,
agreements, covenants or conditions contained in any contract, indenture,
mortgage, agreement or instrument relating to any Indebtedness.
(w) The Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization;
<PAGE>
8
and (iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.
(x) Each of the Company and its subsidiaries maintains insurance of
the types and in amounts generally deemed adequate for its business, including
but not limited to, general liability insurance and insurance covering real and
personal property owned or leased by the Company or any of its subsidiaries
against theft, destruction, damage, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
(y) Each of the Company and its subsidiaries owns or possesses
adequate licenses or other rights to use all patents, trademarks, service marks,
trade names, copyrights and know-how necessary to conduct the businesses now or
proposed to be operated by it as described in the Prospectus, and none of the
Company or its subsidiaries has received any notice of infringement of or
conflict with (or knows of any such infringement of or conflict with) asserted
rights of others with respect to any patents, trademarks, service marks, trade
names, copyrights or know-how which, if such assertion of infringement or
conflict were sustained, would, individually or in the aggregate, have a
material adverse effect on the business, prospects, properties, assets,
operations, condition (financial or other), net worth or results of operations
of the Company and its subsidiaries taken as a whole.
(z) Each of the radio stations owned, operated, programmed, or to
which sales and marketing services are provided, by the Company and its
subsidiaries is validly licensed by the Federal Communications Commission (the
"FCC") and no administrative or judicial proceedings are pending before or, to
the knowledge of the Company or its subsidiaries, threatened by the FCC with
respect to such licenses; each of the Company and its subsidiaries are in
compliance in all material respects with the Communications Act of 1934, as
amended, and the rules, regulations and policies of the FCC; each of the Company
and its subsidiaries possesses all licenses, permits, certificates, consents,
orders, approvals and other authorizations from, and has made or will have made
all declarations and filings with, all other federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts and
other tribunals, presently required or necessary to own or lease, as the case
may be, and to operate its respective properties and to carry on its respective
businesses as now or proposed to be conducted as set forth in the Prospectus
("Permits"), except where the failure to obtain such Permits would not,
individually or in the aggregate, have a material adverse effect on the
business, prospects, properties, assets, operations, condition (financial or
other), net worth or results of operations of the Company and its subsidiaries
taken as a whole; each of the Company and its subsidiaries has fulfilled and
performed all of its obligations with respect to such Permits and no event has
occurred which allows, or after notice or lapse of time would allow, revocation
or termination thereof or results in any other material impairment of the rights
of the holder of any such Permit; and none of the Company or its subsidiaries
has received any notice of any proceeding relating to revocation or modification
of any such Permit, except as described in the Prospectus and except where such
revocation or modification would not, individually, or in the aggregate, have a
material adverse effect on the business, prospects, properties, assets,
operations, condition (financial or
<PAGE>
9
other), net worth or results of operations of the Company and its subsidiaries
taken as a whole.
(aa) The statistical and market-related data included in the
Prospectus are based or derived from sources which the Company and its
subsidiaries believe to be reliable and accurate.
(bb) None of the Company or its subsidiaries, or any agent acting on
their behalf, has taken or will take any action that might cause this Agreement
or the sale of the Series A Preferred Stock to violate Regulation G, T, U or X
of the Board of Governors of the Federal Reserve System, in each case as in
effect, or as the same may hereafter be in effect, on the Closing Date.
(cc) There is no strike, labor dispute, slowdown or work stoppage
with the employees of the Company or any of its subsidiaries which is pending
or, to the knowledge of the Company or any of its subsidiaries, threatened.
(dd) None of the Company or its subsidiaries has any liability for
any prohibited transactions or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or other plan
which is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which the Company or any of its subsidiaries makes or ever
has made a contribution and in which any employee of the Company or any of its
subsidiaries is or has ever been a participant. With respect to such plans, the
Company and each of its subsidiaries are in compliance in all material respects
with all applicable provisions of ERISA.
(ee) The Series A Preferred Stock, the Certificate of Designation,
the Exchange Debentures and the Exchange Debenture Indenture will conform, in
all material respects, to the descriptions thereof in the Prospectus.
(ff) The Company has no reason to believe that, after giving effect
to the Pending Acquisitions (as defined in the Registration Statement), any of
the representations and warranties contained in this Section 1 would not be true
and correct.
(gg) Immediately after the consummation of the transactions
contemplated by this Agreement, the fair value and present fair saleable value
of the assets of the Company will exceed the sum of its stated liabilities and
identified contingent liabilities; the Company is not, nor will the Company be,
after giving effect to the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby, (i) left with
unreasonably small capital with which to carry on its business as it is proposed
to be conducted, (ii) unable to pay its debts (contingent and otherwise) as they
mature or (iii) otherwise insolvent.
<PAGE>
10
2. Purchase, Sale and Delivery of the Series A Preferred Stock.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at the
appropriate purchase price set forth in Schedule I hereto, the number of shares
of Series A Preferred Stock set forth opposite the respective names of the
Underwriters in Schedule I hereto.
(b) Payment of the purchase price for, and delivery of the Series A
Preferred Stock shall be made at the offices of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York 10017 or at such other place as shall be
agreed upon by you and the Company, at 10:00 A.M. on the third or fourth
business day (as permitted under Rule 15c6-1 under the Exchange Act) (unless
postponed in accordance with the provisions of Section 9 hereof) following the
date of the effectiveness of the Registration Statement (or, if the Company has
elected to rely upon Rule 430A of the Regulations, the third or fourth business
day (as permitted under Rule 15c6-1 under the Exchange Act) after the
determination of the public offering price of the Series A Preferred Stock), or
such other time not later than ten business days after such date as shall be
agreed upon by you and the Company (such time and date of payment and delivery
being herein called the "Closing Date"). Payment shall be made to the Company by
wire transfer in same day funds, against delivery to you for the respective
accounts of the Underwriters of certificates for the Series A Preferred Stock to
be purchased by them. Certificates for the Series A Preferred Stock shall be
registered in such name or names and in such authorized denominations as you may
request in writing at least two full business days prior to the Closing Date.
The Company will permit you to examine and package such certificates for
delivery at least one full business day prior to the Closing Date.
3. Offering. Upon your authorization of the release of the Series A
Preferred Stock, the Underwriters propose to offer the Series A Preferred Stock
for sale to the public upon the terms set forth in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees with
the Underwriters that:
(a) If the Registration Statement has not yet been declared
effective the Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is otherwise
required under Rule 424(b) or Rule 434, the Company will file the Prospectus
(properly completed if Rule 430A has been used) pursuant to Rule 424(b) or Rule
434 within the prescribed time period and will provide evidence satisfactory to
you of such timely filing. If the Company elects to rely on Rule 434, the
Company will prepare and file a term sheet that complies with the requirements
of Rule 434.
The Company will notify you immediately (and, if requested by you,
will confirm such notice in writing) (i) when the Registration Statement and any
amendments
<PAGE>
11
thereto become effective, (ii) of any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus or
for any additional information, (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of the initiation, or the threatening, of
any proceedings therefor, (v) of the receipt of any comments from the
Commission, and (vi) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Series A Preferred Stock
for sale in any jurisdiction or the initiation or threatening of any proceeding
for that purpose. If the Commission shall propose or enter a stop order at any
time, the Company will make every reasonable effort to prevent the issuance of
any such stop order and, if issued, to obtain the lifting of such order as soon
as possible. The Company will not file any amendment to the Registration
Statement or any amendment of or supplement to the Prospectus (including the
prospectus required to be filed pursuant to Rule 424(b) or Rule 434) that
differs from the prospectus on file at the time of the effectiveness of the
Registration Statement before or after the effective date of the Registration
Statement to which you shall reasonably object in writing after being timely
furnished in advance a copy thereof.
(b) If at any time when a prospectus relating to the Series A
Preferred Stock is required to be delivered under the Act any event shall have
occurred as a result of which the Prospectus as then amended or supplemented
would, in the judgment of the Underwriters or the Company include an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall be
necessary at any time to amend or supplement the Prospectus or Registration
Statement to comply with the Act or the Regulations, the Company will notify you
promptly and prepare and file with the Commission an appropriate amendment or
supplement (in form and substance satisfactory to you) which will correct such
statement or omission and will use its best efforts to have any amendment to the
Registration Statement declared effective as soon as possible.
(c) The Company will promptly deliver to you two signed copies of
the Registration Statement, including exhibits and all amendments thereto, and
the Company will promptly deliver to each of the Underwriters such number of
copies of any preliminary prospectus, the Prospectus, the Registration
Statement, and all amendments of and supplements to such documents, if any, as
you may reasonably request.
(d) The Company will endeavor in good faith, in cooperation with
you, at or prior to the time of effectiveness of the Registration Statement, to
qualify the Series A Preferred Stock for offering and sale under the securities
laws relating to the offering or sale of the Series A Preferred Stock of such
jurisdictions as you may designate and to maintain such qualification in effect
for so long as required for the distribution thereof; except that in no event
shall the Company be obligated in connection therewith to qualify as a foreign
corporation or to execute a general consent to service of process.
<PAGE>
12
(e) The Company will make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to you as soon as
practicable, but not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earning statement (in form complying with the provisions of
Rule 158 of the Regulations) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement.
(f) During the period of 180 days from the date of the Prospectus,
the Company will not, without your prior written consent, issue, sell, offer or
agree to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any Series A Preferred Stock to be traded or distributed
in the public or private securities markets, and the Company will obtain the
undertaking of each of its officers, directors and noteholders not to engage in
any of the aforementioned transactions on their own behalf, other than the
Company's sale of Series A Preferred Stock hereunder.
(g) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its shareholders; and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or any
national securities exchange.
(h) The Company will apply the proceeds from the sale of the Series
A Preferred Stock as set forth under "Use of Proceeds" in the Prospectus.
(i) If the Exchange Debentures are issued, not to claim voluntarily,
and to resist actively any attempts to claim, the benefit of any usury laws
against the holders of any Exchange Debentures.
5. Payment of Expenses. Whether or not the transactions contemplated
in this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), the underwriting documents (including this
Agreement, the Agreement Among Underwriters and the Selling Agreement) and all
other documents related to the public offering of the Series A Preferred Stock
(including those supplied to the Underwriters in quantities as hereinabove
stated), (ii) the issuance, transfer and delivery of the Series A Preferred
Stock to the Underwriters, including any transfer or other taxes payable
thereon, (iii) the qualification of the Series A Preferred Stock under state or
foreign securities or Blue Sky laws, including the costs of printing and mailing
a preliminary and final "Blue Sky Survey" and the fees of counsel for the
Underwriters and such counsel's disbursements in relation thereto, (iv) filing
fees of the Commission and the National Association of Securities Dealers, Inc.,
(v) the cost of printing certificates representing the Series A Preferred Stock
and (vi) the cost and charges of any transfer agent or registrar.
<PAGE>
13
6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Series A Preferred Stock as provided
herein, shall be subject to the accuracy of the representations and warranties
of the Company herein contained, as of the date hereof and as of the Closing
Date, to the absence from any certificates, opinions, written statements or
letters furnished to you or to Simpson Thacher & Bartlett ("Underwriters'
Counsel") pursuant to this Section 6 of any misstatement or omission, to the
performance by the Company of its obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York time, on the date of this Agreement, or at such later
time and date as shall have been consented to in writing by you; if the Company
shall have elected to rely upon Rule 430A or Rule 434 of the Regulations, the
Prospectus shall have been filed with the Commission in a timely fashion in
accordance with Section 4(a) hereof; and, at or prior to the Closing Date no
stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereof shall have been issued and no proceedings
therefor shall have been initiated or threatened by the Commission.
(b) At the Closing Date you shall have received the opinion of Paul,
Hastings, Janofsky & Walker LLP, counsel for the Company, dated the Closing Date
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its
business makes such qualification necessary, except for those failures to
be so qualified or in good standing which will not in the aggregate have a
material adverse effect on the Company and its subsidiaries taken as a
whole. Each of the Company and its subsidiaries has all requisite
corporate authority to own, lease and license its respective properties
and conduct its business as now being conducted and as described in the
Registration Statement and the Prospectus. All of the issued and
outstanding capital stock of each subsidiary of the Company has been duly
and validly issued and is fully paid and nonassessable and were not issued
in violation of preemptive rights and, is owned directly or indirectly by
the Company, free and clear of any lien, encumbrance, claim, security
interest, restriction on transfer, shareholders' agreement, voting trust
or other defect of title whatsoever.
(ii) The Company has authorized capital stock as set forth in
the Registration Statement and the Prospectus. All of the outstanding
shares of capital stock are duly and validly authorized and issued, are
fully paid and nonassessable and were not issued in violation of or
subject to any preemptive rights.
<PAGE>
14
(iii) The shares of Series A Preferred Stock to be delivered
on the Closing Date have been duly and validly authorized and, when
delivered by the Company in accordance with this Agreement, will be duly
and validly issued, fully paid and nonassessable, will not have been
issued in violation of or subject to any preemptive rights and will
constitute the valid and legally binding obligations of the Company in
accordance with their terms, except as (i) enforceability thereof may be
limited by bankruptcy, insolvency or other similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles
of general applicability.
(iv) The shares of Series A Preferred Stock conform to the
descriptions thereof contained in the Registration Statement, the
Prospectus and the Certificate of Designation. The Certificate of
Designation conforms to the description thereof in the Registration
Statement and the Prospectus.
(v) This Agreement has been duly and validly authorized,
executed and delivered by the Company and the Company has all the
requisite power to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby.
(vi) The Certificate of Designation has been duly authorized
by all necessary corporate and stockholder action and has been duly
executed by the Company and filed with the Secretary of State of the state
of Illinois.
(vii) There is no litigation or governmental or other action,
suit, proceeding or investigation before any court or before or by any
public, regulatory or governmental agency or body pending or to the best
of such counsel's knowledge, threatened against, or involving the
properties or business of, the Company or any of its subsidiaries, which
is of a character required to be disclosed in the Registration Statement
and the Prospectus which has not been properly disclosed therein.
(viii) The execution, delivery, and performance of this
Agreement and the Certificate of Designation and the consummation of the
transactions contemplated hereby and thereby by the Company do not and
will not (i) conflict with or result in a breach of any of the terms and
provisions of, or constitute a default (or an event which with notice or
lapse of time, or both, would constitute a default) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to,
any agreement, instrument, franchise, license or permit known to such
counsel to which the Company or any of its subsidiaries is a party or by
which any of such corporations or their respective properties or assets
may be bound or (ii) violate or conflict with any provision of the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries, or, to the best knowledge of such counsel, any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their respective properties
or assets. No consent, approval, authorization, order, registration,
<PAGE>
15
filing, qualification, license or permit of or with any court or any
public, governmental, or regulatory agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their respective
properties or assets is required for the execution, delivery and
performance of this Agreement or the Certificate of Designation or the
consummation of the transactions contemplated hereby and thereby, except
for (1) such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Series A Preferred
Stock by the Underwriters (as to which such counsel need express no
opinion) and (2) such as have been made or obtained under the Act.
(ix) The Registration Statement and the Prospectus and any
amendments thereof or supplements thereto (other than the financial
statements and schedules and other financial data included or incorporated
by reference therein, as to which no opinion need be rendered) comply as
to form in all material respects with the requirements of the Act and the
Regulations.
(x) The Registration Statement is effective under the Act,
and, to the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereof has been issued and no proceedings therefor have been
initiated or threatened by the Commission and all filings required by Rule
424(b) of the Regulations have been made.
(xi) In addition, such opinion shall also contain a statement
that such counsel has participated in conferences with officers and
representatives of the Company, representatives of the independent public
accountants for the Company and the Underwriters at which the contents and
the Prospectus and related matters were discussed and, no facts have come
to the attention of such counsel which would lead such counsel to believe
that either the Registration Statement at the time it became effective
(including the information deemed to be part of the Registration Statement
at the time of effectiveness pursuant to Rule 430A(b) or Rule 434, if
applicable), or any amendment thereof made prior to the Closing Date as of
the date of such amendment, contained an untrue statement of a material
fact or omitted to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus as of its date (or any amendment thereof or supplement thereto
made prior to the Closing Date as of the date of such amendment or
supplement) and as of the Closing Date contained or contains an untrue
statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief
or opinion with respect to the financial statements and schedules and
other financial data included therein).
In rendering such opinion, such counsel may rely (i) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory
<PAGE>
16
to Underwriters' Counsel) of other counsel reasonably acceptable to
Underwriters' Counsel, familiar with the applicable laws; (ii) as to matters of
fact, to the extent they deem proper, on certificates of responsible officers of
the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company and its subsidiaries,
provided that copies of any such statements or certificates shall be delivered
to Underwriters' Counsel. The opinion of such counsel for the Company shall
state that the opinion of any such other counsel is in form satisfactory to such
counsel and, in their opinion, you and they are justified in relying thereon.
(c) All proceedings taken in connection with the sale of the Series
A Preferred Stock as herein contemplated shall be satisfactory in form and
substance to you and to Underwriters' Counsel, and the Underwriters shall have
received from said Underwriters' Counsel a favorable opinion, dated as of the
Closing Date with respect to the issuance and sale of the Series A Preferred
Stock, the Registration Statement and the Prospectus and such other related
matters as you may reasonably require, and the Company shall have furnished to
Underwriters' Counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(d) At the Closing Date you shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of the Company, dated the
Closing Date to the effect that (i) the condition set forth in subsection (a) of
this Section 6 has been satisfied, (ii) as of the date hereof and as of the
Closing Date the representations and warranties of the Company set forth in
Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of
the Company to be performed hereunder on or prior thereto have been duly
performed and (iv) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company and its
subsidiaries have not sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding, and there has not been any material
adverse change, or any development involving a material adverse change, in the
business prospects, properties, operations, condition (financial or otherwise),
net worth or results of operations of the Company and its subsidiaries taken as
a whole, except in each case as described in or contemplated by the Prospectus.
(e) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter, from Price Waterhouse, LLP, Johnson & Miller,
LLP, MgGladrey & Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran, LLP,
independent public accountants for the Company, dated, respectively, as of the
date of this Agreement and as of the Closing Date addressed to the Underwriters
and in form and substance satisfactory to you, to the effect that: (i) they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the Regulations and stating that the answer to Item 10 of
the Registration Statement is correct insofar as it relates to them; (ii)
stating that, in their opinion, the financial statements and schedules of the
Company included in the Registration Statement and the Prospectus and covered by
their opinion therein comply as to form in all material respects with the
applicable accounting requirements of the Act and the
<PAGE>
17
applicable published rules and regulations of the Commission thereunder. The
letter from Price Waterhouse, LLP shall additionally state that (i) on the basis
of procedures consisting of a reading of the latest available unaudited interim
consolidated financial statements of the Company, and its subsidiaries, a
reading of the minutes of meetings and consents of the shareholders and boards
of directors of the Company and its subsidiaries and the committees of such
boards subsequent to December 31, 1997, inquiries of officers and other
employees of the Company and its subsidiaries who have responsibility for
financial and accounting matters of the Company and its subsidiaries with
respect to transactions and events subsequent to December 31, 1997 and other
specified procedures and inquiries to a date not more than five days prior to
the date of such letter, nothing has come to their attention that would cause
them to believe that: (A) the unaudited consolidated financial statements and
schedules of the Company presented in the Registration Statement and the
Prospectus do not comply as to form in all material respects with the applicable
accounting requirements of the Act and, if applicable, the Exchange Act and the
applicable published rules and regulations of the Commission thereunder or that
such unaudited consolidated financial statements are not fairly presented in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited consolidated financial
statements included in the Registration Statement and the Prospectus; (B) with
respect to the period subsequent to March 31, 1998 there were, as of the date of
the most recent available monthly consolidated financial statements of the
Company and its subsidiaries, if any, and as of a specified date not more than
five days prior to the date of such letter, any changes in the capital stock or
long-term indebtedness of the Company or any decrease in the net current assets
or stockholders' equity of the Company, in each case as compared with the
amounts shown in the most recent balance sheet presented in the Registration
Statement and the Prospectus, except for changes or decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur or
which are set forth in such letter or (C) that during the period from April 1,
1998, to the date of the most recent available monthly consolidated financial
statements of the Company and its subsidiaries, if any, and to a specified date
not more than five days prior to the date of such letter, there was any
decrease, as compared with the corresponding period in the prior fiscal year, in
total revenues, or total or per share net income, except for decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur or
which are set forth in such letter; and (ii) stating that they have compared
specific dollar amounts, numbers of shares, percentages of revenues and
earnings, and other financial information pertaining to the Company and its
subsidiaries set forth in the Registration Statement and the Prospectus, which
have been specified by you prior to the date of this Agreement, to the extent
that such amounts, numbers, percentages, and information may be derived from the
general accounting and financial records of the Company and its subsidiaries or
from schedules furnished by the Company, and excluding any questions requiring
an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
specified by you set forth in such letter, and found them to be in agreement.
(f) Prior to the Closing Date the Company shall have furnished to
you such further information, certificates and documents as you may reasonably
request.
<PAGE>
18
(g) You shall have received from each person who is a director,
officer or noteholder of the Company an agreement to the effect that such person
will not, directly or indirectly, without your prior written consent, offer,
sell, offer or agree to sell, grant any option to purchase or otherwise dispose
(or announce any offer, sale, grant of an option to purchase or other
disposition) of any Series A Preferred Stock for a period of 180 days after the
date of the Prospectus.
(h) The Reorganization (as defined in the Registration Statement)
shall have been consummated prior to the Closing Date.
(i) The closings under the Equity Underwriting Agreements and the
Debt Underwriting Agreement shall have occurred concurrently with the closing
hereunder on the Closing Date.
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
canceled by you at, or at any time prior to, the Closing Date. Notice of such
cancellation shall be given to the Company in writing, or by telephone, telex or
telegraph, confirmed in writing.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement for the registration of the Series A Preferred Stock, as originally
filed or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the Company will not be liable in any
such case to the extent but only to the extent that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through you expressly for use
therein. This indemnity agreement will be in addition to any liability which the
Company may otherwise have including under this Agreement.
<PAGE>
19
(b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement, and
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), jointly or several, to which they or any of them
may become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the registration statement for the registration
of the Series A Preferred Stock, as originally filed or any amendment thereof,
or any related preliminary prospectus or the Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any Underwriter through you expressly for use therein; provided,
however, that in no case shall any Underwriter be liable or responsible for any
amount in excess of the underwriting discount applicable to the shares of Series
A Preferred Stock purchased by such Underwriter hereunder. This indemnity will
be in addition to any liability which any Underwriter may otherwise have
including under this Agreement. The Company acknowledges that the statements set
forth in the last paragraph of the cover page and in the third, fourth and fifth
paragraphs under the caption "Underwriting" in the Prospectus constitute the
only information furnished in writing by or on behalf of any Underwriter
expressly for use in the registration statement relating to the shares of Series
A Preferred Stock as originally filed or in any amendment thereof, any related
preliminary prospectus or the Prospectus or in any amendment thereof or
supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying
<PAGE>
20
parties in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses shall be borne by the indemnifying parties.
Anything in this subsection to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
unreasonably withheld.
8. Contribution. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, the Company and
the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company any
contribution received by the Company from persons, other than the Underwriters,
who may also be liable for contribution, including persons who control the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, officers of the Company who signed the Registration Statement and
directors of the Company) as incurred to which the Company and one or more of
the Underwriters may be subject, in such proportions as is appropriate to
reflect the relative benefits received by the Company and the Underwriters from
the offering of the Series A Preferred Stock or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and the
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Underwriters shall be deemed to be in the same proportion as (x) the
total proceeds from the offering (net of underwriting discounts and commissions
but before deducting expenses) received by the Company and (y) the underwriting
discounts and commissions received by the Underwriters, respectively, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company and of the Underwriters shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above.
<PAGE>
21
Notwithstanding the provisions of this Section 8, (i) in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder, and (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. Notwithstanding
the provisions of this Section 8 and the preceding sentence, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Series A Preferred Stock underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. For
purposes of this Section 8, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
shall have the same rights to contribution as such Underwriter, and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to clauses
(i) and (ii) of this Section 8. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties, notify each party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 8 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its consent; provided, however, that such consent was not unreasonably
withheld.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase the shares of Series A Preferred Stock hereunder, and if
the shares of Series A Preferred Stock with respect to which such default
relates do not (after giving effect to arrangements, if any, made by you
pursuant to subsection (b) below) exceed in the aggregate 10% of the aggregate
number of shares of the Series A Preferred Stock, the shares of Series A
Preferred Stock to which the default relates shall be purchased by the
non-defaulting Underwriters as their respective proportions, set forth opposite
their respective names in Schedule I hereto, bear to the aggregate number of
shares of Series A Preferred Stock.
(b) In the event that such default relates to more than 10% of the
aggregate number of shares of Series A Preferred Stock, you may in your
discretion arrange for yourself or for another party or parties (including any
non-defaulting Underwriter or Underwriters who so agree) to purchase such Series
A Preferred Stock to which such default relates on the terms contained herein.
In the event that within 5 calendar days after such a default you do not arrange
for the purchase of the Series A Preferred Stock to which such default relates
as provided in this Section 9, this Agreement shall thereupon terminate, without
liability on the part of the Company with respect thereto (except in each case
as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in
this Agreement shall relieve a defaulting
<PAGE>
22
Underwriter or Underwriters of its or their liability, if any, to the other
Underwriters and the Company for damages occasioned by its or their default
hereunder.
(c) In the event that the shares of Series A Preferred Stock to
which the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as aforesaid,
you or the Company shall have the right to postpone the Closing Date for a
period, not exceeding five business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus or
in any other documents and arrangements, and the Company agrees to file promptly
any amendment or supplement to the Registration Statement or the Prospectus
which, in the opinion of Underwriters' Counsel, may thereby be made necessary or
advisable. The term "Underwriter" as used in this Agreement shall include any
party substituted under this Section 9 with like effect as if it had originally
been a party to this Agreement with respect to such Series A Preferred Stock.
10. Survival of Representations and Agreements. All representations
and warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5,
the indemnity agreements contained in Section 7 and the contribution agreements
contained in Section 8, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or any
controlling person thereof or by or on behalf of the Company, any of its
officers and directors or any controlling person thereof, and shall survive
delivery of and payment for the Series A Preferred Stock to and by the
Underwriters. The representations contained in Section 1 and the agreements
contained in Sections 5, 7, 8 and 11(d) hereof shall survive the termination of
this Agreement, including termination pursuant to Section 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective, upon the later of when
(i) you and the Company shall have received notification of the effectiveness of
the Registration Statement or (ii) the execution of this Agreement. If either
the initial public offering price or the purchase price has not been agreed upon
prior to 5:00 P.M., New York time, on the fifth full business day after the
Registration Statement shall have become effective, this Agreement shall
thereupon terminate without liability to the Company or the Underwriters except
as herein expressly provided. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Company by notifying you or by you
notifying the Company. Notwithstanding the foregoing, the provisions of this
Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in full
force and effect.
(b) You shall have the right to terminate this Agreement at any time
prior to the Closing Date if (A) any domestic or international event or act or
occurrence has materially disrupted, or in your opinion will in the immediate
future materially disrupt, the market for the Company's securities or securities
in general; or (B) if trading on the New York or American Stock Exchanges shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall
<PAGE>
23
have been required, on the New York or American Stock Exchanges by the New York
or American Stock Exchanges or by order of the Commission or any other
governmental authority having jurisdiction; or (C) if a banking moratorium has
been declared by a state or federal authority or if any new restriction
materially adversely affecting the distribution of the Series A Preferred Stock
shall have become effective; (D) if any downgrading in the rating of the
Company's debt securities or preferred stock by any "nationally recognized
statistical rating-organization" (as defined for purposes of Rule 436(g) under
the Act; or (E) (i) if the United States becomes engaged in hostilities or there
is an escalation of hostilities involving the United States or there is a
declaration of a national emergency or war by the United States or (ii) if there
shall have been such change in political, financial or economic conditions, if
the effect of any such event in (i) or (ii) as in your judgment makes it
impracticable or inadvisable to proceed with the offering, sale and delivery of
the Series A Preferred Stock on the terms contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall be
by telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Series A Preferred Stock provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth herein is
not satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all
out-of-pocket expenses (including the fees and expenses of their counsel),
incurred by the Underwriters in connection herewith.
12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, N.Y. 10167, Attention: Ofer Warshavsky; if sent to the Company, shall
be mailed, delivered, or telegraphed and confirmed in writing to the Company,
330 E. Kilbourn Avenue, Suite 250, Milwaukee, WI 53202, Attention: Richard
Weening.
13. Parties. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Section 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Series A Preferred Stock from any of the Underwriters.
14. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
<PAGE>
24
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
CUMULUS MEDIA INC.
By_______________________
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS, INC.
By: BEAR, STEARNS & CO. INC.
By_______________________________
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
<PAGE>
25
SCHEDULE I
Name of Underwriter Number of Shares
- ------------------- ----------------
Bear, Stearns & Co. Inc.
Lehman Brothers Inc.
Total........................................................_________________
100,000
-------
<PAGE>
Exhibit 1.4
DRAFT
05/07/98
CUMULUS MEDIA INC.
$100,000,000
___% Senior Subordinated Notes due 2008
UNDERWRITING AGREEMENT
_________, 1998
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS, INC.
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Dear Sirs:
Cumulus Media Inc., a corporation organized and existing under the
laws of Illinois (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to the several underwriters named in Schedule I
hereto (the "Underwriters") an aggregate of $100,000,000 principal amount of
___% Senior Subordinated Notes due 2008 (the "Notes"), to be issued under an
indenture (the "Indenture") dated , between the Company and ______, as trustee
(the "Trustee").
It is understood by all parties that the Company is concurrently
entering into agreements dated the date hereof, providing for the sale by the
Company of an aggregate of ____ Shares of its Class A Common Stock (including
the over-allotment options thereunder) (the "Equity Underwriting Agreements")
through arrangements with certain underwriters for whom Lehman Brothers Inc.,
Bear, Stearns & Co. and BT Alex. Brown Incorporated are acting as
representatives and with certain international managers for whom Lehman Brothers
International (Europe), Bear, Stearns International Limited, BT Alex Brown
International, division of Bankers Trust International PLC and Credit Lyonnais
Securities are acting as lead managers. It is additionally understood by all
parties that the Company is also entering into an agreement (the "Preferred
Stock Underwriting Agreement"), dated the date hereof, providing for the sale by
the Company of $100,000,000 aggregate liquidation preference of its
<PAGE>
2
__% Series A Cumulative Exchangeable Redeemable Preferred Stock due 2009 to
Bear, Stearns & Co. Inc. and Lehman Brothers Inc., as underwriters.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have filed an
amendment or amendments thereto, on Form S-1 (No. 333-48849), for the
registration of the Notes under the Securities Act of 1933, as amended (the
"Act"). Such registration statement, including the prospectus, financial
statements and schedules, exhibits and all other documents filed as a part
thereof, as amended at the time of effectiveness of the registration statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A or Rule 434 of the Rules
and Regulations of the Commission under the Act (the "Regulations"), is herein
called the "Registration Statement" and the prospectus, in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations or filed as part
of the Registration Statement at the time of effectiveness if no Rule 424(b) or
Rule 434 filing is required, is herein called the "Prospectus". The term
"preliminary prospectus" as used herein means a preliminary prospectus as
described in Rule 430 of the Regulations.
(b) At the time of the effectiveness of the Registration Statement
or the effectiveness of any post-effective amendment to the Registration
Statement, when the Prospectus is first filed with the Commission pursuant to
Rule 424(b) or Rule 434 of the Regulations, when any supplement to or amendment
of the Prospectus is filed with the Commission and at the Closing Date (as
hereinafter defined), the Registration Statement and the Prospectus and any
amendments thereof and supplements thereto complied or will comply in all
material respects with the applicable provisions of the Act and the Regulations
and does not or will not contain an untrue statement of a material fact and does
not or will not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein (i) in the case of the
Registration Statement, not misleading and (ii) in the case of the Prospectus,
in light of the circumstances under which they were made, not misleading. When
any related preliminary prospectus was first filed with the Commission (whether
filed as part of the registration statement for the registration of the Notes or
any amendment thereto or pursuant to Rule 424(a) of the Regulations) and when
any amendment thereof or supplement thereto was first filed with the Commission,
such preliminary prospectus and any amendments thereof and supplements thereto
complied in all material respects with the applicable provisions of the Act and
the Regulations and did not contain an untrue statement of a material fact and
did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made not misleading. No representation and warranty is
made in this subsection (b), however, with respect to any information contained
in or omitted from the Registration Statement or the Prospectus or any related
preliminary prospectus or any amendment thereof or supplement thereto in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any
<PAGE>
3
Underwriter through you as herein stated expressly for use in connection with
the preparation thereof. If Rule 434 is used, the Company will comply with the
requirements of Rule 434.
(c) All of the issued and outstanding shares of capital stock of the
Company and its subsidiaries have been duly authorized, validly issued and are
fully paid and nonassessable, were issued in compliance with federal and state
laws and were not issued in violation of any preemptive or similar rights. All
shares of capital stock of the Company's subsidiaries are owned, directly or
indirectly, by the Company free and clear of any material lien, encumbrance,
claim, security interest, restriction on transfer, stockholders' agreement,
voting trust or other restrictions. The Company's equity capitalization is as
set forth in the Prospectus and any amendment or supplement thereto and on
December 31, 1997, after giving pro forma effect to the issuance and sale of the
Notes pursuant hereto and the other transactions described therein, the Company
would have had an authorized and outstanding capitalization as set forth in the
Prospectus under the caption "Capitalization," subject to the notes and
assumptions included therein.
(d) Except as set forth in the Prospectus, there are not currently
any outstanding material subscriptions, rights, warrants, calls, commitments of
sale or options to acquire, or instruments convertible into or exchangeable for,
capital stock or other equity interests of the Company or any of its
subsidiaries.
(e) Each of Price Waterhouse, LLP, Johnson & Miller, LLP, McGladrey
& Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran, LLP who have certified
the financial statements and supporting schedules included in the Registration
Statement, are independent public accountants as required by the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Regulations.
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as set forth in
the Registration Statement and the Prospectus, there has been no material
adverse change or any development involving a prospective material adverse
change in the business, prospects, properties, operations, condition (financial
or other), net worth or results of operations of the Company and its
subsidiaries taken as a whole, whether or not arising from transactions in the
ordinary course of business, and since the date of the latest balance sheet
presented in the Registration Statement and the Prospectus, neither the Company
nor any of its subsidiaries has incurred or undertaken any liabilities or
obligations, direct or contingent, which are material to the Company and its
subsidiaries taken as a whole, except for liabilities or obligations which are
reflected in the Registration Statement and the Prospectus.
(g) This Agreement and the transactions contemplated herein have
been duly and validly authorized by the Company and this Agreement has been duly
and validly executed and delivered by the Company.
(h) The execution, delivery, and performance of this Agreement, the
Indenture and the Notes and the consummation of the transactions contemplated
hereby and thereby do not and will not (i) conflict with or result in a breach
of any of the terms and provisions of,
<PAGE>
4
or constitute a default (or an event which with notice or lapse of time, or
both, would constitute a default) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to, any agreement, instrument, franchise,
license or permit to which the Company or any of its subsidiaries is a party or
by which any of such corporations or their respective properties or assets may
be bound or (ii) violate or conflict with any provision of the certificate of
incorporation or by-laws of the Company or any of its subsidiaries or any
judgment, decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their respective properties or assets. No
consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or any public, governmental or regulatory
agency or body having jurisdiction over the Company or any of its subsidiaries
or any of their respective properties or assets is required for the execution,
delivery and performance of this Agreement, the Indenture or the Notes or the
consummation of the transactions contemplated hereby or thereby, including the
issuance, sale and delivery of the Notes to be issued, sold and delivered by the
Company hereunder, except the registration under the Act of the Notes and such
consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the Notes
by the Underwriters.
(i) Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation. Each of the Company and its subsidiaries is duly
qualified and in good standing as a foreign corporation in each jurisdiction in
which the character or location of its properties (owned, leased or licensed) or
the nature or conduct of its business makes such qualification necessary, except
for those failures to be so qualified or in good standing which will not in the
aggregate have a material adverse effect on the Company and its subsidiaries
taken as a whole. Each of the Company and its subsidiaries has all requisite
power and authority, and all necessary consents, approvals, authorizations,
orders, registrations, qualifications, licenses and permits of and from all
public, regulatory or governmental agencies and bodies, to own, lease and
operate its properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus, and no such consent,
approval, authorization, order, registration, qualification, license or permit
contains a materially burdensome restriction not adequately disclosed in the
Registration Statement and the Prospectus.
(j) The Indenture between the Company and the Trustee has been duly
qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") and has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement of the Company, enforceable in
accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditor's rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
(k) The Notes have been duly authorized and, when executed,
authenticated and issued in accordance with the provisions of the Indenture and
delivered to and paid for by
<PAGE>
5
the purchasers thereof, will be entitled to the benefits of the Indenture and
will be validly issued and free and clear of all liens and restrictions on
transfer and will constitute binding obligations of the Company, enforceable in
accordance with their respective terms except as (i) enforceability thereof may
be limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
(l) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company or any of its subsidiaries is a
party or to which any property of the Company or any of its subsidiaries is
subject or which is pending or, to the knowledge of the Company, contemplated
against the Company or any of its subsidiaries which might result in any
material adverse change or any development involving a material adverse change
in the business, prospects, properties, operations, condition (financial or
other), net worth or results of operations of the Company and its subsidiaries
taken as a whole or which is required to be disclosed in the Registration
Statement and the Prospectus.
(m) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which constitutes or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the Notes to facilitate the sale or resale of the
Notes.
(n) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the Prospectus
present fairly the financial position of the Company as of the dates indicated
and the results of its operations for the periods specified; except as otherwise
stated in the Registration Statement, said financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis; and the supporting schedules included in the Registration
Statement and Prospectus present fairly the information required to be stated
therein.
(o) Immediately after the sale of the Notes by the Company
hereunder, the aggregate amount of Notes which shall have been issued and sold
by the Company hereunder and of any debt securities of the Company (other than
the Notes) that shall have been issued and sold pursuant to the Registration
Statement will not exceed the amount of debt securities registered under the
Registration Statement.
(p) Neither the Company, nor any of its subsidiaries, are, nor upon
consummation of the transactions contemplated hereby will be, subject to
registration as an "investment company" under the Investment Company Act of
1940, as amended.
(q) Neither the Company nor any of its subsidiaries nor, to the
Company's knowledge, any other party, is now, or is reasonably expected by the
Company or any of its subsidiaries to be, in violation or breach of, or default
(disregarding any grace or notice provision) with respect to any material
provision of any contract, agreement, instrument, lease, license, policy,
arrangement, or understanding to which the Company or any of its subsidiaries is
a party, which violation, breach or default or violations, breaches or defaults,
<PAGE>
6
singly or in the aggregate has, or can reasonably be expected in the future to
have, a material adverse effect on the business, prospects, properties, assets,
operations, condition (financial or other), net worth or results of operations
of the Company and its subsidiaries taken as a whole; and each such contract,
agreement, instrument, lease, license, policy, arrangement and understanding is
in full force and is the legal, valid and binding obligation of the Company or
its subsidiaries, as the case may be, and, to the Company's knowledge, the other
parties thereto, and is enforceable as to the Company or its subsidiaries, as
the case may be, and, to the Company's knowledge, the other parties thereto in
accordance with its terms subject, as to enforceability, to applicable
bankruptcy, reorganization, moratorium or other similar laws of general
application affecting the rights of creditors generally, except where such
failure to be in full force or to be a legal, valid and binding obligation or to
be enforceable, as the case may be, has not had, or would not reasonably be
expected in the future to have, a material adverse effect on the business,
prospects, properties, assets, operations, condition (financial or other), net
worth or results of operations of the Company and its subsidiaries taken as a
whole.
(r) The Company and its subsidiaries have good and marketable title
to all real property and material assets disclosed in the Registration Statement
and Prospectus as being owned by them, free and clear of all liens, mortgages,
claims, security interests or other encumbrances, except such as are disclosed
in the Registration Statement and Prospectus and except for liens incurred in
the ordinary course of business which do not materially affect the use or value
thereof; property held under lease by the Company or its subsidiaries is held by
them under valid, subsisting and binding leases with only such exceptions with
respect to any particular lease as do not interfere in any material respect with
the conduct of the business of the Company and its subsidiaries taken as a whole
or as do not materially affect the value of such property as used by the Company
or are not material in amount and do not interfere in any material respect with
the use of the property or the conduct of the business of the Company and its
subsidiaries taken as a whole.
(s) The Company and its subsidiaries have filed all necessary
federal, state, local and foreign income, franchise and sales tax returns and
have paid all taxes shown thereon as due, and the Company has no knowledge of
any tax deficiency which has been asserted against the Company or any of its
subsidiaries which would materially and adversely affect the business or
properties of the Company and its subsidiaries, taken as whole. To the Company's
knowledge, tax liabilities in the aggregate are adequately provided for on the
consolidated books of the Company. The Company has not received notice of any
material proposed additional tax assessments against it or any of its
subsidiaries.
(t) Neither the Company nor any of its subsidiaries is in violation
of any law, ordinance, governmental rule or regulation including, without
limitation, federal, state and local rules and regulations relating to the
protection of the environment or concerning the handling, storage, disposal or
discharge of toxic materials (collectively, "Environmental Laws") or court
decree or order to which it or any of its property is subject, except for such
violations which (individually or in the aggregate) do not or will not have a
material adverse effect on the business, prospects, properties, assets,
operations, condition (financial or other), net worth or results of operations
of the Company and its subsidiaries taken as a whole. Each
<PAGE>
7
of the Company and its subsidiaries has obtained any permits, consents and
authorizations required to be obtained by it under applicable laws, rules,
ordinances or regulations including, without limitation, Environmental Laws and
any such permits, consents and authorizations remain in full force and effect,
except as to any of the foregoing the absence of which (individually or in the
aggregate) will not have a material adverse effect on the business, prospects,
properties, assets, operations, condition (financial or other), net worth or
results of operations of the Company and its subsidiaries taken as a whole.
There is no pending or, to the Company's or any of its subsidiaries' knowledge,
threatened, action or proceeding against the Company or any of its subsidiaries
alleging violations of any applicable laws, rules, ordinances or regulations
including, without limitation, any Environmental Laws, other than any such
actions or proceedings which, individually or in the aggregate, if adversely
determined, is not reasonably likely to have a material adverse effect on the
business, prospects, properties, assets, operations, condition (financial or
other), net worth or results of operations of the Company and its subsidiaries
taken as a whole.
(u) No default or event of default with respect to any Indebtedness
(as such term is defined in the Indenture) entitling the holders thereof to
accelerate the maturity thereof exists or will exist as a result of the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby and each of the Company and its subsidiaries has duly
performed or observed all material obligations, agreements, covenants or
conditions contained in any contract, indenture, mortgage, agreement or
instrument relating to any Indebtedness.
(v) The Company and its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(w) Each of the Company and its subsidiaries maintains insurance of
the types and in amounts generally deemed adequate for its business, including
but not limited to, general liability insurance and insurance covering real and
personal property owned or leased by the Company or any of its subsidiaries
against theft, destruction, damage, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
(x) Each of the Company and its subsidiaries owns or possesses
adequate licenses or other rights to use all patents, trademarks, service marks,
trade names, copyrights and know-how necessary to conduct the businesses now or
proposed to be operated by it as described in the Prospectus, and none of the
Company or its subsidiaries has received any notice of infringement of or
conflict with (or knows of any such infringement of or conflict with) asserted
rights of others with respect to any patents, trademarks, service marks, trade
names, copyrights or know-how which, if such assertion of infringement or
conflict were
<PAGE>
8
sustained, would, individually or in the aggregate, have a material adverse
effect on the business, prospects, properties, assets, operations, condition
(financial or other), net worth or results of operations of the Company and its
subsidiaries taken as a whole.
(y) Each of the radio stations owned, operated, programmed, or to
which sales and marketing services are provided, by the Company and its
subsidiaries is validly licensed by the Federal Communications Commission (the
"FCC") and no administrative or judicial proceedings are pending before or, to
the knowledge of the Company or its subsidiaries, threatened by the FCC with
respect to such licenses; each of the Company and its subsidiaries are in
compliance in all material respects with the Communications Act of 1934, as
amended, and the rules, regulations and policies of the FCC; each of the Company
and its subsidiaries possesses all licenses, permits, certificates, consents,
orders, approvals and other authorizations from, and has made or will have made
all declarations and filings with, all other federal, state, local and other
governmental authorities, all self-regulatory organizations and all courts and
other tribunals, presently required or necessary to own or lease, as the case
may be, and to operate its respective properties and to carry on its respective
businesses as now or proposed to be conducted as set forth in the Prospectus
("Permits"), except where the failure to obtain such Permits would not,
individually or in the aggregate, have a material adverse effect on the
business, prospects, properties, assets, operations, condition (financial or
other), net worth or results of operations of the Company and its subsidiaries
taken as a whole; each of the Company and its subsidiaries has fulfilled and
performed all of its obligations with respect to such Permits and no event has
occurred which allows, or after notice or lapse of time would allow, revocation
or termination thereof or results in any other material impairment of the rights
of the holder of any such Permit; and none of the Company or its subsidiaries
has received any notice of any proceeding relating to revocation or modification
of any such Permit, except as described in the Prospectus and except where such
revocation or modification would not, individually, or in the aggregate, have a
material adverse effect on the business, prospects, properties, assets,
operations, condition (financial or other), net worth or results of operations
of the Company and its subsidiaries taken as a whole.
(z) The statistical and market-related data included in the
Prospectus are based or derived from sources which the Company and its
subsidiaries believe to be reliable and accurate.
(aa) None of the Company or its subsidiaries, or any agent acting on
their behalf, has taken or will take any action that might cause this Agreement
or the sale of the Notes to violate Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System, in each case as in effect, or as the
same may hereafter be in effect, on the Closing Date.
(bb) There is no strike, labor dispute, slowdown or work stoppage
with the employees of the Company or any of its subsidiaries which is pending
or, to the knowledge of the Company or any of its subsidiaries, threatened.
<PAGE>
9
(cc) None of the Company or its subsidiaries has any liability for
any prohibited transactions or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or other plan
which is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which the Company or any of its subsidiaries makes or ever
has made a contribution and in which any employee of the Company or any of its
subsidiaries is or has ever been a participant. With respect to such plans, the
Company and each of its subsidiaries are in compliance in all material respects
with all applicable provisions of ERISA.
(dd) The Notes and the Indenture will conform, in all material
respects, to the descriptions thereof in the Prospectus.
(ee) Immediately after the consummation of the transactions
contemplated by this Agreement, the fair value and present fair saleable value
of the assets of the Company will exceed the sum of its stated liabilities and
identified contingent liabilities; the Company is not, nor will the Company be,
after giving effect to the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby, (i) left with
unreasonably small capital with which to carry on its business as it is proposed
to be conducted, (ii) unable to pay its debts (contingent and otherwise) as they
mature or (iii) otherwise insolvent.
(ff) The Company has no reason to believe that, after giving effect
to the Pending Acquisitions (as defined in the Registration Statement), any of
the representations and warranties contained in this Section 1 would not be true
and correct.
2. Purchase, Sale and Delivery of the Notes.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at the
appropriate purchase price set forth in Schedule I hereto, the principal amount
of Notes set forth opposite the respective names of the Underwriters in Schedule
I hereto.
(b) Payment of the purchase price for, and delivery of the Notes
shall be made at the offices of Simpson Thacher & Bartlett, 425 Lexington
Avenue, New York, New York 10017 or at such other place as shall be agreed upon
by you and the Company, at 10:00 A.M. on the third or fourth business day (as
permitted under Rule 15c6-1 under the Exchange Act) (unless postponed in
accordance with the provisions of Section 9 hereof) following the date of the
effectiveness of the Registration Statement (or, if the Company has elected to
rely upon Rule 430A of the Regulations, the third or fourth business day (as
permitted under Rule 15c6-1 under the Exchange Act) after the determination of
the public offering price of the Notes), or such other time not later than ten
business days after such date as shall be agreed upon by you and the Company
(such time and date of payment and delivery being herein called the "Closing
Date"). Payment shall be made to the Company by wire transfer in same day funds,
against delivery to you for the respective accounts of the Underwriters of
<PAGE>
10
certificates for the Notes to be purchased by them. Certificates for the Notes
shall be registered in such name or names and in such authorized denominations
as you may request in writing at least two full business days prior to the
Closing Date. The Company will permit you to examine and package such
certificates for delivery at least one full business day prior to the Closing
Date.
(c) On the Closing Date, one or more of the Notes in definitive
form, registered in such names and in such denominations as specified by the
Underwriters at least two business days prior to such date, having an aggregate
principal amount of $100,000,000 shall be delivered by the Company to the
Underwriters (or as the Underwriters direct), against payment by the
Underwriters of the purchase price therefor by wire transfer of same day funds
to an account or accounts designated by the Company, provided that the Company
shall give at least two business days' prior written notice to the Underwriters
of the information required to effect such wire transfer. The Notes shall be
made available to the Underwriters for inspection not later than 9:30 a.m. New
York City time on the business day immediately preceding the Closing Date.
3. Offering. Upon your authorization of the release of the Notes,
the Underwriters propose to offer the Notes for sale to the public upon the
terms set forth in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees with
the Underwriters that:
(a) If the Registration Statement has not yet been declared
effective the Company will use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
possible, and if Rule 430A is used or the filing of the Prospectus is otherwise
required under Rule 424(b) or Rule 434, the Company will file the Prospectus
(properly completed if Rule 430A has been used) pursuant to Rule 424(b) or Rule
434 within the prescribed time period and will provide evidence satisfactory to
you of such timely filing. If the Company elects to rely on Rule 434, the
Company will prepare and file a term sheet that complies with the requirements
of Rule 434.
The Company will notify you immediately (and, if requested by you,
will confirm such notice in writing) (i) when the Registration Statement and any
amendments thereto become effective, (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the Prospectus
or for any additional information, (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of the initiation, or the threatening, of
any proceedings therefor, (v) of the receipt of any comments from the
Commission, and (vi) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Notes for sale in any
jurisdiction or the initiation or threatening of any proceeding for that
purpose. If the Commission shall propose or enter a stop order at any time, the
Company will make every reasonable effort to prevent the issuance of any such
stop
<PAGE>
11
order and, if issued, to obtain the lifting of such order as soon as possible.
The Company will not file any amendment to the Registration Statement or any
amendment of or supplement to the Prospectus (including the prospectus required
to be filed pursuant to Rule 424(b) or Rule 434) that differs from the
prospectus on file at the time of the effectiveness of the Registration
Statement before or after the effective date of the Registration Statement to
which you shall reasonably object in writing after being timely furnished in
advance a copy thereof.
(b) If at any time when a prospectus relating to the Notes is
required to be delivered under the Act any event shall have occurred as a result
of which the Prospectus as then amended or supplemented would, in the judgment
of the Underwriters or the Company include an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it shall be necessary at any
time to amend or supplement the Prospectus or Registration Statement to comply
with the Act or the Regulations, the Company will notify you promptly and
prepare and file with the Commission an appropriate amendment or supplement (in
form and substance satisfactory to you) which will correct such statement or
omission and will use its best efforts to have any amendment to the Registration
Statement declared effective as soon as possible.
(c) The Company will promptly deliver to you two signed copies of
the Registration Statement, including exhibits and all amendments thereto, and
the Company will promptly deliver to each of the Underwriters such number of
copies of any preliminary prospectus, the Prospectus, the Registration
Statement, and all amendments of and supplements to such documents, if any, as
you may reasonably request.
(d) The Company will endeavor in good faith, in cooperation with
you, at or prior to the time of effectiveness of the Registration Statement, to
qualify the Notes for offering and sale under the securities laws relating to
the offering or sale of the Notes of such jurisdictions as you may designate and
to maintain such qualification in effect for so long as required for the
distribution thereof; except that in no event shall the Company be obligated in
connection therewith to qualify as a foreign corporation or to execute a general
consent to service of process.
(e) The Company will make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to you as soon as
practicable, but not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earning statement (in form complying with the provisions of
Rule 158 of the Regulations) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement.
(f) During the period of 180 days from the date of the Prospectus,
the Company will not, without your prior written consent, issue, sell, offer or
agree to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any Notes or any other debt security issued by the
Company (other than a private loan, credit or financing agreement with a bank or
similar financing institution) to be traded or distributed in the
<PAGE>
12
public or private securities markets, and the Company will obtain the
undertaking of each of its officers, directors and noteholders not to engage in
any of the aforementioned transactions on their own behalf, other than the
Company's sale of Notes hereunder.
(g) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its shareholders; and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or any
national securities exchange.
(h) The Company will apply the proceeds from the sale of the Notes
as set forth under "Use of Proceeds" in the Prospectus.
(i) Not to claim voluntarily, and to resist actively any attempts to
claim, the benefit of any usury laws against the holders of any Notes.
5. Payment of Expenses. Whether or not the transactions contemplated
in this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), the underwriting documents (including this
Agreement, the Agreement Among Underwriters and the Selling Agreement) and all
other documents related to the public offering of the Notes (including those
supplied to the Underwriters in quantities as hereinabove stated), (ii) the
issuance, transfer and delivery of the Notes to the Underwriters, including any
transfer or other taxes payable thereon, (iii) the qualification of the Notes
under state or foreign securities or Blue Sky laws, including the costs of
printing and mailing a preliminary and final "Blue Sky Survey" and the fees of
counsel for the Underwriters and such counsel's disbursements in relation
thereto, (iv) filing fees of the Commission and the National Association of
Securities Dealers, Inc.; (v) the cost of printing certificates representing the
Notes and (vi) the cost and charges of any transfer agent or registrar.
6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Notes as provided herein, shall be
subject to the accuracy of the representations and warranties of the Company
herein contained, as of the date hereof and as of the Closing Date, to the
absence from any certificates, opinions, written statements or letters furnished
to you or to Simpson Thacher & Bartlett ("Underwriters' Counsel") pursuant to
this Section 6 of any misstatement or omission, to the performance by the
Company of its obligations hereunder, and to the following additional
conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York time, on the date of this Agreement, or at such later
time and date as shall have been consented to in writing by you; if the Company
shall have elected to rely upon Rule 430A or Rule 434 of the Regulations, the
Prospectus shall have been filed with the
<PAGE>
13
Commission in a timely fashion in accordance with Section 4(a) hereof; and, at
or prior to the Closing Date no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereof shall have been
issued and no proceedings therefor shall have been initiated or threatened by
the Commission.
(b) At the Closing Date you shall have received the opinion of Paul,
Hastings, Janofsky & Walker LLP, counsel for the Company, dated the Closing Date
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(i) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or location of its
properties (owned, leased or licensed) or the nature or conduct of its
business makes such qualification necessary, except for those failures to
be so qualified or in good standing which will not in the aggregate have a
material adverse effect on the Company and its subsidiaries taken as a
whole. Each of the Company and its subsidiaries has all requisite
corporate authority to own, lease and license its respective properties
and conduct its business as now being conducted and as described in the
Registration Statement and the Prospectus. All of the issued and
outstanding capital stock of each subsidiary of the Company has been duly
and validly issued and is fully paid and nonassessable and were not issued
in violation of preemptive rights and, is owned directly or indirectly by
the Company, free and clear of any lien, encumbrance, claim, security
interest, restriction on transfer, shareholders' agreement, voting trust
or other defect of title whatsoever.
(ii) The Company has authorized capital stock as set forth in
the Registration Statement and the Prospectus. All of the outstanding
shares of capital stock are duly and validly authorized and issued, are
fully paid and nonassessable and were not issued in violation of or
subject to any preemptive rights.
(iii) The Notes to be delivered on the Closing Date have been
duly and validly authorized and, when delivered by the Company in
accordance with this Agreement, will be duly and validly issued, fully
paid and nonassessable, will not have been issued in violation of or
subject to any preemptive rights and will constitute the valid and legally
binding obligations of the Company in accordance with their terms, except
as (i) enforceability thereof may be limited by bankruptcy, insolvency or
other similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability.
(iv) The Notes conform to the descriptions thereof contained
in the Registration Statement, the Prospectus and the Indenture. The
Indenture conforms to the description thereof in the Registration
Statement and the Prospectus.
<PAGE>
14
(v) This Agreement has been duly and validly authorized,
executed and delivered by the Company and the Company has all the
requisite power to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby.
(vi) The Indenture has been duly and validly authorized,
executed and delivered by the Company and the Trustee and duly qualified
under the Trust Indenture Act and the Company has all the requisite power
to execute, deliver and perform its obligations under the Indenture and to
consummate the transactions contemplated thereby.
(vii) There is no litigation or governmental or other action,
suit, proceeding or investigation before any court or before or by any
public, regulatory or governmental agency or body pending or to the best
of such counsel's knowledge, threatened against, or involving the
properties or business of, the Company or any of its subsidiaries, which
is of a character required to be disclosed in the Registration Statement
and the Prospectus which has not been properly disclosed therein.
(viii) The execution, delivery, and performance of this
Agreement, the Indenture and the Notes and the consummation of the
transactions contemplated hereby and thereby by the Company do not and
will not (i) conflict with or result in a breach of any of the terms and
provisions of, or constitute a default (or an event which with notice or
lapse of time, or both, would constitute a default) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to,
any agreement, instrument, franchise, license or permit known to such
counsel to which the Company or any of its subsidiaries is a party or by
which any of such corporations or their respective properties or assets
may be bound or (ii) violate or conflict with any provision of the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries, or, to the best knowledge of such counsel, any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their respective properties
or assets. No consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or any
public, governmental, or regulatory agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their respective
properties or assets is required for the execution, delivery and
performance of this Agreement, the Indenture or the Notes or the
consummation of the transactions contemplated hereby and thereby, except
for (1) such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Notes by the
Underwriters (as to which such counsel need express no opinion) and (2)
such as have been made or obtained under the Act.
(ix) The Registration Statement and the Prospectus and any
amendments thereof or supplements thereto (other than the financial
statements and schedules and other financial data included or incorporated
by reference therein, as to which no
<PAGE>
15
opinion need be rendered) comply as to form in all material respects with
the requirements of the Act and the Regulations.
(x) The Registration Statement is effective under the Act,
and, to the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereof has been issued and no proceedings therefor have been
initiated or threatened by the Commission and all filings required by Rule
424(b) of the Regulations have been made.
(xi) In addition, such opinion shall also contain a statement
that such counsel has participated in conferences with officers and
representatives of the Company, representatives of the independent public
accountants for the Company and the Underwriters at which the contents and
the Prospectus and related matters were discussed and, no facts have come
to the attention of such counsel which would lead such counsel to believe
that either the Registration Statement at the time it became effective
(including the information deemed to be part of the Registration Statement
at the time of effectiveness pursuant to Rule 430A(b) or Rule 434, if
applicable), or any amendment thereof made prior to the Closing Date as of
the date of such amendment, contained an untrue statement of a material
fact or omitted to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus as of its date (or any amendment thereof or supplement thereto
made prior to the Closing Date as of the date of such amendment or
supplement) and as of the Closing Date contained or contains an untrue
statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief
or opinion with respect to the financial statements and schedules and
other financial data included therein).
In rendering such opinion, such counsel may rely (i) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance reasonably satisfactory to Underwriters'
Counsel) of other counsel reasonably acceptable to Underwriters' Counsel,
familiar with the applicable laws; (ii) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the Company and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company and its subsidiaries, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and, in their opinion, you
and they are justified in relying thereon.
(c) All proceedings taken in connection with the sale of the Notes
as herein contemplated shall be satisfactory in form and substance to you and to
Underwriters' Counsel, and the Underwriters shall have received from said
Underwriters' Counsel a favorable
<PAGE>
16
opinion, dated as of the Closing Date with respect to the issuance and sale of
the Notes, the Registration Statement and the Prospectus and such other related
matters as you may reasonably require, and the Company shall have furnished to
Underwriters' Counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(d) At the Closing Date you shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of the Company, dated the
Closing Date to the effect that (i) the condition set forth in subsection (a) of
this Section 6 has been satisfied, (ii) as of the date hereof and as of the
Closing Date the representations and warranties of the Company set forth in
Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of
the Company to be performed hereunder on or prior thereto have been duly
performed and (iv) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company and its
subsidiaries have not sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding, and there has not been any material
adverse change, or any development involving a material adverse change, in the
business prospects, properties, operations, condition (financial or otherwise),
net worth or results of operations of the Company and its subsidiaries taken as
a whole, except in each case as described in or contemplated by the Prospectus.
(e) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter, from Price Waterhouse, LLP, Johnson & Miller,
LLP, McGladrey & Pullen, LLP, Coopers & Lybrand, LLP, and Plant & Moran, LLP,
independent public accountants for the Company, dated, respectively, as of the
date of this Agreement and as of the Closing Date addressed to the Underwriters
and in form and substance satisfactory to you, to the effect that: (i) they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the Regulations and stating that the answer to Item 10 of
the Registration Statement is correct insofar as it relates to them; (ii)
stating that, in their opinion, the financial statements and schedules of the
Company included in the Registration Statement and the Prospectus and covered by
their opinion therein comply as to form in all material respects with the
applicable accounting requirements of the Act and the applicable published rules
and regulations of the Commission thereunder. The letter from Price Waterhouse,
LLP shall additionally state that (i) on the basis of procedures consisting of a
reading of the latest available unaudited interim consolidated financial
statements of the Company, and its subsidiaries, a reading of the minutes of
meetings and consents of the shareholders and boards of directors of the Company
and its subsidiaries and the committees of such boards subsequent to December
31, 1997, inquiries of officers and other employees of the Company and its
subsidiaries who have responsibility for financial and accounting matters of the
Company and its subsidiaries with respect to transactions and events subsequent
to December 31, 1997 and other specified procedures and inquiries to a date not
more than five days prior to the date of such letter, nothing has come to their
attention that would cause them to believe that: (A) the unaudited consolidated
financial statements and schedules of the Company presented in the Registration
Statement and the Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and, if applicable, the
Exchange Act and the applicable published rules and regulations of the
<PAGE>
17
Commission thereunder or that such unaudited consolidated financial statements
are not fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of the audited
consolidated financial statements included in the Registration Statement and the
Prospectus; (B) with respect to the period subsequent to March 31, 1998 there
were, as of the date of the most recent available monthly consolidated financial
statements of the Company and its subsidiaries, if any, and as of a specified
date not more than five days prior to the date of such letter, any changes in
the capital stock or long-term indebtedness of the Company or any decrease in
the net current assets or stockholders' equity of the Company, in each case as
compared with the amounts shown in the most recent balance sheet presented in
the Registration Statement and the Prospectus, except for changes or decreases
which the Registration Statement and the Prospectus disclose have occurred or
may occur or which are set forth in such letter or (C) that during the period
from April 1, 1998, to the date of the most recent available monthly
consolidated financial statements of the Company and its subsidiaries, if any,
and to a specified date not more than five days prior to the date of such
letter, there was any decrease, as compared with the corresponding period in the
prior fiscal year, in total revenues, or total or per share net income, or
EBITDA (as defined in the Registration Statement) except for decreases which the
Registration Statement and the Prospectus disclose have occurred or may occur or
which are set forth in such letter; and (ii) stating that they have compared
specific dollar amounts, numbers of shares, percentages of revenues and
earnings, and other financial information pertaining to the Company and its
subsidiaries set forth in the Registration Statement and the Prospectus, which
have been specified by you prior to the date of this Agreement, to the extent
that such amounts, numbers, percentages, and information may be derived from the
general accounting and financial records of the Company and its subsidiaries or
from schedules furnished by the Company, and excluding any questions requiring
an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
specified by you set forth in such letter, and found them to be in agreement.
(f) Prior to the Closing Date the Company shall have furnished to
you such further information, certificates and documents as you may reasonably
request.
(g) You shall have received from each person who is a director,
officer or noteholder of the Company an agreement to the effect that such person
will not, directly or indirectly, without your prior written consent, offer,
sell, offer or agree to sell, grant any option to purchase or otherwise dispose
(or announce any offer, sale, grant of an option to purchase or other
disposition) of any Notes or any other debt security issued by the Company
(other than a private loan, credit or financing agreement with a bank or similar
financing institution) or any security convertible into or exchangeable or
exercisable for any such debt security for a period of 180 days after the date
of the Prospectus.
(h) The closings under the Equity Underwriting Agreements and the
Preferred Stock Underwriting Agreement shall have occurred concurrently with the
closing hereunder on the Closing Date.
<PAGE>
18
(i) The Reorganization (as defined in the Registration Statement)
shall have been consummated prior to the Closing Date.
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, all obligations of the Underwriters hereunder may be
canceled by you at, or at any time prior to, the Closing Date. Notice of such
cancellation shall be given to the Company in writing, or by telephone, telex or
telegraph, confirmed in writing.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement for the registration of the Shares, as originally filed or any
amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any supplement thereto or amendment thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent but only to the extent that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any Underwriter through you expressly for use therein. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company, each of the
officers of the Company who shall have signed the Registration Statement, and
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), jointly or several, to which they or any of them
may become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or
<PAGE>
19
alleged untrue statement of a material fact contained in the registration
statement for the registration of the Notes, as originally filed or any
amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through you
expressly for use therein; provided, however, that in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder. This indemnity will be in addition to any liability which any
Underwriter may otherwise have including under this Agreement. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page and in the third, fourth and fifth paragraphs under the caption
"Underwriting" in the Prospectus constitute the only information furnished in
writing by or on behalf of any Underwriter expressly for use in the registration
statement relating to the Shares as originally filed or in any amendment
thereof, any related preliminary prospectus or the Prospectus or in any
amendment thereof or supplement thereto, as the case may be.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything in
this subsection to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.
<PAGE>
20
8. Contribution. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, the Company and
the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company any
contribution received by the Company from persons, other than the Underwriters,
who may also be liable for contribution, including persons who control the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, officers of the Company who signed the Registration Statement and
directors of the Company) as incurred to which the Company and one or more of
the Underwriters may be subject, in such proportions as is appropriate to
reflect the relative benefits received by the Company and the Underwriters from
the offering of the Notes or, if such allocation is not permitted by applicable
law or indemnification is not available as a result of the indemnifying party
not having received notice as provided in Section 7 hereof, in such proportion
as is appropriate to reflect not only the relative benefits referred to above
but also the relative fault of the Company and the Underwriters in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Underwriters shall be
deemed to be in the same proportion as (x) the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Company and (y) the underwriting discounts and commissions
received by the Underwriters, respectively, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company and
of the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 8 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 8, (i) in no case shall any Underwriter be liable or
responsible for any amount in excess of the underwriting discount applicable to
the Shares purchased by such Underwriter hereunder, and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section 8
and the preceding sentence, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Notes
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. For purposes of this Section 8, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act shall have the same
<PAGE>
21
rights to contribution as such Underwriter, and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i) and
(ii) of this Section 8. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties, notify each party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
provided, however, that such consent was not unreasonably withheld.
9. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Notes hereunder, and if the Notes with respect to which
such default relates do not (after giving effect to arrangements, if any, made
by you pursuant to subsection (b) below) exceed in the aggregate 10% of the
aggregate principal amount of the Notes, the Notes to which the default relates
shall be purchased by the non-defaulting Underwriters as their respective
proportions, set forth opposite their respective names in Schedule I hereto,
bear to the aggregate principal amount of Notes.
(b) In the event that such default relates to more than 10% of the
aggregate principal amount of Notes, you may in your discretion arrange for
yourself or for another party or parties (including any non-defaulting
Underwriter or Underwriters who so agree) to purchase such Notes to which such
default relates on the terms contained herein. In the event that within 5
calendar days after such a default you do not arrange for the purchase of the
Notes to which such default relates as provided in this Section 9, this
Agreement shall thereupon terminate, without liability on the part of the
Company with respect thereto (except in each case as provided in Section 5, 7(a)
and 8 hereof) or the Underwriters, but nothing in this Agreement shall relieve a
defaulting Underwriter or Underwriters of its or their liability, if any, to the
other Underwriters and the Company for damages occasioned by its or their
default hereunder.
(c) In the event that the principal amount of Notes to which the
default relates are to be purchased by the non-defaulting Underwriters, or are
to be purchased by another party or parties as aforesaid, you or the Company
shall have the right to postpone the Closing Date for a period, not exceeding
five business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements, and the Company agrees to file promptly any
amendment or supplement to the Registration Statement or the Prospectus which,
in the opinion of Underwriters' Counsel, may thereby be made necessary or
advisable. The term "Underwriter" as used in this Agreement shall include any
party substituted under this Section 9 with like effect as if it had originally
been a party to this Agreement with respect to such Notes.
<PAGE>
22
10. Survival of Representations and Agreements. All representations
and warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5,
the indemnity agreements contained in Section 7 and the contribution agreements
contained in Section 8, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or any
controlling person thereof or by or on behalf of the Company, any of its
officers and directors or any controlling person thereof, and shall survive
delivery of and payment for the Notes to and by the Underwriters. The
representations contained in Section 1 and the agreements contained in Sections
5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement,
including termination pursuant to Section 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective, upon the later of when
(i) you and the Company shall have received notification of the effectiveness of
the Registration Statement or (ii) the execution of this Agreement. If either
the initial public offering price or the purchase price has not been agreed upon
prior to 5:00 P.M., New York time, on the fifth full business day after the
Registration Statement shall have become effective, this Agreement shall
thereupon terminate without liability to the Company or the Underwriters except
as herein expressly provided. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Company by notifying you or by you
notifying the Company. Notwithstanding the foregoing, the provisions of this
Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in full
force and effect.
(b) You shall have the right to terminate this Agreement at any time
prior to the Closing Date if (A) any domestic or international event or act or
occurrence has materially disrupted, or in your opinion will in the immediate
future materially disrupt, the market for the Company's securities or securities
in general; or (B) if trading on the New York or American Stock Exchanges shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required, on
the New York or American Stock Exchanges by the New York or American Stock
Exchanges or by order of the Commission or any other governmental authority
having jurisdiction; or (C) if a banking moratorium has been declared by a state
or federal authority or if any new restriction materially adversely affecting
the distribution of the Notes shall have become effective; (D) if any
downgrading in the rating of the Company's debt securities or preferred stock by
any "nationally recognized statistical rating-organization" (as defined for
purposes of Rule 436(g) under the Act; or (E) (i) if the United States becomes
engaged in hostilities or there is an escalation of hostilities involving the
United States or there is a declaration of a national emergency or war by the
United States or (ii) if there shall have been such change in political,
financial or economic conditions, if the effect of any such event in (i) or (ii)
as in your judgment makes it impracticable or inadvisable to proceed with the
offering, sale and delivery of the Notes on the terms contemplated by the
Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall be
by telephone, telex, or telegraph, confirmed in writing by letter.
<PAGE>
23
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Notes provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all
out-of-pocket expenses (including the fees and expenses of their counsel),
incurred by the Underwriters in connection herewith.
12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, N.Y. 10167, Attention: Ofer Warshavsky; if sent to the Company, shall
be mailed, delivered, or telegraphed and confirmed in writing to the Company,
330 E. Kilbourn Avenue, Suite 250, Milwaukee, WI 53202, Attention: Richard
Weening.
13. Parties. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Section 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Notes from any of the Underwriters.
14. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
<PAGE>
24
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
CUMULUS MEDIA INC.
By_______________________
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS, INC.
By: BEAR, STEARNS & CO. INC.
By_______________________________
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
<PAGE>
25
SCHEDULE I
Principal Amount of
Name of Underwriter Notes to be Purchased
- ------------------- ---------------------
Bear, Stearns & Co. Inc.
Lehman Brothers Inc.
Aggregate Principal Amount..................................._________________
$100,000,000
------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Form BCA - 2.10 ARTICLES OF INCORPORATION EXHIBIT 3.1
- ---------------------------------------- ------------------------------------------- -------------------------------------------
(Rev. Jan. 1995) This space for use by Secretary of State SUBMIT IN DUPLICATE
George H. Ryan -------------------------------------------
Secretary of State This space for use by Secretary of State
Department of Business Services
Springfield, IL 62756
- ---------------------------------------- -------------------------------------------
Payment must be made be certified Date: 5-22-97
check, cashier's check, Illinois
attorney's check, Illinois C.P.A.'s Franchise Tax $25.00
check or money order, payable to Filing Fee $75.00
"Secretary of State." ------
100.00
Approved: /s/ ER
- ---------------------------------------- ------------------------------------------- -------------------------------------------
</TABLE>
1. CORPORATE NAME: Cumulus Holdings, Inc.
---------------------------------------------------------
- --------------------------------------------------------------------------------
(The corporate name must contain the word "corporation," "company",
"incorporated "limited" or an abbreviation thereof.)
2. Initial Registered Agent: William Bungeroth
------------------------------------------------
FIRST NAME MIDDLE INITIAL LAST NAME
Initial Registered Office 875 North Michigan Avenue, Suite 3650
-----------------------------------------------
NUMBER STREET SUITE #
Chicago, IL 60611 Cook County
-----------------------------------------------
CITY ZIP CODE COUNTY
- --------------------------------------------------------------------------------
3. Purpose or purposes for which the corporation and organized: (if
not sufficient space to cover this point, add one of more sheets of this
size.)
The transaction of any or all lawful business for which corporations
may be incorporated under the Illinois Business Corporation Act and of any
successor provisions.
- --------------------------------------------------------------------------------
4. Paragraph 1: Authorized Shares, Issued Shares and Consideration Received:
<TABLE>
<CAPTION>
Class Par Value Number or Shares Number of Shares Consideration to be
Per Share Authorized Proposed to be Issued Received Therefor
- ---------------- --------------- ---------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C>
Common $ .01 10,000 1,000 $ 10.00
- ---------------- --------------- ---------------------- ---------------------------- ------------------------
- ---------------- --------------- ---------------------- ---------------------------- ------------------------
- ---------------- --------------- ---------------------- ---------------------------- ------------------------
- ---------------- --------------- ---------------------- ---------------------------- ------------------------
TOTAL = 10.00
- ---------------- --------------- ---------------------- ---------------------------- ------------------------
</TABLE>
Paragraph 2: The preferences, qualifications, limitations, restrictions and
special or relative rights in respect of the shares of each class are:
(If not sufficient space to cover this point, add one or more sheets of this
size.)
<PAGE>
5. OPTIONAL: (a) Number of directors constituting the initial board of
directors of the corporation:_______
(b) Names and addresses of the persons who are to serve as
directors until the first annual meeting of shareholders
or until their successors are elected and qualify:
Name Residential Address City, State, Zip
- ------------------ -------------------------- ---------------------------------
- ------------------ -------------------------- ---------------------------------
- ------------------ -------------------------- ---------------------------------
- ------------------ -------------------------- ---------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
6. OPTIONAL: (a) It is estimated that the value of all property to be owned
by the corporation for the following year wherever located
will be: $______________________
(b) It is estimated that the value of all property to be located
within the Sate of Illinois during the following year will be: $______________________
(c) It is estimated that the gross amount of business that will be
transacted by the corporation during the following year will be: $______________________
(d) It is estimated that the gross amount of business that will be
transacted from places of business in the Sate of Illinois during
the following year will be: $______________________
</TABLE>
- --------------------------------------------------------------------------------
7. OPTIONAL: OTHER PROVISIONS
Attach a separate sheet of this size for any other provision to
be included in the Articles of Incorporation, e.g., authorizing
preemptive rights, denying cumulative voting, regulating
internal affairs, voting majority requirements, fixing a during
other than perpetual, etc.
- --------------------------------------------------------------------------------
8. NAME(S) & ADDRESS(ES) OF INCORPORATOR(S)
The undersigned incorporator(s) hereby declare(s), under penalties
of perjury, that the statements made in the foregoing Articles of
Incorporation are true.
Dated MAY 21 , 1997.
--------------------------------------------- ----
<TABLE>
<CAPTION>
SIGNATURE AND NAME ADDRESS
<S> <C>
1. /s/ Patricia Leiker 1. 780 North Walter Street
------------------------------------------ -----------------------------------------------------
SIGNATURE STREET
Patricia Leiker Milwaukee, WI 53202
------------------------------------------ -----------------------------------------------------
(TYPE OR PRINT NAME) CITY/TOWN STATE ZIP CODE
2. 2.
------------------------------------------ -----------------------------------------------------
SIGNATURE STREET
------------------------------------------ -----------------------------------------------------
(TYPE OR PRINT NAME) CITY/TOWN STATE ZIP CODE
3. 3.
------------------------------------------ -----------------------------------------------------
SIGNATURE STREET
------------------------------------------ -----------------------------------------------------
(TYPE OR PRINT NAME) CITY/TOWN STATE ZIP CODE
</TABLE>
(Signatures must be in BLACK INK on original document. Carbon copy, photocopy or
rubber stamp signatures may only be used on conformed copies.)
NOTE: If a corporation acts as incorporator, the name of the corporation and
the state of incorporation shall be shown and the execution shall be by its
president or vice president or verified by him, and attested by its secretary
or assistant secretary.
- --------------------------------------------------------------------------------
FEE SCHEDULE
o The initial franchise tax is assessed at the rate of 15/100 of 1 percent
($1.50 per $1,000) on the paid-in capital represented in this state , with a
minimum of $25.
o The filing fee is $75.
o The minimum total due (franchise tax & filing fee) is $100.
(Applies when the Consideration to be Received as set forth in Item 4 does
not exceed $16,667)
o The Department of Business Services in Springfield will provide assistance
in calculating the total fees if necessary.
Illinois Secretary of State Springfield, IL 62756
Department of Business Services Telephone (217) 782-9522 OR 782-9523
<PAGE>
STATE OF ILLINOIS
[SEAL STATE OF ILLINOIS]
WHEREAS, ARTICLES OF MERGER OF
CUMULUS HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF THE STATE AS PROVIDED BY THE BUSINESS CORPORATION
ACT OF ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore, I, George H. Ryan, Secretary of State of the State of
Illinois, by virtue of the powers vested in me by law, do hereby issue this
certificate and attach hereto a copy of the Application of the aforesaid
corporation.
IN TESTIMONY WHEREOF, I hereto set my hand and cause to be affixed the
Great Seal of the State of Illinois, at the City of Springfield, this 13th
day of JUNE A.D. 1997 and of the Independence of the United States the two
hundred and 21st.
/s/ George M. Ryan
Secretary of State
<PAGE>
<TABLE>
<CAPTION>
<S> <C> ARTICLES OF MERGER <C>
Form BCA - 11.25 CONSOLIDATION OR EXCHANGE File # 5942-956-6
- ---------------------------------------- ------------------------------------------- -------------------------------------------
(Rev. Jan. 1995) This space for use by Secretary of State SUBMIT IN DUPLICATE
George H. Ryan -------------------------------------------
Secretary of State EFFECTIVE 6/16/97 This space for use by Secretary of State
Department of Business Services
Springfield, IL 62756
Telephone (217) 782-6961
http://www.sos.sate.il.us
- ---------------------------------------- -------------------------------------------
Remit payment in check or money order, Date: 6/1397
payable to "Secretary of State." Filing
Fee is $100, but if merger or consolidation
of more than 2 corporations, $50 for each Filing Fee $100.00
additional corporation.
Approved:
- ---------------------------------------- ------------------------------------------- -------------------------------------------
</TABLE>
1. Names of the corporations proposing to merge, and the sate or country of
their corporation
Name of Corporation State or Country Corporation
Of Incorporation File No.
Cumulus Broadcasting, Inc. Wisconsin 5939-707-9
- -------------------------------------- ------------------ ---------------
Cumulus Holdings, Inc. Illinois 5942-956-6
- -------------------------------------- ------------------ ---------------
- -------------------------------------- ------------------ ---------------
- -------------------------------------- ------------------ ---------------
- -------------------------------------- ------------------ ---------------
- --------------------------------------------------------------------------------
2. The laws of the state or country under which each corporation is
incorporated permit such merger, consolidation or exchange.
- --------------------------------------------------------------------------------
3. (a) Name of the surviving Corporation Cumulus Holdings, Inc.
--------------------------------------
(b) it shall be governed by the laws of: Illinois
------------------------------------
- --------------------------------------------------------------------------------
4. Plan of merger is as follows: (See attached Agreement and Plan of
Reorganization and Merger)
If not sufficient space to cover this point, add one or more
sheets of this size.
<PAGE>
7. (COMPLETE THIS ITEM IF REPORTING A MERGER UNDER < W039 > 11.30-90% OWNED
SUBSIDIARY PROVISIONS.)
a. The number of outstanding shares of each class of each merging subsidiary
corporation and the number of such shares of each class owned immediately
prior to the adoption of the plan of merger by the parent corporation, are:
Total Number of Number of Shares of Each Class
Name of Corporation Shares Outstanding of Owned Immediately prior
Each Class to Merger by the Parent Corporation
- -------------------- ----------------------- -----------------------------------
- -------------------- ----------------------- -----------------------------------
- -------------------- ----------------------- -----------------------------------
- -------------------- ----------------------- -----------------------------------
b. (Not applicable to 100% owned subsidiaries)
The date of mailing a copy of the plan of merger and notice
of the right to dissent to the shareholders of each merging
subsidiary corporation was _______________, 19_______
Was written consent for the merger or written waiver of the 30-day period
by the holders of all the outstanding shares of all subsidiary
corporation received? Yes / / No / /
(IF THE ANSWER IS "NO," THE DUPLICATE COPIES OF THE ARTICLES OF MERGER MAY
NOT BE DELIVERED TO THE SECRETARY OF STATE UNTIL AFTER 30 DAYS FOLLOWING
THE MAILING OF A COPY OF THE PLAN OF MERGER AND OF THE NOTICE OF THE RIGHT
TO DISSENT TO THE SHAREHOLDERS OF EACH MERGING SUBSIDIARY CORPORATION.)
8. The undersigned corporations have caused these articles to be signed by
their duly authorized officer, each of whom affirms, under penalties of
perjury, that the facts stated herein are true. (All signatures must be
in BLACK INK.)
<TABLE>
<S> <C>
Dated June 9 , 1997 Cumulus Holdings, Inc.
----------------------------------- ---- -----------------------------------------------
(EXACT NAME OF CORPORATION)
attested by /s/ Richard Bonick by /s/ William Bungeroth
------------------------------------------------ --------------------------------------------
(SIGNATURE OF SECRETARY OR ASSISTANT SECRETARY (SIGNATURE OF PRESIDENT OR VICE PRESIDENT
Richard Bonick, Vice President and William Bungeroth, President and CEO
(Type or Print Name and Title) (Type or Print Name and Title)
Dated June 9 , 19 97 Cumulus Broadcasting, Inc.
----------------------------------- ---- -----------------------------------------------
(EXACT NAME OF CORPORATION)
attested by /s/ Richard Bonick by /s/ William Bungeroth
------------------------------------------------ --------------------------------------------
(SIGNATURE OF SECRETARY OR ASSISTANT SECRETARY (SIGNATURE OF PRESIDENT OR VICE PRESIDENT
Richard Bonick, Vice President and William Bungeroth, President and CEO
(Type or Print Name and Title) (Type or Print Name and Title)
Dated , 19
----------------------------------- ---- -----------------------------------------------
(EXACT NAME OF CORPORATION)
attested by by
------------------------------------------------ --------------------------------------------
(SIGNATURE OF SECRETARY OR ASSISTANT SECRETARY (SIGNATURE OF PRESIDENT OR VICE PRESIDENT
(Type or Print Name and Title) (Type or Print Name and Title)
</TABLE>
<PAGE>
Exhibit 3.2
<TABLE>
<CAPTION>
Form BCA - 10.30 ARTICLES OF AMENDMENT File # 5942 -956 -6
- --------------------------------------- --------------------- ----------------------------------------
<S> <C> <C>
(Rev. Jan. 1995)
George H. Ryan This space for use by Secretary of State
Secretary of State
Department of Business Services Date: 11-13-97
- ---------------------------------------
Remit payment in check or money order,
payable to "Secretary of State". Franchise Tax
Filing Fee $25.00
* The filing fee for articles of Penalty
amendment - $25.00 Approved:
- --------------------------------------- --------------------- ----------------------------------------
</TABLE>
1. CORPORATE NAME: Cumulus Holdings, Inc.
--------------------------------------------------------------
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT
The following amendment of the Articles of Incorporation was adopted on
November 3, 1997
--------------------------------------------------------------------------
in the manner indicated below. ("X" one box only)
/ / By a majority of the incorporators, provided no directors were
named the articles or incorporation and no directors have been
elected;
(Note 2)
/ / By a majority of the board of directors, in accordance with Section
10.10 the corporation having issued no shares as of the time of
adoption of this amendment;
(Note 2)
/ / By a majority of the board of directors, in accordance with Section
10.15 shares having been issued but shareholder action not being
required for the adoption of the amendment;
(Note 3)
/ / By the shareholders, in accordance with Section 10.20 a resolution of
the board of directors having been duly adopted and submitted to the
shareholders. At a meeting of shareholders, not less than the minimum
number of votes required by statute and by the articles of
incorporation were voted in favor of the amendment;
(Note 4)
/ / By the shareholders, in accordance with Section 10.20 and 7.10 a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed
by the shareholders having not less than the minimum number of votes
required by statute and by the articles of incorporation.
Shareholders who have not consented in writing have been given notice
in accordance with Section 7.10;
(Note 4&5)
/ / By the shareholders, in accordance with Section 10.20 and 7.10 a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed
by all the shareholders entitled to vote on this amendment.
(Note 5)
3. TEXT OF AMENDMENT
a. When amendment effects a name change, insert the new corporate name
below. Use Page 2 for all other amendments.
Article I: The name of the corporation is:
- --------------------------------------------------------------------------------
(New Name)
All changes other than name, include on page 2
(over)
<PAGE>
TEXT OF AMENDMENT
B. (IF AMENDMENT AFFECTS THE CORPORATE PURPOSE, THE AMENDED PURPOSE IS
REQUIRED TO BE SET FORTH IN ITS ENTIRETY. IF THERE IS NOT SUFFICIENT
SPACE TO DO SO, ADD ONE OR MORE SHEETS OF THIS SIZE.)
The Articles of Incorporation of Cumulus Holdings, Inc., be, and they
hereby are, amended by deleting Article 4 thereof and inserting in
its place the amendment attached hereto as Exhibit A.
Page 2
<PAGE>
4. The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction
of the number off authorized shares of any class below the number
of issued shares of that class, provided for or effected by this
amendment, is as follows: (IF NOT APPLICABLE, INSERT "NO CHANGE")
No change
5. (a) The manner, if not set forth in Article 3b, in which said
amendment effects a change in the amount of paid-in capital
(Paid-in capital replaces the terms Stated Capital and Paid-in
Surplus and is equal to the total of these accounts) is as follows:
(IF NOT APPLICABLE, INSERT "NO CHANGE")
No change
(b) The amount of paid-in capital (Paid-in Capital replaces the terms
Stated Capital and Paid-in Surplus and is equal to the total of these
accounts) as changed by this amendment is as follows: (IF NOT
APPLICABLE, INSERT "NO CHANGE")
No change
Before Amendment After Amendment
Paid-in Capital $_______________ $_______________
(COMPLETE EITHER ITEM 6 OR 7 BELOW. ALL SIGNATURES MUST IN BLACK INK.)
6. The undersigned corporation has caused this statement to be singed by
its duly authorized officers, each of whom affirms, under penalties
of perjury, that the facts stated herein are true.
<TABLE>
<S> <C>
Dated November 5 , 1997 Cumulus Holdings, Inc.
---------------------- ------- ------------------------------------------------
(Exact Name of Corporation at date of execution)
attested by /s/ Terrence J. Leahy by: /s/ William Bungeroth
--------------------------------------------- ---------------------------------------------
(SIGNATURE OF SECRETARY OR ASSISTANT SECRETARY (SIGNATURE OF PRESIDENT OR VICE PRESIDENT)
Terrence J. Leahy, Secretary William Bungeroth, President
--------------------------------------------- ---------------------------------------------
(TYPE OR PRINT NAME AND TITLE) (TYPE OR PRINT NAME AND TITLE)
</TABLE>
7. If amendment is authorized pursuant to Section 10.10 by the incorporators,
the incorporators must sign below, and type or print name and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10 and
there are no officers, then a majority of the directors or such directors
as may be designate by the board, must sign below, and type or print name
and title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Dated ______________________, 19 _____
- --------------------------------------- ----------------------------------------
- --------------------------------------- ----------------------------------------
- --------------------------------------- ----------------------------------------
- --------------------------------------- ----------------------------------------
<PAGE>
EXHIBIT A
TO ARTICLES OF AMENDMENT
OF CUMULUS HOLDINGS, INC.
ARTICLE 4
Paragraph 1: The aggregate number of shares which the Corporation is
authorized to issue is 22,000, divided into two classes consisting of 12,000
shares designated as Class A Cumulative Preferred Stock, $0.01 par value
(hereinafter referred to as the "Class A Preferred Stock"), and 10,000 shares
designated as Common Stock, $.01 par value (hereinafter referred to as the
"Common Stock").
Paragraph 2: The preferences, qualifications, limitations, restrictions,
and the special or relative rights in respect of the shares of each class
hereinabove designated shall be as follows:
PART I. CLASS A PREFERRED STOCK
Section 1. Dividends. (a) The holders of the shares of Class A Preferred
Stock shall be entitled to receive, if and when declared payable from time to
time by the Board of Directors from funds legally available therefor,
cumulative dividends at the annual rate of 12% (the "Dividend Rate") of
$10,000.00 per share per annum, subject to adjustment as provided in
paragraphs (b) and (c) of this Section 1 and subject to the Corporation's
right to pay any dividend by issuing PIK Shares (as defined below). Such
dividends shall compound quarterly and accrue and be payable quarterly, in
arrears, on each February 14, May 14, August 14 and November 14 of each year
(each such date being referred to herein as a "Dividend Payment Date")
commencing February 14, 1998, the initial dividend to be calculated from the
date of issuance to the first Dividend Payment Date and any accrued but unpaid
dividends upon redemption to be pro rated from the most recent Dividend
Payment Date until the date of redemption. Such dividends (whether payable in
cash or stock) shall accrue, without interest, from the date of issuance and,
if not paid, shall compound quarterly, shall be cumulative, whether or not
such dividends have been declared, so that if the full amount payable as
aforesaid on any Dividend Payment Date shall not have been declared or paid
and a sum sufficient for the payment thereof set apart or paid by issuing
shares of Class A Preferred Stock as provided below and in Section 1(d) of
the Part I, the deficiency shall be fully paid, but without interest, as and
when funds shall become lawfully available therefor or paid by issuing shares
of Class A Preferred Stock as provided below and in Section 1(d) of this Part
I as and when funds shall become lawfully available therefor. In the event
any dividends on the Class A Preferred Stock are not paid, whether in cash or
in PIK Shares (as hereinafter defined), at the times provided in this Section
1 for any reason, including by reason of any limitation imposed by applicable
law, then the holders of the shares of Class A Preferred Stock shall be
entitled to receive cumulative dividends at the annual Dividend Rate
(compounded quarterly) in respect of the amount of such accrued and unpaid
cumulative dividends from the date that such accrued and unpaid
<PAGE>
cumulative dividends were to have been paid in accordance with this Section 1
until the date of payment of such accrued and unpaid cumulative dividends,
and all such dividends shall for all purposes be treated as accrued and
unpaid cumulative dividends until paid. Any dividend payments made with
respect to the Class A Preferred Stock may be made in cash or, in the sole
discretion of the Board of Directors, by issuing additional fully paid and
nonassessable shares of Class A Preferred Stock ("PIK Shares") at a value of
$10,000.00 per share and the issuance of such additional shares shall
constitute full payment of such dividend, with each such additional share to
accrue dividends at the annual Dividend Rate (compounded quarterly) from and
after the Dividend Payment Date on which such share has been issued. Each
fractional share of Class A Preferred Stock outstanding shall be entitled to
a ratably proportionate amount of all dividends accruing with respect to each
outstanding share of Class A Preferred Stock pursuant to this Section 1(a),
and all such dividends with respect to such outstanding fractional shares
shall compound quarterly and shall be fully cumulative and shall accrue
(whether or not declared), without interest, and shall be payable in the same
amount and at such times as provided for in this Section 1(a) with respect to
dividends on each outstanding share of Class A Preferred Stock.
(b) Dividend Rate Adjustment Following Default. The Dividend Rate shall
be adjusted from 12% of $10,000.00 per share per annum to 14.00% of
$10,000.00 per share per annum on the first day (the "Date") next following
the occurrence of an event of default under or breach of Section 4.03,
Section 4.04 or Section 4.05 of the Purchase Agreement (each a "Specified
Event of Default") and shall continue to accrue at such adjusted per annum
rate through and including the one hundred eightieth (180th) day following
the date on which such event of default or breach has been cured or waived in
writing by the holders of not less than two-thirds (2/3) of the aggregate
number of shares of Class A Preferred Stock outstanding (such period being
herein referred to as the "Covenant Default Period"). Such adjusted Dividend
Rate shall automatically be readjusted from the default rate applicable
during the Covenant Default Period as provided above to 12% of $10,000.00 per
share per annum on the one hundred eighty-first (181st) day following the
date on which such event of default or breach is cured as provided in Section
4.12 of the Purchase Agreement or waived in writing by the holders of not
less than two-thirds (2/3) of the aggregate number of shares of Class A
Preferred Stock outstanding.
(c) Dividend Rate Adjustment Following Share Adjustment. The Dividend
Rate, the redemption prices set forth in Section 2 and 3 of this Part I
below, the minimum number of shares subject to optional redemption pursuant
to Section 3 of this Part I below and the liquidation preference set forth in
Section 6 of this Part I shall be appropriately adjusted by the Board of
Directors in the event of any stock split, dividend, combination,
subdivision, recapitalization or reclassification with respect to the Class A
Preferred Shares.
(d) Delivery of PIK Class A Preferred Shares. Subject to this Section 1,
within twenty (20) business days following the date of each Dividend Payment
Date, the Corporation shall if the Board of Directors has elected on any
Dividend Payment Date to make any dividend payment with PIK Shares, deliver
to each holder of the shares of Class A Preferred Stock PIK Shares as
provided in Section 1(a) above.
2
<PAGE>
(e) Dividends on and Redemptions of Parity Stock or Junior Stock. While
any shares of Class A Preferred Stock are outstanding, the Corporation shall
not declare or pay any dividend or make any other distribution on any shares
of Parity Stock or Junior Stock (other than dividends payable in the same
class or series of Parity Stock or Junior Stock, as the case may be, to
holders thereof) or purchase, redeem or otherwise acquire for consideration
any shares of Parity Stock or Junior Stock.
Section 2. Mandatory Redemption. On November 14, 2007 (the "Mandatory
Redemption Date"), the Corporation shall, if any of the shares of Class A
Preferred Stock remain outstanding, set apart out of its funds lawfully
available for such purpose (or to the extent that the same are lawfully
available therefor) for the redemption of the Class A Preferred Stock, that
sum in cash which shall be sufficient to redeem, at a price per share equal
to $10,000.00 plus any and all accrued and unpaid cumulative dividends
thereon (whether or not declared or earned) to the date fixed for such
redemption, the total number of shares of the Class A Preferred Stock at the
time outstanding.
If the full number of shares required to be redeemed as aforesaid shall
not be so redeemed, the deficiency shall be made good thereafter as soon as
funds shall become lawfully available therefor.
If the Corporation shall fail to discharge its obligation to redeem
shares of Class A Preferred Stock pursuant to this Section 2 (the "Mandatory
Redemption Obligation"), the Mandatory Redemption Obligation shall be
discharged as soon as the Corporation is permitted by law or by its
applicable contracts, agreements, indentures, bonds, notes, debentures or
similar instruments to discharge such Mandatory Redemption Obligation. If and
so long as the Mandatory Redemption Obligation with respect to Class A
Preferred Stock shall not fully be discharged, the Corporation shall not,
directly or indirectly, declare or pay any dividend or make any distributions
on, or purchase, redeem or retire, or satisfy any mandatory or optional
redemption, sinking fund or other similar obligation in respect of, any
Parity Stock or Junior Stock, excepting only that the Corporation may pay
dividends by issuing, but only by issuing, shares of the class of such Parity
Stock or Junior Stock, as the case may be, or warrants, rights, opinions or
other Securities convertible into or exercisable for any such Junior Stock or
Parity Stock, as the case may be.
Section 3. Optional Redemptions. (a) Optional Redemption at a Premium. In
addition to the mandatory redemption required by Section 2 above, the shares
of Class A Preferred Stock shall, at any time and from time to time after the
first anniversary of the First Issuance Date, be redeemable, in whole or in
part on a pro rata basis (but if in part, then the minimum number of shares
to be redeemed shall be not less than 10% of the aggregate number of shares
of Class A Preferred Stock outstanding) at the option of the Corporation
(upon the notice and otherwise in the manner set forth in Section 4 of this
Part I) at the following redemption prices per share redeemed:
3
<PAGE>
If Redeemed During Optional
the 12-Month Period Redemption Price
Ending on:
Second Anniversary
of First Issuance Date $10,500.00
Third Anniversary
of First Issuance Date $10,400.00
Fourth Anniversary
of First Issuance Date $10,300.00
Fifth Anniversary
of First Issuance Date $10,200.00
Sixth Anniversary
of First Issuance Date $10,100.00
Seventh Anniversary of First Issuance
Date and Thereafter $10,000.00
plus, in each case, any and all accrued and unpaid cumulative dividends
thereon (whether or not declared) to the date of redemption.
(b) Required Redemption of Class A Preferred Stock upon Change
of Control. In the event that any Change of Control shall occur, the
Corporation will give written notice (the "Change of Control Corporation
Notice") of such fact to the holders of record of the shares of the Class A
Preferred Stock. The Changes of Control Corporation Notice shall be sent
promptly upon receipt of knowledge by the Corporation of any Change of
Control. The Change of Control Corporation Notice shall (i) describe the
facts and circumstances of such Change of Control in reasonable detail, (ii)
make reference to this Section 3(b) and the right of the holders of the
shares of Class A Preferred Stock to require the mandatory redemption of the
Class A Preferred Stock on the terms and conditions provided for in this
Section 3(b), and (iii) offer in writing to redeem the outstanding shares of
Class A Preferred Stock at a redemption price per share (the "Change of
Control Redemption Price") equal to $10,000.00. Unless and until each holder
of the shares of Class A Preferred Stock has declined such offer of redemption
in writing, such offer shall remain outstanding, binding and effective as
against the Corporation. Each holder of the outstanding shares of Class A
Preferred Stock shall have the right to accept such offer of redemption and
require redemption of the shares of Class A Preferred Stock held by such
holder in full by written notice to the Corporation (a "Change of Control
Stockholder Notice"). If such Change of Control shall in fact occur, the
Corporation shall, out of funds legally available for such purpose, redeem
all, but not less than all, of the Class A Preferred Stock held by each
holder which has so accepted such offer of redemption in each such case
4
<PAGE>
on the date specified in the Change of Control Stockholder Notice delivered
by such holder. The redemption price per share of Class A Preferred Stock
payable upon the occurrence of any Change of Control shall be an amount equal
to the Change of Control Redemption Price plus any and all accrued and unpaid
cumulative dividends thereon (whether or not declared) to the date of
redemption.
(c) Optional Redemption of Class A Preferred Stock upon Occurrence of
Designated Event. In the event that any Designated Event shall occur, the
Corporation may give written notice (the "Designated Event Exercise Notice")
of such fact to the holders of record of the shares of the Class A Preferred
Stock, which notice shall be separate and distinct from the informational
notice required by Section 5.01(a)(ix) of the Purchase Agreement. The
Designated Event Exercise Notice shall (i) describe the facts and
circumstances of such Designated Event in reasonable detail, (ii) make
reference to this Section 3(c) and the right and option of the Corporation to
redeem all, but not less than all, of the shares of Class A Preferred Stock
on the terms and conditions provided for in this Section 3(c), (iii) specify
the redemption price per share (the "Designated Event Redemption Price"),
which redemption price per share shall be equal to $10,000.00 and (iv)
specify a date and place for such redemption (the "Designated Event
Redemption Date"), which Designated Event Redemption Date shall be not more
than 90 days nor less than 45 days following the date of such Designated
Event Exercise Notice. If such Designated Event shall in fact occur, and the
Corporation shall, at its option, have given the Designated Event Exercise
Notice, then the Corporation shall on the Designated Event Redemption Date
redeem all, but not less than all, of the shares of Class A Preferred Stock
then outstanding. The redemption price per share of Class A Preferred Stock
payable upon the occurrence of any Designated Event shall be an amount equal
to the Designated Event Redemption Price plus any and all accrued and unpaid
cumulative dividends thereon (whether or not declared), to the date of
redemption.
Section 4. Manner and Effect of Redemptions. Notice of any proposed
redemption of shares of Class A Preferred Stock pursuant to Section 3(a)
above shall be given by the Corporation by mailing a copy of such notice not
less than 30 and more than 60 days prior to the date fixed for such
redemption to the holders of record of the shares of Class A Preferred Stock
to be redeemed at their respective addresses appearing on the books of the
Corporation. Said notice shall state the number of the shares which are being
called for redemption and shall specify the redemption price and place at
which and the date on which the shares of Class A Preferred Stock will be
redeemed.
From and after the date fixed in any such notice (or any Change of
Control Corporation Notice or Designated Event Exercise Notice, as the case
may be) as the date of redemption of shares of Class A Preferred Stock,
unless default shall be made by the Corporation in providing monies at the
time and place specified for the payment of the redemption price pursuant to
such notice (or any Change of Control Corporation Notice or Designated Event
Exercise Notice, as the case may be), any and all dividends payable in
accordance with Section 1(a) above of the Class A Preferred Stock thereby
called for redemption shall cease to accrue and all rights of the holders
thereof as shareholders of the Corporation, except the right to receive the
redemption price, shall cease and terminate.
5
<PAGE>
All shares of Class A Preferred Stock which shall have been redeemed,
purchased or otherwise acquired by the Corporation, shall be cancelled and
shall not be reissued as shares of Class A Preferred Stock.
Section 5. Voting Rights. (a) Except as otherwise required by law or as
provided in this Section 5, the holders of shares of the Class A Preferred
Stock shall not be entitled to vote with respect to any matter voted on by
the shareholders of the Corporation.
(b) If and whenever at any time or from time to time a Specified Event
of Default shall have occurred:
(i) Promptly upon the commencement of any Specified Event of
Default, the Corporation will give written or facsimile notice thereof to
each holder of the then outstanding shares of Class A Preferred Stock, at the
address of each such holder as it appears on the books of the Corporation;
(ii) During the continuance of each and every Covenant Default
Period, the holders of the shares of Class A Preferred Stock shall be
entitled, voting separately as a class, to elect one member of the Board of
Directors. The right of the holders of the Class A Preferred Stock to elect
one member of the Board of Directors during a Covenant Default Period may be
exercised initially either at a special meeting of shareholders called as
provided below or at the Corporation's next annual meeting of shareholders,
and thereafter at each subsequent annual meeting of shareholders, until the
expiration of such Covenant Default Period on the one hundred eightieth
(180th) day following the date on which such Specified Event of Default shall
have been cured as provided in Section 4.12 of the Purchase Agreement, at
which time such right shall terminate, except as herein or by law expressly
provided, subject to the revesting of such rights to such holders in the
event of the subsequent commencement of a Covenant Default Period. Upon any
termination of the right of the holders of shares of Class A Preferred Stock
as a class to vote for a director as herein provided, the term of office of
the director then in office elected by the holders of shares of Class A
Preferred Stock shall terminate immediately and the number of directors
constituting the Board of Directors shall, without further action, be reduced
by the number so elected by the holders of Class A Preferred Stock, subject
always to increase following occurrence of any other Specified Event of
Default. In case of any vacancy occurring with respect to the director
elected by the holders of shares of Class A Preferred Stock, such vacancy may
be filled only by the affirmative vote of the holders of a majority of the
then outstanding shares of Class A Preferred Stock. At elections for such
director, each holder of shares of Class A Preferred Stock shall be entitled
to one vote for each share;
(iii) At any time when such special voting rights shall have vested
in the holders of outstanding shares of Class A Preferred Stock as provided
in this Section 5(b), a proper officer of the Corporation shall, upon the
written request of the holders of record of a least a majority of the then
outstanding number of shares of Class A Preferred Stock, addressed to the
Secretary of the Corporation, call a special meeting of the holders of
outstanding shares of Class A Preferred Stock for the purpose of electing
such additional director. Such meeting shall be held at the earliest
practicable date at the principal office of
6
<PAGE>
the Corporation. If such meeting shall not be called by a proper officer of
the Corporation within 15 days after receipt of written request upon the
Secretary of the Corporation (or the Assistant Secretary if the Secretary is
absent) sent by first class mail, postage prepaid, or by prepaid overnight
air courier, or within 15 days after mailing the same within the United
States of America by registered mail addressed to the Secretary of the
Corporation at its principal office, then holders of record of at least a
majority of the then outstanding number of shares of Class A Preferred Stock
at the time outstanding may designate in writing one of the holders to call
such meeting at the expense of the Corporation, and such meeting may be
called by such Person so designated upon the notice required for annual
meetings of shareholders of the Corporation and shall be held at such
principal office. In such circumstances, any holder of outstanding shares of
Class A Preferred Stock so designated shall have access to the stock books of
the Corporation relating to the holders of Class A Preferred Stock for the
purpose of causing meetings of shareholders to be called pursuant to these
provisions; and
(iv) At any meeting held for the purpose of electing a director at
which the holders of outstanding shares of Class A Preferred Stock shall have
the special right, voting together as one class to elect a director as
provided in this Section 5(b), the presence, in person or by proxy, of the
holders of a majority of the shares of Class A Preferred Stock at the time
outstanding shall be required to constitute a quorum of such class for the
election of directors pursuant to this Section 5(b), and the affirmative vote
of the holders of a majority of the shares of Class A Preferred Stock present
in person or by proxy at such meeting shall constitute the act of such
holders of shares of Class A Preferred Stock. At any such meeting or
adjournment thereof, in the absence of a quorum, holders of a majority of the
shares of Class A Preferred Stock present in person or by proxy shall have
the power to adjourn the meeting for the election of the director that they
are entitled to elect, without notice other than announcement at the meeting,
until such a quorum shall be present.
(c) If and whenever at any time or from time to time the Corporation shall
be in default, in whole or in part, in redeeming shares of Class A Preferred
Stock pursuant to the provisions of Section 2 above, such default shall mark
the beginning of a period (herein called a "Mandatory Redemption Default
Period"), which Mandatory Redemption Default Period shall extend until the
Mandatory Redemption Obligation under Section 2 above shall have been set
aside and made:
(i) from and after the commencement of which the Corporation shall
give written or facsimile notice thereof to each holder of the then
outstanding shares of Class A Preferred Stock, at the address of each such
holder as it appears on the books of the Corporation; and
(ii) during the continuance of the Mandatory Redemption Default Period,
the holders of the shares of Class A Preferred Stock shall be entitled,
voting separately as a class, to elect two members of the Board of Directors.
The right of the holders of the Class A Preferred Stock to elect two members
of the Board of Directors during a Mandatory Redemption Default Period may be
exercised initially either at a special meeting of shareholders called as
provided below or at the Corporation's next annual meeting of
7
<PAGE>
shareholders, and thereafter at each subsequent annual meeting of
shareholders, until such Mandatory Redemption Obligation shall have been
satisfied, at which time such right shall terminate, except as herein or by
law expressly provided. Upon any termination of the right of the holders of
shares of Class A Preferred Stock as a class to vote for two directors as
herein provided, the terms of office of the directors then in office elected
by the holders of shares of Class A referred Stock shall terminate
immediately and the number of directors constituting the Board of Directors
shall, without further action, be reduced by the number so elected by the
holders of Class A Preferred Stock, subject always to increase during any
future Mandatory Redemption Default Period. In case of any vacancy occurring
among the directors elected by the holders of shares of Class A Preferred
Stock, such vacancy may be filled only by the affirmative vote of the holders
of a majority of the then outstanding shares of Class A Preferred Stock. At
elections for such directors, each holder of shares of Class A Preferred
Stock shall be entitled to one vote for each share;
(iii) at any time when such such special voting rights shall have vested
in the holders of outstanding shares of Class A Preferred Stock as provided
in this Section 5(c), a proper officer of the Corporation shall, upon the
written request of the holders of record of at least a majority of the then
outstanding number of shares of Class A Preferred Stock, addressed to the
Secretary of the Corporation, call a special meeting of the holders of
outstanding shares of Class A Preferred Stock for the purpose of electing
such additional directors. Such meeting shall be held at the earliest
practicable date at the principal office of the Corporation. If such meeting
shall not be called by a proper officer of the Corporation within 15 days
after receipt of written request upon the Secretary of the Corporation (or
the Assistant Secretary if the Secretary is absent) sent by first class mail,
postage prepaid, or by prepaid overnight air courier, or within 15 days after
mailing the same within the United States of America by registered mail
addressed to the Secretary of the Corporation at its principal office, then
holders of record of at least a majority of the then outstanding number of
shares of Class A Preferred Stock at the time outstanding may designate in
writing one of the holders to call such meeting at the expense of the
Corporation, and such meeting may be called by such Person so designated upon
the notice required for annual meetings of shareholders and shall be held at
such principal office. Any holder of outstanding shares of Class A Preferred
Stock so designated shall have access to the stock books of the Corporation
relating to the holders of Class A Preferred Stock for the purpose of causing
meetings of shareholders to be called pursuant to these provisions; and
(iv) at any meeting held for the purpose of electing directors at which
the holders of outstanding shares of Class A Preferred Stock shall have the
special right, voting together as one class to elect directors as provided in
this Section 5(c), the presence, in person or by proxy, of the holders of a
majority of the shares of Class A Preferred Stock at the time outstanding
shall be required to constitute a quorum of such class for the election of
directors pursuant to this Section 5(c), and the affirmative vote of the
holders of a majority of the shares of Class A Preferred Stock present in
person or by proxy at such meeting shall constitute the act of such Class A
Preferred Stock. At any such meeting or adjournment thereof, in the absence
of a quorum, holders of a majority of the shares of Class A Preferred Stock
present in person or by proxy shall have the power to adjourn the
8
<PAGE>
meeting for the election of the directors that they are entitled to elect
from time to time, without notice other than announcement at the meeting,
until such a quorum shall be present.
(d) So long as any shares of Class A Preferred Stock remain outstanding,
the consent of the holders of at least two thirds (2/3) of the shares of the
Class A Preferred Stock outstanding at the time shall be necessary to permit,
effect or validate any one or more of the following:
(i) the creation, authorization or issuance of any shares of any
class of Prior Stock, including the issuance of any indebtedness, stock or
other Security convertible into any class or series of Prior Stock or
increase in the number of authorized shares of Class A Preferred Stock; or
(ii) the declaration or payment of any dividend or the making of any
other distribution on any shares of Parity Stock or Junior Stock (other than
dividends payable solely in shares of the same class or series of Parity Stock
or Junior Stock, as the case may be, to holders thereof) or the purchase,
redemption or other acquisition for consideration of any shares of Parity
Stock or Junior Stock; or
(iii) the amendment, alteration or repeal, of any of the provisions
of the Articles of Incorporation, if such amendment, alteration or repeal
would adversely affect any privilege, preference, right or power of the Class
A Preferred Stock or the holders thereof; or
(iv) the merger, consolidation or amalgamation of the Corporation
with or into any other Person if such merger, consolidation or amalgamation
would adversely effect any privilege, preference, right or power of the Class
A Preferred Stock, unless any such merger, consolidation or amalgamation
would result in a Change of Control in which event Section 3(b) above shall
be applicable.
(e) In addition to any other vote or consent of shareholders required by
the Articles of Incorporation or the By-laws of the Corporation or by law,
the affirmative vote of all the holders of the outstanding Class A Preferred
Stock, voting separately as one class, shall be necessary (i) to amend the
Articles of Incorporation in any way to change (1) the rate or time of
payment of any dividends on the Class A Preferred Stock, (2) the time or
amount of any mandatory or optional redemption of any shares of Class A
Preferred Stock, (3) the redemption price of any optional redemption under
Section 3 above, (4) the amount of any payments upon liquidation of the
Corporation with respect to the Class A Preferred Stock, and (5) the
priorities afforded by the provisions of Sections 1(e) above and Section 6 of
this Part I for the benefit of the Class A Preferred Stock, or (ii) to amend
Section 2 above or this Section 5(e).
Section 6. Preference on Liquidation, Dissolution or Winding-Up. Upon
any liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, the holders of the Class A Preferred Stock shall be
entitled, before any distribution is made to any shares of Junior Stock, to
be paid for each share thereof, out of assets of the
9
<PAGE>
Corporation available for distribution to shareholders the sum in cash of
$10,000 per share plus an amount equal to any and all accrued and unpaid
cumulative dividends thereon (whether or not declared) to the date full
payment of such specified preferential amount is made available to the
holders thereof.
The voluntary sale, lease, exchange or transfer (for cash, shares of
stock, Securities or other consideration) of all or substantially all of its
property or assets to, or a consolidation or merger of the Corporation with,
any other Person shall not be deemed to be a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this
Section 6.
If upon any liquidation, dissolution or winding up of the affairs of the
Corporation (whether voluntary or involuntary) the assets of the Corporation
available for distribution shall be insufficient to pay the holders of all
outstanding shares of Class A Preferred Stock the full amounts to which they
shall be entitled, the holders of shares of Class A Preferred Stock shall
share ratably in any such distribution of assets in accordance with the
amounts which would be payable if all such amounts were paid in full.
Section 7. Definitions. In addition to terms defined elsewhere in this
Article 4, as used herein:
"Acquiring Person" shall mean a "person" within the meaning of Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or any successor provision to either of the foregoing,
including any "group" acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5 under the Exchange
Act.
"Affiliate" shall mean, at any time, and with respect to any Person, (a)
any other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control
with, such first Person, and (b) any Person beneficially owning or holding,
directly or indirectly, 5% or more of any class of voting or equity interests
of the Corporation or Cumulus Media or any Subsidiary of either such Person
or any corporation of which the Corporation or Cumulus Media or any
Subsidiary of either such Person beneficially owns or holds, in the
aggregate, directly or indirectly, 5% or more of any class of voting or
equity interests. As used in this definition, "Control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context otherwise clearly
requires, any reference to an "Affiliate" is a reference to an Affiliate of
the Corporation of Cumulus Media.
"Change of Control" shall: (a) for purposes of Section 3(b) above mean
the earliest to occur of: (i) the date on which Cumulus Media fails to
beneficially own, within the meaning of Rule 13d-3 of the Exchange Act
("Beneficially Own"), at least 66-2/3% of the Common Stock of the
Corporation, except and unless Cumulus Media and/or the Cumulus Media
Ownership Group Beneficially owns at least 35% of the Common Stock of the
10
<PAGE>
Corporation and a number of shares equal to at least 51% of the shares of the
Common Stock of the Corporation not Beneficially Owned by Cumulus Media
and/or the Cumulus Media Ownership Group are listed and traded on a national
securities exchange or quoted on the NASDAQ National Market System and no
Acquiring Person Beneficially Owns more than 30% of the Common Stock of the
Corporation not Beneficially Owned by Cumulus Media and/or the Cumulus Media
Ownership Group; or (ii) the date on which the Corporation fails to
Beneficially Own at least 75% of the Equity Capital of Cumulus Broadcasting;
or (iii) the date on which an Acquiring Person (other than the Cumulus Media
Ownership Group) becomes, directly or indirectly, the Beneficial Owner of 50%
or more of the Equity Capital of Cumulus Media; or (iv) the date of a merger
or statutory share exchange between the Corporation or Cumulus Media, on the
one hand, and any other Person, on the other hand, a consolidation of the
Corporation or Cumulus Media with any other Person or an acquisition of any
other Person by the Corporation or Cumulus Media or the acquisition in one or
a series of related transactions of all or a substantial part of the assets
of the Corporation or Cumulus Media by any other Person, if immediately after
such event, an Acquiring Person (other than Cumulus Media or the Cumulus
Media Ownership Group) shall Beneficially Own 50% or more of the Common Stock
of the Corporation or 50% or more of the Equity Capital of Cumulus Media
outstanding immediately after giving effect to such merger, statutory share
exchange, consolidation or acquisition; or (v) the date on which DBBC of
Georgia and QUAESTUS Management Corp. collectively cease to Beneficially Own
the Equity Capital of Cumulus Media which such entities owned on November 14,
1997 as more fully described in Annex I attached to Exhibit D-2 to the
Purchase Agreement; or (vi) the date on which either DBBC of Georgia or
QUAESTUS Management Corp. shall cease to be a Manager of Cumulus Media,
unless such Manager is removed for Cause (as defined in the Operating
Agreement), and a replacement therefor is approved by the Investment
Committee of Cumulus Media, pursuant to the Operating Agreement, and (b) for
purposes of Section 3(c) above mean the earliest to occur of: (i) the date on
which Cumulus Media fails to Beneficially Own at least 50% of the Common
Stock of the Corporation; or (ii) the date on which the Corporation fails to
Beneficially Own at least 50% of the Equity Capital of Cumulus Broadcasting;
or (iii) the date on which Acquiring Person (other than the Cumulus Media
Ownership Group) becomes, directly or indirectly, the Beneficial Owner of 50%
and more of the Equity Capital of Cumulus Media; or (iv) the date of a merger
or statutory share exchange between the Corporation or Cumulus Media, on the
one hand, and any other Person, on the other hand, a consolidation of the
Corporation or Cumulus Media with any other Person or an acquisition in one
or a series of related transactions of any other Person by the Corporation or
Cumulus Media or the acquisition of all or a substantial part of the assets
of the Corporation or Cumulus Media by any other Person, if immediately after
such event, an Acquiring Person (other than Cumulus Media or the Cumulus
Media Ownership Group) shall Beneficially Own 50% or more of the Common Stock
of the Corporation or 50% or more of the Equity Capital of Cumulus Media
outstanding immediately after giving effect to such merger, statutory share
exchange, consolidation or acquisition.
"Change of Control Corporation Notice" shall have the meaning specified in
Section 3(b) above.
11
<PAGE>
"Change of Control Stockholder Notice" shall have the meaning specified
in Section 3(b) above.
"Change of Control Redemption Price" shall have the meaning specified in
Section 3(b) above.
"Class A Preferred Stock" shall have the meaning set forth in Paragraph 1
of this Article 4.
"Common Stock" shall have the meaning set forth in Paragraph I of this
Article 4.
"Covenant Default Period" shall have the meaning set forth in Section
1(b) above.
"Cumulus Broadcasting" shall mean Cumulus Broadcasting, Inc., a Nevada
corporation.
"Cumulus Media" shall mean Cumulus Media, LLC, a Wisconsin limited
liability company.
"Cumulus Media Ownership Group" shall mean the State of Wisconsin
Investment Board, NationsBanc Capital Corp., Heller Capital Equity
Corporation, CML Holdings, LLC and The Northwestern Mutual Life Insurance
Company or any Person which is owned or controlled by any of the foregoing
Persons or owns or controls any of the foregoing Persons or is under common
control with any of the foregoing Persons. For purposes of this definition,
"control" means the possession of the power to direct or cause the direction
of management and policies of a Person through the ownership of voting
securities.
"Date" shall have the meaning set forth in Section 1(b) above.
"DBBC of Georgia" shall mean DBBC of Georgia, LLC, a Georgia limited
liability company.
"Designated Event" shall mean either a Change of Control or an Initial
Public Offering.
"Designated Event Exercise Notice" shall have the meaning specified in
Section 3(c) above.
"Designated Event Redemption Date" shall have the meaning specified in
Section 3(c) above.
"Designated Event Redemption Price" shall have the meaning specified in
Section 3(c) above.
"Dividend Payment Date" shall have the meaning set forth in Section 1(a)
above.
12
<PAGE>
"Dividend Rate" shall have the meaning set forth in Section 1(a)
above.
"Equity Capital" shall mean, as to any Person, equity interests in
such Person, including, without limitation, the shares of each class of
capital stock of any Person that is a corporation, each class of partnership
interests (including, without limitation, general, limited and preference
units), in any Person that is a partnership, and membership interests in any
Person that is a limited liability company.
"First Issuance Date" shall mean the first date on which a share of
Class A Preferred Stock is issued.
"GEM" shall mean Carribean Communications Company Limited, d/b/a GEM
Radio Network, a Montserrat corporation and a wholly-owned Subsidiary of the
Corporation.
"Illinois Corporation Law" shall mean the Illinois Business
Corporation Act, as amended from time to time.
"Initial Public Offering" shall mean the issuance of shares of Common
Stock by the Corporation or the first issuance of shares of equity capital by
Cumulus Media in which the Corporation or Cumulus Media, as the case may be,
receives no less than $50,000,000 of net proceeds pursuant to a public
distribution in which the Common Stock of the Corporation or the equity
capital of Cumulus Media, as the case may be, shall be listed and traded on a
national exchange or on the NASDAQ National Market System.
"Investment Committee" shall have the meaning assigned thereto in the
Operating Agreement.
"Junior Stock" shall mean all Common Stock and all other shares of
stock of any other class of the Corporation, whether or not presently
authorized, ranking as to either payment of dividends or distribution of
assets junior to the Class A Preferred Stock with respect to either payment
of dividends or distribution of assets upon liquidation, dissolution or
winding-up of the Corporation.
"Manager" shall have the meaning assigned thereto in the Operating
Agreement.
"Mandatory Redemption Date" shall have the meaning set forth in
Section 2 above.
"Mandatory Redemption Default Period" shall have the meaning specified
in Section 5(c) above.
"Mandatory Redemption Obligation" shall have the meaning set forth in
Section 2 above.
"Operating Agreement" shall mean the Amended and Restated Operating
Agreement dated as of November 14, 1997 of Cumulus Media, as the same may
from time to time be supplemented or amended in accordance therewith.
13
<PAGE>
"Parity Stock" shall mean all preferred stock of the Corporation,
whether or not presently authorized, ranking, either as to payment of
dividends or distribution of assets, on a parity with the Class A Preferred
Stock.
"Person" shall mean an individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, Tribunal, association,
corporation, institution, entity, limited liability company or government
(whether national, Federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"PIK Shares" shall have the meaning set forth in Section 1(a) above.
"Prior Stock" shall mean all Equity Capital ranking, either as to
payment of dividends, distribution of assets, or in any other respect, prior
to the Class A Preferred Stock.
"Purchase Agreement" shall mean that certain Securities Purchase
Agreement dated as of November 14, 1997 between the Corporation, Cumulus
Media and the Northwestern Mutual Life Insurance Corporation, as the same may
from time to time be supplemented or amended.
"QUAESTUS Management Corp." shall mean QUAESTUS Management Corporation,
a Delaware corporation.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
"Specified Event of Default" shall have the meaning set forth in Section
1(b) above.
"Subsidiary" shall mean any corporation more than 50% of the shares of
Equity Capital of which having ordinary voting power for the election of
directors is owned, directly or indirectly, by the Corporation and/or any
other Subsidiary of the Corporation or by Cumulus Media and/or any other
Subsidiary of Cumulus Media.
"Tribunal" shall mean any state, commonwealth, federal, foreign,
territorial or other court or government body, subdivision, agency,
department, commission, board, bureau or instrumentality of a governmental
body.
Part II. Common Stock
Section 1. Dividends. Subject to the foregoing provisions of this
Article 4, such dividends as may be determined by the Board of Directors may
be declared and paid out of any funds lawfully available therefore upon the
Common Stock of the Corporation from time to time.
14
<PAGE>
Section 2. Voting Rights. The holders of the Common Stock shall be
entitled to one (1) vote for each share held on any matter submitted to a
vote of the shareholders of the Corporation. No holder of Common Stock shall
be entitled to any cumulative voting rights.
Section 3. Liquidation, Dissolution or Winding-Up. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, after payment to the holders of the Class A Preferred Stock
of the amounts to which they are entitled as hereinbefore provided, the
holders of the Common Stock shall be entitled to share ratably in all assets
then remaining subject to distribution to the shareholders.
The voluntary sale, lease, exchange or transfer (for cash, shares of
stock, Securities or other consideration) of all or substantially all of its
property or assets to, or a consolidation or merger of the Corporation with,
any other Person shall not be deemed to be a liquidation, dissolution or
winding-up of the affairs of the Corporation within the meaning of this
Section 3.
15
<PAGE>
Exhibit 3.3
BY-LAWS
OF
CUMULUS HOLDINGS, INC.
ARTICLE I. OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation in
the State of Illinois shall be located at 875 North Michigan Avenue, Suite 3650,
Chicago, Illinois. The Corporation may also have offices at such other places,
either within or without the State of Illinois, where the Corporation is
qualified to do business, as the Board of Directors may designate or as the
business of the Corporation may require.
SECTION 2. REGISTERED OFFICE. The registered office of the Corporation
which is required by The Business Corporation Act to be maintained in the State
of Illinois may be, but need not be, identical with the principal office of the
Corporation in the State of Illinois, and the address of the registered office
may be changed from time to time by the Board of Directors.
ARTICLE II. SHAREHOLDERS' MEETINGS
SECTION 1. ANNUAL MEETING. The annual meeting of the shareholders of the
Corporation shall be held within seventy-five (75) days after the close of the
preceding fiscal year, for the purpose of electing Directors and transacting
such other business as may properly come before the meeting. If the election of
Directors is not held on the day designated herein for the annual meeting of the
shareholders, or at any adjournment of such meeting, the Board of Directors
shall cause the election to be held at a special meeting of the shareholders as
soon thereafter as may be convenient.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the President, the Board of Directors, or the holder or holders of not
less than one-fifth (1/5) of all of the outstanding shares of the Corporation.
SECTION 3. PLACE OF MEETING. The annual meeting of the shareholders, and
any special meeting of the shareholders called by the Board of Directors, shall
be held at such place, either within or without the State of Illinois, as the
Board of Directors may designate. If no designation is made, or if a special
meeting of the shareholders is otherwise called, the place of meeting shall be
the principal office of the Corporation in the State of Illinois; but any
meeting of the shareholders may be adjourned to reconvene at the place
designated by vote of a majority of the shares represented at such meeting.
SECTION 4. NOTICE OF MEETINGS. Written or printed notice of all meetings
of the shareholders shall be delivered to each shareholder of record, either
personally or by mail to the
<PAGE>
shareholder at his address as it appears on the stock transfer books of the
Corporation, by or at the direction of the President, the Secretary, or the
person or persons calling such meeting. If notice is delivered by mail, the
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid.
SECTION 5. TIME AND CONTENTS OF NOTICE. Notice of any meeting of the
shareholders shall be delivered not less than 10 nor more than 40 days prior to
the date of the meeting, or in the case of a merger or consolidation, not less
than 20 nor more than 40 days prior to the date of the meeting. The notice
shall state the place, date, and time of the meeting and, if it is a special
meeting, the notice shall also state the purpose or purposes for which the
meeting is called. If the purpose of the meeting, or one of its purposes, is to
consider a proposed reduction of stated capital without amendment to the
Articles of Incorporation, or voluntary dissolution or revocation of a voluntary
dissolution by act of the Corporation, or a proposed disposition of all (or
substantially all) of the assets of the Corporation outside of the ordinary
course of business, the notice of the meeting shall state such purpose. If the
purpose of the meeting, or one of its purposes, is to consider a proposed
amendment to the Articles of Incorporation, the notice shall set forth the
proposed amendment or a summary of the changes to be effected thereby; and if
the purpose of the meeting, or one of its purposes, is to consider a proposed
merger or consolidation, a copy or a summary of the plan of merger or plan of
consolidation, as the case may be, shall be included in or enclosed with the
notice of the meeting.
SECTION 6. QUORUM. A majority of the outstanding shares of the
corporation, represented in person or by proxy, shall constitute a quorum at any
meeting of the shareholders; provided, however, that if less than a majority of
the outstanding shares of each class are represented at the meeting, a majority
of the shares so represented may adjourn the meeting from time to time without
further notice. If a quorum is present, the affirmative vote of a majority of
the shares of each class represented at the meeting shall be the act of the
shareholders, unless the vote of a greater number is required by The Business
Corporation Act, the Articles of Incorporation, or these By-Laws.
SECTION 7. CLOSING OF STOCK TRANSFER BOOK OR FIXING OF RECORD DATE. For
the purpose of determining the shareholders entitled to notice of or to vote at
any meeting of the shareholders, or the shareholders entitled to receive payment
of any dividend, or in order to make a determination of the shareholders for any
other purpose, the Board of Directors may provide that the stock transfer books
of the Corporation shall be closed for a stated period not exceeding 60 days.
If the stock transfer books are closed for the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of the
shareholders, such books shall be closed not less than 10 days, or in the case
of a merger or consolidation, not less than 20 days, prior to the date of the
meeting. In lieu of closing the stock transfer books, the Board of Directors
may fix a date in advance as the record date for any such determination of
shareholders, provided that such date is not more than 60 days and, in the case
of a meeting of the shareholders, not less than 10 days (or in the case of a
merger or consolidation, not less than 20 days), prior to the date of the
meeting. If the stock transfer books of the Corporation are not closed and no
record date is fixed by the Board of Directors for a determination of the
shareholders entitled to notice of or to vote
2
<PAGE>
at any meeting of the shareholders, or for a determination of the shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders.
SECTION 8. VOTING LISTS. Not less than ten (10) days prior to the date of
each meeting of the shareholders, the officer having charge of the stock
transfer books of the Corporation shall make a complete list of the shareholders
entitled to vote at the meeting, which shall be arranged in alphabetical order,
with the address and number of shares held by each shareholder, and shall be
kept on file at the principal office of the Corporation for inspection by any
shareholder at any time during usual business hours. The voting list shall also
be produced and kept open at the meeting of the shareholders and shall be
subject to inspection by any shareholder at any time during the meeting. The
stock transfer books of the Corporation shall be prima facie evidence of the
shareholders entitled to examine the voting list, or the stock transfer books,
or to vote at the meeting of the shareholders. Notwithstanding anything to the
contrary contained herein, the failure to prepare or to make available a list of
shareholders as provided in this Section shall not affect the validity of any
action otherwise properly taken at the meeting of the shareholders.
SECTION 9. VOTING OF SHARES. Subject to Section 11 of this Article, each
outstanding share of the Corporation, regardless of class, shall be entitled to
one (1) vote upon each matter submitted to a vote at any meeting of the
shareholders.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of the
Corporation standing in the name of another corporation, whether domestic or
foreign, may be voted by such officer, agent, or proxy as the by-laws of such
corporation may provide or, in the absence of any such provision, as the board
of directors of such corporation may determine; and any shares voted by an
officer, agent, or proxy of such corporation shall be presumed to be voted with
due authority in the absence of express notice to the contrary given in writing
to the Secretary or other officer of the Corporation.
Shares of the Corporation standing in the name of a deceased person, a
minor, or an incompetent, may be voted by such person's administrator, executor,
guardian, or conservator, as the case may be, either in person or by proxy,
without the necessity to transfer such shares into the name of such fiduciary,
provided that such fiduciary files proper evidence of his incumbency or office
with the Secretary of the Corporation. Shares standing in the name of a trustee
may be voted by him either in person or by proxy.
Shares of the Corporation which have been pledged by a shareholder shall
continue to be voted by him until such shares have been transferred into the
name of the pledgee.
Shares of the Corporation belonging to the Corporation itself shall not be
voted, directly or indirectly, at any meeting of the shareholders and shall not
be considered in determining the total number of outstanding shares at any given
time.
3
<PAGE>
SECTION 11. CUMULATIVE VOTING. In all elections for Directors, every
shareholder shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are Directors to be elected, or
he may cumulate his shares and give one candidate as many votes as the number of
Directors to be elected multiplied by the number of his shares shall equal, or
he may distribute his shares on the same principle among as many candidates as
he may determine.
SECTION 12. PROXIES. A shareholder may vote at any meeting of the
shareholders by a proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact, which shall be filed with the Secretary of the
Corporation prior to or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy.
SECTION 13. WAIVER OF NOTICE. Whenever any notice is required to be given
to any shareholder under The Business Corporation Act, the Articles of
Incorporation, or these By-Laws, a waiver thereof in writing by the shareholder
entitled to such notice, signed at any time before or after the time of the
meeting, shall be deemed equivalent to the giving of such notice.
SECTION 14. INFORMAL ACTION BY SHAREHOLDERS. Any action required by The
Business Corporation Act, the Articles of Incorporation, or these By-Laws to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof. Such
consent shall have the same force and effect as a unanimous vote of
shareholders, and may be stated as such in any document filed with the Secretary
of State under The Business Corporation Act.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. Subject to any limitations imposed by The
Business Corporation Act, the Articles of Incorporation, or these By-Laws, the
business and affairs of the Corporation shall be managed by its Board of
Directors.
SECTION 2. NUMBER, TENURE, AND QUALIFICATIONS. The number of Directors of
the Corporation shall be five (5). The number of Directors may be increased or
decreased from time to time by amendment to these By-Laws, but no decrease shall
have the effect of reducing the term of any incumbent Director. Each Director
shall hold office until the next succeeding annual meeting of the shareholders
or until his successor has been elected and qualified. Directors need not be
residents of the State of Illinois or shareholders of the Corporation.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held, without other notice than this By-Law, immediately after, and at
the same place as, the annual meeting of the shareholders. The Board of
Directors may provide by resolution for the
4
<PAGE>
holding of additional regular meetings of the Board of Directors, either within
or without the State of Illinois, without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President of the Corporation or any
two Directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Illinois, as the place for holding any special meeting of the Board of Directors
called by them.
SECTION 5. NOTICE. Notice of any special meeting of the Board of
Directors shall be given orally, in writing, or by telegram not less than
seventy-two (72) hours prior to the time of such meeting. If written notice is
given, such notice shall be deemed to be given upon the personal delivery of
such notice or upon the deposit of such notice in the United States mail,
postage prepaid, addressed to the Director at his business address. If notice
by telegram is given, such notice shall be deemed to be given when delivered to
the telegraph company for transmission to the Director at his business address.
Whenever any notice is required to be given to any Director of the Corporation
under The Business Corporation Act, the Articles of Incorporation, or these
By-Laws, a waiver thereof in writing by the Director entitled to such notice,
signed at any time before or after the time of meeting, shall be deemed
equivalent to the giving of such notice. The attendance of a Director at any
meeting of the Board of Directors shall constitute a waiver of notice of the
meeting, except where a Director attends for the express purpose of objecting to
the transaction of any business at the meeting on the grounds that the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of the meeting.
SECTION 6. QUORUM. A majority of the number of Directors fixed by these
By-Laws shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors; provided, however, that if less than a majority of
such number of Directors are present, a majority of the Directors present may
adjourn the meeting from time to time without further notice.
SECTION 7. MAJORITY ACTION. The act of a majority of the Directors
present at a meeting of the Board of Directors at which a quorum is present
shall be the act of the Board of Directors (unless the act of a greater number
of Directors is required by the Articles of Incorporation or by these By-Laws).
A Director of the Corporation who is present at a meeting of the Board of
Directors at which action is taken shall be conclusively presumed to have
assented to the action so taken unless his dissent to such action is entered in
the minutes of the meeting, or he files a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment
thereof, or he forwards his dissent, by registered or certified mail, to the
Secretary of the Corporation not later than two (2) days after the adjournment
of the meeting. This right to dissent may not be exercised by any Director who
voted in favor of such action.
5
<PAGE>
SECTION 8. VACANCIES. Any vacancy occurring in the Board of Directors,
and any directorship to be filled by reason of an increase in the number of
Directors, shall be filled by election at the annual meeting of the shareholders
or at a special meeting of the shareholders called for such purpose. A Director
elected to fill a vacancy shall serve for the unexpired term of his predecessor
in office and until his successor is elected and qualified.
SECTION 9. COMPENSATION. By resolution adopted by the affirmative vote of
a majority of the Directors then in office, and regardless of the personal
interest of any Director, the Board of Directors may establish reasonable
compensation of all Directors for services rendered to the Corporation as
Directors, officers, or otherwise. By a like resolution, the Board of Directors
may authorize the payment to all Directors of their respective expenses, if any,
reasonably incurred in attending any regular or special meeting of the Board of
Directors.
SECTION 10. COMMITTEES. By resolution adopted by the affirmative vote of
a majority of Directors then in office, the Board of Directors may designate one
or more committees, each committee to consist of two or more Directors elected
by the Board of Directors, which, to the extent provided in such resolution (as
initially adopted and as thereafter supplemented or amended by further
resolution adopted by a like vote) shall have and may exercise (when the Board
of Directors is not in session) all of the authority and powers of the Board of
Directors in the management of the business and affairs of the Corporation
(provided, however, that no such committee shall have or exercise the authority
or powers of the Board of Directors with respect to the following: amending the
articles of incorporation; adopting a plan of merger or adopting a plan of
consolidation with another corporation or corporations; recommending to the
shareholders the sale, lease, exchange, mortgage, pledge, or other disposition
of all or substantially all of the assets of the Corporation if not made in the
usual and regular course of its business; recommending to the shareholders a
voluntary of dissolution of the Corporation or a revocation thereof; amending,
altering, or repealing these By-Laws; electing or removing officers of the
Corporation or members of any committee created pursuant to this Section;
declaring dividends; or amending, altering, or repealing any resolution of the
Board of Directors which by its terms provides that it shall not be amended,
altered, or repealed by any committee created pursuant to this Section). The
Board of Directors may elect one or more of its members as alternate members of
any such committee, who may take the place of any absent member or members at
any meeting of such committee upon request by the President of the Corporation
or the chairman of such meeting. Each such committee shall fix its own rules
governing the conduct of its activities and shall make such reports of its
activities to the Board of Directors as the Board of Directors may request.
SECTION 11. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. The
Corporation may indemnify any person who was or is, or is threatened to be made,
a party to any threatened, pending, or completed action, suit, or proceeding
(whether civil, criminal, administrative, or investigative) by reason of the
fact that he is or was a Director, officer, or employee of the Corporation,
against any costs or expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action, suit, or proceeding, if (i) he acted in good faith and in a manner that
he reasonably believed to be in, or not opposed to,
6
<PAGE>
the best interests of the Corporation and if (ii) with respect to any criminal
action or proceeding, he did not have reasonable cause to believe that his
conduct was unlawful; provided, however, that no indemnification shall be made
with respect to any claim, issue, or matter arising from any action by or in the
name of the Corporation with respect to which the person is adjudged liable for
negligence or misconduct in the performance of his duty to the Corporation
(unless, and only to the extent that, the court in which such action was brought
determines, upon application, that despite the adjudication of liability, but in
view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such costs and expenses which the court
shall deem proper). The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in, or
not opposed to, the best interests of the Corporation and, with respect to any
criminal action or proceeding, did have reasonable cause to believe that his
conduct was unlawful.
To the extent that a Director, officer, or employee of the Corporation has
been successful on the merits or otherwise in defense of any action, suit, or
proceeding to which this Section is applicable, or in defense of any claim,
issue, or matter therein, he shall be indemnified against the costs and
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
Unless ordered by a court, any indemnification under this Section shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the Director, officer, or employee is
proper under the circumstances because he has met the applicable standard of
conduct set forth herein. This determination shall be made (i) by the Board of
Directors by a majority vote of a quorum consisting of Directors who were not
parties to such action, suit, or proceeding, or (ii) if such a quorum is not
obtainable, or even if obtainable, if a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion to the Board of
Directors, or (iii) by the shareholders of the Corporation.
SECTION 12. INFORMAL ACTION BY DIRECTORS. Any action required by The
Business Corporation Act, the Articles of Incorporation, or these By-Laws to be
taken at a meeting of the Board of Directors, or any other action which may be
taken at a meeting of the Board of Directors, may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the Directors entitled to vote with respect to the subject matter thereof.
Such consent shall have the same force and effect as a unanimous vote of all of
the members of the Board of Directors, and may be stated as such in any document
filed with the Secretary of State under The Business Corporation Act.
ARTICLE IV. OFFICERS
SECTION 1. PRINCIPAL OFFICERS. The principal officers of the Corporation
may include a Chairman of the Board, a Vice Chairman, a President, one or more
Vice-Presidents (the number of which shall be determined by the Board of
Directors), a Secretary, and a Treasurer, each of
7
<PAGE>
whom shall be elected by the Board of Directors. The Board of Directors may
elect or appoint such other officers and assistant officers as may be deemed
necessary or desirable. One person may hold any two or more offices, with the
exception that the same person shall not hold the offices of President and
Secretary.
SECTION 2. ELECTION AND TERM OF OFFICE. Subject to Section 4, below, the
officers of the Corporation shall be elected annually by the Board of Directors
at the regular meeting of the Board of Directors held after the annual meeting
of the shareholders; and each officer shall hold office until his successor is
elected and qualified or until his death or his resignation or removal in the
manner provided in Section III, below. If the election of officers is not held
at such regular meeting of the Board of Directors, the election shall be held as
soon thereafter as may be convenient. Election or appointment of an officer
shall not of itself create any contract rights.
SECTION 3. REMOVAL. Any officer elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, or the person so removed.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the President or Secretary of the Corporation. The resignation
shall take effect on the date of receipt of the notice of resignation or at any
later time specified therein; and unless the notice of resignation specifies
otherwise, the resignation shall become effective without the necessity of
acceptance by the Board of Directors.
SECTION 4. VACANCIES. If any office becomes vacant by reason of the
death, resignation, or removal of the incumbent, the Board of Directors shall
elect a successor who shall hold office for the unexpired term of his
predecessor and until his successor is elected and qualified.
SECTION 5. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the
principal executive officer of the Corporation and, subject to the control of
the Board of Directors, shall in general supervise and control all of the
business and affairs of the Corporation. He shall, when present, preside at all
meetings of the shareholders and of the Board of Directors. He may sign
certificates for shares of the Corporation's capital stock and deeds, mortgages,
bonds, contracts, or other instruments necessary or proper to be executed in the
course of the Corporation's regular business or which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-laws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of chairman of the board and such other duties as
may be prescribed by the Board of Directors from time to time. Except as
otherwise provided by the The Business Corporation Act or the Board of
Directors, the Chairman of the Board may authorize any President, Vice-President
or other officer or agent of the Corporation to sign, execute and acknowledge
such documents or instruments in his place and stead.
SECTION 6. THE VICE CHAIRMAN. The Vice Chairman shall, in the absence of
the Chairman of the Board, preside at all meetings of the shareholders and of
the Board of Directors.
8
<PAGE>
In the absence of the Chairman of the Board or in the event of his death,
inability or refusal to act, the Vice Chairman shall perform the duties of the
Chairman of the Board, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chairman of the Board. He shall
perform such other duties as may be prescribed from time to time by the Chairman
of the Board or the Board of Directors.
SECTION 7. PRESIDENT. The President shall be the chief executive officer
of the Corporation. The President may sign certificates for shares of the
Corporation's capital stock and deeds, mortgages, bonds, contracts, or other
instruments necessary or proper to be executed in the course of the
Corporation's regular business or which the Board of Directors has authorized to
be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these By-laws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed; and in general shall perform all duties incident to the
office of president and such other duties as may be prescribed by the Board of
Directors from time to time. Except as otherwise provided by the The Business
Corporation Act or the Board of Directors, the President may authorize any
Vice-President or other officer or agent of the Corporation to sign, execute and
acknowledge such documents or instruments in his place and stead.
SECTION 8. THE VICE-PRESIDENTS. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice-President, if one has
been elected (or in the event that there is more than one Vice-President, the
Vice-Presidents in the order designated at the time of their appointment, or in
the absence of any designation, then in the order of their appointment), shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Any
Vice-President may sign certificates for shares of the Corporation's capital
stock, the issuance of which have been authorized by resolution of the Board of
Directors; and shall perform such other duties as from time to time may be
assigned to him by the Chairman of the Board or by the Board of Directors.
SECTION 9. THE SECRETARY. The Secretary shall: (a) keep the minutes of
the proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-laws or as required by the The
Business Corporation Act; (c) be custodian of the corporate records and of any
seal of the Corporation and, if there is a seal of the Corporation, see that it
is affixed to all documents, the execution of which on behalf of the Corporation
under its seal is duly authorized; (d) when requested or required, authenticate
any records of the Corporation; (e) keep a register of the post office address
of each shareholder which shall be furnished to the Secretary by such
shareholder or delegate that responsibility to a stock transfer agent approved
by the Board of Directors; (f) sign, with the Chairman of the Board, the
President or a Vice-President, certificates for shares of the Corporation's
capital stock, the issuance of which has been authorized by resolution of the
Board of Directors; (g) have general charge of the stock transfer books of the
Corporation; and (h) in general perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him by
the Chairman of the Board or by the Board of Directors.
9
<PAGE>
SECTION 10. THE CHIEF FINANCIAL OFFICER AND TREASURER. The Chief
Financial Officer and Treasurer shall: (a) have charge and custody of and be
responsible for all funds and securities of the Corporation; (b) receive and
give receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys in the name of the Corporation in such
banks, trust companies, or other depositaries as shall be selected by the Board
of Directors; and (c) in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the Chairman of the Board or by the Board of Directors. If required
by the Board of Directors, the Treasurer shall give a bond for the faithful
discharge of his duties in such sum and with such surety or sureties as the
Board of Directors shall require.
SECTION 11. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
Chairman of the Board, the President or a Vice-President certificates for shares
of the Corporation the issuance of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the Board of
Directors shall determine. The Assistant Secretaries and Assistant Treasurers,
in general, shall perform such duties as shall be assigned to them by the
Secretary or the Treasurer, respectively, or by the Chairman of the Board or the
Board of Directors.
SECTION 12. SALARIES. The salaries of officers of the Corporation shall
be fixed from time to time by the Board of Directors, and no officer shall be
prevented from receiving a salary by reason of the fact that he is also a
Director of the Corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS AND INSTRUMENTS. The Board of Directors may
authorize any officer or officers of the Corporation to enter into any contract
or agreement, and to execute and deliver any agreement, document, or instrument,
in the name of and on behalf of the Corporation, and such authorization may be
general or confined to specific instances.
SECTION 2. LOANS. No loan shall be made on behalf of the Corporation, and
no evidence of indebtedness shall be issued in its name, unless authorized by
resolution of the Board of Directors; and such authorization may be general or
confined to specific instances.
SECTION 3. CHECKS AND DRAFTS. All checks, drafts, and other orders for
the payment of money, and all promissory notes and other evidence of
indebtedness issued in the name of the Corporation, shall be signed by such
officer or officers and in such manner as shall be determined by resolution of
the Board of Directors.
10
<PAGE>
SECTION 4. DEPOSITS. All funds and monies of the Corporation shall be
deposited in the name of the Corporation in such banks, trust companies, or
other depositories as the Board of Directors may select or as the Board of
Directors may authorize any officer or officers to select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
the Corporation shall be in such form as may be determined by the Board of
Directors. Such certificates shall be signed by the President or a
Vice-President, and by the Secretary or Assistant Secretary, and shall be sealed
with the seal of the Corporation. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and post office
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issuance, shall be entered on the stock
transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be cancelled and no new certificates shall be
issued until the former certificate for a like number of shares has been
surrendered and cancelled, except that in the case of a lost, destroyed, or
mutilated certificate, a new certificate may be issued therefor upon such terms
and indemnity to the Corporation as the Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfers of shares of the Corporation
shall be made on the stock transfer books of the Corporation only by the holder
of record thereof, or by his legal representative or his attorney so authorized
by a duly executed power-of-attorney filed with the Secretary of the
Corporation, upon surrender for cancellation of the certificate for such shares.
Prior to due presentment of a certificate for shares for registration of
transfer, the Corporation may treat the registered owner of such shares as the
person exclusively entitled to vote, to receive notifications, and otherwise to
exercise all of the rights and powers of the owner of such shares. Where a
certificate for shares is presented to the Corporation with a request to
register for transfer, the Corporation shall not be liable to the owner or any
other person suffering loss as a result of such registration of transfer if
there were on or with the certificate the necessary endorsements and if the
Corporation had no duty to inquire into adverse claims or had discharged any
such duty. The Corporation may require reasonable assurance that the
endorsements are genuine and effective and in compliance with such other
regulations as may be prescribed by the Board of Directors.
ARTICLE VII. AMENDMENTS
SECTION 1. AMENDMENT BY DIRECTORS. These By-Laws may be altered, amended,
or repealed, and new By-Laws may be adopted in whole or in part by the Board of
Directors, notwithstanding the fact that these By-Laws may have been adopted by
the subscribers or by the shareholders of the Corporation.
SECTION 2. IMPLIED AMENDMENTS. Any action taken or authorized by the
shareholders of the Corporation by the affirmative vote of the holders of the
majority of the outstanding shares of each class of the Corporation, or by the
Board of Directors, shall be given the same effect as
11
<PAGE>
though these By-Laws had been temporarily amended so far as is necessary to
permit the specific action so taken or authorized.
12
<PAGE>
Exhibit 3.5
STATEMENT OF RESOLUTIONS FIXING TERMS OF
VOTING POWER, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS
AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS
OF
[__]% SERIES A CUMULATIVE EXCHANGEABLE
REDEEMABLE PREFERRED STOCK DUE 2009
OF
CUMULUS MEDIA INC.(1)
------------------
Pursuant to Section [____] of the
Business Corporation Act of Illinois
------------------
Cumulus Media Inc., an Illinois corporation (the "Company")
certifies that pursuant to the authority contained in ARTICLE [ ] of its
Articles of Incorporation, as amended (the "Articles of Incorporation"), and in
accordance with the provisions of Section [___] of the Business Corporation Act
of Illinois, the Board of Directors of the Company (the "Board of Directors") by
unanimous written consent, duly approved and adopted the following resolution
which resolution remains in full force and effect on the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of
Directors by the Articles of Incorporation, the Board of Directors does hereby
designate, create, authorize and provide for the issue of preferred stock having
a par value of $.01 per share, which shall be designated as [__]% Series A
Cumulative Exchangeable Redeemable Preferred Stock due 2009 (the "Series A
Preferred Stock") consisting of [________] shares to be issued pursuant to the
Prospectus and an additional [ ] shares reserved for issuance
- ----------
(1) Appropriateness of general form of Certificate is subject to review by
Illinois counsel.
<PAGE>
from time to time and shall have the voting powers, preferences and relative
participating, optional and other special rights, and qualifications,
limitations and restrictions thereon as follows:
1. Certain Definitions.
Unless the context otherwise requires, the terms defined in this Section 1
shall have, for all purposes of this resolution, the meanings herein specified
(with terms defined in the singular having comparable meanings when used in the
plural).
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Applicable Redemption Price" means, for each share of Series A Preferred
Stock, the price equal to the redemption prices set forth below (expressed as
percentages of the then effective Liquidation Preference thereof), plus, without
duplication, all accumulated and unpaid dividends, if any, to but excluding the
Redemption Date (including an amount in cash equal to a prorated dividend for
the period from the Dividend Payment Date immediately prior to but excluding the
Redemption Date), if redeemed during the 12-month period commencing on
[_________] of the years set forth below:
2003...................................................[__]%
2004...................................................[__]%
2005...................................................[__]%
2006...................................................[__]%
2007 and thereafter.....................................100%
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such
2
<PAGE>
transaction, determined in accordance with GAAP) of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction (including any period for which such lease has
been extended or may, at the option of the lessor, be extended).
"BCAI" has the meaning set forth in Section 5(a)
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, to be in full force and effect on the date of such certification
and delivered to the Transfer Agent.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York City or the State
of Illinois are authorized or obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability company or
similar entity, any membership or similar interests therein and (v) any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued, or directly and fully guaranteed, or insured by, the United States
government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to the Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above and (v) commercial paper having a rating of at least P-2 from
Moody's Investors Service, Inc. (or its successor) and a rating of at least A-2
from Standard & Poor's Ratings Services (or its successor) and (vi) investments
in money
3
<PAGE>
market or other mutual funds substantially all of whose assets comprise
securities of types described in clauses (ii) through (v) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole, to any "person" or group of related "persons" (a "Group") (as such terms
are used in Section 13(d)(3) of the Exchange Act) other than a Principal or a
Related Party of a Principal, (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any purchase, sale, acquisition,
disposition, merger or consolidation) the result of which is that any "person"
(as defined above) or Group becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of more than 35% of
the aggregate voting power of all classes of Capital Stock of the Company having
the right to elect directors under ordinary circumstances or (iv) the first day
on which a majority of the members of the Board of Directors of the Company are
not Continuing Directors.
"Change of Control Offer" has the meaning set forth in Section 8(a).
"Change of Control Payment" has the meaning set forth in Section 8(a).
"Change of Control Payment Date" has the meaning set forth in Section
8(d).
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the sum of, without duplication, the Consolidated Net Income of such Person for
such period plus (i) provision for taxes based on income or profits of such
Person and its Subsidiaries for such period, to the extent that such provision
for taxes was included in computing such Consolidated Net Income, plus (ii)
Consolidated Interest Expense of such Person for such period, to the extent that
any such expense was deducted in computing such Consolidated Net Income, plus
(iii) the product of (a) all cash dividend payments, on any series of preferred
stock of such Person or any of its Restricted Subsidiaries, other than dividend
payments on Equity Interests payable solely in Equity Interests (other than
Disqualified Stock) of the Company, times (b) a fraction, the numerator of which
is one and the denominator of which is one minus the then current combined
federal, state and local effective tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP, plus
(iv) consolidated depreciation, amortization and other non-cash charges of the
Person and its Subsidiaries deducted in computing Consolidated Net Income of
such Person for such period (v) cash payments with respect to any non-cash
charges previously added back pursuant to clause (iv). Notwithstanding the
4
<PAGE>
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication of (i) the consolidated interest expense of
such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), (ii) the consolidated interest expense of such Person
and its Restricted Subsidiaries that was capitalized during such period, (iii)
any interest expense on Indebtedness of another Person that is guaranteed by
such Person or any of its Restricted Subsidiaries or secured by a Lien on assets
of such Person or any of its Restricted Subsidiaries (whether or not such
guarantee or Lien is called upon) and (iv) the product of (a) all cash dividend
payments (and non-cash dividend payments in the case of a Person that is a
Restricted Subsidiary) on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior government approval (that has not been obtained) or, directly
or indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iv) the cumulative effect of a
change in accounting principles shall be excluded, and (v) all other
extraordinary gains and extraordinary losses shall be excluded.
5
<PAGE>
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Issue Date in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of original issuance of the Exchange Debentures or (ii)
was nominated for election or elected to such Board of Directors with the
approval of (x) two-thirds of the Continuing Directors who were members of such
Board at the time of such nomination or election or (y) two-thirds of those
Directors who were previously approved by Continuing Directors.
"Credit Agreements" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Facility) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, production payments, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Indebtedness under
Credit Agreements outstanding on the Issue Date (after giving effect to the use
of proceeds thereof) shall be deemed to have been incurred on such date in
reliance on the exception provided by clause (b) of the definition of Permitted
Indebtedness.
"Credit Facility" means that certain Credit Agreement, dated as of March
2, 1998, as amended by and among the Company, Lehman Brothers Inc., as Arranger
and Lehman Brothers Commercial Paper Inc., as syndication agent and
administrative agent and as a lender, and certain banks, financial institutions
and other entities, as lenders, providing for up to $190.0 million of
Indebtedness, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, restated, modified, renewed, refunded, replaced or refinanced, in whole
or in part, from time to time, whether or not with the same lenders or agents.
6
<PAGE>
"Debentures Trustee" has the meaning set forth in Section 6(a).
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, is convertible
or exchangeable for Indebtedness or Disqualified Stock or redeemable at the
option of the holder thereof, in whole or in part, on or prior to the date that
is 91 days after the date on which the Exchange Debentures mature, provided
however, that any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof (or of any security into which it is convertible or
for which it is exchangeable) have the right to require the issuer to repurchase
such Capital Stock (or such security into which it is convertible or for which
it is exchangeable) upon the occurrence of any of the events constituting a
Change of Control shall not constitute Disqualified Stock if such Capital Stock
(and all such securities into which it is convertible or for which it is
exchangeable) provides that the issuer thereof will not repurchase or redeem any
such Capital Stock (or any such security into which it is convertible or for
which it is exchangeable) pursuant to such provisions prior to compliance by the
Company with the provisions of Section 8.
"Dividend Payment Date" has the meaning set forth in Section 3(a).
"Dividend Shares" means shares of Series A Preferred Stock paid by the
Company to Holders of then outstanding shares of Series A Preferred Stock as
dividends on such outstanding shares in accordance with this Statement of
Resolutions Fixing Terms.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any public or private sale of the Common Stock of
the Company pursuant to which the Company receives net proceeds of at least
$25.0 million, other than issuances of Common Stock of the Company pursuant to
employee benefit plans or as compensation to employees.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Date" has the meaning set forth in Section 6(c).
"Exchange Debentures" means the Company's [__]% Subordinated Debentures
due 2009, issuable in exchange for the Series A Preferred Stock in accordance
with the terms hereof.
7
<PAGE>
"Exchange Indenture" has the meaning set forth in Section 6(a).
"Exchange Notice" has the meaning set forth in Section 6(c).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements with respect to Indebtedness that
is permitted by Section 9(a) and (ii) other agreements or arrangements designed
to protect such Person against fluctuation in interest rates or the value of
foreign currencies purchased or received by such Person in the ordinary course
of business.
"Holder" means a Person in whose name a share of Series A Preferred Stock
is registered.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, incur, issue, assume, guarantee or otherwise become liable
contingently or otherwise (and "Incurrence", "Incurred", "Incurrable" and
"Incurring" shall have meanings correlative to the foregoing).
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, (i) in respect of borrowed money, or (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or reimbursement agreements in respect thereof (other than letters of
credit securing obligations not constituting Indebtedness that are issued in the
ordinary course of business by a Person to the extent not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit) or bankers' acceptances, or (iii)
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property, except any such balance that constitutes an
accrued expense or trade payable, or (iv) representing any Hedging Obligations,
in each case if and to the extent any of the foregoing indebtedness (other than
letters of credit and Hedging Obligations) would appear as a liability upon a
8
<PAGE>
balance sheet of such Person prepared in accordance with GAAP, as well as all
Indebtedness of others secured by a Lien on any asset of such Person (whether or
not such Indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any Indebtedness of any
other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of.
"Issue Date" means the date on which the Series A Preferred Stock are
originally issued.
"Junior Securities" has the meaning set for in Section 2.
"Leverage Ratio" means the ratio of (i) the aggregate outstanding amount
of Indebtedness of the Company and its Subsidiaries as of the date of
calculation on a consolidated basis in accordance with GAAP (subject to the
terms described in the next paragraph) plus the aggregate liquidation preference
of all outstanding Disqualified Stock of the Company and preferred stock of the
Company's Subsidiaries (except preferred stock issued to the Company or a Wholly
Owned Subsidiary of the Company) on such date to (ii) the Consolidated Cash Flow
of the Company for the four full fiscal quarters (the "Four Quarter Period")
ending on or prior to the date of determination.
For purposes of this definition, (i) the amount of Indebtedness which is
issued at a discount shall be deemed to be the accreted value of such
Indebtedness at the end of the Four Quarter period, whether or not such amount
is the amount then reflected on a balance sheet prepared in accordance with
GAAP, and (ii) the aggregate outstanding principal amount of Indebtedness of the
Company and its Subsidiaries and the aggregate liquidation preference of all
outstanding preferred stock of the Company's Subsidiaries for which such
calculation is made shall be determined on a pro forma basis as if the
Indebtedness and preferred stock giving rise to the need to perform such
calculation had been incurred and issued and the proceeds therefrom had been
applied, and all other transactions in respect of which such
9
<PAGE>
Indebtedness is being incurred or preferred stock is being issued had occurred,
on the first day of the Four Quarter Period. In addition to the foregoing, for
purposes of this definition, Consolidated Cash Flow shall be calculated on a pro
forma basis after giving effect to (i) the incurrence of the Indebtedness of
such Person and its Subsidiaries and the issuance of the preferred stock of such
Subsidiaries (and the application of the proceeds therefrom) giving rise to the
need to make such calculation and any incurrence (and the application of the
proceeds therefrom) or repayment of other Indebtedness, other than the
incurrence or repayment of Indebtedness pursuant to working capital facilities,
at any time subsequent to the beginning of the Four Quarter Period and on or
prior to the date of determination, as if such incurrence or issuance (and the
application of the proceeds thereof), or the repayment, as the case may be,
occurred on the first day of the Four Quarter Period, (ii) any acquisition
(including, without limitation, any acquisition giving rise to the need to make
such calculation as a result of such Person or one of its Subsidiaries
(including any Person that becomes a Subsidiary as a result of such acquisition)
incurring, assuming or otherwise becoming liable for Indebtedness or such
Person's Subsidiaries issuing preferred stock) at any time on or subsequent to
the first day of the Four Quarter Period and on or prior to the date of
determination, as if such acquisition (including the incurrence, assumption or
liability for any such Indebtedness and the issuance of such preferred stock and
also including any Consolidated Cash Flow associated with such acquisition)
occurred on the first day of the Four Quarter Period. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company consistent with Article 11 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date. Furthermore, in calculating "Consolidated Interest Expense" for
purposes of the calculation of "Consolidated Cash Flow," (i) interest on
Indebtedness determined on a fluctuating basis as of the date of determination
(including Indebtedness actually incurred on the date of the transaction giving
rise to the need to calculate the Leverage Ratio) and which will continue to be
so determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness as in effect on the
date of determination and (ii) notwithstanding (i) above, interest determined on
a fluctuating basis, to the extent such interest is covered by Hedging
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement with respect to a lease not intended as
a security agreement).
10
<PAGE>
"Liquidation Preference" means $1,000 per share of Series A Preferred
Stock.
"Mandatory Redemption Date" has the meaning set forth in Section 5(a).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for taxes on such gain or loss, realized in
connection with (a) any asset sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (ii) any extraordinary or nonrecurring gain or loss, together
with any related provision for taxes on such extraordinary or nonrecurring gain
or loss.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides any guarantee or credit
support of any kind (including any undertaking, guarantee, indemnity, agreement
or instrument that would constitute Indebtedness), or (b) is directly or
indirectly liable (as a guarantor or otherwise); (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) the explicit terms of which provide that there is
no recourse against any of the assets of the Company or its Restricted
Subsidiaries.
"Notes Indenture" means the Indenture dated the Issue Date between the
Company and [ ] pursuant to which the Senior Subordinated Notes were issued.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by two officers at
least one of whom shall be the principal executive officer, principal accounting
officer or principal financial officer of the Company and delivered to the
Transfer Agent.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably acceptable to the Transfer
Agent, delivered to the Transfer Agent.
"Parity Securities" has the meaning set forth in Section 2.
11
<PAGE>
"Paying Agent" means [____________________].
"Permitted Business" means the broadcasting business or any business that
is reasonably similar thereto or a reasonable extension, development or
expansion thereof or ancillary thereto.
"Permitted Indebtedness" means (a) Indebtedness evidenced by the Senior
Subordinated Notes; (b) Indebtedness pursuant to Credit Agreements, so long as
the aggregate principal amount of all Indebtedness outstanding under all Credit
Agreements do not, at any one time, exceed $190.0 million, less the aggregate
amount of all mandatory prepayments of principal applied since the date of this
Statement of Resolutions Fixing Terms to permanently reduce the outstanding
amount of such Indebtedness; (c) Indebtedness of the Company and its Restricted
Subsidiaries in existence as of the date of this Statement of Resolutions Fixing
Terms; (d) intercompany Indebtedness between or among the Company and any of its
Wholly Owned Restricted Subsidiaries; provided, however, that (i) any subsequent
issuance or transfer of Equity Interests that results in any such Indebtedness
being held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Restricted Subsidiary
shall be deemed, in each case, to constitute an incurrence of such Indebtedness
by the Company or such Restricted Subsidiary, as the case may be; (e)
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of financing
all or any part of the purchase price, lease or cost of construction or
improvement of property, plant or equipment used in a Permitted Business in an
aggregate principal amount not to exceed $15.0 million at any time outstanding;
(f) the incurrence by the Company or its Restricted Subsidiaries of Permitted
Refinancing Debt in exchange for, or the net proceeds of which are used to
refund, refinance or replace Indebtedness (other than intercompany Indebtedness)
that is permitted by this Statement of Resolutions Fixing Terms to be incurred;
(g) the incurrence by the Company or its Restricted Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest rate
risk with respect to any floating or variable rate Indebtedness or for the
purpose of protecting against fluctuations in interest rates or the value of
foreign currencies purchased or received, in each case in respect of
Indebtedness that is permitted by the terms of this Statement of Resolutions
Fixing Terms to be outstanding; provided, however, that in the case of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest rate
risks with respect to Indebtedness, the notional principal amount of any such
Hedging Obligation does not exceed the principal amount of the Indebtedness to
which such Hedging Obligation relates and in the case of Hedging Obligations
incurred for the purpose of protecting against fluctuations in interest rates or
the value of foreign currencies purchased or received, such Hedging Obligations
do not increase the Indebtedness of the Company and its Restricted Subsidiaries
outstanding other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payable thereunder; (h)
Indebtedness incurred
12
<PAGE>
solely in respect of performance, surety and similar bonds or completion
guarantees, to the extent that such incurrence does not result in the incurrence
of any obligation for the payment of borrowed money to others; (i) Indebtedness
arising out of standby letters of credit covering workers compensation,
performance or similar obligations in an aggregate amount not to exceed $500,000
at any time outstanding; (j) any guarantee of the Company of Indebtedness or
other obligations of any of its Restricted Subsidiaries so long as the
incurrence of such Indebtedness incurred by such Restricted Subsidiary is
permitted under the terms of this Statement of Resolutions Fixing Terms; (k) the
incurrence by the Company of additional Indebtedness in an aggregate principal
amount (or accreted value, as applicable) at any time outstanding not to exceed
$10.0 million; and (l) the issuance of Dividend Shares issued on the Series A
Preferred Stock outstanding on the Issue Date or issued subsequent to the Issue
Date as dividends permitted pursuant to this clause (l), to the extent such
dividends are made pursuant to the terms of this Statement of Resolutions Fixing
Terms for such Series A Preferred Stock as in effect on the Issue Date, on any
Preferred Stock issued in exchange for the Series A Preferred Stock, or any
dividends on such Preferred Stock to the extent such dividends are made pursuant
to the terms of this Statement of Resolutions Fixing Terms of such Preferred
Stock.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents or securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition; (c) any
Investment by the Company or any Restricted Subsidiary of the Company in a
Person if, as a result of such Investment, (i) such Person becomes a Wholly
Owned Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys all or
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a
result of the receipt of non-cash consideration from an asset sale; (e) other
Investments in any Person or Persons having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (e) that are at the time outstanding without giving
effect to subsequent changes in value or increases or decreases attributable to
the accounting for the net income of such Investment, not to exceed $15.0
million; (f) any Investment acquired by the Company in exchange for Equity
Interests in the Company (other than Disqualified Stock); (g) any Investment
acquired by the Company or any of its Restricted Subsidiaries (i) in exchange
for any other Investment or accounts receivable held by the Company or any such
Restricted Subsidiary in connection with or as a result of a bankruptcy,
workout, reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (ii) as a result of the transfer of title
with respect to any secured investment in default as a result of a foreclosure
by the Company or any of its Restricted Subsidiaries with respect to such
secured Investment; (h) Hedging Obligations permitted under Section 9(a);
13
<PAGE>
(i) loans and advances to officers, directors and employees for business-related
travel expenses, moving expenses and other similar expenses, in each case,
incurred in the ordinary course of business; and (j) any guarantees permitted to
be made pursuant to Section 9(a).
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness (other than Indebtedness incurred under a Credit Agreement) of the
Company or any of its Restricted Subsidiaries; provided that: (i) the principal
amount of such Permitted Refinancing Indebtedness does not exceed the principal
amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased
or refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date on or later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iii) such Indebtedness is incurred either by the Company or by
the Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, and any and all
shares of Capital Stock of such Person that have preferential rights to any
other Capital Stock of such Person with respect to dividends or redemptions or
upon liquidation.
"Principal" means Richard W. Weening and Lewis W. Dickey, Jr.
"Prospectus" means the Prospectus dated June, 1998 with respect of the
offering of the Series A Preferred Stock.
"Record Date" has the meaning set forth in Section 3(a).
"Redemption Date" has the meaning set forth in Section 5(d).
"Related Party" with respect to any Principal means (i) any controlling
stockholder, 80% (or more) owned subsidiary, or spouse or immediate family
member (in the case of an individual) of such principal or (ii) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (i).
14
<PAGE>
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means (i) the declaration or payment of any dividend
or the making of any distribution on account of any Junior Securities (other
than dividends or distributions payable in Junior Securities (other than
Disqualified Stock)), (ii) the purchase, redemption or other acquisition or the
retirement of, for value, any Junior Securities or (iii) the making of any
Investment (other than a Permitted Investment) in any Person.
"Restricted Subsidiary" means any direct or indirect Subsidiary of the
Company that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Subordinated Notes" means the [ ]% Senior Subordinated Notes Due
2008 of the Company.
"Series A Preferred Stock" has the meaning designated in the second
paragraph of the recitals of the Company.
"Statement of Resolutions Fixing Terms" means this Statement of
Resolutions Fixing Terms of Voting Power, Preferences and Relative,
Participating, Optional and Other Special Rights and Qualifications, Limitations
and Restrictions of [__]% Series A Cumulative Exchangeable Redeemable Preferred
Stock due 2009 of the Company.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock, entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Transfer Agent" means [ ], a [_______________].
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Undesignated Shares" means the undesignated shares of the capital stock
of the Company which are authorized under its Articles of Incorporation.
15
<PAGE>
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary or a Person becoming a Subsidiary through merger or
consolidation or Investment therein) to be an Unrestricted Subsidiary only if
(a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien
on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; (b) all the Indebtedness of such Subsidiary shall, at the date of
designation, and will at all times thereafter, consist of Non-Recourse Debt; (c)
the Company certifies that such designation complies with Section 9(c); (d) such
Subsidiary, either alone or in the aggregate with all other Unrestricted
Subsidiaries, does not operate, directly or indirectly, all or substantially all
of the business of the Company and its Subsidiaries; (e) such Subsidiary does
not, directly or indirectly, own any Indebtedness of or Equity Interest in, and
has no investments in, the Company or any Restricted Subsidiary; (f) such
Subsidiary is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (1) to subscribe
for additional Equity Interests or (2) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (g) on the date such Subsidiary is designated an
Unrestricted Subsidiary, such Subsidiary is not a party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary with terms substantially less favorable to the Company than those
that might have been obtained from Persons who are not Affiliates of the
Company. Any such designation by the Board of Directors of the Company shall be
evidenced by a resolution of the Board of Directors of the Company giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Statement of Resolutions Fixing Terms and any
Indebtedness of such Subsidiary shall be deemed to be incurred as of such date.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided, that immediately after giving effect to
such designation, no Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof and the Company could incur
at least $1.00 of additional Indebtedness (excluding Permitted Indebtedness)
pursuant to Section 9(a)(i) on a pro forma basis taking into account such
designation.
"Voting Rights Amendment" means an amendment to the Bylaws of the Company
providing for an increase in the size of the Board of Directors of the Company
to, at all times, accommodate the appointment of a sufficient number of
directors designated by the Holders of Series A Preferred Stock in compliance
with clauses (a) and (b) of Section 7(b).
16
<PAGE>
"Voting Rights Triggering Event" has the meaning set forth in Section
7(b).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned, directly or indirectly, by such Person or by one or more
Wholly Owned Restricted Subsidiaries of such Person.
2. Ranking.
(a) The Series A Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Company, rank (i) senior to all classes of common stock of the Company
and to each other class of Capital Stock of the Company established after the
Issue Date by the Board of Directors of the Company the terms of which do not
expressly provide that it ranks on a parity with the Series A Preferred Stock as
to dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to, together with all classes
of common stock of the Company, as "Junior Securities"); (ii) subject to certain
conditions, described below, on a parity with each series of preferred stock
existing on the date of the Prospectus the terms of which do not expressly
provide that it ranks junior to any Preferred Stock as to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of the
Company, and any class of Capital Stock established after the Issue Date 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 Series A Preferred Stock as
to dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to as "Parity Securities").
(b) The Company shall not authorize or issue any new class of Parity
Securities without the affirmative vote or consent (voting or consenting as one
class) of the holders of at least 50% of the shares of Series A Preferred Stock
then outstanding; provided, that, without the approval of Holders of the Series
A Preferred Stock, the Company may issue shares of Parity Securities in exchange
for, or the proceeds of which are used to redeem or purchase, any or all of the
shares of the Series A Preferred Stock or other Parity Securities then
outstanding.
17
<PAGE>
3. Dividends.
(a) The Holders of the outstanding shares of the Series A Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds of the Company legally available therefor, dividends on the Series
A Preferred Stock, which shall accrue at a rate per annum equal to [__]% of the
Liquidation Preference. If at any time dividends on the Series A Preferred Stock
are in arrears and unpaid for four consecutive quarterly dividend periods,
holders of Series A Preferred Stock will be entitled to the voting rights
specified in Section 7 of this Statement of Resolutions Fixing Terms. All
dividends will be cumulative, whether or not earned or declared on a daily
basis, from [__________] and will be payable quarterly in arrears on
[__________], [__________], [________], and [__________] of each year,
commencing on [__________], 1998, or, if any such date is not a Business Day, on
the next succeeding Business Day (each a "Dividend Payment Date") to the Holders
on the [__________], [__________], [________] or [__________] immediately
preceding the relevant Dividend Payment Date (each, a "Record Date"). On or
before [__________], 2003, the Company may, at its option, pay dividends in cash
or in Dividend Shares (including fractional shares, provided, that the Company
may, at its option, pay cash in lieu of issuing fractional shares) having an
aggregate Liquidation Preference equal to the amount of such dividends. After
[__________], 2003, dividends shall be paid only in cash. The issuance of such
Dividend Shares shall constitute "payment" of the related dividend for all
purposes of this Statement of Resolutions Fixing Terms. Dividends payable on the
Series A Preferred Stock will be computed on the basis of a 360-day year
consisting of twelve 30- day months and the number of days actually elapsed and
will be deemed to accrue on a daily basis.
(b) No full dividends shall be declared or paid or funds set apart for the
payment of dividends on any Parity Securities 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 Series
A Preferred Stock. If full dividends are not so paid, the Series A Preferred
Stock will share dividends pro rata with the Parity Securities. Unless full
cumulative dividends on all outstanding shares of Series A Preferred Stock for
all past dividend periods shall have been declared and paid, or declared and a
sufficient sum for the payment thereof set apart, then: (i) no dividend (other
than a dividend on Junior Securities payable solely in shares of any Junior
Securities) shall be declared or paid upon (or deemed paid), or any sum set
apart for the payment of dividends upon, any shares of Junior Securities; (ii)
no shares of Junior Securities or Parity Securities shall be repurchased,
redeemed or otherwise acquired or retired by the Company or any of its
Subsidiaries; and (iii) no monies shall be paid into or set apart or made
available for a sinking or other like fund for the purchase, redemption or other
acquisition or retirement for value of any shares of Junior Securities or Parity
Securities by the Company or any of its Subsidiaries. Dividends on account of
arrears for any past dividend period and dividends in connection
18
<PAGE>
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
Series A 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.
4. Liquidation Preference.
Upon any voluntary or involuntary liquidation, dissolution or winding-up
of the Company, Holders of Series A Preferred Stock shall be entitled to
payment, out of the assets of the Company available for distribution to
stockholders, the Liquidation Preference per share of Series A Preferred Stock,
plus, without duplication, an amount in cash equal to all accumulated and unpaid
dividends thereon to but excluding 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
Securities, 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 Series A Preferred Stock and
all other Parity Securities are not paid in full, the Holders of the Series A
Preferred Stock and the Parity Securities shall 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 Series A Preferred Stock shall 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 or into one or more Persons shall be deemed to be a liquidation,
dissolution or winding-up of the Company, unless such sale, conveyance, exchange
or transfer shall be in connection with a liquidation, dissolution or winding-up
of the business of the Company.
5. Redemption by the Company.
(a) On [_________], 2009 (the "Mandatory Redemption Date"), the Company
shall be required to redeem (subject to the legal availability of funds therefor
[and to Sections [______] and [_____] of the Business Corporation Act of
Illinois (the "BCAI")] all outstanding shares of Series A Preferred Stock at a
price equal to 100% of the aggregate Liquidation Preference thereof, plus,
without duplication, an amount in cash equal to all accumulated and unpaid
dividends, if any, to but excluding 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). The Company shall not be required to
make sinking fund payments to protect the Liquidation Preference with respect to
the Series A Preferred Stock.
19
<PAGE>
(b) The Series A Preferred Stock shall not be redeemed for cash at the
option of the Company prior to [_________], 2003. The Series A Preferred Stock
may be redeemed (subject to contractual and other restrictions with respect
thereto, to the legal availability of funds therefor and to Sections [______]
and [_____] of the BCAI) at any time, in whole or from time to time in part, at
the option of the Company after [_______], 2003, at the Applicable Redemption
Price. In addition, at any time prior to [________], 2001, the Company may, at
its option, redeem shares of Series A Preferred Stock in whole or from time to
time in part having an aggregate Liquidation Preference of up to 35% of the
original aggregate Liquidation Preference of the Series A Preferred Stock from
the proceeds of one or more Equity Offerings at a price equal to [____]% of the
Liquidation Preference thereof, plus, without duplication, an amount in cash
equal to all accumulated and unpaid dividends, if any, to but excluding 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), subject to the right of Holders of record on the relevant Record Date to
receive dividends due on a Dividend Payment Date; provided, that at least 65% of
the original aggregate Liquidation Preference of the Series A Preferred Stock
remains outstanding immediately following such redemption. Any such redemption
must be made within 90 days after the date of the closing Equity Offerings.
(c) In the event of partial redemptions of Series A Preferred Stock, the
shares to be redeemed will be determined pro rata or by lot, as determined by
the Company, provided that the Company may redeem such shares held by any
holders of fewer than 100 shares (or shares held by Holders who would hold less
than 100 shares as a result of such redemption), without regard to any pro rata
redemption requirement.
(d) Notice of any redemption shall be sent by or on behalf of the Company
not less than 30 nor more than 60 days prior to the date specified for
redemption in such notice (including the Mandatory Redemption Date, the
"Redemption Date"), by first class mail, postage prepaid, to all Holders of
record of the Series A Preferred Stock at their registered address. In addition
to any information required by law or by the applicable rules of any exchange
upon which Series A Preferred Stock may be listed or admitted to trading, such
notice shall state: (i) whether such redemption is being made pursuant to the
optional or the mandatory redemption provisions hereof; (ii) the Redemption
Date; (iii) the redemption price; (iv) if less than all the outstanding shares
of Series A Preferred Stock are to be redeemed, the Liquidation Preference of,
and the accrued and unpaid dividends on, the shares of Series A Preferred Stock
to be redeemed; (v) that on the Redemption Date the redemption price shall
become due and payable upon each share of Series A Preferred Stock to be
redeemed; and (vii) the place or places where shares are to be surrendered for
payment of the redemption price. Upon the mailing of any such notice of
redemption, the Company shall become obligated to redeem at the time of
redemption specified thereon all shares called for redemption.
20
<PAGE>
(e) If notice has been mailed in accordance with Section 5(d) above and,
provided that on or before the Redemption Date specified in such notice, all
funds necessary for such redemption shall have been set aside by the Company,
separate and apart from its other funds in trust for the pro rata benefit of the
holders of the shares so called for redemption, so as to be, and to continue to
be available therefor, then, on and after the Redemption Date, unless the
Company defaults in the payment of the applicable redemption price, dividends on
the shares of the Series A Preferred Stock so called for redemption shall cease
to accumulate and all rights of the Holders of such shares shall terminate
except for the right to receive from the Company 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, 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. New certificates of Series A Preferred Stock having an aggregate
Liquidation Preference equal to the unredeemed portion of the Series A Preferred
Stock shall be issued in the name of the Holder thereof upon cancellation of the
original shares of Series A Preferred Stock without cost to the Holder thereof.
Upon surrender, in accordance with said notice, of the certificates for any
shares so redeemed (properly endorsed or assigned for transfer, if the Company
shall so require and the notice shall so state), such shares shall be redeemed
by the Company at the applicable redemption price. Shares of Series A Preferred
Stock issued and reacquired by the Company shall, upon compliance with the
applicable requirements of Illinois law, have the status of authorized but
unissued Undesignated Shares of the Company, and may, with any and all other
authorized but unissued Undesignated Shares 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 Series A Preferred Stock must be in compliance with this Statement of
Resolutions Fixing Terms.
(f) Any deposit of funds with a bank or trust company for the purpose of
redeeming Series A Preferred Stock shall be irrevocable except that:
(i) the Company shall be entitled to receive from such bank or trust
company the interest or other earnings, if any, earned on any money so
deposited in trust, and the Holders of any shares redeemed shall have no
claim to such interest or other earnings; and
(ii) any balance of monies so deposited by the Company and unclaimed
by the Holders of the Series A Preferred Stock entitled thereto at the
expiration of two years from the applicable Redemption Date shall be
repaid, together with any
21
<PAGE>
interest or other earnings earned thereon, to the Company, and after any
such repayment, the holders of the shares entitled to the funds so repaid
to the Company shall look only to the Company for payment without interest
or other earnings.
(g) No Series A Preferred Stock may be redeemed except with funds legally
available for the purpose. The Company shall take all actions required or
permitted under the BCAI to permit any redemption which is required pursuant to
clause (a) above or which the Company elects pursuant to clause (b) above.
(h) No optional redemption may be authorized or made (i) unless prior
thereto or contemporaneously therewith full unpaid cumulative dividends shall
have been paid or a sum set apart for such payment on the Series A Preferred
Stock or (ii) at less than 101% of the liquidation preference of the Series A
Preferred Stock at any time when the Company is making an offer to purchase
shares of Series A Preferred Stock under a Change of Control Offer in accordance
with Section 8.
6. Exchange of Series A Preferred Stock for Exchange Debentures.
(a) The Company may at its option, on any scheduled Dividend Payment Date,
exchange, in whole, but not in part, the then outstanding shares of Series A
Preferred Stock for the Exchange Debentures to be issued under an indenture (the
"Exchange Indenture") in the form attached hereto as Annex A to be entered into
between the Company and a trustee to be selected by the Company (the "Debentures
Trustee"); provided, that on the date of such exchange: (i) there are no
contractual impediments to such exchange; (ii) such exchange would comply with
the BCAI; (iii) 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 (iv) the Company shall have delivered a written
opinion of counsel, dated the date of exchange, regarding the satisfaction of
the conditions set forth in clauses (i) and (ii) and certain other matters.
(b) Upon any exchange of Series A Preferred Stock for Exchange Debentures
on the Exchange Date pursuant to clause (a) of this Section 6, Holders of
outstanding shares of Series A Preferred Stock shall be entitled to receive,
subject to the second succeeding sentence, $1.00 of principal amount of Exchange
Debentures for each $1.00 of the Liquidation Preference of Series A Preferred
Stock held by them. The Exchange Debentures shall be issued in registered form,
without coupons. Exchange Debentures issued in exchange for Series A Preferred
Stock shall be issued in principal amounts of $1,000 and integral multiples
thereof, and the Company may, at its option, pay cash in lieu of issuing an
Exchange Debenture in any other principal amount. On and after the Exchange
Date, dividends will cease to accumulate on the outstanding shares of Series A
Preferred Stock, and all rights of the Holders of Series A Preferred Stock
(except the right to receive the Exchange Debentures, an amount in cash, to the
extent applicable, equal to the accumulated
22
<PAGE>
and unpaid dividends to the Exchange Date and if the Company so elects, cash in
lieu of any Exchange Debenture that is in a principal amount less than $1,000)
shall terminate. The person entitled to receive the Exchange Debentures issuable
upon such exchange shall be treated for all purposes as the registered holder of
such Exchange Debentures.
(c) The Company shall send a written notice (the "Exchange Notice") of
exchange by mail to each Holder of record of Series A Preferred Stock, which
notice shall state: (i) that the Company is exercising its option to exchange
the Series A Preferred Stock for Exchange Debentures pursuant to this Statement
of Resolutions Fixing Terms; (ii) the date fixed for exchange (the "Exchange
Date"), which date shall not be less than 30 days nor more than 60 days
following the date on which the Exchange Notice is mailed; (iii) that the Holder
is to surrender to the Company, at the place or places where shares of Series A
Preferred Stock are to be surrendered for exchange in the manner designated in
the Exchange Notice, the shares of Series A Preferred Stock to be exchanged;
(iv) that dividends on the shares of Series A Preferred Stock to be exchanged
shall cease to accrue on the Exchange Date whether or not the shares of Series A
Preferred Stock are surrendered for exchange on the Exchange Date unless the
Company shall default in the delivery of Exchange Debentures; and (v) that
interest on the Exchange Debentures shall accrue from the Exchange Date whether
or not the shares of Series A Preferred Stock are surrendered for exchange on
the Exchange Date. On the Exchange Date, if the conditions set forth in Sections
6(a)(i) through 6(a)(iv) above and Section 6(f) below are satisfied, the Company
shall issue Exchange Debentures in exchange for the Series A Preferred Stock as
provided in this Section 6.
(d) A Holder delivering Series A Preferred Stock for exchange shall not be
required to pay any taxes or duties in respect of the issue or delivery of
Exchange Debentures on exchange but shall be required to pay any tax or duty
that may be payable in respect of any transfer involved in the issue or delivery
of the Exchange Debentures in a name other than that of the Holder of the Series
A Preferred Stock. Certificates representing Exchange Debentures shall not be
issued or delivered unless all taxes and duties, if any, payable by the Holder
have been paid.
(e) On or before the Exchange Date, each Holder of Series A Preferred
Stock shall surrender the shares of Series A Preferred Stock, in the manner and
at the place designated in the Exchange Notice. The Company shall cause the
Exchange Debentures to be executed on the Exchange Date and, upon surrender, in
accordance with the Exchange Notice, of the shares of Series A Preferred Stock
so exchanged (properly endorsed or assigned for transfer, if the notice shall so
state), such shares shall be exchanged by the Company for Exchange Debentures.
The Company shall pay dividends, if any, on the Exchange Debentures at the rate
and on the dates specified therein from the Exchange Date.
(f) If the Exchange Notice has been mailed in accordance with Section
6(c), the conditions set forth in Section 6(a)(i) through 6(a)(iv) have been
satisfied, and before the
23
<PAGE>
Exchange Date (i) the Exchange Indenture shall have been duly executed and
delivered by the Company and the Debentures Trustee; (ii) all Exchange
Debentures necessary for such exchange shall have been duly executed and
authenticated by the Company and delivered to the Debentures Trustee with
irrevocable instructions to authenticate the Exchange Debentures necessary for
such exchange; and (iii) an amount in cash, set aside by the Company, separate
and apart from its other funds in trust, or additional Series A Preferred Stock
(as applicable) equal to all accumulated and unpaid dividends thereon to the
Exchange Date shall have been deposited with the Debentures Trustee, then on and
after the close of business on the Exchange Date, dividends on the shares of
Series A Preferred Stock so exchanged shall cease to accumulate and all rights
of the Holders of such shares shall terminate except for the right to receive
from the Company the Exchange Debentures, cash, if any, and all accrued
interest, if any, thereon to the Exchange Date. Shares of Series A Preferred
Stock issued and reacquired by the Company shall, upon compliance with the
applicable requirements of Illinois law, have the status of authorized but
unissued Undesignated Shares of the Company, and may, with any and all other
authorized but unissued Undesignated Shares of the Company, be designated or
redesignated, and issued or reissued, as the case may be, as part of any series
of capital stock of the Company, but not as Series A Preferred Stock.
(g) The Company shall comply with the provisions of Rule 13e-4 promulgated
pursuant to the Exchange Act in connection with any exchange, to the extent
applicable.
7. Voting Rights.
(a) The Holders of shares of the Series A Preferred Stock shall have no
voting rights, except as required by Illinois law and as hereinafter provided in
this Section 7.
(b) If:
(i) at any time, dividends on the outstanding Series A Preferred
Stock are in arrears and unpaid (and in the case of dividends payable
after [ ], 2003, are not paid in cash) for four (4) consecutive quarterly
dividend periods;
(ii) the Company fails to discharge any redemption obligation with
respect to the Series A Preferred Stock (whether or not the Company is
permitted to do so by the terms of the Credit Facility, the Senior
Subordinated Notes or any other obligation of the Company);
(iii) the Company fails to make a Change of Control Offer on the
terms and in accordance with the provisions described below in Section 8
hereof (whether or not the Company is permitted to do so by the terms of
the Credit Facility, the Senior Subordinated Notes or any other obligation
of the Company) or fails to
24
<PAGE>
purchase shares of Series A Preferred Stock from Holders who elect to have
such shares purchased pursuant to the Change of Control Offer;
(iv) the Company breaches or violates any of the other covenants or
agreements set forth in Section 9 and such breach or violation continues
for a period of 60 days or more after the Company receives notice thereof
specifying the default from the Holders of at least 25% of the shares of
Series A Preferred Stock then outstanding; or
(v) the Company or any Restricted Subsidiary defaults under the
terms of any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the date of this Statement of Resolutions Fixing Terms,
which default (A) is caused by a failure to pay principal of or premium,
if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (B) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of
any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there is then existing a Payment Default or
the maturity of which has been so accelerated, aggregates $5.0 million or
more (each of the events described in clauses (i), (ii), (iii), (iv) and
(v) being referred to herein as a "Voting Rights Triggering Event");
then, the number of directors constituting the Board of Directors of the Company
will be adjusted to permit the holders of the majority of the then outstanding
Series A Preferred Stock, voting separately as a class, to elect two directors.
Voting rights arising as a result of a Voting Rights Triggering Event will
continue until such time as all dividends in arrears on the Series A Preferred
Stock are paid in full (and in the case of dividends payable after [ ], 2003,
paid in cash) and any failure, breach or default referred to in clause (b) is
remedied.
(c) Whenever the foregoing voting rights shall have vested, such rights
may be exercised initially either at a special meeting of the Holders of Series
A Preferred Stock, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at such
annual meetings or by the written consent of the Holders of Series A Preferred
Stock. Such right of the Holders of Series A Preferred Stock to elect directors
may be exercised until (i) all dividends in arrears shall have been paid in full
(and in the case of dividends payable after [____________,] 2003, paid in cash)
and (ii) all other failures, breaches or defaults giving rise to such Voting
Rights Triggering Event are remedied or waived by the Holders of at least a
majority of the shares of Series A
25
<PAGE>
Preferred Stock then outstanding, at which time the term of such directors
previously elected pursuant to the provisions of this Section 7(b) shall
thereupon terminate, and such directors shall be deemed to have resigned.
(d) At any time when the foregoing voting rights shall have vested in the
Holders of Series A Preferred Stock and if such rights shall not already have
been initially exercised, a proper officer of the Company shall, upon the
written request of Holders of record of 10% or more of the Series A Preferred
Stock then outstanding, addressed to the Secretary of the Company, call a
special meeting of Holders of Series A Preferred Stock. Such meeting shall be
held at the earliest practicable date upon the notice required for annual
meetings of stockholders at the place for Holding annual meetings of
stockholders of the Company or, if none, at a place designated by the Secretary
of the Company. If such meeting shall not be called by the proper officers of
the Company within 30 days after the personal service of such written request
upon the Secretary of the Company, or within 30 days after mailing the same
within the United States, by registered mail, addressed to the Secretary of the
Company at its principal office (such mailing to be evidenced by the registry
receipt issued by the postal authorities), then the Holders of record of 10% of
the shares of Series A Preferred Stock then outstanding may designate in writing
a Holder of Series A Preferred Stock to call such meeting at the expense of the
Company, and such meeting may be called by such person so designated upon the
notice required for annual meetings of stockholders and shall be
(e) If any director so elected by the Holders of Series A Preferred Stock
shall cease to serve as a director before his term shall expire, the Holders of
Series A Preferred Stock then outstanding may, at a special meeting of the
Holders called as provided above, elect a successor to hold office for the
unexpired term of the director whose place shall be vacant.
(f) In addition to the matters set forth in Section 2(b), the Company
shall not, without the affirmative vote or consent of the Holders of at least a
majority of the shares of Series A Preferred Stock then outstanding (with shares
held by the Company or any of its Affiliates not being considered to be
outstanding for this purpose) voting or consenting as the case may be as one
class:
(i) merge, consolidate or sell assets of the Company except as
permitted pursuant to Section 9(b); and
26
<PAGE>
(ii) amend or otherwise alter this Statement of Resolutions Fixing
Terms or the form of the Exchange Indenture:
(g) In addition to the matters set forth in clause (f) above, except as
stated above under Section 2, the Company shall not, without the affirmative
vote or consent of holders of at least 5000 of the shares of Series A Preferred
Stock then outstanding (with shares held by the Company or any of its Affiliates
not being considered to be outstanding for his purpose), voting or consenting.
as the case may be, as one class:
(i) amend the Statement of Resolutions Fixing Terms so as to
adversely affect the specified rights, preferences, privileges or voting
rights of holders of shares of the Series A Preferred Stock
(ii) authorize the issuance of any additional share of Series A
Preferred Stock.
(h) Without the consent of each Holder affected, an amendment or waiver of
the Company's Articles of Incorporation or of this Statement of Resolutions
Fixing Terms may not (with respect to any shares of Series A Preferred Stock
held by a non-consenting Holder):
(i) alter the voting rights with respect to the Series A Preferred
Stock (provided, however, that the consent of Holders of Series A
Preferred Stock shall not be required to approve the Voting Rights
Amendment) or reduce the number of shares of Series A Preferred Stock
whose holders must consent to an amendment, supplement or waiver;
(ii) reduce the Liquidation Preference of or change the Mandatory
Redemption Date of any share of Series A Preferred Stock or alter the
provisions with respect to the redemption of the Series A Preferred Stock
(except as provided with respect to Section 8 hereof):
(iii) reduce the rate or change the time for payment of dividends on
any share of Series A Preferred Stock;
(iv) waive the consequences of any failure to pay dividends on the
Series A Preferred Stock;
(v) make any share of Series A Preferred Stock payable in any form
other than that stated in this Statement of Resolutions Fixing Terms;
27
<PAGE>
(vi) make any change in the provisions of this Statement of
Resolutions Fixing Terms relating to waivers of the rights of holders of
Series A Preferred Stock to receive the Liquidation Preference and
dividends on the Series A Preferred Stock:
(vii) waive a redemption payment with respect to any share of Series
A Preferred Stock (except as provided with respect to Section 8 hereof);
or
(viii) make any change in the foregoing amendment and waiver
provisions.
(i) The Company in its sole discretion may, without the vote or consent of
any Holders of the Series A Preferred Stock, amend or supplement this Statement
of Resolutions Fixing Terms:
(i) to cure any ambiguity, defect or inconsistency;
(ii) except as set forth in clauses (f) and (g) above, create,
authorize or issue any shares of Junior Securities or Parity Securities:
(iii) decrease the amount of authorized capital stock of any class,
including any Series A Preferred Stock;
(iv) increase the amount of authorized capital stock of any class of
Junior Securities; or
(v) to make any change that would provide any additional rights or
benefits to the Holders of the Series A Preferred Stock or that does not
adversely affect the legal rights under this Statement of Resolutions
Fixing Terms of any such Holder.
8. Change of Control.
(a) Upon the occurrence a Change of Control, the Company shall make an
offer (the "Change of Control Offer") to each Holder of shares of Series A
Preferred Stock to repurchase all or any part (but not, in the case of any
Holder requiring the Company to purchase less than all of the shares of Series A
Preferred Stock held by such Holder, any fractional shares) of such Holder's
Series A Preferred Stock at an offer price in cash equal to blob of the
aggregate Liquidation Preference thereof plus, without duplication, an amount in
cash equal to all accumulated and unpaid dividends, if any. thereon to but
excluding the date of purchase (the "Change of Control Payment") (including an
amount in cash equal to a pro rated dividend for the period from the Dividend
Payment Date immediately prior to the Change of Control Payment Date) (subject
to the right of Series A Preferred Stock Holders of record on the relevant
record date to receive dividends due on the
28
<PAGE>
relevant dividend payment date); provided, however, that notwithstanding the
occurrence of a Change of Control, the Company shall not be obligated to
purchase the Series A Preferred Stock pursuant to this covenant in the event
that it has exercised its right to redeem all of the Series A Preferred Stock
pursuant to Section 5(b).
(b) The Change of Control Offer shall include all instructions and
materials necessary to enable Holders to tender their shares of Series A
Preferred Stock and the circumstances and relevant facts and financial
information regarding such Change of Control.
(c) The Company shall comply, to the extent applicable. with the
requirements of Rule 14(e) of the Exchange Act and any other securities laws and
regulations in connection with the repurchase of the Series A Preferred Stock as
a result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this covenant, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under this paragraph by virtue
thereof. The Change of Control Offer shall contain information concerning the
business of the Company and its Subsidiaries which the Company in good faith
believes will enable such Holders to make an informed decision with respect to
the Change of Control Offer (which at a minimum will include (i) the most recent
annual and quarterly financial statements, (ii) a description of material
developments in the Company's business subsequent to the date of the latest of
such financial statements referred to in clause (i) (including a description of
the events requiring the Company to make the Change of Control Offer) and (iii)
if applicable, appropriate pro forma financial information concerning the Offer
to Purchase.
(d) Within 30 days following any Change of Control (or at the Company's
option, prior to such Change of Control but after the public announcement
thereof), the Company shall mail a notice to each Holder stating:
(i) that the Change of Control Offer is being made pursuant to this
Section 8 and that all shares of Series A Preferred Stock tendered shall
be accepted for payment;
(ii) the amount of the Change of Control Payment. the purchase date,
which shall be not earlier than 30 days nor later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"):
(iii) that any share of Series A Preferred Stock not tendered shall
continue to accumulate dividends;
29
<PAGE>
(iv) the place or places where Series A Preferred Stock are to be
surrendered for tender pursuant to the Change of Control Offer;
(v) that, on the Change of Control Payment Date, the purchase price
shall become due and payable upon each share of Series A Preferred Stock
accepted for payment pursuant to the Change of Control Offer and, unless
the Company fails to pay the Change of Control Payment on the Change of
Control Payment Date, all shares of Series A Preferred Stock accepted for
payment pursuant to the Change of Control Offer shall cease to accumulate
dividends after the Change of Control Payment Date;
(vi) that Holders electing to have any shares of Series A Preferred
Stock purchased pursuant to a Change of Control Offer will be required to
surrender the shares of Series A Preferred Stock. with the form entitled
"Option of Holder to Elect Purchase" which shall be included with the
notice of Change of Control completed. to the Paying Agent at the address
specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date;
(vii) that, if such Offer is made prior to such Change of Control,
payment is conditioned on the occurrence of such Change of Control: and
(viii) that the Holder may tender all or any portion of the shares
of Series A Preferred Stock held by such Holder and that in the case of
any Holder whose shares are to be purchased only in part, the Company
shall execute, authorize and deliver to the Holder, without service
charge, a new certificate as requested by' such Holder, for the
unpurchased portion of his shares of Series A Preferred Stock.
(e) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all shares of Series A Preferred Stock or
portions thereof properly tendered pursuant to the Change of Control Offer, (ii)
deposit with the Payment Agent an amount equal to the Change of Control Payment
in respect of all shares of Series A Preferred Stock or portions thereof so
tendered and (iii) deliver or cause to be delivered to the Transfer Agent the
shares of Series A Preferred Stock so accepted together with an Officers'
Certificate stating the aggregate Liquidation Preference of the shares of Series
A Preferred Stock or portions thereof being purchased by the Company. The Paying
Agent shall promptly mail to each holder of Series A Preferred Stock so tendered
the Change of Control Payment for such Series A Preferred Stock, and the
Transfer Agent shall promptly authenticate and mail (or cause to be transferred
by book entry) to each holder a new certificate representing the shares of
Series A Preferred Stock equal in Liquidation Preference amount to any
unpurchased portion of the shares of the shares of Series A Preferred Stock
surrendered, if any. The Company shall publicly announce the results of the
30
<PAGE>
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
(f) If at the time of a Change of Control, the Company is restricted or
prohibited by the terms of any Credit Agreements from purchasing shares of
Series A Preferred Stock that may be tendered by holders pursuant to a Change
of Control Offer, prior to complying with the provisions of Section 8(a), but in
any event within 30 days following a Change of Control (unless the Company has
exercised its right to redeem all the Series A Preferred Stock pursuant to
Section 5(b)), the Company shall either (i) repay in full all outstanding
Obligations under such Credit Agreements or offer to repay in full all
outstanding Obligations under such Credit Agreements and repay the Obligations
of each lender who has accepted such offer or (ii) obtain the requisite consent
under such Credit Agreements to permit the repurchase of the Series A Preferred
Stock required by this Section 8. The Company must first comply with the
covenant described in the preceding sentence before it will be required to
repurchase shares of Series A Preferred Stock in the event of a Change of
Control; provided, that if the Company fails to comply with the covenant
described in the preceding sentence, the sole remedy to holders of Series A
Preferred Stock will be the voting rights arising from a Voting Rights
Triggering Event. Moreover, the Company will not repurchase or redeem any Series
A Preferred Stock pursuant to this Change of Control provision prior to the
Company's repurchase of the Senior Subordinated Notes pursuant to the Change of
Control covenants in the Notes Indenture.
(g) The Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in this Section 8 applicable to a Change of Control Offer made by the
Company and purchases all shares of Series A Preferred Stock validly tendered
and not withdrawn under such Chance of Control Offer.
9. Certain Covenants
(a) Limitation on Incurrence of Indebtedness and Issuance of Preferred
Stock.
(i) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock
and will not permit any of its Restricted Subsidiaries to issue any shares
of preferred stock: provided, however, that the Company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock if the Company's Leverage Ratio at the time of the incurrence of
such Indebtedness, after giving pro-forma effect thereto and to the use of
proceeds therefrom, is less than 7.0 to 1.
31
<PAGE>
(ii) Notwithstanding clause (i) above, if there exists no Voting
Rights Triggering Event or event which with notice or lapse of time or
both would become a Voting Rights Triggering Event immediately prior and
subsequent thereto, the Company and its Restricted Subsidiaries may Incur
Permitted Indebtedness (other than the Indebtedness evidenced by the
Exchange Debentures) without regard to the foregoing limitation provided,
however, that the Company will not permit any Unrestricted Subsidiary to
Incur Indebtedness other than Non-Recourse Debt and in the event such
Indebtedness ceases to be Non-Recourse Debt such event shall be deemed to
constitute an Incurrence of Indebtedness by the Company.
(b) Merger, Consolidation, or Sale of Assets.
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets, in
one or more related transactions, to another Person, and the Company may not
permit any of its Restricted Subsidiaries to enter into any such transaction or
series of transactions if such transaction or series of transactions would, in
the aggregate, result in a sale, assignment, transfer, lease, conveyance, or
other disposition of all or substantially all of the properties or assets of the
Company to another Person unless (i) the Company is the surviving corporation or
the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made (the "Surviving Entity") is a
corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia: (ii) the Series A Preferred Stock
shall be converted into or exchanged for and shall become shares of the
Successor Company, having in respect of such successor, transferee or resulting
corporation substantially the same powers, preferences and relative
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereon that the Series A Preferred Stock had
immediately prior to such transaction; (iii) immediately after such transaction,
no Voting Rights Triggering Event, and no event that after the giving of notice
or lapse of time or both would become a Voting Rights Triggering Event, shall
have occurred and be continuing, and (iv) the Company or the Surviving Entity
will, at the time of such transaction or series of transactions and after giving
pro forma effect thereto as if such transaction or series of transactions had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the test set forth
in the first paragraph of Section 9(a)(i). Notwithstanding the restrictions
described in the foregoing clause (iv), any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company, and any Wholly Owned Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to another Wholly Owned Restricted Subsidiary.
32
<PAGE>
(c) Restricted Payments
(i) The Company and its Restricted Subsidiaries shall not make any
Restricted Payment unless after giving effect thereto (A) no Voting Rights
Triggering Event or event which, with notice or lapse of time or both,
would become a Voting Rights Triggering Event has occurred and is
continuing: (B) all dividends on the Series A Preferred Stock payable on
dividend payment dates after [ ], 2003, have been declared and paid in
cash; (C) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of this Statement of Resolutions Fixing Terms
(excluding Restricted Payments permitted by clauses (B), (C) and (E) of
paragraph (ii) below, is less than the sum of (1)(a) 100% of the aggregate
Consolidated Cash Flow of the Company (or, in the event such Consolidated
Cash Flow shall be a deficit, minus 100% of such deficit) accrued for the
period beginning on the first day of the Company's fiscal quarter
commencing after the Issue Date and ending on the last day of the
Company's most recent fiscal quarter for which financial information is
available to the Company ending prior to the date of such proposed
Restricted Payment, taken as one accounting period, less (b) 1.4 times
Consolidated Interest Expense for the same period, plus (2) 100% of the
aggregate net cash proceeds and the fair market value of marketable
securities (as determined in good faith by the Company) received by the
Company from the issue or sale since the Issue Date of Equity Interests of
the Company or of debt securities of the Company that have been converted
into or exchanged for such Equity Interests (other than Equity Interests
(or convertible debt securities) sold to a Subsidiary of the Company,
other than Disqualified Stock or debt securities that have been converted
into Disqualified Stock and other than the Common Stock issued in the
Common Stock Offering), plus (3) to the extent that any Restricted
Investment that was made after the Issue Date is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (a) the net
proceeds of such sale, liquidation or repayment and (b) the amount of such
Restricted Investment, plus (4) $5.0 million.
(ii) The provisions in Section 9(c)(i) shall not be violated, so
long as no Voting Rights Triggering Event or event which with notice or
lapse of time or both would become a Voting Rights Triggering Event has
occurred and is continuing or shall occur as a consequence of the actions
or payments set forth below, by reason of (A) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of this
Statement of Resolutions Fixing Terms; (B) the redemption, repurchase,
retirement or other acquisition of any Junior Securities or Parity
Securities of the Company in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company)
of other Junior Securities or Parity Securities of the Company (other than
any Disqualified
33
<PAGE>
Stock); (C) the repurchase, redemption or other acquisition or retirement
for value of any Junior Securities or Parity Securities of the Company or
any Subsidiary of the Company held by any of the Company's (or any of its
Subsidiaries') employees pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of this
Statement of Resolutions Fixing Terms in connection with the termination
of such person's employment for any reason (including by reason of death
or disability); provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Junior Securities or Parity
Securities shall not exceed $500,000 in any twelve-month period; and
provided further that no Voting Rights Triggering Event shall have
occurred and be continuing immediately after such transaction; and (D)
repurchases of Junior Securities or Parity Securities deemed to occur upon
exercise of stock options if such Junior Securities or Parity Securities
represent a portion of the exercise price of such options.
(d) Designation of Unrestricted Subsidiaries.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Voting Rights Triggering Event. For purposes of making such determination, all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under clause (C) of Section 9(c)(i).
All such outstanding Investments will be deemed to constitute Investments in an
amount equal to the greater of the fair market value or the book value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
(e) Limitations on Transactions with Affiliates and Related Persons.
The Company shall not, and shall not permit any Restricted Subsidiary of
the Company to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of any of its
Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) (A) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $1.0 million, such Affiliate Transaction or series of Affiliated
Transactions has been approved in good faith by a majority of the members of the
Board of Directors who are disinterested with respect to such Affiliate
34
<PAGE>
Transaction or series of Affiliated Transactions, and (B) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, such Affiliate Transaction
or series of related Affiliate Transactions has been approved in good faith by a
resolution adopted by a majority of the members of the Board of Directors of the
Company who are disinterested with respect to such Affiliate Transaction or
series of related Affiliate Transactions and an opinion as to the fairness to
the Company or such Subsidiary of such Affiliate Transaction or series of
related Affiliate Transactions from a financial point of view has been issued to
the Company by an accounting, appraisal, engineering or investment banking firm
of national standing provided that the following shall not be deemed Affiliate
Transactions: (1) transactions contemplated by any employment agreement or other
compensation plan or arrangement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent with
the past practice of the Company or such Restricted Subsidiary, (2) transactions
between or among the Company and/or its Restricted Subsidiaries,(3) Restricted
Payments and Permitted Investments that are permitted by Section 9(c)" and (4)
indemnification payments made to officers, directors and employees of the
Company or any Restricted Subsidiary pursuant to charter, bylaw, statutory or
contractual provisions.
(f) Reports.
Whether or not required by the rules and regulations of the Commission, so
long as any shares of Series A Preferred Stock are outstanding, the Company will
furnish to the Transfer Agent and the Holders, (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its consolidated Subsidiaries and, with respect to
the annual information only, a report thereon by the Company certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company was required to file
such reports, in each case within the time periods set forth in the Commission's
rules and regulations. In addition. whether or not required by the rules and
regulations of the Commission, the Company will file a copy of such information
and reports with the Commission for public availability within the time periods
set forth in the Commission's rules and regulations (unless the Commission will
not accept such filing).
10. Amendment.
Unless otherwise provided in Section 2(b) or 7, this Statement of
Resolutions Fixing Terms shall not be amended in any manner that 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 Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the
35
<PAGE>
Holders of a majority of the outstanding Series A Preferred Stock voting
separately as a class.
11. Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Series A
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this Statement of Resolutions Fixing Terms (as such Statement of
Resolutions Fixing Terms may be amended from time to time in accordance with the
terms hereof) and in the Articles of Incorporation. The shares of Series A
Preferred Stock shall have no preemptive or subscription rights.
12. Headings of Sections.
The headings of the various sections and subsections hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
13. Severability of Provisions.
If any voting powers, preferences and relative, participating, optional
and other special rights of the Series A Preferred Stock and qualifications,
limitations and restrictions thereof set forth in this Statement of Resolutions
Fixing Terms (as this Statement of Resolutions Fixing Terms may be amended from
time to time) is invalid, unlawful or incapable of being enforced by reason of
any rule of law or public policy, all other voting powers, preferences and
relative, participating, optional and other special rights of Series A Preferred
Stock and qualifications, limitations and restrictions thereof set forth in this
Statement of Resolutions Fixing Terms (as so amended) which can be given effect
without the invalid, unlawful or unenforceable voting powers, preferences and
relative, participating, optional and other special rights of Series A Preferred
Stock and qualifications, limitations and restrictions thereof shall,
nevertheless, remain in full force and effect, and no voting powers, preferences
and relative, participating, optional or other special rights of Series A
Preferred Stock and qualifications, limitations and restrictions thereof herein
set forth shall be deemed dependent upon any other such voting powers,
preferences and relative, participating, optional or other special rights of
Series A Preferred Stock and qualifications, limitations and restrictions
thereof unless so expressed herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
36
<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to be duly
executed by [_______________] of the Company and by [________________________]
of the Company, this [____________] day of May, 1998.
CUMULUS MEDIA INC.
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
ATTEST:
By:
---------------------------
Name:
Title:
37
<PAGE>
ANNEX A
FORM OF EXCHANGE INDENTURE
38
<PAGE>
Exhibit 10.1
================================================================================
$190,000,000
CREDIT AGREEMENT
among
CUMULUS HOLDINGS, INC.,
as Borrower,
The Several Lenders
from Time to Time Parties Hereto,
LEHMAN BROTHERS INC.,
as Arranger,
LEHMAN COMMERCIAL PAPER INC.,
as Syndication Agent,
and
LEHMAN COMMERCIAL PAPER INC.,
as Administrative Agent
Dated as of March 2, 1998
================================================================================
TABLE OF CONTENTS
-----------------
Page
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . 26
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS . . . . . . . . . . . . . . . 27
2.1 Term Loan Commitments. . . . . . . . . . . . . . . . . . . . . . . 27
2.2 Procedure for Term Loan Borrowing. . . . . . . . . . . . . . . . . 27
2.3 Repayment of Term Loans. . . . . . . . . . . . . . . . . . . . . . 27
2.4 Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . 28
2.5 Procedure for Revolving Credit Borrowing . . . . . . . . . . . . . 29
2.6 Repayment of Loans; Evidence of Debt . . . . . . . . . . . . . . . 30
2.7 Commitment Fees, etc. . . . . . . . . . . . . . . . . . . . . . . 31
2.8 Termination or Reduction of Commitments. . . . . . . . . . . . . . 31
2.9 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . 32
2.10 Mandatory Prepayments and Commitment Reductions. . . . . . . . . . 32
2.11 Conversion and Continuation Options. . . . . . . . . . . . . . . . 34
2.12 Minimum Amounts and Maximum Number of Eurodollar Tranches. . . . . 34
2.13 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . . 34
2.14 Computation of Interest and Fees . . . . . . . . . . . . . . . . . 35
2.15 Inability to Determine Interest Rate . . . . . . . . . . . . . . . 35
2.16 Pro Rata Treatment and Payments. . . . . . . . . . . . . . . . . . 36
2.17 Requirements of Law. . . . . . . . . . . . . . . . . . . . . . . . 37
2.18 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.19 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.20 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2.21 Change of Lending Office . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3. LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . 41
3.1 L/C Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.2 Procedure for Issuance of Letter of Credit . . . . . . . . . . . . 42
3.3 Fees and Other Charges . . . . . . . . . . . . . . . . . . . . . . 42
3.4 L/C Participations . . . . . . . . . . . . . . . . . . . . . . . . 43
3.5 Reimbursement Obligation of the Borrower . . . . . . . . . . . . . 43
3.6 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . 44
3.7 Letter of Credit Payments. . . . . . . . . . . . . . . . . . . . . 44
3.8 Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 4. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . 45
4.1 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . 45
4.2 No Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.3 Corporate Existence; Compliance with Law . . . . . . . . . . . . . 45
4.4 Corporate Power; Authorization; Enforceable Obligations. . . . . . 46
4.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.6 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . 46
4.7 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.8 Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . 47
-i-
<PAGE>
Page
----
4.9 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . 47
4.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.11 Federal Regulations. . . . . . . . . . . . . . . . . . . . . . . . 47
4.12 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.13 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.14 Investment Company Act; Other Regulations. . . . . . . . . . . . . 48
4.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.16 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.17 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . 48
4.18 Accuracy of Information, etc . . . . . . . . . . . . . . . . . . . 49
4.19 Security Documents . . . . . . . . . . . . . . . . . . . . . . . . 50
4.20 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.21 Senior Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . 51
4.22 Regulation H . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.23 Licenses; Permits; etc.. . . . . . . . . . . . . . . . . . . . . . 51
4.24 FCC Compliance, etc. . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 5. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . 52
5.1 Conditions to Initial Extension of Credit. . . . . . . . . . . . . 52
5.2 Conditions to Each Extension of Credit . . . . . . . . . . . . . . 54
SECTION 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 55
6.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 55
6.2 Certificates; Other Information. . . . . . . . . . . . . . . . . . 56
6.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . 57
6.4 Conduct of Business and Maintenance of Existence, etc. . . . . . . 57
6.5 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . 58
6.6 Inspection of Property; Books and Records; Discussions . . . . . . 58
6.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
6.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . 59
6.9 Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . 59
6.10 Additional Collateral, etc.. . . . . . . . . . . . . . . . . . . . 59
6.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 61
6.12 Transfer of FCC Licenses . . . . . . . . . . . . . . . . . . . . . 62
6.13 Mortgages; Title Insurance; Flood Insurance. . . . . . . . . . . . 62
6.14 Pro Forma Balance Sheet. . . . . . . . . . . . . . . . . . . . . . 64
SECTION 7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 64
7.1 Financial Condition Covenants. . . . . . . . . . . . . . . . . . . 64
7.2 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . 66
7.3 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . . . 67
7.4 Limitation on Fundamental Changes. . . . . . . . . . . . . . . . . 68
7.5 Limitation on Disposition of Property. . . . . . . . . . . . . . . 68
7.6 Limitation on Restricted Payments. . . . . . . . . . . . . . . . . 68
7.7 Limitation on Capital Expenditures . . . . . . . . . . . . . . . . 69
7.8 Limitation on Investments. . . . . . . . . . . . . . . . . . . . . 69
7.9 Limitation on Optional Payments and Modifications of Debt
Instruments, etc. . . . . . . . . . . . . . . . . . . . . . . . . 70
7.10 Limitation on Transactions with Affiliates . . . . . . . . . . . . 70
-ii-
<PAGE>
Page
----
7.11 Limitation on Sales and Leasebacks . . . . . . . . . . . . . . . . 70
7.12 Limitation on Changes in Fiscal Periods. . . . . . . . . . . . . . 71
7.13 Limitation on Negative Pledge Clauses. . . . . . . . . . . . . . . 71
7.14 Limitation on Restrictions on Subsidiary Distributions . . . . . . 71
7.15 Limitation on Lines of Business. . . . . . . . . . . . . . . . . . 71
7.16 Limitation on License Subsidiary . . . . . . . . . . . . . . . . . 71
7.17 Limitation on Activities of the Parent . . . . . . . . . . . . . . 71
SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 9. THE AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . 76
9.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . 76
9.4 Reliance by the Agents . . . . . . . . . . . . . . . . . . . . . . 76
9.5 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . . . 77
9.6 Non-Reliance on Agents and Other Lenders . . . . . . . . . . . . . 77
9.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 78
9.8 Agent in Its Individual Capacity . . . . . . . . . . . . . . . . . 78
9.9 Successor Administrative Agent . . . . . . . . . . . . . . . . . . 78
9.10 Authorization to Release Liens . . . . . . . . . . . . . . . . . . 79
9.11 The Arranger . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 79
10.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 79
10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . 81
10.4 Survival of Representations and Warranties . . . . . . . . . . . . 81
10.5 Payment of Expenses. . . . . . . . . . . . . . . . . . . . . . . . 81
10.6 Successors and Assigns; Participations and Assignments . . . . . . 82
10.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . . . . 84
10.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 86
10.12 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . 86
10.13 Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . 86
10.14 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . 87
10.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 87
-iii-
<PAGE>
ANNEXES:
A Pricing Grid
SCHEDULES:
1.1A Commitments
1.1B Mortgaged Property
1.1C Acquisition Agreements
1.1D Existing Letters of Credit
4.1(b) Material Liabilities
4.4 Consents, Authorizations, Filings and Notices
4.15 Subsidiaries
4.19(a) UCC Filing Jurisdictions
4.19(b) Mortgage Filing Jurisdictions
4.23 Licenses
7.2(d) Existing Indebtedness
7.3(f) Existing Liens
7.8(i) Existing Investments
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D Form of Mortgage
E Form of Assignment and Acceptance
F Form of Legal Opinion of Godfrey & Kahn, S.C.
G-1 Form of Term Note
G-2 Form of Revolving Credit Note
H Form of Exemption Certificate
-iv-
<PAGE>
CREDIT AGREEMENT, dated as of March 2, 1998, among CUMULUS HOLDINGS,
INC., an Illinois corporation (the "BORROWER"), the several banks and other
financial institutions or entities from time to time parties to this Agreement
(the "LENDERS"), LEHMAN BROTHERS INC., as advisor and arranger (in such
capacity, the "ARRANGER"), LEHMAN COMMERCIAL PAPER INC., as syndication agent
(in such capacity, the "SYNDICATION AGENT"), and LEHMAN COMMERCIAL PAPER INC.,
as administrative agent (in such capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower, certain subsidiaries of the Borrower, the
financial institutions party thereto (the "EXISTING LENDERS") and NationsBank of
Texas, N.A., as administrative agent and issuing bank, are parties to the Credit
Agreement, dated as of July 7, 1997 and as amended, supplemented or otherwise
modified (the "EXISTING CREDIT FACILITY");
WHEREAS, the Borrower has entered into asset purchase agreements with
the sellers named therein providing for the purchase by the Borrower of
properties and assets to be used in the operation of radio broadcast stations
(the "ACQUISITION"), as described in the asset purchase agreements listed on
Schedule 1.1C (collectively, the "ACQUISITION AGREEMENTS");
WHEREAS, the Borrower desires to establish credit facilities to
refinance the indebtedness outstanding under the Existing Credit Facility, to
finance the Acquisition and other acquisitions of properties and assets to be
used in the operation of radio broadcast stations and to finance the Borrower's
ongoing working capital and general corporate needs;
WHEREAS, the Lenders are willing to make such credit facilities
available upon and subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the terms listed in
this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
"ACQUISITION": as defined in the recitals to this Agreement.
"ACQUISITION AGREEMENTS": as defined in the recitals to this
Agreement.
"ADJUSTMENT DATE": as defined in the Pricing Grid.
"AFFILIATE": as to any Person, any other Person which, directly or
indirectly, is in
<PAGE>
2
control of, is controlled by, or is under common control with, such Person.
For purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors (or persons
performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by
contract or otherwise.
"AGENTS": the collective reference to the Syndication Agent and the
Administrative Agent.
"AGGREGATE EXPOSURE": with respect to any Lender at any time, an
amount equal to (a) until the Term Loan Commitment Termination Date, the
aggregate amount of such Lender's Commitments at such time or, if the
Commitments have been terminated, the sum of (i) the aggregate then unpaid
principal amount of such Lender's Term Loans and (ii) the amount of such
Lender's Revolving Extensions of Credit then outstanding and (b)
thereafter, the sum of (i) the aggregate then unpaid principal amount of
such Lender's Term Loans and (ii) the amount of such Lender's Revolving
Credit Commitment then in effect or, if the Revolving Credit Commitments
have been terminated, the amount of such Lender's Revolving Extensions of
Credit then outstanding.
"AGGREGATE EXPOSURE PERCENTAGE": with respect to any Lender at any
time, the ratio (expressed as a percentage) of such Lender's Aggregate
Exposure at such time to the Aggregate Exposure of all Lenders at such
time.
"AGREEMENT": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"APPLICABLE MARGIN": for each Type of Loan, the rate per annum set
forth under the relevant column heading below:
Base Rate Eurodollar
Loans Loans
--------- -----------
Revolving Credit Loans 1.75% 2.75%
Term Loans 1.75% 2.75%
PROVIDED, that on and after the first Adjustment Date, the Applicable
Margin with respect to Revolving Credit Loans and Term Loans will be
determined pursuant to the Pricing Grid.
"APPLICATION": an application, in such form as the Issuing Lender may
specify from time to time, requesting the Issuing Lender to open a Letter
of Credit.
"ASSET SALE": any Disposition of Property or series of related
Dispositions of Property (excluding any such Disposition permitted by
clause (a), (b), (c) or (d) of Section 7.5).
<PAGE>
3
"ASSIGNEE": as defined in Section 10.6(c).
"ASSIGNOR": as defined in Section 10.6(c).
"AVAILABLE REVOLVING CREDIT COMMITMENT": as to any Revolving Credit
Lender at any time, an amount equal to the excess, if any, of (a) such
Lender's Revolving Credit Commitment then in effect OVER (b) such Lender's
Revolving Extensions of Credit then outstanding.
"AVAILABLE TERM LOAN COMMITMENT": as to any Term Loan Lender at any
time, an amount equal to the excess, if any, of (a) such Lender's Term Loan
Commitment then in effect OVER (b) the aggregate then unpaid principal
amount of such Lender's Term Loans.
"BASE RATE": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime
Rate in effect on such day, (b) the Base CD Rate in effect on such day plus
1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof: "PRIME RATE" shall mean the rate of interest
per annum publicly announced from time to time by the Reference Lender as
its prime or base rate in effect at its principal office in New York City
(the Prime Rate not being intended to be the lowest rate of interest
charged by the Reference Lender in connection with extensions of credit to
debtors); "BASE CD RATE" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which
is one and the denominator of which is one minus the C/D Reserve Percentage
and (b) the C/D Assessment Rate; and "THREE-MONTH SECONDARY CD RATE" shall
mean, for any day, the secondary market rate for three-month certificates
of deposit reported as being in effect on such day (or, if such day shall
not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve Bank
of New York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the week
following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center
banks in New York City received at approximately 10:00 A.M., New York City
time, on such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Reference Lender from three New York City
negotiable certificate of deposit dealers of recognized standing selected
by it. Any change in the Base Rate due to a change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such change
in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"BASE RATE LOANS": Loans the rate of interest applicable to which is
based upon the Base Rate.
"BENEFITTED LENDER": as defined in Section 10.7.
"BOARD": the Board of Governors of the Federal Reserve System of the
United
<PAGE>
4
States (or any successor).
"BORROWING DATE": any Business Day specified by the Borrower as a
date on which the Borrower requests the relevant Lenders to make Loans
hereunder.
"BUSINESS": as defined in Section 4.17(b).
"BUSINESS DAY": (a) for all purposes other than as covered by clause
(b) below, a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to
close and (b) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, any day
which is a Business Day described in clause (a) and which is also a day for
trading by and between banks in Dollar deposits in the interbank eurodollar
market.
"CAPITAL EXPENDITURES": for any period, with respect to any Person,
the aggregate of all expenditures by such Person and its Subsidiaries for
the acquisition or leasing (pursuant to a capital lease) of fixed or
capital assets or additions to equipment (including replacements,
capitalized repairs and improvements during such period) which should be
capitalized under GAAP on a consolidated balance sheet of such Person and
its Subsidiaries.
"CAPITAL LEASE OBLIGATIONS": as to any Person, the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under
GAAP, and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such
time determined in accordance with GAAP.
"CAPITAL STOCK": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants, rights or options to purchase any of
the foregoing.
"CASH EQUIVALENTS": (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States government or issued by
any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of acquisition;
(b) certificates of deposit, time deposits, eurodollar time deposits or
overnight bank deposits having maturities of six months or less from the
date of acquisition issued by any Lender or by any commercial bank
organized under the laws of the United States of America or any state
thereof having combined capital and surplus of not less than $500,000,000;
(c) commercial paper of an issuer rated at least A-2 by Standard & Poor's
Ratings Services ("S&P") or P-2 by Moody's Investors Service, Inc.
("MOODY'S"), or carrying an equivalent rating by a nationally recognized
rating agency, if both of the two named rating agencies cease publishing
ratings of commercial paper issuers generally, and maturing within six
months from the date of acquisition; (d) repurchase obligations of any
Lender or of any
<PAGE>
5
commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 30 days with respect to
securities issued or fully guaranteed or insured by the United States
government; (e) securities with maturities of one year or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States, by any political subdivision or taxing
authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory,
political subdivision, taxing authority or foreign government (as the case
may be) are rated at least A by S&P or A by Moody's; (f) securities with
maturities of six months or less from the date of acquisition backed by
standby letters of credit issued by any Lender or any commercial bank
satisfying the requirements of clause (b) of this definition; or (g) shares
of money market mutual or similar funds which invest exclusively in assets
satisfying the requirements of clauses (a) through (f) of this definition.
"C/D ASSESSMENT RATE": for any day as applied to any Base Rate Loan,
the annual assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund maintained by the Federal Deposit
Insurance Corporation (the "FDIC") classified as well-capitalized and
within supervisory subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. Section 327.4 (or any
successor provision) to the FDIC (or any successor) for the FDIC's (or such
successor's) insuring time deposits at offices of such institution in the
United States.
"C/D RESERVE PERCENTAGE": for any day as applied to any Base Rate
Loan, that percentage (expressed as a decimal) which is in effect on such
day, as prescribed by the Board, for determining the maximum reserve
requirement for a Depositary Institution (as defined in Regulation D of the
Board as in effect from time to time) in respect of new non-personal time
deposits in Dollars having a maturity of 30 days or more.
"CLOSING DATE": the date on which the conditions precedent set forth
in Section 5.1 shall have been satisfied, which date is March 2, 1998.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time.
"COLLATERAL": all Property of the Loan Parties, now owned or
hereafter acquired, upon which a Lien is purported to be created by any
Security Document.
"COMMITMENT": as to any Lender, the sum of the Term Loan Commitment
and the Revolving Credit Commitment of such Lender.
"COMMITMENT FEE RATE": 1/2 of 1% per annum; PROVIDED, that on and
after the first Adjustment Date, the Commitment Fee Rate will be determined
pursuant to the Pricing Grid.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
<PAGE>
6
"COMPLIANCE CERTIFICATE": a certificate duly executed by a
Responsible Officer substantially in the form of Exhibit B.
"CONSOLIDATED CURRENT ASSETS": at any date, all amounts (other than
cash and Cash Equivalents) which would, in conformity with GAAP, be set
forth opposite the caption "total current assets" (or any like caption) on
a consolidated balance sheet of the Borrower and its Subsidiaries at such
date.
"CONSOLIDATED CURRENT LIABILITIES": at any date, all amounts which
would, in conformity with GAAP, be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet
of the Borrower and its Subsidiaries at such date, but excluding (a) the
current portion of any Funded Debt of the Borrower and its Subsidiaries and
(b) without duplication of clause (a) above, all Indebtedness consisting of
Revolving Credit Loans to the extent otherwise included therein.
"CONSOLIDATED EBITDA": for any period, Consolidated Net Income for
such period PLUS, without duplication and to the extent reflected as a
charge in the statement of such Consolidated Net Income for such period,
the sum of (a) income tax expense, (b) interest expense, amortization or
writeoff of debt discount and debt issuance costs and commissions,
discounts and other fees and charges associated with Indebtedness
(including the Loans), (c) depreciation and amortization expense, (d)
amortization of intangibles (including, but not limited to, goodwill) and
organization costs, (e) any extraordinary, unusual or non-recurring
expenses or losses (including, whether or not otherwise includable as a
separate item in the statement of such Consolidated Net Income for such
period, losses on sales of assets outside of the ordinary course of
business) and (f) any other non-cash charges, and PLUS Cost Savings for
such period, and MINUS, to the extent included in the statement of such
Consolidated Net Income for such period, the sum of (a) interest income,
(b) any extraordinary, unusual or non-recurring income or gains (including,
whether or not otherwise includable as a separate item in the statement of
such Consolidated Net Income for such period, gains on the sales of assets
outside of the ordinary course of business) and (c) any other non-cash
income, all as determined on a consolidated basis, and MINUS, to the extent
the income attributable to Local Marketing Agreements accounts for more
than 25% (or, prior to the consummation of the IPO, 50%) of Consolidated
EBITDA, an amount equal to such excess; PROVIDED, that the Borrower may, at
its option, exclude the income attributable to Local Marketing Agreements
from the calculation of Consolidated EBITDA.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO": for any period, the ratio
of (a) Consolidated EBITDA for such period less the aggregate amount
actually paid by the Borrower and its Subsidiaries in cash during such
period on account of Capital Expenditures to (b) Consolidated Fixed Charges
for such period.
"CONSOLIDATED FIXED CHARGES": for any period, the sum (without
duplication) of (a) Consolidated Interest Expense for such period, (b)
provision for cash income taxes made by the Borrower or any of its
Subsidiaries on a consolidated basis in respect of such period and (c)
scheduled payments made during such period on account of principal of
<PAGE>
7
Indebtedness of the Borrower or any of its Subsidiaries (including
scheduled principal payments in respect of the Term Loans and scheduled
reductions of the Revolving Credit Commitments).
"CONSOLIDATED INTEREST COVERAGE RATIO": for any period, the ratio of
(a) Consolidated EBITDA for such period to (b) Consolidated Interest
Expense for such period.
"CONSOLIDATED INTEREST EXPENSE": for any period, total cash interest
expense (including that attributable to Capital Lease Obligations) of the
Borrower and its Subsidiaries for such period with respect to all
outstanding Indebtedness of the Borrower and its Subsidiaries (including,
without limitation, all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing
and net costs under Hedge Agreements in respect of interest rates to the
extent such net costs are allocable to such period in accordance with
GAAP).
"CONSOLIDATED LEVERAGE RATIO": as at the last day of any period of
four consecutive fiscal quarters, the ratio of (a) Consolidated Total Debt
on such day to (b) Consolidated EBITDA for such period; PROVIDED that for
purposes of calculating Consolidated EBITDA of the Borrower and its
Subsidiaries for any period, the Consolidated EBITDA of any Person acquired
by the Borrower or its Subsidiaries in a Permitted Acquisition during such
period, and any Cost Savings in connection with such Permitted Acquisition,
shall be included on a PRO FORMA basis for such period (assuming the
consummation of such Permitted Acquisition and the incurrence or assumption
of any Indebtedness in connection therewith occurred on the first day of
such period) if the consolidated balance sheet of such acquired Person and
its consolidated Subsidiaries as at the end of the period preceding the
acquisition of such Person and the related consolidated statements of
income and stockholders' equity and of cash flows for the period in respect
of which Consolidated EBITDA is to be calculated (i) have been previously
provided to the Administrative Agent and the Lenders and (ii) either (A)
have been reported on without a qualification arising out of the scope of
the audit by independent certified public accountants of nationally
recognized standing or (B) have been found acceptable by the Administrative
Agent, it being understood that the acceptability of such financial
statements would be determined based on the quality and method of
presentation, and not the substance, of the financial information presented
therein; and PROVIDED, FURTHER, that for purposes of calculating
Consolidated EBITDA of the Borrower and its Subsidiaries for any period, in
the event that FCC approval is pending for a Permitted Acquisition, the
EBITDA of any radio station being operated under a Local Marketing
Agreement entered into in connection with such pending Permitted
Acquisition shall be included on a PRO FORMA basis for such period
(assuming such Local Marketing Agreement became effective on the first day
of such period), it being understood that payments made by the Borrower or
any such Subsidiary for the right to operate such station under the Local
Marketing Agreement shall not be taken into account in determining EBITDA
of such station.
"CONSOLIDATED NET INCOME": for any period, the consolidated net
income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance
<PAGE>
8
with GAAP; PROVIDED that there shall be excluded (a) the income (or
deficit) of any Person accrued prior to the date it becomes a Subsidiary of
the Borrower or is merged into or consolidated with the Borrower or any of
its Subsidiaries, (b) the income (or deficit) of any Person (other than a
Subsidiary of the Borrower) in which the Borrower or any of its
Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by the Borrower or such Subsidiary in the form
of dividends or similar distributions and (c) the undistributed earnings of
any Subsidiary of the Borrower to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary is not at
the time permitted by the terms of any Contractual Obligation (other than
under any Loan Document) or Requirement of Law applicable to such
Subsidiary.
"CONSOLIDATED NET WORTH": at any date, all amounts which would, in
conformity with GAAP, be included on a consolidated balance sheet of the
Borrower and its Subsidiaries under stockholders' equity at such date.
"CONSOLIDATED SENIOR DEBT": all Consolidated Total Debt other than
Subordinated Debt.
"CONSOLIDATED SENIOR DEBT RATIO": as of the last day of any period of
four consecutive fiscal quarters, the ratio of (a) Consolidated Senior Debt
on such day to (b) Consolidated EBITDA for such period; PROVIDED that for
purposes of calculating Consolidated EBITDA of the Borrower and its
Subsidiaries for any period, the Consolidated EBITDA of any Person acquired
by the Borrower or its Subsidiaries in a Permitted Acquisition during such
period, and any Cost Savings in connection with such Permitted Acquisition,
shall be included on a PRO FORMA basis for such period (assuming the
consummation of such Permitted Acquisition and the incurrence or assumption
of any Indebtedness in connection therewith occurred on the first day of
such period) if the consolidated balance sheet of such acquired Person and
its consolidated Subsidiaries as at the end of the period preceding the
acquisition of such Person and the related consolidated statements of
income and stockholders' equity and of cash flows for the period in respect
of which Consolidated EBITDA is to be calculated (i) have been previously
provided to the Administrative Agent and the Lenders and (ii) either (A)
have been reported on without a qualification arising out of the scope of
the audit by independent certified public accountants of nationally
recognized standing or (B) have been found acceptable by the Administrative
Agent; and PROVIDED, FURTHER, that in the event that FCC approval is
pending for a Permitted Acquisition, Consolidated EBITDA of the Borrower
and its Subsidiaries for any period shall also include the EBITDA during
such period of any radio station being operated under a Local Marketing
Agreement entered into in connection with such pending Permitted
Acquisition, it being understood that payments made by the Borrower or any
such Subsidiary for the right to operate such station under the Local
Marketing Agreement shall not be taken into account in determining EBITDA
of such station.
"CONSOLIDATED TOTAL DEBT": at any date, the aggregate principal
amount of all Funded Debt of the Borrower and its Subsidiaries at such
date, determined on a consolidated basis in accordance with GAAP.
<PAGE>
9
"CONSOLIDATED WORKING CAPITAL": at any date, the excess of
Consolidated Current Assets on such date over Consolidated Current
Liabilities on such date.
"CONTINUING DIRECTORS": the directors of the Borrower on the Closing
Date, after giving effect to the Acquisition and the other transactions
contemplated hereby, and each other director, if, in each case, such other
director's nomination for election to the board of directors of the
Borrower is recommended by at least 66-2/3% of the then Continuing
Directors of the Borrower.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
Property is bound.
"CONTROL INVESTMENT AFFILIATE": as to any Person, any other Person
which (a) directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person and (b) is organized by such Person
primarily for the purpose of making equity or debt investments in one or
more companies. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, to direct or cause the direction
of the management and policies of such Person whether by contract or
otherwise.
"COST SAVINGS": for any period, cost savings attributable to such
period identified by the Borrower in conjunction with an acquisition which
can be implemented within 90 days of taking control of the target of such
acquisition, PROVIDED that the Borrower shall provide support for such
calculation of cost savings of a nature which is satisfactory to the Agents
(and, in any event, in conformity with Regulation S-X).
"DEFAULT": any of the events specified in Section 8, whether or not
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"DISPOSITION": with respect to any Property, any sale, lease, sale
and leaseback, assignment, conveyance, transfer or other disposition
thereof; the terms "DISPOSE" and "DISPOSED OF" shall have correlative
meanings.
"DOLLARS" and "$": dollars in lawful currency of the United States of
America.
"DOMESTIC SUBSIDIARY": any Subsidiary of the Borrower organized under
the laws of any jurisdiction within the United States of America.
"ECF PERCENTAGE": 75%; PROVIDED, that, with respect to any fiscal
year of the Borrower ending on or after December 31, 1998, the ECF
Percentage shall be 50% if the Consolidated Leverage Ratio as of the last
day of such fiscal year is less than 5.0 to 1.0.
"ENVIRONMENTAL LAWS": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law)
<PAGE>
10
regulating, relating to or imposing liability or standards of conduct
concerning protection of human health or the environment, as now or may at
any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other Governmental
Authority having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board) maintained by a
member bank of the Federal Reserve System.
"EURODOLLAR BASE RATE": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum determined on
the basis of the rate for deposits in Dollars for a period equal to such
Interest Period commencing on the first day of such Interest Period
appearing on Page 3750 of the Dow Jones Markets screen as of 11:00 A.M.,
London time, two Business Days prior to the beginning of such Interest
Period. In the event that such rate does not appear on Page 3750 of the
Dow Jones Markets screen (or otherwise on such screen), the "EURODOLLAR
BASE RATE" for purposes of this definition shall be determined by reference
to such other comparable publicly available service for displaying
eurodollar rates as may be selected by the Administrative Agent or, in the
absence of such availability, by reference to the rate at which the
Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New
York City time, two Business Days prior to the beginning of such Interest
Period in the interbank eurodollar market where its eurodollar and foreign
currency and exchange operations are then being conducted for delivery on
the first day of such Interest Period for the number of days comprised
therein.
"EURODOLLAR LOANS": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"EURODOLLAR RATE": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
EURODOLLAR BASE RATE
1.00 - Eurocurrency Reserve Requirements
"EURODOLLAR TRANCHE": the collective reference to Eurodollar Loans
the then current Interest Periods with respect to all of which begin on the
same date and end on the same later date (whether or not such Loans shall
originally have been made on the same day).
"EVENT OF DEFAULT": any of the events specified in Section 8,
PROVIDED that any
<PAGE>
11
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"EXCESS CASH FLOW": for any fiscal year of the Borrower, the excess,
if any, of (a) the sum, without duplication, of (i) Consolidated Net Income
for such fiscal year, (ii) an amount equal to the amount of all non-cash
charges (including depreciation and amortization) deducted in arriving at
such Consolidated Net Income, (iii) decreases in Consolidated Working
Capital for such fiscal year, (iv) an amount equal to the aggregate net
non-cash loss on the Disposition of Property by the Borrower and its
Subsidiaries during such fiscal year (other than sales of inventory in the
ordinary course of business), to the extent deducted in arriving at such
Consolidated Net Income and (v) the net increase during such fiscal year
(if any) in deferred tax accounts of the Borrower OVER (b) the sum, without
duplication, of (i) an amount equal to the amount of all non-cash credits
included in arriving at such Consolidated Net Income, (ii) the aggregate
amount actually paid by the Borrower and its Subsidiaries in cash during
such fiscal year on account of Capital Expenditures (excluding the
principal amount of Indebtedness incurred in connection with such
expenditures and any such expenditures financed with the proceeds of any
Reinvestment Deferred Amount), (iii) the aggregate amount of all
prepayments of Revolving Credit Loans during such fiscal year to the extent
accompanying permanent optional reductions of the Revolving Credit
Commitments and all optional prepayments of the Term Loans and other Funded
Debt during such fiscal year, (iv) the aggregate amount of all regularly
scheduled principal payments of Funded Debt (including, without limitation,
the Loans) of the Borrower and its Subsidiaries made during such fiscal
year (other than in respect of any revolving credit facility to the extent
there is not an equivalent permanent reduction in commitments thereunder),
(v) increases in Consolidated Working Capital for such fiscal year, (vi) an
amount equal to the aggregate net non-cash gain on the Disposition of
Property by the Borrower and its Subsidiaries during such fiscal year
(other than sales of inventory in the ordinary course of business), to the
extent included in arriving at such Consolidated Net Income, and (vii) the
net decrease during such fiscal year (if any) in deferred tax accounts of
the Borrower.
"EXCESS CASH FLOW APPLICATION DATE": as defined in Section 2.10(c).
"EXCESS CASH ON HAND": at any date, an amount equal to cash and Cash
Equivalents of the Borrower and its Subsidiaries on hand on such date MINUS
$2,500,000.
"EXCLUDED FOREIGN SUBSIDIARIES": Caribbean Communications Company
Limited and any other Foreign Subsidiary in respect of which either (i) the
pledge of all of the Capital Stock of such Subsidiary as Collateral or (ii)
the guaranteeing by such Subsidiary of the Obligations, would, in the good
faith judgment of the Borrower, result in adverse tax consequences to the
Borrower.
"EXISTING CREDIT FACILITY": as defined in the recitals to this
Agreement.
"EXISTING LENDERS": as defined in the recitals to this Agreement.
"EXISTING LETTERS OF CREDIT": the collective reference to the
outstanding letters of credit listed on Schedule 1.1D issued for the
account of the Borrower or any of its
<PAGE>
12
Subsidiaries pursuant to the terms of the Existing Credit Facility.
"FACILITIES": each of (a) the Term Loan Commitments and the Term
Loans made thereunder (the "TERM LOAN FACILITY") and (b) the Revolving
Credit Commitments and the extensions of credit made thereunder (the
"REVOLVING CREDIT FACILITY").
"FCC": the Federal Communications Commission (or any successor).
"FCC LICENSES": Licenses issued by the FCC to own and operate radio
stations owned or acquired by the Borrower and its Subsidiaries.
"FEDERAL FUNDS EFFECTIVE RATE": for any day, the weighted average of
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by
the Reference Lender from three federal funds brokers of recognized
standing selected by it.
"FINAL MATURITY DATE": March 2, 2006.
"FOREIGN SUBSIDIARY": any Subsidiary of the Borrower that is not a
Domestic Subsidiary.
"FUNDED DEBT": as to any Person, all Indebtedness (including
Indebtedness to be incurred in connection with any pending Permitted
Acquisition for which there is a Local Marketing Agreement in effect (other
than any Local Marketing Agreement in effect on the Closing Date) but
excluding issued but undrawn Letters of Credit) of such Person that matures
more than one year from the date of its creation or matures within one year
from such date but is renewable or extendible, at the option of such
Person, to a date more than one year from such date or arises under a
revolving credit or similar agreement that obligates the lender or lenders
to extend credit during a period of more than one year from such date,
including, without limitation, all current maturities and current sinking
fund payments in respect of such Indebtedness whether or not required to be
paid within one year from the date of its creation and, in the case of the
Borrower, Indebtedness in respect of the Loans; PROVIDED, that for purposes
of calculating Funded Debt of the Borrower, the Preferred Stock and any
obligations in respect of such Preferred Stock described in clause (g) or
(k) of the definition of Indebtedness shall be excluded; PROVIDED, FURTHER,
that the amount of Indebtedness to be incurred in connection with any
pending Permitted Acquisition for which there is a Local Marketing
Agreement in effect shall be deemed to be an amount equal to the purchase
price for such Permitted Acquisition minus Excess Cash on Hand (after
giving effect to any allocation of Excess Cash on Hand to be used for any
other Permitted Acquisition); and PROVIDED, FURTHER, that to the extent
that the income attributable to a Local Marketing Agreement entered into in
connection with a pending Permitted Acquisition is excluded from the
calculation of Consolidated EBITDA, the Indebtedness to be incurred in
connection with such Permitted Acquisition shall be excluded from the
calculation of Funded Debt of the
<PAGE>
13
Borrower and its Subsidiaries.
"FUNDING OFFICE": the office specified from time to time by the
Administrative Agent as its funding office by notice to the Borrower and
the Lenders.
"GAAP": generally accepted accounting principles in the United States
of America as in effect from time to time, except that for purposes of
Section 7.1, GAAP shall be determined on the basis of such principles in
effect on the date hereof and consistent with those used in the preparation
of the most recent audited financial statements delivered pursuant to
Section 4.1(a).
"GOVERNMENTAL AUTHORITY": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government (including, without limitation, the National
Association of Insurance Commissioners).
"GUARANTEE AND COLLATERAL AGREEMENT": the Guarantee and Collateral
Agreement to be executed and delivered by the Borrower and each Subsidiary
Guarantor, substantially in the form of Exhibit A, as the same may be
amended, supplemented or otherwise modified from time to time.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"),
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "PRIMARY OBLIGATIONS") of any other third Person
(the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any Property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase Property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; PROVIDED,
HOWEVER, that the term Guarantee Obligation shall not include endorsements
of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated
or determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee
Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in
good
<PAGE>
14
faith.
"HEDGE AGREEMENTS": all interest rate swaps, caps or collar
agreements or similar arrangements entered into by the Borrower providing
for protection against fluctuations in interest rates or currency exchange
rates or the exchange of nominal interest obligations, either generally or
under specific contingencies.
"INDEBTEDNESS": of any Person at any date, without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of Property or services (other
than current trade payables incurred in the ordinary course of such
Person's business), (c) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to Property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such Property), (e)
all Capital Lease Obligations of such Person, (f) all obligations of such
Person, contingent or otherwise, as an account party under acceptance,
letter of credit or similar facilities, (g) all obligations of such Person,
contingent or otherwise, to purchase, redeem, retire or otherwise acquire
for value any Capital Stock of such Person, (h) all Guarantee Obligations
of such Person in respect of obligations of the kind referred to in clauses
(a) through (g) above, (i) all obligations of the kind referred to in
clauses (a) through (h) above secured by (or for which the holder of such
obligation has an existing right, contingent or otherwise, to be secured
by) any Lien on Property (including, without limitation, accounts and
contract rights) owned by such Person, whether or not such Person has
assumed or become liable for the payment of such obligation, (j) for the
purposes of Section 8(e) only, all obligations of such Person in respect of
Hedge Agreements and (k) the liquidation value of any preferred Capital
Stock of such Person or its Subsidiaries held by any Person other than such
Person and its Wholly Owned Subsidiaries.
"INDEMNIFIED LIABILITIES": as defined in Section 10.5.
"INDEMNITEE": as defined in Section 10.5.
"INSOLVENCY": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTELLECTUAL PROPERTY": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, copyrights, copyright licenses, patents,
patent licenses, trademarks, trademark licenses, technology, know-how and
processes, and all rights to sue at law or in equity for any infringement
or other impairment thereof, including the right to receive all proceeds
and damages therefrom.
<PAGE>
15
"INTEREST PAYMENT DATE": (a) as to any Base Rate Loan, the last day
of each March, June, September and December to occur while such Loan is
outstanding and the final maturity date of such Loan, (b) as to any
Eurodollar Loan having an Interest Period of three months or less, the last
day of such Interest Period, (c) as to any Eurodollar Loan having an
Interest Period longer than three months, each day which is three months,
or a whole multiple thereof, after the first day of such Interest Period
and the last day of such Interest Period and (d) as to any Loan (other than
any Revolving Credit Loan that is a Base Rate Loan), the date of any
repayment or prepayment made in respect thereof.
"INTEREST PERIOD": as to any Eurodollar Loan, (a) initially, the
period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one, two, three or six
months thereafter, as selected by the Borrower in its notice of borrowing
or notice of conversion, as the case may be, given with respect thereto;
and (b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan and ending
one, two, three or six months thereafter, as selected by the Borrower by
irrevocable notice to the Administrative Agent not less than three Business
Days prior to the last day of the then current Interest Period with respect
thereto; PROVIDED that, all of the foregoing provisions relating to
Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be
to carry such Interest Period into another calendar month in which
event such Interest Period shall end on the immediately preceding
Business Day;
(ii) no Interest Period shall extend beyond the Final Maturity
Date;
(iii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"INVESTMENTS": as defined in Section 7.8.
"IPO": a registered initial public offering of the Borrower's common
stock, underwritten by a group of nationally recognized investment banking
firms of which Lehman Brothers Inc. is a manager, that generates gross cash
proceeds to the Borrower of at least $75,000,000.
"ISSUING LENDER": Lehman Commercial Paper Inc., or any other Lender
from time to time designated by the Borrower with the approval of such
Lender and the Syndication
<PAGE>
16
Agent, in its capacity as issuer of any Letter of Credit.
"L/C COMMITMENT": $25,000,000.
"L/C FEE PAYMENT DATE": the last day of each March, June, September
and December and the Final Maturity Date.
"L/C OBLIGATIONS": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding Letters
of Credit and (b) the aggregate amount of drawings under Letters of Credit
which have not then been reimbursed pursuant to Section 3.5.
"L/C PARTICIPANTS": the collective reference to all the Revolving
Credit Lenders other than the Issuing Lender.
"LETTERS OF CREDIT": the collective reference to the letters of
credit issued by the Issuing Lender pursuant to Section 3.1(a).
"LICENSES": as defined in Section 4.23.
"LICENSE SUBSIDIARY": the collective reference to Cumulus Licensing
Corp., a Nevada corporation, and any other direct or indirect Subsidiary of
the Borrower that holds FCC Licenses and engages in no other business.
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement
and any capital lease having substantially the same economic effect as any
of the foregoing).
"LOAN": any loan made by any Lender pursuant to this Agreement.
"LOAN DOCUMENTS": this Agreement, the Security Documents, the
Syndication Letter Agreement and the Notes.
"LOAN PARTIES": the Borrower and each Subsidiary of the Borrower
which is a party to a Loan Document.
"LOCAL MARKETING AGREEMENT": any local marketing agreement entered
into between the Borrower or any of its Subsidiaries and a seller of the
stock or assets of a radio broadcast station.
"MAJORITY FACILITY LENDERS": with respect to any Facility, the
holders of more than 50% of the aggregate unpaid principal amount of the
Term Loans or the Total Revolving Extensions of Credit, as the case may be,
outstanding under such Facility (or (a) in the case of the Term Loan
Facility, prior to any termination of the Term Loan
<PAGE>
17
Commitments, the holders of more than 50% of the Total Term Loan
Commitments and (b) in the case of the Revolving Credit Facility, prior to
any termination of the Revolving Credit Commitments, the holders of more
than 50% of the Total Revolving Credit Commitments).
"MAJORITY REVOLVING CREDIT FACILITY LENDERS": the Majority Facility
Lenders in respect of the Revolving Credit Facility.
"MAJORITY TERM LOAN FACILITY LENDERS": the Majority Facility Lenders
in respect of the Term Loan Facility.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, assets, property, condition (financial or otherwise) or prospects
of the Borrower and its Subsidiaries taken as a whole or (b) the validity
or enforceability of this Agreement or any of the other Loan Documents or
the rights or remedies of the Agents or the Lenders hereunder or
thereunder.
"MATERIAL ENVIRONMENTAL AMOUNT": an amount payable by the Borrower
and/or its Subsidiaries in excess of $2,500,000 for remedial costs,
compliance costs, compensatory damages, punitive damages, fines, penalties
or any combination thereof.
"MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, forces, materials or wastes, defined or
regulated as such in or under any Environmental Law, including, without
limitation, asbestos, radioactivity, polychlorinated biphenyls and
urea-formaldehyde insulation.
"MORTGAGED PROPERTIES": the real properties listed on Schedule 1.1B,
as to which the Administrative Agent for the benefit of the Lenders shall
be granted a Lien pursuant to the Mortgages.
"MORTGAGES": each of the mortgages and deeds of trust made by any
Loan Party in favor of, or for the benefit of, the Administrative Agent for
the benefit of the Lenders, substantially in the form of Exhibit D (with
such changes thereto as shall be advisable under the law of the
jurisdiction in which such mortgage or deed of trust is to be recorded), as
the same may be amended, supplemented or otherwise modified from time to
time.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NET CASH PROCEEDS": (a) in connection with any Asset Sale or any
Recovery Event, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of deferred
payment of principal pursuant to a note or installment receivable or
purchase price adjustment receivable or otherwise, but only as and when
received) of such Asset Sale or Recovery Event, net of attorneys' fees,
accountants' fees, investment banking fees, amounts required to be applied
to the
<PAGE>
18
repayment of Indebtedness secured by a Lien expressly permitted hereunder
on any asset which is the subject of such Asset Sale or Recovery Event
(other than any Lien pursuant to a Security Document) and other customary
fees and expenses actually incurred in connection therewith and net of
taxes paid or reasonably estimated to be payable as a result thereof (after
taking into account any available tax credits or deductions and any tax
sharing arrangements) and (b) in connection with any issuance or sale of
equity securities or debt securities or instruments or the incurrence of
loans, the cash proceeds received from such issuance or incurrence, net of
attorneys' fees, investment banking fees, accountants' fees, underwriting
discounts and commissions and other customary fees and expenses actually
incurred in connection therewith.
"NON-EXCLUDED TAXES": as defined in Section 2.18(a).
"NON-U.S. LENDER": as defined in Section 2.18(d).
"NOTES": the collective reference to any promissory note evidencing
Loans.
"OBLIGATIONS": the unpaid principal of and interest on (including,
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not
a claim for post-filing or post-petition interest is allowed in such
proceeding) the Loans and all other obligations and liabilities of the
Borrower to the Administrative Agent or to any Lender (or, in the case of
Hedge Agreements, any affiliate of any Lender), whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, arising under, out of, or in connection with, this Agreement, any
other Loan Document, the Letters of Credit, any Hedge Agreement entered
into with any Lender or any affiliate of any Lender or any other document
made, delivered or given by the Borrower in connection herewith or
therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
limitation, all fees, charges and disbursements of counsel to the
Administrative Agent or to any Lender that are required to be paid by the
Borrower pursuant hereto) or otherwise.
"OTHER TAXES": any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies
arising from any payment made hereunder or from the execution, delivery or
enforcement of, or otherwise with respect to, this Agreement or any other
Loan Document.
"PARENT": Cumulus Media, LLC, a Wisconsin limited liability company
and the parent company of the Borrower.
"PARTICIPANT": as defined in Section 10.6(b).
"PAYMENT OFFICE": the office specified from time to time by the
Administrative Agent as its payment office by notice to the Borrower and
the Lenders.
<PAGE>
19
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA (or any successor).
"PERMITTED ACQUISITION": (a) the Acquisition and any other
acquisition for which the Borrower has obtained the prior written approval
of the Required Lenders and (b) any other acquisition made by the Borrower
or any of its Subsidiaries so long as, with respect to any such other
acquisition, the following conditions are satisfied:
(i) no Default or Event of Default shall have occurred and be
continuing or would result from such acquisition;
(ii) after giving effect to such acquisition, the Borrower shall
be in pro forma compliance with the financial covenants set forth in
Section 7.1;
(iii) the target of such acquisition shall have no more than
$1,000,000 of negative cash flow after giving effect to any Cost
Savings;
(iv) the target of such acquisition shall be the stock or assets
of a radio station located in the United States of America or within
an existing market of the Borrower or any of its Subsidiaries in the
Caribbean at the time of such acquisition;
(v) the acquisition shall conform with the Borrower's stated
management strategy as in effect on the Closing Date;
(vi) the acquisition shall be (A) in an existing market of the
Borrower, (B) in a market where the Borrower has entered into a
contractual arrangement to purchase the stock or assets of another
radio station or (C) in a market where the target of such acquisition
has a minimum market share of 15% of the "12 plus" audience, as
measured by Arbitron (or a comparable rating service acceptable to the
Administrative Agent) in its most recent rating survey;
(vii) the aggregate consideration for such acquisition shall not
exceed $10,000,000;
(viii) after giving effect to such acquisition, the aggregate
Available Revolving Credit Commitments shall be at least $10,000,000;
and
(ix) an environmental audit satisfactory to the Administrative
Agent shall have been performed with respect to the properties to be
acquired.
"PERMITTED INVESTORS": the collective reference to the members of the
Parent on the Closing Date and their respective Control Investment
Affiliates.
"PERSON": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
<PAGE>
20
"PLAN": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"PREFERRED STOCK": the collective reference to (a) the Borrower's
non-voting Class A Cumulative Preferred Stock owned, beneficially and of
record on the date hereof, by The Northwestern Mutual Life Insurance
Company and (b) any additional non-voting cumulative preferred stock issued
by the Borrower after the date hereof so long as such preferred stock, by
its terms, (i) may not be purchased, redeemed, retired or otherwise
acquired for value prior to the first anniversary of the Final Maturity
Date and (ii) provides for the payment of dividends thereon solely in
additional shares of non-voting cumulative preferred stock.
"PRICING GRID": the pricing grid attached hereto as Annex A.
"PRO FORMA BALANCE SHEET": as defined in Section 6.14.
"PROJECTIONS": as defined in Section 6.2(c).
"PROPERTIES": as defined in Section 4.17(a).
"PROPERTY": any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or
intangible, including, without limitation, Capital Stock.
"RECOVERY EVENT": any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding
relating to any asset of the Borrower or any of its Subsidiaries.
"REFERENCE LENDER": Citibank, N.A.
"REGISTER": as defined in Section 10.6(d).
"REGULATION G": Regulation G of the Board as in effect from time to
time.
"REGULATION U": Regulation U of the Board as in effect from time to
time.
"REIMBURSEMENT OBLIGATION": the obligation of the Borrower to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn
under Letters of Credit.
"REINVESTMENT DEFERRED AMOUNT": with respect to any Reinvestment
Event, the aggregate Net Cash Proceeds received by the Borrower or any of
its Subsidiaries in connection therewith which are not applied to prepay
the Term Loans or reduce the Revolving Credit Commitments pursuant to
Section 2.10(b) as a result of the delivery of a Reinvestment Notice.
<PAGE>
21
"REINVESTMENT EVENT": any Asset Sale or Recovery Event in respect of
which the Borrower has delivered a Reinvestment Notice.
"REINVESTMENT NOTICE": a written notice executed by a Responsible
Officer stating that no Event of Default has occurred and is continuing and
that the Borrower (directly or indirectly through a Subsidiary) intends and
expects to use all or a specified portion of the Net Cash Proceeds of an
Asset Sale or Recovery Event to acquire assets useful in its business.
"REINVESTMENT PREPAYMENT AMOUNT": with respect to any Reinvestment
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire
assets useful in the Borrower's business.
"REINVESTMENT PREPAYMENT DATE": with respect to any Reinvestment
Event, the earlier of (a) the date occurring one year after such
Reinvestment Event and (b) the date on which the Borrower shall have
determined not to, or shall have otherwise ceased to, acquire assets useful
in the Borrower's business with all or any portion of the relevant
Reinvestment Deferred Amount.
"REORGANIZATION": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(c) of
ERISA, other than those events as to which the 30-day notice period is
waived under subsection .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC
Reg. Section 4043.
"REQUIRED LENDERS": at any time, the holders of more than 50% of (a)
until the Term Loan Commitment Termination Date, the Commitments or, if the
Commitments have been terminated, the sum of (i) the aggregate unpaid
principal amount of the Term Loans then outstanding and (ii) the Total
Revolving Extensions of Credit then outstanding and (b) thereafter, the sum
of (i) the aggregate unpaid principal amount of the Term Loans then
outstanding and (ii) the Total Revolving Credit Commitments then in effect
or, if the Revolving Credit Commitments have been terminated, the Total
Revolving Extensions of Credit then outstanding.
"REQUIRED PREPAYMENT LENDERS": the Majority Facility Lenders in
respect of each Facility.
"REQUIREMENT OF LAW": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its Property or to
which such Person or any of its Property is subject.
"RESPONSIBLE OFFICER": the chief executive officer, president or
chief financial
<PAGE>
22
officer of the Borrower, but in any event, with respect to financial
matters, the chief financial officer of the Borrower.
"RESTRICTED PAYMENTS": as defined in Section 7.6.
"REVOLVING CREDIT COMMITMENT": as to any Lender, the obligation of
such Lender, if any, to make Revolving Credit Loans and participate in
Letters of Credit, in an aggregate principal and/or face amount not to
exceed the amount set forth under the heading "Revolving Credit Commitment"
opposite such Lender's name on Schedule 1.1A, as the same may be reduced
from time to time pursuant to Sections 2.4(b), 2.6 and 2.8 or otherwise
changed from time to time pursuant to the terms hereof. The original
amount of the Total Revolving Credit Commitments is $110,000,000.
"REVOLVING CREDIT COMMITMENT PERIOD": the period from and including
the Closing Date to the Final Maturity Date.
"REVOLVING CREDIT LENDER": each Lender which has a Revolving Credit
Commitment or which is the holder of Revolving Credit Loans.
"REVOLVING CREDIT LOANS": as defined in Section 2.4.
"REVOLVING CREDIT PERCENTAGE": as to any Revolving Credit Lender at
any time, the percentage which such Lender's Revolving Credit Commitment
then constitutes of the Total Revolving Credit Commitments (or, at any time
after the Revolving Credit Commitments shall have expired or terminated,
the percentage which the aggregate principal amount of such Lender's
Revolving Credit Loans then outstanding constitutes of the aggregate
principal amount of the Revolving Credit Loans then outstanding).
"REVOLVING EXTENSIONS OF CREDIT": as to any Revolving Credit Lender
at any time, an amount equal to the sum of (a) the aggregate principal
amount of all Revolving Credit Loans made by such Lender then outstanding
and (b) such Lender's Revolving Credit Percentage of the L/C Obligations
then outstanding.
"SECURITY DOCUMENTS": the collective reference to the Guarantee and
Collateral Agreement, the Mortgages and all other security documents
hereafter delivered to the Administrative Agent granting a Lien on any
Property of any Person to secure the obligations and liabilities of any
Loan Party under any Loan Document.
"SELLERS": the collective reference to each of the sellers party to
any of the Acquisition Agreements.
"SENIOR SUBORDINATED NOTE INDENTURE": the Indenture to be entered
into by the Borrower in connection with the issuance of the Senior
Subordinated Notes, together with all instruments and other agreements
entered into by the Borrower in connection therewith, the terms of which
shall be acceptable to the Agents, as the same may be amended, supplemented
or otherwise modified from time to time in accordance with Section 7.9.
<PAGE>
23
"SENIOR SUBORDINATED NOTES": up to $250,000,000 in aggregate
principal amount of senior subordinated notes of the Borrower to be issued
pursuant to the Senior Subordinated Note Indenture, PROVIDED that the terms
and conditions of such notes are acceptable to the Agents.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"SOLVENT": when used with respect to any Person, means that, as of
any date of determination, (a) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the
amount of all "liabilities of such Person, contingent or otherwise", as of
such date, as such quoted terms are determined in accordance with
applicable federal and state laws governing determinations of the
insolvency of debtors, (b) the present fair saleable value of the assets of
such Person will, as of such date, be greater than the amount that will be
required to pay the liability of such Person on its debts as such debts
become absolute and matured, (c) such Person will not have, as of such
date, an unreasonably small amount of capital with which to conduct its
business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim",
and (ii) "claim" means any (x) right to payment, whether or not such a
right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured or
unmatured, disputed, undisputed, secured or unsecured.
"SPECIFIED CHANGE OF CONTROL": a "Change of Control" (or an event of
similar designation), as defined in the Senior Subordinated Note Indenture.
"SUBORDINATED DEBT": the Senior Subordinated Notes and any other
unsecured Indebtedness of the Borrower or any of its Subsidiaries: no part
of the principal of which is required to be paid (whether by way of
mandatory sinking fund, mandatory redemption, mandatory prepayment or
otherwise) prior to the Final Maturity Date; the payment of the principal
of and interest on which and other obligations of the Borrower and its
Subsidiaries in respect thereof are subordinated, on terms and conditions
approved in writing by the Required Lenders, to the prior payment in full
of the principal of and interest (including post-petition interest) on the
Loans and all other obligations and liabilities of the Loan Parties to the
Agents and the Lenders hereunder and under the other Loan Documents; and
all other terms and conditions of which are satisfactory in form and
substance to the Required Lenders (as evidenced by their prior written
approval thereof).
"SUBSIDIARY": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the
<PAGE>
24
time owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower.
"SUBSIDIARY GUARANTOR": each Subsidiary of the Borrower other than
any Excluded Foreign Subsidiary.
"SYNDICATION DATE": the date on which the Syndication Agent completes
the syndication of the Facilities and the entities selected in such
syndication process become parties to this Agreement.
"SYNDICATION LETTER AGREEMENT": the letter agreement, dated as of
March 2, 1998, between the Borrower and the Syndication Agent relating to
the syndication of the Facilities.
"TERM LOAN": as defined in Section 2.1.
"TERM LOAN COMMITMENT": as to any Lender, the obligation of such
Lender, if any, to make a Term Loan to the Borrower hereunder in a
principal amount not to exceed the amount set forth under the heading "Term
Loan Commitment" opposite such Lender's name on Schedule 1.1A. The
original aggregate amount of the Term Loan Commitments is $80,000,000.
"TERM LOAN COMMITMENT TERMINATION DATE": the earlier of (a) the
Syndication Date and (b) August 31, 1998.
"TERM LOAN LENDER": each Lender which has a Term Loan Commitment or
which is the holder a Term Loan.
"TERM LOAN PERCENTAGE": as to any Term Loan Lender at any time, the
percentage which such Lender's Term Loan Commitment then constitutes of the
aggregate Term Loan Commitments (or, at any time after the Term Loan
Commitment Termination Date, the percentage which the aggregate principal
amount of such Lender's Term Loans then outstanding constitutes of the
aggregate principal amount of the Term Loans then outstanding).
"TOTAL REVOLVING CREDIT COMMITMENTS": at any time, the aggregate
amount of the Revolving Credit Commitments then in effect.
"TOTAL REVOLVING EXTENSIONS OF CREDIT": at any time, the aggregate
amount of the Revolving Extensions of Credit of the Revolving Credit
Lenders outstanding at such time.
"TOTAL TERM LOAN COMMITMENTS": at any time, the aggregate amount of
the Term Loan Commitments then in effect.
<PAGE>
25
"TRANSFEREE": as defined in Section 10.15.
"TYPE": as to any Loan, its nature as a Base Rate Loan or a
Eurodollar Loan.
"UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication
No. 500, as the same may be amended from time to time.
"WHOLLY OWNED SUBSIDIARY": as to any Person, any other Person all of
the Capital Stock of which (other than directors' qualifying shares
required by law) is owned by such Person directly and/or through other
Wholly Owned Subsidiaries.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Borrower and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 TERM LOAN COMMITMENTS. Subject to the terms and conditions
hereof, each Term Loan Lender severally agrees to make, in up to five separate
draws during the period commencing on the Closing Date and ending on the Term
Loan Commitment Termination Date, term loans (each, a "TERM LOAN") to the
Borrower in an aggregate principal amount not to exceed the amount of the Term
Loan Commitment of such Lender. The Term Loans may from time to time be
Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified
to the Administrative Agent in accordance with Sections 2.2 and 2.11.
2.2 PROCEDURE FOR TERM LOAN BORROWING. The Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 10:00 A.M., New York City time, (a) three Business
Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or
(b) one Business Day prior to the requested Borrowing Date, in the case of Base
Rate Loans), specifying (i) the amount and Type of Term Loans to be borrowed,
(ii) the requested Borrowing Date and (iii) in the case of Eurodollar
<PAGE>
26
Loans, the respective amounts of each such Type of Loan and the respective
lengths of the initial Interest Period therefor. The Term Loans made on the
Closing Date shall initially be Base Rate Loans, and no Term Loan may be
converted into or continued as a Eurodollar Loan having an Interest Period in
excess of one month prior to the Syndication Date. Each borrowing under the
Term Loan Commitments shall be in an amount equal to (x) in the case of Base
Rate Loans, $1,000,000 or a whole multiple thereof and (y) in the case of
Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess
thereof. Upon receipt of any such notice from the Borrower, the Administrative
Agent shall promptly notify each Term Loan Lender thereof. Each Term Loan
Lender will make the amount of its PRO RATA share of each borrowing available to
the Administrative Agent for the account of the Borrower at the Funding Office
prior to 12:00 Noon, New York City time, on the Borrowing Date requested by the
Borrower in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to the Borrower by the Administrative
Agent in like funds as received by the Administrative Agent.
2.3 REPAYMENT OF TERM LOANS. The Term Loan of each Term Loan Lender
shall mature in 25 consecutive installments, commencing on March 31, 2000 and
ending on the Final Maturity Date, each of which shall be in an amount equal to
such Lender's Term Loan Percentage multiplied by the amount set forth below
opposite such installment:
Installment Principal Amount
----------- ----------------
March 31, 2000 $2,500,000
June 30, 2000 $2,500,000
September 30, 2000 $2,500,000
December 31, 2000 $2,500,000
March 31, 2001 $2,500,000
June 30, 2001 $2,500,000
September 30, 2001 $2,500,000
December 31, 2001 $2,500,000
March 31, 2002 $2,500,000
June 30, 2002 $2,500,000
September 30, 2002 $2,500,000
December 31, 2002 $2,500,000
March 31, 2003 $3,750,000
June 30, 2003 $3,750,000
September 30, 2003 $3,750,000
December 31, 2003 $3,750,000
March 31, 2004 $3,750,000
June 30, 2004 $3,750,000
September 30, 2004 $3,750,000
December 31, 2004 $3,750,000
March 31, 2005 $3,750,000
June 30, 2005 $3,750,000
September 30, 2005 $3,750,000
December 31, 2005 $3,750,000
Final Maturity Date $5,000,000;
<PAGE>
27
PROVIDED, HOWEVER, that if after giving effect to any Term Loans made on the
Term Loan Commitment Termination Date, the Total Term Loan Commitments exceeds
the amount of Term Loans made to the Borrower, the foregoing installments shall
be ratably reduced by an aggregate amount equal to such excess.
2.4 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("REVOLVING CREDIT LOANS") to the Borrower from time to
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Lender's Revolving
Credit Percentage of the L/C Obligations then outstanding, does not exceed the
amount of such Lender's Revolving Credit Commitment. During the Revolving
Credit Commitment Period the Borrower may use the Revolving Credit Commitments
by borrowing, prepaying the Revolving Credit Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof. The
Revolving Credit Loans may from time to time be Eurodollar Loans or Base Rate
Loans, as determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.5 and 2.11, PROVIDED that no Revolving Credit Loan
shall be made as a Eurodollar Loan after the day that is one month prior to the
Final Maturity Date.
(b) The Revolving Credit Commitment of each Revolving Credit Lender
shall be reduced in 25 consecutive installments, commencing on March 31, 2000
and ending on the Final Maturity Date, each of which shall be in an amount equal
to such Lender's Revolving Credit Percentage multiplied by the amount set forth
below opposite such installment:
Installment Principal Amount
----------- ----------------
March 31, 2000 $2,500,000
June 30, 2000 $2,500,000
September 30, 2000 $2,500,000
December 31, 2000 $2,500,000
March 31, 2001 $2,500,000
June 30, 2001 $2,500,000
September 30, 2001 $2,500,000
December 31, 2001 $2,500,000
March 31, 2002 $3,750,000
June 30, 2002 $3,750,000
September 30, 2002 $3,750,000
December 31, 2002 $3,750,000
March 31, 2003 $5,000,000
June 30, 2003 $5,000,000
September 30, 2003 $5,000,000
December 31, 2003 $5,000,000
March 31, 2004 $6,250,000
June 30, 2004 $6,250,000
September 30, 2004 $6,250,000
December 31, 2004 $6,250,000
March 31, 2005 $6,250,000
<PAGE>
28
June 30, 2005 $6,250,000
September 30, 2005 $6,250,000
December 31, 2005 $6,250,000
Final Maturity Date $5,000,000
2.5 PROCEDURE FOR REVOLVING CREDIT BORROWING. The Borrower may
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, PROVIDED that the Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 10:00 A.M., New York City time, (a) three Business
Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or
(b) one Business Day prior to the requested Borrowing Date, in the case of Base
Rate Loans), specifying (i) the amount and Type of Revolving Credit Loans to be
borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar
Loans, the respective amounts of each such Type of Loan and the respective
lengths of the initial Interest Period therefor. Any Revolving Credit Loans
made on the Closing Date shall initially be Base Rate Loans, and no Revolving
Credit Loan may be made as, converted into or continued as a Eurodollar Loan
having an Interest Period in excess of one month prior to the Syndication Date.
Each borrowing under the Revolving Credit Commitments shall be in an amount
equal to (x) in the case of Base Rate Loans, $1,000,000 or a whole multiple
thereof (or, if the then aggregate Available Revolving Credit Commitments are
less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar
Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon
receipt of any such notice from the Borrower, the Administrative Agent shall
promptly notify each Revolving Credit Lender thereof. Each Revolving Credit
Lender will make the amount of its PRO RATA share of each borrowing available to
the Administrative Agent for the account of the Borrower at the Funding Office
prior to 12:00 Noon, New York City time, on the Borrowing Date requested by the
Borrower in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to the Borrower by the Administrative
Agent in like funds as received by the Administrative Agent.
2.6 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
the appropriate Revolving Credit Lender or Term Loan Lender, as the case may be,
(i) the then unpaid principal amount of each Revolving Credit Loan of such
Revolving Credit Lender in accordance with Section 2.10(e) and on the Final
Maturity Date (or such earlier date on which the Loans become due and payable
pursuant to Section 8) and (ii) the principal amount of each Term Loan of such
Term Loan Lender in installments according to the amortization schedule set
forth in Section 2.3 (or on such earlier date on which the Loans become due and
payable pursuant to Section 8). The Borrower hereby further agrees to pay
interest on the unpaid principal amount of the Loans from time to time
outstanding from the date hereof until payment in full thereof at the rates per
annum, and on the dates, set forth in Section 2.13.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent, on behalf of the Borrower, shall
maintain the
<PAGE>
29
Register pursuant to Section 10.6(d), and a subaccount therein for each Lender,
in which shall be recorded (i) the amount of each Loan made hereunder and any
Note evidencing such Loan, the Type thereof and each Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to each Lender hereunder and (iii) both
the amount of any sum received by the Administrative Agent hereunder from the
Borrower and each Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.6(b) shall, to the extent permitted by
applicable law, be PRIMA FACIE evidence of the existence and amounts of the
obligations of the Borrower therein recorded; PROVIDED, HOWEVER, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Administrative
Agent by any Lender, the Borrower will execute and deliver to such Lender a
promissory note of the Borrower evidencing any Term Loans or Revolving Credit
Loans, as the case may be, of such Lender, substantially in the forms of Exhibit
G-1 or G-2, respectively, with appropriate insertions as to date and principal
amount.
2.7 COMMITMENT FEES, ETC. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the Closing Date to the last
day of the Revolving Credit Commitment Period, computed at the Commitment Fee
Rate on the average daily amount of the Available Revolving Credit Commitment of
such Lender during the period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Final Maturity Date, commencing on the first of such dates to occur after the
date hereof. The Borrower agrees to pay to the Administrative Agent for the
account of each Term Loan Lender a commitment fee for the period from and
including the Closing Date to the Term Loan Commitment Termination Date,
computed at the Commitment Fee Rate on the amount of the Available Term Loan
Commitment of such Lender, payable quarterly in arrears on the last day of each
March, June, September and December and on the Term Loan Commitment Termination
Date
(b) The Borrower agrees to pay to the Syndication Agent the fees in
the amounts and on the dates previously agreed to in writing by the Borrower and
the Syndication Agent.
(c) The Borrower agrees to pay to the Administrative Agent the fees in
the amounts and on the dates from time to time agreed to in writing by the
Borrower and the Administrative Agent.
2.8 TERMINATION OR REDUCTION OF COMMITMENTS. The Borrower shall have
the right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate the Revolving Credit Commitments or, from time to time, to
reduce the amount of the Revolving Credit Commitments; PROVIDED that no such
termination or reduction of Revolving Credit Commitments shall be permitted if,
after giving effect thereto and to any prepayments of the
<PAGE>
30
Revolving Credit Loans made on the effective date thereof, the Total Revolving
Extensions of Credit would exceed the Total Revolving Credit Commitments. Any
such reduction shall be in an amount equal to $1,000,000, or a whole multiple
thereof, and shall reduce permanently the Revolving Credit Commitments then in
effect. The Borrower shall have the right, upon not less than three Business
Days' notice to the Administrative Agent, to reduce the amount of the Term Loan
Commitments by an amount equal to the excess of the Total Term Loan Commitments
over the aggregate unpaid principal amount of Term Loans then outstanding. Any
such reduction shall be in an amount equal to $1,000,000, or a whole multiple
thereof, and shall reduce permanently the Term Loan Commitments then in effect.
2.9 OPTIONAL PREPAYMENTS. The Borrower may at any time and from time
to time prepay the Loans, in whole or in part, without premium or penalty, upon
irrevocable notice delivered to the Administrative Agent at least three Business
Days prior thereto in the case of Eurodollar Loans and at least one Business Day
prior thereto in the case of Base Rate Loans, which notice shall specify the
date and amount of prepayment and whether the prepayment is of Eurodollar Loans
or Base Rate Loans; PROVIDED, that if a Eurodollar Loan is prepaid on any day
other than the last day of the Interest Period applicable thereto, the Borrower
shall also pay any amounts owing pursuant to Section 2.19. Upon receipt of any
such notice the Administrative Agent shall promptly notify each relevant Lender
thereof. If any such notice is given, the amount specified in such notice shall
be due and payable on the date specified therein, together with (except in the
case of Revolving Credit Loans which are Base Rate Loans) accrued interest to
such date on the amount prepaid. Partial prepayments of Term Loans and
Revolving Credit Loans shall be in an aggregate principal amount of $1,000,000
or a whole multiple thereof.
2.10 MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS. (a) Unless the
Required Prepayment Lenders shall otherwise agree, if any Capital Stock shall be
issued, or Indebtedness incurred, by the Borrower or any of its Subsidiaries
(excluding (i) any issuance of Capital Stock in connection with an IPO
consummated within six months of the Closing Date, (ii) any Senior Subordinated
Notes issued within six months of the Closing Date and (iii) any Indebtedness
incurred in accordance with Section 7.2 (other than Section 7.2(f) or Section
7.2(h)) as in effect on the date of this Agreement), an amount equal to 100% of
the Net Cash Proceeds thereof shall be applied on the date of such issuance or
incurrence toward the prepayment of the Term Loans and the reduction of the
Revolving Credit Commitments as set forth in Section 2.10(d).
(b) Unless the Required Prepayment Lenders shall otherwise agree, if
on any date the Borrower or any of its Subsidiaries shall receive Net Cash
Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment
Notice shall be delivered in respect thereof, such Net Cash Proceeds shall be
applied on such date toward the prepayment of the Term Loans and the reduction
of the Revolving Credit Commitments as set forth in Section 2.10(d); PROVIDED,
that, notwithstanding the foregoing, (i) the aggregate Reinvestment Deferred
Amount less any amounts expended prior to the most recent Reinvestment
Prepayment Date to acquire assets useful in the Borrower's business shall not
exceed $10,000,000 at any one time and (ii) on each Reinvestment Prepayment
Date, an amount equal to the Reinvestment Prepayment Amount with respect to the
relevant Reinvestment Event shall be applied toward the prepayment of the Term
Loans and the reduction of the Revolving Credit Commitments as set forth in
Section 2.10(d).
<PAGE>
31
(c) Unless the Required Prepayment Lenders shall otherwise agree, if,
for any fiscal year of the Borrower commencing with the fiscal year ending
December 31, 1998, there shall be Excess Cash Flow, the Borrower shall, on the
relevant Excess Cash Flow Application Date, apply the ECF Percentage of such
Excess Cash Flow toward the prepayment of the Term Loans and the reduction of
the Revolving Credit Commitments as set forth in Section 2.10(d). Each such
prepayment and commitment reduction shall be made on a date (an "EXCESS CASH
FLOW APPLICATION DATE") no later than five days after the earlier of (i) the
date on which the financial statements of the Borrower referred to in Section
6.1(a), for the fiscal year with respect to which such prepayment is made, are
required to be delivered to the Lenders and (ii) the date such financial
statements are actually delivered.
(d) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to paragraphs (a), (b) and (c) of this
Section shall be applied, FIRST, to the prepayment of the Term Loans and,
SECOND, to reduce permanently the Revolving Credit Commitments. Any such
reduction of the Revolving Credit Commitments shall be accompanied by prepayment
of the Revolving Credit Loans to the extent, if any, that the Total Revolving
Extensions of Credit exceed the amount of the Total Revolving Credit Commitments
as so reduced, PROVIDED that if the aggregate principal amount of Revolving
Credit Loans then outstanding is less than the amount of such excess (because
L/C Obligations constitute a portion thereof), the Borrower shall, to the extent
of the balance of such excess, replace outstanding Letters of Credit and/or
deposit an amount in cash in a cash collateral account established with the
Administrative Agent for the benefit of the Lenders on terms and conditions
satisfactory to the Administrative Agent.
(e) If, at any time during the Revolving Credit Commitment Period, the
Total Revolving Extensions of Credit exceeds the amount of the Total Revolving
Credit Commitments then in effect, the Borrower shall, without notice or demand,
immediately repay the Revolving Credit Loans in an aggregate principal amount
equal to such excess, PROVIDED that if the aggregate principal amount of
Revolving Credit Loans then outstanding is less than the amount of such excess
(because L/C Obligations constitute a portion thereof), the Borrower shall, to
the extent of the balance of such excess, replace outstanding Letters of Credit
and/or deposit an amount in cash in a cash collateral account established with
the Administrative Agent for the benefit of the Lenders on terms and conditions
satisfactory to the Administrative Agent.
(f) The amount of each principal prepayment of the Term Loans shall be
applied to reduce the then remaining installments of the Term Loans PRO RATA
based upon the then remaining principal amounts thereof. Amounts prepaid on
account of the Term Loans may not be reborrowed. The amount of each principal
prepayment of the Revolving Credit Loans shall be applied to reduce the then
remaining scheduled Revolving Credit Commitment reductions PRO RATA based upon
the scheduled amounts of such reductions.
(g) The application of any prepayment pursuant to this Section shall
be made first to Base Rate Loans and second to Eurodollar Loans. Each
prepayment of the Loans under this Section (except in the case of Revolving
Credit Loans that are Base Rate Loans) shall be accompanied by accrued interest
to the date of such prepayment on the amount prepaid.
2.11 CONVERSION AND CONTINUATION OPTIONS.(a) The Borrower may elect
from
<PAGE>
32
time to time to convert Eurodollar Loans to Base Rate Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election, PROVIDED that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert Base Rate Loans to Eurodollar Loans by
giving the Administrative Agent at least three Business Days' prior irrevocable
notice of such election (which notice shall specify the length of the initial
Interest Period therefor), PROVIDED that no Base Rate Loan under a particular
Facility may be converted into a Eurodollar Loan (i) when any Event of Default
has occurred and is continuing and the Administrative Agent or the Majority
Facility Lenders in respect of such Facility have determined in its or their
sole discretion not to permit such conversions or (ii) after the date that is
one month prior to the Final Maturity Date. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, PROVIDED
that no Eurodollar Loan under a particular Facility may be continued as such (i)
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Majority Facility Lenders in respect of such Facility have
determined in its or their sole discretion not to permit such continuations or
(ii) after the date that is one month prior to the Final Maturity Date, and
PROVIDED, FURTHER, that if the Borrower shall fail to give any required notice
as described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
Base Rate Loans on the last day of such then expiring Interest Period. Upon
receipt of any such notice the Administrative Agent shall promptly notify each
relevant Lender thereof.
2.12 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF EURODOLLAR TRANCHES.
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, (a) after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans comprising each
Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall
be outstanding at any one time.
2.13 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate per annum equal
to the Base Rate plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement
Obligations (whether or not overdue) shall bear interest at a rate per annum
which is equal to (x) in the case of the Loans, the rate that would
<PAGE>
33
otherwise be applicable thereto pursuant to the foregoing provisions of this
Section PLUS 2% or (y) in the case of Reimbursement Obligations, the rate
applicable to Base Rate Loans under the Revolving Credit Facility PLUS 2%, and
(ii) if all or a portion of any interest payable on any Loan or Reimbursement
Obligation or any commitment fee or other amount payable hereunder shall not be
paid when due (whether at the stated maturity, by acceleration or otherwise),
such overdue amount shall bear interest at a rate per annum equal to the rate
then applicable to Base Rate Loans under the relevant Facility PLUS 2% (or, in
the case of any such other amounts that do not relate to a particular Facility,
the rate then applicable to Base Rate Loans under the Revolving Credit Facility
PLUS 2%), in each case, with respect to clauses (i) and (ii) above, from the
date of such non-payment until such amount is paid in full (as well after as
before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, PROVIDED that interest accruing pursuant to paragraph (c) of this Section
shall be payable from time to time on demand.
2.14 COMPUTATION OF INTEREST AND FEES. (a) Interest, fees and
commissions payable pursuant hereto shall be calculated on the basis of a
360-day year for the actual days elapsed, except that, with respect to Base Rate
Loans the rate of interest on which is calculated on the basis of the Prime
Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-,
as the case may be) day year for the actual days elapsed. The Administrative
Agent shall as soon as practicable notify the Borrower and the relevant Lenders
of each determination of a Eurodollar Rate. Any change in the interest rate on
a Loan resulting from a change in the Base Rate or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business on the day on
which such change becomes effective. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of the effective date
and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.13(a).
2.15 INABILITY TO DETERMINE INTEREST RATE. If prior to the first day
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Facility Lenders in respect of the relevant Facility that the
Eurodollar Rate determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
<PAGE>
34
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as Base Rate
Loans, (y) any Loans under the relevant Facility that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as Base Rate Loans and (z) any outstanding Eurodollar Loans under the
relevant Facility shall be converted, on the first day of such Interest Period,
to Base Rate Loans. Until such notice has been withdrawn by the Administrative
Agent, no further Eurodollar Loans under the relevant Facility shall be made or
continued as such, nor shall the Borrower have the right to convert Loans under
the relevant Facility to Eurodollar Loans.
2.16 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing by the
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Commitments of the Lenders shall be
made PRO RATA according to the respective Term Loan Percentages or Revolving
Credit Percentages, as the case may be, of the relevant Lenders. Each payment
(other than prepayments) in respect of principal or interest in respect of the
Loans, and each payment in respect of Reimbursement Obligations, shall be
applied to the amounts of such obligations owing to the Lenders PRO RATA
according to the respective amounts then due and owing to the Lenders.
(b) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Term Loans shall be made PRO RATA
according to the respective outstanding principal amounts of the Term Loans then
held by the Term Loan Lenders.
(c) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Revolving Credit Loans shall be made
PRO RATA according to the respective outstanding principal amounts of the
Revolving Credit Loans then held by the Revolving Credit Lenders.
(d) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Payment Office, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day. In the case of
any extension of any payment of principal pursuant to the preceding two
sentences, interest thereon shall be payable at the then applicable rate during
such extension.
(e) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may
<PAGE>
35
assume that such Lender is making such amount available to the Administrative
Agent, and the Administrative Agent may, in reliance upon such assumption, make
available to the Borrower a corresponding amount. If such amount is not made
available to the Administrative Agent by the required time on the Borrowing Date
therefor, such Lender shall pay to the Administrative Agent, on demand, such
amount with interest thereon at a rate equal to the daily average Federal Funds
Effective Rate for the period until such Lender makes such amount immediately
available to the Administrative Agent. A certificate of the Administrative
Agent submitted to any Lender with respect to any amounts owing under this
paragraph shall be conclusive in the absence of manifest error. If such
Lender's share of such borrowing is not made available to the Administrative
Agent by such Lender within three Business Days of such Borrowing Date, the
Administrative Agent shall also be entitled to recover such amount with interest
thereon at the rate per annum applicable to Base Rate Loans under the relevant
Facility, on demand, from the Borrower.
(f) Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective PRO RATA shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.17 REQUIREMENTS OF LAW. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Letter of Credit, any Application or any
Eurodollar Loan made by it, or change the basis of taxation of payments to
such Lender in respect thereof (except for Non-Excluded Taxes covered by
Section 2.18 and changes in the rate of tax on the overall net income of
such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining
<PAGE>
36
Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce
any amount receivable hereunder in respect thereof, then, in any such case, the
Borrower shall promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender for such increased cost or reduced amount
receivable. If any Lender becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrower (with a copy to
the Administrative Agent) of the event by reason of which it has become so
entitled.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction.
(c) A certificate as to any additional amounts payable pursuant to
this Section submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
(d) Each Lender agrees that, in calculating the amounts payable by the
Borrower pursuant to this Section, it will calculate such amounts on a basis no
less favorable to the Borrower than the basis of calculation used by such Lender
for other borrowers deemed by such Lender to be similarly situated.
2.18 TAXES. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on any Agent or any Lender as a result of a present or
former connection between such Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
such Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
other Loan Document). If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("NON-EXCLUDED TAXES") or Other Taxes
are required to be withheld from any amounts payable to any Agent or any Lender
hereunder, the amounts so payable to such Agent or such Lender shall be
increased to the extent necessary to yield to such Agent or such Lender (after
payment of all Non-Excluded Taxes and Other Taxes) interest or any such
<PAGE>
37
other amounts payable hereunder at the rates or in the amounts specified in this
Agreement, PROVIDED, HOWEVER, that the Borrower shall not be required to
increase any such amounts payable to any Lender with respect to any Non-Excluded
Taxes (i) that are attributable to such Lender's failure to comply with the
requirements of paragraph (d) or (e) of this Section or (ii) that are United
States withholding taxes imposed on amounts payable to such Lender at the time
the Lender becomes a party to this Agreement, except to the extent that such
Lender's assignor (if any) was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such Non-Excluded Taxes
pursuant to this paragraph (a).
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for the account of the relevant Agent or Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes or Other Taxes when due to the appropriate taxing authority or fails to
remit to the Administrative Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Agents and the Lenders
for any incremental taxes, interest or penalties that may become payable by any
Agent or any Lender as a result of any such failure. The agreements in this
Section 2.18 shall survive the termination of this Agreement and the payment of
the Loans and all other amounts payable hereunder.
(d) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "NON-U.S. LENDER") shall
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest" a statement substantially in the form of
Exhibit H and a Form W-8, or any subsequent versions thereof or successors
thereto properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S. Lender is not
legally able to deliver.
(e) A Lender that is entitled to an exemption from or reduction of
non-U.S.
<PAGE>
38
withholding tax under the law of the jurisdiction in which the Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law or
reasonably requested by the Borrower, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate, PROVIDED that such Lender is
legally entitled to complete, execute and deliver such documentation and in such
Lender's reasonable judgment such completion, execution or submission would not
materially prejudice the legal position of such Lender.
2.19 INDEMNITY. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender sustains or
incurs as a consequence of (a) default by the Borrower in making a borrowing of,
conversion into or continuation of Eurodollar Loans after the Borrower has given
a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
OVER (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank eurodollar
market. A certificate as to any amounts payable pursuant to this Section
submitted to the Borrower by any Lender shall be conclusive in the absence of
manifest error. This covenant shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
2.20 ILLEGALITY. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Base Rate Loans to Eurodollar Loans shall forthwith be cancelled and (b)
such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be
converted automatically to Base Rate Loans on the respective last days of the
then current Interest Periods with respect to such Loans or within such earlier
period as required by law. If any such conversion of a Eurodollar Loan occurs
on a day which is not the last day of the then current Interest Period with
respect thereto, the Borrower shall pay to such Lender such amounts, if any, as
may be required pursuant to Section 2.19.
2.21 CHANGE OF LENDING OFFICE. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 2.17 or 2.18(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
<PAGE>
39
object of avoiding the consequences of such event; PROVIDED, that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and PROVIDED, FURTHER, that nothing in this Section shall affect
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.17 or 2.18(a).
SECTION 3. LETTERS OF CREDIT
3.1 L/C COMMITMENT. (a) Subject to the terms and conditions hereof,
the Issuing Lender, in reliance on the agreements of the other Revolving Credit
Lenders set forth in Section 3.4(a), agrees to issue Letters of Credit for the
account of the Borrower on any Business Day during the Revolving Credit
Commitment Period in such form as may be approved from time to time by the
Issuing Lender; PROVIDED that the Issuing Lender shall have no obligation to
issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C
Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the
Available Revolving Credit Commitments would be less than zero. Each Letter of
Credit shall (i) be denominated in Dollars and (ii) expire no later than the
earlier of (x) the first anniversary of its date of issuance and (y) the date
which is five Business Days prior to the Final Maturity Date, PROVIDED that any
Letter of Credit with a one-year term may provide for the renewal thereof for
additional one-year periods (which shall in no event extend beyond the date
referred to in clause (y) above).
(b) Each Letter of Credit shall be subject to the Uniform Customs and,
to the extent not inconsistent therewith, the laws of the State of New York.
(c) The Issuing Lender shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 PROCEDURE FOR ISSUANCE OF LETTER OF CREDIT. The Borrower may from
time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of
such Letter of Credit to the Borrower promptly following the issuance thereof.
The Issuing Lender shall promptly furnish to the Administrative Agent, which
shall in turn promptly furnish to the Lenders, notice of the issuance of each
Letter of Credit (including the amount thereof).
3.3 FEES AND OTHER CHARGES. (a) The Borrower will pay a fee on all
outstanding
<PAGE>
40
Letters of Credit at a per annum rate equal to the lesser of (i) the Applicable
Margin then in effect with respect to Eurodollar Loans under the Revolving
Credit Facility and (ii) 2.50%, shared ratably among the Revolving Credit
Lenders and payable quarterly in arrears on each L/C Fee Payment Date after the
issuance date. In addition, the Borrower shall pay to the Issuing Lender for
such Lender's own account a fronting fee at a rate per annum, not in excess of
1/8 of 1% per annum, agreed upon by the Borrower and the Issuing Lender, on the
face amount of each Letter of Credit, payable quarterly in arrears on each L/C
Fee Payment Date after the Issuance Date.
(b) In addition to the foregoing fees, the Borrower shall pay or
reimburse the Issuing Lender for such normal and customary costs and expenses as
are incurred or charged by the Issuing Lender in issuing, negotiating, effecting
payment under, amending or otherwise administering any Letter of Credit.
3.4 L/C PARTICIPATIONS. (a) The Issuing Lender irrevocably agrees to
grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Credit Percentage in the obligations and rights of the
Issuing Lender under each Letter of Credit and the amount of each draft paid by
the Issuing Lender thereunder. Each L/C Participant unconditionally and
irrevocably agrees with the Issuing Lender that, if a draft is paid under any
Letter of Credit for which the Issuing Lender is not reimbursed in full by the
Borrower in accordance with the terms of this Agreement, such L/C Participant
shall pay to the Issuing Lender upon demand at such Lender's address for notices
specified herein an amount equal to such L/C Participant's Revolving Credit
Percentage of the amount of such draft, or any part thereof, which is not so
reimbursed.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender as applicable, pursuant to Section 3.4(a) in respect of any
unreimbursed portion of any payment made by the Issuing Lender under any Letter
of Credit is paid to the Issuing Lender within three Business Days after the
date such payment is due, such L/C Participant shall pay to the Issuing Lender
on demand an amount equal to the product of (i) such amount, times (ii) the
daily average Federal Funds Effective Rate during the period from and including
the date such payment is required to the date on which such payment is
immediately available to the Issuing Lender times (iii) a fraction the numerator
of which is the number of days that elapse during such period and the
denominator of which is 360. If any such amount required to be paid by any L/C
Participant pursuant to Section 3.4(a) is not made available to the Issuing
Lender by such L/C Participant within three Business Days after the date such
payment is due, the Issuing Lender shall be entitled to recover from such L/C
Participant, on demand, such amount with interest thereon calculated from such
due date at the rate per annum applicable to Base Rate Loans under the Revolving
Credit Facility. A certificate of the Issuing Lender submitted to any L/C
Participant with respect to any amounts owing under this Section shall be
conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its PRO
RATA share of such payment in accordance with Section 3.4(a), the Issuing Lender
receives any payment related to such Letter of
<PAGE>
41
Credit (whether directly from the Borrower or otherwise, including proceeds of
collateral applied thereto by the Issuing Lender), or any payment of interest on
account thereof, the Issuing Lender will distribute to such L/C Participant its
PRO RATA share thereof; PROVIDED, HOWEVER, that in the event that any such
payment received by the Issuing Lender shall be required to be returned by it,
such L/C Participant shall return to the Issuing Lender the portion thereof
previously distributed by the Issuing Lender to such L/C Participant.
3.5 REIMBURSEMENT OBLIGATION OF THE BORROWER. The Borrower agrees to
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the Borrower of the date and amount of a draft presented under any Letter of
Credit and paid by the Issuing Lender for the amount of (a) such draft so paid
and (b) any taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment. Each such payment shall be made
to the Issuing Lender at its address for notices specified herein in lawful
money of the United States of America and in immediately available funds.
Interest shall be payable on any and all amounts remaining unpaid by the
Borrower under this Section from the date such amounts become payable (whether
at stated maturity, by acceleration or otherwise) until payment in full at the
rate set forth in (i) until the second Business Day following the date of the
applicable drawing, Section 2.13(b) and (ii) thereafter, Section 2.13(c). Each
drawing under any Letter of Credit shall (unless an event of the type described
in clause (i) or (ii) of Section 8(f) shall have occurred and be continuing with
respect to the Borrower, in which case the procedures specified in Section 3.4
for funding by L/C Participants shall apply) constitute a request by the
Borrower to the Administrative Agent for a borrowing pursuant to Section 2.5 of
Base Rate Loans in the amount of such drawing. The Borrowing Date with respect
to such borrowing shall be the date of such drawing.
3.6 OBLIGATIONS ABSOLUTE. The Borrower's obligations under this
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with the Issuing
Lender that such Lender shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
such Lender. The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Lender to the Borrower.
3.7 LETTER OF CREDIT PAYMENTS. If any draft shall be presented for
payment under
<PAGE>
42
any Letter of Credit, the Issuing Lender shall promptly notify the Borrower of
the date and amount thereof. The responsibility of the Issuing Lender to the
Borrower in connection with any draft presented for payment under any Letter of
Credit shall, in addition to any payment obligation expressly provided for in
such Letter of Credit, be limited to determining that the documents (including
each draft) delivered under such Letter of Credit in connection with such
presentment are substantially in conformity with such Letter of Credit.
3.8 APPLICATIONS. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this Agreement and
to make the Loans and issue or participate in the Letters of Credit, the
Borrower hereby represents and warrants to each Agent and each Lender that:
4.1 FINANCIAL CONDITION.(a) The unaudited consolidated balance sheets
of the Borrower and its consolidated Subsidiaries as at December 31, 1997, and
the related consolidated statements of income and of cash flows for the fiscal
years ended on such dates, present fairly in all material respects the
consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at such date, and the consolidated results of its operations and
its consolidated cash flows for the respective fiscal years then ended (subject
to normal year-end audit adjustments). All such financial statements, including
the related schedules and notes thereto, have been prepared in accordance with
GAAP applied consistently throughout the periods involved (except as disclosed
therein).
(b) Except as set forth on Schedule 4.1(b), as of the date hereof, the
Borrower and its Subsidiaries do not have any Guarantee Obligations, contingent
liabilities and liabilities for taxes, or any long-term leases or unusual
forward or long-term commitments, including, without limitation, any interest
rate or foreign currency swap or exchange transaction or other obligation in
respect of derivatives, that are material to the Borrower and its Subsidiaries,
taken as a whole, which are not reflected in the most recent financial
statements referred to in this Section. The Guarantee Obligations, contingent
liabilities and liabilities for taxes, long-term leases and unusual forward and
long-term commitments listed on Schedule 4.1(b) could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect. There are no
Guarantee Obligations, contingent liabilities and liabilities for taxes, or any
long-term leases or unusual forward or long-term commitments of the Borrower or
any of its Subsidiaries, including those listed on Schedule 4.1(b), that could,
in the aggregate, reasonably be expected to have a Material Adverse Effect.
During the period from December 31, 1997, to and including the date hereof there
has been no Disposition by the Borrower or any of its Subsidiaries of any
material part of its business or Property.
4.2 NO CHANGE. Since December 31, 1997 there has been no development
or event which has had or could reasonably be expected to have a Material
Adverse Effect.
<PAGE>
43
4.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrower
and each of its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own and operate its
Property, to lease the Property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of Property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder and to consummate the Acquisition. Each
Loan Party has taken all necessary corporate action to authorize the execution,
delivery and performance of the Loan Documents to which it is a party, to
consummate the Acquisition and, in the case of the Borrower, to authorize the
borrowings on the terms and conditions of this Agreement. No consent or
authorization of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with the
Acquisition or the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or any of the Loan
Documents, except (i) consents, authorizations, filings and notices described in
Schedule 4.4, which consents, authorizations, filings and notices have been
obtained or made and are in full force and effect and (ii) the filings referred
to in Section 4.19. Each Loan Document has been duly executed and delivered on
behalf of each Loan Party party thereto. This Agreement constitutes, and each
other Loan Document upon execution will constitute, a legal, valid and binding
obligation of each Loan Party party thereto, enforceable against each such Loan
Party in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
4.5 NO LEGAL BAR. The execution, delivery and performance of this
Agreement and the other Loan Documents, the consummation of the Acquisition, the
issuance of Letters of Credit, the borrowings hereunder and the use of the
proceeds thereof will not violate any Requirement of Law or any Contractual
Obligation of the Borrower or any of its Subsidiaries (after taking into account
all consents and waivers obtained by the Borrower prior to the date hereof) and
will not result in, or require, the creation or imposition of any Lien on any of
their respective properties or revenues pursuant to any Requirement of Law or
any such Contractual Obligation (other than the Liens created by the Security
Documents). Management of the Borrower has no reason to believe that any
Requirement of Law or Contractual Obligation applicable to the Borrower or any
of its Subsidiaries could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.6 NO MATERIAL LITIGATION. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
of its Subsidiaries or against any of their respective properties or revenues
(a) with respect to any of the Loan Documents, the Acquisition or any of the
other transactions contemplated hereby or thereby, or (b) which could reasonably
be
<PAGE>
44
expected to have a Material Adverse Effect.
4.7 NO DEFAULT. Neither the Borrower nor any of its Subsidiaries is
in default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect.
No Default or Event of Default has occurred and is continuing.
4.8 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and each of
its Subsidiaries has title in fee simple to, or a valid leasehold interest in,
all its real property, and good title to, or a valid leasehold interest in, all
its other Property, and none of such Property is subject to any Lien except as
permitted by Section 7.3.
4.9 INTELLECTUAL PROPERTY. The Borrower and each of its Subsidiaries
owns, or is licensed to use, all Intellectual Property necessary for the conduct
of its business as currently conducted. No material claim has been asserted and
is pending by any Person challenging or questioning the use of any Intellectual
Property or the validity or effectiveness of any Intellectual Property, nor does
the Borrower know of any valid basis for any such claim. The use of
Intellectual Property by the Borrower and its Subsidiaries does not infringe on
the rights of any Person in any material respect.
4.10 TAXES. Each of the Borrower and each of its Subsidiaries has
filed or caused to be filed all Federal, state and other material tax returns
which are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
Property and all other taxes, fees or other charges imposed on it or any of its
Property by any Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has
been filed, and, to the knowledge of the Borrower, no claim is being asserted,
with respect to any such tax, fee or other charge.
4.11 FEDERAL REGULATIONS. No part of the proceeds of any Loans will
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U as now
and from time to time hereafter in effect or for any purpose which violates the
provisions of the Regulations of the Board. If requested by any Lender or the
Administrative Agent, the Borrower will furnish to the Administrative Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-3 or FR Form U-1 referred to in Regulation G or
Regulation U, as the case may be.
4.12 LABOR MATTERS. There are no strikes or other labor disputes
against the Borrower or any of its Subsidiaries pending or, to the knowledge of
the Borrower, threatened that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. Hours worked by and
payments made to employees of the Borrower and its Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Requirement of
Law dealing with such matters that (individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect. All payments due from
the Borrower or any of its Subsidiaries on account of employee health and
welfare insurance that (individually or in the
<PAGE>
45
aggregate) could reasonably be expected to have a Material Adverse Effect if not
paid have been paid or accrued as a liability on the books of the Borrower or
the relevant Subsidiary.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no
Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan
which has resulted or could reasonably be expected to result in a material
liability under ERISA, and neither the Borrower nor any Commonly Controlled
Entity would become subject to any material liability under ERISA if the
Borrower or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made. No such Multiemployer Plan
is in Reorganization or Insolvent.
4.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS. No Loan Party is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) which limits its ability to incur Indebtedness.
4.15 SUBSIDIARIES. The Subsidiaries listed on Schedule 4.15
constitute all the Subsidiaries of the Borrower at the date hereof.
4.16 USE OF PROCEEDS. The proceeds of the Term Loans shall be used to
finance the Acquisition, to refinance outstanding Indebtedness under the
Existing Credit Facility and to pay related fees and expenses. The proceeds of
the Revolving Credit Loans and the Letters of Credit shall be used to finance
Permitted Acquisitions, working capital needs, Capital Expenditures and other
general corporate purposes of the Borrower and its Subsidiaries in the ordinary
course of business.
4.17 ENVIRONMENTAL MATTERS. Other than as could not, individually or
in the aggregate, reasonably be expected to result in the payment of a Material
Environmental Amount:
(a) the facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "PROPERTIES") do not contain, and have
not previously contained, any Materials of Environmental Concern in amounts or
concentrations or under circumstances which (i) constitute or constituted a
violation of, or (ii) could give rise to liability under, any Environmental Law;
(b) the Properties and all operations at the Properties are in
material compliance,
<PAGE>
46
and have in the last five years been in material compliance, with all applicable
Environmental Laws, and there is no contamination at, under or about the
Properties or violation of any Environmental Law with respect to the Properties
or the business operated by the Borrower or any of its Subsidiaries (the
"BUSINESS"); neither the Borrower nor any of its Subsidiaries has contractually
assumed any liability of any other Person under Environmental Laws;
(c) neither the Borrower nor any of its Subsidiaries has received or
is aware of any notice of violation, alleged violation, non-compliance,
liability or potential liability regarding environmental matters or compliance
with Environmental Laws with regard to any of the Properties or the Business,
nor does the Borrower have knowledge or reason to believe that any such notice
will be received or is being threatened;
(d) materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a location
which could give rise to liability under, any Environmental Law, nor have any
Materials of Environmental Concern been generated, treated, stored or disposed
of at, on or under any of the Properties in violation of, or in a manner that
could give rise to liability under, any applicable Environmental Law;
(e) no judicial proceeding or governmental or administrative action is
pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be named as
a party with respect to the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under any
Environmental Law with respect to the Properties or the Business; and
(f) there has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related to
the operations of the Borrower or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or in
amounts or in a manner that could give rise to liability under Environmental
Laws.
4.18 ACCURACY OF INFORMATION, ETC. The statements and information
contained in this Agreement, any other Loan Document and any other document,
certificate or statement furnished to the Agents or the Lenders or any of them,
by or on behalf of any Loan Party for use in connection with the transactions
contemplated by this Agreement or the other Loan Documents, taken as a whole,
did not contain as of the date such statements, information, documents and
certificate were so furnished, any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements contained
herein or therein not misleading. The projections and PRO FORMA financial
information contained in the materials referenced above are based upon good
faith estimates and assumptions believed by management of the Borrower to be
reasonable at the time made, it being recognized by the Agents and the Lenders
that such financial information as it relates to future events is not to be
viewed as fact and that actual results during the period or periods covered by
such financial information may differ from the projected results set forth
therein by a material amount. As of the date hereof, the representations and
warranties of the Borrower and, to the Borrower's knowledge, of the Sellers
contained in the Acquisition Agreements are true and correct in all material
respects. There is no fact known to any Loan Party that could reasonably be
expected to have a Material Adverse
<PAGE>
47
Effect that has not been expressly disclosed herein, in the other Loan Documents
or in any other documents, certificates and statements furnished to the Agents
and the Lenders for use in connection with the transactions contemplated hereby
and by the other Loan Documents.
4.19 SECURITY DOCUMENTS. (a) Subject to the limitations contained in
Section 6.11(b), the Guarantee and Collateral Agreement is effective to create
in favor of the Administrative Agent, for the benefit of the Lenders, a legal,
valid and enforceable security interest in the Collateral described therein and
proceeds thereof. In the case of the Pledged Stock described in the Guarantee
and Collateral Agreement, when stock certificates representing such Pledged
Stock are delivered to the Administrative Agent, and in the case of the other
Collateral described in the Guarantee and Collateral Agreement, when financing
statements in appropriate form are filed in the offices specified on
Schedule 4.19(a), and, in each case, subject to the limitations contained in
Section 6.11(b), the Guarantee and Collateral Agreement shall constitute a fully
perfected Lien on, and security interest in, all right, title and interest of
the Loan Parties in such Collateral and the proceeds thereof, as security for
the Obligations (as defined in the Guarantee and Collateral Agreement), in each
case prior and superior in right to any other Person.
(b) Each of the Mortgages, when executed and delivered by the Loan
Party granting a security interest in the Mortgaged Property covered thereby,
will be effective to create in favor of the Administrative Agent, for the
benefit of the Lenders, a legal, valid and enforceable Lien on the Mortgaged
Properties described therein and proceeds thereof, and when the Mortgages are
filed in the offices specified on Schedule 4.19(b), each such Mortgage shall
constitute a fully perfected Lien on, and security interest in, all right, title
and interest of the Loan Parties in the Mortgaged Properties and the proceeds
thereof, as security for the Obligations (as defined in the relevant Mortgage),
in each case prior and superior in right to any other Person.
4.20 SOLVENCY. Each Loan Party is, and after giving effect to the
Acquisitions and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.
4.21 SENIOR INDEBTEDNESS. Upon execution of the Senior Subordinated
Note Indenture, (a) the Obligations will constitute "Senior Indebtedness" (or an
equivalent designation) of the Borrower under and as defined in the Senior
Subordinated Note Indenture and (b) the obligations of each Subsidiary Guarantor
under the Guarantee and Collateral Agreement will constitute "Guarantor Senior
Indebtedness" (or an equivalent designation) of such Subsidiary Guarantor under
and as defined in the Senior Subordinated Note Indenture.
4.22 REGULATION H. No Mortgage encumbers improved real property which
is located in an area that has been identified by the Secretary of Housing and
Urban Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act
of 1968.
4.23 LICENSES; PERMITS; ETC. Schedule 4.23 accurately and completely
lists all material authorizations, licenses and permits of any public or
governmental regulatory body granted or assigned to the Borrower or any of its
Subsidiaries, including but not limited to all material authorizations, licenses
and permits for the operation of any radio station, and all
<PAGE>
48
material FCC Licenses held by other entities with which the Borrower or its
Subsidiaries have entered into Local Marketing Agreements giving the Borrower or
its Subsidiaries, subject to the restrictions contained in the Communications
Act of 1934, as amended, and the rules and regulations of the FCC, the right to
provide programming for, and conduct certain operations of, the radio stations
with respect to which such FCC Licenses were granted, and the same constitute
the only material authorizations, licenses and permits of any public or
governmental regulatory body which are required or necessary for the conduct of
the respective businesses of the Borrower and its Subsidiaries as now conducted
or proposed to be conducted (such authorizations, licenses and permits, together
with any extensions or renewals thereof, being herein sometimes referred to
collectively as the "LICENSES"). Except with respect to FCC Licenses relating
to stations subject to a Local Marketing Agreement (as identified in Schedule
4.23), all of such Licenses listed in Schedule 4.23 are issued in the name of,
or are (or, in the case of those Licenses relating to the operation of radio
stations subject to a Local Marketing Agreement but which are to be acquired in
the Acquisition, upon the consummation of the Acquisition, will be) validly
assigned to, the Borrower or the License Subsidiary and are (or, in the case of
those FCC Licenses relating to the operation of radio stations subject to a
Local Marketing Agreement and which are to be acquired in the Acquisition, to
the best of the Borrower's knowledge are) validly issued and in full force and
effect, and the Borrower has (or, in the case of those FCC Licenses relating to
the operation of radio stations subject to a Local Marketing Agreement and which
are to be acquired in the Acquisition, to the best of the Borrower's knowledge
each holder of such Licenses has) (i) fulfilled and performed in all material
respects all of its obligations with respect thereto and (ii) full power and
authority to operate thereunder. Except with respect to those stations
identified in Schedule 4.23 as being subject to Local Marketing Agreements, the
transfer from the Sellers to the Borrower of control of the radio stations being
acquired in the Acquisition and the assets related thereto and the transfer of
the related FCC Licenses from the Sellers to the Borrower have been approved by
the FCC or will have been approved at or prior to the consummation of such
Acquisition, it being understood that, to the extent such FCC approval has not
been obtained, management of the Borrower has no reason to believe such FCC
approval will not be obtained at or prior to the consummation of such
Acquisition. Complete and correct copies of such orders of the FCC have been
delivered to the Administrative Agent. All FCC Licenses are held by the License
Subsidiary.
4.24 FCC COMPLIANCE, ETC. The Borrower and each of its Subsidiaries
are (and, after giving effect to the Acquisition, each will be) in compliance
with all rules, regulations and administrative orders of the FCC applicable to
the Borrower or any of its Subsidiaries or the operation of its Properties,
except where the failure to be in such compliance could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 5. CONDITIONS PRECEDENT
5.1 CONDITIONS TO INITIAL EXTENSION OF CREDIT. The agreement of each
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date, of the following conditions precedent:
<PAGE>
49
(a) LOAN DOCUMENTS. The Administrative Agent shall have received
(i) this Agreement, executed and delivered by a duly authorized officer of
the Borrower, (ii) the Guarantee and Collateral Agreement, executed and
delivered by a duly authorized officer of the Borrower and each Subsidiary
Guarantor, and (iii) for the account of each relevant Lender, Notes
conforming to the requirements hereof and executed and delivered by a duly
authorized officer of the Borrower.
(b) FINANCIAL STATEMENTS. The Lenders shall have received unaudited
consolidated financial statements of the Borrower and its consolidated
Subsidiaries for the 1997 fiscal year, and such financial statements shall
be reasonably satisfactory to the Lenders.
(c) APPROVALS. All governmental and third party approvals (including
landlords' and other consents) necessary or, in the discretion of the
Agents, advisable in connection with the Acquisition, the continuing
operations of the Borrower and its Subsidiaries and the transactions
contemplated hereby shall have been obtained and be in full force and
effect, and all applicable waiting periods shall have expired without any
action being taken or threatened by any competent authority which would
restrain, prevent or otherwise impose adverse conditions on the Acquisition
or the financing contemplated hereby.
(d) RELATED AGREEMENTS. The Administrative Agent shall have received
(in a form reasonably satisfactory to the Syndication Agent), with a copy
for each Lender, true and correct copies, certified as to authenticity by
the Borrower, of each Acquisition Agreement and such other documents or
instruments as may be reasonably requested by the Syndication Agent,
including, without limitation, a copy of any debt instrument, security
agreement or other material contract to which the Loan Parties may be a
party.
(e) TERMINATION OF EXISTING CREDIT FACILITY. The Administrative Agent
shall have received evidence satisfactory to the Agents that (i) the
Existing Credit Facility shall be simultaneously terminated, (ii) all
amounts thereunder shall be simultaneously paid in full, (iii) all letters
of credit (other than any Existing Letter of Credit) and other contingent
obligations in connection with the Existing Credit Facility shall have been
terminated and arrangements satisfactory to the Agents shall have been made
for the termination of Liens and security interests granted in connection
therewith.
(f) FEES. The Lenders and the Agents shall have received all fees
required to be paid, and all expenses for which invoices have been
presented, on or before the Closing Date; all such amounts will be paid
with the proceeds of the Loans made on the Closing Date and will be
reflected in the funding instructions given by the Borrower to the
Administrative Agent on or prior to the Closing Date.
(g) BUSINESS PLAN. The Lenders shall have received a satisfactory
business plan for fiscal years 1998 through 2002.
(h) CAPITAL STRUCTURE. The Lenders shall be satisfied with the
capital and legal structure of the Borrower and its Subsidiaries after
giving effect to the Acquisition and
<PAGE>
50
the other transactions contemplated hereby.
(i) LIEN SEARCHES. The Administrative Agent shall have received the
results of a recent lien search in each of the jurisdictions where assets
of the Loan Parties are located, and such search shall reveal no liens on
any of the assets of the Borrower or its Subsidiaries except for liens in
respect of the Existing Credit Facility (for which arrangements
satisfactory to the Agents shall have been made for the termination of such
liens) and liens permitted by Section 7.3.
(j) ENVIRONMENTAL AUDIT. The Administrative Agent shall have received
an environmental audit satisfactory to the Agents with respect to the real
properties owned or leased by the Borrower and its Subsidiaries, as
specified by the Administrative Agent.
(k) CLOSING CERTIFICATE. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C, with
appropriate insertions and attachments.
(l) LEGAL OPINIONS. The Administrative Agent shall have received the
following executed legal opinions:
(i) the legal opinion of Godfrey & Kahn, S.C., counsel to the
Borrower and its Subsidiaries, substantially in the form of Exhibit F;
(ii) the legal opinion of Paul, Hastings, Janofsky & Walker,
LLP, special FCC counsel to the Borrower and its Subsidiaries;
(iii) to the extent consented to by the relevant counsel, each
legal opinion, if any, delivered in connection with the Acquisition
Agreements, accompanied by a reliance letter in favor of the Lenders;
and
(iv the legal opinion of local counsel in each of Illinois and
Nevada and of such other special and local counsel as may be required
by the Administrative Agent.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(m) PLEDGED STOCK; STOCK POWER; PLEDGED NOTES. The Administrative
Agent shall have received (i) the certificates representing the shares of
Capital Stock pledged pursuant to the Guarantee and Collateral Agreement,
together with an undated stock power for each such certificate executed in
blank by a duly authorized officer of the pledgor thereof and (ii) each
promissory note pledged to the Administrative Agent pursuant to the
Guarantee and Collateral Agreement endorsed (without recourse) in blank (or
accompanied by an executed transfer form in blank satisfactory to the
Syndication Agent) by the pledgor thereof.
(n) FILINGS, REGISTRATIONS AND RECORDINGS. Each document (including,
without
<PAGE>
51
limitation, any Uniform Commercial Code financing statement) required by
the Security Documents or under law or reasonably requested by the
Administrative Agent to be filed, registered or recorded in order to create
in favor of the Administrative Agent, for the benefit of the Lenders, a
perfected Lien on the Collateral described therein, prior and superior in
right to any other Person (other than with respect to Liens expressly
permitted by Section 7.3), shall be in proper form for filing, registration
or recordation.
(o) INSURANCE. The Administrative Agent shall have received insurance
certificates satisfying the requirements of Section 5.3 of the Guarantee
and Collateral Agreement.
5.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit) is subject to
the satisfaction of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct on and as of such date as if made on and as of
such date, except those representations and warranties expressly stated to
relate to a specific earlier date, in which case such representations and
warranties were true and correct as of such earlier date.
(b) NO DEFAULT. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Letter of Credit remains outstanding or any Loan or other amount is
owing to any Lender or any Agent hereunder, the Borrower shall and shall cause
each of its Subsidiaries to:
6.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent for
delivery to each Lender (and the Administrative Agent agrees to make and deliver
such copies):
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower (including fiscal year 1997), a
copy of the audited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such year and the related
audited consolidated statements of income and of cash flows for such year,
setting forth in each case in comparative form the figures for the previous
year, reported on without a "going concern" or like qualification or
exception, or qualification arising out of the scope of the audit, by Price
Waterhouse or other
<PAGE>
52
independent certified public accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidated statements of income and of cash
flows for such quarter and the portion of the fiscal year through the end
of such quarter, setting forth in each case in comparative form the figures
for the previous year, certified by a Responsible Officer as being fairly
stated in all material respects (subject to normal year-end audit
adjustments); and
(c) as soon as available, but in any event not later than 45 days
after the end of each month occurring during each fiscal year of the
Borrower (other than the third, sixth, ninth and twelfth such month), the
unaudited consolidated balance sheets of the Borrower and its Subsidiaries
as at the end of such month and the related unaudited consolidated
statements of income and of cash flows for such month and the portion of
the fiscal year through the end of such month, setting forth in each case
in comparative form the figures for the previous year, certified by a
Responsible Officer as being fairly stated in all material respects
(subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative
Agent for delivery to each Lender (and the Administrative Agent agrees to make
and deliver such copies), or, in the case of clause (g), to the relevant Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), a certificate of the independent certified
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating
that, to the best of each such Responsible Officer's knowledge, each Loan
Party during such period has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained in this
Agreement and the other Loan Documents to which it is a party to be
observed, performed or satisfied by it, and that such Responsible Officer
has obtained no knowledge of any Default or Event of Default except as
specified in such certificate and (ii) in the case of quarterly or annual
financial statements, (x) a Compliance Certificate containing all
information necessary for determining compliance by the Borrower and its
Subsidiaries with the provisions of this Agreement referred to therein as
of the last day of the fiscal quarter or fiscal year of the Borrower, as
the case may be, and (y) to the extent not previously disclosed to the
Administrative Agent, a listing of any county or state
<PAGE>
53
within the United States where any Loan Party keeps inventory or equipment
and of any Intellectual Property acquired by any Loan Party since the date
of the most recent list delivered pursuant to this clause (y) (or, in the
case of the first such list so delivered, since the Closing Date);
(c) as soon as available, and in any event no later than 45 days after
the end of each fiscal year of the Borrower, a detailed consolidated budget
for the following fiscal year (including a projected consolidated balance
sheet of the Borrower and its Subsidiaries as of the end of the following
fiscal year, and the related consolidated statements of projected cash
flow, projected changes in financial position and projected income), and,
as soon as available, significant revisions, if any, of such budget and
projections with respect to such fiscal year (collectively, the
"PROJECTIONS"), which Projections shall in each case be accompanied by a
certificate of a Responsible Officer stating that such Projections are
based on reasonable estimates, information and assumptions and that such
Responsible Officer has no reason to believe that such Projections are
incorrect or misleading in any material respect;
(d) within 45 days after the end of each fiscal quarter of the
Borrower, a narrative discussion and analysis of the financial condition
and results of operations of the Borrower and its Subsidiaries for such
fiscal quarter and for the period from the beginning of the then current
fiscal year to the end of such fiscal quarter, as compared to the portion
of the Projections covering such periods and to the comparable periods of
the previous year;
(e) no later than ten Business Days prior to the effectiveness
thereof, copies of substantially final drafts of the Senior Subordinated
Note Indenture and, no later than five Business Days prior to the
effectiveness thereof, copies of substantially final drafts of any proposed
amendment, supplement, waiver or other modification with respect to the
Senior Subordinated Note Indenture or any Acquisition Agreement;
(f) within five days after the same are sent, copies of all financial
statements and reports which the Borrower sends to the holders of any class
of its debt securities or public equity securities and, within five days
after the same are filed, copies of all financial statements and reports
which the Borrower may make to, or file with, the Securities and Exchange
Commission or any successor or analogous Governmental Authority;
(g) promptly upon receipt thereof, a copy of any other report or
"management letter" submitted by independent certified public accountants
to the Borrower or any of its Subsidiaries in connection with any annual,
interim or special audit of the Borrower or any of its Subsidiaries; and
(h) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
6.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all
obligations of whatever nature
<PAGE>
54
that are material to the Borrower and its Subsidiaries, taken as a whole, except
where the amount or validity thereof is currently being contested in good faith
by appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of the Borrower or its Subsidiaries, as
the case may be.
6.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE, ETC. (a) (i)
Preserve, renew and keep in full force and effect its corporate existence and
(ii) take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, except,
in each case, as otherwise permitted by Section 7.4 and except, in the case of
clause (ii) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and (b) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all Property useful
and necessary in its business in good working order and condition, taken as a
whole, ordinary wear and tear excepted and (b) maintain with financially sound
and reputable insurance companies insurance on all its Property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business.
6.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. (a) Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities and (b) permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records upon reasonable
advance notice to the Borrower (which notice shall not be required to be given
during the continuance of a Default or an Event of Default) and at any
reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with officers and employees of the Borrower and
its Subsidiaries and with its independent certified public accountants.
6.7 NOTICES. Promptly give to the Administrative Agent for delivery
to each Lender (and the Administrative Agent agrees to make and so deliver such
copies) notice of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the
Borrower or any of its Subsidiaries and any Governmental Authority, which
in either case, if not cured or if adversely determined, as the case may
be, could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any of its
Subsidiaries in which the amount involved is $1,000,000 or more and not
covered by insurance or in which injunctive or similar relief is sought;
<PAGE>
55
(d) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Plan, a failure to
make any required contribution to a Plan, the creation of any Lien in favor
of the PBGC or a Plan or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or
the Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or the termination, Reorganization or
Insolvency of, any Plan; and
(e) any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower or the relevant Subsidiary proposes to take
with respect thereto.
6.8 ENVIRONMENTAL LAWS. (a) Comply in all respects with, and, to the
extent it has the capability to do so, ensure compliance in all respects by all
tenants and subtenants, if any, with, all applicable Environmental Laws, and
obtain and comply in all respects with and maintain, and, to the extent it has
the capability to do so, ensure that all tenants and subtenants obtain and
comply in all respects with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws. For purposes of this section 6.8(a), noncompliance by the Borrower with
any applicable Environmental Law or environmental permit shall be deemed not to
constitute a breach of this covenant PROVIDED that, upon learning of any actual
or suspected noncompliance, the Borrower shall promptly undertake all reasonable
efforts to achieve compliance, and PROVIDED further that, in any case, such
noncompliance, and any other noncompliance with Environmental Law, individually
or in the aggregate could not reasonably be expected to result in the payment of
a Material Environmental Amount.
(b) Promptly comply with all orders and directives of all Governmental
Authorities regarding Environmental Laws, other than such orders and directives
as to which appropriate proceedings have been timely and properly taken in good
faith, and PROVIDED that the pendency of any and all such proceedings could not
reasonably be expected to have a Material Adverse Effect.
6.9 INTEREST RATE PROTECTION. Unless the Borrower shall have issued
its Senior Subordinated Notes, enter, within 90 days after the Closing Date,
into Hedge Agreements to the extent required by the Agents to provide that an
aggregate principal amount of the Loans specified by the Agents is subject to
either a fixed interest rate or interest rate protection for a period of not
less than four years, which Hedge Agreements shall have terms and conditions
reasonably satisfactory to the Agents.
6.10 ADDITIONAL COLLATERAL, ETC. (a) With respect to any Property
acquired after the Closing Date by the Borrower or any of its Subsidiaries
(other than (x) any Property of an Excluded Foreign Subsidiary, (y) any Property
described in paragraph (b), (c) or (d) below and (z) any Property subject to a
Lien expressly permitted by Section 7.3(g) or 7.3(h)) as to which the
<PAGE>
56
Administrative Agent, for the benefit of the Lenders, does not have a perfected
Lien, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement or such other documents as
the Administrative Agent deems necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, subject to the limitations
contained in Section 6.11(b), a security interest in such Property and (ii) take
all actions necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, subject to the limitations contained in Section 6.11(b),
a perfected first priority security interest in such Property, including without
limitation, the filing of Uniform Commercial Code financing statements in such
jurisdictions as may be required by the Guarantee and Collateral Agreement or by
law or as may be requested by the Administrative Agent.
(b) To the extent requested by the Agents, with respect to any fee
interest in any real property acquired after the Closing Date by the Borrower or
any of its Subsidiaries (other than (x) any such real property of an Excluded
Foreign Subsidiary and (y) any such real property subject to a Lien expressly
permitted by Section 7.3(g) or 7.3(h)), promptly (i) execute and deliver a first
priority Mortgage in favor of the Administrative Agent, for the benefit of the
Lenders, covering such real property, (ii) if requested by the Administrative
Agent, provide the Lenders with (x) title and extended coverage insurance
covering such real property in an amount at least equal to the purchase price of
such real estate (or such other amount as shall be reasonably specified by the
Administrative Agent) as well as a current ALTA survey thereof, together with a
surveyor's certificate and (y) any consents or estoppels reasonably deemed
necessary or advisable by the Administrative Agent in connection with such
mortgage or deed of trust, each of the foregoing in form and substance
reasonably satisfactory to the Administrative Agent and (iii) if requested by
the Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(c) With respect to any new Subsidiary (other than an Excluded Foreign
Subsidiary) created or acquired after the Closing Date (which, for the purposes
of this paragraph, shall include any existing Subsidiary that ceases to be an
Excluded Foreign Subsidiary), by the Borrower or any of its Subsidiaries,
promptly (i) execute and deliver to the Administrative Agent such amendments to
the Guarantee and Collateral Agreement as the Administrative Agent deems
necessary or advisable to grant to the Administrative Agent, for the benefit of
the Lenders, a perfected first priority security interest in the Capital Stock
of such new Subsidiary which is owned by the Borrower or any of its
Subsidiaries, (ii) deliver to the Administrative Agent the certificates
representing such Capital Stock, together with undated stock powers, in blank,
executed and delivered by a duly authorized officer of the Borrower or such
Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become a
party to the Guarantee and Collateral Agreement and (B) to take such actions
necessary or advisable to grant to the Administrative Agent for the benefit of
the Lenders a perfected first priority security interest in the Collateral
described in the Guarantee and Collateral Agreement with respect to such new
Subsidiary, including, without limitation, the filing of Uniform Commercial Code
financing statements in such jurisdictions as may be required by the Guarantee
and Collateral Agreement or by law or as may be requested by the Administrative
Agent, and (iv) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
<PAGE>
56
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by the Borrower or any of its Subsidiaries,
promptly (i) execute and deliver to the Administrative Agent such amendments to
the Guarantee and Collateral Agreement as the Administrative Agent deems
necessary or advisable in order to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary which is owned by the Borrower or any of
its Subsidiaries (provided that in no event shall more than 65% of the total
outstanding Capital Stock of any such new Subsidiary be required to be so
pledged), (ii) deliver to the Administrative Agent the certificates representing
such Capital Stock, together with undated stock powers, in blank, executed and
delivered by a duly authorized officer of the Borrower or such Subsidiary, as
the case may be, and take such other action as may be necessary or, in the
opinion of the Administrative Agent, desirable to perfect the Lien of the
Administrative Agent thereon, and (iii) if requested by the Administrative
Agent, deliver to the Administrative Agent legal opinions relating to the
matters described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent.
6.11 FURTHER ASSURANCES. (a) From time to time hereafter, the
Borrower will execute and deliver, or will cause to be executed and delivered,
such additional instruments, certificates or documents, and will take all such
actions, as the Administrative Agent may reasonably request, for the purposes of
implementing or effectuating the provisions of this Agreement and the other Loan
Documents, or of more fully perfecting or renewing the rights of the
Administrative Agent and the Lenders with respect to the Collateral (or with
respect to any additions thereto or replacements or proceeds thereof or with
respect to any other property or assets hereafter acquired by the Borrower which
may be deemed to be part of the Collateral) pursuant hereto or thereto. Upon
the exercise by the Administrative Agent or any Lender of any power, right,
privilege or remedy pursuant to this Agreement or the other Loan Documents which
requires any consent, approval, recording, qualification or authorization of any
Governmental Authority, including, without limitation, the FCC, the Borrower
will execute and deliver, or will cause the execution and delivery of, all
applications, certifications, instruments and other documents and papers that
the Administrative Agent or such Lender may be required to obtain from the
Borrower or any of its Subsidiaries for such governmental consent, approval,
recording, qualification or authorization.
(b) Notwithstanding anything herein or in the Security Documents to
the contrary, to the extent this Agreement or any other Loan Document purports
to require any Loan Party to grant to the Administrative Agent, on behalf of the
Lenders, a security interest in the FCC Licenses of any Loan Party now owned or
hereafter acquired, as the case may be, the Administrative Agent, on behalf of
the Lenders, shall only have a security interest in such FCC Licenses at such
times and to the extent that a security interest in such licenses is permitted
under applicable law. Notwithstanding anything to the contrary contained herein
or in the other Loan Documents, the Administrative Agent will not take any
action pursuant to this Agreement or any other Loan Document that would
constitute or result in any assignment of any FCC License or any change of
control of any Loan Party without first obtaining the prior approval of the FCC
or other state or Governmental Authority, if, under the existing law, such
assignment of any FCC License or change of control would require the prior
approval of the FCC or other state or Governmental Authority. Prior to the
exercise by the Administrative Agent of any power, right,
<PAGE>
58
privilege or remedy pursuant to this Agreement which requires any consent,
approval, recording, qualification or authorization of any Governmental
Authority or instrumentality, the Borrower will execute and deliver, or will
cause the execution and delivery of, all applications, certificates, instruments
and other documents and papers that the Administrative Agent may be required to
obtain for such governmental consent, approval, recording, qualification or
authorization. Without limiting the generality of the foregoing, the Borrower
will use its best efforts upon the reasonable request of the Administrative
Agent to obtain from the appropriate governmental authorities the necessary
consents and approvals, if any, for the assignment or transfer of such
authorizations, licenses and permits to the Administrative Agent or its designee
upon or following acceleration of the payment of the Loans in accordance with
the provisions hereof.
6.12 TRANSFER OF FCC LICENSES. The Borrower will use its best efforts
to obtain as soon as practicable consent from the FCC to transfer any FCC
Licenses from time to time owned or acquired by it to the License Subsidiary and
upon receipt of such consent will promptly transfer such FCC Licenses to the
License Subsidiary.
6.13 MORTGAGES; TITLE INSURANCE; FLOOD INSURANCE.(a) The Borrower
shall furnish to the Administrative Agent, within 60 days after the Closing
Date, a Mortgage covering each of the Mortgaged Properties, executed and
delivered by a duly authorized officer of each party thereto.
(b) (i) If requested by the Administrative Agent, the Borrower shall
furnish to the Administrative Agent and the title insurance company issuing the
policy referred to in clause (ii) below (the "TITLE INSURANCE COMPANY"), within
60 days after the Closing Date, maps or plats of an as-built survey of the sites
of the Mortgaged Properties certified to the Administrative Agent and the Title
Insurance Company in a manner satisfactory to them, dated a date satisfactory to
the Administrative Agent and the Title Insurance Company by an independent
professional licensed land surveyor satisfactory to the Administrative Agent and
the Title Insurance Company, which maps or plats and the surveys on which they
are based shall be made in accordance with the Minimum Standard Detail
Requirements for Land Title Surveys jointly established and adopted by the
American Land Title Association and the American Congress on Surveying and
Mapping in 1992, and, without limiting the generality of the foregoing, there
shall be surveyed and shown on such maps, plats or surveys the following: (A)
the locations on such sites of all the buildings, structures and other
improvements and the established building setback lines; (B) the lines of
streets abutting the sites and width thereof; (C) all access and other easements
appurtenant to the sites; (D) all roadways, paths, driveways, easements,
encroachments and overhanging projections and similar encumbrances affecting the
site, whether recorded, apparent from a physical inspection of the sites or
otherwise known to the surveyor; (E) any encroachments on any adjoining property
by the building structures and improvements on the sites; (F) if the site is
described as being on a filed map, a legend relating the survey to said map; and
(G) the flood zone designations, if any, in which the Mortgaged Properties are
located.
(ii) The Borrower shall furnish to the Administrative Agent, within 60
days after the Closing Date, in respect of each Mortgaged Property a mortgagee's
title insurance policy (or policies) or marked up unconditional binder for such
insurance. Each such policy shall (A) be in an amount satisfactory to the
Administrative Agent; (B) be issued at ordinary rates; (C)
<PAGE>
59
insure that the Mortgage insured thereby creates a valid first Lien on such
Mortgaged Property free and clear of all defects and encumbrances, except as
disclosed therein; (D) name the Administrative Agent for the benefit of the
Lenders as the insured thereunder; (E) be in the form of ALTA Loan Policy - 1970
(Amended 10/17/70 and 10/17/84) (or equivalent policies); (F) contain such
endorsements and affirmative coverage as the Administrative Agent may reasonably
request; and (G) be issued by title companies satisfactory to the Administrative
Agent (including any such title companies acting as co-insurers or reinsurers,
at the option of the Administrative Agent). The Borrower shall furnish to the
Administrative Agent, within 60 days after the Closing Date, evidence
satisfactory to it that all premiums in respect of each such policy, all charges
for mortgage recording tax, and all related expenses, if any, have been paid.
(iii) If requested by the Administrative Agent, the Borrower shall
furnish to the Administrative Agent, within 60 days after the Closing Date, (A)
a policy of flood insurance which (1) covers any parcel of improved real
property which is encumbered by any Mortgage (2) is written in an amount not
less than the outstanding principal amount of the Indebtedness secured by such
Mortgage which is reasonably allocable to such real property or the maximum
limit of coverage made available with respect to the particular type of property
under the National Flood Insurance Act of 1968, whichever is less, and (3) has a
term ending not later than the maturity of the Indebtedness secured by such
Mortgage and (B) confirmation that the Borrower has received the notice required
pursuant to Section 208(e)(3) of Regulation H of the Board.
(iv) The Borrower shall furnish to the Administrative Agent, within 60
days after the Closing Date, a copy of all recorded documents referred to, or
listed as exceptions to title in, the title policy or policies referred to in
clause (ii) above and a copy of all other material documents affecting the
Mortgaged Properties.
(c) If requested by the Administrative Agent, the Borrower shall
furnish to the Administrative Agent, within 60 days after the Closing Date, any
consents or estoppels reasonably deemed necessary or advisable by the
Administrative agent in connection with the Mortgages, each of the foregoing in
form and substance reasonably satisfactory to the Administrative Agent.
(d) If requested by the Administrative Agent, the Borrower shall
furnish to the Administrative Agent, within 60 days after the Closing Date,
legal opinions relating to the matters described in this Section, which opinions
shall be in form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
6.14 PRO FORMA BALANCE SHEET. The Borrower shall furnish to the
Administrative Agent, within 15 days after the Closing Date, the unaudited PRO
FORMA consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at December 31, 1997 (including the notes thereto) (the "PRO
FORMA BALANCE SHEET"), giving effect (as if such events had occurred on such
date) to (a) the consummation of the Acquisition, (b) the Loans made on the
Closing Date and the use of proceeds thereof and (c) the payment of fees and
expenses in connection with the foregoing. The Pro Forma Balance Sheet shall
have been prepared based on the best information available to the Borrower as of
the date of delivery thereof, and shall be accompanied by a certificate to the
effect that management of the Borrower believes the Pro Forma Balance Sheet
<PAGE>
60
presents fairly on a PRO FORMA basis the estimated financial position of
Borrower and its consolidated Subsidiaries as at December 31, 1997, assuming
that the events specified in the preceding sentence had actually occurred at
such date.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Letter of Credit remains outstanding or any Loan or other amount is
owing to any Lender or any Agent hereunder, the Borrower shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly:
7.1 FINANCIAL CONDITION COVENANTS. (a) CONSOLIDATED LEVERAGE RATIO.
Permit the Consolidated Leverage Ratio as at the last day of any period of four
consecutive fiscal quarters of the Borrower ending during any test period set
forth below to exceed the ratio set forth below opposite such test period:
Consolidated
Test Period Leverage Ratio
----------- --------------
Closing Date to the earlier
of (x) the date of
consummation of the IPO
and (y) July 1, 1998 8.00 to 1.00
the earlier of (x) the
day immediately
following consummation
of the IPO and (y) August 1, 1998
to September 30, 1998 7.50 to 1.00
October 1, 1998 to December 31, 1998 6.75 to 1.00
January 1, 1999 to June 30, 1999 6.50 to 1.00
July 1, 1999 to December 31, 1999 6.00 to 1.00
January 1, 2,000 and thereafter 5.50 to 1.00
(b) CONSOLIDATED SENIOR DEBT RATIO. Permit the Consolidated Senior
Debt Ratio as at the last day of any period of four consecutive fiscal quarters
of the Borrower ending during any test period set forth below to exceed the
ratio set forth below opposite such test period:
<PAGE>
61
Consolidated
Test Period Senior Debt Ratio
----------- -----------------
Closing Date to the earlier
of (x) the date of
consummation of the IPO
and (y) July 1, 1998 8.00 to 1.00
the earlier of (x) the
day immediately
following consummation
of the IPO and (y) August 1, 1998
to September 30, 1998 6.50 to 1.00
October 1, 1998 to December 31, 1998 5.00 to 1.00
January 1, 1999 to June 30, 1999 4.50 to 1.00
July 1, 1999 to December 31, 1999 4.00 to 1.00
January 1, 2000 and thereafter 3.50 to 1.00
(c) CONSOLIDATED INTEREST COVERAGE RATIO. Permit the Consolidated
Interest Coverage Ratio for any period of four consecutive fiscal quarters of
the Borrower ending during any test period set forth below to be less than the
ratio set forth below opposite such test period:
Consolidated Interest
Test Period Coverage Ratio
----------- --------------
Closing Date to September 30, 1998 1.60 to 1.00
October 1, 1998 to September 30, 1999 1.70 to 1.00
October 1, 1999 to June 30, 2000 2.00 to 1.00
July 1, 2000 to June 30, 2001 2.25 to 1.00
July 1, 2001 and thereafter 2.50 to 1.00
(d) CONSOLIDATED FIXED CHARGE COVERAGE RATIO. Permit the Consolidated
Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters
of the Borrower ending during any test period set forth below to be less than
1.20 to 1.00.
7.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary Guarantor to the Borrower or any other Subsidiary;
<PAGE>
62
(c) Indebtedness (including, without limitation, Capital Lease
Obligations) secured by Liens permitted by Section 7.3(g) or 7.3(h) in an
aggregate principal amount not to exceed $5,000,000 at any one time
outstanding;
(d) Indebtedness outstanding on the date hereof and listed on Schedule
7.2(d) and any refinancings, refundings, renewals or extensions thereof
(without any increase in the principal amount thereof or any shortening of
the maturity of any principal amount thereof);
(e) Guarantee Obligations made in the ordinary course of business by
the Borrower or any of its Subsidiaries of obligations of the Borrower or
any Subsidiary Guarantor;
(f) Indebtedness of the Borrower in respect of the Senior Subordinated
Notes in an aggregate principal amount not to exceed $250,000,000;
(g) additional Indebtedness of the Borrower or any of its
Subsidiaries, on terms and conditions reasonably satisfactory to the
Agents, issued to a seller of the stock or assets of a radio broadcast
station in connection with any Permitted Acquisition, PROVIDED that the
aggregate principal amount (for the Borrower and all Subsidiaries) of such
seller financing shall not exceed $10,000,000 at any one time outstanding;
and
(h) Indebtedness of the Borrower in respect of shares of Preferred
Stock issued after the date hereof on terms and conditions reasonably
satisfactory to the Agents.
7.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any
Lien upon any of its Property, whether now owned or hereafter acquired, except
for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, PROVIDED that adequate reserves with
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 30 days or which are being contested
in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the Property
<PAGE>
63
subject thereto or materially interfere with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule 7.3(f),
securing Indebtedness permitted by Section 7.2(d), PROVIDED that no such
Lien is spread to cover any additional Property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of the Borrower or any other
Subsidiary incurred pursuant to Section 7.2(c) to finance the acquisition
of fixed or capital assets, PROVIDED that (i) such Liens shall be created
substantially simultaneously with the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any Property other than
the Property financed by such Indebtedness and (iii) the amount of
Indebtedness secured thereby is not increased;
(h) Liens on real property acquired in a Permitted Acquisition
securing Indebtedness permitted by Section 7.2(c), PROVIDED that (i) such
Liens existed at the time of such Permitted Acquisition and were not
created in anticipation thereof, (ii) such Liens do not at any time
encumber any Property other than the real Property financed by such
Indebtedness and (iii) the amount of the Indebtedness secured thereby is
not increased;
(i) Liens created pursuant to the Security Documents; and
(j) any interest or title of a lessor under any lease entered into by
the Borrower or any other Subsidiary in the ordinary course of its business
and covering only the assets so leased.
7.4 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of all or substantially all
of its Property or business, except that:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (PROVIDED that the Borrower shall be the continuing or
surviving corporation) or with or into any Subsidiary Guarantor (PROVIDED
that the Subsidiary Guarantor shall be the continuing or surviving
corporation); and
(b) any Subsidiary of the Borrower may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any
Subsidiary Guarantor.
7.5 LIMITATION ON DISPOSITION OF PROPERTY. Dispose of any of its
Property (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, or, in the case of any Subsidiary,
issue or sell any shares of such Subsidiary's Capital Stock to any Person,
except:
(a) the Disposition of obsolete or worn out property in the ordinary
course of business;
<PAGE>
64
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(b);
(d) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Subsidiary Guarantor;
(e) the Disposition of other assets having a fair market value not to
exceed $2,000,000 in the aggregate for any fiscal year of the Borrower; and
(f) any Asset Sale or Recovery Event, PROVIDED, that the requirements
of Section 2.10(b) are complied with in connection therewith.
7.6 LIMITATION ON RESTRICTED PAYMENTS. Declare or pay any dividend
(other than dividends payable solely in common stock of the Person making such
dividend) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any Capital Stock of the Borrower or any
Subsidiary, whether now or hereafter outstanding, or make any other distribution
in respect thereof, either directly or indirectly, whether in cash or property
or in obligations of the Borrower or any Subsidiary (collectively, "RESTRICTED
PAYMENTS"), except that (a) any Subsidiary may make Restricted Payments to the
Borrower or any Subsidiary Guarantor and (b) the Borrower may pay dividends
solely in additional shares of Preferred Stock in respect of the shares of
Preferred Stock.
7.7 LIMITATION ON CAPITAL EXPENDITURES. Make or commit to make any
Capital Expenditure, except (a) Capital Expenditures of the Borrower and its
Subsidiaries in the ordinary course of business not exceeding in any fiscal year
of the Borrower the sum of (i) the product of (x) $25,000 multiplied by (y) the
number of radio broadcast stations owned by the Borrower and its Subsidiaries,
PROVIDED that, with respect to any radio broadcast station that was not owned by
the Borrower or any of its Subsidiaries for the full fiscal year, such amount
shall be reduced by an amount for each such radio station equal to the product
of (x) $25,000 multiplied by (y) a fraction the numerator of which is the number
of months such station was not so owned and the denominator of which is 12, and
(ii) up to $2,500,000 expended to obtain construction permits in the markets in
which the Borrower and its Subsidiaries operate radio broadcast stations, (b)
Capital Expenditures by the Borrower and its Subsidiaries consisting of one-time
technology investments of up to $50,000 for each radio broadcast station owned
by the Borrower and its Subsidiaries and (c) Capital Expenditures made with the
proceeds of any Reinvestment Deferred Amount.
7.8 LIMITATION ON INVESTMENTS. Make any advance, loan, extension of
credit (by way of guaranty or otherwise) or capital contribution to, or purchase
any Capital Stock, bonds, notes, debentures or other debt securities of, or any
assets constituting an ongoing business from, or make any other investment in,
any other Person (all of the foregoing, "INVESTMENTS"), except:
(a) extensions of trade credit in the ordinary course of business;
(b) Investments in Cash Equivalents;
<PAGE>
65
(c) Investments arising in connection with the incurrence of
Indebtedness permitted by Section 7.2(b);
(d) loans and advances to employees of the Borrower or any
Subsidiaries of the Borrower in the ordinary course of business (including,
without limitation, for travel, entertainment and relocation expenses) in
an aggregate amount for the Borrower and Subsidiaries of the Borrower not
to exceed at any one time outstanding the lesser of (i) $10,000 multiplied
by the number of radio broadcast stations owned by the Borrower and its
Subsidiaries as at the date of determination and (ii) $3,000,000;
(e) the Acquisition;
(f) Investments in assets useful in the Borrower's business made by
the Borrower or any of its Subsidiaries with the proceeds of any
Reinvestment Deferred Amount;
(g) Investments (other than those relating to the incurrence of
Indebtedness permitted by Section 7.8(c)) by the Borrower or any of its
Subsidiaries in the Borrower or any Person that, prior to such investment,
is a Subsidiary Guarantor;
(h) Permitted Acquisitions;
(i) Investments in existence on the date hereof and listed on Schedule
7.8(i); and
(j) in addition to Investments otherwise expressly permitted by this
Section, Investments by the Borrower or any of its Subsidiaries in an
aggregate amount (valued at cost) not to exceed $2,500,000 during the term
of this Agreement.
7.9 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT
INSTRUMENTS, ETC. (a) Make or offer to make any optional or voluntary payment,
prepayment, repurchase or redemption of or otherwise voluntarily or optionally
defease, the Senior Subordinated Notes, (b) amend, modify or otherwise change,
or consent or agree to any amendment, modification, waiver or other change to,
any of the terms of the Senior Subordinated Notes (other than any such
amendment, modification, waiver or other change which (i) would extend the
maturity or reduce the amount of any payment of principal thereof, reduce the
rate or extend the date for payment of interest thereon or relax any covenant or
other restriction applicable to the Borrower or any of its Subsidiaries and (ii)
does not involve the payment of a consent fee), (c) designate any Indebtedness
(other than the Obligations) as "Designated Senior Indebtedness" for the
purposes of the Senior Subordinated Note Indenture or (d) amend its certificate
of incorporation in any manner determined by the Administrative Agent to be
adverse to the Lenders.
7.10 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of Property, the rendering of any service or the payment of any
management, advisory or similar fees, with any Affiliate (other than the
Borrower or any Subsidiary Guarantor) unless such transaction is (a) otherwise
permitted under this Agreement, (b) in the ordinary course of business of the
Borrower or such Subsidiary, as the case may be, and (c) upon fair and
reasonable terms no less favorable to the
<PAGE>
66
Borrower or such Subsidiary, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate;
PROVIDED that nothing in this Section 7.10 shall be deemed to prohibit the
Borrower from paying, prior to the IPO, to the Parent up to $600,000 in any
fiscal year of the Borrower as compensation for management services rendered by
the Parent.
7.11 LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement
with any Person providing for the leasing by the Borrower or any Subsidiary of
real or personal property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Subsidiary.
7.12 LIMITATION ON CHANGES IN FISCAL PERIODS. Permit the fiscal year
of the Borrower to end on a day other than December 31 or change the Borrower's
method of determining fiscal quarters.
7.13 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into or suffer to
exist or become effective any agreement which prohibits or limits the ability of
the Borrower or any of its Subsidiaries to create, incur, assume or suffer to
exist any Lien upon any of its Property or revenues, whether now owned or
hereafter acquired, to secure the Obligations or, in the case of any guarantor,
its obligations under the Guarantee and Collateral Agreement, other than (a)
this Agreement and the other Loan Documents and (b) any agreements governing any
purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in
which case, any prohibition or limitation shall only be effective against the
assets financed thereby).
7.14 LIMITATION ON RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. Enter
into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary to (a) make Restricted Payments in
respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness
owed to, the Borrower or any other Subsidiary of the Borrower, (b) make
Investments in the Borrower or any other Subsidiary or (c) transfer any of its
assets to the Borrower or any other Subsidiary, except for such encumbrances or
restrictions existing under or by reason of (i) any restrictions existing under
the Loan Documents and (ii) any restrictions with respect to a Subsidiary
imposed pursuant to an agreement which has been entered into in connection with
the Disposition of all or substantially all of the Capital Stock or assets of
such Subsidiary.
7.15 LIMITATION ON LINES OF BUSINESS. Enter into any business, either
directly or through any Subsidiary, except for those businesses in which the
Borrower and its Subsidiaries are engaged on the date of this Agreement (after
giving effect to the Acquisition) or which are reasonably related thereto.
7.16 LIMITATION ON LICENSE SUBSIDIARY. Permit the License Subsidiary
to engage in any business or to incur any liability except that the License
Subsidiary may (a) hold the FCC Licenses, (b) execute and deliver the Guarantee
and Collateral Agreement and (c) incur obligations as a purchaser under any
purchase agreement executed in connection with any Permitted Acquisition.
<PAGE>
66
7.17 LIMITATION ON ACTIVITIES OF THE PARENT. Prior to the
consummation of the IPO, permit the Parent to (a) conduct, transact or otherwise
engage in, or commit to conduct, transact or otherwise engage in, any business
or operations other than those incidental to its ownership of the Capital Stock
of the Borrower, (b) incur, create, assume or suffer to exist any Indebtedness
or other liabilities or financial obligations, except (i) nonconsensual
obligations imposed by operation of law and (ii) obligations with respect to its
Capital Stock, or (c) own, lease, manage or otherwise operate any properties or
assets other than the ownership of shares of Capital Stock of the Borrower.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder or under any other Loan
Document, within five days after any such interest or other amount becomes
due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made; or
(c) (i) Any Loan Party shall default in the observance or performance
of any agreement contained in clause (i) or (ii) of Section 6.4(a) (with
respect to the Borrower only), Section 6.7(a), Section 7 or Section 5 of
the Guarantee and Collateral Agreement or (ii) an "Event of Default" under
and as defined in any Mortgage shall have occurred and be continuing; or
(d) Any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period of 30 days; or
(e) The Parent, the Borrower or any of its Subsidiaries shall (i)
default in making any payment of any principal of any Indebtedness
(including, without limitation, any Guarantee Obligation, but excluding the
Loans) on the scheduled or original due date with respect thereto; or (ii)
default in making any payment of any interest on any such Indebtedness
beyond the period of grace, if any, provided in the instrument or agreement
under which such Indebtedness was created; or (iii) default in the
observance or performance of any other agreement or condition relating to
any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is
to cause, or to permit the holder or beneficiary of such Indebtedness (or a
<PAGE>
68
trustee or agent on behalf of such holder or beneficiary) to cause, with
the giving of notice if required, such Indebtedness to become due prior to
its stated maturity or (in the case of any such Indebtedness constituting a
Guarantee Obligation) to become payable; PROVIDED, that a default, event or
condition described in clause (i), (ii) or (iii) of this paragraph (e)
shall not at any time constitute an Event of Default unless, at such time,
one or more defaults, events or conditions of the type described in clauses
(i), (ii) and (iii) of this paragraph (e) shall have occurred and be
continuing with respect to Indebtedness the outstanding principal amount of
which exceeds in the aggregate $2,500,000; PROVIDED, that on and after the
date of the consummation of the IPO, the provisions of this paragraph (e)
shall cease to apply to the Parent; or
(f) (i) The Parent, the Borrower or any of its Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or the Parent, the
Borrower or any of its Subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against the
Parent, the Borrower or any of its Subsidiaries any case, proceeding or
other action of a nature referred to in clause (i) above which (A) results
in the entry of an order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged or unbonded for a period of 60
days; or (iii) there shall be commenced against the Parent, the Borrower or
any of its Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof; or (iv) the Parent, the Borrower or any of its
Subsidiaries shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above; or (v) the Parent, the Borrower or any of
its Subsidiaries shall generally not, or shall be unable to, or shall admit
in writing its inability to, pay its debts as they become due; PROVIDED,
that on and after the date of the consummation of the IPO, the provisions
of this paragraph (f) shall cease to apply to the Parent; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single
<PAGE>
69
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable
opinion of the Required Lenders is likely to, incur any liability in
connection with a withdrawal from, or the Insolvency or Reorganization of,
a Multiemployer Plan or (vi) any other event or condition shall occur or
exist with respect to a Plan; and in each case in clauses (i) through (vi)
above, such event or condition, together with all other such events or
conditions, if any, could, in the sole judgment of the Required Lenders,
reasonably be expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance as to which the relevant insurance
company has acknowledged coverage) of $1,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 30 days from the entry thereof; or
(i) Any of the Security Documents shall cease, for any reason, to be
in full force and effect, or any Loan Party or any Affiliate of any Loan
Party shall so assert, or any Lien created by any of the Security Documents
shall cease to be enforceable and of the same effect and priority purported
to be created thereby; or
(j) The guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason, to be in full force and
effect or any Loan Party or any Affiliate of any Loan Party shall so
assert; or
(k)(i) Prior to the consummation of the IPO, (A) the Permitted
Investors shall cease to have the power to vote or direct the voting of
securities having a majority of the ordinary voting power for the election
of directors of the Parent (determined on a fully diluted basis); or (B)
the Permitted Investors shall cease to own of record and beneficially an
amount of Capital Stock of the Parent equal to at least 51% of the amount
of Capital Stock of the Parent owned by the Permitted Investors of record
and beneficially as of the Closing Date; or (C) the Parent shall cease to
own and control, of record and beneficially, directly, 100% of each class
of outstanding Capital Stock of the Borrower (other than the Preferred
Stock) free and clear of all Liens; or (ii) on and after the date of the
consummation of the IPO, (A) any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Permitted Investors) shall
become, or obtain rights (whether by means of warrants, options or
otherwise) to become, the "beneficial owner" (as defined in Rules 13(d)-3
and 13(d)-5 under the Exchange Act), directly or indirectly, of securities
of the Borrower having at least 35% of the ordinary voting power for the
election of directors of the Borrower; or (B) the board of directors of the
Borrower shall cease to consist of a majority of Continuing Directors; or
(C) a Specified Change of Control shall occur; or
(l) The Senior Subordinated Notes or any guarantees thereof shall
cease, for any reason, to be validly subordinated to the Obligations or the
obligations of the Subsidiary Guarantors under the Guarantee and Collateral
Agreement, as the case may be, as provided in the Senior Subordinated Note
Indenture, or any Loan Party, any Affiliate of
<PAGE>
70
any Loan Party, the trustee in respect of the Senior Subordinated Notes or
the holders of at least 25% in aggregate principal amount of the Senior
Subordinated Notes shall so assert;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event is
any other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Majority Revolving Credit Facility Lenders,
the Administrative Agent may, or upon the request of the Majority Revolving
Credit Facility Lenders, the Administrative Agent shall, by notice to the
Borrower declare the Revolving Credit Commitments to be terminated forthwith,
whereupon the Revolving Credit Commitments shall immediately terminate; (ii)
with the consent of the Majority Term Loan Facility Lenders, the Administrative
Agent may, or upon the request of the Majority Term Loan Facility Lenders, the
Administrative Agent shall, by notice to the Borrower declare the Term Loan
Commitments to be terminated forthwith, whereupon the Term Loan Commitments
shall immediately terminate; and (iii) with the consent of the Required Lenders,
the Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower, declare the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) to be due and payable forthwith, whereupon the same shall
immediately become due and payable. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to this paragraph, the Borrower shall at such time deposit
in a cash collateral account opened by the Administrative Agent an amount equal
to the aggregate then undrawn and unexpired amount of such Letters of Credit.
Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrower hereunder and under the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrower hereunder and under the other Loan Documents shall have been paid
in full, the balance, if any, in such cash collateral account shall be returned
to the Borrower (or such other Person as may be lawfully entitled thereto).
<PAGE>
71
SECTION 9. THE AGENTS
9.1 APPOINTMENT. Each Lender hereby irrevocably designates and
appoints the Agents as the agents of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes each Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to such Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, no Agent shall have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against any Agent.
9.2 DELEGATION OF DUTIES. Each Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
9.3 EXCULPATORY PROVISIONS. Neither the Agents nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by any Agent under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party a party thereto to perform its obligations
hereunder or thereunder. No Agent shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
9.4 RELIANCE BY THE AGENTS. Each Agent shall be entitled to rely, and
shall be fully protected in relying, upon any instrument, writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Loan Parties), independent accountants and other
experts selected by such Agent. The Agents may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. Each Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive
<PAGE>
72
such advice or concurrence of the Required Lenders (or, if so specified by this
Agreement, all Lenders) as it deems appropriate or it shall first be indemnified
to its satisfaction by the Lenders against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. Each Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Loan Documents in
accordance with a request of the Required Lenders (or, if so specified by this
Agreement, all Lenders), and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Loans.
9.5 NOTICE OF DEFAULT. No Agent shall be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless
such Agent has received notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Administrative Agent
receives such a notice, the Administrative Agent shall give notice thereof to
the Lenders. The Administrative Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the Required
Lenders (or, if so specified by this Agreement, all Lenders); PROVIDED that
unless and until the Administrative Agent shall have received such directions,
the Administrative Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
9.6 NON-RELIANCE ON AGENTS AND OTHER LENDERS. Each Lender expressly
acknowledges that neither the Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by any Agent hereinafter
taken, including any review of the affairs of a Loan Party or any affiliate of a
Loan Party, shall be deemed to constitute any representation or warranty by any
Agent to any Lender. Each Lender represents to each Agent that it has,
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, no Agent shall have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Loan Party or any affiliate of a Loan Party which may
come into the possession of such Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
9.7 INDEMNIFICATION. The Lenders agree to indemnify each Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Aggregate Exposure Percentages in
<PAGE>
73
effect on the date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Aggregate Exposure Percentages immediately prior to such date), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including, without limitation, at any time
following the payment of the Loans) be imposed on, incurred by or asserted
against such Agent in any way relating to or arising out of, the Commitments,
this Agreement, any of the other Loan Documents or any documents contemplated by
or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by such Agent under or in connection with
any of the foregoing; PROVIDED that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements which are found by a
final and nonappealable decision of a court of competent jurisdiction to have
resulted from such Agent's gross negligence or willful misconduct. The
agreements in this Section 9.7 shall survive the payment of the Loans and all
other amounts payable hereunder.
9.8 AGENT IN ITS INDIVIDUAL CAPACITY. Each Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with any Loan Party as though such Agent was not an Agent. With
respect to its Loans made or renewed by it and with respect to any Letter of
Credit issued or participated in by it, each Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.
9.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may
resign as Administrative Agent upon 10 days' notice to the Lenders and the
Borrower. If the Administrative Agent shall resign as Administrative Agent
under this Agreement and the other Loan Documents, then the Required Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall (unless an Event of Default under Section 8(a) or Section
8(f) with respect to the Borrower shall have occurred and be continuing) be
subject to approval by the Borrower (which approval shall not be unreasonably
withheld or delayed), whereupon such successor agent shall succeed to the
rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon such
appointment and approval, and the former Administrative Agent's rights, powers
and duties as Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. If no successor
agent has accepted appointment as Administrative Agent by the date that is 10
days following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon become
effective, and the Lenders shall assume and perform all of the duties of the
Administrative Agent hereunder until such time, if any, as the Required Lenders
appoint a successor agent as provided for above. The Syndication Agent may, at
any time, by notice to the Lenders and the Administrative Agent, resign as
Syndication Agent hereunder, whereupon the duties, rights, obligations and
responsibilities hereunder shall automatically be assumed by, and inure to the
benefit of, the Administrative Agent, without any further act by the Syndication
Agent, the Administrative Agent or any Lender. After any retiring Agent's
resignation as Agent, the
<PAGE>
74
provisions of this Section 9 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement and the
other Loan Documents.
9.10 AUTHORIZATION TO RELEASE LIENS. The Administrative Agent is
hereby irrevocably authorized by each of the Lenders to release any Lien
covering any Property of the Borrower or any of its Subsidiaries that is the
subject of a Disposition which is permitted by this Agreement or which has been
consented to in accordance with Section 10.1.
9.11 THE ARRANGER. The Arranger, in its capacity as such, shall have
no duties or responsibilities, and shall incur no liability, under this
Agreement and the other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 AMENDMENTS AND WAIVERS. Neither this Agreement, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may, or
(with the written consent of the Required Lenders) the Agents and each Loan
Party party to the relevant Loan Document may, from time to time, (a) enter into
written amendments, supplements or modifications hereto and to the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of the Lenders or of
the Loan Parties hereunder or thereunder or (b) waive, on such terms and
conditions as the Required Lenders, or the Agents, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its consequences;
PROVIDED, HOWEVER, that no such waiver and no such amendment, supplement or
modification shall (i) forgive the principal amount or extend the final
scheduled date of maturity of any Loan, extend the scheduled date of any
amortization payment in respect of any Term Loan, reduce the stated rate of any
interest or fee payable hereunder or extend the scheduled date of any payment
thereof, or increase the amount or extend the expiration date of any Commitment
of any Lender, in each case without the consent of each Lender directly affected
thereby; (ii) amend, modify or waive any provision of this Section or reduce any
percentage specified in the definition of Required Lenders or Required
Prepayment Lenders, consent to the assignment or transfer by the Borrower of any
of its rights and obligations under this Agreement and the other Loan Documents,
release all or substantially all of the Collateral or release all or
substantially all of the Subsidiary Guarantors from their obligations under the
Guarantee and Collateral Agreement, in each case without the consent of all
Lenders; (iii) reduce the percentage specified in the definition of Majority
Facility Lenders with respect to any Facility without the consent of all Lenders
under such Facility; (iv) amend, modify or waive any provision of Section 9
without the consent of the Agents; (v) amend, modify or waive any provision of
Section 2.16 without the consent of each Lender directly affected thereby; or
(vi) amend, modify or waive any provision of Section 3 without the consent of
the Issuing Lender. Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Lenders and shall be binding
upon the Loan Parties, the Lenders, the Agents and all future holders of the
Loans. In the case of any waiver, the Loan Parties, the Lenders and the
Administrative Agent shall be restored to their former position and rights
hereunder and under the other Loan Documents, and any Default or
<PAGE>
75
Event of Default waived shall be deemed to be cured and not continuing; but no
such waiver shall extend to any subsequent or other Default or Event of Default,
or impair any right consequent thereon. Any such waiver, amendment, supplement
or modification shall be effected by a written instrument signed by the parties
required to sign pursuant to the foregoing provisions of this Section; PROVIDED,
that delivery of an executed signature page of any such instrument by facsimile
transmission shall be effective as delivery of a manually executed counterpart
thereof.
10.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed (a) in the case of the Borrower, the Syndication Agent, the
Administrative Agent and the Issuing Lender, as follows and (b) in the case of
the Lenders, as set forth on Schedule I or, in the case of a Lender which
becomes a party to this Agreement pursuant to an Assignment and Acceptance, in
such Assignment and Acceptance or (c) in the case of any party, to such other
address as such party may hereafter notify to the other parties hereto:
The Borrower: Cumulus Holdings, Inc.
330 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
Attention: Richard Weening
Telecopy: (414) 283-4505
Telephone: (414) 283-4500
The Syndication Agent,
the Administrative Agent
and the Issuing Lender: Lehman Commercial Paper Inc.
3 World Financial Center
New York, New York 10285
Attention: Michele Swanson
Telecopy: (212) 528-0819
Telephone: (212) 526-0330
PROVIDED that any notice, request or demand to or upon any Agent or any Lender
shall not be effective until received.
10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the either Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or
<PAGE>
76
statement delivered pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement and the making of the Loans and other
extensions of credit hereunder.
10.5 PAYMENT OF EXPENSES. The Borrower agrees (a) to pay or reimburse
the Agents and the Arranger for all their reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this Agreement and the
other Loan Documents and any other documents prepared in connection herewith or
therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Agents, (b) to pay or reimburse each
Lender and each Agent for all its costs and expenses incurred in connection with
the enforcement or preservation of any rights under this Agreement, the other
Loan Documents and any such other documents, including, without limitation, the
fees and disbursements of counsel (including the allocated fees and expenses of
in-house counsel) to each Lender and of counsel to the Agents, (c) to pay,
indemnify, and hold each Lender, each Agent and the Arranger harmless from, any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and other taxes, if any,
which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the other Loan
Documents and any such other documents, and (d) to pay, indemnify, and hold each
Lender, each Agent and the Arranger and their respective officers, directors,
employees, affiliates, agents and controlling persons (each, an "INDEMNITEE")
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, the other Loan
Documents and any such other documents, including, without limitation, any of
the foregoing relating to the use of proceeds of the Loans or the violation of,
noncompliance with or liability under, any Environmental Law applicable to the
operations of the Borrower, any of its Subsidiaries or any of the Properties
(all the foregoing in this clause (d), collectively, the "INDEMNIFIED
LIABILITIES"), PROVIDED, that the Borrower shall have no obligation hereunder to
any Indemnitee with respect to Indemnified Liabilities to the extent such
Indemnified Liabilities are found by a final and nonappealable decision of a
court of competent jurisdiction to have resulted from the gross negligence or
willful misconduct of such Indemnitee. Without limiting the foregoing, and to
the extent permitted by applicable law, the Borrower agrees not to assert and to
cause its Subsidiaries not to assert, and hereby waives and agrees to cause its
Subsidiaries so to waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them might have by statute or
otherwise against any indemnitee. The agreements in this Section shall survive
repayment of the Loans and all other amounts payable hereunder.
10.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Agents, all future holders of the Loans and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agents and each Lender.
<PAGE>
77
(b) Any Lender may, without the consent of the Borrower, in accordance
with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "PARTICIPANT") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrower and the Agents shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents. In no event shall any Participant under
any such participation have any right to approve any amendment or waiver of any
provision of any Loan Document, or any consent to any departure by any Loan
Party therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Loans or any fees payable
hereunder, or postpone the date of the final maturity of the Loans, in each case
to the extent subject to such participation. The Borrower agrees that if
amounts outstanding under this Agreement and the Loans are due or unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall, to the maximum extent
permitted by applicable law, be deemed to have the right of setoff in respect of
its participating interest in amounts owing under this Agreement to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under this Agreement, PROVIDED that, in purchasing such
participating interest, such Participant shall be deemed to have agreed to share
with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as
if it were a Lender hereunder. The Borrower also agrees that each Participant
shall be entitled to the benefits of Sections 2.17, 2.18 and 2.19 with respect
to its participation in the Commitments and the Loans outstanding from time to
time as if it was a Lender; PROVIDED that, in the case of Section 2.18, such
Participant shall have complied with the requirements of said Section and
PROVIDED, FURTHER, that no Participant shall be entitled to receive any greater
amount pursuant to any such Section than the transferor Lender would have been
entitled to receive in respect of the amount of the participation transferred by
such transferor Lender to such Participant had no such transfer occurred.
(c) Any Lender (an "ASSIGNOR") may, in accordance with applicable law,
at any time and from time to time assign to any Lender or any affiliate thereof
or, with the consent of the Borrower, the Issuing Lender and the Agents (which,
in each case, shall not be unreasonably withheld or delayed), to an additional
bank, financial institution or other entity (an "ASSIGNEE") all or any part of
its rights and obligations under this Agreement pursuant to an Assignment and
Acceptance, substantially in the form of Exhibit E, executed by such Assignee
and such Assignor (and, where the consent of the Borrower, the Agents or the
Issuing Lender is required pursuant to the foregoing provisions, by the Borrower
and such other Persons) and delivered to the Administrative Agent for its
acceptance and recording in the Register; PROVIDED that no such assignment to an
Assignee (other than any Lender or any affiliate thereof) shall be in an
aggregate principal amount of less than $5,000,000 (other than in the case of an
assignment of all of a Lender's interests under this Agreement), unless
otherwise agreed by the Borrower, the Syndication Agent and the Administrative
Agent. Any such assignment need not be ratable as among the Facilities. Upon
such execution, delivery, acceptance and recording, from and after
<PAGE>
78
the effective date determined pursuant to such Assignment and Acceptance, (x)
the Assignee thereunder shall be a party hereto and, to the extent provided in
such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with a Commitment and/or Loans as set forth therein, and (y) the
Assignor thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of an Assignor's rights and
obligations under this Agreement, such Assignor shall cease to be a party
hereto). Notwithstanding any provision of this Section, the consent of the
Borrower shall not be required for any assignment which occurs at any time when
any Event of Default shall have occurred and be continuing.
(d) The Administrative Agent shall maintain at its address referred to
in Section 10.2 a copy of each Assignment and Acceptance delivered to it and a
register (the "REGISTER") for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Loans owing to, each
Lender from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrower, the Agents and the Lenders
shall treat each Person whose name is recorded in the Register as the owner of
the Loans and any Notes evidencing such Loans recorded therein for all purposes
of this Agreement. Any assignment of any Loan, whether or not evidenced by a
Note, shall be effective only upon appropriate entries with respect thereto
being made in the Register (and each Note shall expressly so provide). Any
assignment or transfer of all or part of a Loan evidenced by a Note shall be
registered on the Register only upon surrender for registration of assignment or
transfer of the Note evidencing such Loan, accompanied by a duly executed
Assignment and Acceptance; thereupon one or more new Notes in the same aggregate
principal amount shall be issued to the designated Assignee, and the old Notes
shall be returned by the Administrative Agent to the Borrower marked
"cancelled". The Register shall be available for inspection by the Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor and an Assignee (and, in any case where the consent of any other Person
is required by Section 10.6(c), by each such other Person) together with payment
to the Administrative Agent of a registration and processing fee of $2,000
(except that no such registration and processing fee shall be payable (y) in
connection with an assignment by Lehman Commercial Paper Inc. or (z) in the case
of an Assignee which is already a Lender or is an affiliate of a Lender or a
Person under common management with a Lender), the Administrative Agent shall
(i) promptly accept such Assignment and Acceptance and (ii) on the effective
date determined pursuant thereto record the information contained therein in the
Register and give notice of such acceptance and recordation to the Lenders and
the Borrower. On or prior to such effective date, the Borrower, at its own
expense, upon request, shall execute and deliver to the Administrative Agent (in
exchange for the Revolving Credit Note and/or Term Notes, as the case may be, of
the assigning Lender) a new Revolving Credit Note and/or Term Notes, as the case
may be, to the order of such Assignee in an amount equal to the Revolving Credit
Commitment and/or Term Loans, as the case may be, assumed or acquired by it
pursuant to such Assignment and Acceptance and, if the Assignor has retained a
Revolving Credit Commitment and/or Term Loans, as the case may be, upon request,
a new Revolving Credit Note and/or Term Notes, as the case may be, to the order
of the Assignor in an amount equal to the Revolving Credit Commitment and/or
Term Loans, as the case may be, retained by it hereunder. Such new Note or
Notes shall be dated the Closing Date and shall otherwise be in the form of the
Note or Notes replaced thereby.
<PAGE>
79
(f) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law.
10.7 ADJUSTMENTS; SET-OFF. (a) Except to the extent that this
Agreement provides for payments to be allocated to a particular Lender or to the
Lenders under a particular Facility, if any Lender (a "BENEFITTED LENDER") shall
at any time receive any payment of all or part of the Obligations owing to it,
or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 8(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Obligations, such Benefitted Lender shall purchase for
cash from the other Lenders a participating interest in such portion of each
such other Lender's Obligations, or shall provide such other Lenders with the
benefits of any such collateral, as shall be necessary to cause such Benefitted
Lender to share the excess payment or benefits of such collateral ratably with
each of the Lenders; PROVIDED, HOWEVER, that if all or any portion of such
excess payment or benefits is thereafter recovered from such Benefitted Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise), to set
off and appropriate and apply against such amount any and all deposits (general
or special, time or demand, provisional or final), in any currency, and any
other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify
the Borrower and the Administrative Agent after any such setoff and application
made by such Lender, PROVIDED that the failure to give such notice shall not
affect the validity of such setoff and application.
10.8 COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.
10.9 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
<PAGE>
80
10.10 INTEGRATION. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Agents and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by any Agent or any Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other Loan
Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its Property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in Section 10.2 or at such other address
of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
10.13 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) no Agent or Lender has any fiduciary relationship with or duty to
the Borrower arising out of or in connection with this Agreement or any of
the other Loan
<PAGE>
81
Documents, and the relationship between the Agents and the Lenders, on one
hand, and the Borrower, on the other hand, in connection herewith or
therewith is solely that of creditor and debtor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Borrower, the Agents and the Lenders.
10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS AND THE LENDERS
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
10.15 CONFIDENTIALITY. Each of the Agents and the Lenders agrees to
keep confidential all non-public information provided to it by any Loan Party
pursuant to this Agreement that is designated by such Loan Party as
confidential; PROVIDED that nothing herein shall prevent any Agent or any Lender
from disclosing any such information (a) to the Administrative Agent, any other
Lender or any affiliate of any Lender, (b) to any Participant or Assignee (each,
a "TRANSFEREE") or prospective Transferee which agrees to comply with the
provisions of this Section, (c) any of its employees, directors, agents,
attorneys, accountants and other professional advisors, (d) upon the request or
demand of any Governmental Authority having jurisdiction over it, (e) in
response to any order of any court or other Governmental Authority or as may
otherwise be required pursuant to any Requirement of Law, (f) if requested or
required to do so in connection with any litigation or similar proceeding, (g)
which has been publicly disclosed other than in breach of this Section 10.15,
(h) to the National Association of Insurance Commissioners or any similar
organization or any nationally recognized rating agency that requires access to
information about a Lender's investment portfolio in connection with ratings
issued with respect to such Lender or (i) in connection with the exercise of any
remedy hereunder or under any other Loan Document.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
CUMULUS HOLDINGS, INC.
By:
-----------------------------
Name:
Title:
LEHMAN BROTHERS INC.,
as Arranger
By:
-----------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent, Administrative Agent,
Issuing Lender and as a Lender
By:
-----------------------------
Name:
Title:
<PAGE>
ANNEX A
PRICING GRID FOR LOANS AND COMMITMENT FEES
<TABLE>
<CAPTION>
==============================================================================================
Applicable Margin
Consolidated Leverage Applicable Margin for Base Rate Commitment Fee
Ratio for Eurodollar Loans Loans Rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
> or equal to 6.00 to 1.00 2.750% 1.750% 0.500%
- ----------------------------------------------------------------------------------------------
> or equal to 5.50 to 1.00 2.500% 1.500% 0.500%
and < 6.00 to 1.00
- ----------------------------------------------------------------------------------------------
> or equal to 5.00 to 1.00 2.125% 1.125% 0.500%
and < 5.50 to 1.00
- ----------------------------------------------------------------------------------------------
> or equal to 4.50 to 1.00 2.000% 1.000% 0.500%
and < 5.00 to 1.00
- ----------------------------------------------------------------------------------------------
> or equal to 4.00 to 1.00 1.750% 0.750% 0.375%
and < 4.50 to 1.00
- ----------------------------------------------------------------------------------------------
< 4.00 to 1.00 1.500% 0.500% 0.375%
==============================================================================================
</TABLE>
Changes in the Applicable Margin with respect to Loans or in the Commitment Fee
Rate resulting from changes in the Consolidated Leverage Ratio shall become
effective on the date (the "ADJUSTMENT DATE") that is six full calendar months
after the Closing Date and, thereafter, on each date on which financial
statements are delivered to the Lenders pursuant to Section 6.1 (but in any
event not later than the 45th day after the end of each of the first three
quarterly periods of each fiscal year or the 90th day after the end of each
fiscal year, as the case may be) and shall remain in effect until the next
change to be effected pursuant to this paragraph. If any financial statements
referred to above are not delivered within the time periods specified above,
then, until such financial statements are delivered, the Consolidated Leverage
Ratio as at the end of the fiscal period that would have been covered thereby
shall for the purposes of this definition be deemed to be greater than 6.00 to
1.00. In addition, at all times while an Event of Default shall have occurred
and be continuing, the Consolidated Leverage Ratio shall for the purposes of
this definition be deemed to be greater than 6.00 to 1.00. Each determination
of the Consolidated Leverage Ratio pursuant to this definition shall be made
with respect to the period of four consecutive fiscal quarters of the Borrower
ending at the end of the period covered by the relevant financial statements.
<PAGE>
SCHEDULE 1.1A
COMMITMENTS: LENDING OFFICES AND ADDRESSES
- -------------------------------------------------------------------------------
Commitments
Name of Lender and ----------------------------------
Information for Notices Revolving Credit Term Loan
- --------------------------------------------------------------------------------
Lehman Commercial Paper Inc. $110,000,000 $80,000,000
3 World Financial Center
New York, New York 10285
Attention: Michele Swanson
Telecopy: (212) 528-0819
Telephone: (212) 526-0330
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 1.1B
MORTGAGED PROPERTY
<PAGE>
SCHEDULE 1.1C
ACQUISITION AGREEMENTS
<PAGE>
SCHEDULE 1.1D
EXISTING LETTERS OF CREDIT
<PAGE>
SCHEDULE 4.1(b)
MATERIAL LIABILITIES
<PAGE>
SCHEDULE 4.4
CONSENTS, AUTHORIZATIONS, FILINGS AND NOTICES
<PAGE>
SCHEDULE 4.15
SUBSIDIARIES
<PAGE>
SCHEDULE 4.19(a)
UCC FILING JURISDICTIONS
<PAGE>
SCHEDULE 4.19(b)
MORTGAGE FILING JURISDICTIONS
<PAGE>
SCHEDULE 4.23
LICENSES
<PAGE>
SCHEDULE 7.2(e)
EXISTING INDEBTEDNESS
<PAGE>
SCHEDULE 7.3(f)
EXISTING LIENS
<PAGE>
SCHEDULE 7.8(i)
EXISTING INVESTMENTS
<PAGE>
Exhibit 10.3
INDENTURE dated as of _______ __, 1998 among Cumulus Media Inc., an
Illinois corporation (the "Company"), as issuer and _______________________, as
trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the ____% Senior
Subordinated Notes due 2008 of the Company (the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1. Definitions.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition (but excluding the creation of a Lien) of any assets including,
without limitation, by way of a sale and leaseback (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company and its Subsidiaries taken as a whole shall be governed by
Sections 4.13 and/or 5.1 hereof and not by Section 4.10 hereof), and (ii) the
issue or sale by the Company or any of its Restricted Subsidiaries of Equity
Interests of any of the Company's Subsidiaries (including the sale by the
Company or a Restricted Subsidiary of Equity Interests in an Unrestricted
Subsidiary), in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net
<PAGE>
2
proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following
shall not be deemed to be Asset Sales: (1) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned
Restricted Subsidiary of the Company to the Company or to another Wholly Owned
Restricted Subsidiary of the Company; (2) an issuance of Equity Interests by a
Wholly Owned Restricted Subsidiary of the Company to the Company or to another
Wholly Owned Restricted Subsidiary of the Company; (3) the making of a
Restricted Payment or a Permitted Investment that is permitted by Section 4.7;
(4) a disposition of cash or Cash Equivalents; (5) a disposition of either
obsolete equipment or equipment that is damaged, worn out or otherwise no longer
useful in the business; (6) any sale of Equity Interests in, or Indebtedness or
other securities of, an Unrestricted Subsidiary; (7) any sale and leaseback of
an asset within 90 days after the completion of construction or acquisition of
such asset; (8) any surrender or waiver of contract rights or a settlement,
release or surrender of contract, tort or other claims of any kind or a grant of
any Lien not prohibited by this Indenture; and (9) any transfer of properties or
assets that is governed by Section 4.14 hereof; or (10) a disposition of
inventory in the ordinary course of business.
"Asset Swap" means the execution of a definitive agreement, subject
only to regulatory approval and other customary closing conditions, that the
Company in good faith believes will be satisfied, for a substantially concurrent
purchase and sale, or exchange, of assets used or useful in a Permitted Business
between the Company or any of its Restricted Subsidiaries and another person or
group of affiliated persons; provided that any amendment to or waiver of any
closing conditions which individually or in the aggregate is material to the
Asset Swap shall be deemed to be a new Asset Swap.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of such Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability
<PAGE>
3
in respect of a capital lease that would at such time be required to be
capitalized on a balance sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited), (iv) in the case of a limited liability
company or similar entity, any membership or similar interests therein and (v)
any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any lender party to the Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having a rating of at least P2 from Moody's
(or its successor) or a rating of at least A2 from S&P (or its successor), and
(vi) investments in money market or other mutual funds substantially all of
whose assets comprise securities of the types described in clauses (ii) through
(v) above.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" or group of related "persons" (a "Group") (as such
terms are used in Section 13(d)(3) of the Exchange Act) other than a Principal
or a Related Party of a Principal, (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any purchase, sale, acquisition,
disposition, merger or consolidation) the result of which is that any "person"
(as defined above) or Group becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of more than 50% of
the aggregate voting power of all classes of Capital Stock of the Company having
the right to elect directors under ordinary circumstances or (iv) the first day
on which a majority of the members of the Board of Directors of the Company are
not Continuing Directors.
<PAGE>
4
"Closing Date" means the date of the closing of the sale of the
Notes offered pursuant to the Offering.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the sum of, without duplication, the Consolidated Net Income of such
Person for such period plus (i) provision for taxes based on income or profits
of such Person and its Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income, plus
(ii) Consolidated Interest Expense of such Person for such period, to the extent
that any such expense was deducted in computing such Consolidated Net Income,
plus (iii) the product of (a) all cash dividend payments, on any series of
preferred stock of such Person or any of its Restricted Subsidiaries, other than
dividend payments on Equity Interests payable solely in Equity Interests (other
than Disqualified Stock) of the Company, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local effective tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP, plus
(iv) consolidated depreciation, amortization and other non-cash charges of the
Person and its Subsidiaries deducted in computing Consolidated Net Income of
such Person for such period plus (v) cash payments with respect to any non-cash
charges previously added back pursuant to clause (iv). Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person
for any period, the sum, without duplication of (i) the consolidated interest
expense of such Person and its Restricted Subsidiaries for such period, whether
paid or accrued (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Interest Rate Hedging Agreements), (ii) the consolidated interest expense of
such Person and its Restricted Subsidiaries that was capitalized during such
period, (iii) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or any of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or any
<PAGE>
5
of its Restricted Subsidiaries (whether or not such guarantee or Lien is called
upon) and (iv) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a Person that is a Restricted Subsidiary) on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
all other extraordinary gains and extraordinary losses shall be excluded.
"Consolidated Net Tangible Assets" of a Person means the
consolidated total assets of such Person and its consolidated Subsidiaries
determined in accordance with GAAP, less the sum of (i) all current liabilities
and current liability items, and (ii) all goodwill, trade names, trademarks,
patents, organization expense, unamortized debt discount and expense and other
similar intangibles properly classified as intangibles in accordance with GAAP.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-
<PAGE>
6
ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the date of the Indenture
in the book value of any asset owned by such Person or a consolidated Subsidiary
of such Person, (y) all investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries (except, in each case,
Permitted Investments), and (z) all unamortized debt discount and expense and
unamortized deferred charges as of such date, all of the foregoing determined in
accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of original issuance of the Notes or (ii) was
nominated for election or elected to such Board of Directors with the approval
of (x) two-thirds of the Continuing Directors who were members of such Board at
the time of such nomination or election or (y) two-thirds of those Directors who
were previously approved by Continuing Directors.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 11.2 hereof or such other address as to which
the Trustee may give notice to the Company.
"Credit Agreements" means, with respect to the Company, one or more
debt facilities (including, without limitation, the Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, production payment financing,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Agreements outstanding on the date on which the Notes
are first issued and authenticated under this Indenture (after giving effect to
the use of proceeds thereof) shall be deemed to have been incurred on such date
in reliance on the exception provided by clause (b) of the definition of
Permitted Indebtedness set forth in Section 4.9 hereof.
"Credit Facility" means that certain Credit Agreement, dated as of
March 2, 1998, by and among the Company, Lehman Brothers Inc., as Arranger, and
Lehman Brothers Commercial Paper Inc., as Syndication Agent and Administrative
Agent, and certain banks, financial institutions and other entities, as lenders,
providing for up to $190 million of Indebtedness, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, restated, modified, renewed,
refunded, replaced or
<PAGE>
7
refinanced, in whole or in part, from time to time, whether or not with the same
lenders or agents.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Depository" means, with respect to the Notes issued in the form of
one or more Global Notes, The Depository Trust Company or another Person
designated as Depository by the Company, which must be a clearing agency
registered under the Exchange Act.
"Designated Senior Debt" means (i) the Credit Facility and (ii) any
other Senior Debt permitted under this Indenture the principal amount of which
is $25 million or more and that has been designated by the Company as
"Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, is convertible
or exchangeable for Indebtedness or Disqualified Stock or redeemable at the
option of the holder thereof, in whole or in part, on or prior to the date that
is 91 days after the date on which the Notes mature, provided however, that any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof (or of any security into which it is convertible or for which it
is exchangeable) have the right to require the issuer to repurchase such Capital
Stock (or such security into which it is convertible or for which it is
exchangeable) upon the occurrence of any of the events constituting an Asset
Sale or a Change of Control shall not constitute Disqualified Stock if such
Capital Stock (and all such securities into which it is convertible or for which
it is exchangeable) provides that the issuer thereof will not repurchase or
redeem any such Capital Stock (or any such security into which it is convertible
or for which it is exchangeable) pursuant to such provisions prior to compliance
by the Company with the provisions of Section 4.10 or Section 4.13 hereof, as
the case may be.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public
<PAGE>
8
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession, which are in
effect on date hereof.
"Government Securities" means securities that are (a) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such Government
Security or a specific payment of principal of or interest on any such
Government Security held by such custodian for the account of the holder of such
depository receipt; provided, that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Security or the specific payment of principal of or interest on
the Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Hedging Obligations" means with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements with respect to
Indebtedness that is permitted by the terms of the Indenture and (ii) other
agreements or arrangements designed to protect such Person against fluctuation
in interest rates or the value of foreign currencies purchased or received by
such Person in the ordinary course of business.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Indebtedness" means, with respect to any Person, any indebtedness
of such Person, whether or not contingent, (i) in respect of borrowed money, or
(ii) evidenced by bonds, notes, debentures or similar instruments or letters of
credit or reimbursement agreements in respect thereof (other than letters of
credit securing obligations not constituting Indebtedness that are issued in the
ordinary course of business by a Person to the extent not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day
<PAGE>
9
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit) or bankers' acceptances, or (iii) representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued expense or
trade payable, or (iv) representing any Hedging Obligations, in each case if and
to the extent any of the foregoing indebtedness (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, as well as all Indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any Indebtedness of any other Person.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of.
"Issue Date" means the date on which the Notes are originally
issued.
"Leverage Ratio" means the ratio of (i) the aggregate outstanding
amount of Indebtedness of the Company and its Subsidiaries as of the date of
calculation on a consolidated basis in accordance with GAAP (subject to the
terms described in the next paragraph) plus the aggregate liquidation preference
of all outstanding Disqualified Stock of the Company and preferred stock of the
Company's Subsidiaries (except preferred stock issued to the Company or a Wholly
Owned Restricted Subsidiary of the Company) on such date to (ii) the
Consolidated Cash Flow of the Company for the four full fiscal quarters (the
"Four Quarter Period") ending on or prior to the date of determination.
For purposes of this definition, (i) the amount of Indebtedness
which is issued at a discount shall be deemed to be
<PAGE>
10
the accreted value of such Indebtedness at the end of the Four Quarter period,
whether or not such amount is the amount then reflected on a balance sheet
prepared in accordance with GAAP, and (ii) the aggregate outstanding principal
amount of Indebtedness of the Company and its Subsidiaries and the aggregate
liquidation preference of all outstanding preferred stock of the Company's
Subsidiaries for which such calculation is made shall be determined on a pro
forma basis as if the Indebtedness and preferred stock giving rise to the need
to perform such calculation had been incurred and issued and the proceeds
therefrom had been applied, and all other transactions in respect of which such
Indebtedness is being incurred or preferred stock is being issued had occurred,
on the first day of the Four Quarter Period. In addition to the foregoing, for
purposes of this definition, Consolidated Cash Flow shall be calculated on a pro
forma basis after giving effect to (i) the incurrence of the Indebtedness of
such Person and its Subsidiaries and the issuance of the preferred stock of such
Subsidiaries (and the application of the proceeds therefrom) giving rise to the
need to make such calculation and any incurrence (and the application of the
proceeds therefrom) or repayment of other Indebtedness, other than the
incurrence or repayment of Indebtedness pursuant to working capital facilities,
at any time subsequent to the beginning of the Four Quarter Period and on or
prior to the date of determination, as if such incurrence or issuance (and the
application of the proceeds thereof), or the repayment, as the case may be,
occurred on the first day of the Four Quarter Period, (ii) any acquisition
(including, without limitation, any acquisition giving rise to the need to make
such calculation as a result of such Person or one of its Subsidiaries
(including any Person that becomes a Subsidiary as a result of such acquisition)
incurring, assuming or otherwise becoming liable for Indebtedness or such
Person's Subsidiaries issuing preferred stock) at any time on or subsequent to
the first day of the Four Quarter Period and on or prior to the date of
determination, as if such acquisition (including the incurrence, assumption or
liability for any such Indebtedness and the issuance of such preferred stock and
also including any Consolidated Cash Flow associated with such acquisition)
occurred on the first day of the Four Quarter Period. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company consistent with Article 11 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof. Furthermore, in calculating "Consolidated Interest Expense" for
purposes of the calculation of "Consolidated Cash Flow," (i) interest on
Indebtedness determined on a fluctuating basis as of the date of determination
(including Indebtedness actually incurred on the date of the transaction giving
rise to the need to calculate the Leverage Ratio) and which will continue to be
so determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such
<PAGE>
11
Indebtedness as in effect on the date of determination and (ii) notwithstanding
(i) above, interest determined on a fluctuating basis, to the extent such
interest is covered by Hedging Obligations, shall be deemed to accrue at the
rate per annum resulting after giving effect to the operation of such
agreements.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, the City of Chicago or at a place of
payment are authorized by law, regulation or executive order to remain closed.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement with respect to a lease not intended as
a security agreement).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain or loss, together with any related provision for taxes on such gain or
loss, realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or
loss, together with any related provision for taxes on such extraordinary or
nonrecurring gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale, but
excluding cash amounts placed in escrow, until such amounts are released to the
Company), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees and expenses,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or
<PAGE>
12
payable as a result thereof (after taking into account any available tax credits
or deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness (other than Indebtedness under any Credit
Facility) secured by a Lien on the asset or assets that were the subject of such
Asset Sale and any reserve for adjustment in respect of the sale price of such
asset or assets established in accordance with GAAP and any reserve established
for future liabilities.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides any guarantee or
credit support of any kind (including any undertaking, guarantee, indemnity or
agreement or instrument that would constitute Indebtedness) or (b) is directly
or indirectly liable (as a guarantor or otherwise); (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) the explicit terms of which provide that there is
no recourse against any of the assets of the Company or its Restricted
Subsidiaries.
"Note Custodian" means the Trustee or the Registrar, as custodian
with respect to the Notes in global form, or any successor entity thereto or any
entity acting as custodian with respect to Notes in global form.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, the Assistant Secretary or any Vice-President of such
Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company, by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.5 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets
<PAGE>
13
the requirements of Section 11.5 hereof. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Pari Passu Indebtedness" means indebtedness which ranks pari passu
in right of payment to the Notes.
"Permitted Business" means the broadcasting business or any business
that is reasonably similar thereto or a reasonable extension, development or
expansion thereof or ancillary thereto.
"Permitted Indebtedness" has the meaning given in Section 4.9
hereof.
"Permitted Investments" means (a) any Investment in the Company or
in a Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in
Cash Equivalents or securities issued or directly and fully guaranteed or
insured by the United States government or any agency or instrumentality thereof
having maturities of not more than one year from the date of acquisition; (c)
any Investment by the Company or any Restricted Subsidiary of the Company in a
Person if, as a result of such Investment and any related transactions that at
the time of such Investment are contractually mandated to occur, (i) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company or (ii) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys all
or substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with Section 4.10 hereof; (e) other Investments in
any Person or Persons having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (e) that are at the time outstanding without giving effect to
subsequent changes in value or increases or decreases attributable to the
accounting for the net income of such Investment, not to exceed $15.0 million;
(f) any Investment acquired by the Company in exchange for Equity Interests in
the Company (other than Disqualified Stock); (g) any Investment acquired by the
Company or any of its Restricted Subsidiaries (A) in exchange for any other
Investment or accounts receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment or
accounts receivable or (B) as a result of the transfer of title with respect to
any secured investment in default as a result of a foreclosure by the Company or
any of its Restricted Subsidiaries with respect to such secured Investment; (h)
Hedging Obligations permitted under Section 4.9 hereof; (i) loans and advances
to officers, directors and employees for business-related travel expenses,
moving expenses and other similar expenses, in each case, incurred in the
ordinary course
<PAGE>
14
of business; and (j) any guarantees permitted to be made pursuant to Section 4.9
hereof.
"Permitted Liens" means (i) Liens securing Indebtedness of a
Subsidiary or Liens securing Senior Debt that is outstanding on the date of
issuance of the Notes and Liens securing Senior Debt that is permitted by the
terms of the Indenture to be incurred; (ii) Liens in favor of the Company; (iii)
Liens on property existing at the time of acquisition thereof by the Company or
any Subsidiary of the Company and Liens on property or assets of a Subsidiary
existing at the time it became a Subsidiary, provided that such Liens were in
existence prior to the contemplation of the acquisition and do not extend to any
assets other than the acquired property; (iv) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance or other kinds of social security, or to secure the
payment or performance of tenders, statutory or regulatory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (v) Liens existing on the date
hereof; (vi) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (vii) statutory liens of landlords,
mechanics, suppliers, vendors, warehousemen, carriers or other like Liens
arising in the ordinary course of business; (viii) judgment Liens not giving
rise to an Event of Default so long as any appropriate legal proceeding that may
have been duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceeding may be initiated
shall not have expired; (ix) Liens to secure Indebtedness (including Capital
Lease Obligations) permitted by clause (f) of the second paragraph of Section
4.9 hereof covering only the assets acquired with such Indebtedness; (x) Liens
incurred in the ordinary course of business of the Company or any Subsidiary of
the Company with respect to obligations that do not exceed $5.0 million at any
one time outstanding and that (A) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (B) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary; (xi)
Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries; (xii) easements, rights-of-way, zoning and similar
restrictions and other similar encumbrances or title defects incurred or
imposed, as applicable, in the ordinary course of business and consistent with
industry practices which, in the aggregate, are not substantial in amount, and
which do not in any case materially detract from the value of the property
subject thereto (as such property is used by the Company or its Subsidiary) or
interfere with the ordinary conduct
<PAGE>
15
of the business of the Company or such Subsidiary; provided, however, that any
such Liens are not incurred in connection with any borrowing of money or any
commitment to loan any money or to extend any credit; and (xiii) customary Liens
(other than any Lien imposed by ERISA) incurred or deposits made in the ordinary
course of business in connection with worker's compensation, unemployment
insurance and other types of social security legislation.
"Permitted Refinancing Debt" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness (other than Indebtedness incurred under a Credit
Agreement) of the Company or any of its Restricted Subsidiaries; provided that:
(i) the principal amount of such Permitted Refinancing Debt does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Debt has a final maturity
date on or later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Debt has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on terms
at least as favorable taken as a whole to the Holders of the Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Principal" means Richard W. Weening and Lewis W. Dickey, Jr.
"Related Party" with respect to any Principal means (A) any
controlling stockholder, 80% (or more) owned subsidiary, or spouse or immediate
family member (in the case of an individual) of such principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
<PAGE>
16
"Responsible Officer" when used with respect to the Trustee, means
any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any direct or indirect Subsidiary of
the Company that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group and its successors.
"Senior Debt" means (i) Indebtedness of the Company or any
Subsidiary of the Company under or in respect of any Credit Agreement, whether
for principal, interest (including interest accruing after the filing of a
petition initiating any proceeding pursuant to any bankruptcy law, whether or
not the claim for such interest is allowed as a claim in such proceeding),
reimbursement obligations, fees, commissions, expenses, indemnities or other
amounts, and (ii) any other Indebtedness permitted under the terms of this
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes. Notwithstanding anything to the contrary in the foregoing
sentence, Senior Debt will not include (w) any liability for federal, state,
local or other taxes owed or owing by the Company, (x) any Indebtedness of the
Company to any of its Subsidiaries or other Affiliates, or (y) any Indebtedness
that is incurred in violation of the Indenture (other than Indebtedness under
(i) the Credit Facility or (ii) any other Credit Agreement that is incurred on
the basis of a representation by the Company to the applicable lenders that it
is permitted to incur such Indebtedness under the Indenture).
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Subsidiary which would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Subordinated Indebtedness" means any Indebtedness of the Company or
any Restricted Subsidiary (whether outstanding on the date of the issuance of
the Notes or thereafter incurred)
<PAGE>
17
which is subordinate or junior in right of payment to the Notes pursuant to a
written agreement.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Total Assets" means, with respect to any Person, the total
consolidated assets of such Person and its Restricted Subsidiaries, as shown on
the most recent balance sheet of such Person.
"Trustee" means the party named as such in the preamble to this
Indenture until a successor replaces it in accordance with the applicable
provisions of this Indenture and thereafter means the successor serving
hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
which at the time of determination shall be an Unrestricted Subsidiary (as
designated by the Board of Directors of the Company, as provided below) and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary or a Person becoming a Subsidiary through
merger or consolidation or Investment therein) to be an Unrestricted Subsidiary
only if: (a) such Subsidiary does not own any Capital Stock of, or own or hold
any Lien on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; (b) all the Indebtedness of such Subsidiary shall at the date of
designation, and will at all times thereafter consist of, Non-Recourse Debt; (c)
the Company certifies that such designation was permitted by Section 4.7; (d)
such Subsidiary, either alone or in the aggregate with all other Unrestricted
Subsidiaries, does not operate, directly or indirectly, all or substantially all
of the business of the Company and its Subsidiaries; (e) such Subsidiary does
not, directly or indirectly, own any Indebtedness of or Equity Interest in, and
has no Investments in, the Company or any Restricted Subsidiary; (f) such
Subsidiary is a Person with respect to which neither the Company nor any of its
Restricted
<PAGE>
18
Subsidiaries has any direct or indirect obligation (1) to subscribe for
additional Equity Interests or (2) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (g) on the date such Subsidiary is designated an
Unrestricted Subsidiary, such Subsidiary is not a party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary with terms substantially less favorable to the Company than those
that might have been obtained from Persons who are not Affiliates of the
Company. Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing with the Trustee a resolution of the Board of
Directors of the Company giving effect to such designation and an Officer's
Certificate certifying that such designation complied with the foregoing
conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred as of such date.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided, that (1) immediately after giving
effect to such designation, no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof and the Company could
incur at least $1.00 of additional Indebtedness (excluding Permitted
Indebtedness) pursuant to Section 4.9 on a pro forma basis taking into account
such designation and (2) such Subsidiary executes a Guarantee pursuant to the
terms of this Indenture.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person, all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares) are
owned, directly or indirectly, by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person.
<PAGE>
19
Section 1.2. Other Definitions.
Defined in
Term Section
"Affiliate Transaction"...................... 4.11
"Asset Sale Offer"........................... 3.9
"Bankruptcy Law"............................. 10.2
"Change of Control Offer".................... 4.13
"Change of Control Payment".................. 4.13
"Change of Control Payment Date"............. 4.13
"Closing Date"............................... 2.1
"Covenant Defeasance"........................ 8.3
"Custodian".................................. 6.1
"DTC"........................................ 2.3
"Equity Offering"............................ 3.7
"Event of Default"........................... 6.1
"Excess Proceeds"............................ 4.10
"Global Note" ............................... 2.1
"Global Note Holder"......................... 2.1
"incur"...................................... 4.9
"Legal Defeasance"........................... 8.2
"Notice of Default".......................... 6.1
"Offer Amount"............................... 3.9
"Offer Period"............................... 3.9
"Paying Agent"............................... 2.3
"Payment Blockage Notice".................... 10.4
"Payment Default"............................ 6.1
"Permitted Indebtedness"..................... 4.9
"Purchase Date".............................. 3.9
"Registrar".................................. 2.3
"Restricted Payments"........................ 4.7
"Senior Debt"................................ 10.2
Section 1.3. Incorporation By Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" means the Company and any successor obligor upon the
Notes.
<PAGE>
20
All other terms used in this indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by rule enacted by the
Commission under the TIA have the meanings so assigned to them.
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections
or rules adopted by the Commission from time to time.
ARTICLE 2
THE NOTES
Section 2.1. Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated herein and made part of this Indenture. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its issuance and shall show the date
of its authentication. The Notes will be fully registered as to principal and
interest in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof.
The Notes offered and sold may be issued initially in the form of
one or more fully registered global Notes (each being called a "Global Note"),
with, or on behalf of, The Depository Trust Company and registered in the name
of Cede & Co., as nominee of the Depository (such nominee being referred to
herein as the "Global Note Holder"), or will remain in the custody of the
Registrar pursuant to the Fast Balance Certificate Agreement between the
Depository and the Registrar and shall bear the legend set forth as Exhibit B.
Except as set forth in Section 2.6, the Global Notes may be transferred, in
whole and not in
<PAGE>
21
part, only to another nominee of the Depository or to a successor of the
Depository or its nominee.
The terms and provisions contained in the Notes shall constitute,
and are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and (as to the Trustee, to the extent such terms and
provisions pertain to the Trustee) to be bound thereby.
Notes issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the legend on Exhibit B). Notes issued in
certificated form shall be substantially in the form of Exhibit A attached
hereto (but without including the legend on Exhibit B). Each Global Note shall
represent such of the outstanding Notes as shall be specified therein and each
shall provide that it shall represent the aggregate amount of outstanding Notes
from time to time endorsed thereon and that the aggregate amount of outstanding
Notes represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the amount of
outstanding Notes represented thereby shall be made by the Trustee or the Note
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.6 hereof.
Section 2.2. Execution and Authentication.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Notes for original issue up to the aggregate principal
amount of $100,000,000. The aggregate principal amount of Notes outstanding at
any time may not exceed $100,000,000, except as provided in Section 2.7 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
<PAGE>
22
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
Section 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York where (i) Notes may be presented for
registration of transfer or for exchange ("Registrar") and (ii) Notes may be
presented for payment ("Paying Agent"). The Registrar shall keep a register of
the Notes and of their transfer and exchange. The Company may appoint one or
more co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company shall notify the Trustee in writing of
the name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Company or any of its Subsidiaries may act as
Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC")to act as Depository with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Note Custodian with respect to the Global Notes.
Section 2.4. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent, including the Trustee
(who shall be deemed to have agreed by its execution of this Indenture), to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee (unless the Paying Agent is the Trustee, in which case it
shall hold in trust for the Holders) all money held by the Paying Agent for the
payment of principal, premium, if any, or interest, on the Notes, and shall
notify the Trustee of any default by the Company in making any such payment.
While any such default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Company at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon payment over to
the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall
have no further liability for the money. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy
or reorganization proceedings relating to the Company, the Trustee shall serve
as sole Paying Agent for the Notes.
<PAGE>
23
Section 2.5. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA ss. 312(a).
Section 2.6. Transfer and Exchange.
Subject to the provisions of Section 2.13, when Notes are presented
to the Registrar with a request to register the transfer of such Notes or to
exchange such Notes for an equal principal amount of Notes of other authorized
denominations, the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transaction are met; provided, however,
that the Notes surrendered for transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer duly executed by the Holder
thereof (or his attorney duly authorized in writing) in form satisfactory to the
Company and to the Registrar. In order to permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate Notes at
the Registrar's written request. No service charge shall be made for any
registration of transfer or exchange or of redemption, but the Company may, by
notice to the Trustee, require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection therewith (other than
any such transfer taxes or other governmental charge payable upon exchanges or
transfers pursuant to Sections 2.2, 2.3, 3.6, 3.7(b) or 3.9). The Registrar
shall not be required to register the transfer of or exchange of any Note (i)
during a period beginning at the opening of business 15 days before the mailing
of a notice of redemption of Notes and ending at the close of business on the
day of such mailing and (ii) selected for redemption in whole or in part
pursuant to Article Three, except the unredeemed portion of any Note being
redeemed in part.
Prior to due presentment for the registration of a transfer of any
Note, the Trustee, any Agent and the Company may deem and treat the Person in
whose name any Note is registered as the absolute owner of such Note for the
purpose of receiving payment of principal of and interest on such Notes, and
neither the Trustee, any Agent nor the Company shall be affected by notice to
the contrary.
<PAGE>
24
Section 2.7. Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Note, the Company shall issue and the Trustee, upon the receipt
of a written authentication order of the Company signed by two Officers of the
Company, shall authenticate a replacement Note if the Trustee's requirements are
met. If required by the Trustee or the Company, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and the
Company to protect the Company, the Trustee, any Agent and any authenticating
agent from any loss that any of them may suffer if a Note is replaced. The
Company and the Trustee may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.8. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.9 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.
If a Note is replaced pursuant to Section 2.7 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue.
Notes will also cease to be outstanding for certain purposes hereunder as
provided in Article 8 hereof.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.9. Treasury Notes.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or by any Affiliate of the
<PAGE>
25
Company shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Notes that a Trustee actually knows are
registered in the names of the Company or any of their Affiliates or are
certified as such by the Company in an Officer's Certificate delivered to the
Trustee shall be so disregarded.
When the Company or any of its Affiliates repurchases or otherwise
acquires Notes, the Company shall notify the Trustee, in writing, of the
aggregate principal amount of such Notes so repurchased or otherwise acquired.
The Trustee may require an Officer's Certificate listing Notes owned by the
Company or any of its Affiliates.
Section 2.10. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number, and if
so, the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes and that reliance may be placed only on
the other identification numbers printed on the Notes.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.1 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such
<PAGE>
26
defaulted interest. At least 15 days before the special record date, the Company
(or, upon the written request of the Company, the Trustee in the name and at the
expense of the Company) shall mail or cause to be mailed to Holders a notice
that states the special record date, the related payment date and the amount of
such interest to be paid.
Section 2.13. Book-Entry Provisions for Global Notes.
(a) The Global Notes initially shall (i) be registered in the name
of Cede & Co., as the nominee of The Depository Trust Company, (ii) be delivered
to the Registrar as custodian for such Depository and (iii) bear legends as set
forth in Exhibit B.
(b) Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depository, or the Registrar or the Trustee as its
custodian, or under the Global Note, and the Depository may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the absolute
owner of the Global Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depository or impair, as between
the Depository and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any Note.
(c) Transfers of Global Notes shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Notes may be transferred
or exchanged for Certificated Notes in accordance with the rules and procedures
of the Depository. In addition, Certificated Notes shall be transferred to all
beneficial owners in exchange for their beneficial interests in Global Notes if
(i) the Company notifies the Registrar that the Depository is unwilling or
unable to continue as Depository for any Global Note and a successor Depository
is not appointed by the Company within 90 days of such notice or (ii) the
Company, at its option, notifies the Registrar in writing that it elects to
cause the issuance of Notes in definitive form under this Indenture or (iii) an
Event of Default has occurred and is continuing and the Registrar has received a
request from the Depository to issue Certificated Notes.
(d) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Note to beneficial owners pursuant to
paragraph (c), the Registrar shall (if one or more Certificated Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute, and the Trustee shall
<PAGE>
27
authenticate and deliver, one or more Certificated Notes of like tenor and
amount.
(e) In connection with the transfer of Global Notes as an entirety
to beneficial owners pursuant to the second sentence of paragraph (c), the
Global Notes shall be deemed to be surrendered to the Trustee for cancellation,
and the Company shall execute, and the Trustee shall authenticate and deliver,
to each beneficial owner identified by the Depository in exchange for its
beneficial interest in the Global Notes, an equal aggregate principal amount of
Certificated Notes of authorized denominations.
(f) The Holder of any Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.1. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, then it shall furnish to the
Trustee, at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the paragraph of the Notes and/or
Section of this Indenture pursuant to which the redemption shall occur, (ii) the
redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the
redemption price.
Section 3.2. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption shall be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed, or, if the Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. In the event
of partial redemption by lot, the particular Notes to be redeemed shall be
selected, unless otherwise provided herein, not less than 30 nor more than 60
days prior to the redemption date by the Trustee from the outstanding Notes not
previously called for redemption.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
<PAGE>
28
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof shall be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption date, unless
the Company defaults in payment of the redemption price, interest ceases to
accrue on Notes or portions of them called for redemption. Except as provided in
this Section 3.2, provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
The provisions of the two preceding paragraphs of this Section 3.2
shall not apply with respect to any redemption affecting only a Global Note,
whether such Global Note is to be redeemed in whole or in part. In case of any
such redemption in part, the unredeemed portion of the principal amount of the
Global Note shall be in an authorized denomination.
Section 3.3. Notice of Redemption.
Subject to the provisions of Section 3.9 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
of Notes to be redeemed at such Holder's registered address, provided, however,
that the Company shall provide notice to the Trustee in accordance with Section
3.1 hereof at least five days prior to the mailing of the notice pursuant to
this Section 3.3.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption cease to accrue on and after
the redemption date;
<PAGE>
29
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
If any of the Notes to be redeemed is in the form of a Global Note,
then such notice shall be modified in form but not substance to the extent
appropriate to accord with the procedures of the Depository applicable to
redemptions.
At the Company's request and expense, the Trustee shall give the
notice of redemption in the Company's name; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.3
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.5. Deposit of Redemption Price.
On or prior to the redemption date, the Company shall deposit with
the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of and accrued interest on, all
Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.1 hereof.
<PAGE>
30
Section 3.6. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the receipt of a written authentication order of the Company
signed by two Officers of the Company, the Trustee shall authenticate for the
Holder at the expense of the Company a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
Section 3.7. Optional Redemption.
(a) Except as described below the Notes will not be redeemable at
the Company's option prior to ________ __, 2003. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 more than 60 days' notice at the redemption prices (expressed
as percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on _________ __ of each of the years indicated
below:
Percentage of
Year Principal Amount
---- ----------------
2003.....................................
2004.....................................
2005. ...................................
2006 and thereafter...................... 100.0000%
(b) Prior to _______ __, 2001, the Company may, at its option, on
any one or more occasions, redeem up to 35% of the original aggregate principal
amount of Notes at a redemption price equal to ____% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the redemption
date with all or a portion of the net proceeds of one or more Equity Offerings
(as defined below); provided that at least 65% of the original aggregate
principal amount of Notes remains outstanding immediately after the occurrence
of such redemption; and provided, further, that such redemption shall occur
within 90 days of the date after the closing of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means any
public or private sale of Common Stock of the Company pursuant to which the
company receives net proceeds of at least $25.0 million, other than issuances of
Common Stock of the Company pursuant to employee benefit plans or as
compensation to employees.
<PAGE>
31
(c) Any redemption pursuant to this Section 3.7 shall be made
pursuant to the provisions of Sections 3.1 through 3.6 hereof.
Section 3.8. Mandatory Redemption.
Except as set forth under Sections 4.10 and 4.13 hereof, the Company
shall not be required to make mandatory redemption or sinking fund payments with
respect to the Notes.
Section 3.9. Offer to Purchase By Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company
shall be required to commence an offer to all Holders of Notes and, to the
extent required by the terms thereof, to all holders or lenders of other Pari
Passu Indebtedness, to purchase Notes and any such Pari Passu Indebtedness (an
"Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof, giving effect to any related offer
for Pari Passu Indebtedness pursuant to Section 4.10, (the "Offer Amount") or,
if less than the Offer Amount has been tendered, all Notes tendered in response
to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the
same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on
or before the related interest payment date, any accrued and unpaid interest
shall be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders. The
notice shall contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer
shall be made to all Holders. The notice, which shall govern the terms of the
Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.9 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
<PAGE>
32
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased and may
not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a
Depository, if appointed by the Company, or a Paying Agent at the address
specified in the notice at least three Business Days before the Purchase
Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the Depository or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such Note
purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased) in the manner provided
in Section 4.10; and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
If any of the Notes subject to an Asset Sale Offer is in the form of
a Global Note, then such notice may be modified in form but not substance to the
extent appropriate to accord with the procedures of the Depository applicable to
repurchases.
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall
<PAGE>
33
deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.9. The Company, the Depository or the Paying Agent, as
the case may be, shall promptly (but in any case not later than five days after
the Purchase Date) mail or deliver to each tendering Holder an amount equal to
the purchase price of the Notes tendered by such Holder and accepted by the
Company for purchase, and the Company shall promptly issue a new Note, and the
Trustee, upon receipt of a written authentication order of the Company signed by
two Officers of the Company shall authenticate and mail or deliver such new Note
to such Holder, in a principal amount equal to any unpurchased portion of the
Note surrendered. Any Note not so accepted shall be promptly mailed or delivered
by the Company to the Holder thereof. The Company shall publicly announce the
results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.9, any
purchase pursuant to this Section 3.9 shall be made pursuant to the provisions
of Sections 3.1 through 3.6 hereof.
ARTICLE 4
COVENANTS
Section 4.1. Payment of Notes.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all such amounts then due.
[The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.]
Section 4.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where principal, premium,
if any, and interest on the Notes will be paid and where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this
<PAGE>
34
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the following office of an Affiliate
of the Trustee as one such office or agency of the Company in accordance with
Section 2.3.
Section 4.3. Reports.
Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will furnish to
the Holders of Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods set forth in the Commission's rules and
regulations. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of such information and report
with the Commission for public availability within the time periods set forth in
the Commission's rules and regulations (unless the Commission will not accept
such a filing). The Company shall at all times comply with TIA ss.314(a).
Section 4.4. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a
<PAGE>
35
view to determining whether the Company has kept, observed, performed and
fulfilled its obligations under this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of his or her knowledge
the Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture (or,
if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of, premium,
if any, or interest on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto. As of the date hereof, the Company's fiscal year ends
on December 31 of each calendar year. In the event the Company changes its
fiscal year, it shall promptly notify the Trustee of such change.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the fiscal year-end
financial statements delivered pursuant to Section 4.3(a) above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements,
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Article 4 or Article 5 hereof or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, within five Business Days of any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
Section 4.5. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.
<PAGE>
36
Section 4.6. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it shall not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law has been enacted.
Section 4.7. Restricted Payments.
The Company shall not and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's Equity Interests
(including, without limitation, any payment to holders of the Company's Equity
Interests in connection with any merger or consolidation involving the Company)
to the direct or indirect holders of the Company's Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem
or otherwise acquire or retire for value any Equity Interests of the Company or
any direct or indirect parent or other Affiliate of the Company that is not a
Wholly Owned Restricted Subsidiary of the Company; (iii) make any principal
payment on, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Notes, except at final
maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the test set forth in the first paragraph of Section 4.9 hereof; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of
<PAGE>
37
the Indenture (excluding Restricted Payments permitted by clauses (2),
(3),(5), (6) and (7) of the next succeeding paragraph), is less than the
sum of (i) (A) 100% of the aggregate Consolidated Cash Flow of the Company
(or, in the event such Consolidated Cash Flow shall be a deficit, minus
100% of such deficit) accrued for the period beginning on the first day of
the Company's fiscal quarter commencing after the Issue Date and ending on
the last day of the Company's most recent fiscal quarter for which
financial information is available to the Company ending prior to the date
of such proposed Restricted Payment, taken as one accounting period, less
(B) 1.4 times Consolidated Interest Expense for the same period, plus (ii)
100% of the aggregate net cash proceeds and the fair market value of
marketable securities (as determined in good faith by the Company)
received by the Company from the issue or sale since the date hereof of
Equity Interests of the Company or of debt securities of the Company that
have been converted into or exchanged for such Equity Interests (other
than Equity Interests (or convertible debt securities) sold to a
Subsidiary of the Company, other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock and other than
the Common Stock issued in the Common Stock Offering), plus (iii) to the
extent that any Restricted Investment that was made after the date of the
Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (A) the net proceeds of such sale, liquidation or repayment and
(B) the amount of such Restricted Investment, plus (iv) $5.0 million.
The foregoing provisions will not prohibit (1) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of subordinated Permitted Refinancing Debt or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (4) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Subsidiary of
the Company held by any of the Company's (or any of its Subsidiaries') employees
pursuant to any
<PAGE>
38
management equity subscription agreement or stock option agreement in effect as
of the date of the Indenture in connection with the termination of such person's
employment for any reason (including by reason of death or disability); provided
that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $500,000 million in any twelve-month
period; and provided further that no Default or Event of Default shall have
occurred and be continuing immediately after such transaction; (5) repurchases
of Equity Interests deemed to occur upon exercise of stock options if such
Equity Interests represent a portion of the exercise price of such options; (6)
(a) the issuance by the Company of shares of Series A Preferred Stock as
dividends paid in kind on the Series A Preferred Stock and (b) commencing
__________, 2003, the payment of cash dividends by the Company on the Series A
Preferred Stock or on any Preferred Stock issued in exchange for the Series A
Preferred Stock, or any dividends on such Preferred Stock to the extent such
dividends are made pursuant to the terms of the Certificate of Designation of
such Preferred Stock, so long as the Company would be able to Incur, on a pro
forma basis, an additional $1.00 of Indebtedness under Section 4.9 hereof; and
(7) the exchange of Series A Preferred Stock for Exchange Debentures in
accordance with the terms of the Certificate of Designation for such Series A
Preferred Stock as in effect on the Issue Date; provided, however, that the
Company may only effect such exchange so long as the Company would be able to
Incur, on a pro forma basis, an additional $1.00 of Indebtedness under Section
4.9 hereof.
The amount of all Restricted Payments (other than cash) shall be the
fair market value (as determined in good faith by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee, which
determination shall be conclusive evidence of compliance with this provision) on
the date of the Restricted Payment of the asset(s) proposed to be transferred by
the Company or the applicable Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than five days after the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section 4.7
were computed.
The Board of Directors may designate any Restricted Subsidiary to be
an Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and shall reduce the amount available for Restricted
Payments under clause (c) of the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greater of the fair market value or the book value
<PAGE>
39
of such Investments at the time of such designation. Such designation will only
be permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
Section 4.8. Dividend and Other Payment Restrictions Affecting
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 encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(x) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (y) pay any indebtedness owed by it to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any Restricted Subsidiaries of the Company, except for such
encumbrances or restrictions existing under or by reason of (a) the Credit
Facility as in effect as of the date of this Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof or any other Credit Agreement, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements, refinancings or any other Credit
Agreements are no more restrictive taken as a whole with respect to such
dividend and other payment restrictions than those contained in the Credit
Facility as in effect on the date of this Indenture, (b) this Indenture and the
Notes, (c) applicable law, (d) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except, in the case of
Indebtedness, to the extent such Indebtedness was incurred in connection with or
in contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person and its Subsidiaries, or the property or assets of the Person and its
Subsidiaries, so acquired, provided that, such Indebtedness or Disqualified
Stock was permitted by the terms of this Indenture to be incurred, (e) by reason
of customary non-assignment provisions in leases and customary provisions in
other agreements that restrict assignment of such agreements or rights
thereunder, entered into in the ordinary course of business and consistent with
past practices, (f) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired or (g) Permitted Refinancing
Debt, provided that the restrictions contained in the agreements governing such
Permitted Refinancing Debt are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
<PAGE>
40
Section 4.9. Incurrence of Indebtedness and Issuance of Preferred
Stock.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and the Company shall not issue any Disqualified Stock and shall not
permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock if the Company's Leverage
Ratio at the time of the incurrence of such indebtedness, after giving pro-forma
effect thereto and to the use of proceeds therefrom, is less than 7.0 to 1.
Notwithstanding the foregoing, the Indenture will not prohibit any
of the following (collectively, "Permitted Indebtedness"): (a) the Indebtedness
evidenced by the Notes; (b) the incurrence by the Company of Indebtedness
pursuant to Credit Agreements so long as the aggregate principal amount of all
Indebtedness outstanding under all Credit Agreements does not, at any one time,
exceed $190.0 million, less the aggregate amount of all proceeds from all Asset
Sales that have been applied since the date hereof to permanently reduce the
outstanding amount of such Indebtedness pursuant to the provisions described
under Section 4.10; (c) all Indebtedness of the Company and its Restricted
Subsidiaries in existence as of the date of the Indenture; (d) intercompany
Indebtedness between or among the Company and any of its Wholly Owned Restricted
Subsidiaries; provided, however, that (i) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinate to the payment in full
of all Obligations with respect to the Notes and (ii)(A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being held
by a Person other than the Company or a Wholly Owned Restricted Subsidiary and
(B) any sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Wholly Owned Restricted Subsidiary shall be deemed, in
each case, to constitute an incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be; (e) the incurrence by the
Company or its Restricted Subsidiaries of Indebtedness represented by Capital
Lease Obligations, mortgage financings or purchase money obligations, in each
case incurred for the purpose of financing all or any part of the purchase
price, lease or cost of construction or improvement of property, plant or
equipment used in a Permitted Business in an aggregate principal amount not to
exceed $15.0 million at any time outstanding; (f) the incurrence by the Company
or its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or
the net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the Indenture to be
incurred; (g) the incurrence
<PAGE>
41
by the Company or its Restricted Subsidiaries of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate risk with respect to
any floating or variable rate Indebtedness or for the purpose of protecting
against fluctuations in interest rates or the value of foreign currencies
purchased or received, in each case in respect of Indebtedness that is permitted
by the terms of the Indenture to be outstanding; provided, however, that in the
case of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risks with respect to Indebtedness, the notional principal
amount of any such Hedging Obligation does not exceed the principal amount of
the Indebtedness to which such Hedging Obligation relates and in the case of
Hedging Obligations incurred for the purpose of protecting against fluctuations
in interest rates or the value of foreign currencies purchased or received, such
Hedging Obligations do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations in
foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder; (h) Indebtedness incurred solely in respect of
performance, surety and similar bonds or completion guarantees, to the extent
that such incurrence does not result in the incurrence of any obligation for the
payment of borrowed money to others; (i) Indebtedness arising out of standby
letters of credit covering workers compensation, performance or similar
obligations in an aggregate amount not to exceed $500,000 at any time
outstanding; (j) any guarantee of the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the incurrence of
such Indebtedness incurred by such Restricted Subsidiary is permitted under the
terms of the Indenture; (k) the incurrence by the Company of additional
Indebtedness in an aggregate principal amount (or accreted value, as applicable)
at any time outstanding not to exceed $10.0 million; (l) the issuance of Series
A Preferred Stock issued as payment in kind dividends on the Series A Preferred
Stock outstanding on the Issue Date or issued subsequent to the Issue Date as
dividends permitted pursuant to this clause (l), to the extent such dividends
are made pursuant to the terms of the Certificate of Designation for such Series
A Preferred Stock as in effect on the Issue Date, on any Preferred Stock issued
in exchange for the Series A Preferred Stock, or any dividends on such Preferred
Stock to the extent such dividends are made pursuant to the terms of the
Certificate of Designation of such Preferred Stock; and (m) the incurrence by
the Company of Indebtedness in respect of Exchange Debentures issued as payment
in kind interest on Exchange Debentures issued on the exchange of Exchangeable
Preferred Stock, to the extent such interest payments are made pursuant to the
terms of the Exchange Debenture Indenture.
The Company will not permit any Unrestricted Subsidiary to incur any
Indebtedness other than Non-Recourse Debt; provided, however, if any such
Indebtedness ceases to be Non-Recourse Debt,
<PAGE>
42
such event shall be deemed to constitute an incurrence of Indebtedness by the
Company.
Section 4.10. Asset Sales.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (as determined in good
faith by a resolution of the Board of Directors of the Company set forth in an
Officer's Certificate delivered to the Trustee, which determination shall be
conclusive evidence of compliance with this provision) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary, is
in the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet), of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (y) any non-cash
consideration received by the Company or any such Restricted Subsidiary that are
converted by the Company or such Restricted Subsidiary into cash within 30 days
of closing such Asset Sale, shall be deemed to be cash for purposes of this
provision (to the extent of the cash received).
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or such Restricted Subsidiary may apply such Net Proceeds, at
its option, (a) to permanently reduce Senior Debt (and to correspondingly
permanently reduce commitments with respect thereto in the case of revolving
borrowings), or (b) to an investment in any one or more businesses, capital
expenditures or acquisition of other assets, in each case, used or useful in a
Permitted Business. Pending the final application of any such Net Proceeds, the
Company may temporarily reduce Senior Debt that is revolving debt or otherwise
invest such Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied as provided in the first
sentence of this paragraph will (after the expiration of the periods specified
in this paragraph) be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company will be required to make an offer to all Holders of the Notes and,
to the extent required by the terms thereof, to all holders or lenders of Pari
Passu Indebtedness (an "Asset Sale Offer") to purchase the maximum principal
amount of the Notes and any such Pari Passu Indebtedness to which the Asset Sale
Offer applies that may be purchased out of the Excess
<PAGE>
43
Proceeds, at an offer price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon to the date of purchase, in
accordance with the procedures set forth in the Indenture or the agreements
governing the Pari Passu Indebtedness, as applicable. To the extent that the
aggregate principal amount of the Notes and Pari Passu Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of the Notes surrendered by Holders thereof and other
Pari Passu Indebtedness surrendered by holders or lenders thereof, collectively,
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
the trustee or other lender representative for the Pari Passu Indebtedness shall
select the Pari Passu Indebtedness to be purchased on a pro rata basis, based on
the aggregate principal amount thereof surrendered in such Asset Sale Offer.
Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Section 4.11. Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any of its Affiliates (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is
on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
by the Company or such Restricted Subsidiary with an unrelated Person and (ii)
the Company delivers to the Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
or series of Affiliated Transactions complies with clause (i) above and that
such Affiliate Transaction or series of Affiliated Transactions has been
approved in good faith by a majority of the members of the Board of Directors
who are disinterested with respect to such Affiliate Transaction or series of
Affiliated Transactions, which resolution shall be conclusive evidence of
compliance with this provision, and (b) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $10.0 million, the Company delivers an Officer's
Certificate certifying that such Affiliate Transaction or series of related
Affiliate Transactions complies with clause (i) above and that such Affiliate
Transaction or series of related Affiliate Transactions has been approved in
good faith by a resolution adopted by a majority of the members of the Board of
Directors of the Company who are disinterested with respect to such Affiliate
Transaction or series of related Affiliate Transactions and an opinion as to the
<PAGE>
44
fairness to the Company or such Subsidiary of such Affiliate Transaction or
series of related Affiliate Transactions from a financial point of view issued
by an accounting, appraisal, engineering or investment banking firm of national
standing (which resolution and fairness opinion shall be conclusive evidence of
compliance with this provision); provided that the following shall not be deemed
Affiliate Transactions: (1) transactions contemplated by any employment
agreement or other compensation plan or arrangement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(2) transactions between or among the Company and/or its Restricted
Subsidiaries, (3) Restricted Payments and Permitted Investments that are
permitted by Section 4.7 of this Indenture, (4) indemnification payments made to
officers, directors and employees of the Company or any Restricted Subsidiary
pursuant to charter, bylaw, statutory or contractual provisions and (5) any
agreement as in effect as of the Issue Date or any Transaction contemplated
thereby.
Section 4.12. Liens.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien securing Indebtedness of any kind (other than
Permitted Liens) upon any of its property or assets, now owned or hereafter
acquired.
Section 4.13. Offer to Repurchase Upon Change of Control.
Change of Control
Upon the occurrence of a Change of Control, each Holder of the Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount of the Notes plus accrued
and unpaid interest, if any, thereon to the date of purchase (the "Change of
Control Payment"). Within 30 days following any Change of Control, the Company
will (i) mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offer to repurchase the Notes pursuant
to the procedures required by the Indenture and described in such notice on a
date no earlier than 30 days nor later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date") and (ii) (a) offer to repay in
full all Obligations under the Credit Facility and to repay in full all
Obligations of each lender who has accepted such offer or (b) obtain the
requisite consent under agreements evidencing Senior Debt to permit the purchase
of the Notes as described herein. The Company will comply with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws and
<PAGE>
45
regulations thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the
extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all the
Notes or portions thereof so tendered and (iii) deliver or cause to be delivered
to the Trustee the relevant Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of such Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of the Notes so tendered the Change of Control Payment for such
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each tendering Holder a new Note equal in
principal amount to any unpurchased portion of the Notes surrendered, if any;
provided that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Company will not be required to make a Change of Control Offer
if a third party makes the Change of Control Offer in the manner, at the times
and otherwise in compliance with the requirements set forth in this Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes (or portions thereof) validly tendered and not withdrawn under such Change
of Control Offer.
Section 4.14. Asset Swaps
The Company will not, and will not permit any of its Restricted
Subsidiaries to, in one or a series of related transactions, directly or
indirectly, engage in any Asset Swaps, unless: (i) at the time of entering into
the agreement to swap assets and immediately after giving effect to the proposed
Asset Swap, no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; (ii) the Company would, after giving
pro forma effect to the proposed Asset Swap, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the test set forth in Section
4.9 hereof; (iii) the respective fair market values of the assets being
purchased and sold by the Company or any of its Restricted Subsidiaries (as
determined in good faith by the management of the Company or, if such Asset Swap
includes consideration in excess of $_____ million by the Board of Directors of
the Company, as evidenced by a Board Resolution) are substantially the same at
the time of entering into the agreement to swap assets; and (iv) at the time of
the consummation of the proposed Asset Swap, the percentage of any decline in
the fair market
<PAGE>
46
value (determined as aforesaid) 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 (determined as aforesaid)
of the assets being disposed of by the Company or its Restricted Subsidiaries,
calculated from the time the agreement to swap assets was entered into.
Section 4.15. Corporate Existence.
Subject to Article 5 hereof, the Company and the Subsidiaries shall
do or cause to be done all things necessary to preserve and keep in full force
and effect (i) its corporate existence, and the corporate, partnership or other
existence of each of the Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Subsidiary and (ii) the rights (charter, partnership
agreement and statutory), licenses and franchises of the Company and the
Subsidiaries; provided, however, that the Company and the Subsidiaries shall not
be required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of the Subsidiaries, if the Board of
Directors of the relevant Person shall determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company and the
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
Section 4.16. No Senior Subordinated Debt.
Notwithstanding the provisions of Section 4.9 hereof, the Company
shall not incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to any Senior
Debt of the Company and senior in any respect in right of payment to the Notes;
provided, however, that the foregoing limitation shall not apply to distinctions
between categories of Indebtedness that exist by reason of any Liens arising or
created in respect of some but not all such Indebtedness.
Section 4.17. Business Activities.
The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any material respect in any business other than a
Permitted Business.
Section 4.18. Issuances and Sales of Capital Stock of Wholly Owned
Restricted Subsidiaries.
The Company (i) will not, and will not permit any Wholly Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary
of the Company to any Person (other than the Company or a Wholly Owned
Restricted
<PAGE>
47
Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or
other disposition is of all the Capital Stock of such Wholly Owned Restricted
Subsidiary and (b) the Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with Section 4.10 hereof and (ii)
will not permit any Wholly Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Restricted Subsidiary; provided that the Company may,
and may permit any Wholly Owned Restricted Subsidiary of the Company to, take
any of the actions referred to in (i) and (ii) above so long as immediately
after giving effect to such action no more than 10% of the Consolidated Net
Tangible Assets of the Company and its Subsidiaries is owned by other than
Wholly Owned Restricted Subsidiaries of the Company.
Section 4.19. Payments for Consent
Neither the Company nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions hereof or
of the Notes unless such consideration is offered to be paid or is paid to all
Holders of the Notes that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
ARTICLE 5
SUCCESSORS
Section 5.1. Merger, Consolidation, or Sale of Substantially All
Assets.
The Company will not consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets, in one or more related transactions, to another Person, and the Company
may not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions would, in the aggregate, result in a sale, assignment, transfer,
lease, conveyance, or other disposition of all or substantially all of the
properties or assets of the Company to another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (the "Surviving Entity") is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia; (ii)
the
<PAGE>
48
Surviving Entity (if the Company is not the continuing obligor under this
Indenture) assumes all the obligations of the Company under the Notes and this
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately before and after giving effect to such
transaction or series of transactions no Default or Event of Default exists;
(iv) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating any Indebtedness not previously
an obligation of the Company or any of its Subsidiary which becomes the
obligation of the Company or any of its Subsidiary as a result of such
transaction or series of transactions as having been incurred at the time of
such transaction or series of transactions), the Consolidated Net Worth of the
Company and its Subsidiaries or the Surviving Entity (if the Company is not the
continuing obligor under this Indenture) is equal to or greater than the
Consolidated Net Worth of the Company and its Subsidiaries immediately prior to
such transaction or series of transactions and (v) the Company or Surviving
Entity (if the Company is not the continuing obligor under this Indenture) will,
at the time of such transaction or series of transactions and after giving pro
forma effect thereto as if such transaction or series of transactions had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the test set forth
in the first paragraph of Section 4.9 hereof. Notwithstanding the restrictions
described in the foregoing clauses (iv) and (v), any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company, and any Wholly Owned Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to another Wholly Owned Restricted Subsidiary.
Section 5.2. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.1 hereof, the Surviving Entity shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the Surviving Entity and not to the Company), and may exercise every right and
power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.1 hereof.
<PAGE>
49
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
An "Event of Default" occurs if (i) a default for 30 days in the
payment when due of interest on the Notes (whether or not prohibited by the
subordination provisions herein); (ii) a default in payment when due of the
principal of or premium, if any, on the Notes (whether or not prohibited by the
subordination provisions herein); (iii) the failure by the Company or any of its
Restricted Subsidiaries to comply with the provisions described under Article 4
hereof; (iv) failure by the Company for 30 days after notice from the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding to comply with any of its other agreements in the Indenture or the
Notes; (v) a default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there is then existing a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or more; (vi)
the failure by the Company or any of its Restricted Subsidiaries to pay final,
non-appealable judgments aggregating in excess of $5.0 million, which judgments
remain unpaid or discharged for a period of 60 days; (vii) the Company or any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary pursuant to or within the meaning of any
Bankruptcy Law: (a) commences a voluntary case or proceeding, (b) consents to
the entry of an order for relief against it in an involuntary case or
proceeding, (c) consents to the appointment of a Custodian of it or for all or
substantially all of its property or (d) makes a general assignment for the
benefit of its creditors; (viii) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that: (a) is for relief against the
Company or any Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary, in an involuntary case or
proceeding, (b) appoints a Custodian of the Company, any Significant Subsidiary
or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, or for all or substantially all of the property of the
Company, any Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary, or (c)
<PAGE>
50
orders the liquidation of the Company, any Significant Subsidiary or any group
of Subsidiaries that, taken together, would constitute a Significant Subsidiary,
and in each case the order or decree remains unstayed and in effect for 60
consecutive days.
The term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required,
within five business days of becoming aware of any Default or Event of Default,
to deliver to the Trustee a statement specifying such Default or Event of
Default.
Section 6.2. Acceleration.
If an Event of Default (other than an Event of Default described in
Section 6.1 (vii) or (viii) above) relating to the Company occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in principal amount of the then outstanding Notes by written notice to the
Company and the Trustee, may declare the unpaid principal amount of and any
accrued and unpaid interest on all the Notes to be due and payable immediately.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall notify the holders of Designated Senior Debt of
such acceleration. Upon such declaration the principal and interest shall be due
and payable immediately; provided, however, that so long as any Designated
Senior Debt or any commitment therefor is outstanding, any such notice or
declaration shall not become effective until the earlier of (a) five Business
Days after such notice is delivered to the representative for the Designated
Senior Debt or (b) the acceleration of any Designated Senior Debt and
thereafter, payments on the Notes pursuant to this Article 6 shall be made only
to the extent permitted pursuant to Article 10 herein.
Notwithstanding the foregoing paragraph, in the case of an Event of
Default arising under Section 6.1 (vii) or (viii) above, all outstanding Notes
will become due and payable without further action or notice.
After a declaration of acceleration under this Indenture, but before
a judgment or decree for payment of principal, premium, if any, and interest on
the Notes due under this Article 6 has been obtained by the Trustee, Holders of
a majority in principal amount of the then outstanding Notes by written notice
to the Company and the Trustee may rescind an acceleration and its consequences
if (i) the Company has paid or deposited with the Trustee a sum sufficient to
pay (a) all sums paid or advanced by the Trustee under this Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and (b) all overdue interest
<PAGE>
51
on the Notes, if any, (ii) the rescission would not conflict with any judgment
or decree of a court of competent jurisdiction and (iii) all existing Events of
Default (except nonpayment of principal, premium, if any, or interest that has
become due solely because of the acceleration) have been cured or waived.
Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.4. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of
the Notes then outstanding by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of principal of, premium and liquidated damages, if any, or interest on,
the Notes (including in connection with an offer to purchase) (provided,
however, that the Holders of a majority in aggregate principal amount of the
then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
Section 6.5. Control by Majority.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability it being understood that (subject to Section 7.1)
the Trustee shall have no duty to ascertain whether or not such actions or
forebearances are unduly prejudicial to such holders.
<PAGE>
52
Section 6.6. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
Section 6.7. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium, if any, and
interest on the Note, on or after the respective due dates expressed in the Note
(including in connection with an offer to purchase), or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
Section 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(1) or (2) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
<PAGE>
53
Section 6.9. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.7 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.7 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding
provided, however, that the Trustee may, on behalf of the Holders, vote for the
election of a trustee in bankruptcy or similar official and may be a member of
the creditors' committee.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it
shall, subject to the provisions of Article 10, pay out the money in the
following order:
First: to the Trustee, its agents and attorneys for amounts due
under Sections 6.8 and 7.7 hereof, including payment of all compensation,
expense and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, and accrued interest, ratably, without
preference or priority of any kind, according to the amounts due and payable on
the Notes for
<PAGE>
54
principal, premium, if any, and accrued interest, as the case may be,
respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment
to Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon any notices, requests, statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall examine the
certificates and opinions to
<PAGE>
55
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have furnished to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.2. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection
<PAGE>
56
from liability in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have furnished to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) Except with respect to Sections 4.1 and 4.4 hereof, the Trustee
shall have no duty to inquire as to the performance of the Company's covenants
in Article 4 hereof. In addition, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 4.1, 4.4 and 6.1(1) or (2) hereof or (ii) any
Default or Event of Default of which the Trustee shall have received written
notification or obtained actual knowledge. For the purposes of this clause (g)
only, "actual knowledge" shall mean the actual fact or statement of knowing,
without any duty to make investigation with regard thereto.
(h) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(i) the Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any covenants, conditions, or agreements on the
part of the Company, except as otherwise set forth herein, but the Trustee may
require of the Company full information and advice as to the performance of the
covenants, conditions and agreements contained herein and shall be entitled in
connection herewith to examine the books, records and premises of the Company.
(j) The permissive rights of the Trustee to perform the acts
enumerated in this Indenture shall not be construed as a duty and the Trustee
shall not be answerable for other than its negligence or willful misconduct.
<PAGE>
57
Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
Section 7.4. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or in any certificate delivered
pursuant hereto or any statement in the Notes or any other document in
connection with the sale of the Notes or pursuant to this Indenture other than
its certificate of authentication.
Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it
is actually known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on, any Note, the Trustee may withhold the notice
if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of the
Notes.
Section 7.6. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA ss. 313(a) (but if no event described in
TIA ss. 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA ss.
313(b)(2) and transmit by mail all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with
<PAGE>
58
the Commission and each stock exchange on which the Notes are listed in
accordance with TIA ss. 313(d). The Company shall promptly notify the Trustee
when the Notes are listed on any stock exchange.
Section 7.7. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder,
including, without limitation, extraordinary services such as default
administration. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.7) and investigating or defending itself against any claim
(whether asserted by the Company or any Holder or any other person) or liability
in connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of their
obligations hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without their consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section 7.7 are joint and
several and shall survive the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.1(9) or (10) hereof occurs, the expenses and
the compensation for the services
<PAGE>
59
(including the fees and expenses of its agents and counsel) are intended to
constitute expenses of administration under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to
the extent applicable.
Section 7.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder of a Note who
has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
<PAGE>
60
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.8, the Company's obligations under Section 7.7 hereof shall
continue for the benefit of the retiring Trustee.
Section 7.9. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $50 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or Covenant
Defeasance.
The Company may, at the option of its Board of Directors evidenced
by a resolution set forth in an Officers'
<PAGE>
61
Certificate, at any time, elect to have either Section 8.2 or 8.3 hereof be
applied to all outstanding Notes upon compliance with the conditions set forth
below in this Article 8.
Section 8.2. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be deemed to have been
discharged from their obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.5 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due from the trust
fund described in Section 8.4 hereof, and as more fully set forth in such
Section, (b) the Company's obligations with respect to such Notes under Article
2 and Section 4.2 hereof, (c) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and the Company's obligations in connection therewith
and (d) this Article 8. Subject to compliance with this Article 8, the Company
may exercise its option under this Section 8.2 notwithstanding the prior
exercise of its option under Section 8.3 hereof.
Section 8.3. Covenant Defeasance.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be released from their
obligations under the covenants contained in Sections 4.3, 4.5, 4.7, 4.8, 4.9,
4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof and in
clause (iv) of Section 5.1 with respect to the outstanding Notes on and after
the date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the
purposes of any compliance certificate, direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Company
<PAGE>
62
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.1 hereof, but, except as specified above,
the remainder of this Indenture, such Notes shall be unaffected thereby. In
addition, upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3 hereof, subject to the satisfaction of the
conditions set forth in Section 8.4 hereof, Sections 6.1(3) (but only with
respect to the Company's failure to observe or perform the covenants, conditions
and agreements of the Company under clause (iv) of Section 5.1), 6.1(4), 6.1(7)
and 6.1(8) hereof shall not constitute Events of Default.
Section 8.4. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in United States dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest, on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date;
(b) in the case of an election under Section 8.2 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall 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 Legal 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 Legal Defeasance had not occurred;
<PAGE>
63
(c) in the case of an election under Section 8.3 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes 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;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Section 6.1(9) or 6.1(10) hereof is concerned, at any time in the period
ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of the Notes over the other creditors of the Company,
or with the intent of defeating, hindering, delaying or defrauding creditors of
the Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.5. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions.
Subject to Section 8.6 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.5, the
"Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent
<PAGE>
64
(including the Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Notes of all sums due and to become due thereon in respect
of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.4 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.4 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.4(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 8.6. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Note and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.
Section 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.2 or
8.3 hereof, as the case may be, by reason of any order or judgment of any court
or governmental
<PAGE>
65
authority enjoining, restraining or otherwise prohibiting such application, then
the obligations of the Company under this Indenture, the Notes shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3
hereof, as the case may be; provided, however, that if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.1. With Consent of Holders of Notes.
Except as provided below, this Indenture or the Notes may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the Notes then outstanding (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, the Notes), and any existing default or compliance with any provision
of this Indenture or the Notes may be waived with the consent of the Holders of
a majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company, authorizing the execution of any such amended
or supplemental indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.2
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental indenture unless such amended or supplemental indenture affects
the Trustee's own rights, duties or immunities under this indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.2 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
indenture or waiver.
<PAGE>
66
Section 9.2. Without Consent of Holders of Notes.
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Notes held by a non-consenting Holder): (i) reduce
the principal amount of the Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes
(except as provided above in Sections 4.10 and 4.13 hereof), (iii) reduce the
rate of or change the time for payment of interest on any Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes (except a rescission of acceleration of the Notes by
the Holders of at least a majority in principal amount of such Notes and a
waiver of the payment default that resulted from such acceleration), (v) make
any Note payable in money other than that stated in the Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of the Notes to receive payments of principal of or
premium, if any, or interest on the Notes or (vii) make any change in the
foregoing amendment and waiver provisions. In addition, any amendment to the
provisions contained in Sections 4.10 and 4.13 hereof or the provisions of
Article 10 hereof will require the consent of the Holders of at least 66 2/3% in
principal amount of the Notes then outstanding if such amendment would adversely
affect the rights of Holders of such Notes. However, no amendment may be made to
the subordination provisions of the Indenture that adversely affects the rights
of any holder of Senior Debt then outstanding unless the holders of such Senior
Debt (or any group or representative thereof authorized to give a consent)
consents to such change.
Notwithstanding the foregoing, without the consent of any Holder of
the Notes the Company and the Trustee may amend or supplement this Indenture or
the Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights under this Indenture of any such Holder, to
secure the Notes or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
Section 9.3. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall
be set forth in an amended or supplemental Indenture that complies with the TIA
as then in effect.
<PAGE>
67
Section 9.4. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent Holder
of a Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
Section 9.5. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
Section 9.6. Trustee to Sign Amendment, etc.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until its
respective Board of Directors approves it. In executing any amended or
supplemental indenture, the Trustee shall be entitled to receive and (subject to
Section 7.1) shall be fully protected in relying upon, an Officer's Certificate
and an Opinion of Counsel stating that the execution of such amended or
supplemental indenture is authorized or permitted by this Indenture and that
there has been compliance with all conditions precedent.
ARTICLE 10
SUBORDINATION
Section 10.1. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Note agrees, that
(i) the Indebtedness evidenced by the Notes, including, but not limited to, the
payment of principal of, premium, if any, and interest on the Notes, and any
other payment Obligation of the Company in respect of the Notes (including any
obligation to repurchase the Notes) is subordinated in right of payment, to the
extent and in the manner provided in this
<PAGE>
68
Article, to the prior payment in full in cash of all Senior Debt of the Company
(whether outstanding on the date hereof or hereafter created, incurred, assumed
or guaranteed) (ii) the subordination is for the benefit of the Holders of
Senior Debt.
Section 10.2. Certain Definitions.
"Bankruptcy Law" means title 11, U.S. Code or any similar Federal or
state law for the relief of debtors.
"Representative" means the indenture trustee or other trustee, agent
or representative for any Senior Debt.
A "distribution" may consist of cash, securities or other property,
by set-off or otherwise.
All Designated Senior Debt now or hereafter existing and all other
Obligations relating thereto shall not be deemed to have been paid in full
unless the holders or owners thereof shall have received payment in full in cash
(or other form of payment consented to by the holders of such Designated Senior
Debt) with respect to such Designated Senior Debt and all other Obligations with
respect thereto.
Section 10.3. Liquidation; Dissolution; Bankruptcy.
(a) Upon any payment or distribution of property or securities to
creditors of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, or in an assignment for the benefit of
creditors or any marshalling of the Company's assets and liabilities:
(1) the holders of Senior Debt of the Company shall be entitled to
receive payment in full in cash of all Obligations in respect of such
Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or
not a claim for such interest would be allowed in such proceeding) before
the Holders of Notes shall be entitled to receive any payment with respect
to the Notes and related Obligations ; and
(2) until all Obligations with respect to Senior Debt of the Company
(as provided in subsection (1) above) are paid in full in cash, any
payment or distribution to which the Holders of Notes would be entitled
shall be made to holders of Senior Debt of the Company (except that
Holders of Notes may receive securities that are subordinated at least to
the same extent as the Notes to Senior Debt and any securities issued in
exchange for Senior Debt and payments made from any defeasance trust
created pursuant to Section
<PAGE>
69
8.1 hereof provided that the applicable deposit does not violate Article 8
or 10 of this Indenture).
Under the circumstances described in this Section 10.3, the Company
or any receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar person making any payment or distribution of cash or other property or
securities is authorized or instructed to make any payment or distribution to
which the Holders of the Notes would otherwise be entitled (other than
securities that are subordinated at least to the same extent as the Notes to
Senior Debt and any securities issued in exchange for Senior Debt and payments
made from any defeasance trust referred to in the second parenthetical of clause
(a)(2) above, which shall be delivered or paid to the Holders of Notes as set
forth in such clauses) directly to the holders of the Senior Debt of the Company
(pro rata to such holders on the basis of the respective amounts of Senior Debt
of the Company held by such holders) or their Representatives, or to any trustee
or trustees under any other indenture pursuant to which any such Senior Debt may
have been issued, as their respective interests appear, to the extent necessary
to pay all such Senior Debt in full, in cash or cash equivalents after giving
effect to any concurrent payment, distribution or provision therefor to or for
the holders of such Senior Debt.
To the extent any payment of or distribution in respect of Senior
Debt, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then if such payment or distribution is recovered by,
or paid over to, such receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person, the Senior Debt or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred. To the extent the obligation to repay any Senior
Debt is declared to be fraudulent, invalid or otherwise set aside under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then
the obligation so declared fraudulent, invalid or otherwise set aside (and all
other amounts that would come due with respect thereto had such obligation not
been so affected) shall be deemed to be reinstated and outstanding as Senior
Debt for all purposes hereof as if such declaration, invalidity or setting aside
had not occurred.
Section 10.4. Default on Designated Senior Debt.
The Company may not make any payment (whether by redemption,
purchase, retirements, defeasance or otherwise) upon or in respect of the Notes
(other than securities that are subordinated at least to the same extent as the
Notes to Senior Debt and any securities issued in exchange for Senior Debt and
<PAGE>
70
payments and other distributions made from any defeasance trust created pursuant
to Section 8.1 hereof if the applicable deposit does not violate Article 8 or 10
of this Indenture) until all principal and other Obligations with respect to the
Senior Debt of the Company have been paid in full if:
(i) a default in the payment of any principal of, premium, if any,
or interest on Designated Senior Debt occurs; or
(ii) any other default occurs and is continuing with respect to
Designated Senior Debt that permits, or with the giving of notice or
passage of time or both (unless cured or waived) would permit, holders of
the Designated Senior Debt as to which such default relates to accelerate
its maturity and the Trustee receives a notice of the default (a "Payment
Blockage Notice") from the Company or the holders of any Designated Senior
Debt. If the Trustee receives any such Payment Blockage Notice, no
subsequent Payment Blockage Notice shall be effective for purposes of this
Section unless and until 360 days shall have elapsed since the date of
commencement of the payment blockage period resulting from the immediately
prior Payment Blockage Notice. No nonpayment default in respect of any
Designated Senior Debt that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice.
The Company shall resume payments on and distributions in respect of
the Notes upon:
(1) in the case of a default referred to in Section 10.4(i) hereof
the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 10.4(ii) hereof,
the earliest of (1) the date on which such nonpayment default is cured or
waived, (2) the date the applicable Payment Blockage Notice is retracted
by written notice to the Trustee and (3) 179 days after the date on which
the applicable Payment Blockage Notice is received unless (A) the maturity
of any Designated Senior Debt has been accelerated or (B) a Default or
Event of Default under Section 6.1(vii) or (viii) has occurred and is
continuing,
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
Section 10.5. Acceleration of Notes.
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
<PAGE>
71
Section 10.6. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment or
distribution of or in respect of any Obligations with respect to the Notes at a
time when such payment or distribution is prohibited by Section 10.3 or Section
10.4 hereof, such payment or distribution shall be held by the Trustee (if the
Trustee has actual knowledge that such payment or distribution is prohibited by
Section 10.3 or 10.4) or such Holder, in trust for the benefit of, and shall be
paid forthwith over and delivered to, the holders of Senior Debt as their
interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which such Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such Obligations in full in accordance with their terms, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
With respect to the holders of Senior Debt, the Trustee undertakes
to perform only such obligations on the part of the Trustee as are specifically
set forth in this Article 10, and no implied covenants or obligations with
respect to the holders of Senior Debt shall be read into this Indenture against
the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and, except as provided in Section 10.12, shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holders of Notes or the Company or any other Person money or assets to
which any holders of Senior Debt shall be entitled by virtue of this Article 10,
except if such payment is made as a result of the willful misconduct or gross
negligence of the Trustee.
Section 10.7. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent
of any facts known to the Company that would cause a payment of any Obligations
with respect to the Notes to violate this Article, but failure to give such
notice shall not affect the subordination of the Notes to the Senior Debt as
provided in this Article.
Section 10.8. Subrogation.
After all Senior Debt is paid in full and until the Notes are paid
in full, Holders of Notes and the related Guarantees shall be subrogated
(equally and ratably with all other Indebtedness pari passu with the Notes) to
the rights of holders of Senior Debt to receive distributions and payments
applicable to Senior Debt to the extent that distributions and payments
otherwise payable to the Holders of Notes have been applied to the payment of
Senior Debt. A payment or distribution made under this Article to holders of
Senior Debt that otherwise
<PAGE>
72
would have been made to Holders of Notes and the related Guarantees is not, as
between the Company and Holders of Notes, a payment by the Company on the Notes.
Section 10.9. Relative Rights.
This Article defines the relative rights of Holders of Notes and
holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of Notes and creditors of
the Company other than their rights in relation to holders of Senior Debt;
or
(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Senior Debt to receive distributions and payments
otherwise payable to Holders of Notes.
If the Company fails because of this Article to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
Section 10.10. Subordination May Not Be Impaired by Company.
No right of any present or future holders of any Senior Debt to
enforce subordination as provided in this Article Ten will at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any such holder, or
by noncompliance by the Company with the terms of this Indenture, regardless of
any knowledge thereof that any such holder of Senior Debt may have or otherwise
be charged with. The provisions of this Article Ten are intended to be for the
benefit of, and shall be enforceable directly by, the holders of Senior Debt.
Section 10.11. Payment, Distribution or Notice to Representative.
Whenever a payment or distribution is to be made or a notice given
to holders of Senior Debt, the distribution may be made and the notice given to
their Representative.
Upon any payment or distribution of assets or securities of the
Company referred to in this Article 10, the Trustee and the Holders of Notes
shall be entitled to rely upon
<PAGE>
73
any order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any payment or distribution to the Trustee or to the Holders
of Notes for the purpose of ascertaining the Persons entitled to participate in
such payment or distribution, the holders of the Senior Debt and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article 10.
Section 10.12. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least one Business Day prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to violate this Article, which notice shall
specifically refer to Section 10.3 or 10.4 hereof. Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights.
Section 10.13. Authorization to Effect Subordination.
Each Holder by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.9 hereof at least 30 days before the expiration of the time to file such
claim, each lender under the Credit Facility is hereby authorized to file an
appropriate claim for and on behalf of the Holders of the Notes.
Section 10.14. Amendments.
No amendment may be made to the provisions of or the definitions of
any terms appearing in this Article 10, or to the provisions of Section 6.2
relating to the Designated Senior Debt, that adversely affects the rights of any
holder of Senior Debt then outstanding unless the holders of such Senior Debt
(or any group or Representative authorized to give a consent) consent to such
change.
<PAGE>
74
Section 10.15. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 10.9 of this
Indenture, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing the
subordination provided in this Article Ten or the obligations hereunder of the
Holders to the holders of Senior Debt, do any one or more of the following: (a)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, Senior Debt or any instrument evidencing the same or any
agreement under which Senior Debt is outstanding or secured; (b) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt; (c) release any Person liable in any manner for the
collection of Senior Debt; and (d) exercise or refrain from exercising any
rights against the Company and any other Person.
ARTICLE 11
MISCELLANEOUS
Section 11.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA ss. 318(c), the imposed duties shall control. If
any provisions of this Indenture modifies or excludes any provision of the TIA
that may be so modified or excluded, the letter provision shall be deemed to
apply to this Indenture as so modified or excluded, as the case may be.
Section 11.2. Notices.
Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
Cumulus Media Inc.
330 E. Kilbourn Avenue
Suite 250
Milwaukee, WI 53202
Attention: Richard W. Weening
<PAGE>
75
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, NY 10022-4697
Attention: William Schwitter
If to the Trustee:
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if by telecopy; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA ss. 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 11.3. Communication by Holders of Notes with Other Holders
of Notes.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company the Trustee, the Registrar and anyone else shall have the protection of
TIA ss. 312(c).
<PAGE>
76
Section 11.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.5 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.5 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been complied with.
Section 11.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him or
her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
Section 11.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
<PAGE>
77
Section 11.7. No Personal Liability of Directors, Officers,
Employees and Stockholders.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or this Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of Notes, by
accepting a Note, waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
Section 11.8. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS INDENTURE AND THE NOTES.
Section 11.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or their respective Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
Section 11.10. Successors.
All agreements of the Company in this Indenture, the Notes shall
bind its respective successors. All agreements of the Trustee in this Indenture
shall bind its successors.
Section 11.11. Severability.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 11.13. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
<PAGE>
78
[Signatures on following page]
<PAGE>
79
SIGNATURES
Dated as of
_________, 1998
CUMULUS MEDIA INC.
Attest: By:________________________________
Name:______________________________
__________________________ Title:_____________________________
[TRUSTEE]
Attest: By:________________________________
Name:______________________________
__________________________ Title:_____________________________
<PAGE>
================================================================================
EXHIBIT A
(Face of Note)
_____% Senior Subordinated Notes due 2008
No. $__________
CUSIP Number:
CUMULUS MEDIA, INC.
promises to pay to
or registered assigns,
the principal sum of
DOLLARS on __________, 2008.
Interest Payment Dates: ____________ and _________________
Record Dates: ______________________ and _________________
Dated: _______________, ____
CUMULUS MEDIA INC.
By_______________________
Name:
Title:
By_______________________
Name:
Title:
This is one of the Notes referred
to in the within-mentioned (SEAL)
Indenture:
as Trustee
By____________________________
Authorized Signatory
================================================================================
A-1
<PAGE>
(Back of Note)
___% Senior Subordinated Notes due 2008
Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated.
1. Interest. Cumulus Media Inc., an Illinois corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate of ___% per annum, which interest shall be payable in cash semiannually in
arrears on each _______________ and ___________, or if any such day is not a
Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"); provided that the first Interest Payment Date shall be _____________,
1998. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
2. Method of Payment. On each Interest Payment Date the Company will
pay interest to the Person who is the Holder of record of this Note as of the
close of business on the _____________ or ____________ immediately preceding
such Interest Payment Date, even if this Note is cancelled after such record
date and on or before such Interest Payment Date, except as provided in Section
2.12 of the Indenture with respect to defaulted interest. Principal, premium, if
any, and interest on this Note will be payable at the office or agency of the
Company maintained for such purpose within the City and State of New York or, in
the event the Notes do not remain in book-entry form, at the option of the
Company, payment of interest may be made by check mailed to the Holder of this
Note at its address set forth in the register of Holders of Notes; provided that
all payments with respect to the Global Notes and definitive Notes having an
aggregate principal amount of $5.0 million or more the Holders of which have
given wire transfer instructions to the Company at least 10 Business Days prior
to the applicable payment date will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. Paying Agent and Registrar. Initially, ______________________,
the Trustee under the Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company or any of the Company's Subsidiaries may act in any such capacity.
A-2
<PAGE>
4. Indenture. The Company issued the Notes under an Indenture dated
as of _____________, 1998, ("Indenture") between the Company and the Trustee.
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. The Notes are general unsecured obligations of the Company equal in an
aggregate principal amount to $100,000,000 and will mature on ________________,
2008.
5. Optional Redemption.
(a) Except as otherwise described below, the Notes are not
redeemable at the Company's option prior to ____________, 2003. Thereafter, the
Notes will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on ____________ of the years
indicated below:
Year Percentage
---- ----------
2003.........................................
2004.........................................
2005.........................................
2006 and thereafter.......................... 100.0000%
(b) Prior to ____________, 2001 the Company may, at its option, on
any one or more occasions, redeem up to 35% of the original aggregate principal
amount of Notes at a redemption price equal to _______% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the redemption
date, with the net proceeds of one or more Equity Offerings (as defined in the
Indenture) of the Company; provided that at least 65% of the original aggregate
principal amount of Notes remain outstanding immediately after the occurrence of
such redemption; and provided, further, that any such redemption shall occur
within 90 days after the date of the closing of any such Equity Offering.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
A-3
<PAGE>
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of Notes
shall have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, thereon to the date of purchase (the "Change of Control
Payment"). The right of the Holders of the Notes to require the Company to
repurchase such Notes upon a Change of Control may not be waived by the Trustee
without the approval of the Holders of the Notes required by Section 9.2 of the
Indenture. Within 30 days following any Change of Control, the Company will mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes pursuant to
the procedures required by the Indenture and described in such notice. The
Change of Control Payment shall be made on a business day not less than 30 days
nor more than 60 days after such notice is mailed. The Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
(b) If the Company or a Restricted Subsidiary consummates any Asset
Sales permitted by the Indenture, when the aggregate amount of Excess Proceeds
exceeds $5.0 million, the Company shall make an Asset Sale Offer to purchase the
maximum principal amount of Notes and any other Pari Passu Indebtedness to which
the Asset Sale Offer applies that may be purchased out of the Excess Proceeds,
at an offer price in cash in an amount equal to, in the case of the Notes, 100%
of the principal amount thereof, plus accrued and unpaid interest thereon to the
date of purchase or, in the case of any Pari Passu Indebtedness, 100% of the
principal amount thereof (or with respect to discount Pari Passu Indebtedness,
the accreted value thereof) on the date of purchase, in each case, in accordance
with the procedures set forth in Section 3.9 of the Indenture or the agreements
governing the Pari Passu Indebtedness, as applicable. To the extent that the
aggregate principal amount (or accreted value, as the case may be) of Notes, and
Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the sum of (i) the aggregate principal amount of
Notes surrendered by Holders thereof and (ii) the aggregate principal amount or
accreted value, as the case may be, of Pari Passu Indebtedness surrendered by
holders or lenders thereof exceeds the amount of Excess Proceeds, the Trustee
and the trustee or other lender representative for the Pari Passu Indebtedness
shall select the Notes and the other Pari Passu Indebtedness to be purchased on
a pro rata basis, based on the
A-4
<PAGE>
aggregate principal amount (or accreted value, as applicable) thereof
surrendered in such Asset Sale Offer. Upon completion of such Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero.
8. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in integral
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on the
aggregate principal amount of the Notes called for redemption.
9. Denominations, Transfer, Exchange. The Notes may be issued
initially in the form of one or more fully registered Global Notes. The Notes
may also be issued in registered form without coupons in minimum denominations
of $1,000 and integral multiples of $1,000. The transfer of Notes may be
registered and Notes may be exchanged as provided in the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not exchange or register the transfer of any Note or portion of
a Note selected for redemption, except for the unredeemed portion of any Note
being redeemed in part. Also, it need not exchange or register the transfer of
any Note for a period of 15 days before a selection of Notes to be redeemed or
during the period between a record date and the corresponding Interest Payment
Date.
10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in aggregate principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or the tender offer or exchange offer for, such Notes), and
any existing Default or Event of Default under, or compliance with any provision
of the Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
the Notes in case of a merger
A-5
<PAGE>
or consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
12. Defaults and Remedies. Events of Default include: (i) default
for 30 consecutive days in the payment when due of interest on the Notes
(whether or not prohibited by the provisions of Article 10 of the Indenture);
(ii) default in payment when due of the principal of or premium, if any, on the
Notes (whether or not prohibited by the provisions of Article 10 of the
Indenture); (iii) failure by the Company to comply with the provisions of
Article 4 of the Indenture; (iv) failure by the Company for 30 consecutive days
after notice from the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding to comply with any of its other
agreements in the Indenture or the Notes; (v) a default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Restricted Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there is then existing a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more; (vi) the failure by the Company or
any of its Restricted Subsidiaries to pay final, non-appealable judgments
aggregating in excess of $5.0 million, which judgments remain unpaid or
discharged for a period of 60 days; and (vii) certain events of bankruptcy or
insolvency with respect to the Company or any Significant Subsidiary or any
group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary. If any Event of Default (other than an Event of Default described in
clause (vii) above) occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes may declare all the
Notes to be due and payable immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company, any Significant Subsidiary or any group
of Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture.
A-6
<PAGE>
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in aggregate
principal amount of the Notes then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Notes waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest or premium on, or the principal of,
the Notes. The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company is required,
within 5 Business days after becoming aware of any Default or Event of Default,
to deliver to the Trustee a statement specifying such Default or Event of
Default.
13. Subordination. The Notes are subordinated to Senior Debt of the
Company. To the extent provided in the Indenture, Senior Debt must be paid
before the Notes may be paid. The Company agrees, and each Holder by accepting a
Note agrees, that the Indebtedness evidenced by the Notes, including, but not
limited to, the payment of principal of, premium, if any, and interest on the
Notes, and any other payment Obligation of the Company in respect of the Notes
is subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash of all Senior Debt of the
Company (whether outstanding on the date hereof or hereafter created, incurred,
assumed or guaranteed) and authorizes the Trustee to give effect and appoints
the Trustee as attorney-in-fact for such purpose.
14. Trustee Dealings with Company. The Indenture contains certain
limitations on the rights of the Trustee, should it become a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
15. No Recourse Against Others. No director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Notes or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes, by accepting a Note, waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws
A-7
<PAGE>
and it is the view of the Commission that such a waiver is against public
policy.
16. Authentication. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act.
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
Cumulus Media, Inc.
330 E. Kilbourn Avenue
Suite 250
Milwaukee, WI 53202
Attention: Secretary
A-8
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's Social Security or tax I.D. No.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date: _____________________
Your Signature:_________________________________________________
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:*___________________________________________
- ----------
*/ Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.13 of the Indenture, check the box below:
|_| Section 4.10 |_| Section 4.13
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
principal amount you elect to have purchased: $______________
Date: Your Signature:_________________________________________________
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:*___________________________________________
- ----------
*/ Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-10
<PAGE>
EXHIBIT B
(Form of Legend for Global Note)
Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as may be requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
B-1
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES
[To be attached to Global Note]
The following exchanges of a part of this Global Note for definitive
Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of
Amount of decrease in Amount of increase in this Global Note Signature of authorized
Principal Amount Principal Amount following such officer of Trustee
Date of Exchange of this Global Note of this Global Note decrease (or increase) or Note Custodian
- ---------------- ------------------- ------------------- ---------------------- -----------------
<S> <C> <C> <C> <C>
</TABLE>
B-2
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Indenture
Act Section Section
310 (a)(1) ................................................. 7.10
(a)(2) ................................................. 7.10
(a)(3) ................................................. N.A.
(a)(4) ................................................. N.A.
(a)(5) ................................................. 7.10
(b) ................................................. 7.10
(c) ................................................. N.A.
311 (a) ................................................. 7.11
(b) ................................................. 7.11
(c) ................................................. N.A.
312 (a) ................................................. 2.5
(b) ................................................. 12.3
(c) ................................................. 12.3
313 (a) ................................................. 7.6
(b)(1) ................................................. N.A.
(b)(2) ................................................ 7.7
(c) ................................................. 7.6; 12.2
(d) ................................................. 7.6
314 (a) ................................................. 4.3; 12.2
(b) ................................................. N.A.
(c)(1) ................................................. 12.4
(c)(2) ................................................. 12.4
(c)(3) ................................................. N.A.
(d) ................................................. 10.3-10.5
(e) ................................................. 12.5
(f) ................................................. N.A.
315 (a) ................................................. 7.1
(b) ................................................. 7.5; 12.2
(c) ................................................. 7.1
(d) ................................................. 7.1
(e) ................................................. 6.11
316 (a)(last sentence) ..................................... 2.9
(a)(1)(A) .............................................. 6.5
(a)(1)(B) .............................................. 6.4
(a)(2) ................................................. N.A.
(b) ................................................. 6.7
(c) ................................................. 2.12
317 (a)(1) ................................................. 6.8
(a)(2) ................................................. 6.9
(b) ................................................. 2.4
318 (a) ................................................. 12.1
(b) ................................................. N.A.
(c) ................................................. 12.1
- ----------
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
B-3
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE ........................... 1
Section 1.1. Definitions ................................................. 1
Section 1.2. Other Definitions ........................................... 19
Section 1.3. Incorporation By Reference of Trust Indenture Act ........... 19
Section 1.4. Rules of Construction ....................................... 20
ARTICLE 2
THE NOTES ............................. 20
Section 2.1. Form and Dating ............................................. 20
Section 2.2. Execution and Authentication ................................ 21
Section 2.3. Registrar and Paying Agent .................................. 22
Section 2.4. Paying Agent to Hold Money in Trust ......................... 22
Section 2.5. Holder Lists ................................................ 23
Section 2.6. Transfer and Exchange ....................................... 23
Section 2.7. Replacement Notes ........................................... 24
Section 2.8. Outstanding Notes ........................................... 24
Section 2.9. Treasury Notes .............................................. 24
Section 2.10. CUSIP Number ............................................... 25
Section 2.11. Cancellation ............................................... 25
Section 2.12. Defaulted Interest ......................................... 25
Section 2.13. Book-Entry Provisions for Global Notes ..................... 26
ARTICLE 3
REDEMPTION AND PREPAYMENT .................... 27
Section 3.1. Notices to Trustee .......................................... 27
Section 3.2. Selection of Notes to Be Redeemed ........................... 27
Section 3.3. Notice of Redemption ........................................ 28
Section 3.4. Effect of Notice of Redemption .............................. 29
Section 3.5. Deposit of Redemption Price ................................. 29
Section 3.6. Notes Redeemed in Part ...................................... 30
Section 3.7. Optional Redemption ......................................... 30
Section 3.8. Mandatory Redemption ........................................ 31
Section 3.9. Offer to Purchase By Application of Excess
Proceeds ......................................................... 31
ARTICLE 4
COVENANTS ............................. 33
Section 4.1. Payment of Notes ............................................ 33
Section 4.2. Maintenance of Office or Agency ............................. 33
Section 4.3. Reports ..................................................... 34
Section 4.4. Compliance Certificate ...................................... 34
Section 4.5. Taxes ....................................................... 35
Section 4.6. Stay, Extension and Usury Laws .............................. 36
Section 4.7. Restricted Payments ......................................... 36
Section 4.8. Dividend and Other Payment Restrictions Affecting
Subsidiaries ..................................................... 39
Section 4.9. Incurrence of Indebtedness and Issuance of
-i-
<PAGE>
Page
----
Preferred Stock .................................................. 40
Section 4.10. Asset Sales ................................................ 42
Section 4.11. Transactions with Affiliates ............................... 43
Section 4.12. Liens ...................................................... 44
Section 4.13. Offer to Repurchase Upon Change of Control ................. 44
Section 4.14. Asset Swaps ................................................ 46
Section 4.15. Corporate Existence ........................................ 47
Section 4.16. No Senior Subordinated Debt ................................ 47
Section 4.17. Business Activities ........................................ 47
ARTICLE 5
SUCCESSORS ............................ 47
Section 5.1. Merger, Consolidation, or Sale of Substantially All
Assets ........................................................... 47
Section 5.2. Successor Corporation Substituted ........................... 48
ARTICLE 6
DEFAULTS AND REMEDIES ....................... 49
Section 6.1. Events of Default ........................................... 49
[Section 6.2. Acceleration ............................................... 51
Section 6.3. Other Remedies .............................................. 51
Section 6.4. Waiver of Past Defaults ..................................... 52
Section 6.5. Control by Majority ......................................... 52
Section 6.6. Limitation on Suits ......................................... 52
Section 6.7. Rights of Holders of Notes to Receive Payment ............... 53
Section 6.8. Collection Suit by Trustee .................................. 53
Section 6.9. Trustee May File Proofs of Claim ............................ 53
Section 6.10. Priorities ................................................. 54
Section 6.11. Undertaking for Costs ...................................... 54
ARTICLE 7
TRUSTEE .............................. 55
Section 7.1. Duties of Trustee ........................................... 55
Section 7.2. Rights of Trustee ........................................... 56
Section 7.3. Individual Rights of Trustee ................................ 57
Section 7.4. Trustee's Disclaimer ........................................ 57
Section 7.5. Notice of Defaults .......................................... 58
Section 7.6. Reports by Trustee to Holders of the Notes .................. 58
Section 7.7. Compensation and Indemnity .................................. 58
Section 7.8. Replacement of Trustee ...................................... 59
Section 7.9. Successor Trustee by Merger, etc ............................ 61
Section 7.10. Eligibility; Disqualification .............................. 61
Section 7.11. Preferential Collection of Claims Against Company .......... 61
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE ............. 61
Section 8.1. Option to Effect Legal Defeasance or Covenant
Defeasance ....................................................... 61
Section 8.2. Legal Defeasance and Discharge .............................. 61
Section 8.3. Covenant Defeasance ......................................... 62
Section 8.4. Conditions to Legal or Covenant Defeasance .................. 63
-ii-
<PAGE>
Page
----
Section 8.5. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions .................... 64
Section 8.6. Repayment to Company ........................................ 65
Section 8.7. Reinstatement ............................................... 65
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER ................. 66
Section 9.1. With Consent of Holders of Notes ............................ 66
Section 9.2. Without Consent of Holders of Notes ......................... 66
Section 9.3. Compliance with Trust Indenture Act ......................... 67
Section 9.4. Revocation and Effect of Consents ........................... 67
Section 9.5. Notation on or Exchange of Notes ............................ 68
Section 9.6. Trustee to Sign Amendment, etc .............................. 68
ARTICLE 10
SUBORDINATION ........................... 68
Section 10.1. Agreement to Subordinate ................................... 68
Section 10.2. Certain Definitions ........................................ 68
Section 10.3. Liquidation; Dissolution; Bankruptcy ....................... 69
Section 10.4. Default on Designated Senior Debt .......................... 71
Section 10.5. Acceleration of Notes ...................................... 72
Section 10.6. When Distribution Must Be Paid Over ........................ 72
Section 10.7. Notice by Company .......................................... 73
Section 10.8. Subrogation ................................................ 73
Section 10.9. Relative Rights ............................................ 73
Section 10.10. Subordination May Not Be Impaired by Company .............. 73
Section 10.11. Payment, Distribution or Notice to
Representative ................................................... 74
Section 10.12. Rights of Trustee and Paying Agent ........................ 74
Section 10.13. Authorization to Effect Subordination ..................... 75
Section 10.14. Amendments ................................................ 75
Section 10.15. No Waiver of Subordination Provisions ..................... 75
ARTICLE 11
MISCELLANEOUS ........................... 75
Section 11.1. Trust Indenture Act Controls ............................... 75
Section 11.2. Notices .................................................... 76
Section 11.3. Communication by Holders of Notes with Other
Holders of Notes ................................................. 77
Section 11.4. Certificate and Opinion as to Conditions
Precedent ........................................................ 77
Section 11.5. Statements Required in Certificate or Opinion .............. 77
Section 11.6. Rules by Trustee and Agents ................................ 78
Section 11.7. No Personal Liability of Directors, Officers,
Employees and Stockholders ....................................... 78
Section 11.8. Governing Law .............................................. 78
Section 11.9. No Adverse Interpretation of Other Agreements .............. 78
Section 11.10. Successors ................................................ 78
Section 11.11. Severability .............................................. 78
Section 11.12. Counterpart Originals ..................................... 79
Section 11.13. Table of Contents, Headings, Etc .......................... 79
-iii-
<PAGE>
Page
----
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF LEGEND FOR GLOBAL NOTE
-iv-
<PAGE>
Exhibit 10.4
INDENTURE dated as of _______ __, 1998 among Cumulus Media Inc., an
Illinois corporation (the "Company"), as issuer and _______________________, as
trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the ____%
Subordinated Exchange Debentures due 2009 of the Company (the "Exchange
Debentures"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1. Definitions.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition (but excluding the creation of a Lien) of any assets including,
without limitation, by way of a sale and leaseback (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company and its Subsidiaries taken as a whole shall be governed by
Sections 4.13 and/or 5.1 hereof and not by Section 4.10 hereof), and (ii) the
issue or sale by the Company or any of its Restricted Subsidiaries of Equity
Interests of any of the Company's Subsidiaries (including the sale by the
Company or a Restricted Subsidiary of Equity Interests in an Unrestricted
Subsidiary), in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net
<PAGE>
2
proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following
shall not be deemed to be Asset Sales: (1) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned
Restricted Subsidiary of the Company to the Company or to another Wholly Owned
Restricted Subsidiary of the Company; (2) an issuance of Equity Interests by a
Wholly Owned Restricted Subsidiary of the Company to the Company or to another
Wholly Owned Restricted Subsidiary of the Company; (3) the making of a
Restricted Payment or a Permitted Investment that is permitted by Section 4.7;
(4) a disposition of cash or Cash Equivalents; (5) a disposition of either
obsolete equipment or equipment that is damaged, worn out or otherwise no longer
useful in the business; (6) any sale of Equity Interests in, or Indebtedness or
other securities of, an Unrestricted Subsidiary; (7) any sale and leaseback of
an asset within 90 days after the completion of construction or acquisition of
such asset; (8) any surrender or waiver of contract rights or a settlement,
release or surrender of contract, tort or other claims of any kind or a grant of
any Lien not prohibited by this Exchange Debenture Indenture; and (9) any
transfer of properties or assets that is governed by Section 4.14 hereof; or
(10) a disposition of inventory in the ordinary course of business.
"Asset Swap" means the execution of a definitive agreement, subject
only to regulatory approval and other customary closing conditions, that the
Company in good faith believes will be satisfied, for a substantially concurrent
purchase and sale, or exchange, of assets used or useful in a Permitted Business
between the Company or any of its Restricted Subsidiaries and another person or
group of affiliated persons; provided that any amendment to or waiver of any
closing conditions which individually or in the aggregate is material to the
Asset Swap shall be deemed to be a new Asset Swap.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of such Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability
<PAGE>
3
in respect of a capital lease that would at such time be required to be
capitalized on a balance sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited), (iv) in the case of a limited liability
company or similar entity, any membership or similar interests therein and (v)
any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any lender party to the Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having a rating of at least P2 from Moody's
(or its successor) or a rating of at least A2 from S&P (or its successor), and
(vi) investments in money market or other mutual funds substantially all of
whose assets comprise securities of the types described in clauses (ii) through
(v) above.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" or group of related "persons" (a "Group") (as such
terms are used in Section 13(d)(3) of the Exchange Act) other than a Principal
or a Related Party of a Principal, (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any purchase, sale, acquisition,
disposition, merger or consolidation) the result of which is that any "person"
(as defined above) or Group becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of more than 50% of
the aggregate voting power of all classes of Capital Stock of the Company having
the right to elect directors under ordinary circumstances or (iv) the first day
on which a majority of the members of the Board of Directors of the Company are
not Continuing Directors.
<PAGE>
4
"Closing Date" means the date of the closing of the sale of the
Exchange Debentures offered pursuant to the Offering.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the sum of, without duplication, the Consolidated Net Income of such
Person for such period plus (i) provision for taxes based on income or profits
of such Person and its Subsidiaries for such period, to the extent that such
provision for taxes was included in computing such Consolidated Net Income, plus
(ii) Consolidated Interest Expense of such Person for such period, to the extent
that any such expense was deducted in computing such Consolidated Net Income,
plus (iii) the product of (a) all cash dividend payments, on any series of
preferred stock of such Person or any of its Restricted Subsidiaries, other than
dividend payments on Equity Interests payable solely in Equity Interests (other
than Disqualified Stock) of the Company, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local effective tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP, plus
(iv) consolidated depreciation, amortization and other non-cash charges of the
Person and its Subsidiaries deducted in computing Consolidated Net Income of
such Person for such period plus (v) cash payments with respect to any non-cash
charges previously added back pursuant to clause (iv). Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person
for any period, the sum, without duplication of (i) the consolidated interest
expense of such Person and its Restricted Subsidiaries for such period, whether
paid or accrued (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Interest Rate Hedging Agreements), (ii) the consolidated interest expense of
such Person and its Restricted Subsidiaries that was capitalized during such
period, (iii) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or any of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or any
<PAGE>
5
of its Restricted Subsidiaries (whether or not such guarantee or Lien is called
upon) and (iv) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a Person that is a Restricted Subsidiary) on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
all other extraordinary gains and extraordinary losses shall be excluded.
"Consolidated Net Tangible Assets" of a Person means the
consolidated total assets of such Person and its consolidated Subsidiaries
determined in accordance with GAAP, less the sum of (i) all current liabilities
and current liability items, and (ii) all goodwill, trade names, trademarks,
patents, organization expense, unamortized debt discount and expense and other
similar intangibles properly classified as intangibles in accordance with GAAP.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-
<PAGE>
6
ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the date of the Exchange
Debenture Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in
each case, Permitted Investments), and (z) all unamortized debt discount and
expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of original issuance of the Exchange Debentures
or (ii) was nominated for election or elected to such Board of Directors with
the approval of (x) two-thirds of the Continuing Directors who were members of
such Board at the time of such nomination or election or (y) two-thirds of those
Directors who were previously approved by Continuing Directors.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 11.2 hereof or such other address as to which
the Trustee may give notice to the Company.
"Credit Agreements" means, with respect to the Company, one or more
debt facilities (including, without limitation, the Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, production payment financing,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Agreements outstanding on the date on which the
Exchange Debentures are first issued and authenticated under this Exchange
Debenture Indenture (after giving effect to the use of proceeds thereof) shall
be deemed to have been incurred on such date in reliance on the exception
provided by clause (b) of the definition of Permitted Indebtedness set forth in
Section 4.9 hereof.
"Credit Facility" means that certain Credit Agreement, dated as of
March 2, 1998, by and among the Company, Lehman Brothers Inc., as Arranger, and
Lehman Brothers Commercial Paper Inc., as Syndication Agent and Administrative
Agent, and certain banks, financial institutions and other entities, as lenders,
providing for up to $190 million of Indebtedness, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, restated, modified, renewed,
refunded, replaced or
<PAGE>
7
refinanced, in whole or in part, from time to time, whether or not with the same
lenders or agents.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Depository" means, with respect to the Exchange Debentures issued
in the form of one or more Global Exchange Debentures, The Depository Trust
Company or another Person designated as Depository by the Company, which must be
a clearing agency registered under the Exchange Act.
"Designated Exchange Debenture Senior Debt" means (i) the Credit
Facility and (ii) any other Exchange Debenture Senior Debt permitted under this
Exchange Debenture Indenture the principal amount of which is $25 million or
more and that has been designated by the Company as "Designated Exchange
Debenture Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, is convertible
or exchangeable for Indebtedness or Disqualified Stock or redeemable at the
option of the holder thereof, in whole or in part, on or prior to the date that
is 91 days after the date on which the Exchange Debentures mature, provided
however, that any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof (or of any security into which it is convertible or
for which it is exchangeable) have the right to require the issuer to repurchase
such Capital Stock (or such security into which it is convertible or for which
it is exchangeable) upon the occurrence of any of the events constituting an
Asset Sale or a Change of Control shall not constitute Disqualified Stock if
such Capital Stock (and all such securities into which it is convertible or for
which it is exchangeable) provides that the issuer thereof will not repurchase
or redeem any such Capital Stock (or any such security into which it is
convertible or for which it is exchangeable) pursuant to such provisions prior
to compliance by the Company with the provisions of Section 4.10 or Section 4.13
hereof, as the case may be.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
8
"Exchange Debenture Custodian" means the Trustee or the Registrar,
as custodian with respect to the Exchange Debentures in global form, or any
successor entity thereto or any entity acting as custodian with respect to
Exchange Debentures in global form.
"Exchange Debenture Indenture" means this Indenture, as amended or
supplemented from time to time.
"Exchange Debenture Pari Passu Debt" means indebtedness which ranks
pari passu in right of payment to the Exchange Debentures.
"Exchange Debenture Senior Debt" means (i) Indebtedness of the
Company or any Subsidiary of the Company under or in respect of any Credit
Agreement, whether for principal, interest (including interest accruing after
the filing of a petition initiating any proceeding pursuant to any bankruptcy
law, whether or not the claim for such interest is allowed as a claim in such
proceeding), reimbursement obligations, fees, commissions, expenses, indemnities
or other amounts, and (ii) any other Indebtedness permitted under the terms of
this Exchange Debenture Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Exchange Debentures. Notwithstanding
anything to the contrary in the foregoing sentence, Exchange Debenture Senior
Debt will not include (w) any liability for federal, state, local or other taxes
owed or owing by the Company, (x) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates, or (y) any Indebtedness that is incurred in
violation of the Exchange Debenture Indenture (other than Indebtedness under (i)
the Credit Facility or (ii) any other Credit Agreement that is incurred on the
basis of a representation by the Company to the applicable lenders that it is
permitted to incur such Indebtedness under this Exchange Debenture Indenture).
"Exchange Debenture Subordinated Debt" means any Indebtedness of the
Company or any Restricted Subsidiary (whether outstanding on the date of the
issuance of the Exchange Debentures or thereafter incurred) which is subordinate
or junior in right of payment to the Exchange Debentures pursuant to a written
agreement.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on date hereof.
"Government Securities" means securities that are (a) direct
obligations of the United States of America for the timely
<PAGE>
9
payment of which its full faith and credit is pledged or (b) obligations of a
Person controlled or supervised by and acting as an agency or instrumentality of
the United States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such Government Security or a specific payment of principal of or
interest on any such Government Security held by such custodian for the account
of the holder of such depository receipt; provided, that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Security or the specific payment of
principal of or interest on the Government Security evidenced by such depository
receipt.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Hedging Obligations" means with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements with respect to
Indebtedness that is permitted by the terms of the Exchange Debenture Indenture
and (ii) other agreements or arrangements designed to protect such Person
against fluctuation in interest rates or the value of foreign currencies
purchased or received by such Person in the ordinary course of business.
"Holder" means a Person in whose name an Exchange Debenture is
registered on the Registrar's books.
"Indebtedness" means, with respect to any Person, any indebtedness
of such Person, whether or not contingent, (i) in respect of borrowed money, or
(ii) evidenced by bonds, notes, debentures or similar instruments or letters of
credit or reimbursement agreements in respect thereof (other than letters of
credit securing obligations not constituting Indebtedness that are issued in the
ordinary course of business by a Person to the extent not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit) or bankers' acceptances, or (iii)
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property, except any such balance that constitutes an
accrued expense or trade payable, or (iv) representing any Hedging
<PAGE>
10
Obligations, in each case if and to the extent any of the foregoing indebtedness
(other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all Indebtedness of others secured by a Lien on any asset of such
Person (whether or not such Indebtedness is assumed by such Person) and, to the
extent not otherwise included, the Guarantee by such Person of any Indebtedness
of any other Person.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of.
"Issue Date" means the date on which the Exchange Debentures are
originally issued.
"Leverage Ratio" means the ratio of (i) the aggregate outstanding
amount of Indebtedness of the Company and its Subsidiaries as of the date of
calculation on a consolidated basis in accordance with GAAP (subject to the
terms described in the next paragraph) plus the aggregate liquidation preference
of all outstanding Disqualified Stock of the Company and preferred stock of the
Company's Subsidiaries (except preferred stock issued to the Company or a Wholly
Owned Restricted Subsidiary of the Company) on such date to (ii) the
Consolidated Cash Flow of the Company for the four full fiscal quarters (the
"Four Quarter Period") ending on or prior to the date of determination.
For purposes of this definition, (i) the amount of Indebtedness
which is issued at a discount shall be deemed to be the accreted value of such
Indebtedness at the end of the Four Quarter period, whether or not such amount
is the amount then reflected on a balance sheet prepared in accordance with
GAAP, and (ii) the aggregate outstanding principal amount of Indebtedness of the
Company and its Subsidiaries and the aggregate liquidation preference of all
outstanding preferred stock of the Company's Subsidiaries for which such
calculation is made shall be determined on a pro forma basis as if the
Indebtedness and preferred stock giving rise to the need to
<PAGE>
11
perform such calculation had been incurred and issued and the proceeds therefrom
had been applied, and all other transactions in respect of which such
Indebtedness is being incurred or preferred stock is being issued had occurred,
on the first day of the Four Quarter Period. In addition to the foregoing, for
purposes of this definition, Consolidated Cash Flow shall be calculated on a pro
forma basis after giving effect to (i) the incurrence of the Indebtedness of
such Person and its Subsidiaries and the issuance of the preferred stock of such
Subsidiaries (and the application of the proceeds therefrom) giving rise to the
need to make such calculation and any incurrence (and the application of the
proceeds therefrom) or repayment of other Indebtedness, other than the
incurrence or repayment of Indebtedness pursuant to working capital facilities,
at any time subsequent to the beginning of the Four Quarter Period and on or
prior to the date of determination, as if such incurrence or issuance (and the
application of the proceeds thereof), or the repayment, as the case may be,
occurred on the first day of the Four Quarter Period, (ii) any acquisition
(including, without limitation, any acquisition giving rise to the need to make
such calculation as a result of such Person or one of its Subsidiaries
(including any Person that becomes a Subsidiary as a result of such acquisition)
incurring, assuming or otherwise becoming liable for Indebtedness or such
Person's Subsidiaries issuing preferred stock) at any time on or subsequent to
the first day of the Four Quarter Period and on or prior to the date of
determination, as if such acquisition (including the incurrence, assumption or
liability for any such Indebtedness and the issuance of such preferred stock and
also including any Consolidated Cash Flow associated with such acquisition)
occurred on the first day of the Four Quarter Period. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company consistent with Article 11 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof. Furthermore, in calculating "Consolidated Interest Expense" for
purposes of the calculation of "Consolidated Cash Flow," (i) interest on
Indebtedness determined on a fluctuating basis as of the date of determination
(including Indebtedness actually incurred on the date of the transaction giving
rise to the need to calculate the Leverage Ratio) and which will continue to be
so determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness as in effect on the
date of determination and (ii) notwithstanding (i) above, interest determined on
a fluctuating basis, to the extent such interest is covered by Hedging
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, the City of
<PAGE>
12
Chicago or at a place of payment are authorized by law, regulation or executive
order to remain closed. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement with respect to a lease not intended as
a security agreement).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain or loss, together with any related provision for taxes on such gain or
loss, realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain or
loss, together with any related provision for taxes on such extraordinary or
nonrecurring gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale, but
excluding cash amounts placed in escrow, until such amounts are released to the
Company), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees and expenses,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), amounts
required to be applied to the repayment of Indebtedness (other than Indebtedness
under any Credit Facility) secured by a Lien on the asset or assets that were
the subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP and any
reserve established for future liabilities.
<PAGE>
13
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides any guarantee or
credit support of any kind (including any undertaking, guarantee, indemnity or
agreement or instrument that would constitute Indebtedness) or (b) is directly
or indirectly liable (as a guarantor or otherwise); (ii) no default with respect
to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) the explicit terms of which provide that there is
no recourse against any of the assets of the Company or its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Exchange Debentures by the
Company.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, the Assistant Secretary or any Vice-President of such
Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company, by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.5 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.5 hereof. The counsel may be an employee of or counsel to the Company or the
Trustee.
"Permitted Business" means the broadcasting business or any business
that is reasonably similar thereto or a reasonable extension, development or
expansion thereof or ancillary thereto.
"Permitted Indebtedness" has the meaning given in Section 4.9
hereof.
"Permitted Investments" means (a) any Investment in the Company or
in a Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in
Cash Equivalents or securities issued or directly and fully guaranteed or
insured by the United
<PAGE>
14
States government or any agency or instrumentality thereof having maturities of
not more than one year from the date of acquisition; (c) any Investment by the
Company or any Restricted Subsidiary of the Company in a Person if, as a result
of such Investment and any related transactions that at the time of such
Investment are contractually mandated to occur, (i) such Person becomes a Wholly
Owned Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys all or
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company; (d) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with Section 4.10 hereof; (e) other Investments in
any Person or Persons having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (e) that are at the time outstanding without giving effect to
subsequent changes in value or increases or decreases attributable to the
accounting for the net income of such Investment, not to exceed $15.0 million;
(f) any Investment acquired by the Company in exchange for Equity Interests in
the Company (other than Disqualified Stock); (g) any Investment acquired by the
Company or any of its Restricted Subsidiaries (A) in exchange for any other
Investment or accounts receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment or
accounts receivable or (B) as a result of the transfer of title with respect to
any secured investment in default as a result of a foreclosure by the Company or
any of its Restricted Subsidiaries with respect to such secured Investment; (h)
Hedging Obligations permitted under Section 4.9 hereof; (i) loans and advances
to officers, directors and employees for business-related travel expenses,
moving expenses and other similar expenses, in each case, incurred in the
ordinary course of business; and (j) any guarantees permitted to be made
pursuant to Section 4.9 hereof.
"Permitted Liens" means (i) Liens securing Indebtedness of a
Subsidiary or Liens securing Exchange Debenture Senior Debt that is outstanding
on the date of issuance of the Exchange Debentures and Liens securing Exchange
Debenture Senior Debt that is permitted by the terms of the Exchange Debenture
Indenture to be incurred; (ii) Liens in favor of the Company; (iii) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company and Liens on property or assets of a Subsidiary
existing at the time it became a Subsidiary, provided that such Liens were in
existence prior to the contemplation of the acquisition and do not extend to any
assets other than the acquired property; (iv) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance or other kinds of social security, or to secure the
payment or performance of
<PAGE>
15
tenders, statutory or regulatory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business; (v) Liens existing on the date hereof; (vi) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (vii) statutory liens of landlords, mechanics, suppliers,
vendors, warehousemen, carriers or other like Liens arising in the ordinary
course of business; (viii) judgment Liens not giving rise to an Event of Default
so long as any appropriate legal proceeding that may have been duly initiated
for the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have expired;
(ix) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (f) of the second paragraph of Section 4.9 hereof covering
only the assets acquired with such Indebtedness; (x) Liens incurred in the
ordinary course of business of the Company or any Subsidiary of the Company with
respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (A) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (B) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Subsidiary; (xi) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries; (xii) easements, rights-of-way, zoning and similar restrictions
and other similar encumbrances or title defects incurred or imposed, as
applicable, in the ordinary course of business and consistent with industry
practices which, in the aggregate, are not substantial in amount, and which do
not in any case materially detract from the value of the property subject
thereto (as such property is used by the Company or its Subsidiary) or interfere
with the ordinary conduct of the business of the Company or such Subsidiary;
provided, however, that any such Liens are not incurred in connection with any
borrowing of money or any commitment to loan any money or to extend any credit;
and (xiii) customary Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with worker's
compensation, unemployment insurance and other types of social security
legislation.
"Permitted Refinancing Debt" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness (other than Indebtedness incurred under a Credit
Agreement) of the Company or any of its Restricted Subsidiaries; provided that:
(i) the principal amount of such Permitted Refinancing Debt does not exceed the
principal amount of the Indebtedness so extended,
<PAGE>
16
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Debt has a final maturity date on or later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Exchange Debentures, such Permitted
Refinancing Debt has a final maturity date later than the final maturity date
of, and is subordinated in right of payment to, the Exchange Debentures on terms
at least as favorable taken as a whole to the Holders of the Exchange Debentures
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Principal" means Richard W. Weening and Lewis W. Dickey, Jr.
"Related Party" with respect to any Principal means (A) any
controlling stockholder, 80% (or more) owned subsidiary, or spouse or immediate
family member (in the case of an individual) of such principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Responsible Officer" when used with respect to the Trustee, means
any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any direct or indirect Subsidiary of
the Company that is not an Unrestricted Subsidiary.
<PAGE>
17
"S&P" means Standard & Poor's Ratings Group and its successors.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Subsidiary which would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Exchange Debenture
Indenture is qualified under the TIA.
"Total Assets" means, with respect to any Person, the total
consolidated assets of such Person and its Restricted Subsidiaries, as shown on
the most recent balance sheet of such Person.
"Trustee" means the party named as such in the preamble to this
Exchange Debenture Indenture until a successor replaces it in accordance with
the applicable provisions of this Exchange Debenture Indenture and thereafter
means the successor serving hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
which at the time of determination shall be an Unrestricted Subsidiary (as
designated by the Board of Directors of the Company, as provided below) and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary or a Person becoming a Subsidiary through
merger or consolidation or Investment therein) to be an Unrestricted Subsidiary
only if: (a) such Subsidiary does not own any Capital Stock of, or own or hold
any Lien on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; (b) all the Indebtedness of such Subsidiary shall at the date of
designation, and will at all times thereafter consist of, Non-Recourse Debt; (c)
the Company
<PAGE>
18
certifies that such designation was permitted by Section 4.7; (d) such
Subsidiary, either alone or in the aggregate with all other Unrestricted
Subsidiaries, does not operate, directly or indirectly, all or substantially all
of the business of the Company and its Subsidiaries; (e) such Subsidiary does
not, directly or indirectly, own any Indebtedness of or Equity Interest in, and
has no Investments in, the Company or any Restricted Subsidiary; (f) such
Subsidiary is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (1) to subscribe
for additional Equity Interests or (2) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (g) on the date such Subsidiary is designated an
Unrestricted Subsidiary, such Subsidiary is not a party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary with terms substantially less favorable to the Company than those
that might have been obtained from Persons who are not Affiliates of the
Company. Any such designation by the Board of Directors of the Company shall be
evidenced to the Trustee by filing with the Trustee a resolution of the Board of
Directors of the Company giving effect to such designation and an Officer's
Certificate certifying that such designation complied with the foregoing
conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of this Exchange Debenture
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
as of such date. The Board of Directors of the Company may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that (1)
immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof and the Company could incur at least $1.00 of additional Indebtedness
(excluding Permitted Indebtedness) pursuant to Section 4.9 on a pro forma basis
taking into account such designation and (2) such Subsidiary executes a
Guarantee pursuant to the terms of this Exchange Debenture Indenture.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person, all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares) are
owned, directly or
<PAGE>
19
indirectly, by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
Section 1.2. Other Definitions.
Defined in
Term Section
"Affiliate Transaction"....................... 4.11
"Asset Sale Offer"............................ 3.9
"Bankruptcy Law".............................. 10.2
"Change of Control Offer"..................... 4.13
"Change of Control Payment"................... 4.13
"Change of Control Payment Date".............. 4.13
"Closing Date"................................ 2.1
"Covenant Defeasance"......................... 8.3
"Custodian"................................... 6.1
"DTC"......................................... 2.3
"Equity Offering"............................. 3.7
"Event of Default"............................ 6.1
"Excess Proceeds"............................. 4.10
"Global Exchange Debenture" .................. 2.1
"Global Exchange Debenture Holder"............ 2.1
"incur"....................................... 4.9
"Legal Defeasance"............................ 8.2
"Notice of Default"........................... 6.1
"Offer Amount"................................ 3.9
"Offer Period"................................ 3.9
"Paying Agent"................................ 2.3
"Payment Blockage Notice"..................... 10.4
"Payment Default"............................. 6.1
"Permitted Indebtedness"...................... 4.9
"Purchase Date"............................... 3.9
"Registrar"................................... 2.3
"Restricted Payments"......................... 4.7
"Exchange Debenture Senior Debt".............. 10.2
Section 1.3. Incorporation By Reference of Trust Indenture Act.
Whenever this Exchange Debenture Indenture refers to a provision of
the TIA, the provision is incorporated by reference in and made a part of this
Exchange Debenture Indenture.
The following TIA terms used in this Exchange Debenture Indenture
have the following meanings:
"indenture securities" means the Exchange Debentures;
"indenture to be qualified" means this Exchange Debenture Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
<PAGE>
20
"obligor" means the Company and any successor obligor upon the
Exchange Debentures.
All other terms used in this Exchange Debenture Indenture that are
defined by the TIA, defined by TIA reference to another statute or defined by
rule enacted by the Commission under the TIA have the meanings so assigned to
them.
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections or
rules adopted by the Commission from time to time.
ARTICLE 2
THE EXCHANGE DEBENTURES
Section 2.1. Form and Dating.
The Exchange Debentures and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto, the terms
of which are incorporated herein and made part of this Exchange Debenture
Indenture. The Exchange Debentures may have notations, legends or endorsements
required by law, stock exchange rule or usage. Each Exchange Debenture shall be
dated the date of its issuance and shall show the date of its authentication.
The Exchange Debentures will be fully registered as to principal and interest in
minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof.
The Exchange Debentures offered and sold may be issued initially in
the form of one or more fully registered global Exchange Debentures (each being
called a "Global Exchange Debenture"), with, or on behalf of, The Depository
Trust Company and registered in the name of Cede & Co., as nominee of the
Depository (such nominee being referred to herein as the "Global Exchange
Debenture Holder"), or will remain in the custody of the
<PAGE>
21
Registrar pursuant to the Fast Balance Certificate Agreement between the
Depository and the Registrar and shall bear the legend set forth as Exhibit B.
Except as set forth in Section 2.6, the Global Exchange Debenture may be
transferred, in whole and not in part, only to another nominee of the Depository
or to a successor of the Depository or its nominee.
The terms and provisions contained in the Exchange Debentures shall
constitute, and are hereby expressly made, a part of this Exchange Debenture
Indenture and the Company and the Trustee, by their execution and delivery of
this Exchange Debenture Indenture, expressly agree to such terms and provisions
and (as to the Trustee, to the extent such terms and provisions pertain to the
Trustee) to be bound thereby.
Exchange Debentures issued in global form shall be substantially in
the form of Exhibit A attached hereto (including the legend on Exhibit B).
Exchange Debentures issued in certificated form shall be substantially in the
form of Exhibit A attached hereto (but without including the legend on Exhibit
B). Each Global Exchange Debenture shall represent such of the outstanding
Exchange Debentures as shall be specified therein and each shall provide that it
shall represent the aggregate amount of outstanding Exchange Debentures from
time to time endorsed thereon and that the aggregate amount of outstanding
Exchange Debentures represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and redemptions. Any endorsement
of a Global Exchange Debenture to reflect the amount of any increase or decrease
in the amount of outstanding Exchange Debentures represented thereby shall be
made by the Trustee or the Exchange Debenture Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as required
by Section 2.6 hereof.
Section 2.2. Execution and Authentication.
Two Officers shall sign the Exchange Debentures for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Exchange Debentures and may be in facsimile form.
If an Officer whose signature is on an Exchange Debenture no longer
holds that office at the time an Exchange Debenture is authenticated, the
Exchange Debenture shall nevertheless be valid.
An Exchange Debenture shall not be valid until authenticated by the
manual signature of the Trustee. The signature shall be conclusive evidence that
the Exchange Debenture has been authenticated under this Exchange Debenture
Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Exchange Debentures for
<PAGE>
22
original issue up to the aggregate principal amount of $133,000,000. The
aggregate principal amount of Exchange Debentures outstanding at any time may
not exceed $133,000,000, except as provided in Section 2.7 hereof.
Notwithstanding anything in this Exchange Debenture Indenture to the contrary or
the execution and delivery of this Exchange Debenture Indenture on the date
hereof, the terms and provisions of this Exchange Debenture Indenture shall not
be effective until the consummation of an exchange pursuant to the Certificate
of Designations relating to the Company's __% Series A Cumulative Exchangeable
Redeemable Preferred Stock due 2009 (the "Series A Preferred Stock").
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Exchange Debentures. An authenticating agent may
authenticate Exchange Debentures whenever the Trustee may do so. Each reference
in this Exchange Debenture Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
Section 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York where (i) Exchange Debentures may be presented
for registration of transfer or for exchange ("Registrar") and (ii) Exchange
Debentures may be presented for payment ("Paying Agent"). The Registrar shall
keep a register of the Exchange Debentures and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Exchange Debenture Indenture. If the Company fails to appoint or maintain
another entity as Registrar or Paying Agent, the Trustee shall act as such. The
Company or any of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC")
to act as Depository with respect to the Global Exchange Debentures.
The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Exchange Debenture Custodian with respect to the
Global Exchange Debentures.
Section 2.4. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent, including the Trustee
(who shall be deemed to have agreed by its execution
<PAGE>
23
of this Exchange Debenture Indenture), to agree in writing that the Paying Agent
shall hold in trust for the benefit of Holders or the Trustee (unless the Paying
Agent is the Trustee, in which case it shall hold in trust for the Holders) all
money held by the Paying Agent for the payment of principal, premium, if any, or
interest, on the Exchange Debentures, and shall notify the Trustee of any
default by the Company in making any such payment. While any such default
continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent
(if other than the Company or a Subsidiary) shall have no further liability for
the money. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the Holders all
money held by it as Paying Agent. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as sole Paying
Agent for the Exchange Debentures.
Section 2.5. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Exchange Debentures and the Company shall otherwise comply with TIA ss. 312(a).
Section 2.6. Transfer and Exchange.
Subject to the provisions of Section 2.13, when Exchange Debentures
are presented to the Registrar with a request to register the transfer of such
Exchange Debentures or to exchange such Exchange Debentures for an equal
principal amount of Exchange Debentures of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested if its
requirements for such transaction are met; provided, however, that the Exchange
Debentures surrendered for transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer duly executed by the Holder
thereof (or his attorney duly authorized in writing) in form satisfactory to the
Company and to the Registrar. In order to permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate Exchange
Debentures at the Registrar's written request. No service charge shall be made
for any registration of transfer or exchange or of redemption, but the Company
may, by notice to the Trustee, require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer taxes or other governmental charge
<PAGE>
24
payable upon exchanges or transfers pursuant to Sections 2.2, 2.3, 3.6, 3.7(b)
or 3.9). The Registrar shall not be required to register the transfer of or
exchange of any Exchange Debenture (i) during a period beginning at the opening
of business 15 days before the mailing of a notice of redemption of Exchange
Debentures and ending at the close of business on the day of such mailing and
(ii) selected for redemption in whole or in part pursuant to Article Three,
except the unredeemed portion of any Exchange Debenture being redeemed in part.
Prior to due presentment for the registration of a transfer of any
Exchange Debenture, the Trustee, any Agent and the Company may deem and treat
the Person in whose name any Exchange Debenture is registered as the absolute
owner of such Exchange Debenture for the purpose of receiving payment of
principal of and interest on such Exchange Debentures, and neither the Trustee,
any Agent nor the Company shall be affected by notice to the contrary.
Section 2.7. Replacement Exchange Debentures.
If any mutilated Exchange Debenture is surrendered to the Trustee,
or the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Exchange Debenture, the Company shall issue
and the Trustee, upon the receipt of a written authentication order of the
Company signed by two Officers of the Company, shall authenticate a replacement
Exchange Debenture if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if an Exchange Debenture is replaced. The Company and the
Trustee may charge for its expenses in replacing a Exchange Debenture.
Every replacement Exchange Debenture is an additional obligation of
the Company and shall be entitled to all of the benefits of this Exchange
Debenture Indenture equally and proportionately with all other Exchange
Debentures duly issued hereunder.
Section 2.8. Outstanding Exchange Debentures.
The Exchange Debentures outstanding at any time are all the Exchange
Debentures authenticated by the Trustee except for those cancelled by it, those
delivered to it for cancellation, those reductions in the interest in a Global
Exchange Debenture effected by the Trustee in accordance with the provisions
hereof, and those described in this Section as not outstanding. Except as set
forth in Section 2.9 hereof, a Exchange Debenture does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Exchange Debenture.
<PAGE>
25
If an Exchange Debenture is replaced pursuant to Section 2.7 hereof,
it ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Exchange Debenture is held by a bona fide purchaser.
If the principal amount of any Exchange Debenture is considered paid
under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases
to accrue. Exchange Debentures will also cease to be outstanding for certain
purposes hereunder as provided in Article 8 hereof.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Exchange Debentures payable on that date, then on and after
that date such Exchange Debentures shall be deemed to be no longer outstanding
and shall cease to accrue interest.
Section 2.9. Treasury Exchange Debentures.
In determining whether the Holders of the required principal amount
of Exchange Debentures have concurred in any direction, waiver or consent,
Exchange Debentures owned by the Company or by any Affiliate of the Company
shall be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Exchange Debentures that a Trustee actually
knows are registered in the names of the Company or any of their Affiliates or
are certified as such by the Company in an Officer's Certificate delivered to
the Trustee shall be so disregarded.
When the Company or any of its Affiliates repurchases or otherwise
acquires Exchange Debentures, the Company shall notify the Trustee, in writing,
of the aggregate principal amount of such Exchange Debentures so repurchased or
otherwise acquired. The Trustee may require an Officer's Certificate listing
Exchange Debentures owned by the Company or any of its Affiliates.
Section 2.10. CUSIP Number.
The Company in issuing the Exchange Debentures may use a "CUSIP"
number, and if so, the Trustee shall use the CUSIP number in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number printed in the notice or on the Exchange Debentures
and that reliance may be placed only on the other identification numbers printed
on the Exchange Debentures.
<PAGE>
26
Section 2.11. Cancellation.
The Company at any time may deliver Exchange Debentures to the
Trustee for cancellation. The Registrar and Paying Agent shall forward to the
Trustee any Exchange Debentures surrendered to them for registration of
transfer, exchange or payment. The Trustee and no one else shall cancel all
Exchange Debentures surrendered for registration of transfer, exchange, payment,
replacement or cancellation and shall destroy cancelled Exchange Debentures
(subject to the record retention requirement of the Exchange Act). Certification
of the destruction of all cancelled Exchange Debentures shall be delivered to
the Company. The Company may not issue new Exchange Debentures to replace
Exchange Debentures that it has paid or that have been delivered to the Trustee
for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Exchange
Debentures, it shall pay the defaulted interest in any lawful manner plus, to
the extent lawful, interest payable on the defaulted interest, to the Persons
who are Holders on a subsequent special record date, in each case at the rate
provided in the Exchange Debentures and in Section 4.1 hereof. The Company shall
notify the Trustee in writing of the amount of defaulted interest proposed to be
paid on each Exchange Debenture and the date of the proposed payment. The
Company shall fix or cause to be fixed each such special record date and payment
date, provided that no such special record date shall be less than 10 days prior
to the related payment date for such defaulted interest. At least 15 days before
the special record date, the Company (or, upon the written request of the
Company, the Trustee in the name and at the expense of the Company) shall mail
or cause to be mailed to Holders a notice that states the special record date,
the related payment date and the amount of such interest to be paid.
Section 2.13. Book-Entry Provisions for Global Exchange Debentures.
(a) The Global Exchange Debentures initially shall (i) be registered
in the name of Cede & Co., as the nominee of The Depository Trust Company, (ii)
be delivered to the Registrar as custodian for such Depository and (iii) bear
legends as set forth in Exhibit B.
(b) Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Exchange Debenture Indenture with respect to any
Global Exchange Debenture held on their behalf by the Depository, or the
Registrar or the Trustee as its custodian, or under the Global Exchange
Debenture, and the Depository may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of the Global Exchange
Debenture for all purposes whatsoever.
<PAGE>
27
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Exchange Debenture.
(c) Transfers of Global Exchange Debentures shall be limited to
transfers in whole, but not in part, to the Depository, its successors or their
respective nominees. Interests of beneficial owners in the Global Exchange
Debentures may be transferred or exchanged for Certificated Exchange Debentures
in accordance with the rules and procedures of the Depository. In addition,
Certificated Exchange Debentures shall be transferred to all beneficial owners
in exchange for their beneficial interests in Global Exchange Debentures if (i)
the Company notifies the Registrar that the Depository is unwilling or unable to
continue as Depository for any Global Exchange Debenture and a successor
Depository is not appointed by the Company within 90 days of such notice or (ii)
the Company, at its option, notifies the Registrar in writing that it elects to
cause the issuance of Exchange Debentures in definitive form under this Exchange
Debenture Indenture or (iii) an Event of Default has occurred and is continuing
and the Registrar has received a request from the Depository to issue
Certificated Exchange Debentures.
(d) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Exchange Debenture to beneficial owners
pursuant to paragraph (c), the Registrar shall (if one or more Certificated
Exchange Debentures are to be issued) reflect on its books and records the date
and a decrease in the principal amount of the Global Exchange Debenture in an
amount equal to the principal amount of the beneficial interest in the Global
Exchange Debenture to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more Certificated Exchange
Debentures of like tenor and amount.
(e) In connection with the transfer of Global Exchange Debentures as
an entirety to beneficial owners pursuant to the second sentence of paragraph
(c), the Global Exchange Debentures shall be deemed to be surrendered to the
Trustee for cancellation, and the Company shall execute, and the Trustee shall
authenticate and deliver, to each beneficial owner identified by the Depository
in exchange for its beneficial interest in the Global Exchange Debentures, an
equal aggregate principal amount of Certificated Exchange Debentures of
authorized denominations.
(f) The Holder of any Global Exchange Debenture may grant proxies
and otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent
<PAGE>
28
Members, to take any action which a Holder is entitled to take under this
Exchange Debenture Indenture or the Exchange Debentures.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.1. Notices to Trustee.
If the Company elects to redeem Exchange Debentures pursuant to the
optional redemption provisions of Section 3.7 hereof, then it shall furnish to
the Trustee, at least 30 days but not more than 60 days before a redemption
date, an Officers' Certificate setting forth (i) the paragraph of the Exchange
Debentures and/or Section of this Exchange Debenture Indenture pursuant to which
the redemption shall occur, (ii) the redemption date, (iii) the principal amount
of Exchange Debentures to be redeemed and (iv) the redemption price.
Section 3.2. Selection of Exchange Debentures to Be Redeemed.
If less than all of the Exchange Debentures are to be redeemed at
any time, selection of Exchange Debentures for redemption shall be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Exchange Debentures are listed, or, if the
Exchange Debentures are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided that no Exchange
Debentures of $1,000 or less shall be redeemed in part. In the event of partial
redemption by lot, the particular Exchange Debentures to be redeemed shall be
selected, unless otherwise provided herein, not less than 30 nor more than 60
days prior to the redemption date by the Trustee from the outstanding Exchange
Debentures not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the
Exchange Debentures selected for redemption and, in the case of any Exchange
Debenture selected for partial redemption, the principal amount thereof to be
redeemed. Exchange Debentures and portions of Exchange Debentures selected shall
be in amounts of $1,000 or whole multiples of $1,000; except that if all of the
Exchange Debentures of a Holder are to be redeemed, the entire outstanding
amount of Exchange Debentures held by such Holder, even if not a multiple of
$1,000, shall be redeemed. A new Exchange Debenture in principal amount equal to
the unredeemed portion thereof shall be issued in the name of the Holder thereof
upon cancellation of the original Exchange Debenture. On and after the
redemption date, unless the Company defaults in payment of the redemption price,
interest ceases to accrue on Exchange Debentures or portions of them called for
redemption. Except as provided in this Section 3.2, provisions
<PAGE>
29
of this Exchange Debenture Indenture that apply to Exchange Debentures called
for redemption also apply to portions of Exchange Debentures called for
redemption.
The provisions of the two preceding paragraphs of this Section 3.2
shall not apply with respect to any redemption affecting only a Global Exchange
Debenture, whether such Global Exchange Debenture is to be redeemed in whole or
in part. In case of any such redemption in part, the unredeemed portion of the
principal amount of the Global Exchange Debenture shall be in an authorized
denomination.
Section 3.3. Notice of Redemption.
Subject to the provisions of Section 3.9 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
of Exchange Debentures to be redeemed at such Holder's registered address,
provided, however, that the Company shall provide notice to the Trustee in
accordance with Section 3.1 hereof at least five days prior to the mailing of
the notice pursuant to this Section 3.3.
The notice shall identify the Exchange Debentures to be redeemed and
shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Exchange Debenture is being redeemed in part, the portion
of the principal amount of such Exchange Debenture to be redeemed and
that, after the redemption date upon surrender of such Exchange Debenture,
a new Exchange Debenture or Exchange Debentures in principal amount equal
to the unredeemed portion shall be issued upon cancellation of the
original Exchange Debenture;
(d) the name and address of the Paying Agent;
(e) that Exchange Debentures called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Exchange Debentures called for redemption cease to
accrue on and after the redemption date;
(g) the paragraph of the Exchange Debentures and/or Section of this
Exchange Debenture Indenture pursuant to which the Exchange Debentures
called for redemption are being redeemed; and
<PAGE>
30
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Exchange Debentures.
If any of the Exchange Debentures to be redeemed is in the form of a
Global Exchange Debenture, then such notice shall be modified in form but not
substance to the extent appropriate to accord with the procedures of the
Depository applicable to redemptions.
At the Company's request and expense, the Trustee shall give the
notice of redemption in the Company's name; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.3
hereof, Exchange Debentures called for redemption become irrevocably due and
payable on the redemption date at the redemption price. A notice of redemption
may not be conditional.
Section 3.5. Deposit of Redemption Price.
On or prior to the redemption date, the Company shall deposit with
the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Exchange Debentures to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of and accrued interest on,
all Exchange Debentures to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Exchange Debentures or the portions of Exchange Debentures called for
redemption. If an Exchange Debenture is redeemed on or after an interest record
date but on or prior to the related interest payment date, then any accrued and
unpaid interest shall be paid to the Person in whose name such Exchange
Debenture was registered at the close of business on such record date. If any
Exchange Debenture called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Exchange
Debentures and in Section 4.1 hereof.
<PAGE>
31
Section 3.6. Exchange Debentures Redeemed in Part.
Upon surrender of a Exchange Debenture that is redeemed in part, the
Company shall issue and, upon the receipt of a written authentication order of
the Company signed by two Officers of the Company, the Trustee shall
authenticate for the Holder at the expense of the Company a new Exchange
Debenture equal in principal amount to the unredeemed portion of the Exchange
Debenture surrendered.
Section 3.7. Optional Redemption.
(a) Except as described below, the Exchange Debentures will not be
redeemable at the Company's option prior to ________ __, 2003. Thereafter, the
Exchange Debentures will be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 more than 60 days' notice at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on _________ __ of each of the
years indicated below:
Percentage of
Year Principal Amount
---- ----------------
2003.................................
2004.................................
2005.................................
2006.................................
2007 and thereafter.................. 100.0000%
(b) Prior to _______ __, 2001, the Company may, at its option, on
any one or more occasions, redeem up to 35% of the original aggregate principal
amount of Exchange Debentures at a redemption price equal to ____% of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the redemption date with all or a portion of the net proceeds of one or more
Equity Offerings (as defined below); provided that at least 65% of the original
aggregate principal amount of Exchange Debentures remains outstanding
immediately after the occurrence of such redemption; and provided, further, that
such redemption shall occur within 90 days of the date after the closing of any
such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means any
public or private sale of Common Stock of the Company pursuant to which the
company receives net proceeds of at least $25.0 million, other than issuances of
Common Stock of the Company pursuant to employee benefit plans or as
compensation to employees.
<PAGE>
32
(c) Any redemption pursuant to this Section 3.7 shall be made
pursuant to the provisions of Sections 3.1 through 3.6 hereof.
Section 3.8. Mandatory Redemption.
Except as set forth under Sections 4.10 and 4.13 hereof, the Company
shall not be required to make mandatory redemption or sinking fund payments with
respect to the Exchange Debentures.
Section 3.9. Offer to Purchase By Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company
shall be required to commence an offer to all Holders of Exchange Debentures
and, to the extent required by the terms thereof, to all holders or lenders of
other Exchange Debenture Pari Passu Debt, to purchase Exchange Debentures and
any such Exchange Debenture Pari Passu Debt (an "Asset Sale Offer"), it shall
follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Exchange Debentures
required to be purchased pursuant to Section 4.10 hereof, giving effect to any
related offer for Exchange Debenture Pari Passu Debt pursuant to Section 4.10,
(the "Offer Amount") or, if less than the Offer Amount has been tendered, all
Exchange Debentures tendered in response to the Asset Sale Offer. Payment for
any Exchange Debentures so purchased shall be made in the same manner as
interest payments are made.
If the Purchase Date is on or after an interest record date and on
or before the related interest payment date, any accrued and unpaid interest
shall be paid to the Person in whose name an Exchange Debenture is registered at
the close of business on such record date, and no additional interest shall be
payable to Holders who tender Exchange Debentures pursuant to the Asset Sale
Offer.
Upon the commencement of an Asset Sale Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders. The
notice shall contain all instructions and materials necessary to enable such
Holders to tender Exchange Debentures pursuant to the Asset Sale Offer. The
Asset Sale Offer shall be made to all Holders. The notice, which shall govern
the terms of the Asset Sale Offer, shall state:
<PAGE>
33
(a) that the Asset Sale Offer is being made pursuant to this Section
3.9 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Exchange Debenture not tendered or accepted for payment
shall continue to accrue interest;
(d) that, unless the Company defaults in making such payment, any
Exchange Debenture accepted for payment pursuant to the Asset Sale Offer
shall cease to accrue interest after the Purchase Date;
(e) that Holders electing to have an Exchange Debenture purchased
pursuant to an Asset Sale Offer may only elect to have all of such
Exchange Debenture purchased and may not elect to have only a portion of
such Exchange Debenture purchased;
(f) that Holders electing to have a Exchange Debenture purchased
pursuant to any Asset Sale Offer shall be required to surrender the
Exchange Debenture, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Exchange Debenture completed, or transfer
by book-entry transfer, to the Company, a Depository, if appointed by the
Company, or a Paying Agent at the address specified in the notice at least
three Business Days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the Depository or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Exchange Debenture the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Exchange Debenture purchased;
(h) that, if the aggregate principal amount of Exchange Debentures
surrendered by Holders exceeds the Offer Amount, the Company shall select
the Exchange Debentures to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Exchange Debentures in denominations of $1,000, or integral multiples
thereof, shall be purchased) in the manner provided in Section 4.10; and
(i) that Holders whose Exchange Debentures were purchased only in
part shall be issued new Exchange Debentures equal in principal amount to
the unpurchased
<PAGE>
34
portion of the Exchange Debentures surrendered (or transferred by
book-entry transfer).
If any of the Exchange Debentures subject to an Asset Sale Offer is
in the form of a Global Exchange Debenture, then such notice may be modified in
form but not substance to the extent appropriate to accord with the procedures
of the Depository applicable to repurchases.
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Exchange Debentures or portions thereof tendered pursuant to the
Asset Sale Offer, or if less than the Offer Amount has been tendered, all
Exchange Debentures tendered, and shall deliver to the Trustee an Officers'
Certificate stating that such Exchange Debentures or portions thereof were
accepted for payment by the Company in accordance with the terms of this Section
3.9. The Company, the Depository or the Paying Agent, as the case may be, shall
promptly (but in any case not later than five days after the Purchase Date) mail
or deliver to each tendering Holder an amount equal to the purchase price of the
Exchange Debentures tendered by such Holder and accepted by the Company for
purchase, and the Company shall promptly issue a new Exchange Debenture, and the
Trustee, upon receipt of a written authentication order of the Company signed by
two Officers of the Company shall authenticate and mail or deliver such new
Exchange Debenture to such Holder, in a principal amount equal to any
unpurchased portion of the Exchange Debenture surrendered. Any Exchange
Debenture not so accepted shall be promptly mailed or delivered by the Company
to the Holder thereof. The Company shall publicly announce the results of the
Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.9, any
purchase pursuant to this Section 3.9 shall be made pursuant to the provisions
of Sections 3.1 through 3.6 hereof.
ARTICLE 4
COVENANTS
Section 4.1. Payment of Exchange Debentures.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Exchange Debentures on the dates and in the manner
provided in the Exchange Debentures. Principal, premium, if any, and interest
shall be considered paid on the date due if the Paying Agent, if other than the
Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due
date money deposited by the Company in immediately available funds and
designated for and sufficient to pay all such amounts then due.
<PAGE>
35
[The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Exchange
Debentures to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest (without regard to any applicable grace period) at the same rate to the
extent lawful.]
Section 4.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where principal, premium,
if any, and interest on the Exchange Debentures will be paid and where Exchange
Debentures may be surrendered for registration of transfer or for exchange and
where notices and demands to or upon the Company in respect of the Exchange
Debentures and this Exchange Debenture Indenture may be served. The Company
shall give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Exchange Debentures may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, the City of New York for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby designates the following office of an Affiliate
of the Trustee as one such office or agency of the Company in accordance with
Section 2.3.
Section 4.3. Reports.
Whether or not required by the rules and regulations of the
Commission, so long as any Exchange Debentures are outstanding, the Company will
furnish to the Holders of Exchange Debentures (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its consolidated Subsidiaries and, with respect
<PAGE>
36
to the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports, in each case within the time periods set forth in the Commission's
rules and regulations. In addition, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of such information
and report with the Commission for public availability within the time periods
set forth in the Commission's rules and regulations (unless the Commission will
not accept such a filing). The Company shall at all times comply with TIA
ss.314(a).
Section 4.4. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Exchange Debenture Indenture, and further stating, as to
each such Officer signing such certificate, that to the best of his or her
knowledge the Company has kept, observed, performed and fulfilled each and every
covenant contained in this Exchange Debenture Indenture and is not in default in
the performance or observance of any of the terms, provisions and conditions of
this Exchange Debenture Indenture (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which he or
she may have knowledge and what action the Company is taking or proposes to take
with respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of, premium, if any, or interest on the Exchange Debentures is
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto. As of the
date hereof, the Company's fiscal year ends on December 31 of each calendar
year. In the event the Company changes its fiscal year, it shall promptly notify
the Trustee of such change.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the fiscal year-end
financial statements delivered pursuant to Section 4.3(a) above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements,
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Article 4 or Article 5 hereof or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants
<PAGE>
37
shall not be liable directly or indirectly to any Person for any failure to
obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Exchange Debentures are
outstanding, deliver to the Trustee, within five Business Days of any Officer
becoming aware of any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto.
Section 4.5. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Exchange Debentures.
Section 4.6. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Exchange Debenture Indenture; and the
Company (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Trustee, but shall suffer and permit the execution of every such
power as though no such law has been enacted.
Section 4.7. Restricted Payments.
The Company shall not and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's Equity Interests
(including, without limitation, any payment to holders of the Company's Equity
Interests in connection with any merger or consolidation involving the Company)
to the direct or indirect holders of the Company's Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem
or otherwise acquire or retire for value any Equity Interests of the Company or
any direct or indirect parent or other Affiliate of the Company that is not a
Wholly Owned Restricted Subsidiary of the Company; (iii) make any principal
payment on, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Exchange Debentures, except
at final maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i)
<PAGE>
38
through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the test set forth in the first paragraph of Section 4.9 hereof; and
(c) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Exchange Debenture Indenture (excluding
Restricted Payments permitted by clauses (2), (3) and (5) of the next
succeeding paragraph), is less than the sum of (i) (A) 100% of the
aggregate Consolidated Cash Flow of the Company (or, in the event such
Consolidated Cash Flow shall be a deficit, minus 100% of such deficit)
accrued for the period beginning on the first day of the Company's fiscal
quarter commencing after the Issue Date and ending on the last day of the
Company's most recent fiscal quarter for which financial information is
available to the Company ending prior to the date of such proposed
Restricted Payment, taken as one accounting period, less (B) 1.4 times
Consolidated Interest Expense for the same period, plus (ii) 100% of the
aggregate net cash proceeds and the fair market value of marketable
securities (as determined in good faith by the Company) received by the
Company from the issue or sale since the date hereof of Equity Interests
of the Company or of debt securities of the Company that have been
converted into or exchanged for such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of the
Company, other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock and other than the Common Stock issued
in the Common Stock Offering), plus (iii) to the extent that any
Restricted Investment that was made after the date hereof is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the net
proceeds of such sale, liquidation or repayment and (B) the amount of such
Restricted Investment, plus (iv) $5.0 million.
The foregoing provisions will not prohibit (1) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Exchange Debenture Indenture; (2) the redemption, repurchase, retirement
<PAGE>
39
or other acquisition of any Equity Interests of the Company in exchange for, or
out of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other than
any Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(3) the defeasance, redemption or repurchase of subordinated Indebtedness with
the net cash proceeds from an incurrence of subordinated Permitted Refinancing
Debt or the substantially concurrent sale (other than to a Subsidiary of the
Company) of Equity Interests of the Company (other than Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (4) the repurchase, redemption
or other acquisition or retirement for value of any Equity Interests of the
Company or any Subsidiary of the Company held by any of the Company's (or any of
its Subsidiaries') employees pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of the Exchange
Debenture Indenture in connection with the termination of such person's
employment for any reason (including by reason of death or disability); provided
that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $500,000 in any twelve-month period;
and provided further that no Default or Event of Default shall have occurred and
be continuing immediately after such transaction; and (5) repurchases of Equity
Interests deemed to occur upon exercise of stock options if such Equity
Interests represent a portion of the exercise price of such options.
The amount of all Restricted Payments (other than cash) shall be the
fair market value (as determined in good faith by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee, which
determination shall be conclusive evidence of compliance with this provision) on
the date of the Restricted Payment of the asset(s) proposed to be transferred by
the Company or the applicable Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than five days after the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section 4.7
were computed.
The Board of Directors may designate any Restricted Subsidiary to be
an Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and shall reduce the
<PAGE>
40
amount available for Restricted Payments under clause (c) of the first paragraph
of this covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the greater of the fair market value or the
book value of such Investments at the time of such designation. Such designation
will only be permitted if such Restricted Payment would be permitted at such
time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
Section 4.8. Dividend and Other Payment Restrictions Affecting
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 encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(x) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (y) pay any indebtedness owed by it to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any Restricted Subsidiaries of the Company, except for such
encumbrances or restrictions existing under or by reason of (a) the Credit
Facility as in effect as of the date of this Exchange Debenture Indenture, and
any amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof or any other Credit Agreement,
provided that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements, refinancings or any other Credit
Agreements are no more restrictive taken as a whole with respect to such
dividend and other payment restrictions than those contained in the Credit
Facility as in effect on the date of this Exchange Debenture Indenture, (b) this
Exchange Debenture Indenture and the Exchange Debentures, (c) applicable law,
(d) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except, in the case of Indebtedness, to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person and its
Subsidiaries, or the property or assets of the Person and its Subsidiaries, so
acquired, provided that, such Indebtedness or Disqualified Stock was permitted
by the terms of this Exchange Debenture Indenture to be incurred, (e) by reason
of customary non-assignment provisions in leases and customary provisions in
other agreements that restrict assignment of such agreements or rights
thereunder, entered into in the ordinary course of business and consistent with
past practices, (f) purchase money obligations for property acquired in the
ordinary course of business that impose
<PAGE>
41
restrictions of the nature described in clause (iii) above on the property so
acquired or (g) Permitted Refinancing Debt, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Debt are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
Section 4.9. Incurrence of Indebtedness and Issuance of Preferred
Stock.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and the Company shall not issue any Disqualified Stock and shall not
permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock if the Company's Leverage
Ratio at the time of the incurrence of such indebtedness, after giving pro-forma
effect thereto and to the use of proceeds therefrom, is less than 7.0 to 1.
Notwithstanding the foregoing, the Exchange Debenture Indenture will
not prohibit any of the following (collectively, "Permitted Indebtedness"): (a)
the Indebtedness evidenced by the Exchange Debentures; (b) the incurrence by the
Company of Indebtedness pursuant to Credit Agreements or the Company's __%
Senior Subordinated Notes due 2008, so long as the aggregate principal amount of
all Indebtedness outstanding under all Credit Agreements does not, at any one
time, exceed $190.0 million, less the aggregate amount of all proceeds from all
Asset Sales that have been applied since the date hereof to permanently reduce
the outstanding amount of such Indebtedness pursuant to the provisions described
under Section 4.10; (c) all Indebtedness of the Company and its Restricted
Subsidiaries in existence as of the date hereof; (d) intercompany Indebtedness
between or among the Company and any of its Wholly Owned Restricted
Subsidiaries; provided, however, that (i) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinate to the payment in full
of all Obligations with respect to the Exchange Debentures and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Wholly Owned
Restricted Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence
of such Indebtedness by the Company or such Restricted Subsidiary, as the case
may be; (e) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of financing
all or any part of the purchase
<PAGE>
42
price, lease or cost of construction or improvement of property, plant or
equipment used in a Permitted Business in an aggregate principal amount not to
exceed $15.0 million at any time outstanding; (f) the incurrence by the Company
or its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or
the net proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the Exchange
Debenture Indenture to be incurred; (g) the incurrence by the Company or its
Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose
of fixing or hedging interest rate risk with respect to any floating or variable
rate Indebtedness or for the purpose of protecting against fluctuations in
interest rates or the value of foreign currencies purchased or received, in each
case in respect of Indebtedness that is permitted by the terms of this Exchange
Debenture Indenture to be outstanding; provided, however, that in the case of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risks with respect to Indebtedness, the notional principal amount
of any such Hedging Obligation does not exceed the principal amount of the
Indebtedness to which such Hedging Obligation relates and in the case of Hedging
Obligations incurred for the purpose of protecting against fluctuations in
interest rates or the value of foreign currencies purchased or received, such
Hedging Obligations do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations in
foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder; (h) Indebtedness incurred solely in respect of
performance, surety and similar bonds or completion guarantees, to the extent
that such incurrence does not result in the incurrence of any obligation for the
payment of borrowed money to others; (i) Indebtedness arising out of standby
letters of credit covering workers compensation, performance or similar
obligations in an aggregate amount not to exceed $500,000 at any time
outstanding; (j) any guarantee of the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the incurrence of
such Indebtedness incurred by such Restricted Subsidiary is permitted under the
terms of the Exchange Debenture Indenture; (k) the incurrence by the Company of
additional Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $10.0 million; and (l) the
incurrence by the Company of Indebtedness in respect of Exchange Debentures
issued as payment in kind interest on Exchange Debentures issued on the exchange
of the Series A Preferred Stock, to the extent such interest payments are made
pursuant to the terms hereof.
The Company will not permit any Unrestricted Subsidiary to incur any
Indebtedness other than Non-Recourse Debt; provided, however, if any such
Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to
constitute an incurrence of Indebtedness by the Company.
<PAGE>
43
Section 4.10. Asset Sales.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (as determined in good
faith by a resolution of the Board of Directors of the Company set forth in an
Officer's Certificate delivered to the Trustee, which determination shall be
conclusive evidence of compliance with this provision) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary, is
in the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet), of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Exchange Debentures or any guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability and
(y) any non-cash consideration received by the Company or any such Restricted
Subsidiary that are converted by the Company or such Restricted Subsidiary into
cash within 30 days of closing such Asset Sale, shall be deemed to be cash for
purposes of this provision (to the extent of the cash received).
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or such Restricted Subsidiary may apply such Net Proceeds, at
its option, (a) to permanently reduce Exchange Debenture Senior Debt (and to
correspondingly permanently reduce commitments with respect thereto in the case
of revolving borrowings), or (b) to an investment in any one or more businesses,
capital expenditures or acquisition of other assets, in each case, used or
useful in a Permitted Business. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce Exchange Debenture Senior Debt that
is revolving debt or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Exchange Debenture Indenture. Any Net Proceeds from Asset
Sales that are not applied as provided in the first sentence of this paragraph
will (after the expiration of the periods specified in this paragraph) be deemed
to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company will be required to make an offer to all Holders of the Exchange
Debentures and, to the extent required by the terms thereof, to all holders or
lenders of Exchange Debenture Pari Passu Debt (an "Asset Sale Offer") to
purchase the maximum principal amount of the Exchange Debentures and any such
Exchange Debenture Pari Passu Debt to which the Asset Sale Offer applies that
may be purchased out of the Excess Proceeds, at an offer price in cash equal to
100% of the
<PAGE>
44
principal amount thereof plus accrued and unpaid interest thereon to the date of
purchase, in accordance with the procedures set forth in the Exchange Debenture
Indenture or the agreements governing the Exchange Debenture Pari Passu Debt, as
applicable. To the extent that the aggregate principal amount of the Exchange
Debentures and Exchange Debenture Pari Passu Debt tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of the Exchange Debentures surrendered by Holders thereof and other
Exchange Debenture Pari Passu Debt surrendered by holders or lenders thereof,
collectively, exceeds the amount of Excess Proceeds, the Trustee shall select
the Exchange Debentures and the trustee or other lender representative for the
Exchange Debenture Pari Passu Debt shall select the Exchange Debenture Pari
Passu Debt to be purchased on a pro rata basis, based on the aggregate principal
amount thereof surrendered in such Asset Sale Offer. Upon completion of such
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Section 4.11. Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any of its Affiliates (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is
on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
by the Company or such Restricted Subsidiary with an unrelated Person and (ii)
the Company delivers to the Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
or series of Affiliated Transactions complies with clause (i) above and that
such Affiliate Transaction or series of Affiliated Transactions has been
approved in good faith by a majority of the members of the Board of Directors
who are disinterested with respect to such Affiliate Transaction or series of
Affiliated Transactions, which resolution shall be conclusive evidence of
compliance with this provision, and (b) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $10.0 million, the Company delivers an Officer's
Certificate certifying that such Affiliate Transaction or series of related
Affiliate Transactions complies with clause (i) above and that such Affiliate
Transaction or series of related Affiliate Transactions has been approved in
good faith by a resolution adopted by a majority of the members of the Board of
Directors of the Company who are disinterested with respect to such Affiliate
Transaction or
<PAGE>
45
series of related Affiliate Transactions and an opinion as to the fairness to
the Company or such Subsidiary of such Affiliate Transaction or series of
related Affiliate Transactions from a financial point of view issued by an
accounting, appraisal, engineering or investment banking firm of national
standing (which resolution and fairness opinion shall be conclusive evidence of
compliance with this provision); provided that the following shall not be deemed
Affiliate Transactions: (1) transactions contemplated by any employment
agreement or other compensation plan or arrangement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(2) transactions between or among the Company and/or its Restricted
Subsidiaries, (3) Restricted Payments and Permitted Investments that are
permitted by Section 4.7 of this Exchange Debenture Indenture, (4)
indemnification payments made to officers, directors and employees of the
Company or any Restricted Subsidiary pursuant to charter, bylaw, statutory or
contractual provisions and (5) any agreement as in effect as of the Issue Date
or any Transaction contemplated thereby.
Section 4.12. Liens.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien securing Indebtedness of any kind (other than
Permitted Liens) upon any of its property or assets, now owned or hereafter
acquired.
Section 4.13. Offer to Repurchase Upon Change of Control.
Change of Control
Upon the occurrence of a Change of Control, each Holder of the
Exchange Debentures will have the right to require the Company to repurchase all
or any part (equal to $1,000 or an integral multiple thereof) of such Holder's
Exchange Debentures pursuant to the offer described below (the "Change of
Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount of the Exchange Debentures plus accrued and unpaid interest, if
any, thereon to the date of purchase (the "Change of Control Payment"). Within
30 days following any Change of Control, the Company will (i) mail a notice to
each Holder describing the transaction or transactions that constitute the
Change of Control and offer to repurchase the Exchange Debentures pursuant to
the procedures required by this Exchange Debenture Indenture and described in
such notice on a date no earlier than 30 days nor later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date") and (ii) (a)
offer to repay in full all Obligations under the Credit Facility and to repay in
full all Obligations of each lender who has accepted such offer or (b) obtain
the requisite consent under
<PAGE>
46
agreements evidencing Exchange Debenture Senior Debt to permit the purchase of
the Exchange Debentures as described herein. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Exchange Debentures as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the
extent lawful, (i) accept for payment all Exchange Debentures or portions
thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent an amount equal to the Change of Control Payment in
respect of all the Exchange Debentures or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee the relevant Exchange Debentures
so accepted together with an Officers' Certificate stating the aggregate
principal amount of such Exchange Debentures or portions thereof being purchased
by the Company. The Paying Agent will promptly mail to each Holder of the
Exchange Debentures so tendered the Change of Control Payment for such Exchange
Debentures, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each tendering Holder a new Exchange Debenture
equal in principal amount to any unpurchased portion of the Exchange Debentures
surrendered, if any; provided that each such new Exchange Debenture will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Company will not be required to make a Change of Control Offer
if a third party makes the Change of Control Offer in the manner, at the times
and otherwise in compliance with the requirements set forth in this Exchange
Debenture Indenture applicable to a Change of Control Offer made by the Company
and purchases all Exchange Debentures (or portions thereof) validly tendered and
not withdrawn under such Change of Control Offer.
Section 4.14. Asset Swaps
The Company will not, and will not permit any of its Restricted
Subsidiaries to, in one or a series of related transactions, directly or
indirectly, engage in any Asset Swaps, unless: (i) at the time of entering into
the agreement to swap assets and immediately after giving effect to the proposed
Asset Swap, no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; (ii) the Company would, after giving
pro forma effect to the proposed Asset Swap, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the test set forth in Section
4.9 hereof; (iii) the respective fair market values of the assets being
purchased and sold by the Company or any of its Restricted Subsidiaries (as
determined in good faith by the management of
<PAGE>
47
the Company or, if such Asset Swap includes consideration in excess of $_____
million by the Board of Directors of the Company, as evidenced by a Board
Resolution) are substantially the same at the time of entering into the
agreement to swap assets; and (iv) at the time of the consummation of the
proposed Asset Swap, the percentage of any decline in the fair market value
(determined as aforesaid) 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 (determined as aforesaid) of
the assets being disposed of by the Company or its Restricted Subsidiaries,
calculated from the time the agreement to swap assets was entered into.
Section 4.15. Corporate Existence.
Subject to Article 5 hereof, the Company and the Subsidiaries shall
do or cause to be done all things necessary to preserve and keep in full force
and effect (i) its corporate existence, and the corporate, partnership or other
existence of each of the Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Subsidiary and (ii) the rights (charter, partnership
agreement and statutory), licenses and franchises of the Company and the
Subsidiaries; provided, however, that the Company and the Subsidiaries shall not
be required to preserve any such right, license or franchise, or the corporate,
partnership or other existence of any of the Subsidiaries, if the Board of
Directors of the relevant Person shall determine that the preservation thereof
is no longer desirable in the conduct of the business of the Company and the
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Exchange Debentures.
Section 4.16. No Senior Subordinated Debt.
Notwithstanding the provisions of Section 4.9 hereof, the Company
shall not incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to any
Exchange Debenture Senior Debt of the Company and senior in any respect in right
of payment to the Exchange Debentures; provided, however, that the foregoing
limitation shall not apply to distinctions between categories of Indebtedness
that exist by reason of any Liens arising or created in respect of some but not
all such Indebtedness.
Section 4.17. Business Activities.
The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any material respect in any business other than a
Permitted Business.
<PAGE>
48
Section 4.18. Issuances and Sales of Capital Stock of Wholly Owned
Restricted Subsidiaries.
The Company (i) will not, and will not permit any Wholly Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly Owned Restricted Subsidiary
of the Company to any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company), unless (a) such transfer, conveyance,
sale, lease or other disposition is of all the Capital Stock of such Wholly
Owned Restricted Subsidiary and (b) the Net Proceeds from such transfer,
conveyance, sale, lease or other disposition are applied in accordance with
Section 4.10 hereof and (ii) will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary; provided that the Company may, and may permit any Wholly Owned
Restricted Subsidiary of the Company to, take any of the actions referred to in
(i) and (ii) above so long as immediately after giving effect to such action no
more than 10% of the Consolidated Net Tangible Assets of the Company and its
Subsidiaries is owned by other than Wholly Owned Restricted Subsidiaries of the
Company.
Section 4.19. Payments for Consent.
Neither the Company nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Exchange Debentures for or as
an inducement to any consent, waiver or amendment of any of the terms or
provisions hereof or of the Exchange Debentures unless such consideration is
offered to be paid or is paid to all Holders of the Exchange Debentures that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
ARTICLE 5
SUCCESSORS
Section 5.1. Merger, Consolidation, or Sale of Substantially All
Assets.
The Company will not consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets, in one or more related transactions, to another Person, and the Company
may not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions would, in the aggregate, result in a sale,
<PAGE>
49
assignment, transfer, lease, conveyance, or other disposition of all or
substantially all of the properties or assets of the Company to another Person
unless (i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (the "Surviving Entity") is a corporation organized or
existing under the laws of the United States, any state thereof or the District
of Columbia; (ii) the Surviving Entity (if the Company is not the continuing
obligor under this Exchange Debenture Indenture) assumes all the obligations of
the Company under the Exchange Debentures and this Exchange Debenture Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately before and after giving effect to such transaction or
series of transactions no Default or Event of Default exists; (iv) immediately
after giving effect to such transaction or series of transactions on a pro forma
basis (and treating any Indebtedness not previously an obligation of the Company
or any of its Subsidiary which becomes the obligation of the Company or any of
its Subsidiary as a result of such transaction or series of transactions as
having been incurred at the time of such transaction or series of transactions),
the Consolidated Net Worth of the Company and its Subsidiaries or the Surviving
Entity (if the Company is not the continuing obligor under this Exchange
Debenture Indenture) is equal to or greater than the Consolidated Net Worth of
the Company and its Subsidiaries immediately prior to such transaction or series
of transactions and (v) the Company or Surviving Entity (if the Company is not
the continuing obligor under this Exchange Debenture Indenture) will, at the
time of such transaction or series of transactions and after giving pro forma
effect thereto as if such transaction or series of transactions had occurred at
the beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the test set forth in the
first paragraph of Section 4.9 hereof. Notwithstanding the restrictions
described in the foregoing clauses (iv) and (v), any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company, and any Wholly Owned Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to another Wholly Owned Restricted Subsidiary.
Section 5.2. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.1 hereof, the Surviving Entity shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Exchange Debenture Indenture referring to the "Company" shall
refer instead to the Surviving Entity and not to the Company), and may exercise
every
<PAGE>
50
right and power of the Company under this Exchange Debenture Indenture with the
same effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Exchange Debentures
except in the case of a sale of all of the Company's assets that meets the
requirements of Section 5.1 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
An "Event of Default" occurs if (i) a default for 30 days in the
payment when due of interest on the Exchange Debentures (whether or not
prohibited by the subordination provisions herein); (ii) a default in payment
when due of the principal of or premium, if any, on the Exchange Debentures
(whether or not prohibited by the subordination provisions herein); (iii) the
failure by the Company or any of its Restricted Subsidiaries to comply with the
provisions described under Article 4 hereof; (iv) failure by the Company for 30
days after notice from the Trustee or the Holders of at least 25% in aggregate
principal amount of the Exchange Debentures then outstanding to comply with any
of its other agreements in this Exchange Debenture Indenture or the Exchange
Debentures; (v) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date of the Exchange Debenture Indenture, which default (a)
is caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results in
the acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there is then existing a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more; (vi) the failure by the Company or any of its Restricted
Subsidiaries to pay final, non-appealable judgments aggregating in excess of
$5.0 million, which judgments remain unpaid or discharged for a period of 60
days; (vii) the Company or any Significant Subsidiary or any group of
Subsidiaries that, taken together, would constitute a Significant Subsidiary
pursuant to or within the meaning of any Bankruptcy Law: (a) commences a
voluntary case or proceeding, (b) consents to the entry of an order for relief
against it in an involuntary case or proceeding, (c) consents to the appointment
of a Custodian of it or for all or substantially all of its property or (d)
makes a general
<PAGE>
51
assignment for the benefit of its creditors; (viii) a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for
relief against the Company or any Significant Subsidiary or any group of
Subsidiaries that, taken together, would constitute a Significant Subsidiary, in
an involuntary case or proceeding, (b) appoints a Custodian of the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, or for all or substantially all of the
property of the Company, any Significant Subsidiary or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary, or (c) orders
the liquidation of the Company, any Significant Subsidiary or any group of
Subsidiaries that, taken together, would constitute a Significant Subsidiary,
and in each case the order or decree remains unstayed and in effect for 60
consecutive days.
The term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Exchange Debenture Indenture, and the
Company is required, within five business days of becoming aware of any Default
or Event of Default, to deliver to the Trustee a statement specifying such
Default or Event of Default.
Section 6.2. Acceleration.
If an Event of Default (other than an Event of Default described in
Section 6.1 (vii) or (viii) above) relating to the Company occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in principal amount of the then outstanding Exchange Debentures by written
notice to the Company and the Trustee, may declare the unpaid principal amount
of and any accrued and unpaid interest on all the Exchange Debentures to be due
and payable immediately. If payment of the Exchange Debentures is accelerated
because of an Event of Default, the Company or the Trustee shall notify the
holders of Designated Exchange Debenture Senior Debt of such acceleration. Upon
such declaration the principal and interest shall be due and payable
immediately; provided, however, that so long as any Designated Exchange
Debenture Senior Debt or any commitment therefor is outstanding, any such notice
or declaration shall not become effective until the earlier of (a) five Business
Days after such notice is delivered to the representative for the Designated
Exchange Debenture Senior Debt or (b) the acceleration of any Designated
Exchange Debenture Senior Debt and thereafter, payments on the Exchange
Debentures pursuant to this Article 6 shall be made only to the extent permitted
pursuant to Article 10 herein.
Notwithstanding the foregoing paragraph, in the case of an Event of
Default arising under Section 6.1 (vii) or (viii)
<PAGE>
52
above, all outstanding Exchange Debentures will become due and payable without
further action or notice.
After a declaration of acceleration under this Exchange Debenture
Indenture, but before a judgment or decree for payment of principal, premium, if
any, and interest on the Exchange Debentures due under this Article 6 has been
obtained by the Trustee, Holders of a majority in principal amount of the then
outstanding Exchange Debentures by written notice to the Company and the Trustee
may rescind an acceleration and its consequences if (i) the Company has paid or
deposited with the Trustee a sum sufficient to pay (a) all sums paid or advanced
by the Trustee under this Exchange Debenture Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel and (b) all overdue interest on the Exchange Debentures, if any,
(ii) the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction and (iii) all existing Events of Default (except
nonpayment of principal, premium, if any, or interest that has become due solely
because of the acceleration) have been cured or waived.
Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Exchange Debentures or to enforce the performance of
any provision of the Exchange Debentures or this Exchange Debenture Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Exchange Debentures or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Holder of a Exchange
Debenture in exercising any right or remedy accruing upon an Event of Default
shall not impair the right or remedy or constitute a waiver of or acquiescence
in the Event of Default. All remedies are cumulative to the extent permitted by
law.
Section 6.4. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of
the Exchange Debentures then outstanding by notice to the Trustee may on behalf
of the Holders of all of the Exchange Debentures waive an existing Default or
Event of Default and its consequences hereunder, except a continuing Default or
Event of Default in the payment of principal of, premium and liquidated damages,
if any, or interest on, the Exchange Debentures (including in connection with an
offer to purchase) (provided, however, that the Holders of a majority in
aggregate principal amount of the then outstanding Exchange Debentures may
rescind an acceleration and its consequences, including any related payment
default that resulted from such acceleration). Upon any such waiver, such
Default shall cease to exist, and any
<PAGE>
53
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Exchange Debenture Indenture; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereon.
Section 6.5. Control by Majority.
Holders of a majority in principal amount of the then outstanding
Exchange Debentures may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Exchange Debenture Indenture that the
Trustee determines may be unduly prejudicial to the rights of other Holders of
Exchange Debentures or that may involve the Trustee in personal liability it
being understood that (subject to Section 7.1) the Trustee shall have no duty to
ascertain whether or not such actions or forebearances are unduly prejudicial to
such holders.
Section 6.6. Limitation on Suits.
A Holder of an Exchange Debenture may pursue a remedy with respect
to this Exchange Debenture Indenture or the Exchange Debentures only if:
(a) the Holder of an Exchange Debenture gives to the Trustee written
notice of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Exchange Debentures make a written request to the Trustee to
pursue the remedy;
(c) such Holder of an Exchange Debenture or Holders of Exchange
Debentures offer and, if requested, provide to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Exchange Debentures do not give the Trustee
a direction inconsistent with the request.
A Holder of an Exchange Debenture may not use this Exchange Debenture Indenture
to prejudice the rights of another Holder of an Exchange Debenture or to obtain
a preference or priority over another Holder of an Exchange Debenture.
<PAGE>
54
Section 6.7. Rights of Holders of Exchange Debentures to Receive
Payment.
Notwithstanding any other provision of this Exchange Debenture
Indenture, the right of any Holder of an Exchange Debenture to receive payment
of principal, premium, if any, and interest on the Exchange Debenture, on or
after the respective due dates expressed in the Exchange Debenture (including in
connection with an offer to purchase), or to bring suit for the enforcement of
any such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
Section 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(1) or (2) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Exchange
Debentures and interest on overdue principal and, to the extent lawful, interest
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
Section 6.9. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Exchange Debentures allowed in any judicial proceedings relative
to the Company (or any other obligor upon the Exchange Debentures), its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof. To
the extent that the payment of any such compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.7 hereof out of the estate in any such proceeding,
shall be denied for any reason, payment of the same shall be secured by a Lien
on, and shall be paid out of, any and all distributions, dividends, money,
securities and other properties that the Holders may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or
<PAGE>
55
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Exchange
Debentures or the rights of any Holder, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and may be a member of the creditors'
committee.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it
shall, subject to the provisions of Article 10, pay out the money in the
following order:
First: to the Trustee, its agents and attorneys for amounts due
under Sections 6.8 and 7.7 hereof, including payment of all compensation,
expense and liabilities incurred, and all advances made, by the Trustee and the
costs and expenses of collection;
Second: to Holders of Exchange Debentures for amounts due and unpaid
on the Exchange Debentures for principal, premium, if any, and accrued interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Exchange Debentures for principal, premium, if any, and
accrued interest, as the case may be, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment
to Holders of Exchange Debentures pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Exchange Debenture Indenture or in any suit against the Trustee for any action
taken or omitted by it as a Trustee, a court in its discretion may require the
filing by any party litigant in the suit of an undertaking to pay the costs of
the suit, and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Exchange Debenture pursuant to Section 6.7 hereof, or a suit by
Holders of more than 10% in principal amount of the then outstanding Exchange
Debentures.
<PAGE>
56
ARTICLE 7
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Exchange Debenture Indenture, and use the same degree of care and skill in its
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Exchange Debenture Indenture and the Trustee
need perform only those duties that are specifically set forth in this
Exchange Debenture Indenture and no others, and no implied covenants or
obligations shall be read into this Exchange Debenture Indenture against
the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon any notices, requests, statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Exchange Debenture Indenture. However, the Trustee
shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Exchange Debenture Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Exchange Debenture Indenture that in any
<PAGE>
57
way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this
Section.
(e) No provision of this Exchange Debenture Indenture shall require
the Trustee to expend or risk its own funds or incur any liability. The Trustee
shall be under no obligation to exercise any of its rights and powers under this
Exchange Debenture Indenture at the request of any Holders, unless such Holder
shall have furnished to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.2. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Exchange Debenture Indenture.
(e) Unless otherwise specifically provided in this Exchange
Debenture Indenture, any demand, request, direction or notice from the Company
shall be sufficient if signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Exchange Debenture Indenture at the
request or direction of any of the Holders unless such Holders shall have
furnished to the Trustee reasonable security or indemnity against the costs,
<PAGE>
58
expenses and liabilities that might be incurred by it in compliance with such
request or direction.
(g) Except with respect to Sections 4.1 and 4.4 hereof, the Trustee
shall have no duty to inquire as to the performance of the Company's covenants
in Article 4 hereof. In addition, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 4.1, 4.4 and 6.1(1) or (2) hereof or (ii) any
Default or Event of Default of which the Trustee shall have received written
notification or obtained actual knowledge. For the purposes of this clause (g)
only, "actual knowledge" shall mean the actual fact or statement of knowing,
without any duty to make investigation with regard thereto.
(h) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(i) the Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any covenants, conditions, or agreements on the
part of the Company, except as otherwise set forth herein, but the Trustee may
require of the Company full information and advice as to the performance of the
covenants, conditions and agreements contained herein and shall be entitled in
connection herewith to examine the books, records and premises of the Company.
(j) The permissive rights of the Trustee to perform the acts
enumerated in this Exchange Debenture Indenture shall not be construed as a duty
and the Trustee shall not be answerable for other than its negligence or willful
misconduct.
Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Exchange Debentures and may otherwise deal with the Company
or any Affiliate of the Company with the same rights it would have if it were
not Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
Section 7.4. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Exchange Debenture Indenture or the
Exchange Debentures, it shall not be accountable for the Company's use of the
proceeds from the Exchange Debentures or any money paid to the Company or upon
the Company's direction under any provision of this Exchange Debenture
Indenture, it shall not be responsible for the use or
<PAGE>
59
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or in any
certificate delivered pursuant hereto or any statement in the Exchange
Debentures or any other document in connection with the sale of the Exchange
Debentures or pursuant to this Exchange Debenture Indenture other than its
certificate of authentication.
Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it
is actually known to the Trustee, the Trustee shall mail to Holders of Exchange
Debentures a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment of
principal of, premium, if any, or interest on, any Exchange Debenture, the
Trustee may withhold the notice if and so long as a committee of its Responsible
Officers in good faith determines that withholding the notice is in the
interests of the Holders of the Exchange Debentures.
Section 7.6. Reports by Trustee to Holders of the Exchange
Debentures.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Exchange Debenture Indenture, and for so long as Exchange
Debentures remain outstanding, the Trustee shall mail to the Holders of the
Exchange Debentures a brief report dated as of such reporting date that complies
with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred
within the twelve months preceding the reporting date, no report need be
transmitted). The Trustee also shall comply with TIA ss. 313(b)(2) and transmit
by mail all reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of
Exchange Debentures shall be mailed to the Company and filed with the Commission
and each stock exchange on which the Exchange Debentures are listed in
accordance with TIA ss. 313(d). The Company shall promptly notify the Trustee
when the Exchange Debentures are listed on any stock exchange.
Section 7.7. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Exchange Debenture Indenture and
services hereunder, including, without limitation, extraordinary services such
as default administration. The Trustee's compensation shall not be limited by
any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee promptly upon request for all reasonable disbursements,
advances and expenses incurred or made by it in addition to the compensation for
its services. Such
<PAGE>
60
expenses shall include the reasonable compensation, disbursements and expenses
of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Exchange Debenture
Indenture, including the costs and expenses of enforcing this Exchange Debenture
Indenture against the Company (including this Section 7.7) and investigating or
defending itself against any claim (whether asserted by the Company or any
Holder or any other person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Company promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of their obligations hereunder. The Company shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without their
consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.7 are joint and
several and shall survive the satisfaction and discharge of this Exchange
Debenture Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Exchange Debentures on all money or
property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Exchange Debentures. Such Lien shall
survive the satisfaction and discharge of this Exchange Debenture Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.1(9) or (10) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to
the extent applicable.
Section 7.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the
<PAGE>
61
Company. The Holders of Exchange Debentures of a majority in principal amount of
the then outstanding Exchange Debentures may remove the Trustee by so notifying
the Trustee and the Company in writing. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Exchange Debentures
may appoint a successor Trustee to replace the successor Trustee appointed by
the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Exchange Debentures of at least 10% in principal amount of the
then outstanding Exchange Debentures may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of an Exchange
Debenture who has been a Holder of an Exchange Debenture for at least six
months, fails to comply with Section 7.10, such Holder of an Exchange Debenture
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Exchange Debenture Indenture. The successor Trustee shall mail a
notice of its succession to Holders of the Exchange Debentures. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor Trustee, provided all sums owing to the Trustee hereunder have been
paid and subject to the Lien provided for in Section 7.7 hereof. Notwithstanding
replacement of the Trustee pursuant to this Section 7.8, the Company's
obligations under Section 7.7 hereof shall continue for the benefit of the
retiring Trustee.
<PAGE>
62
Section 7.9. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $50 million as set forth in its most recent published annual report of
condition.
This Exchange Debenture Indenture shall always have a Trustee who
satisfies the requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is
subject to TIA ss. 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or Covenant
Defeasance.
The Company may, at the option of its Board of Directors evidenced
by a resolution set forth in an Officers' Certificate, at any time, elect to
have either Section 8.2 or 8.3 hereof be applied to all outstanding Exchange
Debentures upon compliance with the conditions set forth below in this Article
8.
Section 8.2. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be deemed to have been
discharged from their obligations with respect to all outstanding Exchange
Debentures on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire Indebtedness
represented by the
<PAGE>
63
outstanding Exchange Debentures, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.5 hereof and the other Sections
of this Exchange Debenture Indenture referred to in (a) and (b) below, and to
have satisfied all its other obligations under such Exchange Debentures and this
Exchange Debenture Indenture (and the Trustee, on demand of and at the expense
of the Company, shall execute proper instruments acknowledging the same), except
for the following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Exchange
Debentures to receive payments in respect of the principal of, premium, if any,
and interest on such Exchange Debentures when such payments are due from the
trust fund described in Section 8.4 hereof, and as more fully set forth in such
Section, (b) the Company's obligations with respect to such Exchange Debentures
under Article 2 and Section 4.2 hereof, (c) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and the Company's obligations in
connection therewith and (d) this Article 8. Subject to compliance with this
Article 8, the Company may exercise its option under this Section 8.2
notwithstanding the prior exercise of its option under Section 8.3 hereof.
Section 8.3. Covenant Defeasance.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.4 hereof, be released from their
obligations under the covenants contained in Sections 4.3, 4.5, 4.7, 4.8, 4.9,
4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof and in
clause (iv) of Section 5.1 with respect to the outstanding Exchange Debentures
on and after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Exchange Debentures shall thereafter be deemed
not "outstanding" for the purposes of any compliance certificate, direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Exchange Debentures shall not be deemed outstanding for accounting purposes).
For this purpose, Covenant Defeasance means that, with respect to the
outstanding Exchange Debentures, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.1 hereof, but, except as specified above, the remainder of this
Exchange Debenture Indenture, such Exchange Debentures shall be unaffected
thereby. In addition, upon the Company's exercise under Section 8.1 hereof of
the option applicable to this Section
<PAGE>
64
8.3 hereof, subject to the satisfaction of the conditions set forth in Section
8.4 hereof, Sections 6.1(3) (but only with respect to the Company's failure to
observe or perform the covenants, conditions and agreements of the Company under
clause (iv) of Section 5.1), 6.1(4), 6.1(7) and 6.1(8) hereof shall not
constitute Events of Default.
Section 8.4. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Exchange Debentures:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Exchange Debentures, cash in United States
dollars, non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest, on the outstanding Exchange Debentures on the stated maturity or on
the applicable redemption date, as the case may be, and the Company must specify
whether the Exchange Debentures are being defeased to maturity or to a
particular redemption date;
(b) in the case of an election under Section 8.2 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Exchange Debenture Indenture, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall 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 Legal 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 Legal Defeasance had
not occurred;
(c) in the case of an election under Section 8.3 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming 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 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;
<PAGE>
65
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Section 6.1(9) or 6.1(10) hereof is concerned, at any time in the period
ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument (other than this Exchange Debenture Indenture) to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of the Exchange Debentures over the other creditors of
the Company, or with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.5. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions.
Subject to Section 8.6 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.5, the
"Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Exchange
Debentures shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Exchange Debentures and this Exchange Debenture
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Exchange Debentures of all sums due and to become due
thereon in respect of principal, premium, if any, and interest, but such money
need not be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to
<PAGE>
66
Section 8.4 hereof or the principal and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of the outstanding Exchange Debentures.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.4 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.4(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 8.6. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Exchange Debenture and remaining unclaimed for two years
after such principal, premium, if any, or interest has become due and payable
shall be paid to the Company on its request or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Exchange Debenture
shall thereafter, as a general creditor, look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in the New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining shall be repaid to the Company.
Section 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.2 or
8.3 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Company under this Exchange Debenture
Indenture, the Exchange Debentures shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.2 or 8.3 hereof, as the case may be;
provided, however, that if the Company makes any payment of principal of,
premium, if any, or interest on any Exchange Debenture following the
reinstatement of its obligations, the Company shall be
<PAGE>
67
subrogated to the rights of the Holders of such Exchange Debentures to receive
such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.1. With Consent of Holders of Exchange Debentures.
Except as provided below, this Exchange Debenture Indenture or the
Exchange Debentures may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Exchange Debentures
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, the Exchange
Debentures), and any existing default or compliance with any provision of this
Exchange Debenture Indenture or the Exchange Debentures may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
Exchange Debentures (including consents obtained in connection with a tender
offer or exchange offer for the Exchange Debentures).
Upon the request of the Company accompanied by a resolution of the
Board of Directors of the Company, authorizing the execution of any such amended
or supplemental indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Exchange Debentures
as aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.2 hereof, the Trustee shall join with the Company in the execution of
such amended or supplemental indenture unless such amended or supplemental
indenture affects the Trustee's own rights, duties or immunities under this
indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Exchange
Debentures under this Section 9.2 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Exchange Debentures affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver.
<PAGE>
68
Section 9.2. Without Consent of Holders of Exchange Debentures.
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Exchange Debentures held by a non-consenting
Holder): (i) reduce the principal amount of the Exchange Debentures whose
Holders must consent to an amendment, supplement or waiver, (ii) reduce the
principal of or change the fixed maturity of any Exchange Debenture or alter the
provisions with respect to the redemption of the Exchange Debentures (except as
provided above in Sections 4.10 and 4.13 hereof), (iii) reduce the rate of or
change the time for payment of interest on any Exchange Debenture, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Exchange Debentures (except a rescission of acceleration of
the Exchange Debentures by the Holders of at least a majority in principal
amount of such Exchange Debentures and a waiver of the payment default that
resulted from such acceleration), (v) make any Exchange Debenture payable in
money other than that stated in the Exchange Debentures, (vi) make any change in
the provisions of this Exchange Debenture Indenture relating to waivers of past
Defaults or the rights of Holders of the Exchange Debentures to receive payments
of principal of or premium, if any, or interest on the Exchange Debentures or
(vii) make any change in the foregoing amendment and waiver provisions. In
addition, any amendment to the provisions contained in Sections 4.10 and 4.13
hereof or the provisions of Article 10 hereof will require the consent of the
Holders of at least 66 2/3% in principal amount of the Exchange Debentures then
outstanding if such amendment would adversely affect the rights of Holders of
such Exchange Debentures. However, no amendment may be made to the subordination
provisions of the Exchange Debenture Indenture that adversely affects the rights
of any holder of Exchange Debenture Senior Debt then outstanding unless the
holders of such Exchange Debenture Senior Debt (or any group or representative
thereof authorized to give a consent) consents to such change.
Notwithstanding the foregoing, without the consent of any Holder of
the Exchange Debentures the Company and the Trustee may amend or supplement this
Exchange Debenture Indenture or the Exchange Debentures to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Exchange Debentures in
addition to or in place of certificated Exchange Debentures, to provide for the
assumption of the Company's obligations to Holders of the Exchange Debentures in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Exchange Debentures or that
does not adversely affect the legal rights under this Exchange Debenture
Indenture of any such Holder, to secure the Exchange Debentures or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Exchange Debenture Indenture under the Trust Indenture Act.
<PAGE>
69
Section 9.3. Compliance with Trust Indenture Act.
Every amendment or supplement to this Exchange Debenture Indenture
or the Exchange Debentures shall be set forth in an amended or supplemental
Exchange Debenture Indenture that complies with the TIA as then in effect.
Section 9.4. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of an Exchange Debenture is a continuing consent by
the Holder of an Exchange Debenture and every subsequent Holder of an Exchange
Debenture or portion of an Exchange Debenture that evidences the same debt as
the consenting Holder's Exchange Debenture, even if notation of the consent is
not made on any Exchange Debenture. However, any such Holder of an Exchange
Debenture or subsequent Holder of an Exchange Debenture may revoke the consent
as to its Exchange Debenture if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
Section 9.5. Notation on or Exchange of Exchange Debentures.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Exchange Debenture thereafter authenticated. The
Company in exchange for all Exchange Debentures may issue and the Trustee shall
authenticate new Exchange Debentures that reflect the amendment, supplement or
waiver.
Failure to make the appropriate notation or issue a new Exchange
Debenture shall not affect the validity and effect of such amendment, supplement
or waiver.
Section 9.6. Trustee to Sign Amendment, etc.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Exchange Debenture
Indenture until its respective Board of Directors approves it. In executing any
amended or supplemental indenture, the Trustee shall be entitled to receive and
(subject to Section 7.1) shall be fully protected in relying upon, an Officer's
Certificate and an Opinion of Counsel stating that the execution of such amended
or supplemental indenture is authorized or permitted by this Exchange Debenture
Indenture and that there has been compliance with all conditions precedent.
<PAGE>
70
ARTICLE 10
SUBORDINATION
Section 10.1. Agreement to Subordinate.
The Company agrees, and each Holder by accepting an Exchange
Debenture agrees, that (i) the Indebtedness evidenced by the Exchange
Debentures, including, but not limited to, the payment of principal of, premium,
if any, and interest on the Exchange Debentures, and any other payment
Obligation of the Company in respect of the Exchange Debentures (including any
obligation to repurchase the Exchange Debentures) is subordinated in right of
payment, to the extent and in the manner provided in this Article, to the prior
payment in full in cash of all Exchange Debenture Senior Debt of the Company
(whether outstanding on the date hereof or hereafter created, incurred, assumed
or guaranteed) (ii) the subordination is for the benefit of the Holders of
Exchange Debenture Senior Debt.
Section 10.2. Certain Definitions.
"Bankruptcy Law" means title 11, U.S. Code or any similar Federal or
state law for the relief of debtors.
"Representative" means the indenture trustee or other trustee, agent
or representative for any Exchange Debenture Senior Debt.
A "distribution" may consist of cash, securities or other property,
by set-off or otherwise.
All Designated Exchange Debenture Senior Debt now or hereafter
existing and all other Obligations relating thereto shall not be deemed to have
been paid in full unless the holders or owners thereof shall have received
payment in full in cash (or other form of payment consented to by the holders of
such Designated Exchange Debenture Senior Debt) with respect to such Designated
Exchange Debenture Senior Debt and all other Obligations with respect thereto.
Section 10.3. Liquidation; Dissolution; Bankruptcy.
(a) Upon any payment or distribution of property or securities to
creditors of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, or in an assignment for the benefit of
creditors or any marshalling of the Company's assets and liabilities:
(1) the holders of Exchange Debenture Senior Debt of the Company
shall be entitled to receive payment in full in cash of all Obligations in
respect of such Exchange Debenture Senior Debt (including interest after
the
<PAGE>
71
commencement of any such proceeding at the rate specified in the
applicable Exchange Debenture Senior Debt, whether or not a claim for such
interest would be allowed in such proceeding) before the Holders of
Exchange Debentures shall be entitled to receive any payment with respect
to the Exchange Debentures and related Obligations ; and
(2) until all Obligations with respect to Exchange Debenture Senior
Debt of the Company (as provided in subsection (1) above) are paid in full
in cash, any payment or distribution to which the Holders of Exchange
Debentures would be entitled shall be made to holders of Exchange
Debenture Senior Debt of the Company (except that Holders of Exchange
Debentures may receive securities that are subordinated at least to the
same extent as the Exchange Debentures to Exchange Debenture Senior Debt
and any securities issued in exchange for Exchange Debenture Senior Debt
and payments made from any defeasance trust created pursuant to Section
8.1 hereof provided that the applicable deposit does not violate Article 8
or 10 of this Exchange Debenture Indenture).
Under the circumstances described in this Section 10.3, the Company
or any receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar person making any payment or distribution of cash or other property or
securities is authorized or instructed to make any payment or distribution to
which the Holders of the Exchange Debentures would otherwise be entitled (other
than securities that are subordinated at least to the same extent as the
Exchange Debentures to Exchange Debenture Senior Debt and any securities issued
in exchange for Exchange Debenture Senior Debt and payments made from any
defeasance trust referred to in the second parenthetical of clause (a)(2) above,
which shall be delivered or paid to the Holders of Exchange Debentures as set
forth in such clauses) directly to the holders of the Exchange Debenture Senior
Debt of the Company (pro rata to such holders on the basis of the respective
amounts of Exchange Debenture Senior Debt of the Company held by such holders)
or their Representatives, or to any trustee or trustees under any other
indenture pursuant to which any such Exchange Debenture Senior Debt may have
been issued, as their respective interests appear, to the extent necessary to
pay all such Exchange Debenture Senior Debt in full, in cash or cash equivalents
after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of such Exchange Debenture Senior Debt.
To the extent any payment of or distribution in respect of Exchange
Debenture Senior Debt, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such
<PAGE>
72
payment or distribution is recovered by, or paid over to, such receiver,
trustee in bankruptcy, liquidating trustee, agent or other similar Person,
the Exchange Debenture Senior Debt or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such
payment had not occurred. To the extent the obligation to repay any
Exchange Debenture Senior Debt is declared to be fraudulent, invalid or
otherwise set aside under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then the obligation so declared
fraudulent, invalid or otherwise set aside (and all other amounts that
would come due with respect thereto had such obligation not been so
affected) shall be deemed to be reinstated and outstanding as Exchange
Debenture Senior Debt for all purposes hereof as if such declaration,
invalidity or setting aside had not occurred.
Section 10.4. Default on Designated Exchange Debenture Senior Debt.
The Company may not make any payment (whether by redemption,
purchase, retirements, defeasance or otherwise) upon or in respect of the
Exchange Debentures (other than securities that are subordinated at least to the
same extent as the Exchange Debentures to Exchange Debenture Senior Debt and any
securities issued in exchange for Exchange Debenture Senior Debt and payments
and other distributions made from any defeasance trust created pursuant to
Section 8.1 hereof if the applicable deposit does not violate Article 8 or 10 of
this Exchange Debenture Indenture) until all principal and other Obligations
with respect to the Exchange Debenture Senior Debt of the Company have been paid
in full if:
(i) a default in the payment of any principal of, premium, if any,
or interest on Designated Exchange Debenture Senior Debt occurs; or
(ii) any other default occurs and is continuing with respect to
Designated Exchange Debenture Senior Debt that permits, or with the giving
of notice or passage of time or both (unless cured or waived) would
permit, holders of the Designated Exchange Debenture Senior Debt as to
which such default relates to accelerate its maturity and the Trustee
receives a notice of the default (a "Payment Blockage Notice") from the
Company or the holders of any Designated Exchange Debenture Senior Debt.
If the Trustee receives any such Payment Blockage Notice, no subsequent
Payment Blockage Notice shall be effective for purposes of this Section
unless and until 360 days shall have elapsed since the date of
commencement of the payment blockage period resulting from the immediately
prior Payment Blockage Notice. No nonpayment default in respect of any
Designated Exchange Debenture Senior Debt that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the
<PAGE>
73
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
The Company shall resume payments on and distributions in respect of
the Exchange Debentures upon:
(1) in the case of a default referred to in Section 10.4(i) hereof
the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 10.4(ii) hereof,
the earliest of (1) the date on which such nonpayment default is cured or
waived, (2) the date the applicable Payment Blockage Notice is retracted
by written notice to the Trustee and (3) 179 days after the date on which
the applicable Payment Blockage Notice is received unless (A) the maturity
of any Designated Exchange Debenture Senior Debt has been accelerated or
(B) a Default or Event of Default under Section 6.1(vii) or (viii) has
occurred and is continuing,
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
Section 10.5. Acceleration of Exchange Debentures.
If payment of the Exchange Debentures is accelerated because of an
Event of Default, the Company shall promptly notify holders of Exchange
Debenture Senior Debt of the acceleration.
Section 10.6. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment or
distribution of or in respect of any Obligations with respect to the Exchange
Debentures at a time when such payment or distribution is prohibited by Section
10.3 or Section 10.4 hereof, such payment or distribution shall be held by the
Trustee (if the Trustee has actual knowledge that such payment or distribution
is prohibited by Section 10.3 or 10.4) or such Holder, in trust for the benefit
of, and shall be paid forthwith over and delivered to, the holders of Exchange
Debenture Senior Debt as their interests may appear or their Representative
under the indenture or other agreement (if any) pursuant to which such Exchange
Debenture Senior Debt may have been issued, as their respective interests may
appear, for application to the payment of all Obligations with respect to
Exchange Debenture Senior Debt remaining unpaid to the extent necessary to pay
such Obligations in full in accordance with their terms, after giving effect to
any concurrent payment or distribution to or for the holders of Exchange
Debenture Senior Debt.
With respect to the holders of Exchange Debenture Senior Debt, the
Trustee undertakes to perform only such obligations on the part of the Trustee
as are specifically set forth in
<PAGE>
74
this Article 10, and no implied covenants or obligations with respect to the
holders of Exchange Debenture Senior Debt shall be read into this Exchange
Debenture Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Exchange Debenture Senior Debt, and, except
as provided in Section 10.12, shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders of Exchange
Debentures or the Company or any other Person money or assets to which any
holders of Exchange Debenture Senior Debt shall be entitled by virtue of this
Article 10, except if such payment is made as a result of the willful misconduct
or gross negligence of the Trustee.
Section 10.7. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent
of any facts known to the Company that would cause a payment of any Obligations
with respect to the Exchange Debentures to violate this Article, but failure to
give such notice shall not affect the subordination of the Exchange Debentures
to the Exchange Debenture Senior Debt as provided in this Article.
Section 10.8. Subrogation.
After all Exchange Debenture Senior Debt is paid in full and until
the Exchange Debentures are paid in full, Holders of Exchange Debentures shall
be subrogated (equally and ratably with all other Indebtedness pari passu with
the Exchange Debentures) to the rights of holders of Exchange Debenture Senior
Debt to receive distributions and payments applicable to Exchange Debenture
Senior Debt to the extent that distributions and payments otherwise payable to
the Holders of Exchange Debentures have been applied to the payment of Exchange
Debenture Senior Debt. A payment or distribution made under this Article to
holders of Exchange Debenture Senior Debt that otherwise would have been made to
Holders of Exchange Debentures is not, as between the Company and Holders of
Exchange Debentures, a payment by the Company on the Exchange Debentures.
Section 10.9. Relative Rights.
This Article defines the relative rights of Holders of Exchange
Debentures and holders of Exchange Debenture Senior Debt. Nothing in this
Exchange Debenture Indenture shall:
(1) impair, as between the Company and Holders of Exchange
Debentures, the obligation of the Company, which is absolute and
unconditional, to pay principal of and interest on the Exchange Debentures
in accordance with their terms;
(2) affect the relative rights of Holders of Exchange Debentures and
creditors of the Company other than their
<PAGE>
75
rights in relation to holders of Exchange Debenture Senior Debt; or
(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of
holders and owners of Exchange Debenture Senior Debt to receive
distributions and payments otherwise payable to Holders of Exchange
Debentures.
If the Company fails because of this Article to pay principal of or
interest on a Exchange Debenture on the due date, the failure is still a Default
or Event of Default.
Section 10.10. Subordination May Not Be Impaired by Company.
No right of any present or future holders of any Exchange Debenture
Senior Debt to enforce subordination as provided in this Article Ten will at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by noncompliance by the Company with the terms of this Exchange
Debenture Indenture, regardless of any knowledge thereof that any such holder of
Exchange Debenture Senior Debt may have or otherwise be charged with. The
provisions of this Article Ten are intended to be for the benefit of, and shall
be enforceable directly by, the holders of Exchange Debenture Senior Debt.
Section 10.11. Payment, Distribution or Notice to Representative.
Whenever a payment or distribution is to be made or a notice given
to holders of Exchange Debenture Senior Debt, the distribution may be made and
the notice given to their Representative.
Upon any payment or distribution of assets or securities of the
Company referred to in this Article 10, the Trustee and the Holders of Exchange
Debentures shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction or upon any certificate of such Representative or of
the liquidating trustee or agent or other Person making any payment or
distribution to the Trustee or to the Holders of Exchange Debentures for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Exchange Debenture Senior Debt and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article 10.
<PAGE>
76
Section 10.12. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other
provision of this Exchange Debenture Indenture, the Trustee shall not be charged
with knowledge of the existence of any facts that would prohibit the making of
any payment or distribution by the Trustee, and the Trustee and the Paying Agent
may continue to make payments on the Exchange Debentures, unless the Trustee
shall have received at its Corporate Trust Office at least one Business Day
prior to the date of such payment written notice of facts that would cause the
payment of any Obligations with respect to the Exchange Debentures to violate
this Article, which notice shall specifically refer to Section 10.3 or 10.4
hereof. Only the Company or a Representative may give the notice. Nothing in
this Article 10 shall impair the claims of, or payments to, the Trustee under or
pursuant to Section 7.7 hereof.
The Trustee in its individual or any other capacity may hold
Exchange Debenture Senior Debt with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights.
Section 10.13. Authorization to Effect Subordination.
Each Holder by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.9 hereof at least 30 days before the expiration of the time to file such
claim, each lender under the Credit Facility is hereby authorized to file an
appropriate claim for and on behalf of the Holders of the Exchange Debentures.
Section 10.14. Amendments.
No amendment may be made to the provisions of or the definitions of
any terms appearing in this Article 10, or to the provisions of Section 6.2
relating to the Designated Exchange Debenture Senior Debt, that adversely
affects the rights of any holder of Exchange Debenture Senior Debt then
outstanding unless the holders of such Exchange Debenture Senior Debt (or any
group or Representative authorized to give a consent) consent to such change.
Section 10.15. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 10.9 of this
Exchange Debenture Indenture, the holders of Exchange Debenture Senior Debt may,
at any time and from time to time, without the consent of or notice to the
Trustee or the
<PAGE>
77
Holders, without incurring responsibility to the Holders and without impairing
or releasing the subordination provided in this Article Ten or the obligations
hereunder of the Holders to the holders of Exchange Debenture Senior Debt, do
any one or more of the following: (a) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Exchange Debenture
Senior Debt or any instrument evidencing the same or any agreement under which
Exchange Debenture Senior Debt is outstanding or secured; (b) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Exchange Debenture Senior Debt; (c) release any Person liable in any
manner for the collection of Exchange Debenture Senior Debt; and (d) exercise or
refrain from exercising any rights against the Company and any other Person.
ARTICLE 11
MISCELLANEOUS
Section 11.1. Trust Indenture Act Controls.
If any provision of this Exchange Debenture Indenture limits,
qualifies or conflicts with the duties imposed by TIA ss. 318(c), the imposed
duties shall control. If any provisions of this Exchange Debenture Indenture
modifies or excludes any provision of the TIA that may be so modified or
excluded, the letter provision shall be deemed to apply to this Exchange
Debenture Indenture as so modified or excluded, as the case may be.
Section 11.2. Notices.
Any notice or communication by the Company or the Trustee to
the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telecopier
or overnight air courier guaranteeing next day delivery, to the others' address:
If to the Company:
Cumulus Media Inc.
330 E. Kilbourn Avenue
Suite 250
Milwaukee, WI 53202
Attention: Richard W. Weening
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st Floor
New York, NY 10022-4697
Attention: William Schwitter
<PAGE>
78
If to the Trustee:
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if by telecopy; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA ss. 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 11.3. Communication by Holders of Exchange Debentures with
Other Holders of Exchange Debentures.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Exchange Debenture Indenture or
the Exchange Debentures. The Company the Trustee, the Registrar and anyone else
shall have the protection of TIA ss. 312(c).
Section 11.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Exchange Debenture Indenture, the Company shall
furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include
<PAGE>
79
the statements set forth in Section 11.5 hereof) stating that, in the
opinion of the signers, all conditions precedent and covenants, if any,
provided for in this Exchange Debenture Indenture relating to the proposed
action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.5 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been complied with.
Section 11.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Exchange Debenture Indenture (other
than a certificate provided pursuant to TIA ss. 314(a)(4)) shall comply with the
provisions of TIA ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him or
her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
Section 11.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 11.7. No Personal Liability of Directors, Officers,
Employees and Stockholders.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Exchange Debentures or this Exchange Debenture Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation.
<PAGE>
80
Each Holder of Exchange Debentures, by accepting a Exchange Debenture, waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Exchange Debentures. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
Section 11.8. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS EXCHANGE DEBENTURE INDENTURE AND THE EXCHANGE DEBENTURES.
Section 11.9. No Adverse Interpretation of Other Agreements.
This Exchange Debenture Indenture may not be used to interpret any
other indenture, loan or debt agreement of the Company or their respective
Subsidiaries or of any other Person. Any such indenture, loan or debt agreement
may not be used to interpret this Exchange Debenture Indenture.
Section 11.10. Successors.
All agreements of the Company in this Exchange Debenture Indenture,
the Exchange Debentures shall bind its respective successors. All agreements of
the Trustee in this Exchange Debenture Indenture shall bind its successors.
Section 11.11. Severability.
In case any provision in this Exchange Debenture Indenture or in the
Exchange Debentures shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Exchange Debenture
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
Section 11.13. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Exchange Debenture Indenture have been inserted
for convenience of reference only, are not to be considered a part of this
Exchange Debenture Indenture and shall in no way modify or restrict any of the
terms or provisions hereof.
[Signatures on following page]
<PAGE>
81
SIGNATURES
Dated as of
_________, 1998
CUMULUS MEDIA INC.
Attest: By:________________________________
Name:______________________________
__________________________ Title:_____________________________
[TRUSTEE]
Attest: By:________________________________
Name:______________________________
__________________________ Title:_____________________________
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT A
(Face of Exchange Debenture)
_____% Subordinated Exchange Debentures due 2009
No. $__________
CUSIP Number:
CUMULUS MEDIA INC.
promises to pay to
or registered assigns,
the principal sum of
DOLLARS on __________, 2009.
Interest Payment Dates: ____________ and _________________
Record Dates: ______________________ and _________________
Dated: _______________, ____
CUMULUS MEDIA INC.
By_______________________
Name:
Title:
By_______________________
Name:
Title:
This is one of the Exchange Debentures referred
to in the within-mentioned (SEAL)
Exchange Debenture Indenture:
as Trustee
By____________________________
Authorized Signatory
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(Back of Exchange Debenture)
___% Subordinated Exchange Debentures due 2009
Capitalized terms used herein shall have the meanings assigned to
them in the Exchange Debenture Indenture referred to below unless otherwise
indicated.
1. Interest. Cumulus Media Inc., an Illinois corporation (the
"Company"), promises to pay interest on the principal amount of this Exchange
Debenture at the rate of ___% per annum, which interest shall be payable in cash
semiannually in arrears on each _______________ and ___________, or if any such
day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"); provided that the first Interest Payment Date shall be
_____________, 1998. Interest on the Exchange Debentures will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of original issuance. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months.
2. Method of Payment. On each Interest Payment Date the Company will
pay interest to the Person who is the Holder of record of this Exchange
Debenture as of the close of business on the _____________ or ____________
immediately preceding such Interest Payment Date, even if this Exchange
Debenture is cancelled after such record date and on or before such Interest
Payment Date, except as provided in Section 2.12 of the Exchange Debenture
Indenture with respect to defaulted interest. Principal, premium, if any, and
interest on this Exchange Debenture will be payable at the office or agency of
the Company maintained for such purpose within the City and State of New York
or, in the event the Exchange Debentures do not remain in book-entry form, at
the option of the Company, payment of interest may be made by check mailed to
the Holder of this Exchange Debenture at its address set forth in the register
of Holders of Exchange Debentures; provided that all payments with respect to
the Global Exchange Debentures and definitive Exchange Debentures having an
aggregate principal amount of $5.0 million or more the Holders of which have
given wire transfer instructions to the Company at least 10 Business Days prior
to the applicable payment date will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. Paying Agent and Registrar. Initially, ______________________,
the Trustee under the Exchange Debenture Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any
A-2
<PAGE>
Holder. The Company or any of the Company's Subsidiaries may act in any such
capacity.
4. Exchange Debenture Indenture. The Company issued the Exchange
Debentures under an Exchange Debenture Indenture dated as of _____________,
1998, ("Exchange Debenture Indenture") between the Company and the Trustee. The
terms of the Exchange Debentures include those stated in the Exchange Debenture
Indenture and those made part of the Exchange Debenture Indenture by reference
to the Trust Indenture Act of 1939, as amended (15 U.S. Code ss.ss.
77aaa-77bbbb). The Exchange Debentures are subject to all such terms, and
Holders are referred to the Exchange Debenture Indenture and such Act for a
statement of such terms. The Exchange Debentures are general unsecured
obligations of the Company equal in an aggregate principal amount to
$133,000,000 and will mature on ________________, 2009.
5. Optional Redemption.
(a) Except as otherwise described below, the Exchange Debentures are
not redeemable at the Company's option prior to ____________, 2003. Thereafter,
the Exchange Debentures will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
____________ of the years indicated below:
Year Percentage
2003.........................................
2004.........................................
2005.........................................
2006.........................................
2007 and thereafter.......................... 100.0000%
(b) Prior to ____________, 2001 the Company may, at its option, on
any one or more occasions, redeem up to 35% of the original aggregate principal
amount of Exchange Debentures at a redemption price equal to _______% of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the redemption date, with the net proceeds of one or more Equity Offerings (as
defined in the Exchange Debenture Indenture) of the Company; provided that at
least 65% of the original aggregate principal amount of Exchange Debentures
remain outstanding immediately after the occurrence of such redemption; and
provided, further, that any such redemption shall occur within 90 days after the
date of the closing of any such Equity Offering (as defined in the Exchange
Debenture Indenture).
A-3
<PAGE>
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Exchange Debentures.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of
Exchange Debentures shall have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of such
Holder's Exchange Debentures pursuant to the offer described below (the "Change
of Control Offer") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, thereon to
the date of purchase (the "Change of Control Payment"). The right of the Holders
of the Exchange Debentures to require the Company to repurchase such Exchange
Debentures upon a Change of Control may not be waived by the Trustee without the
approval of the Holders of the Exchange Debentures required by Section 9.2 of
the Exchange Debenture Indenture. Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Exchange Debentures pursuant to the procedures required by the
Exchange Debenture Indenture and described in such notice. The Change of Control
Payment shall be made on a business day not less than 30 days nor more than 60
days after such notice is mailed. The Company will comply with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Exchange Debentures as a result of a
Change of Control.
(b) If the Company or a Restricted Subsidiary consummates any Asset
Sales permitted by the Exchange Debenture Indenture, when the aggregate amount
of Excess Proceeds exceeds $5.0 million, the Company shall make an Asset Sale
Offer to purchase the maximum principal amount of Exchange Debentures and any
other Exchange Debenture Pari Passu Debt to which the Asset Sale Offer applies
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to, in the case of the Exchange Debentures, 100% of the
principal amount thereof, plus accrued and unpaid interest thereon to the date
of purchase or, in the case of any Exchange Debenture Pari Passu Debt, 100% of
the principal amount thereof (or with respect to discount Exchange Debenture
Pari Passu Debt, the accreted value thereof) on the date of purchase, in each
case, in accordance with the procedures set forth in Section 3.9 of the Exchange
Debenture Indenture or the agreements governing the Exchange Debenture Pari
Passu Debt, as applicable. To the extent that the aggregate principal amount (or
accreted value, as the case may be) of Exchange Debentures, and Exchange
Debenture Pari Passu
A-4
<PAGE>
Debt tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
the Company may use any remaining Excess Proceeds for general corporate
purposes. If the sum of (i) the aggregate principal amount of Exchange
Debentures surrendered by Holders thereof and (ii) the aggregate principal
amount or accreted value, as the case may be, of Exchange Debenture Pari Passu
Debt surrendered by holders or lenders thereof exceeds the amount of Excess
Proceeds, the Trustee and the trustee or other lender representative for the
Exchange Debenture Pari Passu Debt shall select the Exchange Debentures and the
other Exchange Debenture Pari Passu Debt to be purchased on a pro rata basis,
based on the aggregate principal amount (or accreted value, as applicable)
thereof surrendered in such Asset Sale Offer. Upon completion of such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
8. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Exchange Debentures are to be redeemed at its registered address.
Exchange Debentures in denominations larger than $1,000 may be redeemed in part
but only in integral multiples of $1,000, unless all of the Exchange Debentures
held by a Holder are to be redeemed. On and after the redemption date interest
ceases to accrue on the aggregate principal amount of the Exchange Debentures
called for redemption.
9. Denominations, Transfer, Exchange. The Exchange Debentures may be
issued initially in the form of one or more fully registered Global Exchange
Debentures. The Exchange Debentures may also be issued in registered form
without coupons in minimum denominations of $1,000 and integral multiples of
$1,000. The transfer of Exchange Debentures may be registered and Exchange
Debentures may be exchanged as provided in the Exchange Debenture Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Exchange
Debenture Indenture. The Company need not exchange or register the transfer of
any Exchange Debenture or portion of a Exchange Debenture selected for
redemption, except for the unredeemed portion of any Exchange Debenture being
redeemed in part. Also, it need not exchange or register the transfer of any
Exchange Debenture for a period of 15 days before a selection of Exchange
Debentures to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Exchange
Debenture may be treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions,
the Exchange Debenture Indenture or the Exchange Debentures may be amended or
supplemented with the
A-5
<PAGE>
consent of the Holders of at least a majority in aggregate principal amount of
the Exchange Debentures then outstanding (including, without limitation,
consents obtained in connection with a purchase of, or the tender offer or
exchange offer for, such Exchange Debentures), and any existing Default or Event
of Default under, or compliance with any provision of the Exchange Debenture
Indenture or the Exchange Debentures may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Exchange
Debentures (including consents obtained in connection with a tender offer or
exchange offer for the Exchange Debentures). Without the consent of any Holder
of a Exchange Debenture, the Exchange Debenture Indenture or the Exchange
Debentures may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Exchange Debentures in addition to
or in place of certificated Exchange Debentures, to provide for the assumption
of the Company's obligations to Holders of the Exchange Debentures in case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of the Exchange Debentures or that does not
adversely affect the legal rights under the Exchange Debenture Indenture of any
such Holder, or to comply with the requirements of the Commission in order to
effect or maintain the qualification of the Exchange Debenture Indenture under
the Trust Indenture Act.
12. Defaults and Remedies. Events of Default include: (i) default
for 30 consecutive days in the payment when due of interest on the Exchange
Debentures (whether or not prohibited by the provisions of Article 10 of the
Exchange Debenture Indenture); (ii) default in payment when due of the principal
of or premium, if any, on the Exchange Debentures (whether or not prohibited by
the provisions of Article 10 of the Exchange Debenture Indenture); (iii) failure
by the Company to comply with the provisions of Article 4 of the Exchange
Debenture Indenture; (iv) failure by the Company for 30 consecutive days after
notice from the Trustee or the Holders of at least 25% in aggregate principal
amount of the Exchange Debentures then outstanding to comply with any of its
other agreements in the Exchange Debenture Indenture or the Exchange Debentures;
(v) a default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Exchange Debenture Indenture, which default (a) is caused
by a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results in
the acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under
A-6
<PAGE>
which there is then existing a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) the failure by the Company
or any of its Restricted Subsidiaries to pay final, non-appealable judgments
aggregating in excess of $5.0 million, which judgments remain unpaid or
discharged for a period of 60 days; and (vii) certain events of bankruptcy or
insolvency with respect to the Company or any Significant Subsidiary or any
group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary. If any Event of Default (other than an Event of Default described in
clause (vii) above) occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Exchange Debentures may
declare all the Exchange Debentures to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Exchange Debentures will
become due and payable without further action or notice. Holders of the Exchange
Debentures may not enforce the Exchange Debenture Indenture or the Exchange
Debentures except as provided in the Exchange Debenture Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Exchange Debentures may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders of the Exchange Debentures
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest. The Holders of a majority in
aggregate principal amount of the Exchange Debentures then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Exchange Debentures
waive any existing Default or Event of Default and its consequences under the
Exchange Debenture Indenture except a continuing Default or Event of Default in
the payment of interest or premium on, or the principal of, the Exchange
Debentures. The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Exchange Debenture Indenture, and the
Company is required, within 5 Business days after becoming aware of any Default
or Event of Default, to deliver to the Trustee a statement specifying such
Default or Event of Default.
13. Subordination. The Exchange Debentures are subordinated to
Exchange Debenture Senior Debt of the Company. To the extent provided in the
Exchange Debenture Indenture, Exchange Debenture Senior Debt must be paid before
the Exchange Debentures may be paid. The Company agrees, and each Holder by
accepting a Exchange Debenture agrees, that the Indebtedness evidenced by the
Exchange Debentures, including, but not limited to, the payment of principal of,
premium, if any, and interest on the Exchange Debentures, and any other payment
Obligation of the Company in respect of the Exchange Debentures is subordinated
in
A-7
<PAGE>
right of payment, to the extent and in the manner provided in the Exchange
Debenture Indenture, to the prior payment in full in cash of all Exchange
Debenture Senior Debt of the Company (whether outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed) and authorizes the Trustee
to give effect and appoints the Trustee as attorney-in-fact for such purpose.
14. Trustee Dealings with Company. The Exchange Debenture Indenture
contains certain limitations on the rights of the Trustee, should it become a
creditor of the Company, to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
15. No Recourse Against Others. No director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Exchange Debentures or the Exchange
Debenture Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Exchange Debentures, by
accepting a Exchange Debenture, waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Exchange
Debentures. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
16. Authentication. This Exchange Debenture shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act.
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Exchange Debentures and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Exchange Debentures or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
A-8
<PAGE>
The Company will furnish to any Holder upon written request and
without charge a copy of the Exchange Debenture Indenture. Requests may be made
to:
Cumulus Media, Inc.
330 E. Kilbourn Avenue
Suite 250
Milwaukee, WI 53202
Attention: Secretary
A-9
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to
________________________________________________________________________________
(Insert assignee's Social Security or tax I.D. No.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
agent to transfer this Security on the books of the Company. The
agent may substitute another to act for him.
________________________________________________________________________________
Date: __________________
Your Signature: ________________________________________________
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:*__________________________________________
- ----------
(*) Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor acceptable to the
Trustee).
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Exchange Debenture purchased by
the Company pursuant to Section 4.10 or 4.13 of the Exchange Debenture
Indenture, check the box below:
|_| Section 4.10 |_| Section 4.13
If you want to elect to have only part of the Exchange Debenture
purchased by the Company pursuant to Section 4.10 or Section 4.13 of the
Exchange Debenture Indenture, state the principal amount you elect to have
purchased: $______________
Date: Your Signature:
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:*___________________________________________
- ----------
(*) Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor acceptable to the
Trustee).
A-11
<PAGE>
EXHIBIT B
(Form of Legend for Global Exchange Debenture)
Unless and until it is exchanged in whole or in part for Exchange
Debentures in definitive form, this Exchange Debenture may not be
transferred except as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository. Unless
this certificate is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York) ("DTC"), to
the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such
other name as may be requested by an authorized representative of DTC (and
any payment is made to Cede & Co. or such other entity as may be requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co., has an interest herein.
B-1
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE EXCHANGE DEBENTURES
[To be attached to Global Exchange Debenture]
The following exchanges of a part of this Global Exchange Debenture
for definitive Exchange Debentures have been made:
<TABLE>
<CAPTION>
Principal Amount of
Amount of decrease in Amount of increase in this Global Exchange Signature of authorized
Principal Amount Principal Amount Debenture following officer of Trustee
of this Global of this Global such decrease (or or Exchange Debenture
Date of Exchange Exchange Debenture Exchange Debenture increase) Custodian
---------------- ------------------ ------------------ --------- ---------
<S> <C> <C> <C> <C>
</TABLE>
B-2
<PAGE>
CROSS-REFERENCE TABLE*
Trust Exchange Debenture Indenture Exchange Debenture Indenture
Act Section Section
310 (a)(1) ................................................. 7.10
(a)(2) ................................................. 7.10
(a)(3) ................................................. N.A.
(a)(4) ................................................. N.A.
(a)(5) ................................................. 7.10
(b) ................................................. 7.10
(c) ................................................. N.A.
311 (a) ................................................. 7.11
(b) ................................................. 7.11
(c) ................................................. N.A.
312 (a) ................................................. 2.5
(b) ................................................. 12.3
(c) ................................................. 12.3
313 (a) ................................................. 7.6
(b)(1) ................................................. N.A.
(b)(2) ................................................. 7.7
(c) ................................................. 7.6; 12.2
(d) ................................................. 7.6
314 (a) ................................................. 4.3; 12.2
(b) ................................................. N.A.
(c)(1) ................................................. 12.4
(c)(2) ................................................. 12.4
(c)(3) ................................................. N.A.
(d) ................................................. 10.3-10.5
(e) ................................................. 12.5
(f) ................................................. N.A.
315 (a) ................................................. 7.1
(b) ................................................. 7.5; 12.2
(c) ................................................. 7.1
(d) ................................................. 7.1
(e) ................................................. 6.11
316 (a)(last sentence)....................................... 2.9
(a)(1)(A)................................................ 6.5
(a)(1)(B)................................................ 6.4
(a)(2) .................................................. N.A.
(b) .................................................. 6.7
(c) .................................................. 2.12
317 (a)(1) .................................................. 6.8
(a)(2) .................................................. 6.9
(b) .................................................. 2.4
318 (a) .................................................. 12.1
(b) .................................................. N.A.
(c) .................................................. 12.1
- -------------
N.A. means not applicable.
B-3
<PAGE>
*This Cross-Reference Table is not part of the Exchange Debenture
Indenture.
B-4
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE.............................. 1
Section 1.1. Definitions.......................................... 1
Section 1.2. Other Definitions.................................... 19
Section 1.3. Incorporation By Reference of Trust Indenture Act.... 19
Section 1.4. Rules of Construction................................ 20
ARTICLE 2
THE EXCHANGE DEBENTURES......................... 20
Section 2.1. Form and Dating...................................... 20
Section 2.2. Execution and Authentication......................... 21
Section 2.3. Registrar and Paying Agent........................... 22
Section 2.4. Paying Agent to Hold Money in Trust.................. 22
Section 2.5. Holder Lists......................................... 23
Section 2.6. Transfer and Exchange................................ 23
Section 2.7. Replacement Exchange Debentures...................... 24
Section 2.8. Outstanding Exchange Debentures...................... 24
Section 2.9. Treasury Exchange Debentures......................... 25
Section 2.10. CUSIP Number......................................... 25
Section 2.11. Cancellation......................................... 26
Section 2.12. Defaulted Interest................................... 26
Section 2.13. Book-Entry Provisions for Global Exchange
Debentures........................................ 26
ARTICLE 3
REDEMPTION AND PREPAYMENT........................ 28
Section 3.1. Notices to Trustee................................... 28
Section 3.2. Selection of Exchange Debentures to Be Redeemed...... 28
Section 3.3. Notice of Redemption................................. 29
Section 3.4. Effect of Notice of Redemption....................... 30
Section 3.5. Deposit of Redemption Price.......................... 30
Section 3.6. Exchange Debentures Redeemed in Part................. 31
Section 3.7. Optional Redemption.................................. 31
Section 3.8. Mandatory Redemption................................. 32
Section 3.9. Offer to Purchase By Application of Excess
Proceeds.......................................... 32
ARTICLE 4
COVENANTS................................ 34
Section 4.1. Payment of Exchange Debentures....................... 34
Section 4.2. Maintenance of Office or Agency...................... 35
Section 4.3. Reports.............................................. 35
Section 4.4. Compliance Certificate............................... 36
Section 4.5. Taxes................................................ 37
-i-
<PAGE>
Page
----
Section 4.6. Stay, Extension and Usury Laws....................... 37
Section 4.7. Restricted Payments.................................. 37
Section 4.8. Dividend and Other Payment Restrictions Affecting
Subsidiaries...................................... 40
Section 4.9. Incurrence of Indebtedness and Issuance of
Preferred Stock................................... 41
Section 4.10. Asset Sales.......................................... 43
Section 4.11. Transactions with Affiliates......................... 44
Section 4.12. Liens................................................ 45
Section 4.13. Offer to Repurchase Upon Change of Control........... 45
Section 4.14. Asset Swaps.......................................... 46
Section 4.15. Corporate Existence.................................. 47
Section 4.16. No Senior Subordinated Debt.......................... 47
Section 4.17. Business Activities.................................. 47
Section 4.18. Issuances and Sales of Capital Stock of Wholly
Owned Restricted Subsidiaries..................... 48
Section 4.19. Payments for Consent................................. 48
ARTICLE 5
SUCCESSORS................................ 48
Section 5.1. Merger, Consolidation, or Sale of Substantially
All Assets........................................ 48
Section 5.2. Successor Corporation Substituted.................... 49
ARTICLE 6
DEFAULTS AND REMEDIES.......................... 50
Section 6.1. Events of Default.................................... 50
Section 6.2. Acceleration......................................... 51
Section 6.3. Other Remedies....................................... 52
Section 6.4. Waiver of Past Defaults.............................. 52
Section 6.5. Control by Majority.................................. 53
Section 6.6. Limitation on Suits.................................. 53
Section 6.7. Rights of Holders of Exchange Debentures to
Receive Payment................................... 54
Section 6.8. Collection Suit by Trustee........................... 54
Section 6.9. Trustee May File Proofs of Claim..................... 54
Section 6.10. Priorities........................................... 55
Section 6.11. Undertaking for Costs................................ 55
ARTICLE 7
TRUSTEE................................. 56
Section 7.1. Duties of Trustee.................................... 56
Section 7.2. Rights of Trustee.................................... 57
Section 7.3. Individual Rights of Trustee......................... 58
Section 7.4. Trustee's Disclaimer................................. 58
Section 7.5. Notice of Defaults................................... 59
Section 7.6. Reports by Trustee to Holders of the Exchange
Debentures........................................ 59
Section 7.7. Compensation and Indemnity........................... 59
-ii-
<PAGE>
Page
----
Section 7.8. Replacement of Trustee.............................. 60
Section 7.9. Successor Trustee by Merger, etc. .................. 62
Section 7.10. Eligibility; Disqualification....................... 62
Section 7.11. Preferential Collection of Claims Against Company... 62
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE................. 62
Section 8.1. Option to Effect Legal Defeasance or Covenant
Defeasance....................................... 62
Section 8.2. Legal Defeasance and Discharge...................... 62
Section 8.3. Covenant Defeasance................................. 63
Section 8.4. Conditions to Legal or Covenant Defeasance.......... 64
Section 8.5. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions.... 65
Section 8.6. Repayment to Company................................ 66
Section 8.7. Reinstatement....................................... 66
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER..................... 67
Section 9.1. With Consent of Holders of Exchange Debentures...... 67
Section 9.2. Without Consent of Holders of Exchange Debentures... 68
Section 9.3. Compliance with Trust Indenture Act................. 69
Section 9.4. Revocation and Effect of Consents................... 69
Section 9.5. Notation on or Exchange of Exchange Debentures...... 69
Section 9.6. Trustee to Sign Amendment, etc. .................... 69
ARTICLE 10
SUBORDINATION.............................. 70
Section 10.1. Agreement to Subordinate............................ 70
Section 10.2. Certain Definitions................................. 70
Section 10.3. Liquidation; Dissolution; Bankruptcy................ 70
Section 10.4. Default on Designated Exchange Debenture Senior
Debt............................................. 72
Section 10.5. Acceleration of Exchange Debentures................. 73
Section 10.6. When Distribution Must Be Paid Over................. 73
Section 10.7. Notice by Company................................... 74
Section 10.8. Subrogation......................................... 74
Section 10.9. Relative Rights..................................... 74
Section 10.10. Subordination May Not Be Impaired by Company........ 75
Section 10.11. Payment, Distribution or Notice to Representative... 75
Section 10.12. Rights of Trustee and Paying Agent.................. 76
Section 10.13. Authorization to Effect Subordination............... 76
Section 10.14. Amendments.......................................... 76
Section 10.15. No Waiver of Subordination Provisions............... 76
ARTICLE 11
MISCELLANEOUS.............................. 77
Section 11.1. Trust Indenture Act Controls........................ 77
-iii-
<PAGE>
Page
----
Section 11.2. Notices............................................. 77
Section 11.3. Communication by Holders of Exchange Debentures
with Other Holders of Exchange Debentures........... 78
Section 11.4. Certificate and Opinion as to Conditions
Precedent........................................ 78
Section 11.5. Statements Required in Certificate or Opinion....... 79
Section 11.6. Rules by Trustee and Agents......................... 79
Section 11.7. No Personal Liability of Directors, Officers,
Employees and Stockholders....................... 79
Section 11.8. Governing Law....................................... 80
Section 11.9. No Adverse Interpretation of Other Agreements....... 80
Section 11.10. Successors.......................................... 80
Section 11.11. Severability........................................ 80
Section 11.12. Counterpart Originals............................... 80
Section 11.13. Table of Contents, Headings, Etc.................... 80
EXHIBITS
Exhibit A FORM OF EXCHANGE DEBENTURE
EXHIBIT B FORM OF LEGEND FOR GLOBAL EXCHANGE DEBENTURE
-iv-
<PAGE>
<PAGE>
Exhibit 10.7
September 3, 1996
Mr. William Bungeroth
1216 Scott Street
Winnetka, IL 60093
Dear Bill:
As we have discussed, we are pleased to offer you the position of President
and Chief Executive Officer of Cumulus Media, L.L.C., with the following terms
and responsibilities:
Position and Duties You will serve as President and Chief Executive Officer
of Cumulus Media, L.L.C., reporting to QUAESTUS
Management Corporation, the Manager of Cumulus. You
will also serve on the Executive Board of Cumulus.
Your primary responsibility will be to develop, in
consultation with the Manager, and implement a program
for acquiring and enhancing the performance of small
market radio stations based on the strategy and with
the objectives we have discussed. In addition, you
will fulfill the standard responsibilities of a chief
executive officer in a broadcasting business, including
hiring and management of personnel; development and
implementation of budgets both for Cumulus operations
and for purchase and operation of stations to be
acquired; development of business opportunities in the
form of station purchases and divestitures; hiring and
management of Cumulus employees and employees of member
stations; development and oversight of sales and
promotional programs; and monitoring of station
performance. It is not currently anticipated that you
will be responsible for Cumulus' operations in the
Eastern Caribbean, which will have a separate general
manager.
Start Date The position and all of the terms of this offer (except
this paragraph and the confidentiality and competition
paragraphs below) are contingent upon, and will take
effect upon, a closing of additional equity financing
for Cumulus Media in the amount of at least $25
million. QUAESTUS undertakes to use its best efforts
to raise the financing and to take other steps as may
reasonably be necessary to promote the success of the
venture. Before the closing, you will be required to
contribute reasonable effort to the fundraising
process, in the form of advising on the content of
offering materials, participating in the refinement of
the strategy, and making personal visits with
prospective investors as may reasonably be required.
<PAGE>
Compensation:
Base Salary: $250,000 per year.
Bonus: You will be eligible to receive an annual bonus based
on the assessment of your performance by the Manager.
The amount and whether such bonuses will be paid will
be determined in the sole discretion of the Manager,
but it is anticipated that you could achieve a maximum
of an additional 50% of your base salary based on goals
agreed upon between you and the Manager.
Profits Interest: You will receive a profits interest (analogous to stock
options) of 2% in the profits of Cumulus. Additional
profits interest points may be added for exceptional
performance determined in the sole discretion of the
Manager. The interest will vest in five equal segments
over a five-year period, once per year on the
anniversary of the Fund's closing. Interests will vest
100% upon sale of the properties.
Location: The parties expect that you will be capable of
fulfilling your duties from your current residence.
Benefits: You will receive a standard package of health and life
insurance benefits comparable to those received by
senior executives of QUAESTUS.
Competition: Both before and after the closing of the equity
financing, you agree not to assist or participate in
any ventures or companies that may be competitive with
the current or planned business strategy of Cumulus.
Confidentiality: You agree to keep confidential all non-public
information regarding Cumulus which you receive during
your association with Cumulus.
Termination: These arrangements are terminable by you at any time,
except that you will receive (1) your cash compensation
through the date of termination, and (2) any vested
profits interest to which you are entitled through the
date of notice of termination.
You may be terminated by the Manager at any time. In
such cases, you would receive (1) one year's cash
compensation, payable over time as if you remained an
employee, and (2) any vested profits interest to which
you are entitled through the date of notice of
termination.
2
<PAGE>
Bill, if these terms are acceptable, please sign below and return a faxed
copy to me. We look forward to working with you to build a successful
enterprise.
Very truly yours,
Richard W. Weening
ACCEPTED:
-------------------------
Date:
-----------------------------
3
<PAGE>
EXHIBIT 10.8
September 3, 1996
Mr. Richard Bonick
9438 Ridgeway
Evanston, IL 60203
Dear Rick:
As we have discussed, we are pleased to offer you the position of Vice
President and Chief Financial Officer of Cumulus Media, L.L.C., with the
following terms and responsibilities:
Position and Duties You will serve as Vice President and Chief Financial
Officer of Cumulus Media, L.L.C., reporting to the
Chief Executive Officer and ultimately to QUAESTUS
Management Corporation, the Manager of Cumulus. Your
primary responsibility will be to work with the CEO to
develop, in consultation with the Manager, and
implement a program for acquiring and enhancing the
performance of small market radio stations based on the
strategy and with the objectives we have discussed. In
addition, you will fulfill the standard
responsibilities of a chief financial officer in a
broadcasting business, including preparation and
administration of operating budgets; management of cash
requirements; representing the Company in dealings with
sources of capital; providing advice as to the best
ways to finance acquisitions; review of financial
condition of prospective acquisition targets; oversight
of accounting and bookkeeping functions; preparation of
financial statements in coordination with outside
accountants; and other standard financial matters. It
is currently anticipated that you also will be
responsible for oversight of the financial matters of
Cumulus' operations in the Eastern Caribbean, which
will have a separate general manager.
Start Date: The position and all of the terms of this offer (except
this paragraph and the confidentiality and competition
paragraphs below) are contingent upon, and will take
effect upon, a closing of additional equity financing
for Cumulus in the amount of at least $25 million.
QUAESTUS undertakes to use its best efforts to raise
the financing and to take other steps as may reasonably
be necessary to promote the success of the venture.
Before the closing, you will be required to contribute
reasonable effort to the fundraising process, in the
form of advising on the content of offering materials,
participating in the refinement of the strategy, and
making personal visits with prospective investors as
may reasonably be required.
<PAGE>
Compensation:
Base Salary: $250,000 per year.
Bonus: You will be eligible to receive an annual bonus based
on the assessment of your performance by the Manager.
The amount and whether such bonuses will be paid will
be determined in the sole discretion of the Manager,
but it is anticipated that you could achieve a maximum
of an additional 50% of your base salary based on goals
agreed between you and the Manager.
Profits Interest: You will receive a profits interest (analogous to stock
options) of 2% in the profits of Cumulus. Additional
profits interest points maya be added for exceptional
performance, determined in the sole discretion of the
Manager. The interest will vest in five equal segments
over a five-year period, once per year on the
anniversary of the Fund's closing. The interest will
vest 100% upon sale of the properties.
Location: The parties expect that you will be capable of
fulfilling your duties from your current residence.
Benefits: You will receive a standard package of health and life
insurance benefits comparable to those received by
senior executives of QUAESTUS.
Competition: Both before and after the closing of the equity
financing, you agree not to assist or participate in
any ventures or companies that may be competitive with
the current or planned business strategy of Cumulus.
Confidentiality: You agree to keep confidential all non-public
information regarding Cumulus which you receive during
your association with Cumulus.
Termination: These arrangements are terminable by you at any time,
except that you will receive (1) your cash compensation
through the date of termination, and (2) any vested
profits interest to which you are entitled through the
date of notice of termination.
You may be terminated by the Manager at any time. In
such cases, you would receive (1) one year's cash
compensation, payable over time as if you had remained
an employee, and (2) any vested options to which you
are entitled through the date of notice of termination.
2
<PAGE>
If these terms are acceptable, please sign below and return a faxed copy to
me. Rick, we are looking forward to working with you to build a successful
company.
Very truly yours,
Richard W. Weening
ACCEPTED:________________________
Date:______________________________
3
<PAGE>
EXHIBIT 10.69
ASSET PURCHASE AGREEMENT
This Agreement ("Agreement") is entered into as of February 26, 1998, by and
among Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting"), Cumulus
Licensing Corporation, a Nevada corporation ("Licensing"), and Mustang
Broadcasting Company, a Colorado corporation (the "Seller"). Broadcasting and
Licensing are referred to collectively herein as the "Buyers." The Buyers and
the Seller are referred to individually as the "Party" or collectively as the
"Parties." Capitalized terms used in this Agreement are defined in Section 8
hereof.
Subject to the terms and conditions of this Agreement, the Buyers hereby
agree to purchase substantially all of the assets (and assume certain of the
liabilities) of the Seller that are used or useful in the operation of radio
stations KKNN(FM) licensed to Delta, Colorado, and KEXO(AM) and KQIL(AM)
licensed to Grand Junction, Colorado (the "Stations") in return for cash.
Now, therefore, in consideration of the above premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Basic Transaction.
a. Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, the Seller agrees to sell, transfer, convey and
deliver to (i) Licensing, and Licensing agrees to purchase from the Seller, all
of the FCC Licenses listed in Section 2(k) of the disclosure schedule
("Disclosure Schedule"); and (ii) Broadcasting, and Broadcasting agrees to
purchase from the Seller, all of the Acquired Assets other than the FCC
Licenses. Both such sales shall take place at the Closing for the consideration
specified below in this Section 1.
b. Assumption of Liabilities. On and subject to the terms and
conditions of this Agreement, Broadcasting agrees to assume and become
responsible for all of the Assumed Liabilities at the Closing. The Buyers will
not assume or have any responsibility, however, with respect to any other
obligation or Liability of the Seller not included within the definition of
Assumed Liabilities and assumed by Broadcasting, and the Seller agrees to pay
and discharge all Liabilities and obligations of the Seller other than the
Assumed Liabilities.
c. Purchase Price. The Buyers agree to pay to the Seller, as
consideration for the Acquired Assets, the purchase price (the "Purchase Price")
described in Schedule A to this Agreement, and agrees to make the escrow deposit
(the "Escrow Deposit") in the form and manner described in Schedule A and more
particularly in the earnest money escrow agreement ("Earnest Money Escrow
Agreement") attached hereto as Exhibit A.
<PAGE>
d. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Stations in
Grand Junction, Colorado, or another mutually determined location, commencing at
9:00 a.m. local time promptly after the FCC approval of the Assignment
Application becomes a Final Order, by which date all other conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
will have been satisfied, or such other date as the Parties may mutually
determine (the "Closing Date").
e. Deliveries at the Closing. At the Closing, (i) the Seller will
deliver to the Buyers the various certificates, instruments, and documents
referred to in Section 5(a) below; (ii) the Buyers will deliver to the Seller
the various certificates, instruments, and documents referred to in Section 5(b)
below; (iii) the Seller will execute, acknowledge (if appropriate), and deliver
to the Buyers (A) assignments (including Lease and other Assumed Contract
assignments and Intellectual Property transfer documents), bills of sale and
warranty deeds in form reasonably acceptable to the Buyers, (B) such affidavits,
transfer tax returns, memorandums of lease, and other additional documents as
may be required by the terms of the title insurance commitments described in
Section 4(o) hereof, as necessary to furnish title insurance as required by such
section or as may be necessary to convey title to the Real Estate to the Buyers
in the condition required herein or provide public notice of existence of the
Leases, and (C) such other instruments of sale, transfer, conveyance, and
assignment as the Buyers and their counsel reasonably may request; (iv) the
Buyers will execute, acknowledge (if appropriate), and deliver to the Seller (A)
an assumption in the form attached hereto as Exhibit B and (B) such other
instruments of assumption as the Seller and its counsel reasonably may request;
and (v) the Buyers will deliver to the Seller the consideration specified in
Section 1(c) above.
f. Postclosing Agreement. On the Closing Date, the Seller shall
execute, and shall cause its shareholder to execute, a Postclosing Agreement
with the Buyers including a covenant not to compete with the Buyers in the
markets served by the Stations and agreements to indemnify the Buyers in the
form of Exhibit C attached hereto. A portion of the Purchase Price equal to
Fifty Thousand Dollars ($50,000) shall be paid to the Seller by the Buyers on
the Closing Date as consideration for the agreements set forth in the
Postclosing Agreement.
2. Representations and Warranties of the Seller.
The Seller represents and warrants to the Buyers that the statements
contained in this Section 2 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date, except as set
forth in the Disclosure Schedule.
2
<PAGE>
a. Organization of the Seller. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. The Seller does not have any Subsidiaries.
The Seller has the power and authority to own or lease its properties and to
carry on all business activities now conducted by it. The sole shareholder of
the Seller is Paul Fee.
b. Authorization of Transaction. The Seller has full power and
authority to execute and deliver this Agreement and all agreements and
instruments to be executed and delivered by Seller pursuant to this Agreement
(collectively, the "Ancillary Agreements") and to perform its obligations
hereunder and thereunder. Without limiting the generality of the foregoing, the
Board of Directors of the Seller has duly authorized the execution, delivery,
and performance of this Agreement and the Ancillary Agreements by the Seller.
This Agreement and the Ancillary Agreements constitute the valid and legally
binding obligation of the Seller, enforceable in accordance with their
respective terms and conditions.
c. Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in Section 1(e) above), will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the Seller
is subject or any provision of the charter or bylaws of the Seller; or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice or third party consent under any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest, or
other agreement, arrangement to which the Seller is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets). Other than with respect to the
Assignment Application described in Section 4(b) the Seller does not need to
give any notice to, make any filing with, or obtain any Licenses, consent, or
approval of any court or government or governmental agency in order for the
Parties to enter into this agreement or the Ancillary Agreements or to
consummate the transactions contemplated by this Agreement or the Ancillary
Agreements (including the assignments and assumptions referred to in Section
1(e) above).
d. Title to Acquired Assets. Other than the Security Interests set
forth on Section 2(d) of the Disclosure Schedule (which shall be released at or
before the Closing) the Seller has good and marketable title to all of the
Acquired Assets, free and clear of any Security Interest or restriction on
transfer.
3
<PAGE>
e. Financial Statements. Included in Section 2(e) of the Disclosure
Schedule are the following financial statements (collectively the "Financial
Statements"): (i) statements of assets, liabilities and shareholder equity as of
December 31, 1995, and December 31, 1996 for the Seller; and (ii) internally
prepared balance sheets and statements of income, as of and for each month
during 1995, 1996, and each month to date in 1997 for the Seller. The Financial
Statements have been prepared on the accounting basis used by the Seller for
income tax purposes, which is a comprehensive basis of accounting other than
generally accepted accounting principles. This accounting basis has been
consistently applied during the periods covered and are consistent with the
books and records of the Seller. The Financial Statements accurately state the
revenues of the Stations for the period indicated therein and include an
accurate breakout of cash and trade revenues.
f. Events Subsequent to January 1, 1998. Since January 1, 1998, except
as set forth in Section 2(f) of the Disclosure Schedule, there has not been any
material adverse change in the assets of the Stations. Without limiting the
generality of the foregoing and with respect to the operation of the Stations
since January 1, 1998:
(i) other than this Agreement, the Seller has not entered into any
agreement, contract, lease, sublease, license, or sublicense (or series of
related agreements, contracts, leases, subleases, licenses, and sublicenses)
outside the Ordinary Course of Business;
(ii) the Seller has not delayed or postponed (beyond its normal
practice in the Ordinary Course of Business) the payment of accounts payable
and other Liabilities;
(iii) the Seller has not altered its credit and collection
policies or its accounting policies;
(iv) the Seller has not entered into or terminated any employment
arrangement, employment contract, consulting contract or severance agreement
or collective bargaining agreement, written or oral, or modified the terms
of any existing such contract or agreement;
(v) there have been no changes and, to Seller's knowledge, any
threatened changes in employment terms for any of its directors, officers,
and employees;
(vi) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving the Seller;
4
<PAGE>
(vii) the Seller has not materially altered the programming,
format or call letters of the Stations, or its promotional and marketing
activities;
(viii) the Seller has not applied to the FCC for any modification
of the FCC Licenses or failed to take any action necessary to preserve the
FCC Licenses and has operated the Stations in compliance therewith and with
all FCC rules and regulations;
(ix) the Seller has not terminated or received notice of
termination for any syndicated programming; and
(x) the Seller has not committed to any of the foregoing.
g. Tax Matters. The Seller has timely and properly filed all Tax
Returns that it was required to file with respect to the Seller's operations.
All such Tax Returns were correct and complete and properly reflect the tax
liability of the Seller. No Tax deficiencies have been proposed or assessed
against the Seller. All Taxes owed by the Seller with respect to its operations
(whether or not shown on any Tax Return) have been paid. The Seller has withheld
and paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third party. No claim has ever been made by any authority in any
jurisdiction where the Seller does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction.
h. Tangible Assets. Section 2(h) of the Disclosure Schedule sets forth
a listing of all transmitter and station equipment, vehicles and other material
tangible personal property used in conducting the operation and business of the
Stations. The Seller owns or leases all tangible assets necessary for the
conduct of the operation and business of the Stations as presently conducted and
as presently proposed to be conducted and all leased assets are specifically
identified as such in Section 2(h) of the Disclosure Schedule.
i. Real Property. Section 2(i) of the Disclosure Schedule lists and
describes briefly all Owned Real Estate and real property leased to the Seller
(including, without limitation, complete legal descriptions for all of the Real
Estate). The Seller has delivered to the Buyers correct and complete copies of
the Leases. With respect to the Real Estate:
(i) the Seller has good and marketable title to all of the Owned
Real Estate free and clear of all liens, charges, mortgages, security
interests, easements, restrictions or other encumbrances of any nature
whatsoever except real estate taxes for the year of Closing and
municipal and zoning ordinances and recorded utility easements
5
<PAGE>
which do not impair the current use, occupancy or value or the
marketability of title of the property and which are disclosed in
Section 2(i) of the Disclosure Schedule (collectively, the "Permitted
Real Estate Encumbrances");
(ii) the Leases are and, following the Closing will continue to
be, legal, valid, binding, enforceable, and in full force and effect;
(iii) no party to any Lease is in breach or default (or has
repudiated any provision thereof), and no event has occurred which,
with notice or lapse of time, would constitute a breach or default
thereunder or permit termination, modification, or acceleration
thereunder;
(iv) there are no disputes, oral agreements, or forbearance
programs in effect as to any Lease;
(v) none of the Owned Real Estate and to the Seller's Knowledge,
none of the properties subject to the Leases is subject to any lease
(other than Leases), option to purchase or rights of first refusal;
(vi) except for Permitted Real Estate Encumbrances, there are no
(i) actual or, to the Seller's Knowledge, proposed special assessments
with respect to any of the Real Estate; (ii) pending or, to the
Seller's Knowledge, threatened condemnation proceedings with respect to
any of the Real Estate; (iii) structural or mechanical defects in any
of the buildings or improvements located on the Real Estate; (iv) any
pending or, to the Seller's Knowledge, threatened changed in any zoning
laws or ordinances which may materially adversely affect any of the
Real Estate or Seller's use thereof;
(vii) the Seller has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the Leases or
its rights thereunder;
(viii) to the Seller's Knowledge, all facilities on the Real
Estate have received all approvals of governmental authorities
(including licenses, permits and zoning approvals) required in
connection with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and regulations;
and
(ix) to the Seller's Knowledge, the owner of each leased facility
has good and marketable title to the underlying parcel of real
property, free and clear of any Security Interest, easement, covenant,
or other restriction, except for Permitted Real
6
<PAGE>
Estate Encumbrances and Seller's leasehold interest in each Lease has
priority over any other interest except for the fee interest therein
and Permitted Real Estate Encumbrances.
j. Contracts. Section 2(j) of the Disclosure Schedule lists any written
arrangement (or group of related written arrangements) either involving more
than $5,000 or not entered into in the Ordinary Course of Business. The Seller
has delivered to the Buyers a correct and complete copy of each written
arrangement listed in Section 2(j) of the Disclosure Schedule (as amended to
date). With respect to each written arrangement so listed which constitutes an
Assumed Contract: (A) the written arrangement is legal, valid, binding,
enforceable, and in full force and effect; (B) the written arrangement will
continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms following the Closing (if the arrangement has not
expired according to its terms); (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification, or acceleration, under the
written arrangement; and (D) no party has repudiated any provision of the
written arrangement. The Seller is not a party to any verbal contract,
agreement, or other arrangement which, if reduced to written form, would be
required to be listed in Section 2(j) of the Disclosure Schedule under the terms
of this Section 2(j). Except for the Assumed Contracts, the Buyers shall not
have any Liability or obligations for or in respect of any of the contracts set
forth in Section 2(j) of the Disclosure Schedule.
k. Commission Licenses and Compliance with Commission Requirements.
(i) All licenses, permits, authorizations, franchises,
certificates of compliance, and consents of governmental bodies,
including, without limitation, the FCC Licenses, used or useful in the
operation of the Stations as they are now being operated are (A) in
full force and effect, (B) unimpaired by any acts or omissions of the
Seller or the Seller's employees or agents, (C) free and clear of any
restrictions which might limit the full operation of the Stations, and
(D) detailed in Section 2(k) of the Disclosure Schedule. With respect
to the licenses, permits, authorizations, franchises, certificates of
compliance and consents referenced in the preceding sentence, Section
2(k) of the Disclosure Schedule also sets forth, without limitation,
the date of the last renewal, the expiration date thereof, and any
conditions or contingencies related thereto. Except as set forth in
7
<PAGE>
Section 2(k) of the Disclosure Schedule, no condition exists or event
has occurred that permits, or after notice or lapse of time, or both,
would permit, the revocation or termination of any such license,
permit, consent, franchise, or authorization (other than pursuant to
their express expiration date) or the imposition of any material
restriction or limitation upon the operation of the Stations as now
conducted. Except as set forth in Section 2(k) of the Disclosure
Schedule, the Seller is not aware of any reason why the FCC Licenses
might not be renewed in the ordinary course or revoked.
(ii) The Stations are in compliance with the FCC's policy on
exposure to radio frequency radiation. No renewal of any FCC License
would constitute a major environmental action under the FCC's rules or
policies. Access to the Stations' transmission facilities is restricted
in accordance with the policies of the FCC.
(iii) Except as set forth in Section 2(k) of the Disclosure
Schedule, to the Seller's Knowledge, the Seller is not the subject of
any FCC or other governmental investigation or any notice of violation
or order, or any material complaint, objection, petition to deny, or
opposition issued by or filed with the FCC or any other governmental
authority in connection with the operation of or authorization for the
Stations, and there are no proceedings (other than rulemaking
proceedings of general applicability) before the FCC or any other
governmental authority that could adversely affect any of the FCC
Licenses or the authorizations listed in Section 2(k) of the Disclosure
Schedule.
(iv) The Seller has filed with the FCC and all other governmental
authorities having jurisdiction over the Stations all material reports,
applications, documents, instruments, and other information required to
be filed, and will continue to make such filings through the Closing
Date.
(v) The Seller is not aware of any information concerning the
Stations that could cause the FCC or any other regulatory authority not
to issue to the Buyers all regulatory certificates and approvals
necessary for the consummation of the transactions contemplated
hereunder or the Buyer's operation and/or ownership of the Stations.
Except as set forth in Section 2(k) of the Disclosure Schedule, Seller
is not aware of any pending FCC applications which, if approved, would
allow for the operation of a new radio station with a signal reaching
the signal area of the Stations and, in addition, Seller is not aware
of any plans or proposals by any existing radio station with a signal
reaching the signal area of the Stations to alter or change their
format to a format similar to that of the Stations.
l. Intellectual Property. The Seller owns or has the right to use
pursuant to license, sublicense, agreement or permission all Intellectual
Property necessary for the operation of the businesses of the Seller as
presently conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by the Seller immediately prior to the
Closing hereunder is set forth on Section 2(l) of the Disclosure Schedule and
each item listed will be owned or available for use the by the Buyers on
identical terms and conditions immediately
8
<PAGE>
subsequent to the Closing hereunder. To the Seller's knowledge, the Seller has
not interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, and the Seller
has never received any charge, complaint, or notice alleging any such
interference, infringement, misappropriation, or violation. To the Knowledge of
the Seller, no third party has interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights of the
Seller.
m. Insurance. Section 2(m) of the Disclosure Schedule sets forth a
complete and accurate description of all Seller's insurance coverage. With
respect to each such insurance policy: (A) the policy is legal, valid, binding,
and enforceable and in full force and effect; and (B) the policy will continue
to be legal, valid, binding, and enforceable and in full force and effect on
identical terms through the Closing Date.
n. Litigation. Except for administrative rule making or other
proceedings of general applicability to the broadcast industry, there is no
litigation, proceeding, judgment, claim, action, investigation or complaint,
before the Commission, other governmental body, or court, of any nature pending
or, to the best of Seller's knowledge, threatened against or affecting it which
would affect Seller's authority or ability to carry out this Agreement. Section
2(n) of the Disclosure Schedule sets forth each instance in which the Seller:
(i) is subject to any unsatisfied judgment, order, decree, stipulation,
injunction, or charge; or (ii) is a party or, to the Knowledge of the Seller, is
threatened to be made a party to any charge, complaint, action, suit,
proceeding, hearing, or investigation of or in any court or quasijudicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the charges, complaints, actions, suits,
proceedings, hearings, and investigations set forth in Section 2(n) of the
Disclosure Schedule could result in any adverse change in the assets,
Liabilities, business, financial condition, operations, results of operations,
or future prospects of the Seller or the Stations taken as a whole. The Seller
has no Knowledge of any Basis for any such charge, complaint, action, suit,
proceeding, hearing, or investigation against the Seller.
o. Employees. Section 2(o) of the Disclosure Schedule sets forth a
listing of the names, positions, job descriptions, salary or wage rates and all
other forms of compensation paid for work at the Stations of each employee. To
the Knowledge of the Seller, no key employee or group of employees has any plans
to terminate employment with the Seller. The Seller is not a party to or bound
by any collective bargaining or similar agreement, nor has it experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Seller has no Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to the employees of the Seller. The Seller has no Knowledge of any Basis
for any claim by past or current employees of the Seller or applicants for
employment that the Seller or its management has discriminated
9
<PAGE>
based on each individual's race, sex, national origin, religion, ethnicity,
handicap or any other protected characteristic under applicable law.
p. Employee Benefits. Section 2(p) of the Disclosure Schedule lists all
Employee Benefit Plans that the Seller maintains or to which the Seller
contributes or is required to contribute for the benefit of any current or
former employee of the Seller and true and correct copies of each such Employee
Benefit Plan have been delivered to the Buyers. Each Employee Benefit Plan (and
each related trust or insurance contract) complies and at all times has complied
in form and in operation in all material respects with the applicable
requirements of ERISA and the Code. The Seller does not have any commitment to
create any additional Employee Benefit Plan or modify or change any existing
Employee Benefit Plan that would affect any employee or terminated employee of
the Seller. There are no pending or, to the Knowledge of the Seller, threatened
claims under, by or on behalf of any of the Employee Benefit Plans, by any
employee or beneficiary covered by any such Employee Benefit Plan, or otherwise
involving any such Employee Benefit Plan (other than routine claims for
benefits), nor have there been any Reportable Events or Prohibited Transactions
with respect to any Employee Benefit Plan.
q. Environment, Health, and Safety.
(i) With respect to the operation of the Stations and the Real
Estate, the Seller is, and at all times in the past has been, in
compliance in all material respects with all Environmental Laws and all
laws (including rules and regulations thereunder) of federal, state,
and local governments (and all agencies thereof) concerning employee
health and safety, and the Seller has no Liability (and to Seller's
Knowledge there is no Basis related to the past or present operations
of the Seller or its predecessors for any present or future Liability)
under any Environmental Law. The Seller has no Liability (and to
Seller's Knowledge there is no Basis for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against the Seller giving rise to any Liability) under the
Occupational Safety and Health Act, as amended, or any other law (or
rule or regulation thereunder) of any federal, state, local, or foreign
government (or agency thereof) concerning employee health and safety,
or for any illness of or personal injury to any employee.
(ii) The Seller has obtained and at all times has been in
compliance in all material respects with all of the terms and
conditions of all permits, licenses, and other authorizations which are
required under, and has complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all
Environmental Laws or law of any federal, state, or local or foreign
government relating to worker health and safety.
10
<PAGE>
(iii) All properties and equipment used in the Stations and the
Acquired Assets have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1, 2- trans-dichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances. To Seller's
knowledge, no pollutant, contaminant, or chemical, industrial,
hazardous, or toxic material or waste ever has been buried, stored,
spilled, leaked, discharged, emitted, or released on any of the Real
Estate. No above ground or underground storage tanks have ever been
located at, on or under the Real Estate. The Seller has delivered to
the Buyers a complete copy of all environmental claims, reports,
studies, compliance actions or the like of the Seller or which are
available to the Seller with respect to any of the Real Estate or any
of the Acquired Assets.
r. Legal Compliance. The Seller has complied in all material respects
with all laws (including rules and regulations thereunder) of federal, state,
local and foreign governments (and all agencies thereof). The Seller has filed
in a timely manner all material reports, documents, and other materials it was
required to file (and the information contained therein was correct and complete
in all material respects) under all applicable laws.
s. Advertising Contracts. Section 2(s) of the Disclosure Schedule lists
all arrangements for the sale of air time or advertising on the Stations in
excess of $1000, and the amount to be paid to the Seller therefor. The Seller
has no reason to believe and has not received a notice or indication of the
intention of any of the advertisers or third parties to material contracts of
the Seller to cease doing business or to reduce in any material respect the
business transacted with the Seller or to terminate or modify any agreements
with the Seller (whether as a result of consummation of the transactions
contemplated hereby or otherwise).
t. Brokers' Fees. The Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
u. Undisclosed Commitments or Liabilities. There are no material
commitments, liabilities or obligations relating to the Stations, whether
accrued, absolute, contingent or otherwise including, without limitation,
guaranties by the Seller of the liabilities of third parties, for which specific
and adequate provisions have not been made on the Financial Statements except
those incurred in or as a result of the Ordinary Course of Business since
January 1, 1998.
11
<PAGE>
v. Disclosure. The representations and warranties contained in this
Section 2 do not contain any untrue statement of a fact or omit to state any
material fact necessary in order to make the statements and information
contained in this Section 2 not misleading.
3. Representations and Warranties of the Buyers.
Buyers represent and warrant to the Seller that the statements contained in
this Section 3 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date except as set forth in the
Disclosure Schedule.
a. Organization of the Buyers. Broadcasting and Licensing are
corporations duly organized, validly existing, and in good standing under the
laws of Nevada.
b. Authorization of Transaction. Buyers have full power and authority
to execute and deliver this Agreement and the Ancillary Agreements and to
perform their obligations hereunder and thereunder. This Agreement and the
Ancillary Agreements constitute legally binding obligations of the Buyers,
enforceable against the Buyers in accordance with their respective terms and
conditions.
c. Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in Section 1(e) above), will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the Buyers
are subject or any provision of their articles of organization or other charter
documents, or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or third party
consent under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Buyers are a
party or by which they are bound or to which any of their assets is subject.
Other than the Assignment Application described in Section 4(b), the Buyers do
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any court or government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement or the Ancillary Agreements (including the assignments and
assumptions referred to in Section 1 (e) above).
d. Brokers' Fees. Other than the fee payable to McCoy Broadcast
Brokerage, which shall be the exclusive responsibility of the Buyers, the Buyers
have no
12
<PAGE>
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
the Seller could become liable or obligated.
e. Disclosure. The representations and warranties contained in this
Section 3 do not contain any untrue statement of fact or omit to state any
material fact necessary in order to make the statements and information
contained in this Section 3 not misleading.
f. Litigation. Except for administrative rule making or other
proceedings of general applicability to the broadcast industry, there is no
litigation, proceeding, judgment, claim, action, investigation or complaint,
before the Commission, other governmental body, or court, of any nature pending
or, to the best of Buyer's knowledge, threatened against or affecting it which
would affect Buyer's authority or ability to carry out this agreement.
g. Buyers' Qualifications. There is no fact that would, under present
law (including the Communications Act of 1934, as amended) and the present rules
and regulations of the Commission, disqualify Buyers from being the assignee of
the Stations or that would delay Commission approval of the Assignment
Application. Should Buyers become aware of any such fact, they will so inform
Seller. Buyers will not take any action that Buyers know, or have reason to
believe, would result in such disqualification.
h. Reliance. Neither Buyers nor any person acting as Buyers'
representative or on Buyers' behalf have relied on any representation or
statement of Seller or any other person except as expressly set forth in this
Agreement, the Disclosure Schedule and accompanying exhibits.
4. Pre-Closing Covenants.
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
a. General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable to
consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 5 below).
b. Assignment Applications. Within five (5) days after the execution of
this Agreement, the Seller and the Buyers shall jointly file with the FCC an
application for assignment of the FCC Licenses, permits and authorizations
pertaining to the Stations from the
13
<PAGE>
Seller to Licensing (the "Assignment Application"). The costs of the FCC filing
fees in connection with the Assignment Application shall be divided equally
between the Parties. Each party shall pay its own attorneys' fees. The Seller
and the Buyers shall thereafter prosecute the Assignment Application with all
reasonable diligence and otherwise use commercially reasonable efforts to obtain
the grant of the Assignment Application as expeditiously as practicable (but
neither the Seller nor the Buyers shall have any obligation to satisfy
complainants or the FCC by taking any steps which would have a material adverse
effect upon the Stations or impose significant costs on such party). If the FCC
imposes any condition on either party to the Assignment Application, such party
shall use commercially reasonable efforts to comply with such condition,
provided, that neither party shall be required hereunder to comply with any
condition that would have a material adverse effect upon the Stations or any
Affiliate. The Seller and the Buyers shall jointly oppose any requests for
reconsideration or judicial review of FCC approval of the Assignment Application
and shall jointly request from the FCC extension of the effective period of FCC
approval of the Assignment Application if the Closing shall not have occurred
prior to the expiration of the original effective period of the FCC Consent.
Nothing in this Section 4(b) shall be construed to limit either party's right to
terminate this Agreement pursuant to Section 9 of this Agreement.
c. Employment Offers. Upon notice to the Seller, and at mutually
agreeable times, the Seller will permit the Buyers to meet with its employees
prior to the Closing Date. The Buyers may, at their option, extend offers of
employment to all or any of the Seller's employees effective on the Closing
Date. From and after the execution of this Agreement, the Seller shall use its
best efforts to assist Buyers in retaining those employees of the Stations which
the Buyers wish to hire in connection with the operation of the Stations by the
Buyers subsequent to the Closing, and the Seller will not take any action to
preclude or discourage any of the Seller's employees from accepting any offer of
employment extended by the Buyers.
d. Notices and Consents. The Seller will give all notices to third
parties and shall have obtained all third party consents, that the Buyers
reasonably may request. Each of the Parties will file any notification and
report forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act, will use its best efforts
to obtain an early termination of the applicable waiting period, and will make
any further filings pursuant thereto that may be necessary, proper or advisable.
Each of the Parties will take any additional action that may be necessary,
proper, or advisable in connection with any other notices to, filings with, and
authorizations, consents, and approvals of governments, governmental agencies,
and third parties that it may be required to give, make, or obtain.
14
<PAGE>
e. Advertising Obligations. The Seller shall satisfy its air time
obligations under its agreements for sale of air time and advertising on the
Stations for goods or services ("Barter Agreements") such that the outstanding
aggregate balance owing under all Barter Agreements as of the Closing Date shall
not exceed Five Thousand Dollars ($5,000) worth of air time without the Buyers'
consent. On the Closing Date, the Seller shall deliver to the Buyers a schedule,
certified by an officer of the Seller, reflecting the aggregate outstanding
balances under all Barter Agreements in existence as of the Closing Date.
f. Operating Statements. The Seller shall deliver to the Buyers, for
the Buyers' informational purposes only, monthly internally prepared balance
sheets and statements of income of the Seller within ten (10) days after each
such statement is prepared by or for the Seller.
g. Contracts. The Seller will not without the prior written consent of
the Buyers amend, change, or modify any of the contracts listed on Section 2(i)
of the Disclosure Schedule in any material respect. The Seller will not without
prior written consent of the Buyers enter into any contract outside the Ordinary
Course of Business which involves more than Five Thousand Dollars ($5,000).
h. Operation of Stations. The Seller will not engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business. The Seller shall operate the Stations in compliance in all material
respects with the FCC Licenses and the rules and regulations of the FCC, and the
FCC Licenses shall at all times remain in full force and effect. The Seller
shall file with the FCC all material reports, applications, documents,
instruments and other information required to be filed in connection with the
operation of the Stations.
i. Credit and Receivables. The Seller will follow its usual and
customary policies with respect to extending credit for sales of air time and
advertising on the Stations and with respect to collecting accounts receivable
arising from such extension of credit.
j. Preservation of Stations and the Acquired Assets. The Seller will
use its best efforts to keep its Stations and the Acquired Assets and properties
substantially intact, including its present operations, physical facilities,
working conditions, relationships with lessors, licensors, advertisers,
suppliers, customers, and employees, all of the Confidential Information, call
letters and trade secrets of the Stations, and the FCC Licenses.
k. Full Access and Consultation. The Seller will permit representatives
of the Buyers to have full access at all reasonable times, and in a manner so as
not to interfere with
15
<PAGE>
the normal business operations of the Stations, to all premises, properties,
books, records, contracts, Tax records, and documents of or pertaining to the
Seller. The Seller will consult with the Buyers' management with a view to
informing Buyers' management as to the operations, management and business of
the Stations.
l. Notice of Developments. The Seller will give prompt written notice
to the Buyers of any material development affecting business, operations or
prospects of the Stations or the Acquired Assets or the ability of the Seller to
perform hereunder.
m. Exclusivity. The Seller will not (i) solicit, initiate, or encourage
the submission of any proposal or offer from any person relating to any (A)
merger or consolidation, (B) acquisition or purchase of securities or assets, or
(C) similar transaction or business combination involving the Seller, or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person to do or seek any of the
foregoing. The Seller will notify the Buyers immediately if any person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
n. Title Insurance, Surveys and Environmental Assessments. The Buyers
will obtain with respect to each parcel of Real Estate subject to the Leases, a
leasehold owner's policy issued by a title insurer reasonably satisfactory to
the Sellers, in an amount equal to the fair market value of such Real Estate
(including all improvements located thereon), insuring over the standard
pre-printed exceptions and insuring leasehold title to such Real Estate in the
Buyers as of the Closing subject only to the Permitted Real Estate Encumbrances,
together with such endorsements for zoning, contiguity, public access and
extended coverage as the Buyers or their lender reasonably request, (ii) with
respect to each parcel of Owned Real Estate, an owner's policy of title
insurance by a title insurer reasonably satisfactory to the Buyers, in an amount
equal to the fair market value of such Real Estate (including all improvements
located thereon), insuring over the standard pre-printed exceptions and insuring
title to the Owned Real Estate to be vested in the Buyers as of the Closing free
and clear of all liens and encumbrances except Permitted Real Estate
Encumbrances, together with such endorsements for zoning, contiguity, public
access and extended coverage as the Buyers or its lender reasonably request,
(iii) a current survey of each parcel of Real Estate certified to the Buyers and
its lender, prepared by a licensed surveyor and conforming to current ALTA
Minimum Detail Requirements for Land Title Surveys, disclosing the location of
all improvements, easements, party walls, sidewalks, roadways, utility lines,
and other matters shown customarily on such surveys, and showing access
affirmatively to public streets and roads (the "Surveys') which shall not
disclose any survey defect or encroachment from or onto any of the Real Estate
which has not been cured or insured over prior to the Closing; and (iv) with
respect to each parcel of Real Estate, the Buyers
16
<PAGE>
may obtain a current Phase I environmental site assessment from an environmental
consultant or engineer reasonably satisfactory to the Sellers which does not
indicate that the Seller and the Real Estate are not in compliance in any
material respect with any Environmental Law and which shall not disclose or
recommend any action with respect to any condition to be remediated or
investigated or any contamination on the site assessed.
o. Control of Stations. The transactions contemplated by this Agreement
shall not be consummated until after the FCC has given its consent and approval
to the Assignment Application. Between the date of this Agreement and the
Closing Date, the Buyers and their employees or agents shall not directly or
indirectly control, supervise, or direct, or attempt to control, supervise, or
direct, the operation of the Stations, and such operation shall be the sole
responsibility of and in the control of the Seller.
p. Risk of Loss. The risk of loss, damage, or destruction to any of the
Acquired Assets shall remain with the Seller until the Closing. In the event of
any such loss, damage, or destruction the Seller will promptly notify the Buyers
of all particulars thereof, stating the cause thereof (if known) and the extent
to which the cost of restoration, replacement and repair of the Acquired Assets
lost, damaged or destroyed will be reimbursed under any insurance policy with
respect thereto. The Seller will, at Seller's expense, repair or replace such
Acquired Assets to their former condition as soon as possible after loss, damage
or destruction thereof and shall use its best efforts to restore as promptly as
possible transmissions as authorized in the FCC Licenses. The Closing Date shall
be extended (with FCC consent, if necessary) for up to sixty (60) days to permit
such repair or replacement. If repair or replacement cannot be accomplished
within sixty (60) days of the date of the Seller's notice to the Buyers and the
Buyers determine that the Seller's failure to repair or replace would have a
material adverse effect on the operation of the Stations:
(i) the Buyers may elect to terminate this Agreement; or
(ii) the Buyers may postpone the Closing Date until such time as
the property has been repaired, replaced or restored in a manner and to
an extent reasonably satisfactory to the Buyers, unless the same cannot
be reasonably effected within ninety (90) days of the date of the
Seller's notice to the Buyers, in which case either party may terminate
this Agreement; or
(iii) the Buyers may choose to accept the Acquired Asset in their
"then" condition, together with the Seller's assignment to the Buyers
of all rights under any insurance claims covering the loss, damage or
destruction and payment over to the Buyers of any proceeds under any
such insurance policies previously received by the
17
<PAGE>
Seller with respect thereto plus an amount equal to the amount of any
deductible or self-insurance maintained by Seller on such Acquired
Assets. In the event the Closing Date is postponed pursuant to this
Section 4(p), the parties hereto will cooperate to extend the time
during which this Agreement must be closed as specified in the consent
of the FCC.
q. Information Held in Confidence. Except with respect to Buyers'
prospective lenders, if any, from the date hereof until the Closing Date, Buyer
and other representatives of Buyers will hold in strict confidence, and will not
disclose to any third party, any data and information obtained in connection
with this transaction with respect to the business of Seller, except insofar as
any of such data and information may be required by law to be publicly disclosed
or submitted to the Commission. If the transactions contemplated by this
Agreement are not consummated, Buyers will return to Seller all such data and
information, including, but not limited to, all documents, copies of documents
and memoranda or other materials prepared by Buyers which incorporate data or
information obtained from Seller and all other data and information made
available to Buyers in connection with this transaction, except that which may
be required to be submitted to the Commission.
5. Conditions to Obligation to Close.
a. Conditions to Obligation of the Buyers. The obligation of Buyers to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 2
above shall be true and correct in all respects at and as of the
Closing Date as though made on and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of its
covenants hereunder in all respects through the Closing;
(iii) the Seller shall have procured all of the third party
consents specified in Section 4(d) above and all of the title insurance
commitments (and endorsements), and Surveys described in Section 4(o)
above and the environmental site assessments described in Section 4(a)
above shall have been procured by Buyers, if necessary.
(iv) no action, suit, investigation, inquiry or other proceeding
shall be pending or threatened before any court or quasijudicial or
administrative agency of any federal, state, local, or foreign
jurisdiction wherein an unfavorable judgment, order,
18
<PAGE>
decree, stipulation, injunction, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement
or impose damages or penalties upon any of the parties if such
transactions are consummated, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation,
or (C) affect adversely the right of the Buyers to own, operate, or
control the Acquired Assets (and no such judgment, order, decree,
stipulation, injunction, or charge shall be in effect);
(v) the Seller shall have delivered to the Buyers a certificate
(without qualification as to knowledge or materiality or otherwise) to
the effect that each of the conditions specified above in Sections
5(a)(i) through (iv) is satisfied in all respects;
(vi) each of the Assignment Applications shall have been approved
by a Final Order of the FCC, all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or been terminated and the Buyers shall have received all governmental
approvals required to transfer all other authorizations, consents, and
approvals of governments and governmental agencies set forth in the
Disclosure Schedule;
(vii) the relevant parties shall have entered into the Postclosing
Agreement;
(viii) the Buyers shall have received from counsel to the Seller
an opinion with respect to the matters set forth in Exhibit E attached
hereto, addressed to the Buyers and its lender and dated as of the
Closing Date;
(ix) the Parties shall have agreed to allocate the Purchase Price
(and all other capitalizable costs) among the Acquired Assets for all
purposes (including financial accounting and tax purposes) in
accordance with an allocation schedule to be delivered at closing; and
(x) all actions to be taken by the Seller in connection with the
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyers.
b. Conditions to Obligation of the Seller. The obligation of the Seller
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
19
<PAGE>
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all respects at and as of the
Closing Date as though made on and as of the Closing Date;
(ii) the Buyers shall have performed and complied with all of
their covenants hereunder in all respects through the Closing;
(iii) no action, suit, investigation, inquiry or other proceeding
shall be pending or threatened before any court or quasi judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction wherein an unfavorable judgment, order, decree,
stipulation, injunction, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement or impose
damages or penalties upon any of the Parties if such transactions are
consummated, or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such judgment,
order, decree, stipulation, injunction, or charge shall be in effect);
(iv) the Buyers shall have delivered to the Seller a certificate
(without qualification as to knowledge or materiality or otherwise) to
the effect that each of the conditions specified above in Section
5(b)(i)-(iii) is satisfied in all respects and the statements contained
in such certificate shall be deemed a warranty of the Buyers which
shall survive the Closing;
(v) each of the Assignment Applications shall have been approved
by a Final Order of the FCC and the Buyers shall have received all
governmental approvals required to transfer all other authorizations,
consents, and approvals of governments and governmental agencies set
forth in the Disclosure Schedule;
(vi) the relevant parties shall have entered into the Postclosing
Agreement; and
(vii) all actions to be taken by the Buyers in connection with the
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Seller.
6. Post-Closing Covenants.
The Parties agree as follows with respect to the period following the Closing:
20
<PAGE>
a. General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 7 below).
b. Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Stations, each of the other Parties will reasonably cooperate with
the contesting or defending Party and its counsel in the contest or defense,
make available his or its personnel, and provide such testimony and access to
its books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section 7 below); provided, however, that such access and
cooperation does not unreasonably disrupt the normal operations of the
cooperating party.
c. Adjustments. Operation of the Stations and the income and expenses
attributable thereto up through the close of business on the day before the
Closing Date shall be for the account of the Seller and thereafter for the
account of the Buyers. Such items as employee salaries, vacation, sick day and
personal time accruals, and fringe benefits, power and utilities charges,
insurance, real and personal property taxes, prepaid expenses, deposits, music
license fees, and rents and payments pertaining to the Assumed Contracts
(including any contracts for the sale of time for cash, trade or barter so
assigned) shall be prorated between the Seller and the Buyers as of the Closing
Date in accordance with the foregoing principle. In addition, all commissions
payable with respect to the accounts receivable of the Seller (whether due
before or after Closing) shall be solely for the account and responsibility of
the Seller. Contractual arrangements that do not reflect an equal rate of
compensation to a Station over the term of the agreement shall be equitably
adjusted as of the Closing Date. The prorations and adjustments hereunder shall
be made and paid insofar as feasible on the Closing Date, with a final
settlement sixty (60) days after the Closing Date. In the event of any disputes
between the Parties as to such adjustments, the amounts not in dispute shall
nonetheless be paid at such time and such disputes shall be determined by an
independent accounting firm mutually acceptable to both parties and the fees and
expenses of such accounting firm shall be paid one-half (1/2) by the Seller and
one-half (1/2) by the Buyers.
21
<PAGE>
d. Collection of Accounts Receivable. At the Closing, the Seller will
turn over to the Buyers, for collection only, the accounts receivable of the
Stations owing to the Seller as of the close of business on the day before the
Closing Date. A schedule of such accounts receivable will be delivered by the
Seller to the Buyers on the Closing Date or as soon thereafter as possible. The
Buyers agree to use commercially reasonable efforts in the ordinary course of
business (but without responsibility to institute legal or collection
proceedings) to collect such accounts receivable during the 120-day period
following the Closing Date, and will remit all payments received on such
accounts during this 120-day period on the one hundred twentieth (120th) day
together with an accounting of all payments received within such period. The
Buyers shall have the sole right to collect such accounts receivable during such
one hundred twenty (120) day period. In the event the Buyers receive monies
during the 120-day period following the Closing Date from an advertiser who,
after the Closing Date, is advertising on the Stations, and that advertiser was
included among the accounts receivable as of the Closing Date, the Buyers shall
apply said monies to the oldest outstanding balance due on the particular
account, except in the case of a "disputed" account receivable. For purposes of
this Section 6(d), a "disputed" account receivable means one which the account
debtor refuses to pay because he asserts that the money is not owed or the
amount is incorrect. In the case of such a disputed account, the Buyers shall
immediately return the account to the Seller prior to expiration of the 120-day
period following the Closing Date. If the Buyers return a disputed account to
the Seller, the Buyers shall have no further responsibility for its collection
and may accept payment from the account debtor for advertising carried on the
Stations after the Closing Date. At the end of the 120-day period following the
Closing Date, the Buyers will turn back to the Seller all of the accounts
receivable of the Stations as of the Closing Date owing to the Seller which have
not yet been collected, and the Buyers will thereafter have no further
responsibility with respect to the collection of such receivables. During the
120-day period following the Closing Date, the Buyers shall afford the Seller
reasonable access to the accounts receivable "aging list." The Seller
acknowledges and agrees that the Buyers are acting as collection agent hereunder
for the sole benefit of the Seller and that Buyers have accepted such
responsibility for the accommodation of the Seller. The Buyers shall not have
any duty to inquire as to the form, manner of execution or validity of any item,
document, instrument or notice deposited, received or delivered in connection
with such collection efforts, nor shall the Buyers have any duty to inquire as
to the identity, authority or rights of the persons who executed the same. The
Seller shall indemnify Buyers and hold them harmless from and against any
judgments, expenses (including attorney's fees) costs or liabilities which the
Buyers may incur or sustain as a result of or by reason of such collection
efforts.
e. Consents. In the event any of the Assumed Contracts are not
assignable or any consent to such assignment is not obtained on or prior to the
Closing Date, and the Buyers elect to consummate the transactions contemplated
herein despite such failure or inability to
22
<PAGE>
obtain such consent, the Seller shall continue to use commercially reasonable
efforts to obtain any such assignment or consent after the Closing Date. Until
such time as such assignment or approval has been obtained, the Seller will
cooperate with Buyers in any lawful and economically feasible arrangement to
provide that the Buyers shall receive the Seller's interest in the benefits
under any such Assumed Contract, including performance by the Seller as agent,
if economically feasible; provided, however, that the Buyers shall undertake to
pay or satisfy the corresponding liabilities for the enjoyment of such benefit
to the extent that Buyers would have been responsible therefor if such consent
or assignment had been obtained.
f. Access. Seller and its authorized representatives shall have, after
the Closing Date, the right to obtain, upon prior request, access to originals
or copies of all logs, books, relevant records, contracts and documents relating
to ownership of the Stations by Seller to the extent necessary for the
preparation and filing of government returns or reports by the Seller.
g. Facilities of KQIX(FM). Buyers agree to provide the licensee of
Station KQIX(FM), Grand Junction, Colorado, with access to and use of the studio
facilities and antenna site of Station KQIL(AM) upon commercially reasonable
terms and conditions.
7. Remedies for Breaches of this Agreement.
a. Survival. All of the representations and warranties of the Seller
contained in Section 2 of this Agreement (other than the representations and
warranties of the Seller contained in Sections 2(a), 2(b), 2(c), and 2(d) hereof
or relating to the Seller's title to the Acquired Assets) shall survive the
Closing and continue in full force and effect for a period until 90 days after
the applicable statute of limitations has expired with respect to any claim by
the Buyers based on a claim or action by a third party and for a period of three
(3) years following Closing with respect to any claim by the Buyers not based on
a claim or action by a third party. All of the other representations and
warranties (including the representations and warranties Seller contained in
Sections 2(a), 2(b), 2(c), and 2(d) hereof or relating to the Seller's title to
the Acquired Assets) and all covenants of the Buyers and the Seller contained in
this Agreement shall survive the Closing and continue in full force and effect
forever thereafter.
b. Indemnification Provisions for the Benefit of the Buyers. Except as
described below in Section 7(e) with respect to a breach of a warranty or
covenant prior to the Closing Date, the Seller agrees to indemnify the Buyers
from and against the entirety of any Adverse Consequences the Buyers may suffer
resulting from, arising out of, relating to, in the nature of, or caused by:
23
<PAGE>
(i) any misrepresentation or breach of any of the Seller's
representations or warranties, and covenants contained in this
Agreement or in any Ancillary Agreement executed and/or delivered by
the Seller (so long as the Buyers make a written claim for
indemnification within the applicable survival period);
(ii) any breach or nonfulfillment of any agreement or covenant of
the Seller contained herein or in any Ancillary Agreement;
(iii) any Liability of the Seller which is not an Assumed
Liability; and/or
(iv) any Liability of the Buyers arising by operation of law
(including under any bulk transfer law of any jurisdiction or under any
common law doctrine of defacto merger or successor liability) which is
not an Assumed Liability.
c. Indemnification Provisions for the Benefit of the Seller. Except as
described below in Section 7(e) with respect to a breach of a warranty or
covenant prior to the Closing Date, the Buyers agree to indemnify the Seller
from and against the entirety of any Adverse Consequences the Seller may suffer
resulting from, arising out of, relating to, in the nature of, or caused by (i)
any misrepresentation or breach of any of the Buyers' representations or
warranties contained in this Agreement or in any Ancillary Agreement executed
and/or delivered by the Buyers (so long as the Seller makes a written claim for
indemnification within the applicable survival period) or (ii) any breach or
nonfulfillment of any agreement or covenant of the Buyers contained herein or in
any Ancillary Agreement, or (iii) any Assumed Liability.
d. Specific Performance. Each of the Parties acknowledges and agrees
that the Buyers would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the Buyers
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the Parties and the matter
(subject to the provisions set forth in Section 10(o) below), in addition to any
other remedy to which it may be entitled, at law or in equity. Each of the
Parties acknowledges and agrees that not withstanding the provision in Section
7(e) with respect to the remedy of liquidated damages upon a breach of a
warranty or covenant of this Agreement prior to the Closing, money damages would
not be an adequate remedy for Buyers for a breach of any provision of this
Agreement.
24
<PAGE>
e. Liquidated Damages. The Buyers and the Seller acknowledge that in
the event that the transactions contemplated by this Agreement are not closed
because of a default by the Buyers, the Adverse Consequences to the Seller as a
result of such default may be difficult, if not impossible, to ascertain.
Accordingly, in lieu of indemnification pursuant to Section 7(c), the Seller
shall be entitled to receive from the defaulting Party for such default the
Earnest Money Deposit as liquidated damages without the need for proof of
damages, subject only to successfully proving in a court of competent
jurisdiction that the Buyer materially breached this Agreement and that the
transactions contemplated thereby have not occurred. The Seller shall proceed
against the Earnest Money Deposit as full satisfaction of liquidated damages
owed by the Buyers and as its sole remedy for a failure of the transactions
contemplated hereby to occur as a result of a material breach of the terms of
this Agreement by the Buyers.
f. Matters Involving Third Parties. If any third party shall notify any
Party (the "Indemnified Party") with respect to any matter which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 7, then the Indemnified Party shall notify the
Indemnifying Party thereof promptly; provided, however, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is damaged as a result
of such failure. In the event any Indemnifying Party notifies the Indemnified
Party within 15 days after the Indemnified Party has given notice of the matter
that the Indemnifying Party is assuming the defense thereof, (i) the
Indemnifying Party will defend the Indemnified Party against the matter with
counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the
Indemnified Party may retain separate co- counsel at its sole cost and expense
(except that the Indemnifying Party will be responsible for the fees and
expenses of the separate co-counsel to the extent the Indemnified Party
reasonably concludes that the counsel the Indemnifying Party has selected has a
conflict of interest), (iii) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect to the matter without
the written consent of the Indemnifying Party (not to be withheld unreasonably),
and (iv) the Indemnifying Party will not consent to the entry of any judgment
with respect to the matter, or enter into any settlement which does not include
a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all Liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld unreasonably). In the event
the Indemnifying Party does not notify the Indemnified Party within 15 days
after the Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, however, and/or in the event the
Indemnifying Party shall fail to defend such claim actively and in good faith,
then the Indemnified Party may defend against, or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate.
25
<PAGE>
g. Limitation of Liability. Notwithstanding anything in this Agreement
to the contrary, after the Closing neither party shall indemnify or otherwise be
liable to the other party from and after the Closing Date except to the extent
that the Adverse Consequences suffered by the Identified Party, in the aggregate
from all indemnifiable events shall exceed Ten Thousand Dollars ($10,000) and
indemnification shall be made by the indemnifying party only to the extent of
such excess over Ten Thousand Dollars ($10,000); provided, however, that the
foregoing limitation shall not be applicable to (i) the obligations of the
Buyers to pay and discharge any Liability of the Seller to third parties from
and after the Closing Date assumed by the Buyers under the terms of this
Agreement; (ii) the obligation of the Seller to pay and discharge any Liability
to third parties not assumed by the Buyers under the terms of this Agreement; or
(iii) the Seller's obligation to deliver clear title to the Acquired Assets.
8. Definitions.
"Acquired Assets" means all right, title, and interest in and to all of the
assets of the Seller, other than Retained Assets that are used or useful in the
operation of the Stations, wherever located, including but not limited to all of
its (a) leaseholds and other interests of any kind therein, improvements,
fixtures, and fittings thereon (such as towers and antennae), and easements,
rights-of-way, and other appurtenances thereto); (b) tangible personal property
(such as fixed assets, computers, data processing equipment, electrical devices,
monitoring equipment, test equipment, switching, terminal and studio equipment,
transmitters, transformers, receivers, broadcast facilities, furniture,
furnishings, inventories of compact disks, records, tapes and other supplies,
vehicles) and all assignable warranties with respect thereto; (c) Intellectual
Property, goodwill associated therewith, licenses and sublicenses granted and
obtained with respect thereto, and rights thereunder, remedies against
infringements thereof, and rights to protection of interests therein under the
laws of all jurisdictions; (d) rights under orders and agreements (including
those Barter Agreements and Advertising Contracts identified on the Disclosure
Schedule) now existing or entered into in the Ordinary Course of Business for
the sale of advertising time on the Stations; (e) Assumed Contracts, indentures,
Security Interests, guaranties, other similar arrangements, and rights
thereunder; (f) call letters of the Stations, jingles, logos, slogans, and
business goodwill of the Stations; (g) claims, deposits, prepayments, refunds,
causes of action, chooses in action, rights of recovery (including rights under
policies of insurance), rights of set off, and rights of recoupment; (h)
Licenses and similar rights obtained from governments and governmental agencies;
(i) FCC logs and records and all other books, records, ledgers, logs, files,
documents, correspondence, advertiser lists, all other lists, plats,
architectural plans, drawings, and specifications, creative materials,
advertising and promotional materials, program production materials, studies,
reports, and other printed or written materials; and (j) goodwill of the
Stations.
26
<PAGE>
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including all attorneys' fees and court costs.
"Advertising Contracts" has the meaning set forth in Section 2(s), above.
"Affiliate" means with reference to any person or entity, another person or
entity controlled by, under the control of or under common control with that
person or entity.
"Assignment Application" has the meaning set forth in Section 4(b) above.
"Assumed Contracts" means the Leases, the Barter Agreements, the Advertising
Contracts and those contracts identified on Section 2(k) of the Disclosure
Schedule as those to be assumed by Broadcasting.
"Assumed Liabilities" means (a) obligations of the Seller which accrue after
the Closing Date under the Assumed Contract either: (i) to furnish services, and
other non-Cash benefits to another party after the Closing; or (ii) to pay for
goods, services, and other non-Cash benefits that another party will furnish to
it after the Closing. The Assumed Liabilities shall not include any Retained
Liabilities.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyers" has the meaning set forth in the preface above.
"Cash" means cash, cash equivalents or similar types of investments such as
certificates of deposit, treasury bills and other marketable securities on hand
and/or in banks;
"Closing" has the meaning set forth in Section 1(d) above.
"Closing Date" has the meaning set forth in Section 1(d) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of the Seller.
27
<PAGE>
"Disclosure Schedule" has the meaning set forth in Section 1 above.
"Earnest Money Deposit" has the meaning set forth in Section 1(c) above.
"Earnest Money Escrow Agreement" has the meaning set forth in Section 1(c)
above.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multi-employer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and Recovery
Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act
of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act
of 1976, the Refuse Act of 1899, or the Emergency Planning and Community
Right-to-Know Act of 1986 (each as amended), or any other law of any federal,
state, local, or foreign government or agency thereof (including rules,
regulations, codes, plans, judgments, orders, decrees, stipulations,
injunctions, and charges thereunder) relating to public health and safety, or
pollution or protection of the environment, including, without limitation, laws
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous or toxic materials
or wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means McCoy Broadcast Brokerage.
"Extremely Hazardous Substance" has the meaning set forth in Section 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
28
<PAGE>
"FCC" means the Federal Communications Commission of the United States.
"FCC Licenses" means the licenses, permits and other authorizations,
including any temporary waiver or special temporary authorization, issued by the
FCC to the Seller in connection with the conduct of the business and operation
of the Stations.
"Final Order" means an action by the FCC as to which: (a) no request for
stay by the FCC is pending, no such stay is in effect, and any deadline for
filing a request for any such stay has passed; (b) no appeal, petition for
rehearing or reconsideration, or application for review is pending before the
FCC and the deadline for filing any such appeal, petition or application has
passed; (c) the FCC has not initiated reconsideration or review on its own
motion and the time in which such reconsideration or review is permitted has
passed; and (d) no appeal to a court, or request for stay by a court, of the
FCC's action is pending or in effect, and the deadline for filing any such
appeal or request has passed.
"Financial Statements" has the meaning set forth in Section 2(e) above.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in Section 7(d) above.
"Indemnifying Party" has the meaning set forth in Section 7(d) above.
"Intellectual Property" means all (a) patents, patent applications, patent
disclosures, and improvements thereto, (b) trademarks, service marks, trade
dress, call letters, logos, trade names, and corporate names and registrations
and applications for registration thereof, (c) all programs, programming
materials, copyrights and registrations and applications for registration
thereof, (d) mask works and registrations and applications for registration
thereof, (e) computer software, data, and documentation, (f) trade secrets and
confidential business information (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, market and other research information, drawings,
specifications, designs, plans proposals, technical data, copyrightable works,
financial, marketing, and business data, pricing and cost information, business
and marketing plans, and customer and supplier lists and information), (g) other
proprietary rights, and (h) copies and tangible embodiments thereof (in whatever
form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
29
<PAGE>
"Leases" means those real estate leases to which Seller is a party governing
Seller's studios and FM tower sites, as described in Section 2(i) of the
Disclosure Schedule.
"Liability" means any liability (whether known or unknown, whether absolute
or contingent, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Licenses" means all FCC and other governmental licenses, franchises,
approvals, certificates, authorizations and rights of the Seller with respect to
the operations of the Stations and all applications therefor, together with any
renewals, extension or modifications thereof and additions thereto.
"Multi-employer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Owned Real Estate" means the real property owned by the Seller as described
in Section 2(i) of the Disclosure Schedule and all buildings, fixtures, and
improvements located thereon.
"Party" has the meaning set forth in the preface above.
"Permitted Real Estate Encumbrances" shall have the meaning set forth in
Section 2(i), above.
"Post-Closing Agreement" means the Post-Closing Agreement with Seller's
owners in the form attached hereto as Exhibit C.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Price " has the meaning set forth in Section 1(c) above.
"Real Estate" means the Owned Real Estate and the real estate, building,
fixtures and improvements which are the subject of the Leases.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
30
<PAGE>
"Retained Assets" means (i) the corporate charter, qualifications to conduct
business as a foreign corporation, arrangements with registered agents relating
to foreign qualifications, taxpayer and other identification numbers, seals,
minute books, stock transfer books, blank stock certificates, and other
documents relating to the organization, maintenance, and existence of the Seller
as a corporation; (ii) any of the rights of the Seller under this Agreement (or
under any side agreement between the Seller on the one hand and the Buyers on
the other hand entered into on or after the date of this Agreement); (iii)
accounts, notes and other receivables of the Seller; (iv) Cash; and (v)
contracts of insurance, including the cash surrender value thereof, and all
insurance proceeds or claims made by Seller relating to property or equipment
repaired, replaced or restored by the Seller prior to the Closing Date.
"Retained Liabilities" means any other obligations or Liabilities of the
Seller, including but not limited to: (i) any Liability relating to the
ownership or operation of the Stations prior to the Closing; (ii) any Liability
of the Seller for income, transfer, sales, use, and other Taxes arising in
connection with the consummation contemplated hereby; (iii) any Liability of the
Seller for costs and expenses incurred in connection with this Agreement or the
consummation of the transactions contemplated hereby (except as set forth in
Section 4(n) relating to Surveys, title commitments and environmental audits and
Section 4(b) with regard to the Assignment Application; or (iv) any Liability or
obligation of the Seller under this Agreement (or under any side agreement
between the Seller on the one hand and the Buyers on the other hand entered into
on or after the date of this Agreement).
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due
and payable; and (b) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation.
"Seller" has the meaning set forth in the preface above.
"Stations" means the radio broadcast stations having the call letters
KKNN(FM) licensed to Delta, Colorado, and KEXO(AM) and KQIL(AM) licensed to
Grand Junction, Colorado.
"Subsidiary," with respect to any person, means any corporation,
partnership, joint venture, limited liability company, trust or estate of which
(or in which ) 50% or more of (i) the outstanding capital stock or other equity
interest having voting power to elect a majority of the Board of Directors of
such corporation or persons having a similar role as to an entity that is not a
corporation, (ii) the interest in the profits of such partnership or joint
venture, or (iii) the beneficial interest of such trust or estate are at such
time directly or indirectly owned by such person or one or more of such person's
Subsidiaries.
31
<PAGE>
"Surveys" has the meaning set forth in Section 4(o) above.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
9. Termination.
a. Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyers and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyers may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing in the event the
Seller is in breach of any representation, warranty, or covenant
contained in this Agreement; provided, however, that if such breach is
capable of being cured, such breach also remains uncured for twenty
(20) days after notice of breach is received by the Seller from the
Buyers;
(iii) the Seller may terminate this Agreement by giving written
notice to the Buyers at any time prior to the Closing in the event the
Buyers are in breach of any representation, warranty, or covenant
contained in this Agreement; provided, however that if such breach is
capable being cured, such breach remains uncured for twenty (20) days
after notice of breach is received by the Buyers from the Seller;
(iv) the Buyers may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing if the Closing
shall not have occurred on or before the 270th day following the date
of this Agreement by reason of the failure of any condition precedent
under Section 5(a) hereof (unless the failure results primarily from
32
<PAGE>
the Buyers themselves breaching any representation, warranty, or
covenant contained in this Agreement);
(v) the Seller may terminate this Agreement by giving written
notice to the Buyers at any time prior to the Closing if the Closing
shall not have occurred on or before the 270th day following the date
of this Agreement by reason of the failure of any condition precedent
under Section 5(b) hereof (unless the failure results primarily from
the Seller itself breaching any representation, warranty, or covenant
contained in this Agreement);
(vi) the Buyers or the Seller may terminate this Agreement if any
Assignment Application is denied by Final Order.
b. Effect of Termination. If any Party terminates this Agreement
pursuant to Section 9(a) above, all obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party then in breach).
10. Miscellaneous.
a. Press Releases and Announcements. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement prior
to the Closing without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by law or regulation (in which case the disclosing Party will advise
the other Party prior to making the disclosure).
b. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
c. Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, that may have related in any way to the subject matter
hereof.
d. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party, provided that (i) the Buyers may assign all of their right,
title and interest in, to and under this Agreement to one or more
33
<PAGE>
Affiliates, who shall then, subject to the terms and conditions of this
Agreement, have the right to receive the Acquired Assets, assume the Assumed
Liabilities, and to pay to the Seller the Purchase Price therefor or to any
successor to the Buyers in the event of any sale, merger or consolidation of the
Buyers, and (ii) Buyers may assign their indemnification claims and their rights
under the warranties and representations of the Sellers to the financial
institution(s) providing financing to the Buyers in connection with this
transaction.
e. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
f. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
g. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing and shall be considered to be given
and received in all respects when hand delivered, when delivered via prepaid
express or courier delivery service, when sent by facsimile transmission
actually received by the receiving equipment or three (3) days after deposited
in the United States mail, certified mail, postage prepaid, return receipt
requested, in each case addressed to the intended recipient as set forth below:
If to the Seller:
Mustang Broadcasting Company
715 Horizon Drive, Suite 430
Grand Junction, CO 81506
Attn: Mr. Paul Fee
Fax: (970) 245-5858
Copy to:
Erwin Krasnow, Esquire
Verner, Liipfert, Bernhard, McPherson and Hand
901 15th Street, N.W.
Washington, D.C. 20005
Fax: (202) 371-6279
(which copy shall not constitute notice to Seller)
34
<PAGE>
If to the Buyers:
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
c/o QUAESTUS Management Corp.
330 E. Kilbourn Avenue, Suite 250
Milwaukee, WI 53202
Attn: Terrence J. Leahy
Fax: (414) 283-4505
With a copy to:
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
875 N. Michigan Avenue
Suite 3650
Chicago, Illinois 60611
Attn: Richard J. Bonick
Fax: (312) 867-0098
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim or other communication shall
be deemed to have been duly given unless and until it actually is received by
the party for whom it is intended. Any party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set forth.
h. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
Colorado.
i. Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyers and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
35
<PAGE>
j. Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
k. Expenses. The Buyers and the Seller, will each bear their own costs
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby, other than as set forth
in Section 4(n) with regard to the Assignment Applications and as set forth in
Section 4(o) with respect to Surveys, title commitments and environmental
audits. The Seller will pay all income taxes. The Seller and the Buyers will
each pay one-half (1/2) of any transfer or sales taxes and other recording or
similar fees necessary to vest title to each of the Acquired Assets in the
Buyers.
l. Construction. The language used in this Agreement will be deemed to
be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference to
any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Nothing in the Disclosure Schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein unless the
Disclosure Schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail. The Parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty, or covenant.
m. Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
n. Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Grand Junction, Colorado
in any action or proceeding arising
36
<PAGE>
out of or relating to this Agreement, agrees that all claims in respect of the
action or proceeding may be heard and determined in any such court, and agrees
not to bring any action or proceeding arising out of or relating to this
Agreement in any other court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety, or other security that might be required of any other
Party with respect thereto. Any Party may make service on the other Party by
sending or delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in Section 10(g)
above. Nothing in this Section 10(n), however, shall affect the right of any
Party to serve legal process in any other manner permitted by law. Each Party
agrees that a final judgment in any action or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment or in any other manner
provided by law.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as of
the date first above written.
CUMULUS BROADCASTING, INC.
By:
------------------------------
(printed)
- ---------------------------------
Title:
----------------------------
CUMULUS LICENSING CORPORATION
By:
-------------------------------
(printed)
- ---------------------------------
Title:
----------------------------
MUSTANG BROADCASTING COMPANY
By:
-------------------------------
(printed)
- ---------------------------------
Title:
----------------------------
37
<PAGE>
38
<PAGE>
SCHEDULE A
Purchase Price. The Buyers agree to pay to the Seller, as consideration for
the Acquired Assets of Stations KKNN(FM), KEXO(AM) and KQIL(AM), the amount of
Two Million Dollars ($2,000,000), payable as follows:
(i) on the date of this Agreement, the Buyers will deposit with the
Escrow Agent the amount of One Hundred Thousand Dollars ($100,000) (the "Earnest
Money Deposit") in the form of an irrevocable letter of credit from NationsBank;
and
(ii) on the Closing Date, the Buyers shall pay to the Seller the amount
of Two Million Dollars ($2,000,000), with adjustments as provided specifically
in this Agreement.
The Earnest Money Deposit referenced in this Schedule A shall be placed in
escrow with the Escrow Agent pursuant to an escrow agreement in the form
attached hereto as Exhibit A (the "Earnest Money Escrow Agreement"), and shall
be disbursed to Seller or returned to Buyer as provided in the Earnest Money
Escrow Agreement.
39
<PAGE>
EXHIBIT A
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is made and entered into as of February 26, 1998, by
and among MUSTANG BROADCASTING CORPORATION, a Colorado corporation ("Seller");
CUMULUS BROADCASTING, INC., a Nevada corporation; CUMULUS LICENSING CORP., a
Nevada corporation (Cumulus Broadcasting, Inc. and Cumulus Licensing Corp.
collectively shall be referred to as "Buyers"); and MCCOY BROADCAST BROKERAGE,
INC. ("Escrow Agent"). Capitalized terms that are used but not defined herein
shall have that meaning assigned to them in the Purchase Agreement.
WITNESSETH:
WHEREAS, Seller and Buyer are parties to that certain Asset Purchase
Agreement executed as of February 26, 1998 (the "Purchase Agreement"), providing
for the purchase by Buyers of the Acquired Assets from Seller; and
WHEREAS, Section 1(c) and Schedule A of the Purchase Agreement provide that
an irrevocable letter of credit issued by NationsBank and in favor of Escrow
Agent in the amount of One Hundred Thousand and no/100 Dollars ($100,000.00)
shall be placed with the Escrow Agent pending the Closing of the Purchase
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions set forth in the Purchase Agreement and herein, Seller, Buyers
and Escrow Agent agree as follows:
1. Seller and Buyers hereby establish this Escrow Agreement and mutually
appoint McCoy Broadcast Brokerage, Inc. as escrow agent pursuant to the terms
and conditions of the Purchase Agreement. Escrow Agent hereby accepts this
appointment.
2. Upon the execution of this Escrow Agreement by all parties hereto, Buyers
shall deposit with Escrow Agent an irrevocable letter of credit issued by
NationsBank and in favor of Escrow Agent (the "Letter of Credit") in the amount
of One Hundred Thousand and no/100 Dollars ($100,000.00) (the "Earnest Money
Deposit").
3. Subject to the terms of this Agreement, Escrow Agent agrees to act as
Escrow Agent and immediately upon receipt thereof, to use said Earnest Money
Deposit, consistent with the terms of the Purchase Agreement. In the event the
Escrow Agent draws under the Letter of Credit and does not immediately deliver
the proceeds thereof to the Seller, the Escrow Agent shall place the Earnest
Money Deposit in an FDIC-insured interest-bearing account with a bank having
total assets of at least $100,000,000.00. The Escrow Agent, subject to the terms
of the Purchase Agreement, shall release from Escrow the Letter of Credit or the
Earnest Money Deposit and deliver the same in accordance with one of the
following notices:
A. The Letter of Credit by its terms expires on ______, 1998. If by
_______, 1998, the Letter of Credit has not been extended for an
additional period of one year, the Escrow Agent shall immediately
draw on the Letter of Credit and treat the proceeds of such draw
as the Escrow Deposit.
B. If the Closing of the transaction contemplated by the Purchase
Agreement occurs, Escrow Agent shall, upon receipt of joint
written notice from Buyers and Seller, deliver the Letter of
Credit to the issuer thereof for cancellation; or if the Escrow
Agent holds the Earnest Money Deposit, shall deliver in
immediately available funds:
i. to the Seller, the principal amount of the Earnest Money
Deposit, to be applied by the Seller as a portion of the
Purchase Price; and
ii. to the Buyers, the interest earned on the Earnest Money
Deposit.
<PAGE>
C. If the Closing of the transaction contemplated by the Purchase
Agreement does not occur due to a material breach of the Purchase
Agreement by Buyers, and the Seller is not in material breach of
the Purchase Agreement, Escrow Agent shall, upon ten (10) business
days advance written notification from Seller or ten (10) business
days after receipt of a final order of a state or federal court of
competent jurisdiction ordering payment, shall draw upon the
letter of credit and release to Seller the Earnest Money Deposit
and all interest earned thereon.
D. If the Closing of the transaction contemplated by the Purchase
Agreement does not occur due to any cause or event other than a
material breach of the Purchase Agreement by the Buyers, or if the
Seller is in material breach of the Purchase Agreement, Escrow
Agent shall, upon ten (10) business days advance written
notification from Buyers or ten (10) business days after receipt
of a final order of a state or federal court of competent
jurisdiction ordering payment, shall deliver the Letter of Credit
to the issuer thereof for cancellation; or, if the Escrow Agent
holds the Earnest Money Deposit, shall deliver to the Buyer in
immediately available funds the Earnest Money Deposit and all
interest earned thereon.
Any notice or order provided to Escrow Agent by Buyers will be
simultaneously provided to Seller and any notice or order provided to Escrow
Agent by Seller will be simultaneously provided to Buyers. In the event that
during the ten business day period following the delivery by Buyers or Seller
(as the case may be) to Escrow Agent of a notice that it is entitled under this
Section 3 to receive payment of the Letter of Credit or Earnest Money Deposit
the other Party delivers notice to Escrow Agent that it disputes that Party's
right to payment, then the provisions of Section 4 will apply.
4. If at any time a dispute or disagreement shall exist or arise as to the
duties of Escrow Agent under the terms hereof or if a disagreement between the
parties hereto results in conflicting or adverse claims or demands being made in
connection with the Letter of Credit and the Earnest Money Deposit, Escrow Agent
is authorized and directed to retain all or any part of the Letter of Credit and
Earnest Money Deposit and in so doing Escrow Agent shall not become liable in
any way to any person for its failure or refusal to comply with such conflicting
or adverse claims or demands unless or until:
A. the rights of all claimants have been duly adjudicated by a court
of competent jurisdiction evidenced by a certified copy of such
final judgment, together with written evidence that any right of
appeal has expired, or
B. a written agreement is reached by and between all disputing
parties, satisfactory to Escrow Agent, and a copy of such
agreement signed by all disputing parties is delivered to Escrow
Agent.
5. Escrow Agent undertakes to perform only such duties as are expressly set
forth herein.
6. Escrow Agent may rely and shall be protected in acting or refraining
from acting upon any written notice, instruction or request furnished to it
hereunder and believed by it to be genuine and to have been signed or presented
by the proper party or parties. Escrow Agent may conclusively presume that the
undersigned representatives of Seller or Buyers individually have full power and
authority to instruct Escrow Agent on behalf of that party unless written notice
to the contrary is delivered to Escrow Agent.
7. Except for its gross negligence or willful misconduct, Escrow Agent
shall not be liable for any action taken by it in good faith and believed by it
to be authorized or within the rights or powers conferred upon it by this Escrow
Agreement. Escrow Agent may consult with counsel of its own choice and shall
have full and complete
2
<PAGE>
authorization and protection of any action taken or suffered by it hereunder in
good faith and in accordance with the opinion of such counsel.
8. Escrow Agent may resign and be discharged from its duties or obligations
hereunder by giving notice in writing of such resignation specifying a date upon
which such resignation shall take effect, whereupon a successor Escrow Agent
shall be appointed by Seller and Buyers (or, if no agreement is reached between
Buyers and Seller as to a successor, then the Grand Junction, Colorado agent of
the title insurance company which issues title insurance policies at the
Closing).
9. Escrow Agent shall be entitled to be reimbursed for all losses,
liabilities or expense, including reasonable attorneys' fees, incurred or made
by it arising out of or in connection with its entering into this Escrow
Agreement or carrying out its duties hereunder, but shall receive no
compensation for its services. Any such reimbursement to which Escrow Agent is
entitled shall be borne jointly by Seller and Buyers, unless otherwise ordered
by a court which adjudicates a dispute or disagreement under Section 4 above.
10. This Escrow Agreement expressly sets forth all the duties of Escrow
Agent with respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Escrow Agreement against Escrow Agent.
Escrow Agent shall not be bound by the provisions of any agreement among the
parties hereto except this Escrow Agreement.
11. This Escrow Agreement shall inure to the benefit of and be binding upon
the parties and their respective heirs, successors, assigns and legal
representatives. This Escrow Agreement shall be governed by and construed in
accordance with the laws of Colorado. This Escrow Agreement cannot be modified,
amended or terminated except in writing signed by Seller, Buyers and Escrow
Agent.
12. All notice and other communications under this Escrow Agreement shall
be in writing and shall be given (and shall be deemed to have been duly given if
so given) in the manner specified in the Purchase Agreement, if to Seller or the
Buyers, at the addresses specified therein (and with the copies), and if to the
Escrow Agent at :
McCoy Broadcast Brokerage, Inc.
2910 Electra Drive
Colorado Springs, Colorado 80906
Fax: (719) 630-1871
Attn: Mr. Jody McCoy
.
or to such other person or address as any of the parties hereto shall specify by
notice in writing to all the other parties hereto.
13. This Escrow Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original instrument and all of which
together shall constitute a single agreement.
* * * * *
3
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Escrow Agreement on the date first above written.
MUSTANG BROADCASTING CORPORATION
By:
-------------------------------
Its:
------------------------------
"Seller"
CUMULUS BROADCASTING, INC.
By:
-------------------------------
Its:
------------------------------
CUMULUS LICENSING CORP.
By:
-------------------------------
Its:
------------------------------
"Buyers"
MCCOY BROADCAST BROKERAGE, INC.
By:
-------------------------------
Its:
------------------------------
"Escrow Agent"
4
<PAGE>
EXHIBIT B
INSTRUMENT OF ASSUMPTION
THIS INSTRUMENT OF ASSUMPTION, dated as of ______________________, 1998 from
Cumulus Broadcasting, Inc., a Nevada corporation ("Assignee"), to Mustang
Broadcasting Corporation ("Assignor"); is delivered pursuant to Section 1(e) of
that certain Asset Purchase Agreement, dated as of February 26, 1998 (the "Asset
Purchase Agreement"), among Assignee and Assignor. Defined terms used herein
without definition have the meanings assigned to such terms in the Asset
Purchase Agreement.
WHEREAS, by a General Assignment being executed and delivered by Assignor to
Assignee simultaneously herewith pursuant to the Asset Purchase Agreement,
Assignor is selling, transferring, assigning, conveying and delivering to
Assignee substantially all of the assets of Assignor (the "Assets");
NOW THEREFORE, in partial consideration of such sale, transfer, assignment,
conveyance and delivery on and as of the date hereof, subject to and in
accordance with the terms and conditions of the Asset Purchase Agreement,
Assignee hereby assumes and becomes responsible for the following Assumed
Liabilities:
Obligations of the Seller which accrue after the Closing Date under the
Assumed Contracts either: (i) to furnish services, and other non-Cash
benefits to another party after the Closing; or (ii) to pay for goods,
services, and other non-Cash benefits that another party will furnish to it
after the Closing.
provided, however, that the Assumed Liabilities shall not include any other
obligations or liabilities of Assignor, including but not limited to: (i) any
Liability relating to the ownership or operation of the Stations prior to the
Closing; (ii) any Liability of Assignor for income, transfer, sales, use, and
other Taxes arising in connection with the consummation contemplated by the
Asset Purchase Agreement; (iii) any Liability of Assignor for costs and expenses
incurred in connection with the Asset Purchase Agreement or the consummation of
the transactions contemplated hereby; or (iv) any Liability or obligation of
Assignor under the Asset Purchase Agreement (or under any side agreement between
Assignor on the one hand and Assignee on the other hand).
Other than as specifically stated in this Instrument of Assignment, Assignee
assumes no obligation of Assignor. As to any lease, contract, agreement, permit
or other authorization included in the Acquired Assets which may be assigned
only with the consent of the other party thereto, this Instrument of Assumption
shall be of no force and effect until such requisite consents shall have been
obtained, whereupon it shall become of full force and effect as of the date of
such consent.
<PAGE>
IN WITNESS WHEREOF, Assignee has caused this instrument to signed in its
name by its officers thereunto duly authorized on the date first above written.
ASSIGNOR:
MUSTANG BROADCASTING CORPORATION
By:
-------------------------------
Its:
------------------------------
ASSIGNEE:
CUMULUS BROADCASTING, INC.
By:
-------------------------------
Its:
------------------------------
2
<PAGE>
EXHIBIT B-1
GENERAL ASSIGNMENT
THIS GENERAL ASSIGNMENT, dated as of ___________________, 1998 from MUSTANG
BROADCASTING CORPORATION, a Colorado corporation (the "Assignor"), to CUMULUS
BROADCASTING, INC., a Nevada corporation (together with its successors and
assigns, the "Assignee"), is delivered pursuant to Section 1(e) of that certain
Asset Purchase Agreement, dated as of February 26, 1998 (the "Asset Purchase
Agreement"), by and among Assignor and Assignee. Defined terms used herein
without definition have the meanings assigned to such terms in the Asset
Purchase Agreement.
KNOW ALL PERSONS BY THESE PRESENTS that, pursuant to the terms and
conditions of the Asset Purchase Agreement and for the considerations set forth
therein, the receipt and sufficiency of which are hereby acknowledged by
Assignor, Assignor hereby sells, transfers, assigns, conveys and delivers to
Assignee forever all of Assignor's right, title and interest in and to the
following Acquired Assets:
All right, title, and interest in and to all of the assets of the Assignor,
(other than Retained Assets) that are used or useful in the operation of the
Station, wherever located, including but not limited to all of its (a)
leaseholds and other interests of any kind therein, improvements, fixtures,
and fittings thereon (such as towers and antennae), and easements,
rights-of-way, and other appurtenances thereto); (b) tangible personal
property (such as fixed assets, computers, data processing equipment,
electrical devices, monitoring equipment, test equipment, switching,
terminal and studio equipment, transmitters, transformers, receivers,
broadcast facilities, furniture, furnishings, inventories of compact disks,
records, tapes and other supplies, vehicles) and all assignable warranties
with respect thereto; (c) Intellectual Property, goodwill associated
therewith, licenses and sublicenses granted and obtained with respect
thereto, and rights thereunder, remedies against infringements thereof, and
rights to protection of interests therein under the laws of all
jurisdictions; (d) rights under orders and agreements (including those
barter agreements and Advertising Contracts identified on the Disclosure
Schedule) now existing or entered into in the Ordinary Course of Business
for the sale of advertising time on the Station; (e) Assumed Contracts,
indentures, Security Interests, guaranties, other similar arrangements, and
rights thereunder; (f) call letters of the Station, jingles, logos, slogans,
and business goodwill of the Station; (g) claims, deposits, prepayments,
refunds, causes of action, choses in action, rights of recovery (including
rights under policies of insurance), rights of set off, and rights of
recoupment; (h) Licenses
<PAGE>
and similar rights obtained from governments and governmental agencies; and
(i) FCC logs and records and all other books, records, ledgers, logs, files,
documents, correspondence, advertiser lists, all other lists, plats,
architectural plans, drawings, and specifications, creative materials,
advertising and promotional materials, program production materials,
studies, reports, and other printed or written materials; and (j) goodwill
of the Station.
provided, however, that the Acquired Assets shall not include (i) the corporate
charters, qualifications to conduct business as a foreign corporation,
arrangements with registered agents relating to foreign qualifications, taxpayer
and other identification numbers, seals, minute books, stock transfer books,
blank stock certificates, and other documents relating to the organization,
maintenance, and existence of the Assignor as corporations; (ii) any of the
rights of Assignor under the Asset Purchase Agreement (or under any side
agreement between Assignor on the one hand and Assignee on the other hand
entered into on or after the date of the Asset Purchase Agreement); (iii)
accounts, notes and other receivables; and (v) Cash.
TO HAVE AND TO HOLD the same unto Assignee forever.
All of the terms and provisions of this General Assignment will be binding
upon Assignor and its successors and assigns and will enure to the benefit of
Assignee; provided, that nothing in this General Assignment, express or implied,
is intended or shall be construed to confer upon or give to any person, firm,
partnership, corporation or other entity other than Assignee any rights or
remedies under or by reason of this General Assignment.
IN WITNESS WHEREOF, Assignor has caused this instrument to be signed in its
name by their representatives thereunto duly authorized on the date first
written above.
MUSTANG BROADCASTING CORPORATION
By:
-------------------------------
Its:
------------------------------
ACCEPTED AND AGREED:
CUMULUS BROADCASTING, INC.
2
<PAGE>
By:
-------------------------------
Its:
------------------------------
3
<PAGE>
EXHIBIT B-2
GENERAL ASSIGNMENT
THIS GENERAL ASSIGNMENT, dated as of ___________________, 1998 from MUSTANG
BROADCASTING CORPORATION, a Colorado corporation (the "Assignor"), to CUMULUS
LICENSING CORPORATION, a Nevada corporation (together with its successors and
assigns, the "Assignee"), is delivered pursuant to Section 1(e) of that certain
Asset Purchase Agreement, dated as of February 26, 1998 (the "Asset Purchase
Agreement"), by and among Assignor and Assignee. Defined terms used herein
without definition have the meanings assigned to such terms in the Asset
Purchase Agreement.
KNOW ALL PERSONS BY THESE PRESENTS that, pursuant to the terms and
conditions of the Asset Purchase Agreement and for the considerations set forth
therein, the receipt and sufficiency of which are hereby acknowledged by
Assignor, Assignor hereby sells, transfers, assigns, conveys and delivers to
Assignee forever all of Assignor's right, title and interest in and to the
following Acquired Assets:
All FCC and other governmental licenses, franchises, approvals,
certificates, authorizations and rights of the Sellers with respect to the
operations of the Station and all applications therefor, together with any
renewals, extension or modifications thereof and additions thereto.
TO HAVE AND TO HOLD the same unto Assignee forever.
All of the terms and provisions of this General Assignment will be binding
upon Assignor and its successors and assigns and will enure to the benefit of
Assignee; provided, that nothing in this General Assignment, express or implied,
is intended or shall be construed to confer upon or give to any person, firm,
partnership, corporation or other entity other than Assignee any rights or
remedies under or by reason of this General Assignment.
* * * * *
<PAGE>
IN WITNESS WHEREOF, Assignor has caused this instrument to be signed in its
name by its representative thereunto duly authorized on the date first written
above.
MUSTANG BROADCASTING CORPORATION
By:
-------------------------------
Its:
------------------------------
ACCEPTED AND AGREED:
CUMULUS LICENSING CORPORATION
By:
-------------------------------
Its:
------------------------------
2
<PAGE>
EXHIBIT C
POST-CLOSING AGREEMENT
Agreement dated as of ____, 1998 among CUMULUS BROADCASTING, INC., a Nevada
corporation, CUMULUS LICENSING CORP., a Nevada corporation (collectively the
"Buyers"), MUSTANG BROADCASTING CORPORATION, a Colorado corporation (the
"Seller"), and Paul Fee (the "Seller's Owner"). The Buyers, the Seller, and the
Seller's Owners are referred to collectively herein as the "Parties."
The Buyers and the Seller are concurrently herewith concluding a transaction
in which the Buyers will purchase the "Acquired Assets" (and accept
responsibility for the "Assumed Liabilities") of the Seller in return for cash
pursuant to the terms of an Asset Purchase Agreement dated February 26, 1998
(the "Asset Purchase Agreement"). Certain terms used herein without definition
are used herein as defined in the Asset Purchase Agreement.
The Buyers and the Seller have made certain representations, warranties, and
covenants in the Asset Purchase Agreement which will survive the Closing for
purposes of potential indemnification. The Seller's Owner, however, intends to
cause the Seller to liquidate and dissolve immediately after the Closing. The
Buyers and the Seller's Owner therefore wish to provide for post- Closing
indemnification against breaches of these representations, warranties, and
covenants and to make certain other covenants among themselves.
Now, therefore, in consideration of the premises and the mutual promises
herein made, the Buyers and the Seller's Owners agree as follows.
1. Representations and Warranties of Seller's Owner. The Seller's Owner
represents and warrants to the Buyers that the statements contained in this
Section 1 are correct and complete as of the date of this Agreement.
(a) Enforceability. The Seller's Owner has full power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of the
Seller's Owner, enforceable in accordance with its terms and conditions.
(b) Absence of Conflicts. Neither the execution and the delivery of this
Agreement by the Seller's Owner, nor their performance of their obligations
hereunder, will (i) violate any statute, regulation, rule, judgment, order,
decree, stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which they are subject or (ii ) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed money, instru
ment of indebtedness, Security Interest, or other arrangement to which they are
a party or by which they are bound or to which any of their assets is subject.
<PAGE>
2. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
a. General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of the Asset Purchase
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor under
Section 4 below.)
b. Litigation Support. In the event and for so long as any Party actively is
contesting or defending against any charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand in connection with (i) any transaction
contemplated under the Asset Purchase Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occur rence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Sellers, each of the other Parties will cooperate with the
contesting or defending Party and his or its counsel in the contest or defense,
make available his or its personnel, and provide such testimony and access to
his or its books and records as shall be necessary in connection with the
contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under Section 3 below.)
c. Transition. Neither the Seller's Owner nor any of his Affiliates will
take any action that primarily is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business
associate of the Seller from maintaining the same business relationships with
the Buyers after the Closing as it maintained with the Seller prior to the
Closing. The Seller's Owner will refer all customer inquiries relating to the
Stations or to the business of the Seller to the Buyers from and after the
Closing. Except with the Buyers' prior written consent, neither of the Seller's
Owner nor any of his respective Affiliates will employ or offer to employ any
employee of the Seller for a period of three (3) years after the Closing Date.
d. Confidentiality. The Seller's Owner and his Affiliates will treat and
hold as such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to the Buyers or destroy, at the request and option of the Buyers, all
tangible embodiments (and all copies) of the Confidential Information which are
in his or its possession. In the event that the Seller's Owner or any Affiliate
is requested or required (by oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar process) to disclose any Confidential Information, that
person will notify the Buyers promptly of the request or requirement so that the
Buyers may seek an appropriate protective order or waive compliance with the
provisions of this Section 2(d). If, in the absence of a protective order or the
receipt of a waiver hereunder, the Seller's Owner or any Affiliate is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, that person may disclose the
Confidential Information to the tribunal; provided, however, that the disclosing
Person shall use his or its best efforts to obtain, at the reasonable request of
the Buyers, an order or other assurance that confidential
2
<PAGE>
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as the Buyers shall designate. The foregoing provisions
shall not apply to any Confidential Informa tion which is generally available to
the public immediately prior to the time of disclosure.
e. Covenant Not to Compete. For a period of three (3) years from and after
the Closing Date, neither the Seller's Owner nor any of his Affiliates will
engage directly or indirectly in any business that the Seller conducts as of the
Closing Date in the Grand Junction, Colorado MSA; provided, however, that no
owner of less than 1% of the outstanding stock of any publicly traded
corporation shall be deemed to engage solely by reason thereof in any of its
businesses.
3. Remedies for Breaches of This Agreement and the Asset Purchase Agreement.
a. Survival. All of the representations, warranties, and covenants of the
Buyers, the Seller, and the Seller's Owner contained in the Asset Purchase
Agreement and in this Agreement shall survive the Closing (even if the damaged
Party knew or had reason to know of any misrepresentation or breach of warranty
or covenant at the time of Closing) and continue in full force and effect to the
extent set forth in the Asset Purchase Agreement.
b. Indemnification Provisions for Benefit of the Buyers.
i. The Seller's Owner agrees to indemnify the Buyers from and against
the entirety of any Adverse Consequences the Buyers may suffer in excess of the
limitation of liability set forth in Section 7(e) of the Asset Purchase
Agreement, to the extent applicable, resulting from, arising out of, relating
to, in the nature of, or caused by:
(A) any breach of any of the Seller's representations, warranties, and
covenants contained in the Asset Purchase Agreement (so long as the
particular representation, warranty, or covenant survives the Closing and
the Buyers makes a written claim for indemnification pursuant to Section
3(d) below within the applicable survival period);
(B) any Liability of the Seller which is not an Assumed Liability; or
(C) any Liability of the Buyers arising by operation of law (including
under any bulk transfer law of any jurisdiction or under any common law
doctrine of defacto merger or successor liability) which is not an Assumed
Liability.
(ii) The Seller's Owner agrees to indemnify the Buyers from and against
the entirety of any Adverse Consequences the Buyers may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the breach of any of
the Seller's Owner representations, warranties, and covenants contained in
Section 1 and Section 2 above (so long as the particular representation,
warranty, or covenant survives the Closing and the
3
<PAGE>
Buyers make a written claim for indemnification pursuant to Section 3(d) below
within the applicable survival period).
(c) Indemnification Provisions for Benefit of the Seller's Owner. The Buyers
agree to indemnify the Seller's Owner from and against the entirety of any
Adverse Consequences they may suffer in excess of the limitation of liability
set forth in Section 7(e) of the Asset Purchase Agreement, to the extent
applicable, resulting from, arising out of, relating to, in the nature of, or
caused by (i) the breach of any of the Buyers' representations, warranties, and
covenants contained in the Asset Purchase Agreement and this Agreement (so long
as the particular representation, warranty, or covenant survives the Closing and
the Seller's Owner makes a written claim for indemnification pursuant to Section
3(d) below within the applicable survival period) or (ii) any Assumed Liability.
(d) Matters Involving Third Parties. If any third party shall notify any
Party (the "Indemnified Party") with respect to any matter which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 3, then the Indemnified Party shall notify each
Indemnifying Party thereof promptly; provided, however, that no delay on the
part of the Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is damaged. In the
event any Indemnifying Party notifies the Indemnified Party within 15 days after
the Indemnified Party has given notice of the matter that the Indemnifying Party
is assuming the defense thereof, (A) the Indemnifying Party will defend the
Indemnified Party against the matter with counsel of its choice reasonably
satisfactory to the Indemnified Party, (B) the Indemnified Party may retain
separate co-counsel at its sole cost and expense (except that the Indemnifying
Party will be responsible for the fees and expenses of the separate co-counsel
to the extent the Indemnified Party concludes reasonably that the counsel the
Indemnifying Party has selected has a conflict of interest), (C) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the matter without the written consent of the Indemnifying Party
(not to be withheld unreasonably), and (D) the Indemnifying Party will not
consent to the entry of any judgment with respect to the matter, or enter into
any settlement which does not include a provision whereby the plaintiff or
claimant in the matter releases the Indemnified Party from all Liability with
respect thereto, without the written consent of the Indemnified Party (not to be
withheld unreasonably). In the event no Indemnifying Party notifies the
Indemnified Party within 15 days after the Indemnified Party has given notice of
the matter that the Indemnifying Party is assuming the defense thereof, however,
the Indemnified Party may defend against, or enter into any settlement with
respect to, the matter in any manner it may deem appropriate.
(e) Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory or common
law remedy any Party may have for breach of representation, warranty, or
covenant.
4. Miscellaneous.
4
<PAGE>
a. Press Releases and Announcements. Neither of the Seller's Owner nor any
of his respective Affiliates shall issue any press release or announcement
relating to the subject matter of the Asset Purchase Agreement without the prior
written approval of the Buyers; provided, however, that the Seller's Owner may
make any public disclosure they believe in good faith is required by law or
regulation (in which case the Seller's Owner will advise the Buyers prior to
making the disclosure).
b. No Third Party Beneficiaries. This Agreement shall not confer any rights
or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
c. Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, that may have related in any way to the subject matter hereof.
d. Succession and Assignment. This Agreement shall be binding upon and inure
to the benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of his or
its rights, interests, or obligations hereunder without the prior written
approval of the Buyers and the Seller's Owner; provided, however, that the
Buyers may (i) assign any or all of their rights and interests hereunder to one
or more of their Affili ates and (ii) designate one or more of their Affiliates
to perform their obligations hereunder (in any or all of which cases the Buyers
nonetheless shall remain liable and responsible for the performance of all of
their obligations hereunder).
e. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
f. Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
g. Notices. All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, or if (and then the next business day after) it is
sent by reputable overnight courier, in each case addressed to the intended
recipient at the address for notices (and copies thereof) set forth in the Asset
Purchase Agreement. Any Party may give any notice, request, demand, claim, or
other communication hereunder using any other means (including personal
delivery, expedited courier, messenger service, telecopy, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
h. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
Colorado.
i. Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Buyers and
the Seller's Owner. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder,
5
<PAGE>
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepre sentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
j. Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction. If the final judgment of a court of competent
jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
k. Expenses. Each of the Parties will bear his or its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby (except as otherwise provided herein).
l. Construction. The language used in this Agreement will be deemed to be
the language chosen by the Parties to express their mutual intent, and no rule
of strict construction shall be applied against any Party. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise.
m. Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 4(o)
below), in addition to any other remedy to which they may be entitled, at law or
in
6
<PAGE>
equity. Each of the Parties acknowledges and agrees that notwithstanding the
provision in Section 4(n) with respect to liquidated damages upon a breach of a
covenant of this Agreement, money damages would not be an adequate remedy for a
breach of any provision of this Agreement.
n. Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Grand Junction, Colorado
in any action or proceeding arising out of or relating to this Agreement, agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court, and agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other Party with respect thereto. Any Party
may make service on any other Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 4(g) above. Nothing in this Section 4(o),
however, shall affect the right of any Party to serve legal process in any other
manner permitted by law. Each Party agrees that a final judgment in any action
or proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law.
* * * * *
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
CUMULUS BROADCASTING CORPORATION
By:
-------------------------------
Its:
------------------------------
CUMULUS LICENSING CORP.
By:
-------------------------------
Its:
------------------------------
MUSTANG BROADCASTING CORPORATION
By:
-------------------------------
Its:
------------------------------
SELLER'S OWNER:
---------------------------------
PAUL FEE
<PAGE>
EXHIBIT D
[Letterhead of Seller's Counsel]
_____________, 1998
Cumulus Broadcasting, Inc.
Cumulus Licensing Corporation
c/o QUAESTUS Management Corporation
330 E. Kilbourn Avenue, Suite 250
Milwaukee, WI 53202
Gentlemen:
We have acted as counsel to Mustang Broadcasting Corporation in connection
with the preparation of the Asset Purchase Agreement dated February 26, 1998
(the "Agreement"), and have participated on its behalf in connection with the
purchase and sale to be made by you with the Company pursuant to the Agreement
(the "Transaction") and the transfer of control thereby of radio stations
KKNN-FM (Delta, Colorado), KEXO-AM and KQIL-AM (licensed to Grand Junction,
Colorado) (collectively the"Stations"). We have also acted as counsel to Paul
Fee (the "Shareholder") in connection with the preparation of the Post-Closing
Agreement dated the date hereof between you and each of them (the "Post-Closing
Agreement"). The Agreement, the Post- Closing Agreement, the Warranty Deeds, the
Assignment of Lease, the General Assignment and the Instrument of Assumption are
referred to in this Opinion Letter as the Transaction Documents.
In connection with this Opinion Letter, we have examined signed copies of
the Transaction Documents and a certificate as to certain objective facts
executed by an officer of the Company (the "Officer's Certificate"). We have
considered such matters of law and fact, and relied upon such certificates and
other information furnished to us, as we have deemed appropriate as a basis for
our opinions set forth below. We have also relied upon the representations of
the Company made in the Agreement. We have not conducted any field inspection of
the Acquired Assets of the Stations in Grand Junction and Delta, Colorado.
Moreover, with respect to paragraphs 1 through 6 of this Opinion Letter, we have
relied upon the opinion of Fairfield and Woods, P.C., Denver, Colorado (a copy
of which is attached hereto), and we believe that you and we are justified in
relying thereon.
This Opinion Letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The law covered by the opinions expressed herein
is limited to the Federal law of the United States and with respect to
paragraphs 1 through 6 of this Opinion Letter, the law of the State of Colorado.
<PAGE>
Based upon the foregoing, and subject to the qualifications and exceptions
set forth below, we are of the opinion that:
1. The Company is a corporation organized and existing under the laws of the
State of Colorado and is authorized to do business in the State of Colorado.
2. The Company has the requisite corporate power to enter into the
Transaction Documents, perform its obligations thereunder and to own its
properties and carry on its business as presently conducted in the State of
Colorado.
3. The Agreement and each of the other Transaction Documents contemplated
thereby to which the Company is a party have been duly authorized, executed and
delivered by the Company and each is enforceable against the Company in
accordance with its material terms.
4. The execution and delivery by the Company of, and performance of its
obligations under the Transaction Documents do not violate the Company's
articles of incorporation or bylaws, or based and relying upon the Officer's
Certificate, breach, or result in a default under, any of the agreements or
instruments identified therein or require the consent or other action of or
filing with any governmental body or agency which has not been obtained or which
has not been made.
5. The Post-Closing Agreement has been duly executed and delivered by the
Company and its Shareholder and is enforceable against each of them in
accordance with its terms.
6. The Assignment of Leases and the General Assignment is enforceable
against the Company in accordance with its terms and the Assignment of Leases is
in appropriate form under the laws of the State of Colorado for recording.
7. The Seller has obtained and validly holds the FCC Licenses listed in
Attachment 1 to this opinion letter. The FCC Licenses listed in Attachment 1
constitute the only authorizations, licenses, and permits of the FCC required by
the FCC or necessary in connection with the present operation of Stations. The
FCC Licenses relating to the Station listed in Attachment 1 are in full force
and effect and are duly issued in the name of, or validly assigned to, the
Seller. The FCC has approved the assignment of the Licenses to operate the
Station from the Seller to the Buyer, and such approval is in full force and
effect, and is no longer subject to administrative or judicial review. Upon
execution and delivery of the General Assignment, the Buyer will validly hold
the FCC Licenses to operate the Stations.
8. The Seller has filed with the FCC all material reports, documents,
instruments, information, and applications required to be filed in connection
with the operation of the Station pursuant to FCC rules, regulations and
requests. No notice has been issued by the FCC which permits, or after notice or
lapse of time or both, would permit, revocation or termination of any of the FCC
Licenses prior to the respective expiration dates thereof, or which results or
would result in any other material impairment of any rights thereunder.
2
<PAGE>
9. To our knowledge, the Station is now operating, and prior to the date
hereof were operating, in compliance in all material respects with the
Communications Act of 1934, as amended, and the rules and regulations of the FCC
promulgated thereunder. There is not now issued or outstanding, pending or
threatened, any Notice of Violation, Order to Show Cause, or to the best of our
knowledge based upon a review of publicly available files of the FCC, complaint
or investigation or rulemaking proceeding by or before the FCC which might
materially threaten or adversely affect any of the FCC Licenses or result in any
substantial adverse effect upon the operation of the Station, nor is there any
reason to believe, as of the date hereof, that any of the FCC Licenses will not
be renewed in the ordinary course.
10. The execution, delivery and performance by the Seller of its obligations
under the Transaction Documents (a) is not contrary to the Communications Act of
1934, as amended, or any of the rules, regulations or policies of the FCC
promulgated thereunder; (b) will not result in any violation of the present
rules, regulations or policies of the FCC; and (c) will not cause any forfeiture
or impairment of any of the FCC Licenses.
11. This Opinion Letter may be relied upon by you only in connection with
the Transaction and may not be used or relied upon by any other person for any
purpose whatsoever without this firm's prior written consent.
Very truly yours,
3
<PAGE>
Exhibit 10.70
ASSET PURCHASE AGREEMENT
This Agreement ("Agreement") is entered into as of March __________ , 1998,
by and between Cumulus Broadcasting, Inc., a Nevada corporation
("Broadcasting"), Cumulus Licensing Corporation, a Nevada corporation
("Licensing"), Robert Brooks d/b/a/ Brooks Broadcasting Company, an individual
resident of Georgia ("Brooks"), and K-Country, Inc., a Georgia corporation
("K-Country"). Broadcasting and Licensing are referred to collectively herein as
the "Buyers." Brooks and K-Country are referred to collectively herein as the
"Seller." The Buyers and the Seller are referred to individually as the "Party"
or collectively as the "Parties." Capitalized terms used in this Agreement are
defined in Section 8 hereof.
Subject to the terms and conditions of this Agreement, the Buyers hereby
agree to purchase substantially all of the assets (and assume certain of the
liabilities) of the Seller that are used or useful in the operation of radio
stations WKAK-FM and WALG-AM licensed to Albany, Georgia; WEGC-FM licensed to
Sasser, Georgia; and WJAD-FM licensed to Leesburg, Georgia (the "Stations") in
return for cash.
Now, therefore, in consideration of the above premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Basic Transaction.
a. Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, the Seller agrees to sell, transfer, convey and
deliver to (i) Licensing, and Licensing agrees to purchase from the Seller, all
of the FCC Licenses listed in Section 2(k) of the disclosure schedule
("Disclosure Schedule"); and (ii) Broadcasting, and Broadcasting agrees to
purchase from the Seller, all of the Acquired Assets other than the FCC
Licenses. Both such sales shall take place at the Closing for the consideration
specified below in this Section 1.
b. Assumption of Liabilities. On and subject to the terms and
conditions of this Agreement, Broadcasting agrees to assume and become
responsible for all of the Assumed Liabilities at the Closing. The Buyers will
not assume or have any responsibility, however, with respect to any other
obligation or Liability of the Seller not included within the definition of
Assumed Liabilities and assumed by Broadcasting, and the Seller agrees to pay
and discharge all Liabilities and obligations of the Seller other than the
Assumed Liabilities.
c. Purchase Price. The Buyers agree to pay to the Seller, as
consideration for the Acquired Assets, the purchase price (the "Purchase Price")
described in Schedule A to this Agreement, and agrees to make the escrow deposit
(the "Escrow Deposit") in the form and manner described in Schedule A and more
1
<PAGE>
particularly in the earnest money escrow agreement ("Earnest Money Escrow
Agreement") attached hereto as Exhibit A.
d. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at a mutually agreed location,
commencing at 9:00 a.m. local time promptly after the FCC approval of the
Assignment Application becomes a Final Order, by which date all other conditions
to the obligations of the Parties to consummate the transactions contemplated
hereby will have been satisfied, or such other date as the Parties may mutually
determine (the "Closing Date").
e. Deliveries at the Closing. At the Closing, (i) the Seller will
deliver to the Buyers the various certificates, instruments, and documents
referred to in Section 5(a) below; (ii) the Buyers will deliver to the Seller
the various certificates, instruments, and documents referred to in Section 5(b)
below; (iii) the Seller will execute, acknowledge (if appropriate), and deliver
to the Buyers (A) assignments (including Lease and other Assumed Contract
assignments and Intellectual Property transfer documents), bills of sale and
warranty deeds in form acceptable to the Buyers, (B) such affidavits, transfer
tax returns, memorandums of lease, and other additional documents as may be
required by the terms of the title insurance commitments described in Section
4(o) hereof, as necessary to furnish title insurance as required by such section
or as may be necessary to convey title to the Real Estate to the Buyers in the
condition required herein or provide public notice of existence of the Leases,
and (C) such other instruments of sale, transfer, conveyance, and assignment as
the Buyers and their counsel reasonably may request; (iv) the Buyers will
execute, acknowledge (if appropriate), and deliver to the Seller (A) an
assumption in the form attached hereto as Exhibit B and (B) such other
instruments of assumption as the Seller and its counsel reasonably may request;
and (v) the Buyers will deliver to the Seller the consideration specified in
Section 1(c) above.
f. Noncompetition Agreement. On the Closing Date, the Seller shall
execute, and shall cause each of its shareholders to execute, a Noncompetition
Agreement with the Buyers including covenants not to compete with the Buyers in
the markets served by the Stations in the form of Exhibit C attached hereto. A
portion of the Purchase Price equal to Fifty Thousand Dollars ($50,000) shall be
paid to the Seller by the Buyers on the Closing Date as consideration for the
agreements set forth in the Postclosing Agreement.
2. Representations and Warranties of the Seller.
The Seller represents and warrants to the Buyers that the statements
contained in this Section 2 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date, except as set
forth in the Disclosure Schedule.
a. Organization of the Seller. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. The Seller does not have any Subsidiaries.
The Seller has the power and
2
<PAGE>
authority to own or lease its properties and to carry on all business activities
now conducted by it. The shareholders of K-Country are Robert N. Brooks and Dean
Burke.
b. Authorization of Transaction. The Seller has full power and
authority (including full partnership power and authority) to execute and
deliver this Agreement and all agreements and instruments to be executed and
delivered by Seller pursuant to this Agreement (collectively, the "Ancillary
Agreements") and to perform its obligations hereunder and thereunder. Without
limiting the generality of the foregoing, the Board of Directors of the Seller
has duly authorized the execution, delivery, and performance of this Agreement
and the Ancillary Agreements by the Seller. This Agreement and the Ancillary
Agreements constitute the valid and legally binding obligation of the Seller,
enforceable in accordance with their respective terms and conditions.
c. Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in Section 1(e) above), will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the Seller
is subject or any provision of the charter or bylaws of the Seller; or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice or third party consent under any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest, or
other agreement, arrangement to which the Seller is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets). Other than with respect to the
Assignment Application described in Section 4(b) the Seller does not need to
give any notice to, make any filing with, or obtain any Licenses, consent, or
approval of any court or government or governmental agency in order for the
Parties to enter into this agreement or the Ancillary Agreements or to
consummate the transactions contemplated by this Agreement or the Ancillary
Agreements (including the assignments and assumptions referred to in Section
1(e) above).
d. Title to Acquired Assets. Other than the Security Interests set
forth on Section 2(d) of the Disclosure Schedule (which shall be released at or
before the Closing) the Seller has good and marketable title to all of the
Acquired Assets, free and clear of any Security Interest or restriction on
transfer.
e. Financial Statements. Included in Section 2(e) of the Disclosure
Schedule are the following financial statements (collectively the "Financial
Statements"): (i) unaudited balance sheets and statements of income, and cash
flow as of and for the fiscal years ended December 31, 1994, December 31, 1995,
December 31, 1996, and December 31, 1997 for the Seller; and (ii) unaudited
balance sheets and statements of income, as of and for each month during 1996,
1997 and to date in 1998 for the Seller.
3
<PAGE>
The Financial Statements have been prepared in conformity with the Seller's
normal accounting policies, practices and procedures applied on a consistent
basis, throughout the periods covered thereby, are correct and complete, fairly
present the financial condition of the Seller and the results of operation of
Seller at the dates and for the periods indicated, and are consistent with the
books and records of the Seller (which books and records are correct and
complete). The Financial Statements accurately state the revenues of the
Stations for the period indicated therein and include an accurate breakout of
cash and trade revenues.
f. Events Subsequent to January 1, 1998. Since January 1, 1998, except
as set forth in Section 2(f) of the Disclosure Schedule, there has not been any
material adverse change in the assets, Liabilities, business, financial
condition, operations, results of operations, or future prospects of the Seller
with respect to the operation of the Stations. Without limiting the generality
of the foregoing and with respect to the operation of the Stations since January
1, 1998:
(i) other than this Agreement, the Seller has not entered into any
agreement, contract, lease, sublease, license, or sublicense (or series
of related agreements, contracts, leases, subleases, licenses, and
sublicenses) outside the Ordinary Course of Business;
(ii) the Seller has not delayed or postponed (beyond its normal
practice in the Ordinary Course of Business) the payment of accounts
payable and other Liabilities;
(iii) the Seller has not altered its credit and collection
policies or its accounting policies;
(iv) the Seller has not entered into or terminated any employment
arrangement, employment contract, consulting contract or severance
agreement or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(v) there have been no changes and, to Seller's knowledge, any
threatened changes in employment terms for any of its directors,
officers, and employees;
(vi) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving the Seller;
(vii) the Seller has not materially altered the programming,
format or call letters of the Stations, or its promotional and
marketing activities;
(viii) the Seller has not applied to the FCC for any modification
of the FCC Licenses or failed to take any action necessary to preserve
the FCC
4
<PAGE>
Licenses and has operated the Stations in compliance therewith
and with all FCC rules and regulations;
(ix) the Seller has not terminated or received notice of
termination for any syndicated programming; and
(x) the Seller has not committed to any of the foregoing.
g. Tax Matters. The Seller has timely and properly filed all Tax
Returns that it was required to file with respect to the Seller's operations.
All such Tax Returns were correct and complete and properly reflect the tax
liability of the Seller. No Tax deficiencies have been proposed or assessed
against the Seller. All Taxes owed by the Seller with respect to its operations
(whether or not shown on any Tax Return) have been paid. The Seller has withheld
and paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third party. No claim has ever been made by any authority in any
jurisdiction where the Seller does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction.
h. Tangible Assets. Section 2(h) of the Disclosure Schedule sets forth
a listing of all transmitter and Stations equipment, vehicles and other tangible
personal property used in conducting the operation and business of the Stations.
The Seller owns or leases all tangible assets necessary for the conduct of the
operation and business of the Stations as presently conducted and as presently
proposed to be conducted and all leased assets are specifically identified as
such in Section 2(h) of the Disclosure Schedule.
i. Real Property. Section 2(i) of the Disclosure Schedule lists and
describes briefly all Owned Real Estate and real property leased to the Seller
(including, without limitation, complete legal descriptions for all of the Real
Estate). The Seller has delivered to the Buyers correct and complete copies of
the Leases. With respect to the Real Estate:
(i) the Seller has good and marketable title to all of the Owned
Real Estate free and clear of all liens, charges, mortgages, security
interests, easements, restrictions or other encumbrances of any nature
whatsoever except real estate taxes for the year of Closing and
municipal and zoning ordinances and recorded utility easements which do
not impair the current use, occupancy or value or the marketability of
title of the property and which are disclosed in Section 2(i) of the
Disclosure Schedule (collectively, the "Permitted Real Estate
Encumbrances");
(ii) the Leases are and, following the Closing will continue to
be, legal, valid, binding, enforceable, and in full force and effect;
(iii) no party to any Lease is in breach or default (or has
repudiated any provision thereof), and no event has occurred which,
with notice
5
<PAGE>
or lapse of time, would constitute a breach or default
thereunder or permit termination, modification, or acceleration
thereunder;
(iv) there are no disputes, oral agreements, or forbearance
programs in effect as to any Lease;
(v) none of the Owned Real Estate and to the Seller's Knowledge,
none of the properties subject to the Leases is subject to any lease
(other than Leases), option to purchase or rights of first refusal;
(vi) except for Permitted Real Estate Encumbrances, there are no
(i) actual or, to the Seller's Knowledge, proposed special assessments
with respect to any of the Real Estate; (ii) pending or, to the
Seller's Knowledge, threatened condemnation proceedings with respect to
any of the Real Estate; (iii) structural or mechanical defects in any
of the buildings or improvements located on the Real Estate; (iv) any
pending or, to the Seller's Knowledge, threatened changed in any zoning
laws or ordinances which may materially adversely affect any of the
Real Estate or Seller's use thereof;
(vii) the Seller has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the Leases or
its rights thereunder;
(viii) to the Seller's Knowledge, all facilities on the Real
Estate have received all approvals of governmental authorities
(including licenses, permits and zoning approvals) required in
connection with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and regulations;
and
(ix) to the Seller's Knowledge, the owner of each leased facility
has good and marketable title to the underlying parcel of real
property, free and clear of any Security Interest, easement, covenant,
or other restriction, except for Permitted Real Estate Encumbrances and
Seller's leasehold interest in each Lease has priority over any other
interest except for the fee interest therein and Permitted Real Estate
Encumbrances.
j. Contracts. Section 2(j) of the Disclosure Schedule lists any written
arrangement (or group of related written arrangements) either involving more
than $5,000 or not entered into in the Ordinary Course of Business. The Seller
has delivered to the Buyers a correct and complete copy of each written
arrangement listed in Section 2(j) of the Disclosure Schedule (as amended to
date). With respect to each written arrangement so listed which constitutes an
Assumed Contract: (A) the written arrangement is legal, valid, binding,
enforceable, and in full force and effect; (B) the written arrangement will
continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms following the Closing (if the arrangement has not
expired according to its terms); (C) no party is in breach or default, and no
event has occurred which with notice
6
<PAGE>
or lapse of time would constitute a breach or default or permit termination,
modification, or acceleration, under the written arrangement; and (D) no party
has repudiated any provision of the written arrangement. The Seller is not a
party to any verbal contract, agreement, or other arrangement which, if reduced
to written form, would be required to be listed in Section 2(j) of the
Disclosure Schedule under the terms of this Section 2(j). Except for the Assumed
Contracts, the Buyers shall not have any Liability or obligations for or in
respect of any of the contracts set forth in Section 2(j) of the Disclosure
Schedule or any other contracts or agreements of the Seller.
k. Commission Licenses and Compliance with Commission Requirements.
(i) All licenses, permits, authorizations, franchises,
certificates of compliance, and consents of governmental bodies,
including, without limitation, the FCC Licenses, used or useful in the
operation of the Stations as they are now being operated are (A) in
full force and effect, (B) unimpaired by any acts or omissions of the
Seller or the Seller's employees or agents, (C) free and clear of any
restrictions which might limit the full operation of the Stations, and
(D) detailed in Section 2(k) of the Disclosure Schedule. With respect
to the licenses, permits, authorizations, franchises, certificates of
compliance and consents referenced in the preceding sentence, Section
2(k) of the Disclosure Schedule also sets forth, without limitation,
the date of the last renewal, the expiration date thereof, and any
conditions or contingencies related thereto. Except as set forth in
Section 2(k) of the Disclosure Schedule, no condition exists or event
has occurred that permits, or after notice or lapse of time, or both,
would permit, the revocation or termination of any such license,
permit, consent, franchise, or authorization (other than pursuant to
their express expiration date) or the imposition of any material
restriction or limitation upon the operation of the Stations as now
conducted. Except as set forth in Section 2(k) of the Disclosure
Schedule, the Seller is not aware of any reason why the FCC licenses
might not be renewed in the ordinary course or revoked.
(ii) The Stations are in compliance with the FCC's policy on
exposure to radio frequency radiation. No renewal of any FCC License
would constitute a major environmental action under the FCC's rules or
policies. Access to the Stations' transmission facilities is restricted
in accordance with the policies of the FCC.
(iii) Except as set forth in Section 2(k) of the Disclosure
Schedule, to the Seller's Knowledge, the Seller is not the subject of
any FCC or other governmental investigation or any notice of violation
or order, or any material complaint, objection, petition to deny, or
opposition issued by or filed with the FCC or any other governmental
authority in connection with the operation of or authorization for the
Stations, and there are no proceedings (other than rule making
proceedings of general applicability) before the FCC or any
7
<PAGE>
other governmental authority that could adversely affect any of the FCC
Licenses or the authorizations listed in Section 2(k) of the Disclosure
Schedule.
(iv) The Seller has filed with the FCC and all other governmental
authorities having jurisdiction over the Stations all material reports,
applications, documents, instruments, and other information required to
be filed, and will continue to make such filings through the Closing
Date.
(v) The Seller is not aware of any information concerning the
Stations that could cause the FCC or any other regulatory authority not
to issue to the Buyers all regulatory certificates and approvals
necessary for the consummation of the transactions contemplated
hereunder or the Buyer's operation and/or ownership of the Stations.
Seller is not aware of any pending FCC applications which, if approved,
would allow for the operation of a new radio stations with a signal
reaching the signal area of the Stations and, in addition, Seller is
not aware of any plans or proposals by any existing radio stations with
a signal reaching the signal area of the Stations to alter or change
their format to a format similar to that of the Stations.
l. Intellectual Property. The Seller owns or has the right to use
pursuant to license, sublicense, agreement or permission all Intellectual
Property necessary for the operation of the businesses of the Seller as
presently conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by the Seller immediately prior to the
Closing hereunder is set forth on Section 2(l) of the Disclosure Schedule and
each item listed will be owned or available for use the by the Buyers on
identical terms and conditions immediately subsequent to the Closing hereunder.
The Seller has not interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of third
parties, and the Seller has never received any charge, complaint, or notice
alleging any such interference, infringement, misappropriation, or violation. To
the Knowledge of the Seller, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of the Seller.
m. Insurance. Section 2(m) of the Disclosure Schedule sets forth a
complete and accurate description of all Seller's insurance coverage. With
respect to each such insurance policy: (A) the policy is legal, valid, binding,
and enforceable and in full force and effect; (B) the policy will continue to be
legal, valid, binding, and enforceable and in full force and effect on identical
terms through the Closing Date.
n. Litigation. Section 2(n) of the Disclosure Schedule sets forth each
instance in which the Seller: (i) is subject to any unsatisfied judgment, order,
decree, stipulation, injunction, or charge; or (ii) is a party or, to the
Knowledge of the Seller, is threatened to be made a party to any charge,
complaint, action, suit, proceeding, hearing, or investigation of or in any
court or quasijudicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator. None of the charges, complaints,
actions, suits, proceedings, hearings, and investigations set forth in Section
8
<PAGE>
2(n) of the Disclosure Schedule could result in any adverse change in the
assets, Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Seller or the Stations taken as a whole.
The Seller has no Knowledge of any Basis for any such charge, complaint, action,
suit, proceeding, hearing, or investigation against the Seller.
o. Employees. Section 2(o) of the Disclosure Schedule sets forth a
listing of the names, positions, job descriptions, salary or wage rates and all
other forms of compensation paid for work at the Stations of each employee. To
the Knowledge of the Seller, no key employee or group of employees has any plans
to terminate employment with the Seller. The Seller is not a party to or bound
by any collective bargaining or similar agreement, nor has it experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Seller has no Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to the employees of the Seller. The Seller has no Knowledge of any Basis
for any claim by past or current employees of the Seller or applicants for
employment that the Seller or its management has discriminated based on each
individuals race, sex, national origin, religion, ethnicity, handicap or any
other protected characteristic under applicable law.
p. Employee Benefits. Section 2(p) of the Disclosure Schedule lists all
Employee Benefit Plans that the Seller maintains or to which the Seller
contributes or is required to contribute for the benefit of any current or
former employee of the Seller and true and correct copies of each such Employee
Benefit Plan have been delivered to the Buyers. Each Employee Benefit Plan (and
each related trust or insurance contract) complies and at all times has complied
in form and in operation in all respects with the applicable requirements of
ERISA and the Code. The Seller does not have any commitment to create any
additional Employee Benefit Plan or modify or change any existing Employee
Benefit Plan that would affect any employee or terminated employee of the
Seller. There are no pending or, to the Knowledge of the Seller, threatened
claims under, by or on behalf of any of the Employee Benefit Plans, by any
employee or beneficiary covered by any such Employee Benefit Plan, or otherwise
involving any such Employee Benefit Plan (other than routine claims for
benefits), nor have there been any Reportable Events or Prohibited Transactions
with respect to any Employee Benefit Plan.
q. Environment, Health, and Safety.
(i) With respect to the operation of the Stations and the Real
Estate, the Seller is, and at all times in the past has been, in
compliance in all material respects with all Environmental Laws and all
laws (including rules and regulations thereunder) of federal, state,
and local governments (and all agencies thereof) concerning employee
health and safety, and the Seller has no Liability (and to Seller's
Knowledge there is no Basis related to the past or present operations
of the Seller or its predecessors for any present or future Liability)
under any Environmental Law. The Seller has no Liability (and to
Seller's Knowledge there is no Basis for any present or future charge,
complaint, action,
9
<PAGE>
suit, proceeding, hearing, investigation, claim, or demand against the
Seller giving rise to any Liability) under the Occupational Safety and
Health Act, as amended, or any other law (or rule or regulation
thereunder) of any federal, state, local, or foreign government (or
agency thereof) concerning employee health and safety, or for any
illness of or personal injury to any employee.
(ii) The Seller has obtained and at all times has been in
compliance in all material respects with all of the terms and
conditions of all permits, licenses, and other authorizations which are
required under, and has complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all
Environmental Laws or law of any federal, state, or local or foreign
government relating to worker health and safety.
(iii) All properties and equipment used in the Stations and the
Acquired Assets have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1, 2-trans-dichloroethylene, dioxins, dibenzofurans,
and Extremely Hazardous Substances. No pollutant, contaminant, or
chemical, industrial, hazardous, or toxic material or waste ever has
been buried, stored, spilled, leaked, discharged, emitted, or released
on any of the Real Estate. No above ground or underground storage tanks
have ever been located at, on or under the Real Estate. The Seller has
delivered to the Buyers a complete copy of all environmental claims,
reports, studies, compliance actions or the like of the Seller or which
are available to the Seller with respect to any of the Real Estate or
any of the Acquired Assets.
r. Legal Compliance. The Seller has complied in all material respects
with all laws (including rules and regulations thereunder) of federal, state,
local and foreign governments (and all agencies thereof. The Seller has filed in
a timely manner all reports, documents, and other materials it was required to
file (and the information contained therein was correct and complete in all
material respects) under all applicable laws.
s. Advertising Contracts. Section 2(s) of the Disclosure Schedule lists
all arrangements for the sale of air time or advertising on the Stations in
excess of $1000, and the amount to be paid to the Seller therefor. The Seller
has no reason to believe and has not received a notice or indication of the
intention of any of the advertisers or third parties to material contracts of
the Seller to cease doing business or to reduce in any material respect the
business transacted with the Seller or to terminate or modify any agreements
with the Seller (whether as a result of consummation of the transactions
contemplated hereby or otherwise).
t. Undisclosed Commitments or Liabilities. There are no material
commitments, liabilities or obligations relating to the Stations, whether
accrued, absolute, contingent or otherwise including, without limitation,
guaranties by the Seller of the liabilities of third parties, for which specific
and adequate provisions have not been made
10
<PAGE>
on the Financial Statements except those incurred in or as a result of the
Ordinary Course of Business since January 1, 1998.
u. Disclosure. The representations and warranties contained in this
Section 2 do not contain any untrue statement of a fact or omit to state any
fact necessary in order to make the statements and information contained in this
Section 2 not misleading.
3. Representations and Warranties of the Buyer.
Buyers represent and warrant to the Seller that the statements contained in
this Section 3 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date except as set forth in the
Disclosure Schedule.
a. Organization of the Buyers. Broadcasting and Licensing are
corporations duly organized, validly existing, and in good standing under the
laws of Nevada.
b. Authorization of Transaction. Buyers have full power and authority
to execute and deliver this Agreement and the Ancillary Agreements and to
perform their obligations hereunder and thereunder. This Agreement and the
Ancillary Agreements constitute legally binding obligations of the Buyers,
enforceable against the Buyers in accordance with their respective terms and
conditions.
c. Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in Section 1(e) above), will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the Buyers
are subject or any provision of their articles of organization or other charter
documents, or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or third party
consent under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Buyers are a
party or by which they are bound or to which any of their assets is subject.
Other than the Assignment Application described in Section 4(b), the Buyers do
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any court or government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement or the Ancillary Agreements (including the assignments and
assumptions referred to in Section 1 (e) above).
4. Pre-Closing Covenants.
11
<PAGE>
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
a. General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable to
consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 5 below).
b. Assignment Applications. Within ten (10) business days after the
execution of this Agreement, the Seller and the Buyers shall jointly file with
the FCC an application for assignment of the FCC Licenses, permits and
authorizations pertaining to the Stations from the Seller to Licensing (the
"Assignment Application"). The costs of the FCC filing fees in connection with
the Assignment Application shall be divided equally between the Parties. Each
party shall pay its own attorneys' fees. The Seller and the Buyers shall
thereafter prosecute the Assignment Application with all reasonable diligence
and otherwise use commercially reasonable efforts to obtain the grant of the
Assignment Application as expeditiously as practicable (but neither the Seller
nor the Buyers shall have any obligation to satisfy complainants or the FCC by
taking any steps which would have a material adverse effect upon the Stations or
impose significant costs on such party). If the FCC imposes any condition on
either party to the Assignment Application, such party shall use commercially
reasonable efforts to comply with such condition, provided, that neither party
shall be required hereunder to comply with any condition that would have a
material adverse effect upon the Stations or any Affiliate. The Seller and the
Buyers shall jointly oppose any requests for reconsideration or judicial review
of FCC approval of the Assignment Application and shall jointly request from the
FCC extension of the effective period of FCC approval of the Assignment
Application if the Closing shall not have occurred prior to the expiration of
the original effective period of the FCC Consent. Nothing in this Section 4(b)
shall be construed to limit either party's right to terminate this Agreement
pursuant to Section 9 of this Agreement.
c. Employment Offers. Upon notice to the Seller, and at mutually
agreeable times, the Seller will permit the Buyers to meet with its employees
prior to the Closing Date. The Buyers may, at their option, extend offers of
employment to all or any of the Seller's employees effective on the Closing
Date. From and after the execution of this Agreement, the Seller shall use its
best efforts to assist Buyers in retaining those employees of the Stations which
the Buyers wish to hire in connection with the operation of the Stations by the
Buyers subsequent to the Closing, and the Seller will not take any action to
preclude or discourage any of the Seller's employees from accepting any offer of
employment extended by the Buyers.
d. Notices and Consents. The Seller will give all notices to third
parties and shall have obtained all third party consents that the Buyers
reasonably may request. Each of the Parties will file any notification and
report forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act, will use its best efforts
to obtain an early termination of the applicable waiting period, and will make
any
12
<PAGE>
further filings pursuant thereto that may be necessary, proper or advisable.
Each of the Parties will take any additional action that may be necessary,
proper, or advisable in connection with any other notices to, filings with, and
authorizations, consents, and approvals of governments, governmental agencies,
and third parties that it may be required to give, make, or obtain.
e. Advertising Obligations. The Seller shall satisfy its air time
obligations under its agreements for sale of air time and advertising on the
Stations for goods or services ("Barter Agreements") such that the outstanding
aggregate balance owing under all Barter Agreements as of the Closing Date shall
not exceed Five Thousand Dollars ($5,000.00) worth of air time without the
Buyers' consent. On the Closing Date, the Seller shall deliver to the Buyers a
schedule, certified by an officer of the Seller, reflecting the aggregate
outstanding balances under all Barter Agreements in existence as of the Closing
Date.
f. Operating Statements. The Seller shall deliver to the Buyers, for
the Buyers' informational purposes only, monthly unaudited statements of
operating revenues and operating expenses of the Stations within ten (10) days
after each such statement is prepared by or for the Seller.
g. Contracts. The Seller will not without the prior written consent of
the Buyers amend, change, or modify any of the contracts listed on Section 2(k)
of the Disclosure Schedule in any material respect. The Seller will not without
prior written consent of the Buyers enter into any contract outside the Ordinary
Course of Business which involves more than Five Thousand Dollars ($5,000).
h. Operation of Stations. The Seller will not engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business. The Seller shall operate the Stations in compliance with the FCC
Licenses and the rules and regulations of the FCC, and the FCC Licenses shall at
all times remain in full force and effect. The Seller shall file with the FCC
all material reports, applications, documents, instruments and other information
required to be filed in connection with the operation of the Stations.
i. Credit and Receivables. The Seller will follow its usual and
customary policies with respect to extending credit for sales of air time and
advertising on the Stations and with respect to collecting accounts receivable
arising from such extension of credit.
j. Preservation of Stations and the Acquired Assets. The Seller will
keep its Stations and the Acquired Assets and properties substantially intact,
including its present operations, physical facilities, working conditions,
relationships with lessors, licensors, advertisers, suppliers, customers, and
employees, all of the Confidential Information, call letters and trade secrets
of the Stations, and the FCC Licenses.
13
<PAGE>
k. Full Access and Consultation. The Seller will permit representatives
of the Buyers to have full access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of the Stations, to all
premises, properties, books, records, contracts, Tax records, and documents of
or pertaining to the Seller. The Seller will consult with the Buyers' management
with a view to informing Buyers' management as to the operations, management and
business of the Stations.
l. Notice of Developments. The Seller will give prompt written notice
to the Buyers of any material development affecting business, operations or
prospects of the Stations or the Acquired Assets or the ability of the Seller to
perform hereunder.
m. Exclusivity. The Seller will not (i) solicit, initiate, or encourage
the submission of any proposal or offer from any person relating to any (A)
merger or consolidation, (B) acquisition or purchase of securities or assets, or
(C) similar transaction or business combination involving the Seller, or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person to do or seek any of the
foregoing. The Seller will notify the Buyers immediately if any person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
n. Title Insurance, Surveys and Environmental Assessments. The Sellers
will obtain with respect to each parcel of Real Estate subject to the Leases, a
leasehold owner's policy issued by a title insurer reasonably satisfactory to
the Buyers, in an amount equal to the fair market value of such Real Estate
(including all improvements located thereon), insuring over the standard
pre-printed exceptions and insuring leasehold title to such Real Estate in the
Buyers as of the Closing subject only to the Permitted Real Estate Encumbrances,
together with such endorsements for zoning, contiguity, public access and
extended coverage as the Buyers or their lender reasonably request; (ii) with
respect to each parcel of Owned Real Estate, an owner's policy of title
insurance by a title insurer reasonably satisfactory to the Buyers, in an amount
equal to the fair market value of such Real Estate (including all improvements
located thereon), insuring over the standard pre-printed exceptions and insuring
title to the Owned Real Estate to be vested in the Buyers as of the Closing free
and clear of all liens and encumbrances except Permitted Real Estate
Encumbrances, together with such endorsements for zoning, contiguity, public
access and extended coverage as the Buyers or its lender reasonably request;
(iii) a current survey of each parcel of Real Estate certified to the Buyers and
its lender, prepared by a licensed surveyor and conforming to current ALTA
Minimum Detail Requirements for Land Title Surveys, disclosing the location of
all improvements, easements, party walls, sidewalks, roadways, utility lines,
and other matters shown customarily on such surveys, and showing access
affirmatively to public streets and roads (the "Surveys') which shall not
disclose any survey defect or encroachment from or onto any of the Real Estate
which has not been cured or insured over prior to the Closing; and (iv) with
respect to each parcel of Real Estate, a current Phase I environmental site
assessment from an environmental consultant or engineer reasonably satisfactory
to the Sellers which does not indicate that the Seller and the Real Estate are
not in compliance with any Environmental Law and which shall not disclose or
recommend any action with
14
<PAGE>
respect to any condition to be remediated or investigated or any contamination
on the site assessed. Buyers will be responsible for the cost of such title
insurance policies, and Seller and Buyers shall each bear one-half of the cost
of such surveys and environmental assessments.
o. Control of Stations. The transactions contemplated by this Agreement
shall not be consummated until after the FCC has given its consent and approval
to the Assignment Application. Between the date of this Agreement and the
Closing Date, the Buyers and their employees or agents shall not directly or
indirectly control, supervise, or direct, or attempt to control, supervise, or
direct, the operation of the Stations, and such operation shall be the sole
responsibility of and in the control of the Seller.
p. Risk of Loss. The risk of loss, damage, or destruction to any of the
Acquired Assets shall remain with the Seller until the Closing. In the event of
any such loss, damage, or destruction the Seller will promptly notify the Buyers
of all particulars thereof, stating the cause thereof (if known) and the extent
to which the cost of restoration, replacement and repair of the Acquired Assets
lost, damaged or destroyed will be reimbursed under any insurance policy with
respect thereto. The Seller will, at Seller's expense, repair or replace such
Acquired Assets to their former condition as soon as possible after loss, damage
or destruction thereof and shall use its best efforts to restore as promptly as
possible transmissions as authorized in the FCC Licenses. The Closing Date shall
be extended (with FCC consent, if necessary) for up to sixty (60) days to permit
such repair or replacement. If repair or replacement cannot be accomplished
within sixty (60) days of the date of the Seller's notice to the Buyers and the
Buyers determine that the Seller's failure to repair or replace would have a
material adverse effect on the operation of the Stations:
(i) the Buyers may elect to terminate this Agreement; or
(ii) the Buyers may postpone the Closing Date until such time as
the property has been repaired, replaced or restored in a manner and to
an extent reasonably satisfactory to the Buyers, unless the same cannot
be reasonably effected within ninety (90) days of the date of the
Seller's notice to the Buyers, in which case either party may terminate
this Agreement; or
(iii) the Buyers may choose to accept the Acquired Asset in their
"then" condition, together with the Seller's assignment to the Buyers
of all rights under any insurance claims covering the loss, damage or
destruction and payment over to the Buyers of any proceeds under any
such insurance policies, previously received by the Seller with respect
thereto plus an amount equal to the amount of any deductible or
self-insurance maintained by Seller on such Acquired Assets. In the
event the Closing Date is postponed pursuant to this Section 4(p), the
parties hereto will cooperate to extend the time during which this
Agreement must be closed as specified in the consent of the FCC.
15
<PAGE>
5. Conditions to Obligation to Close.
a. Conditions to Obligation of the Buyers. The obligation of Buyers to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 2
above shall be true and correct in all respects at and as of the
Closing Date as though made on and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of its
covenants hereunder in all respects through the Closing;
(iii) the Seller shall have procured all of the third party
consents specified in Section 4(d) above and all of the title insurance
commitments (and endorsements), Surveys and environmental site
assessments described in Section 4(n) above;
(iv) no action, suit, investigation, inquiry or other proceeding
shall be pending or threatened before any court or quasijudicial or
administrative agency of any federal, state, local, or foreign
jurisdiction wherein an unfavorable judgment, order, decree,
stipulation, injunction, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement or impose
damages or penalties upon any of the parties if such transactions are
consummated, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, or (C) affect
adversely the right of the Buyers to own, operate, or control the
Acquired Assets (and no such judgment, order, decree, stipulation,
injunction, or charge shall be in effect);
(v) the Seller shall have delivered to the Buyers a certificate
(without qualification as to knowledge or materiality or otherwise) to
the effect that each of the conditions specified above in Sections
5(a)(i) through (iv) is satisfied in all respects;
(vi) each of the Assignment Applications shall have been approved
by a Final Order of the FCC all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or been terminated and the Buyers shall have received all governmental
approvals required to transfer all other authorizations, consents, and
approvals of governments and governmental agencies set forth in the
Disclosure Schedule;
(vii) the relevant parties shall have entered into the Postclosing
Agreement;
16
<PAGE>
(viii) the Buyers shall have received from counsel to the Seller
an opinion with respect to the matters set forth in Exhibit D attached
hereto, addressed to the Buyers and its lender and dated as of the
Closing Date;
(ix) the Parties shall have agreed to allocate the Purchase Price
(and all other capitalizable costs) among the Acquired Assets for all
purposes (including financial accounting and tax purposes) in
accordance with an allocation schedule to be delivered at closing; and
(x) all actions to be taken by the Seller in connection with the
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyers.
b. Conditions to Obligation of the Seller. The obligation of the Seller
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all respects at and as of the
Closing Date as though made on and as of the Closing Date;
(ii) the Buyers shall have performed and complied with all of
their covenants hereunder in all respects through the Closing;
(iii) no action, suit, investigation, inquiry or other proceeding
shall be pending or threatened before any court or quasi judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction wherein an unfavorable judgment, order, decree,
stipulation, injunction, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement or impose
damages or penalties upon any of the Parties if such transactions are
consummated, or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such judgment,
order, decree, stipulation, injunction, or charge shall be in effect);
(iv) the Buyers shall have delivered to the Seller a certificate
(without qualification as to knowledge or materiality or otherwise) to
the effect that each of the conditions specified above in Section
5(b)(i)-(iii) is satisfied in all respects and the statements contained
in such certificate shall be deemed a warranty of the Buyers which
shall survive the Closing;
(v) each of the Assignment Applications shall have been approved
by a Final Order of the FCC and the Buyers shall have received all
governmental approvals required to transfer all other authorizations,
consents, and
17
<PAGE>
approvals of governments and governmental agencies set forth in the
Disclosure Schedule;
(vi) the relevant parties shall have entered into the
Noncompetition Agreement; and
(vii) all actions to be taken by the Buyers in connection with the
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Seller.
6. Post-Closing Covenants.
The Parties agree as follows with respect to the period following the
Closing:
a. General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 7 below).
b. Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Stations, each of the other Parties will reasonably cooperate with
the contesting or defending Party and its counsel in the contest or defense,
make available his or its personnel, and provide such testimony and access to
its books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section 7 below); provided, however, that such access and
cooperation does not unreasonably disrupt the normal operations of the
cooperating party.
c. Adjustments. Operation of the Stations and the income and expenses
attributable thereto up through the close of business on the day before the
Closing Date shall be for the account of the Seller and thereafter for the
account of the Buyers. Such items as power and utilities charges, insurance,
real and personal property taxes, prepaid expenses, deposits, music license
fees, and rents and payments pertaining to the Assumed Contracts (including any
contracts for the sale of time for cash, trade or barter so assigned) shall be
prorated between the Seller and the Buyers as of the Closing Date in accordance
with the foregoing principle. In addition, all commissions payable with
18
<PAGE>
respect to the accounts receivable of the Seller (whether due before or after
Closing) shall be solely for the account and responsibility of the Seller.
Contractual arrangements that do not reflect an equal rate of compensation to a
Stations over the term of the agreement shall be equitably adjusted as of the
Closing Date. The prorations and adjustments hereunder shall be made and paid
insofar as feasible on the Closing Date, with a final settlement sixty (60) days
after the Closing Date. In the event of any disputes between the Parties as to
such adjustments, the amounts not in dispute shall nonetheless be paid at such
time and such disputes shall be determined by an independent accounting firm
mutually acceptable to both parties and the fees and expenses of such accounting
firm shall be paid one-half (1/2) by the Seller and one-half (1/2) by the Buyer.
d. Collection of Accounts Receivable. At the Closing, the Seller will
turn over to the Buyers, for collection only, the accounts receivable of the
Stations owing to the Seller as of the close of business on the day before the
Closing Date. A schedule of such accounts receivable will be delivered by the
Seller to the Buyers on the Closing Date or as soon thereafter as possible. The
Buyers agree to use commercially reasonable efforts in the ordinary course of
business (but without responsibility to institute legal or collection
proceedings) to collect such accounts receivable during the 120-day period
following the Closing Date, and will remit all payments received on such
accounts during this 120-day period on the one hundred twentieth (120th) day
together with an accounting of all payments received within such period. The
Buyers shall have the sole right to collect such accounts receivable during such
one hundred twenty (120) day period. In the event the Buyers receive monies
during the 120-day period following the Closing Date from an advertiser who,
after the Closing Date, is advertising on the Stations, and that advertiser was
included among the accounts receivable as of the Closing Date, the Buyers shall
apply said monies to the oldest outstanding balance due on the particular
account, except in the case of a "disputed" account receivable. For purposes of
this Section 6(d), a "disputed" account receivable means one which the account
debtor refuses to pay because he asserts that the money is not owed or the
amount is incorrect. In the case of such a disputed account, the Buyers shall
immediately return the account to the Seller prior to expiration of the 120-day
period following the Closing Date. If the Buyers return a disputed account to
the Seller, the Buyers shall have no further responsibility for its collection
and may accept payment from the account debtor for advertising carried on the
Stations after the Closing Date. At the end of the 120-day period following the
Closing Date, the Buyers will turn back to the Seller all of the accounts
receivable of the Stations as of the Closing Date owing to the Seller which have
not yet been collected, and the Buyers will thereafter have no further
responsibility with respect to the collection of such receivables. During the
120-day period following the Closing Date, the Buyers shall afford the Seller
reasonable access to the accounts receivable "aging list." The Seller
acknowledges and agrees that the Buyers are acting as collection agent hereunder
for the sole benefit of the Seller and that Buyers have accepted such
responsibility for the accommodation of the Seller. The Buyers shall not have
any duty to inquire as to the form, manner of execution or validity of any item,
document, instrument or notice deposited, received or delivered in connection
with such collection efforts, nor shall the Buyers have any duty to inquire as
to the identity, authority or rights of the persons who executed the same. The
Seller shall indemnify Buyers and hold them harmless from and
19
<PAGE>
against any judgments, expenses (including attorney's fees) costs or liabilities
which the Buyers may incur or sustain as a result of or by reason of such
collection efforts.
e. Consents. In the event any of the Assumed Contracts are not
assignable or any consent to such assignment is not obtained on or prior to the
Closing Date, and the Buyers elect to consummate the transactions contemplated
herein despite such failure or inability to obtain such consent, the Seller
shall continue to use commercially reasonable efforts to obtain any such
assignment or consent after the Closing Date. Until such time as such assignment
or approval has been obtained, the Seller will cooperate with Buyers in any
lawful and economically feasible arrangement to provide that the Buyers shall
receive the Seller's interest in the benefits under any such Assumed Contract,
including performance by the Seller as agent, if economically feasible;
provided, however, that the Buyers shall undertake to pay or satisfy the
corresponding liabilities for the enjoyment of such benefit to the extent that
Buyers would have been responsible therefor if such consent or assignment had
been obtained.
7. Remedies for Breaches of this Agreement.
a. Survival. All of the representations and warranties of the Seller
contained in Section 2 of this Agreement (other than the representations and
warranties of the Seller contained in Sections 2(a), 2(b), 2(c), and 2(d) hereof
or relating to the Seller's title to the Acquired Assets) shall survive the
Closing and continue in full force and effect for a period until 90 days after
the applicable statute of limitations has expired with respect to any claim by
the Buyers based on a claim or action by a third party and for a period of three
(3) years following Closing with respect to any claim by the Buyers not based on
a claim or action by a third party. All of the other representations and
warranties (including the representations and warranties Seller contained in
Sections 2(a), 2(b), 2(c), and 2(d) hereof or relating to the Seller's title to
the Acquired Assets) and all covenants of the Buyers and the Seller contained in
this Agreement shall survive the Closing and continue in full force and effect
forever thereafter.
b. Indemnification Provisions for the Benefit of the Buyers. Except as
described below in Section 7(e) with respect to a breach of a warranty or
covenant prior to the Closing Date, the Seller agrees to indemnify the Buyers
from and against the entirety of any Adverse Consequences the Buyers may suffer
resulting from, arising out of, relating to, in the nature of, or caused by:
(i) any misrepresentation or breach of any of the Seller's
representations or warranties, and covenants contained in this
Agreement or in any Ancillary Agreement executed and/or delivered by
the Seller (so long as the Buyers make a written claim for
indemnification within the applicable survival period);
(ii) any breach or nonfulfillment of any agreement or covenant of
the Seller contained herein or in any Ancillary Agreement;
20
<PAGE>
(iii) any Liability of the Seller which is not an Assumed
Liability; and/or
(iv) any Liability of the Buyers arising by operation of law
(including under any bulk transfer law of any jurisdiction or under any
common law doctrine of defacto merger or successor liability) which is
not an Assumed Liability.
c. Indemnification Provisions for the Benefit of the Seller. Except as
described below in Section 7(e) with respect to a breach of a warranty or
covenant prior to the Closing Date, the Buyers agree to indemnify the Seller
from and against the entirety of any Adverse Consequences the Seller may suffer
resulting from, arising out of, relating to, in the nature of, or caused by (i)
any misrepresentation or breach of any of the Buyers' representations or
warranties contained in this Agreement or in any Ancillary Agreement executed
and/or delivered by the Buyers (so long as the Seller makes a written claim for
indemnification within the applicable survival period) or (ii) any breach or
nonfulfillment of any agreement or covenant of the Buyers contained herein or in
any Ancillary Agreement, or (iii) any Assumed Liability.
d. Specific Performance. Each of the Parties acknowledges and agrees
that the Buyers would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the Buyers
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the Parties and the matter
(subject to the provisions set forth in Section 10(o) below), in addition to any
other remedy to which it may be entitled, at law or in equity. Each of the
Parties acknowledges and agrees that not withstanding the provision in Section
7(e) with respect to the remedy of liquidated damages upon a breach of a
warranty or covenant of this Agreement prior to the Closing, money damages would
not be an adequate remedy for Buyers for a breach of any provision of this
Agreement.
e. Liquidated Damages. The Buyers and the Seller acknowledge that in
the event that the transactions contemplated by this Agreement are not closed
because of a default by the Buyers, the Adverse Consequences to the Seller as a
result of such default may be difficult, if not impossible, to ascertain.
Accordingly, in lieu of indemnification pursuant to Section 7(c), the Seller
shall be entitled to receive from the defaulting Party for such default the
Earnest Money Deposit as liquidated damages without the need for proof of
damages, subject only to successfully proving in a court of competent
jurisdiction that the Buyer materially breached this Agreement and that the
transactions contemplated thereby have not occurred. The Seller shall proceed
against the Earnest Money Deposit as full satisfaction of liquidated damages
owed by the Buyers and as its sole remedy for a failure of the transactions
contemplated hereby to occur as a result of a material breach of the terms of
this Agreement by the Buyers.
21
<PAGE>
f. Matters Involving Third Parties. If any third party shall notify any
Party (the "Indemnified Party") with respect to any matter which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 7, then the Indemnified Party shall notify the
Indemnifying Party thereof promptly; provided, however, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is damaged as a result
of such failure. In the event any Indemnifying Party notifies the Indemnified
Party within 15 days after the Indemnified Party has given notice of the matter
that the Indemnifying Party is assuming the defense thereof, (i) the
Indemnifying Party will defend the Indemnified Party against the matter with
counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
(except that the Indemnifying Party will be responsible for the fees and
expenses of the separate co-counsel to the extent the Indemnified Party
reasonably concludes that the counsel the Indemnifying Party has selected has a
conflict of interest), (iii) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect to the matter without
the written consent of the Indemnifying Party (not to be withheld unreasonably),
and (iv) the Indemnifying Party will not consent to the entry of any judgment
with respect to the matter, or enter into any settlement which does not include
a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all Liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld unreasonably). In the event
the Indemnifying Party does not notify the Indemnified Party within 15 days
after the Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, however, and/or in the event the
Indemnifying Party shall fail to defend such claim actively and in good faith,
then the Indemnified Party may defend against, or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate.
8. Definitions.
"Acquired Assets" means all right, title, and interest in and to all of the
assets of the Seller, other than Retained Assets that are used or useful in the
operation of the Stations, wherever located, including but not limited to all of
its (a) leaseholds and other interests of any kind therein, improvements,
fixtures, and fittings thereon (such as towers and antennae), and easements,
rights-of-way, and other appurtenances thereto); (b) tangible personal property
(such as fixed assets, computers, data processing equipment, electrical devices,
monitoring equipment, test equipment, switching, terminal and studio equipment,
transmitters, transformers, receivers, broadcast facilities, furniture,
furnishings, inventories of compact disks, records, tapes and other supplies,
vehicles) and all assignable warranties with respect thereto; (c) Intellectual
Property, goodwill associated therewith, licenses and sublicenses granted and
obtained with respect thereto, and rights thereunder, remedies against
infringements thereof, and rights to protection of interests therein under the
laws of all jurisdictions; (d) rights under orders and agreements (including
those Barter Agreements and Advertising Contracts identified on the Disclosure
Schedule) now existing or entered into in the Ordinary Course of Business for
22
<PAGE>
the sale of advertising time on the Stations; (e) Assumed Contracts, indentures,
Security Interests, guaranties, other similar arrangements, and rights
thereunder; (f) call letters of the Stations, jingles, logos, slogans, and
business goodwill of the Stations; (g) claims, deposits, prepayments, refunds,
causes of action, chooses in action, rights of recovery (including rights under
policies of insurance), rights of set off, and rights of recoupment; (h)
Licenses and similar rights obtained from governments and governmental agencies;
and (i) FCC logs and records and all other books, records, ledgers, logs, files,
documents, correspondence, advertiser lists, all other lists, plats,
architectural plans, drawings, and specifications, creative materials,
advertising and promotional materials, program production materials, studies,
reports, and other printed or written materials; and (j) goodwill of the
Stations.
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including all attorneys' fees and court costs.
"Advertising Contracts" has the meaning set forth in Section 2(s), above.
"Affiliate" means with reference to any person or entity, another person or
entity controlled by, under the control of or under common control with that
person or entity.
"Assignment Application" has the meaning set forth in Section 4(b) above.
"Assumed Contracts" means the Leases, the Barter Agreements, the Advertising
Contracts and those contracts identified on Section 2(k) of the Disclosure
Schedule as those to be assumed by Broadcasting.
"Assumed Liabilities" means (a) obligations of the Seller which accrue after
the Closing Date under the Assumed Contract either: (i) to furnish services, and
other non-Cash benefits to another party after the Closing; or (ii) to pay for
goods, services, and other non-Cash benefits that another party will furnish to
it after the Closing. The Assumed Liabilities shall not include any Retained
Liabilities.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyers" has the meaning set forth in the preface above.
"Cash" means cash and cash equivalents determined in accordance with GAAP
applied on a basis consistent with the preparation of the Financial Statements.
"Closing" has the meaning set forth in Section 1(d) above.
23
<PAGE>
"Closing Date" has the meaning set forth in Section 1(d) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of the Seller.
"Disclosure Schedule" has the meaning set forth in Section 1 above.
"Earnest Money Deposit" has the meaning set forth in Section 1(c) above.
"Earnest Money Escrow Agreement" has the meaning set forth in Section 1(c)
above.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multi-employer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and Recovery
Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act
of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act
of 1976, the Refuse Act of 1899, or the Emergency Planning and Community
Right-to-Know Act of 1986 (each as amended), or any other law of any federal,
state, local, or foreign government or agency thereof (including rules,
regulations, codes, plans, judgments, orders, decrees, stipulations,
injunctions, and charges thereunder) relating to public health and safety, or
pollution or protection of the environment, including, without limitation, laws
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous or toxic materials
or wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means Bank One Trust Company, N.A.
24
<PAGE>
"Extremely Hazardous Substance" has the meaning set forth in Section 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FCC" means the Federal Communications Commission of the United States.
"FCC Licenses" means the licenses, permits and other authorizations,
including any temporary waiver or special temporary authorization, issued by the
FCC to the Seller in connection with the conduct of the business and operation
of the Stations.
"Final Order" means an action by the FCC as to which: (a) no request for
stay by the FCC is pending, no such stay is in effect, and any deadline for
filing a request for any such stay has passed; (b) no appeal, petition for
rehearing or reconsideration, or application for review is pending before the
FCC and the deadline for filing any such appeal, petition or application has
passed; (c) the FCC has not initiated reconsideration or review on its own
motion and the time in which such reconsideration or review is permitted has
passed; and (d) no appeal to a court, or request for stay by a court, of the
FCC's action is pending or in effect, and the deadline for filing any such
appeal or request has passed.
"Financial Statements" has the meaning set forth in Section 2(e) above.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in Section 7(d) above.
"Indemnifying Party" has the meaning set forth in Section 7(d) above.
"Intellectual Property" means all (a) patents, patent applications, patent
disclosures, and improvements thereto, (b) trademarks, service marks, trade
dress, call letters, logos, trade names, and corporate names and registrations
and applications for registration thereof, (c) all programs, programming
materials, copyrights and registrations and applications for registration
thereof, (d) mask works and registrations and applications for registration
thereof, (e) computer software, data, and documentation, (f) trade secrets and
confidential business information (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, market and other research information, drawings,
specifications, designs, plans proposals, technical data, copyrightable works,
financial, marketing, and business data, pricing and cost information, business
and marketing plans, and customer and supplier lists and information), (g) other
proprietary rights, and (h) copies and tangible embodiments thereof (in whatever
form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
25
<PAGE>
"Leases" means those real estate leases to which Seller is a party governing
Seller's studios and FM tower sites, as described in Section 2(i) of the
Disclosure Schedule.
"Liability" means any liability (whether known or unknown, whether absolute
or contingent, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Licenses" means all FCC and other governmental licenses, franchises,
approvals, certificates, authorizations and rights of the Seller with respect to
the operations of the Stations and all applications therefor, together with any
renewals, extension or modifications thereof and additions thereto.
"Multi-employer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Owned Real Estate" means the real property owned by the Seller as described
in Section 2(i) of the Disclosure Schedule and all buildings, fixtures, and
improvements located thereon.
"Party" has the meaning set forth in the preface above.
"Permitted Real Estate Encumbrances" shall have the meaning set forth in
Section 2(i), above.
"Post-Closing Agreement" means the Post-Closing Agreement with Seller's
owners in the form attached hereto as Exhibit C.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Price " has the meaning set forth in Section 1(c) above.
"Real Estate" means the Owned Real Estate and the real estate, building,
fixtures and improvements which are the subject of the Leases.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Retained Assets" means (i) the corporate charter, qualifications to conduct
business as a foreign corporation, arrangements with registered agents relating
to foreign qualifications, taxpayer and other identification numbers, seals,
minute books, stock transfer books, blank stock certificates, and other
documents relating to the organization, maintenance, and existence of the Seller
as a corporation; (ii) any of the rights of the
26
<PAGE>
Seller under this Agreement (or under any side agreement between the Seller on
the one hand and the Buyers on the other hand entered into on or after the date
of this Agreement); (iii) accounts, notes and other receivables of the Seller;
and (iv) Cash.
"Retained Liabilities" means any other obligations or Liabilities of the
Seller, including but not limited to: (i) any Liability relating to the
ownership or operation of the Stations prior to the Closing; (ii) any Liability
of the Seller for income, transfer, sales, use, and other Taxes arising in
connection with the consummation contemplated hereby; (iii) any Liability of the
Seller for costs and expenses incurred in connection with this Agreement or the
consummation of the transactions contemplated hereby (except as set forth in
Section 4(i) relating to Surveys, title commitments and environmental audits and
Section 4(b) with regard to the Assignment Application; or (iv) any Liability or
obligation of the Seller under this Agreement (or under any side agreement
between the Seller on the one hand and the Buyers on the other hand entered into
on or after the date of this Agreement).
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due
and payable; and (b) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation.
"Seller" has the meaning set forth in the preface above.
"Stations" means the radio broadcast Stations WKAK-FM and WALG-AM licensed
to Albany, Georgia; WEGC-FM licensed to Sasser, Georgia; and WJAD-FM licensed to
Leesburg, Georgia.
"Subsidiary," with respect to any person, means any corporation,
partnership, joint venture, limited liability company, trust or estate of which
(or in which ) 50% or more of (i) the outstanding capital stock or other equity
interest having voting power to elect a majority of the Board of Directors of
such corporation or persons having a similar role as to an entity that is not a
corporation, (ii) the interest in the profits of such partnership or joint
venture, or (iii) the beneficial interest of such trust or estate are at such
time directly or indirectly owned by such person or one or more of such person's
Subsidiaries.
"Surveys" has the meaning set forth in Section 4(o) above.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
27
<PAGE>
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
9. Termination.
a. Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyers and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyers may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing in the event the
Seller is in breach of any representation, warranty, or covenant
contained in this Agreement; provided, however, that if such breach is
capable of being cured, such breach also remains uncured for twenty
(20) days after notice of breach is received by the Seller from the
Buyers;
(iii) the Seller may terminate this Agreement by giving written
notice to the Buyers at any time prior to the Closing in the event the
Buyers are in breach of any representation, warranty, or covenant
contained in this Agreement; provided, however that if such breach is
capable being cured, such breach remains uncured for twenty (20) days
after notice of breach is received by the Buyers from the Seller;
(iv) the Buyers may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing if the Closing
shall not have occurred on or before the 270th day following the date
of this Agreement by reason of the failure of any condition precedent
under Section 5(a) hereof (unless the failure results primarily from
the Buyers themselves breaching any representation, warranty, or
covenant contained in this Agreement);
(v) the Seller may terminate this Agreement by giving written
notice to the Buyers at any time prior to the Closing if the Closing
shall not have occurred on or before the 270th day following the date
of this Agreement by reason of the failure of any condition precedent
under Section 5(b) hereof (unless the failure results primarily from
the Seller itself breaching any representation, warranty, or covenant
contained in this Agreement);
(vi) the Buyers or the Seller may terminate this Agreement if any
Assignment Application is denied by Final Order.
b. Effect of Termination. If any Party terminates this Agreement
pursuant to Section above, all obligations of the Parties hereunder shall
terminate without
28
<PAGE>
any Liability of any Party to any other Party (except for any Liability of any
Party then in breach).
10. Miscellaneous.
a. Press Releases and Announcements. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement prior
to the Closing without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by law or regulation (in which case the disclosing Party will advise
the other Party prior to making the disclosure).
b. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
c. Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, that may have related in any way to the subject matter
hereof.
d. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party, provided that (i) the Buyers may assign all of their right,
title and interest in, to and under this Agreement to one or more Affiliates,
who shall then, subject to the terms and conditions of this Agreement, have the
right to receive the Acquired Assets, assume the Assumed Liabilities, and to pay
to the Seller the Purchase Price therefor or to any successor to the Buyers in
the event of any sale, merger or consolidation of the Buyers, and (ii) Buyers
may assign their indemnification claims and their rights under the warranties
and representations of the Sellers to the financial institution(s) providing
financing to the Buyers in connection with this transaction.
e. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
f. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
g. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing and shall be considered to be given
and received in all respects when hand delivered, when delivered via prepaid
express or courier delivery service, when sent by facsimile transmission
actually received by the
29
<PAGE>
receiving equipment or three (3) days after deposited in the United States mail,
certified mail, postage prepaid, return receipt requested, in each case
addressed to the intended recipient as set forth below:
If to the Seller:
Mr. Robert Brooks d/b/a/ Brooks Broadcasting Company
1104 W. Broad Ave
P.O. Box 2407
Albany, GA 31702
Copy to:
Douglas Devine, Esquire
P.O. Box 64
Albany, Georgia 31702
Phone: (912) 883-1610
Fax: (912) 883-1610
(which copy shall not constitute notice to Seller)
If to the Buyers:
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
c/o QUAESTUS Management Corp.
330 E. Kilbourn Avenue, Suite 250
Milwaukee, WI 53202
Attn: Terrence J. Leahy
Phone: (414) 283-4500
Fax: (414) 283-4505
With a copy to:
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
875 N. Michigan Avenue
Suite 3650
Chicago, Illinois 60611
Attn: Richard J. Bonick
Phone: (312) 867-0091
Fax: (312) 867-0098
(which copy shall not constitute notice to Buyers)
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including telex, ordinary mail, or electronic
mail), but
30
<PAGE>
no such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set forth.
h. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
Georgia.
i. Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyers and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
j. Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
k. Expenses. The Buyers and the Seller, will each bear their own costs
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby, other than as set forth
in Section 4(b) with regard to the Assignment Applications and as set forth in
Section 4(o) with respect to Surveys, title commitments and environmental
audits. The Seller will pay all income taxes. The Seller and the Buyers will
each pay one-half (1/2) of any transfer or sales taxes and other recording or
similar fees necessary to vest title to each of the Acquired Assets in the
Buyers.
l. Construction. The language used in this Agreement will be deemed to
be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference to
any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Nothing in the Disclosure Schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein unless the
Disclosure Schedule identifies the exception with
31
<PAGE>
reasonable particularity and describes the relevant facts in reasonable detail.
The Parties intend that each representation, warranty, and covenant contained
herein shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the fact
that there exists another representation, warranty, or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
m. Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
n. Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Albany, Georgia in any
action or proceeding arising out of or relating to this Agreement, agrees that
all claims in respect of the action or proceeding may be heard and determined in
any such court, and agrees not to bring any action or proceeding arising out of
or relating to this Agreement in any other court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of
any other Party with respect thereto. Any Party may make service on the other
Party by sending or delivering a copy of the process to the Party to be served
at the address and in the manner provided for the giving of notices in Section
10(g) above. Nothing in this Section 10(n), however, shall affect the right of
any Party to serve legal process in any other manner permitted by law. Each
Party agrees that a final judgment in any action or proceeding so brought shall
be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law.
* * * * *
32
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as of
the date first above written.
CUMULUS BROADCASTING, INC.
By:
-------------------------
(printed)
- ---------------------------
Title:
----------------------
CUMULUS LICENSING CORPORATION
By:
-------------------------
(printed)
- ---------------------------
Title:
----------------------
ROBERT BROOKS d/b/a BROOKS BROADCASTING COMPANY
By:
-------------------------
(printed)
- ---------------------------
Title:
----------------------
K-COUNTRY, INC.
By:
-------------------------
(printed)
- ---------------------------
Title:
----------------------
33
<PAGE>
SCHEDULE A
Purchase Price. The Buyers agree to pay to the Seller, as consideration for
the Acquired Assets (other than the studio/office building and land located at
1104 W. Broad Avenue and identified in Section 2(i) of the Disclosure Schedule),
the amount of Three Million Three Hundred Thousand Dollars ($3,300,000). In
addition, on the Closing Date, the Buyers shall pay to the Seller the amount of
Seven Hundred Thousand Dollars ($700,000) for the Owned Real Estate consisting
of the studio/office building and land located at 1104 W. Broad Avenue and
identified with more particularity in Section 2(i) of the Disclosure Schedule.
Such amounts shall be payable as follows:
(i) on the date of this Agreement, the Buyers will deposit with the Escrow
Agent the amount of One Hundred Sixty-Five Thousand Dollars ($165,000) (the
"Earnest Money Deposit") in the form of an irrevocable letter of credit from
NationsBank; and
(ii) on the Closing Date, the Buyers shall pay to the Seller the amount of
Three Million Three Hundred Thousand Dollars ($3,300,000) for the Acquired
Assets other than the Owned Real Estate, and Seven Hundred Thousand Dollars
($700,000) for the Owned Real Estate, with adjustments as provided specifically
in this Agreement.
The Earnest Money Deposit referenced in this Schedule A shall be placed in
escrow with the Escrow Agent pursuant to an escrow agreement in the form
attached hereto as Exhibit A (the "Earnest Money Escrow Agreement"), and shall
be disbursed to Seller or returned to Buyer as provided in the Earnest Money
Escrow Agreement.
34
<PAGE>
Exhibit 10.71
ASSET PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement"), dated as of March24, 1998, made
and entered into by and between WSEA, Inc. ("Seller"), a South Carolina
corporation, Cumulus Broadcasting, Inc. ("Broadcasting"), a Nevada corporation,
and Cumulus Licensing Corporation, a Nevada corporation ("Licensing").
Broadcasting and Licensing are referred to collectively herein as the "Buyer".
R E C I T A L S:
1. Seller is the licensee of Radio Station WSEA(FM), Atlantic Beach, South
Carolina, (the "Station") and holds the license and other authorizations issued
by the Federal Communications Commission (the "FCC") for the operation of the
Station. Seller also owns or leases all tangible and intangible assets used or
useful in the business and operations of the Station.
2. Buyer desires to acquire all of the assets of Seller used or useful in
the operation of the Station, and Seller is willing to convey such assets to
Buyer, subject to the terms and conditions set forth in this Agreement.
3. The purchase and sale contemplated herein is subject to prior approval by
the FCC.
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, Seller and Buyer hereby agree
as follows:
ARTICLE I
TERMINOLOGY
1.1 Acquired Assets. The FCC Authorizations and the Assets as defined
herein.
1.2 Act. The Communications Act of 1934, as amended.
1.3 Closing. The closing with respect to the transactions contemplated by
this Agreement.
1.4 Closing Date. The date on which the transactions contemplated by this
Agreement shall be consummated as provided in Section 11.1.
1.5 Commencement Date of the TBA. The date on which Buyer begins providing
programming to Seller for broadcast on the Station, as defined in Section 8.
1.6 Documents. This Agreement and all Exhibits and Schedules hereto, and
each other agreement, certificate, or instrument delivered pursuant to or in
connection with this
1
<PAGE>
Agreement, including amendments thereto that are expressly permitted under, or
agreed upon by the parties pursuant to, the terms of this Agreement.
1.7 FCC Authorizations. All license, permits and other authorizations,
including any temporary waiver or special temporary authorization issued by the
FCC to Seller in connection with the conduct of the business and operation of
the Station, as set forth on Schedule 3.3.
1.8 FCC Order. An order or decision of the FCC granting its consent to the
assignment of the FCC Authorizations to Buyer.
1.9 Final Action. An action of the FCC that has not been reversed, stayed,
enjoined, set aside, annulled or suspended, with respect to which no timely
petition for reconsideration or administrative or judicial appeal or sua sponte
action of the FCC with comparable effect is pending and as to which the time for
filing any such petition or appeal (administrative or judicial) or for the
taking of any such sua sponte action of the FCC has expired.
1.10 Lien. Any mortgage, deed or trust, pledge, hypothecation, security
interest, encumbrance, claim, lien, lease or charge of any kind, whether
voluntarily incurred or arising by operation of law or otherwise, affecting any
assets or property including any written or oral agreement to give or grant any
of the foregoing, any conditional sale or other title retention agreement, and
the filing of or agreement to give any financing statement with respect to any
assets or property under the Uniform Commercial Code or comparable law of any
jurisdiction.
1.11 Permitted Lien. Any statutory lien which secures a payment not yet due
that arises, and is customarily discharged, in the ordinary course of the
Station's business; any easement, right-of-way or similar imperfection in the
Seller's title to its Assets or properties that, as reasonably perceived by
Buyer individually and in the aggregate, are not material in character or amount
and do not and are not reasonably expected to materially impair the value or
materially interfere with the use of any asset or property of the Station
material to the operation of its business as it has been and is now conducted;
liens in favor of Seller's lenders which shall be removed at or prior to the
Closing and any other claims which will be removed at or prior to the Closing,
in each case solely at Seller's expense.
1.12 Station Agreements. The agreements, leases, commitments, contracts, and
other items described in Schedule 2.1.3.
1.13 TBA. The Time Brokerage Agreement which Seller and Buyer will enter
into simultaneously with this Agreement.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 Sale and Purchase of Assets. On the terms and conditions herein set
forth, at Closing, Seller shall sell, assign, transfer, and convey to (i)
Licensing, and Licensing shall
2
<PAGE>
purchase and acquire from Seller, all of the FCC Authorizations listed on
Schedule 3.3; and (ii) Broadcasting, and Broadcasting agrees to purchase and
acquire from Seller all of the assets (except the FCC Authorizations and as
otherwise expressly excluded) now owned or hereafter acquired and used by Seller
or useful in operating the Station (the "Assets"), free and clear of all Liens
(except Permitted Liens), including without limitation the following:
2.1.1 Personal Property. Title or assignment of leases to all tangible
personal property, whether owned or leased, of Seller used or useful in the
operation of the Station, including all broadcasting and office equipment,
furniture, furnishings, equipment, machinery, installations and fixtures,
including but not limited to, all replacements and additions thereto and
deletions therefrom arising in the ordinary course of business between the date
of this Agreement and the Closing Date as listed on Schedule 3.4 hereto.
2.1.2 Station Agreements. All Station Agreements which are set forth on
Schedule 2.1.3 hereto. Material Station Agreements shall be marked on Schedule
2.1.3 with an asterisk.
2.1.3 FCC Reports/Files. Copies of all documents required by the FCC to
be maintained by the Seller relating to the operation of the Station, including
but not limited to, the local public inspection files, and all books of account
(other than those covered by section 2.2.5), logs, and records necessary for the
Buyer's operation of the Station;
2.1.4 Intangible Assets. The call signs "WSTU", logos, jingles, music
formats and music libraries used by Seller or useful in Station's operations,
together with the goodwill associated therewith and other intangible property
listed and described in Schedule 2.1.5 hereto (collectively, the "Intellectual
Property").
2.1.5 Leases. Any lease agreements or equipment lease agreements used
or useful in the operation of the Station as set forth in Schedule 2.1.3,
including but not limited to the tower lease .
2.2 Excluded Assets. The following assets are expressly excluded from the
Station's assets to be purchased and sold:
2.2.1 Cash on hand as of the Closing Date;
2.2.2 Deposit accounts as of the Closing Date;
2.2.3 Accounts receivable; and
2.2.4 All of Seller's corporate books and records related to internal
corporate matters and financial relationship's with Seller's lenders.
2.3 No Assumption of Liabilities. Buyer shall assume no liabilities or
obligations of
3
<PAGE>
Seller, including, without limitation, accounts payable, debts, liabilities, and
other obligations, whether pursuant to a contract or otherwise, except
liabilities and obligations under the Station Agreements that arise during and
are attributable to any period on or after the Commencement Date of the TBA (the
"Assumed Obligations") or as otherwise expressly provided herein, and Seller
agrees to pay and discharge all Liabilities and obligations of Seller other than
the Assumed Obligations on or before the Closing Date.
2.4 Purchase Price. The Buyer agrees to pay Seller, as consideration for the
purchase of the Acquired Assets, the purchase price ("Purchase Price") described
in Schedule 2.4 to this Agreement, and agrees to make the escrow deposit (the
Deposit") in the form and manner described in Schedule 2.4 and the Escrow
Agreement attached as Exhibit 1.
2.5 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Acquired Assets as mutually agreed to by Buyer and Seller at or before
the Closing. Said allocation schedule shall be prepared pursuant to Section 1060
of the Internal Revenue Code.
2.6 Proration of Expenses. Subject to the TBA and except as otherwise
provided in this Agreement, the following items shall be pro-rated as of the
Commencement Date of the TBA and paid, as between Seller, on the one hand, and
Buyer, on the other hand, at the Closing (to the extent possible) in the manner
provided for herein below:
2.6.1 All pre-paid expenses and deposits, and all expenses for which
liability has accrued but whose payment is not yet due or paid as of the
Commencement Date of the TBA, including but not limited to (i) such expenses in
connection with the Station Agreements, (ii) rents and deposits, (iii) utility
deposits and charges, including electricity, water and sewer charges, (iv)
business and license fees, including any retroactive adjustments thereof, (v)
property and equipment rentals, (vi) applicable copyright or other fees, (vii)
sales and service charges, (viii) real and personal property taxes in connection
with the Acquired Assets, (ix) operating expenses, (x) all wages and salaries,
vacation pay, sick leave and other leave allowances, awards, bonuses,
commissions, and other forms of employment compensation and benefits that have
accrued in favor of (but that as of the Commencement Date of the TBA have not
yet been paid or provided to), any employees of Seller who shall become
employees of Buyer after the Closing, and (xi) similar prepaid and deferred
items and all revenues arising from the operation of the Station, shall be
pro-rated and adjusted between Buyer and Seller in accordance with the principle
that Seller shall receive all revenues, and shall be responsible for all
expenses, costs, and liabilities allocable to the conduct of the business or
operations of the Station up to midnight on the Commencement Date of the TBA.
Any credit to Seller for a pre-paid expense shall not exceed an amount
commensurate with the value to Buyer of the pre-paid expense. All prorations
shall be made in accordance with generally accepted accounting principles.
Notwithstanding the foregoing, there shall be no adjustment for, and Seller
shall remain solely liable with respect to, any contract other than the Station
Agreements in Schedule 2.1.3 hereto, or any other obligation or liability not
being assumed by Buyer.
4
<PAGE>
2.6.2 At the conclusion of sixty (60) days from and after the Closing
Date, a final adjustment shall be made of the items to be pro-rated between
Buyer and Seller pursuant to Section 2.6.1.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer that the statements contained in
this Article III are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date, except as set forth in the
schedules attached hereto.
3.1 Organization and Good Standing; Ownership. Seller is a corporation
validly organized, existing, in good standing and qualified to do business under
the laws of the State of South Carolina. Seller has all requisite power and
authority to own, operate and lease the Acquired Assets and carry on the
business of the Station as it is now being conducted. Seller has paid (or shall
pay when due) all franchise and similar fees imposed by the State of South
Carolina.
3.2 Authorization and Binding Effect of Documents. Seller has the power and
authority to execute, deliver and perform its obligations under this Agreement
and each of the other Documents and to consummate the transactions contemplated
hereby. By the Closing, necessary corporate actions approving this Agreement and
Seller's obligations hereunder shall have been taken, including without
limitation, the Board of Directors of Seller has duly authorized the execution,
delivery, and performance of this Agreement and the other Documents. This
Agreement and each of the other Documents executed or to be executed by Seller
have been, or at or prior to the Closing will be, duly executed and delivered by
Seller. The execution, delivery and performance of the terms of this Agreement
and each of the other Documents, and the consummation by Seller of the
transactions contemplated hereby and thereby, will not conflict with or result
in the breach, alteration or modification of or constitute a violation of or
default under, any of the terms, conditions or provisions of Seller's articles
of incorporation, by-laws, or any license, judgment, order, decree, law,
regulation, rule or ruling of any court, arbitration or governmental authority
to which Seller is subject, or conflict with, result in the breach of, or
constitute a default under, any other agreement, lease, contract or other
commitment to which Seller, its principals or any of the Acquired Assets are
subject and will not result in the creation of any Lien on any of the Acquired
Assets to be conveyed. Subject to obtaining the FCC Order and any consents to
assignment of the Station Agreements, the execution, delivery and performance of
this Agreement by Seller does not require the consent of any governmental
authority or other third party. This Agreement constitutes (and each of the
other Documents, when executed and delivered by Seller, will constitute) the
legal, valid and binding obligation of Seller enforceable against it in
accordance with its terms, except to the extent limited by bankruptcy,
insolvency, moratorium and other laws of general applicability relating to or
affecting the enforcement of creditors' rights.
5
<PAGE>
3.3 FCC Authorizations.
3.3.1 Seller is the legal holder of the FCC Authorizations listed on
Schedule 3.3. There is not now pending, or to the knowledge of the Seller
threatened, any action by the FCC to revoke, cancel, rescind, modify or refuse
to renew in the ordinary course any of the FCC Authorizations, or any
investigation, Order to Show Cause, Notice of Violation or of Apparent Liability
or of Forfeiture, or material complaint, objection, petition to deny, or
opposition issued by or filed with the FCC or any other governmental authority
in connection with the operation of or authorizations for the Station or Seller.
All material reports, forms, applications, statements, and other information
required to be filed by Seller with the FCC with respect to the Station have
been filed, are complete and accurate in all material respects, and will
continue to be filed as required through the Closing Date. The Station is
operating in material accordance with its respective FCC Authorizations, and in
material compliance with the Act and the rules and regulations of the FCC,
including but not limited to the FCC's policy on exposure to radio frequency
radiation. The renewal of the FCC Authorization for the Station wold not
constitute a major environmental action under the FCC's rules or regulations.
3.3.2 The FCC Authorizations (a) are in full force and effect,
unimpaired by any material act or omission of Seller, or its agents, and
constitute all of the permits and Authorizations required by the Act, the rules
and regulations thereunder or the FCC for, or used in, the operation of the
Station as now operated; (b) constitute all the Authorizations, including
amendments and modifications thereto, issued by the FCC to Seller for or in
connection with the operation of the Station; and (c) are not subject to any
restriction or condition which would limit in any respect the full operation of
the Station as now conducted.
3.4 Tangible Personal Property.
3.4.1 Schedule 3.4 lists all tangible personal property (other than
office supplies and other incidental items) used or useful in the conduct of the
business and operations of the Station (the "Tangible Personal Property").
3.4.2 Seller has good and marketable title to all of the Tangible
Personal Property (except for the items indicated on Schedule 3.4 as leased or
licensed by Seller), free and clear of all Liens, except Permitted Liens.
3.5 Litigation. Except as described in Schedule 3.5 and except for any
investigations and rule-making proceedings affecting the broadcasting industry
generally, there are no actions, judgments (issued or outstanding), suits,
claims, investigations or administrative, arbitration or other proceedings
pending or, to the knowledge of Seller, threatened against Seller, its
principals or the Station before or by any court, arbitration tribunal or
governmental department or agency of any kind, domestic or foreign that would
give any third party the right to enjoin the transactions contemplated by this
Agreement; that could adversely affect Seller's ability to consummate the
transactions contemplate hereunder;
6
<PAGE>
or that could adversely affect Buyer as the owner of any of the Station. Seller
does not know of any basis for such claim, litigation, proceeding or
investigation. Should any such litigation or other proceeding commence or be
threatened after the date of this Agreement, Seller shall promptly, and in no
event later than five (5) days after becoming aware of it, notify Buyer and use
its best efforts to accomplish the prompt removal or dismissal thereof.
3.6 Broker's or Finder's Fees. Other than American Media Services, LLC, to
which no fee shall be due from either Seller or Buyer, no agent, broker or other
person or firm acting on behalf of or under the authority of Seller is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee, directly or indirectly, from Seller in connection with the transactions
contemplated by this Agreement.
3.7 Disclosure. No representation, warranty or other statement by Seller in
this Agreement or any other Document furnished by Seller or on its behalf
contains, or will contain, any untrue statement of a material fact, or omits to
state a material fact necessary to make any representation, warranty or
statement contained herein or therein not misleading, in any such case that was
knowingly or willingly made or omitted, as the case may be, by Seller.
3.8 Undisclosed Obligations and Discharge of Liens. There are no material
commitments, liabilities or obligations relating to the Station, whether
accrued, absolute, contingent or otherwise including, without limitation,
guaranties by Seller of the liabilities of third parties, other than the
Permitted Liens or as otherwise disclosed to Buyer herein. As of the Closing
Date, Seller will have paid and discharged all taxes, assessments, excises,
liens, levies and judgments for which it is obligated and which are then due and
payable and Seller shall promptly pay and discharge, as and when any of them
become due and payable after Closing, all taxes, assessments, excises, liens,
levies and judgments for which it is obligated or which are a Lien on any of the
Acquired Assets immediately prior to the Closing.
3.9 Insurance. Seller currently has, and subject to the TBA, through the
Closing Date will maintain, insurance on the Acquired Assets in an amount
sufficient to cover the value of said Acquired Assets and consistent with the
terms of this Agreement will use the proceeds of any claims for loss to repair,
replace or restore any damaged property. All such policies are outstanding and
full in force and effect and will continue to be outstanding and in full force
and effect until the Closing Date.
3.10 Real Property. The Acquired Assets include no owned Real Property. All
Real Property on which facilities owned, leased or otherwise used by Seller in
the operation of the Station are located is leased by Seller (the "Leased Real
Property"). To the best of Seller's knowledge, the Leased Real Property is free
and clear of all conditions, equities, reservations, restrictions,
encroachments, adverse uses, easements, servitudes or limitations except as
listed and described in Schedule 3.11, none of which shall interfere with
Buyer's intended use of the Leased Real Property for the Station's operations.
To the best of Seller's knowledge, Seller's improvements upon and use of the
Leased Real Property conform in all material
7
<PAGE>
respects to all restrictions, restrictive covenants, building codes, fire
regulations, building restrictions, and federal, state and local laws,
regulations and ordinances. To the best of Seller's knowledge, there is no
pending, threatened or contemplated action to take by eminent domain or
otherwise to condemn any of the Leased Real Property.
3.11 Other Matters Related to Leased Real Property. Except as set forth in
Schedule 3.11, there are no leases or rental agreements regarding the occupancy
or use of the Leased Real Property with respect to the Station. To the best of
Seller's knowledge, with respect to those transmitting facilities of the Station
located on the Leased Real Property, all towers, guy lines, anchors, ground
systems and all other structures are located entirely within the confines of the
Leased Real Property. To the best of Seller's knowledge, the Leased Real
Property is freely accessible directly from public streets, or, if not, any use
of adjoining private land to access the same is done in accordance with valid
easements of record.
3.12 Environmental Representations. Except as set forth in Schedule 3.13:
(a) to the best of Seller's knowledge, none of the Leased Real Property has ever
been used by Seller, by the owners and/or prior owners or operators, to treat,
produce, handle, transfer, process, transport, dispose or otherwise release
petroleum products, a "hazardous substance," "hazardous waste," "pollutant" or
"contaminant" (as such terms are defined in any applicable federal, state, or
local laws, ordinances, rules and regulations, and including any and all other
terms which are or may be used in any applicable environmental laws to define
prohibited or regulated substances (collectively "Toxic Substances")), other
than in compliance with all applicable laws, ordinances, rules and regulations
of all federal, state or local governmental authorities. To the best of Seller's
knowledge no Toxic Substances are present on or below the surface of the Leased
Real Property; (b) Seller has no knowledge of any notification having been filed
with regard to a release of any Toxic Substances on or into the Leased Real
Property; (c) neither Seller nor, to the best of Seller's knowledge, any present
or former owner or operator of the Leased Real Property has been identified as a
potentially responsible party for clean up liability with regard to the
emission, discharge or release of any hazardous substance or for any other
matter arising under law in any litigation, administrative proceeding, finding,
order, citation, notice, investigation or complaint, nor has Seller been
threatened with such; (d) Seller has no knowledge of any: (1) generation,
treatment, recycling, storage or disposal of any hazardous waste, (2)
underground storage tank, surface impoundment, lagoon or other containment
facility (past or present) for the temporary or permanent storage, treatment or
disposal of hazardous substance, (3) landfill or solid waste disposal area, (4)
asbestos-containing materials, (5) "friable" asbestos (as defined in the Toxic
Substances Control Act, 15 U.S.C. ss.2601 et seq., and the regulations
promulgated thereunder), (6) electrical transformers, fluorescent light fixtures
with ballasts or other equipment containing polychlorinated biphenyls (PCBs) in,
on or at any Leased Real Property. Seller is in compliance in all material
respects with all applicable federal state and local regulations concerning any
USTs that are located at the Leased Real Property. To the best of its knowledge,
Seller has not committed violations of any environmental law, statute, ordinance
or regulation with regard to the Leased Real Property.
8
<PAGE>
3.13 Contracts. Schedule 2.1.3 is a true and complete list of all Station
Agreements to be assigned to and assumed by Buyer. Schedule 2.1.3 indicates for
each Station Agreement whether a consent thereunder is required for assignment
of the Station Agreement. Seller is not in material default under any of these
Station Agreements and Seller has no knowledge of the breach of any material
provision of such Agreements. Seller has not been granted, and has not granted,
any material waiver or forbearance with respect to any of the Station
Agreements. No event has occurred which, but for the passage of time or giving
of notice, or both, would or might constitute a material default by Seller under
such Station Agreements, and there is no outstanding notice of material default
or termination under any such Agreement. Except for the consents required
pursuant to the terms of the Station Agreements, Seller has authority to assign
its rights thereunder to Buyer on terms and conditions no less favorable to
Buyer than those in effect on the date hereof, and such assignment will not
affect the validity, enforceability and continuity of any of such Agreements.
The Material Station Agreements as designated in Schedule 2.1.3 include all
those necessary to conduct, in all material respects, the business and
operations of the Station as now conducted. Each of the Station Agreements is
valid, binding and enforceable in accordance with its terms and is in full force
and effect. Seller holds the right to enforce and receive the benefits under
each of the Station Agreements free and clear of any Lien but subject to the
terms and provisions of each Station Agreement. The Station Agreements listed on
Schedule 2.1.3 include all leases for the Leased Real Property. Schedule 2.1.3-A
lists all arrangements for the sale of air time or advertising on the Station in
excess of $1,000 since January 1, 1997, and the amount to be paid to the Seller
therefor. The Seller has no reason to believe and has not received a notice or
indication of the intention of any of the advertisers or any third parties to
material contracts of Seller to cease doing business or to reduce in any
material respect the business transacted with the Seller or to terminate or
modify any agreements with the Seller (whether as a result of consummation of
the transactions contemplate hereby or otherwise).
3.14 Taxes and Reports. Seller has filed all material federal, state and
local tax returns and state franchise returns which are required to be filed by
Seller, and has paid in full all taxes, interest, penalties, assessments and
deficiencies owed by or which have been assessed or levied against Seller or any
of its assets or properties (except any such obligations as are being contested
in good faith). Any additional taxes, interest, penalties, assessments and
deficiencies that shall become due and payable with respect to any tax return or
tax obligation of Seller arising from the operation of the Station prior to the
Closing Date shall be the responsibility of Seller. All other material federal,
state, county and local tax returns, reports and declarations of estimated tax
or estimated tax deposit forms required to be filed by the Seller in connection
with the Station's operations, personal property, real estate or payroll have
been duly and timely filed. Seller has paid all taxes which have become due
pursuant to such returns or pursuant to any assessment received by it (except
any such obligations being contested in good faith), and has paid all
installments of estimated taxes due. All taxes, levies and other assessments
which the Seller is required by law to withhold or to collect have been duly
withheld and collected, and have been paid over to the proper governmental
authorities or held by the Seller for such payment.
9
<PAGE>
3.15 Operation in Ordinary Course. Since January 1, 1997, except as set
forth on Schedule 3.15, there has not been any material adverse change in the
assets, liabilities, business, financial condition, operations, or future
prospects of the Seller with respect to the operation of the Station. Without
limiting the generality of the foregoing, Seller (i) has operated the Station in
the ordinary course of business consistent with past practices; (ii) other than
this Agreement, has not entered into any agreement, contract, lease, sublease,
license or sublicense outside of the ordinary course of business; (iii) has not
delayed or postponed (beyond its normal practice in the ordinary course of
business) the payment of accounts payable and other liabilities; (iv) has not
altered its credit and collection policies or its accounting policies; (v) has
not entered into or terminated any employment arrangement, employment contract
or severance agreement or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement, except in the
ordinary course of business; (vi) has not materially altered the programming,
formal or all letters of the Station or its promotional or marketing activities,
except in the ordinary course of business; (vii) except as set forth on Schedule
3.15, has not applied to the FCC for any modification of the FCC Authorizations
or failed to take any action necessary to preserve the FCC Authorizations and
has operated the Station in material compliance therewith and with the rules and
regulations of the FCC; (viii) has not terminated or received notice of
termination for any syndicated programming; and (ix) has not committed to any of
the foregoing.
3.16 Intellectual Property. Schedule 2.1.5 lists all Intellectual Property
applied for, owned, used or licensed (either as licensor or licensee) in
connection with the operation of the Station. Except as disclosed on Schedule
2.1.5:
3.16.1 Seller owns, free and clear of conflicting claims or
restrictions and without infringement on the rights of others, all right and
interest in, and right and authority to use in connection with the conduct of
the Station as presently conducted, all of the Intellectual Property listed on
Schedule 2.1.5 and all such Intellectual Property is in full force and effect.
3.16.2 There are no outstanding or, to the knowledge of
Seller, threatened judicial or adversary proceedings with respect to any of the
Intellectual Property listed on Schedule 2.1.5.
3.16.3 No person or entity has been granted any license or
other right or interest in or to any of the Intellectual Property listed on
Schedule 2.1.5 or to the use thereof.
3.16.4 Seller has no knowledge of any infringement or unlawful
use of any of the Intellectual Property listed on Schedule 2.1.5 and Seller has
never received any charge, complaint, or notice alleging interference,
infringement, misappropriation or violation of any Intellectual Property rights
of third parties.
3.17 Employees. Schedule 3.17 sets forth a listing of the names, positions,
job descriptions, salary or wage rates and all other forms of compensation paid
for work at the
10
<PAGE>
Station by each employee as of the date hereof. Seller is not a party to nor
bound by any collective bargaining or similar agreement, nor has it experienced
any strikes, grievances, claims of unfair labor practices or collective
bargaining disputes. Seller has no knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to the employees of the Station. Seller has no knowledge of any basis
for any claim by past or current employees of Seller or applicants for
employment that Seller or its management has discriminated based upon the
individual's race, sex, national origin, religion, ethnicity, handicap or other
protected characteristic under applicable law.
3.18 Employee Benefits. Seller maintains, and in the past has maintained, no
Employee Benefit Plan to which it contributes or is required to contribute for
the benefit of any current or former employee of Seller. Seller does not have
any commitment to create any Employee Benefit Plan that would affect any
employee of Seller.
3.19 Financial Statements. Included in Schedule 3.19 are the following
financial statements (collectively, the "Financial Statements"): (i) unaudited
balance sheets and statements of income, and cash flow as of and for the fiscal
years ended December 31, 1994, December 31, 1995, and December 31, 1996; and
(ii) unaudited balance sheets and statements of income, as of and for each month
during 1997 for Seller. The Financial Statements have been prepared in
conformity with Seller's normal accounting policies, practices and procedures
applied on a consistent basis throughout the periods covered thereby, are
correct and complete, fairly present the financial condition of Seller and the
results of operation of Seller at the dates and for the periods, indicated, and
are consistent with the books and records of Seller.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that the statements contained
in this Article IV are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date, except as set forth in the
schedules attached hereto.
4.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing, and qualified to do business under the
laws of the State of Nevada. Buyer has or as of the Closing Date shall have,
authority to conduct business in the State of Nevada and each such other state
in which it conducts business, including South Carolina. Licensing has all
requisite corporate power to acquire the FCC Authorizations and to become the
licensee of the Station. Buyer agrees to furnish at Closing a Certificate of
Good Standing for the State of Nevada and a Certificate of Foreign Corporation
Authorization to Do Business in the State of South Carolina.
4.2 Authorization and Binding Effect of Documents. Buyer has full power and
authority to execute, deliver, and perform its obligations under this Agreement
and each of the other Documents and to consummate the transactions contemplated
hereby and thereby. By the Closing, all necessary corporate actions approving
this Agreement and Buyer's
11
<PAGE>
obligations hereunder shall have been taken, including without limitation, the
Boards of Directors of Licensing and Broadcasting have duly authorized the
execution, delivery and performance of this Agreement and each of the Documents.
This Agreement and each of the other Documents to be executed by Buyer have
been, or at or prior to the Closing will be, duly executed and delivered by
Buyer. The execution, delivery and performance of the terms of this Agreement
and each of the other Documents, and the consummation by Buyer of the
transactions contemplated hereby and thereby, will not conflict with or result
in the breach, alteration or modification of or constitute a violation of or
default under any of the terms, conditions or provisions of Buyer's articles of
incorporation, by-laws, or any license, judgement, order, decree, law,
regulation, rule or ruling of any court, arbitration or governmental authority
to which Buyer is subject, or result in the breach of, or constitute a default
under, any other agreement, lease, contract or other commitment to which Buyer,
its principals or any of its assets are subject. Subject to obtaining the FCC
Order, the execution, delivery and performance of this Agreement does not
require the consent of any third party. This Agreement constitutes (and each of
the other Documents, when executed and delivered by Buyer will constitute) legal
and valid obligations of Buyer enforceable against Buyer in accordance with its
terms, except to the extent limited by bankruptcy, insolvency, moratorium and
other laws of general applicability relating to or affecting the enforcement of
creditors' rights.
4.3 Governmental Consents and Consents of Third Parties. With the exception
of the FCC, Buyer's execution, delivery, and performance of its obligations
under this Agreement and each of the other Documents and the consummation by
Buyer of the transactions contemplated hereby and thereby, do not require the
consent, waiver, approval, permit, license, clearance or authorization of, or
any declaration or filing with, any court or public agency or other authority,
or the consent of any person under any agreement, arrangement or commitment of
any nature which Buyer is a party to or bound by, the failure of which to obtain
would have a material adverse effect on the ability of Buyer to consummate the
transactions or perform its obligations hereunder or under any other Document.
4.4 Qualifications. Buyer has no knowledge of any facts concerning Buyer or
any person with an attributable interest in Buyer (as such term is defined under
decisions, rules and regulations of the FCC) which would, under present law
(including the Act) and present rules, regulations and practices of the FCC (i)
disqualify Buyer from owning and operating the Station; or (ii) raise a
substantial and material question of fact (within the meaning of Section 309(a)
of the Act) respecting Buyer's qualifications. Buyer will not take, or fail to
take, any action it knows or has reason to know would cause such
disqualification or raise such question of fact. Should Buyer become aware of
any such facts, it will promptly notify Seller in writing thereof and use us
best efforts to prevent such disqualification. Buyer further represents and
warrants that (i) no waiver is required under Section 73.3555 of the FCC's rules
and regulations regarding ownership of multiple radio stations with overlapping
signals; and (ii) it is financially qualified to meet all terms, conditions and
obligations arising or contemplated under this Agreement.
12
<PAGE>
4.5 Broker's or Finder's Fees. No agent, broker or other person or firm
acting on behalf of or under the authority of Buyer is or will be entitled to
any broker's or finder's fee or any other commission or similar fee, directly or
indirectly, from Buyer in connection with the transactions contemplated by this
Agreement.
4.6 Litigation. There are no legal, administrative, arbitration or other
proceedings, unsatisfied judgments, orders, or decrees, injunctions, suits,
claims, or governmental investigations pending or, to the knowledge of Buyer,
threatened against Buyer before any court, arbitration tribunal or governmental
department or agency that would give any third party the right to enjoin the
transactions contemplated by this Agreement or that could adversely affect
Buyer's ability to consummate the transactions contemplate hereunder. Buyer does
not know of any basis for such claim, litigation, proceeding, or investigation.
Should any such litigation commence after the date of this Agreement and before
the Closing, Buyer shall promptly, andin no event later than five (5) days after
becoming aware of it, notify Seller, and use its best efforts to accomplish the
prompt removal or dismissal thereof.
4.7 Disclosure. No representation, warranty or other statement by Buyer in
this Agreement or any other Document furnished by Buyer or on its behalf
contains, or will contain, any untrue statement of a material fact, or omit to
state a material fact necessary to make any representation, warranty or
statement contained herein or therein not misleading, in any such case that was
knowingly or willingly made or omitted, as the case may be, by Buyer.
ARTICLE V
COVENANTS
5.1 Affirmative Covenants of Seller. Between the date hereof and the Closing
Date, except as otherwise expressly provided in this Agreement or the TBA,
Seller shall:
5.1.1 Continued Operation of Station. Prior to the Commencement Date of
the TBA, continue to operate the Station in the ordinary course consistent with
past practices, and at all times between the date hereof and the Closing Date,
continue to operate the Station in conformity with the FCC Licenses, the Act,
the rules and regulations of the FCC, and all other applicable laws, ordinances,
regulations, rules and orders. If Seller receives any finding, order, complaint,
citation or notice prior to Closing which asserts that any aspect of the
Station's operations violates any rule, regulation or order of the FCC or any
other governmental authority (an "Administrative Violation"), Seller shall
promptly notify Buyer of any Administrative Violation, take action promptly to
remove or correct any Administrative Violation, and, subject to the TBA, be
responsible for the payment of all costs associated therewith, including any
fines or back pay that may be assessed.
5.1.2 Reasonable Access. Subject to the terms of the TBA, provide Buyer
and representatives of Buyer with reasonable access, during normal business
hours, to the properties, contracts, books, files, logs, records and affairs of
the Station, and furnish such
13
<PAGE>
additional information concerning the Station as Buyer may from time to time
reasonably request.
5.1.3 Notice and Consent to Assignment. Use reasonable efforts to
procure and accomplish the consent of any third parties necessary for the
assignment to Buyer of all Material Station Agreements and shall give notice to
all third parties as reasonably requested by Buyer.
5.1.4 Maintain Acquired Assets. Subject to the terms of the TBA,
maintain all of the Acquired Assets in their present operating condition, repair
and order, reasonable wear and tear in ordinary usage excepted, and maintain the
inventories of spare parts and tubes for the technical operating equipment of
Station at the levels normally maintained for Station.
5.1.5 Maintain Licenses. Use its best efforts to maintain in full force
and effect, or renew when required, the FCC Authorizations and any other
licenses, permits and authorizations relating to the Station and timely file all
FCC required reports or fees.
5.1.6 Notice of Developments. Subject to the TBA, Seller will give
Buyer prompt notice of any material development affecting business, operations
or prospects of the Station or the Acquired Assets or the ability of the Seller
to perform hereunder.
5.1.7 No Solicitation. From the date hereof until the earlier of
Closing or termination of this Agreement, neither Seller nor any affiliate of
Seller shall directly or indirectly (i) solicit, initiate or encourage
submission of any proposal or offer from any person relating to any acquisition
or purchase of any interest in Seller or any material assets of any of the
Station or any merger, consolidation or business combination with Seller (each
an "Acquisition Proposal"), or (ii) participate in any discussions or
negotiations regarding, furnish to any person any information with respect to,
or otherwise assist, facilitate, encourage or participate in or cooperate with,
any effort or attempt by any person to make or effect an Acquisition Proposal.
5.2 Negative Covenants of Seller. Between the date hereof and the Closing
Date, except as contemplated by this Agreement, Seller will not, without the
prior written consent of Buyer which will not unreasonably be withheld, it being
understood that such consent does not alleviate Seller's obligation to ensure
that all warranties an representations hereunder remain true and correct as of
the Closing Date:
5.2.1 Mortgages. Create, assume or permit to exist any new mortgage or
pledge, or subject to lien or encumbrance, any of the Acquired Assets, whether
now owned or hereafter acquired, unless discharged of record prior to or at
Closing.
5.2.2 Transfers. Sell, assign, lease or otherwise transfer or dispose
of any of the Acquired Assets, whether now owned or hereafter acquired, except
for disposal and
14
<PAGE>
consumption of supplies and inventories in the ordinary course and retirements
in the normal and usual course of business of items no longer required for use
in connection with the Station's operations, or in connection with the
acquisition of similar property or assets of equal or greater value, with the
cost of any such replacement property to be Seller's responsibility.
5.2.3 Call Letters. Change the call letters of the Station.
5.2.4 Collective Bargaining. Voluntarily enter into any collective
bargaining agreement covering employees of the Station and voluntarily enter
into any such collective bargaining agreement that contains a provision
requiring assignment to and assumption of the agreement by a purchaser of the
Station.
5.2.5 Inconsistent Action. Take any action inconsistent with its
warranties, representations or obligations hereunder or which could jeopardize
or delay consummation of the transactions contemplated hereunder.
5.2.6 Contractual Obligations. Do, or omit to do, any act which will
cause a material breach of, or material default under, or termination of, any
Material Station Agreement.
5.3 Covenants of Buyer. Between the date hereof and the Closing Date,
5.3.1 Inconsistent Action. Buyer shall not take any action inconsistent
with its representations, warranties and other obligations hereunder or which
could jeopardize or delay the consummation of the transactions contemplated
hereunder.
5.3.2 Title Insurance, Surveys and Environmental Assessments. Buyer, at
its own expense, will obtain with respect to each parcel of Leased Real Property
(i) a leasehold owner's policy issued by a title insurer reasonably satisfactory
to Seller, in an amount equal to the fair market value of such Leased Real
Property (including all improvements thereon), insuring over the standard
pre-printed exceptions and insuring leasehold title to such Leased Real Property
in the Buyer as of the Closing subject only to the lien for taxes not yet due
and payable for the year of Closing, municipal and zoning ordinances, recorded
utility easements and other easements of record, together with such endorsements
for zoning, contiguity, public access and extended coverage as Buyer or its
lender may reasonably request; (ii) a current "as built" survey (each, a
"Survey"). Each Survey shall be prepared by a registered surveyor, shall comply
with current ALTA Minimum Standard Detail Requirements, shall be certified to
Buyer and its lender and sufficient for the title insurer's deletion of the
standard exceptions relating to survey matters, and shall not disclose
15
<PAGE>
any matters which would materially impair Buyer's ability to use any of the
surveyed Leased Real Property in the operation of the Station in the manner in
which it is now used; and (iii) a Phase I environmental site assessment from an
environmental consultant or engineer reasonably satisfactory to Seller which
does not indicate that Seller or the Lease Real Property are not in compliance
with any Environmental Law and which does not disclose or recommend any action
with respect to any condition to be remediated or investigated or any
contamination on the site assessed. Buyer shall cause the environmental
consultant or engineer to deliver a copy of the environmental report(s) to
Seller at the same time as such report(s) are delivered to Buyer.
ARTICLE VI
OTHER COVENANTS
6.1 Good Faith; Reasonable Efforts. Subject to the terms and conditions of
this Agreement, each of the parties hereto will use its reasonable efforts to
take all action and to do all things necessary, proper or advisable in good
faith to satisfy any condition to the parties' obligations hereunder in its
power to satisfy and to consummate and make effective as soon as practicable the
transactions contemplated by this Agreement.
6.2 Control of Station. Subject to the TBA, the transactions contemplated by
this Agreement shall not be consummated until after the FCC has given its
consent and approval to the Assignment Application. Between the date of this
Agreement and the Closing Date, Buyer and their employees or agents shall not
directly or indirectly control, supervise or direct, or attempt to control,
supervise or direct, the operation of the Station, and such operation shall be
the sole responsibility of and in the control of the Seller.
ARTICLE VII
FCC CONSENT
7.1 FCC Consent. Within ten (10) days of the execution of this Agreement,
Seller and Buyer shall jointly file with the FCC an application seeking approval
of the FCC to the assignment of the FCC Authorizations from Seller to Buyer (the
"Assignment Application"). Seller and Buyer shall take all commercially
reasonable steps necessary to prosecute such filing with diligence and shall
diligently oppose any objections to, appeals from or petitions to reconsider the
FCC Order, to the end that the FCC Order shall become a Final Action as soon as
practicable. Seller shall not take, nor permit any officer or director of Seller
to take, and Buyer shall not take, nor permit any shareholder, officer or
director of Buyer to take, any action that such party knows or has reason to
know would materially and adversely affect or materially delay issuance of the
FCC Order, or materially and adversely affect or materially delay the FCC Order
from becoming a Final Action. Should Buyer or Seller become aware of any facts
not disclosed which could reasonably be expected to materially and adversely
affect or materially delay issuance of the FCC Order, or prevent or materially
delay the FCC Order from becoming a Final Action, such party shall promptly
notify the other party thereof in writing. Seller and Buyer shall share equally
any filing fee required by the FCC for the Assignment Application, but the
parties shall otherwise each bear its own expenses, including attorney's fees,
in connection with the Assignment Application. If the FCC imposes any condition
on either party to the Assignment Application, such party shall use commercial
reasonable efforts to comply with such condition, provided that neither party
shall be required hereunder to comply with any condition that would have a
material adverse effect on the
16
<PAGE>
Station or such party. If necessary under this Agreement, Seller and Buyer shall
jointly request from the FCC an extension of the effective period of the FCC
Order if the Closing shall not have occurred prior to the expiration of the
original effective period of the FCC Order. Nothing in this Section 7.1 shall be
construed to limit either party's right to terminate this Agreement pursuant to
the terms of Article XIII.
ARTICLE VIII
TIME BROKERAGE AGREEMENT
8.1 Time Brokerage Agreement. Concurrent with the execution of this
Agreement, Buyer and Seller shall enter into a Time Brokerage Agreement ("TBA")
pursuant to which Buyer will provide programming, commencing on March 23, 1998
(the "Commencement Date of the TBA"), for broadcast on the Station pending the
FCC Order and the Closing contemplated hereunder.
8.2 Accounts Receivable. Buyer agrees, as Seller's agent, to use its best
efforts for a period of ninety (90) days following the Commencement Date of the
TBA (the "Collection Period") to collect in the usual and ordinary course of
business the accounts receivable of the Station in existence as of the
Commencement Date of the TBA. Buyer shall not be required to institute any legal
proceedings to enforce the collection of any Accounts Receivable or to refer any
of the Accounts Receivable to a collection agency. Buyer shall not adjust any
Accounts Receivable or grant credit without Seller's written consent, and any
Accounts Receivable amounts collected on behalf of Seller shall be paid to
Seller on the forty-fifth (45th) and ninetieth (90th) days after the
Commencement Date of TBA. On the ninetieth (90th) day after the Commencement
Date of the TBA, Buyer shall return to Seller the uncollected Accounts
Receivables, together will all files concerning the collection or attempts to
collect the Accounts Receivable, and Buyer's responsibility shall cease. Buyer
shall incur no liability to Seller for any uncollected account. All sums
collected by Buyer during the Collection Period from any person obligated with
respect to any Account Receivable shall be applied first to Seller's Accounts
Receivable. After full satisfaction of Seller's account the balance, if any,
shall be applied to Buyer's accounts.
ARTICLE IX
CONDITIONS PRECEDENT TO THE
OBLIGATION OF BUYER TO CLOSE
Buyer's obligation to close the transaction contemplated by this Agreement
is subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, unless waived by Buyer in writing:
9.1 Accuracy of Representations and Warranties. The representations and
warranties of Seller contained in this Agreement or in any other Document shall
be complete and correct in all material respects at the Closing Date with the
same effect as though made at such time, except for changes permitted under this
Agreement.
17
<PAGE>
9.2 Performance of Agreement. Seller shall have performed in all material
respects all of its covenants, agreements and obligations required by this
Agreement to be performed or complied with by it prior to or upon the Closing
Date.
9.3 FCC and Other Consents.
9.3.1 The FCC Order shall have been issued by the FCC (this condition
may not be waived) without any condition materially adverse to Seller, Buyer or
Station, and shall have become a Final Action.
9.3.2 Conditions which the FCC Order or any order, ruling or decree of
any judicial or administrative body relating thereto or in connection therewith
specifies and requires to be satisfied prior to assignment of the Station to
Buyer and which must be satisfied under Section 7.1 above shall have been
satisfied.
9.3.3 All other authorizations, consents, approvals and clearances of
all federal, state and local governmental agencies required to permit the
consummation by Buyer of the transactions contemplated by this Agreement shall
have been obtained; all statutory and regulatory requirements for such
consummation shall have been fulfilled; and no such authorizations, consents,
approvals or clearances shall contain any conditions that individually or in the
aggregate would have a material adverse effect on the Station or Buyer's
operation thereof.
9.3.4 All necessary approvals and consents to the assignment to Buyer
of the Material Station Agreements on terms no less favorable to Buyer than
exist in said agreements today shall have been obtained and delivered to Buyer.
9.4 No Adverse Proceedings. No order, decree or judgment of any court,
agency or other governmental authority shall have been rendered against Seller
or Buyer that would prevent or make it unlawful to consummate the transactions
contemplated by this Agreement in accordance with the terms hereof or to impose
damages or penalties upon any of the parties if such transaction is consummated;
and, except for proceedings affecting the broadcasting industry generally, no
suit, action or governmental proceeding shall be pending or threatened against
Seller or Buyer which specifically seeks to prevent or make it unlawful to
consummate the transactions contemplated by this Agreement in accordance with
the terms hereof or to impose damages or penalties on any party if the
transaction is consummated.
9.5 Delivery of Closing Documents. Seller shall have delivered on or before
the Closing Date each of the documents required to be delivered pursuant to
Section 11.2 or as otherwise provided in this Agreement.
18
<PAGE>
ARTICLE X
CONDITIONS PRECEDENT TO THE
OBLIGATION OF SELLER TO CLOSE
The obligation of Seller to close the transaction contemplated by this
Agreement is subject to the satisfaction, on or prior to the Closing Date, or
each of the following conditions, unless waived by Seller in writing:
10.1 Accuracy of Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement or in any other Document shall
be complete and correct in all material respects on the date hereof and at the
Closing Date with the same effect as though made at such time, except for
changes permitted under this Agreement.
10.2 Performance of Agreement. Buyer shall have performed in all material
respects all of its covenants, agreements and obligations required by this
Agreement to be performed or complied with by it prior to or upon the Closing
Date.
10.3 FCC and Other Consents.
10.3.1 The FCC Order shall have been issued by the FCC (this condition
may not be waived), and shall have become a Final Action.
10.3.2 Conditions which the FCC Order or any order, ruling or decree of
any judicial or administrative body relating thereto or in connection therewith
specifies and requires to be satisfied prior to assignment of the Station to
Buyer and which must be satisfied under Section 7.1 above shall have been
satisfied.
10.3.3 All other authorizations, consents, approvals and clearances of
all federal, state and local governmental agencies required to permit the
consummation by Seller of the transactions contemplated by this Agreement shall
have been obtained; all statutory and regulatory requirements for such
consummation shall have been fulfilled; and no such authorizations, consents,
approvals or clearances shall contain any conditions that individually or in the
aggregate would have a material adverse effect on the Station or Buyer's
operation thereof.
10.4 No Adverse Proceedings. No order, decree or judgment of any court,
agency or other governmental authority shall have been rendered against Seller
or Buyer that would prevent or make it unlawful to consummate the transactions
contemplated by this Agreement in accordance with the terms hereof or to impose
damages or penalties upon any of the parties if such transaction is consummated;
and, except for proceedings affecting the broadcasting industry generally, no
suit, action or governmental proceeding shall be pending or threatened against
Seller or Buyer which specifically seeks to prevent or make it unlawful to
consummate the transactions contemplated by this Agreement in accordance with
the terms hereof or to impose damages or penalties on any party if the
transaction is
19
<PAGE>
consummated.
10.5 Delivery of Closing Documents. Buyer shall have delivered on or before
the Closing Date each of the documents required to be delivered pursuant to
Section 11.3 or as otherwise provided in this Agreement.
ARTICLE XI
CLOSING
11.1 Closing Date. The Closing shall take place between five (5) and ten
(10) business days after the FCC Order becomes a Final Action, unless waived by
Buyer. If finality is waived by Buyer, then Closing shall take place on such
date as the parties may mutually agree (the "Closing Date"). The Closing shall
occur at a mutually agreeable location.
11.2 Seller's Performance. At the Closing hereunder Seller shall deliver or
cause to be delivered to Buyer the following in each case in form and substance
reasonably satisfactorily to Buyer:
11.2.1 License Assignments. Assignments of the FCC Authorizations in
customary form and substance;
11.2.2 Bill of Sale. A bill of sale and all other appropriate documents
and instruments in a form and substance reasonably acceptable to counsel for
Buyer assigning good and marketable title to the Tangible Personal Property and
all other Acquired Assets not otherwise conveyed (except the Leased Real
Property), free and clear of any Liens;
11.2.3 Leases/Contracts. Such assignments and further instruments of
transfer to assign to Buyer on terms no less favorable to Buyer than in said
leases as they exist today all of Seller's rights under the Station Agreements
free and clear of all Liens and any other adverse claims with, where required,
the necessary consents to such assignments;
11.2.4 Records. Deliver to Buyer copies of the records and documents
referenced in Section 2.1.4 above. Such documents need not be provided in person
but may be located at the studio/offices of the Station.
11.2.5 Certificates. (i) A Certificate by Seller, dated as of the
Closing Date, certifying that, except as set forth in such Certificate, all of
Seller's undertakings and obligations under this Agreement are satisfied as of
the Closing Date and all of its warranties and representations remain true and
accurate in all material respects as of the Closing Date; (ii) a certificate of
the secretary of Seller attesting to the incumbency of each officer of Seller
who executes this Agreement and any of the other Documents; and (iii) certified
resolutions of Seller's Board of Directors evidencing the authorization and
20
<PAGE>
approval of Seller's execution, delivery and performance of this Agreement.
11.2.6 Opinions of Seller's Counsel. (a) The written opinion of
Seller's corporate counsel, dated as of the Closing Date and addressed to Buyers
and their lender, that (1) Seller is a corporation duly formed and in good
standing in the State of South Carolina; (2) Seller is authorized to sell the
Station and the Acquired Assets; (3) all corporate actions necessary to sell the
Station and the Acquired Assets pursuant to this Agreement have been duly and
properly taken; (4) to the knowledge of counsel, no suit, action or proceeding
is pending or threatened that questions or may affect the validity of any action
to be taken by Seller pursuant to this Agreement or that seeks to restrain
Seller from carrying out the transactions provided for herein; (5) to the
knowledge of counsel, there is no outstanding judgment or any suit, action or
claim pending, threatened or deemed by counsel to be probable of assertion, or
any governmental proceeding or investigation in progress that could reasonably
be expected to have a material adverse effect upon the Acquired Assets to be
conveyed hereunder or the Station after Closing, and (b) The written opinion of
Seller's FCC Counsel, dated as of the Closing Date and addressed to Buyers and
their lender, that: (1) Seller holds the FCC Authorizations, each of which is in
full force and effect; (2) they are not subject to any conditions other than
those shown on the face of the FCC Authorizations or imposed under generally
applicable rules of the FCC; (3) the FCC has granted the FCC Order and such
order has become a Final Action (unless the condition on finality has been
waived by Buyer as permitted herein); and (4) other than proceeding affecting
the broadcast industry generally, there are no proceedings pending or, to such
counsel's knowledge, threatened by or before the FCC affecting or relating to
the Station or the FCC Authorizations;
11.2.7 Joint Escrow Instructions. Written instructions to the Escrow
Agent directing that the Deposit be delivered to Seller and all interest thereon
be delivered to Buyer;
11.2.8 Wire Instructions. Three (3) days prior to the Closing Date,
Seller shall provide to Buyer wire instructions for the payment of the Cash
Payment due on the Closing Date.
11.2.9 Allocation of Purchase Price. Seller and Buyer shall have agreed
to allocate the Purchase Price among the Acquired Assets in accordance with a
mutually agreeable allocation schedule to be delivered at closing.
11.2.10 Additional Documents. Such other information, materials and
documentation as counsel for Buyer shall have reasonably requested for the
purpose of consummating the transactions described herein and to evidence
satisfaction of the conditions to Seller's obligations hereunder, and any other
documents expressly required by this Agreement to be delivered by Seller at
Closing;
11.3 Deliveries to Seller by Buyer. At the Closing, Buyer shall deliver or
cause to
21
<PAGE>
be delivered to Seller the following, in each case in form and substance
reasonably satisfactory to Seller:
11.3.1 Cash. A wire transfer of immediately available funds to Seller,
in the amount set forth on Schedule 2.4;
11.3.2 Certificates. (i) A certificate by Buyer dated as of the Closing
Date certifying that, except as set forth in such certificate, all of Buyer's
undertakings and obligations under this Agreement are satisfied as of the
Closing Date, and all of its warranties and representations remain true and
accurate in all material respects as of the Closing Date; (ii) certificates from
the Secretary of State of the State of Nevada, dated as near as practicable to
the Closing Date, showing that Licensing and Broadcasting are incorporated and
in existence in the State of Nevada; (iii) certificates from the Secretary of
State of the State of South Carolina, dated as near as practicable to the
Closing Date, showing that Licensing and Broadcasting are authorized to do
business in the State of South Carolina; (iv) certificates of the secretaries of
Licensing and Broadcasting attesting to the incumbency of each officer of
Licensing and Broadcasting who execute this Agreement and any of the other
Documents; and (iv) certified resolutions of Boards of Directors of Licensing
and Broadcasting evidencing the authorization and approval of Licensing's and
Broadcasting's execution, delivery and performance of this Agreement.
11.3.3 Allocation of Purchase Price. Seller and Buyer shall have agreed
to allocate the Purchase Price among the Acquired Assets in accordance with a
mutually agreeable allocation schedule to be delivered at closing.
11.3.4 Joint Escrow Instructions. Written instructions to the Escrow
Agent directing that the Deposit be delivered to Seller and all interest thereon
be delivered to Buyer.
11.3.5 Additional Documentation. Such additional information,
materials, and documentation as counsel to Seller shall have reasonably
requested to evidence satisfaction of the conditions to Buyer's obligations
hereunder, and any other documents expressly required by this Agreement to be
delivered by Buyer at Closing;
ARTICLE XII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES:
INDEMNIFICATION
12.1 Survival of Representations and Warranties. All representations,
warranties, covenants and agreements contained in this Agreement shall survive
the Closing and continue in full force and effect for a period of ninety (90)
days after the applicable statute of limitations has expired with respect to any
claim by Buyer based upon a claim or action by a third party and for a period of
two (2) years following Closing with respect to any claim by Buyer not based on
a claim or action by a third party. No claim may be brought
22
<PAGE>
under this Agreement or any other Document, unless written notice describing in
reasonable detail the nature and basis of such claim is given on or prior to the
last day of the relevant survival period. In the event such a notice is so
given, the right to indemnification with respect thereto under this Article
shall survive the applicable survival period until such claim is finally
resolved and any obligations with respect thereto are fully satisfied.
12.2 Indemnification in General. Buyer and Seller agree that the rights to
be indemnified and held harmless set forth in this Agreement, as between the
parties hereto and their respective permitted successors and assigns, shall be
exclusive of all rights to be indemnified and held harmless that such party (or
its permitted successors or assigns) would otherwise have by statute, common law
or otherwise.
12.3 Indemnification by Seller. Seller shall indemnify, defend, and hold
harmless Buyer, any officer or director thereof, and their permitted assigns
with respect to any and all demands, claims, actions, suits, proceedings,
assessments, judgments, costs, losses, damages, obligations, liabilities,
recoveries, deficiencies, and expenses (including interest, penalties and
reasonable attorneys' fees) of every kind and description (collectively "Claim")
relating to or arising out of:
12.3.1 Any breach or non-performance by Seller of any of its
representations, warranties, covenants or agreements set forth in this Agreement
or any other Document; or
12.3.2 Except as otherwise provided in the TBA, any debt, liability or
obligation of Seller or the Station that arises or results from or is
attributable to the operations or business of the Seller or the Station prior to
the Closing Date, including but not limited to, liabilities and obligations
under Station Agreements to the extent such liabilities and obligations relate
to any period before the Closing Date, regardless of whether disclosed in any
Schedule or Document and regardless of whether constituting a breach by Seller
of any representation, warranty, covenant or agreement, and any liability or
obligation of Seller other than the Assumed Obligations arising after the
Closing Date; provided, however, that Seller shall not be liable for any Claim
arising out of or resulting from Buyer's action or failure to act under the TBA.
12.4 Indemnification by Buyer. Buyer shall indemnify, defend, and hold
harmless Seller, any officer or director thereof, and their permitted assigns,
with respect to any and all demands, claims, actions, suits, proceedings,
assessments, judgments, costs, losses, damages, obligations, liabilities,
recoveries, deficiencies, and expenses (including interest, penalties and
reasonable attorneys' fees) of every kind and description relating to or arising
out of:
12.4.1 Any breach or non-performance by Buyer of any of its
representations, warranties, covenants or agreements set forth in this Agreement
or any
23
<PAGE>
other Document; or
12.4.2 The Assumed Obligations and any other liability, obligation or
debt of Buyer or the Station that arises or results from and is attributable to
the operations or business of the Station on or after the Closing Date or the
Commencement Date of the TBA as applicable.
12.5 Indemnification Procedure. For purposes of administering the
indemnification provisions set forth in Sections 12.3 and 12.4, the following
procedure shall apply:
12.5.1 Whenever a claim for indemnification shall arise under this
Article, the party entitled to indemnification (the "Indemnified Party") shall
promptly and in no event later than fifteen (15) days after receipt of such a
claim, give written notice to the party from whom indemnification is sought (the
"Indemnifying Party") setting forth in reasonable detail, to the extent then
available, the facts concerning the nature of such claim and the basis upon
which the Indemnified Party believes that it is entitled to indemnification
hereunder, provided that the Indemnified Party's failure to do so shall not
preclude it from seeking indemnification hereunder unless such failure has
materially prejudiced the Indemnifying Party's ability to defend such claim.
12.5.2 In the event of any claim for indemnification hereunder
resulting from or in connection with any claim, action, suit or legal
proceedings brought by a third party, the Indemnifying Party shall be entitled,
at its sole expense, either: (i) to participate therein, or (ii) to assume the
entire defense thereof with counsel who is selected by it and who is reasonably
satisfactory to the Indemnified Party provided that (a) the Indemnifying Party
agrees in writing that it does not and will not contest its responsibility for
indemnifying the Indemnified Party in respect of such claim or proceeding, and
(b) no settlement shall be made without the prior written consent of the
Indemnified Party which shall not be unreasonably withheld (except that no such
consent shall be required if the claimant is entitled under the settlement to
only monetary damages to be paid solely by the Indemnifying Party). If, however,
(1) the claim, action, suit or proceeding would, if successful, result in the
imposition of damages for which the Indemnifying Party would not be solely
responsible hereunder, or (2) representation of both parties by the same counsel
would otherwise be inappropriate due to actual or potential differing interests
between them, then the Indemnifying Party shall not be entitled to assume the
entire defense and each party shall be entitled to retain counsel (in the case
of Clause (a) of this sentence, at their own expense) who shall cooperate with
one another in defending against such action, claim or proceeding.
12.5.3 If the Indemnifying Party does not choose to defend against a
claim, action, suit or legal proceeding by a third party, the Indemnified Party
may defend against such claim, action, suit or proceeding in such manner as it
deems appropriate or settle such claim, action, suit or proceeding (after giving
notice thereof to the Indemnifying
24
<PAGE>
Party) on such terms as the Indemnified Party may deem appropriate, and the
Indemnified Party shall be entitled to periodic reimbursement of expenses
incurred in connection therewith and prompt indemnification from the
Indemnifying Party, including reasonable attorneys' fees, in accordance with
this Article.
12.5.4 The Indemnifying Party will not, without the Indemnified Party's
written consent, settle or compromise any claim or consent to any entry of
judgment which does not include, as an unconditional term thereof, the giving by
the claimant to the Indemnified Party of a release from all liability with
respect to such claim. Neither Buyer nor Seller shall be deemed to have notice
of any claim by reason of any knowledge acquired on or prior to the Closing Date
by an employee of the Station unless express evidence is available establishing
actual notice to either party.
12.6 Limitation of Liability. Notwithstanding anything in this Agreement to
the contrary, after the Closing neither Seller nor Buyer shall indemnify or
otherwise be liable to the other party from and after the Closing Date except to
the extent that the aggregate claims for indemnification by the Indemnified
Party exceed Ten Thousand Dollars ($10,000.00) and indemnification shall be made
by the Indemnifying Party only to the extent of such excess over Ten Thousand
Dollars ($10,000); provided, however, that such limitation shall not apply to
the indemnification obligations under Sections 12.3.2 and 12.4.2.
ARTICLE XIII
TERMINATION
13.1 Termination of Agreement. Seller and/or Buyer may terminate this
Agreement upon written notice from one party to the other as provided below:
13.1.1 by either Seller or Buyer if Closing has not occurred on or
before the 270th day following the date of this Agreement; or
13.1.2 by one party upon written notice by the non-breaching party to
the breaching party at any time prior to the Closing specifying a material
breach hereunder by the breaching party provided such breach, if capable of
being cured, remains uncured for fifteen (15) days after written notice thereof
is received by the breaching party; or
13.1.3 By Seller upon termination of the TBA only by reason of Broker's
material breach, or by Buyer upon termination of the TBA by reason of Licensee's
material breach; or
13.1.4 By Buyer as provided in Article XIV; or
13.1.5 By Seller or Buyer if the Assignment Application is denied by a
Final Order; or
25
<PAGE>
13.1.6 By mutual written consent of Seller and Buyer at any time prior
to the Closing. Notwithstanding the foregoing, no party shall be entitled to
terminate this Agreement while such party is in material breach hereunder. In
the event this Agreement is terminated for any reason other than Buyer's
material breach hereunder or under the TBA, Buyer shall be entitled to receive
the return of the Deposit together will all interest and other earnings earned
thereon while held by the Escrow Agent. If this Agreement is terminated by
Seller by reason of Buyer's material breach hereunder or under the TBA, Seller
shall be entitled to the Deposit plus all accrued interest and other earnings
earned thereon while held by the Escrow Agent. Buyer and Seller shall cooperate
in taking such action as necessary to assist the designated party in receiving,
the return of the Deposit and the interest and earnings earned while held by the
Escrow Agent to the designated party(ies).
ARTICLE XIV
RISK OF LOSS
14.1 The risk of loss, damage or destruction to any of the Acquired Assets
from fire, casualty or other cause (except as the result of the action or
inaction of Buyer or its agents or employees arising under the TBA) shall be
upon Seller at all times up to 12:01 a.m. on the Closing Date, and it shall be
the responsibility of Seller prior to Closing to repair or cause to be repaired
and to restore the Acquired Assets as closely as practicable to their condition,
prior to any such loss or damage. Upon the occurrence of any such casualty,
loss, damage or destruction material to the operation of the Station prior to
the Closing (except as the result of the action or inaction of Buyer, its agents
or employees arising under the TBA), Seller shall immediately give Buyer written
notice setting forth in detail the extent of such loss, damage or destruction,
the cause thereof if known, and the insurance coverage and Seller shall use its
best efforts promptly to commence and thereafter diligently to proceed to repair
or replace any such lost, damaged or destroyed property. However, in the event
that such repair or replacement is not fully completed prior to the Closing
Date, then the Closing Date shall be extended (with FCC consent, if necessary)
for up to sixty (60) days to permit such repair or replacement. If repair or
replacement cannot be accomplished within sixty (60) days of the scheduled
Closing Date and Buyer determines that Seller's failure to repair or replace
would have a material adverse effect on the operation of the Station, Buyer may
elect:
14.1.1 to terminate this Agreement; or
14.1.2 to consummate the transactions contemplated hereby on the
Closing Date with the Acquired Assets in their "as is" condition, in which event
Seller shall pay to Buyer the portion of the insurance deductible, if any, not
previously met, and assign to Buyer the portion of the insurance proceeds, if
any, not previously expended by Seller to repair or replace the damaged or
destroyed property; or
26
<PAGE>
14.1.3 to postpone the Closing Date until fifteen (15) days after
Seller provides written notice to Buyer of completion of the repair or
replacement of the damaged or destroyed property in a manner and to an extent
satisfactory to Buyer, provided that if Seller is unable through its reasonable
best efforts to complete such repair or replacement within ninety (90) days
after the Seller's notice to Buyer of the casualty, Buyer may then terminate
this Agreement on written notice to Seller.
ARTICLE XV
DEFAULT AND REMEDIES
15.1 Non-Material Breaches. Non-material breaches or failures to perform by
a party hereunder shall not be grounds for postponing the Closing, or
terminating this Agreement, but such breaches or failures shall apply to the
limitation of liability in Section 12.6 above.
15.2 Opportunity to Cure. No party to this Agreement shall be deemed in
default hereunder unless such material breach continues for fifteen (15) days
after receipt of written notice from the other party specifying in reasonable
detail the nature of such default. The defaulting party shall have the right to
cure such default within such 15-day period, provided that if Closing is
scheduled prior to the end of this period, cure must be accomplished by the
Closing Date.
15.3 Buyer's Remedies. Seller agrees that the Acquired Assets to be conveyed
hereunder include unique property that cannot be readily obtained on the open
market and that Buyer will be irreparably injured if this Agreement is not
specifically enforced. Therefore, Buyer shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to specifically enforce
Seller's performance under this Agreement by action instituted in any court of
the United States or any state thereof having jurisdiction over the Seller and
Buyer and the matter, and Seller agrees to waive the defense in any such suit
that Buyer has an adequate remedy at law and to interpose no opposition, legal
or otherwise, as to the propriety of specific performance as a remedy. In the
event Buyer terminates of this Agreement as a result of Seller's material breach
of this Agreement instead of seeking specific performance, Buyer shall be
entitled to the return of the Deposit, plus all accrued interest, and in
addition Buyer shall be entitled to recover from Seller Buyer's actual out-of
pocket damages arising from such breach.
15.4 Liquidated Damages. In the event of Seller's termination of this
Agreement due to a material breach of Buyer hereunder or under the TBA, then the
Deposit, plus all accrued interest, shall be paid to Seller as liquidated
damages, it being agreed that the Deposit shall constitute full payment for any
and all damages suffered by reason of, and shall constitute Seller's sole remedy
at law or in equity for, Buyer's material breach hereunder.
27
<PAGE>
ARTICLE XVI
MISCELLANEOUS
16.1 Further Actions. From time to time before, at and after the Closing,
each party, at its expense and without further consideration, will execute and
deliver such documents to the other party as the other party may reasonably
request in order to accomplish the transactions contemplated hereby.
16.2 Payment of Expenses.
16.2.1 All state or local sales or use, stamp or transfer, grant and
other similar taxes payable in connection with consummation of the transactions
contemplated hereby shall be paid by the party primarily liable under applicable
law to pay such tax.
16.2.2 Except as otherwise expressly provided in this Agreement, each
party shall bear its own expenses, including the fees of any attorneys and
accountants engaged by such party, in connection with this Agreement and the
consummation of the transactions contemplated herein.
16.3 Notices. All notices, demands or other communications given hereunder
shall be in writing and shall be sufficiently given if delivered by hand, by
courier (including nationally-recognized overnight delivery service) or sent by
registered or certified mail, first class mail, postage prepaid, or by facsimile
with receipt confirmation and a follow-up copy sent by nationally-recognized
overnight delivery service on the same day as such facsimile, addressed as
follows:
If to Seller: WSEA, Inc.
2014 N. Irby Street
Florence, SC 29506
Tel: 803-661-5000
Fax: 803-661-0888
Copy (which shall not constitute notice to Seller) to:
Frank R. Jazzo, Esquire
Fletcher Heald & Hildreth, PLC
1300 N. 17th Street, Suite 1100
Arlington, VA 22209
Tel: 703-812-0400
Fax: 703-812-0486
28
<PAGE>
If to Buyer: Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
c/o QUAESTUS Management Corp.
330 E. Kilbourn Ave., Suite 250
Milwaukee, WI 53202
Attention: Terrence J. Leahy
Tel: 414-283-4500
Fax: 414-283-4505
Copy (which shall not constitute notice to Buyer) to:
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
875 N. Michigan Ave., Suite 3650
Chicago, IL 60611
Attention: Richard J. Bonick
Tel: 312-867-0091
Tel: 312-867-0098
or such other address with respect to either party hereto as such party may from
time to time specify (as provided above) to the other party hereto. Any such
notice, demand or communication shall be deemed to have been given:
16.3.1 if sent by first class mail, as of the close of the third
business day following the date so mailed;
16.3.2 if personally delivered or sent by overnight courier, on the
date delivered; and
16.3.3 if faxed, on the date faxed, provided written or verbal
confirmation of receipt has been obtained by the sending party.
16.4 Entire Agreement. This Agreement, the Schedules and Exhibits hereto,
and the other Documents, constitute the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes any prior offers, negotiations, agreements, understandings or
arrangements between the parties hereto with respect to the subject matter
hereof.
16.5 Benefit and Assignment. No party may assign this Agreement of its
rights or obligations hereunder to another party without the advance written
consent of the other party provided, however, that (i) Buyer may assign its
right under this Agreement to one or more affiliates or subsidiary of Buyer,
provided such affiliate or subsidiary is controlled by or under common control
with Buyer, and so long as Buyer unconditionally guarantees all of such
affiliate's or subsidiary's obligations under the Agreement and other Documents,
29
<PAGE>
and provided that such assignment occurs prior to the termination of the 30-day
period provided for in Section 73.3584 of the FCC's rules, and (ii) any party's
rights to indemnification under Article XII hereof will inure to the benefit of
and be enforceable by any successor-in-interest by merger or consolidation or by
any lender secured by a security interest in such rights to indemnification.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors or permitted assigns.
16.6 Governing Law. This Agreement shall in all respects be governed by and
construed in accordance with the internal laws of the State of South Carolina,
including all matters of construction, validity and performance, without regard
to its principles of conflicts of laws.
16.7 Amendments and Waivers. No term or provision of this Agreement may be
amended, waived, modified, discharged or terminated orally but rather only by an
instrument in writing signed by both parties. Any written waiver shall be
effective only in accordance with its express terms and conditions.
16.8 Severability. Any provision of this Agreement which is held by any
court of competent jurisdiction or as a result of further legislative or
administrative action, unenforceable shall, as to such jurisdiction, be
ineffective to the extent of such unenforceability without affecting the
validity or enforceability of any other provision hereof.
16.9 Headings. The captions in this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
16.10 Counterparts. This Agreement may be executed in any number of
counterparts, and by either party on separate counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
16.11 References. All references in this Agreement to Schedules and Exhibits
are to Schedules and Exhibits contained in this Agreement unless a different
document is expressly specified.
16.12 Attorneys' Fees. If either Seller or Buyer brings suit against the
other in connection with this Agreement, the prevailing party shall be entitled
to receive from the other party reasonable attorneys' fees and other costs and
expenses incurred by such party in connection with such suit regardless of
whether such suit is prosecuted to judgment. As used herein, "prevailing party"
shall mean, in the case of a claimant, one who is successful in obtaining
substantially all of the relief sought, and in the case of a defendant or
respondent, one who is successful in denying substantially all of the relief
sought by the claimant.
30
<PAGE>
16.13 Construction. The language used in this Agreement will be deemed to be
the language chosen by the Seller and Buyer to express their mutual intent, and
no rule of strict construction shall be applied against any party. Any reference
to any federal, state, local or foreign statute or law shall be deemed to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise.
16.14 Confidentiality. Buyer and Seller shall keep confidential all
information obtained by it with respect to the other in connection with this
Agreement and the negotiations preceding this Agreement, and will use such
information solely in connection with the transactions contemplated by this
Agreement. If the transactions contemplated hereby are not consummated for any
reason, each party shall return to the other, without retaining a copy thereof,
any schedules, documents or other written information obtained from the other in
connection with this Agreement and the transactions contemplated hereby.
Notwithstanding the foregoing, neither party shall be required to keep
confidential or return any information which (a) is known or available through
other lawful sources, not bound by a confidentiality agreement with the
disclosing party, or (b) is or becomes publicly available or known through no
fault of the receiving party or its agents, (c) is required to be disclosed
pursuant to an order or request of a judicial or governmental authority or under
applicable law (provided the disclosing party is given reasonable prior notice),
or (d) is developed by the receiving party independently of the disclosure by
the disclosing party.
16.15 Press Releases. In the event either party wishes to issue a news
release or other announcement regarding this Agreement (other than public
notices required by Section 73.3580 of the FCC's rules), such party shall
coordinate with the other party in advance with respect to the information to be
disclosed and the timing of such disclosure.
[INTENTIONALLY LEFT BLANK]
31
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as of the date first written above.
WSEA, INC.
By:
----------------------------
(printed)
----------------------------
Title:
-------------------------
CUMULUS BROADCASTING, INC.
By:
----------------------------
(printed)
----------------------------
Title:
-------------------------
CUMULUS LICENSING CORPORATION
By:
----------------------------
(printed)
----------------------------
Title:
-------------------------
32
<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
EXHIBIT 1 Escrow Agreement
SCHEDULE 2.1.3 Station Agreements, Contracts and Leases
SCHEDULE 2.1.3-A Advertising Contracts
SCHEDULE 2.1.5 Intangible Assets
SCHEDULE 2.4 Purchase Price
SCHEDULE 3.3 FCC Authorizations
SCHEDULE 3.4 Tangible Personal Property
SCHEDULE 3.5 Litigation
SCHEDULE 3.11 Leased Real Property
SCHEDULE 3.13 Environmental Exceptions
SCHEDULE 3.17 Employees
SCHEDULE 3.19 Financial Statements
</TABLE>
<PAGE>
Schedule 2.4
Buyer agrees to pay Seller, as consideration for the purchase contemplated
hereunder a total Purchase Price of One Million Three Hundred Thousand Dollars
($1,300,000.00) to be paid as follows:
Escrow Deposit. Simultaneously with the execution of this Agreement, Buyer
shall deposit Sixty-Five Thousand Dollars ($65,000.00) (the "Deposit") with
Frank R. Jazzo and J. Griffith Johnson ("Joint Escrow Agents") in the form of a
letter of irrevocable letter of credit from Lehman Commercial Paper Inc. The
Deposit shall be held by the Escrow Agent in accordance with the terms of the
Escrow Agreement attached hereto as Exhibit 1.
Cash Payment of Balance. Buyer shall pay to Seller at Closing the Purchase
Price: One Million Three Hundred Thousand Dollars ($1,300,000.00). Payment shall
be made by wire transfer of immediately available funds pursuant to wire
instructions to be provided by Seller in advance of the Closing.
<PAGE>
Exhibit 10.72
ASSET PURCHASE AGREEMENT
This Agreement ("Agreement") is entered into as of March 30, 1998, by and
between Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting"),
Cumulus Licensing Corporation, a Nevada corporation ("Licensing"), and Mountain
Wireless, Inc. (the "Seller"). Broadcasting and Licensing are referred to
collectively herein as the "Buyers." The Buyers and the Seller are referred to
collectively herein as the "Parties." Capitalized terms used in this Agreement
are defined in Section 8 hereof.
Subject to the terms and conditions of this Agreement, the Buyers hereby
agree to purchase substantially all of the assets (and assume certain of the
liabilities) of the Seller that are used or useful in the operation of radio
station WTOS-FM, licensed to Skowhegan, Maine (the "Station") in return for
cash.
Now, therefore, in consideration of the above premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms and conditions
of this Agreement, Licensing agrees to purchase from the Seller, and the Seller
agrees to sell, transfer, convey, and deliver to Licensing, all of the FCC
Licenses listed in Section 2(l) of the Disclosure Schedule. In addition,
Broadcasting agrees to purchase from the Seller, and the Seller agrees to sell,
transfer, convey, and deliver to Broadcasting, all of the Acquired Assets other
than the FCC Licenses. Both such sales shall take place at the Closing for the
consideration specified below in this Section 1.
(b) Assumption of Liabilities. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to assume and become responsible for all of the
Assumed Liabilities at the Closing. The Buyer will not assume or have any
responsibility, however, with respect to any other obligation or Liability of
the Seller not included within the definition of Assumed Liabilities and the
Seller agrees to pay and discharge all Liabilities and obligations of the Seller
other than the Assumed Liabilities.
(c) Purchase Price. The Buyers agree to pay to the Seller, as consideration
for the Acquired Assets, the amount of Two Million Two Hundred Thousand Dollars
($2,200,000.00) (the "Purchase Price"). The Purchase Price shall be payable as
follows:
(i) on the date of this Agreement, the Buyers will deposit with the
Escrow Agent an irrevocable letter of credit in favor of Escrow Agent in the
amount of One Hundred Ten Thousand Dollars ($110,000.00)(the "Earnest Money
Deposit") by wire transfer or delivery of other immediately available funds; and
1
<PAGE>
(ii) on the Closing Date, the Buyers shall pay to the Seller the amount
of Two Million Two Hundred Thousand Dollars ($2,200,000.00), less interest
earned on the Earnest Money Deposit, if any; and
The Earnest Money Deposit referenced in this Section l(c) shall be placed in
escrow with the Escrow Agent pursuant to an escrow agreement in the form
attached hereto as Exhibit A (the "Earnest Money Escrow Agreement"), and the
Escrow Agency shall cancel, draw upon, or take other action with respect to the
irrevocable letter of credit representing the Earnest Money Deposit pursuant to
the terms of the Earnest Money Escrow Agreement.
(d) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Station in
Skowhegan, Maine, or at such other location as the parties may mutually
determine, commencing at 9:00 a.m. local time on the date set by the Buyers not
earlier than the fifth business day or later than the tenth business day after
the FCC approval of the Assignment Application becomes a Final Order, by which
date all other conditions to the obligations of the Parties to consummate the
transactions contemplated hereby will have been satisfied or such other date as
the Parties may mutually determine (the "Closing Date").
(e) Deliveries at the Closing. At the Closing, (i) the Seller will deliver
to the Buyers the various certificates, instruments, and documents referred to
in Section 5(a) below; (ii) the Buyers will deliver to the Seller the various
certificates, instruments, and documents referred to in Section 5(b) below;
(iii) the Seller will execute, acknowledge (if appropriate), and deliver to the
Buyers (A) assignments (including Lease and other Assumed Contract assignments
and Intellectual Property transfer documents) and bills of sale in the forms
attached hereto as Exhibits B-1 through B-2, (B) such affidavits, transfer tax
returns, memorandums of lease, and other additional documents as may be
necessary to convey title to the Real Estate to the Buyers in the condition
required herein or provide public notice of existence of the Leases, and (C)
such other instruments of sale, transfer, conveyance, and assignment as the
Buyers and their counsel reasonably may request; (iv) the Buyers will execute,
acknowledge (if appropriate), and deliver to the Seller (A) an assumption in the
form attached hereto as Exhibit C and (B) such other instruments of assumption
as the Seller and its counsel reasonably may request; and (v) the Buyers will
deliver to the Seller the consideration specified in Section l(c) above.
(f) The Parties agree to allocate the Purchase Price (and all other
capitalizable costs) among the Acquired Assets for all purposes (including
financial accounting and tax purposes) in accordance with an allocation schedule
to be agreed upon within thirty (30) days of the Closing.
(g) At the Closing, the Seller and Buyers shall execute the Transitional
Services Agreement attached hereto as Exhibit E.
2. Representations and Warranties of the Seller. The Seller represents and
warrants to the Buyers that the statements contained in this Section 2 are
correct and complete as of the date of this Agreement, except as set forth in
the lettered and numbered paragraphs
2
<PAGE>
contained in the disclosure schedule accompanying this Agreement and initialed
by the Parties (the "Disclosure Schedule") corresponding to the lettered and
numbered sections of this Section 2.
(a) Organization of the Seller. The Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation. The Seller does not have any Subsidiaries. The Seller has the
power and authority to own or lease its properties and to carry on all business
activities now conducted by it.
(b) Authorization of Transaction. The Seller has full power and authority to
execute and deliver this Agreement and all agreements and instruments to be
executed and delivered by such Party pursuant to this Agreement (collectively,
the "Ancillary Agreements") and to perform its obligations hereunder and
thereunder. Without limiting the generality of the foregoing, the Board of
Directors of the Seller has duly authorized the execution, delivery, and
performance of this Agreement and the Ancillary Agreements by the Seller. This
Agreement and the Ancillary Agreements constitute the valid and legally binding
obligation of the Seller, enforceable in accordance with their respective terms
and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in Section 1(e) above), will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the Seller
is subject or any provision of the charter or bylaws of the Seller; or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice or third party consent under any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest, or
other agreement, arrangement to which the Seller is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets). Other than with respect to the
Assignment Application described in Section 4(b) and as disclosed in Section
2(c) of the Disclosure Schedule, the Seller does not need to give any notice to,
make any filing with, or obtain any Licenses, consent, or approval of any court
or government or governmental agency in order for the Parties to enter into this
agreement or the Ancillary Agreements or to consummate the transactions
contemplated by this Agreement or the Ancillary Agreements (including the
assignments and assumptions referred to in Section 1(e) above).
(d) Title to Acquired Assets. Other than the Security Interests set forth on
Section 2(d) of the Disclosure Schedule (which shall be released at or before
the Closing) the Seller has good and marketable title to all of the Acquired
Assets, free and clear of any Security Interest or restriction on transfer.
(e) Financial Statements. Included in Section 2(e) of the Disclosure
Schedule are the following financial statements (collectively the "Financial
Statements"): (i) statements of income, and cash flow as of and for the fiscal
years ended December 31, 1993, December 31, 1994, December 31, 1995 and December
31, 1996, for the Station; and (ii) statements of income, as of
3
<PAGE>
and for each month during 1996 and each month ending December 31 in 1997 for the
Station. The Financial Statements have been prepared in accordance with GAAP
(except to the extent that footnotes are not included) applied on a consistent
basis throughout the periods covered thereby, are correct and complete in all
material respects, fairly represent the financial condition of the Station on
such dates and the results of operations for the periods designated therein, and
are consistent with the books and records of the Seller (which books and records
are correct and complete in all material respects).
(f) Events Subsequent to January 1, 1997. Since January 1, 1997, except as
set forth in Section 2(f) of the Disclosure Schedule, there has not been any
material adverse change in the assets, Liabilities, business condition of the
Station. For the purposes of this Agreement a "material adverse change" shall
not apply to or include any change in the ratings of the Station and/or any
decline of less than Ten Thousand Dollars ($10,000) in the Station's cash flow
for the period January 1, 1998-April 26, 1998 when compared to the same period
in 1997. Without limiting the generality of the foregoing and solely with
respect to operation of the Station since that date:
(i) the Seller has not sold, leased, transferred, or assigned any of
its material assets, tangible or intangible;
(ii) other than this Agreement, the Seller has not entered into any
agreement, contract, lease, sublease, license, or sublicense (or series of
related agreements, contracts, leases, subleases, licenses, and sublicenses)
outside the Ordinary Course of Business;
(iii) no party has accelerated, terminated, modified, or canceled any
agreement, contract, lease, sublease, license, or sublicense (or series of
related agreements, contracts, leases, subleases, licenses, and sublicenses)
involving more than $5,000 to which the Seller is a party or by which it or any
of its assets are bound;
(iv) no Security Interest has been imposed upon any of Seller's assets,
tangible or intangible;
(v) the Seller has not made any capital expenditure (or series of
related capital expenditures) outside the Ordinary Course of Business;
(vi) the Seller has not made any capital investment in, any loan to, or
any acquisition of the securities or assets of any other person (or series of
related capital investments, loans, and acquisitions);
(vii) the Seller has not created, incurred, assumed, or guaranteed any
indebtedness (including capitalized lease obligations) outside the Ordinary
Course of Business;
(viii) the Seller has not delayed or postponed (beyond its normal
practice in the Ordinary Course of Business) the payment of accounts payable and
other Liabilities;
4
<PAGE>
(ix) the Seller has not canceled, compromised, waived, or released any
right or claim (or series of related rights and claims) outside the Ordinary
Course of Business;
(x) the Seller has not granted any license or sublicense of any rights
under or with respect to any Intellectual Property;
(xi) the Seller has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to any of its property or any action
adversely affecting the FCC Licenses;
(xii) the Seller has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees giving rise to
any claim or right on its part against the person or on the part of the person
against it;
(xiii) the Seller has not entered into any employment contract,
consulting contract or severance agreement or collective bargaining agreement,
written or oral, or modified the terms of any existing such contract or
agreement;
(xiv) the Seller has not granted any increase (outside routine salary
and wage increases in the Ordinary Course of Business) in the rate of
compensation, commissions, bonus or other remuneration payable, or granted any
severance or termination pay to, any of its directors, officers, and employees;
(xv) Except as set forth in Section 2(f) of the Disclosure Schedule,
the Seller has not adopted any (A) bonus, (B) profit-sharing, (C) incentive
compensation, (D) pension, (E) retirement, (F) medical, hospitalization, life,
or other insurance, (G) severance, or (H) other plan, contract, or commitment
for any of its directors, officers, and employees, or modified or terminated any
existing such plan, contract, or commitment;
(xvi) the Seller has not made any other change in employment terms for
any of its directors, officers, and employees;
(xvii) the Seller has not made or pledged to make any charitable or
other capital contribution;
(xviii) the Seller has not altered its credit and collection policies
or its accounting policies;
(xix) the Seller has not materially altered the programming, format or
call letters of the Station, or its promotional and marketing activities;
(xx) the Seller has not applied to the FCC for any modification of the
FCC Licenses or failed to take any action necessary to preserve the FCC Licenses
and has operated the Station in compliance therewith and with all FCC rules and
regulations; or
(xxi) the Seller has not committed to any of the foregoing.
5
<PAGE>
(g) Tax Matters. The Seller has timely and properly filed all Tax Returns
that it was required to file with respect to the Station's operations. All such
Tax Returns were correct and complete in all material respects and properly
reflect the tax liability of the Seller. The Seller has not requested any
extension of time within which to file returns in respect of any Taxes with
respect to the Seller's operations. No Tax deficiencies have been proposed or
assessed against the Seller. There are no pending, or to the Seller's knowledge,
threatened audits, investigations, or claims for or relating to any liability in
respect of Taxes with respect to the Seller's operations. All Taxes owed by the
Seller with respect to its operations (whether or not shown on any Tax Return)
have been paid. The Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party. There are no Security
Interests on any of the assets of the Seller that arose in connection with any
failure (or alleged failure) to pay any Tax.
(h) Tangible Assets. Section 2(h) of the Disclosure Schedule sets forth a
listing of all transmitter and station equipment, vehicles and other tangible
personal property used in conducting the operation and business of the Station,
which are to be conveyed by Seller to Buyers pursuant to this Agreement. The
Seller owns or leases all tangible assets necessary for the conduct of the
operation and business of the Station as presently conducted and as presently
proposed to be conducted and all leased assets are specifically identified as
such in Section 2(h) of the Disclosure Schedule. Each such tangible asset is
free from defects (patent and latent), has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it presently
is used. Any leased personal property included within the tangible personal
property is in the condition required of such property by the terms of the lease
applicable thereto during the term of the lease and upon the expiration thereof.
All of the equipment utilized in the operation of the Station is in substantial
compliance with all FCC and FAA requirements and is sufficient to satisfy the
intended needs of the normal customary operations of the Station at all times of
the year and all such equipment is in substantial compliance with all applicable
laws.
(i) Real Property. Section 2(i) of the Disclosure Schedule lists and
describes briefly all Owned Real Estate and real property leased to the Seller
(including, without limitation, complete legal descriptions for all of the Real
Estate) in connection with the operation of the Station. The Seller has
delivered to the Buyer correct and complete copies of the Leases. With respect
to the Real Estate:
(i) the Seller has good and marketable title to all of the Owned Real
Estate free and clear of all liens, charges, mortgages, security interests,
easements, restrictions or other encumbrances of any nature whatsoever except
real estate taxes for the year of Closing and municipal and zoning ordinances
and recorded utility easements which do not impair the current use, occupancy or
value or the marketability of title of the property and which are disclosed in
Section 2(i) of the Disclosure Schedule (collectively, the "Permitted Real
Estate Encumbrances");
(ii) the Leases are and, following the Closing will continue to be,
legal, valid, binding, enforceable, and in full force and effect;
6
<PAGE>
(iii) no party to any Lease is in breach or default (or has repudiated
any provision thereof), and no event has occurred which, with notice or lapse of
time, would constitute a breach or default thereunder or permit termination,
modification, or acceleration thereunder;
(iv) there are no disputes, oral agreements, or forbearance programs in
effect as to any Lease;
(v) none of the Owned Real Estate and to the Seller's Knowledge, none
of the properties subject to the Leases is subject to any lease (other than
Leases), option to purchase or rights of first refusal;
(vi) except for Permitted Real Estate Encumbrances, there are no (i)
actual or, to the Seller's Knowledge, proposed special assessments with respect
to any of the Real Estate; (ii) pending or, to the Seller's Knowledge,
threatened condemnation proceedings with respect to any of the Real Estate;
(iii) pending or, to the Seller's Knowledge, threatened litigation or
administrative actions with respect to any of the Real Estate; (iv) mechanic's
or materialmens' liens with respect to the Owned Real Estate; (v) structural or
mechanical defects in any of the buildings or improvements located in the Real
Estate; (vi) planned or commenced improvements which will result in an
assessment or otherwise affect the Real Estate; (vii) governmental agency or
court orders requiring the repair, alteration or correction of any existing
condition with respect to the Real Estate or any portion thereof; or (viii) any
pending or, to the Seller's Knowledge, threatened changed in any zoning laws or
ordinances which may affect any of the Real Estate or Seller's use thereof;
(vii) all buildings and improvements on the Real estate are in good
operating condition and repair, normal wear and tear excepted;
(viii) the Seller has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the Leases or its rights
thereunder;
(ix) to the Seller's Knowledge, all facilities on the Real Estate have
received all approvals of governmental authorities (including licenses, permits
and zoning approvals) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws, rules, and
regulations;
(x) all facilities on the Real Estate are supplied with utilities and
other services necessary for the operation of said facilities; and
(xi) to the Seller's Knowledge, the owner of each leased facility has
good and marketable title to the underlying parcel of real property, free and
clear of any Security Interest, easement, covenant, or other restriction, except
for Permitted Real Estate Encumbrances and Seller's leasehold interest in each
Lease has priority over any other interest except for the fee interest therein
and Permitted Real Estate Encumbrances;
(j) Intellectual Property. The Seller owns or has the right to use
pursuant to license, sublicense, agreement, or permission all Intellectual
Property necessary for or currently used in the operation of the
7
<PAGE>
Station as presently conducted and as presently proposed to be conducted. Each
item of Intellectual Property owned or used by the Seller in connection with
operation of the Station immediately prior to the Closing hereunder will be
owned or available for use by the Buyer on identical terms and conditions
immediately subsequent to the Closing hereunder. To the Seller's knowledge, with
respect to such Intellectual Property used in the operation of the Station:
(i) The Seller has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of third parties, and the Seller has never received any charge,
complaint, claim, or notice alleging any such interference, infringement,
misappropriation, or violation. To the Knowledge of the Seller, no third party
has interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of the Seller.
(ii) Section 2(j) of the Disclosure Schedule identifies each patent,
trademark or copyright registration which has been issued to the Seller with
respect to any of its Intellectual Property and the call letters (current and
past) of the Station, identifies each pending patent, trademark or copyright
application for registration which the Seller has made with respect to any of
its Intellectual Property, and identifies each license, agreement, or other
permission which the Seller has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions). The Seller has
delivered to the Buyer correct and complete copies of all such patents,
trademarks or copyright registrations, applications, licenses, agreements, and
permissions (as amended to date) and has made available to the Buyer correct and
complete copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. With respect to each item of
Intellectual Property used in the operation of the Station that the Seller owns:
(A) the Seller possesses all right, title, and interest in and to
the item and all registrations and applications are in full force and
effect;
(B) the item is not subject to any outstanding judgment, order,
decree, stipulation, injunction, or charge;
(C) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending or, to the Knowledge of the
Seller, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) the Seller has not ever agreed to indemnify any person or
entity for or against any interference, infringement, misappropriation,
or other conflict with respect to the item.
(iii) Section 2(j) of the Disclosure Schedule also identifies each item
of Intellectual Property that any third party owns and that the Seller uses in
connection with operation of the Station pursuant to license, sublicense,
agreement, or permission including, but not limited to the call letters of the
Station. The Seller has supplied the Buyer with correct and complete copies of
all such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each such item of used Intellectual Property used in the
operation of the Station:
8
<PAGE>
(A) the license, sublicense, agreement, or permission covering the
item is, and following the Closing will continue to be on identical
terms, legal, valid, binding, enforceable, and in full force and
effect;
(B) no party to the license, sublicense, agreement, or permission
is in breach or default (or has repudiated any provision thereof), and
no event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(C) with respect to each sublicense, the representations and
warranties set forth in subsections (A) and (B) above are true and
correct with respect to the underlying license;
(D) the underlying item of Intellectual Property is not subject to
any outstanding judgment, order, decree, stipulation, injunction, or
charge;
(E) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending, or, to the Knowledge of the
Seller, is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property;
(F) the Seller has not agreed to indemnify any person or entity
for or against any interference, infringement, misappropriation, or
other conflict with respect to the underlying item of Intellectual
Property; and
(G) the Seller has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(k) Contracts. Section 2(k) of the Disclosure Schedule lists the following
contracts, agreements, and other written arrangements (other than with
advertisers for the sale of air time which are listed in Section 2(s) of the
Disclosure Schedule) in connection with operation of the Station to which the
Seller is a party:
(i) any written arrangement (or group of related written arrangements)
for the lease of personal property from or to third parties providing for lease
payments in excess of $1,000 per year;
(ii) any written arrangement (or group of related written arrangements)
for the purchase or sale of supplies, products, or other personal property or
for the furnishing or receipt of services which either calls for performance
over a period of more than one year or involves more than the sum of $1,000;
(iii) any written arrangement concerning a partnership or joint
venture;
(iv) any written arrangement (or group of related written arrangements)
under which it has created, incurred, assumed, or guaranteed (or may create,
incur, assume, or guarantee) indebtedness (including capitalized lease
obligations) involving more than $1,000 or under
9
<PAGE>
which it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(v) any written arrangement concerning confidentiality or
noncompetition;
(vi) any written arrangement with any of its employees in the nature of
a collective bargaining agreement, consulting agreement, compensation agreement,
employment agreement, commission agreement, or severance agreement;
(vii) any written arrangement under which the consequences of a default
or termination could have an adverse effect on the assets, Liabilities,
business, financial condition, operations, results of operations, or future
prospects of the Seller or the Station;
(viii) any written arrangement concerning a guaranty by the Seller of
the obligations of any other party; or
(ix) any other written arrangement (or group of related written
arrangements) either involving more than $5,000 or not entered into in the
Ordinary Course of Business.
The Seller has delivered to the Buyer a correct and complete copy of each
written arrangement listed in Section 2(k) of the Disclosure Schedule (as
amended to date). With respect to each written arrangement so listed which
constitutes an Assumed Contract: (A) the written arrangement is legal, valid,
binding, enforceable, and in full force and effect; (B) the written arrangement
will continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms following the Closing (if the arrangement has not
expired according to its terms); (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification, or acceleration, under the
written arrangement; and (D) no party has repudiated any provision of the
written arrangement. The Seller is not a party to any verbal contract,
agreement, or other arrangement which, if reduced to written form, would be
required to be listed in Section 2(k) of the Disclosure Schedule under the terms
of this Section 2(k). Except for the Assumed Contracts, the Buyer shall not have
any Liability or obligations for or in respect of any of the contracts set forth
in Section 2(k) of the Disclosure Schedule or any other contracts or agreements
of the Seller. No advertiser of the Station has indicated within the past year
that it will stop, or decrease the rate of, buying services from them.
(l) Commission Licenses and Compliance with Commission Requirements.
(i) All licenses, permits, authorizations, franchises, certificates of
compliance, and consents of governmental bodies, including, without limitation,
the FCC Licenses, used or useful in the operation of the Station as they are now
being operated are (A) in full force and effect, (B) unimpaired by any acts or
omissions of the Seller or the Seller's employees or agents, (C) free and clear
of any restrictions which might limit the full operation of the Station, and (D)
detailed in Section 2(1) of the Disclosure Schedule. With respect to the
licenses, permits,
10
<PAGE>
authorizations, franchises, certificates of compliance and consents referenced
in the preceding sentence, Section 2(1) of the Disclosure Schedule also sets
forth, without limitation, the date of the last renewal, the expiration date
thereof, and any conditions or contingencies related thereto. Except as set
forth in Section 2(1) of the Disclosure Schedule, no condition exists or event
has occurred that permits, or after notice or lapse of time, or both, would
permit, the revocation or termination of any such license, permit, consent,
franchise, or authorization (other than pursuant to their express expiration
date) or the imposition of any material restriction or limitation upon the
operation of the Station as now conducted. Except as set forth in Section 2(1)
of the Disclosure Schedule, the Seller is not aware of any reason why the FCC
licenses might not be renewed in the ordinary course or revoked. For the
purposes of this Agreement, the imposition by the FCC of reporting conditions
and/or a fine in connection with the operation of the Station shall not be
considered a material restriction on the FCC licenses.
(ii) Except as disclosed in Schedule 2(l), the Station is in compliance
with the FCC's policy on exposure to radio frequency radiation, no renewal of
any FCC License would constitute a major environmental action under the FCC's
rules or policies and access to the Station's transmission facilities is
restricted in accordance with the policies of the FCC.
(iii) Except as set forth in Section 2(1) of the Disclosure Schedule,
to the Seller's Knowledge, the Seller is not the subject of any FCC or other
governmental investigation or any notice of violation or order, or any material
complaint, objection, petition to deny, or opposition issued by or filed with
the FCC or any other governmental authority in connection with the operation of
or authorization for the Station, and there are no proceedings (other than rule
making proceedings of general applicability) before the FCC or any other
governmental authority that could adversely affect any of the FCC Licenses or
the authorizations listed in Section 2(1) of the Disclosure Schedule.
(iv) The Seller has filed with the FCC and all other governmental
authorities having jurisdiction over the Station all material reports,
applications, documents, instruments, and other information required to be
filed, and will continue to make such filings through the Closing Date.
(v) The Seller is not aware of any information concerning the Station
that could cause the FCC or any other regulatory authority not to issue to the
Buyer all regulatory certificates and approvals necessary for the consummation
of the transactions contemplated hereunder or the Buyer's operation and/or
ownership of the Station.
(m) Insurance. Section 2(m) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) in connection with operation of the Station to
which the Seller is a party, a named insured, or otherwise the beneficiary of
coverage:
(i) the name, address, and telephone number of the agent;
11
<PAGE>
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was on
a claims made, occurrence, or other basis) and amount (including a description
of how deductibles and ceilings are calculated and operate) of coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, and enforceable and in full force and effect; (B) the policy will
continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms through the Closing Date.
(n) Litigation. With respect to operation of the Station, Section 2(n) of
the Disclosure Schedule sets forth each instance in which the Seller: (i) is
subject to any unsatisfied judgment, order, decree, stipulation, injunction, or
charge; or (ii) is a party or, to the Knowledge of the Seller, is threatened to
be made a party to any charge, complaint, action, suit, proceeding, hearing, or
investigation of or in any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator.
None of the charges, complaints, actions, suits, proceedings, hearings, and
investigations set forth in Section 2(n) of the Disclosure Schedule could result
in any material adverse change in the assets, Liabilities, business, financial
condition, operations, results of operations, or future prospects of the Seller
or the Station taken as a whole. The Seller has no reason to believe that any
such charge, complaint, action, suit, proceeding, hearing, or investigation may
be brought or threatened against the Seller.
(o) Employees. Section 2(o) of the Disclosure Schedule sets forth a listing
of the names, positions, job descriptions, salary or wage rates and all other
forms of compensation paid for work at the Station of each employee of the
Seller employed in connection with the Station. Section 2(o) of the Disclosure
Schedule also sets forth a list of all employee handbooks and/or manuals
relating to the Station employees of the Seller, true and correct copies of
which have been delivered to the Buyer. To the Knowledge of the Seller, no key
Station employee or group of Station employees has any plans to terminate
employment with the Seller. The Seller is not a party to or bound by any
understanding (whether written or oral), agreement or contract with any union,
labor organization, employee group or other entity or individual which affects
the employment of Station employees of the Seller including, but not limited to
any collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. The Seller has no Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
Station employees of the Seller. The Seller has not been subject to a strike,
slow down or other work stoppage during the five (5) year period immediately
preceding the date hereof and, to the Seller's Knowledge, there are no strikes,
slow downs or work stoppages
12
<PAGE>
threatened against the Seller. To the Seller's Knowledge, it has not committed
any unfair labor practice. To the Seller's Knowledge, there is no basis for any
claim by any past or present Station employee of the Seller that such employee
was subject to wrongful discharge or any employment discrimination by the Seller
or its management arising out of or relating to the employee's race, sex, age,
religion, national origin, ethnicity, handicap or any other protected
characteristic under applicable law. No proceedings are pending before any
court, governmental agency or instrumentality or arbitrator relating to labor
matters, and there is no pending investigation by any governmental agency or, to
the Knowledge of the Seller, threatened claim by any such agency or other person
relating to labor or employment matters.
(p) Employee Benefits. Section 2(p) of the Disclosure Schedule lists all
Employee Benefit Plans that the Seller maintains or to which the Seller
contributes or is required to contribute for the benefit of any current or
former Station employee of the Seller and true and correct copies of each such
Employee Benefit Plan have been delivered to the Buyers. Each Employee Benefit
Plan (and each related trust or insurance contract) complies and at all times
has complied in form and in operation in all respects with the applicable
requirements of ERISA and the Code. The Seller does not have any commitment to
create any additional Employee Benefit Plan or modify or change any existing
Employee Benefit Plan that would affect any employee or terminated Station
employee of the Seller. There are no pending or, to the Knowledge of the Seller,
threatened claims under, by or on behalf of any of the Employee Benefit Plans,
by any Station employee or beneficiary covered by any such Employee Benefit
Plan, or otherwise involving any such Employee Benefit Plan (other than routine
claims for benefits), nor have there been any Reportable Events or Prohibited
Transactions with respect to any Employee Benefit Plan.
(q) Environment, Health, and Safety. To the Seller's Knowledge:
(i) With respect to the operation of the Station and the Real Estate by
the Seller, the Seller is, and at all times in the past has been, in compliance
in all material respects with all Environmental Laws and all laws (including
rules and regulations thereunder) of federal, state, and local governments (and
all agencies thereof) concerning employee health and safety, and no charge,
complaint, action, suit, proceeding, hearing, investigation, claim, demand, or
notice has ever been filed or commenced or, to the Seller's Knowledge, is
threatened, against the Seller alleging any failure to comply with any such
Environmental Law or laws concerning employee health and safety.
(ii) With respect to the operation of the Station and the Real Estate
by the Seller, the Seller has no Liability (and to Seller's Knowledge there is
no Basis related to the past or present operations of the Seller for any present
or future charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand against the Seller giving rise to any Liability) under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution
Control Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of
1974, the Toxic Substances Control Act of 1976, the Refuse Act of 1899, or the
Emergency Planning and Community Right-to-Know Act of
13
<PAGE>
1986 (each as amended), or any other law of any federal, state, local, or
foreign government or agency thereof (including rules, regulations, codes,
plans, judgments, orders, decrees, stipulations, injunctions, and charges
thereunder) relating to public health and safety, or pollution or protection of
the environment, including, without limitation, laws relating to emissions,
discharges, releases, or threatened releases of pollutants, contaminants, or
chemical, industrial, hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes ("Environmental Laws");
(iii) With respect to operation of the Station by the Seller, the
Seller has no Liability (and to Seller's Knowledge there is no Basis for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against the Seller giving rise to any Liability)
under the Occupational Safety and Health Act, as amended, or any other law (or
rule or regulation thereunder) of any federal, state, local, or foreign
government (or agency thereof) concerning employee health and safety, or for any
illness of or personal injury to any Station employee.
(iv) With respect to operation of the Station by the Seller, the Seller
has obtained and at all times has been in compliance in all material respects
with all of the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all Environmental
Laws or law of any federal, state, or local or foreign government relating to
worker health and safety.
(v) To the Seller's knowledge, all properties and equipment used in the
business of the Seller are free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1, 2-trans- dichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances.
(vi) To the Seller's knowledge, no pollutant, contaminant, or chemical,
industrial, hazardous, or toxic material or waste is buried, stored, spilled,
leaked, discharged, emitted, or released on any of the Real Estate.
(vii) None of the Acquired Assets are required to be upgraded, modified
or replaced to be in compliance with Environmental Laws.
(viii) Section 2(q) of the Disclosure Schedule contains a copy of all
environmental claims, reports, studies, compliance actions or the like of the
Seller or which are available to the Seller with respect to any of the Real
Estate or any of the Acquired Assets.
(ix) To the Seller's knowledge, no septic systems or wells exist on, in
or under any of the Real Estate, no above ground or underground storage tanks
are located at, on
14
<PAGE>
or under the Real Estate, and none of the Real Estate is contaminated by
hazardous or toxic substances or waste, as defined under Environmental Laws,
originating from off-site sources.
(r) Legal Compliance.
(i) In connection with operation of the Station, the Seller has
complied in all material respects with all laws (including rules and regulations
thereunder) of federal, state, local and foreign governments (and all agencies
thereof) no charge, complaint, action, suit, proceeding, hearing, investigation,
claim, demand, or notice has been filed or commenced or, to the Seller's
Knowledge, is threatened, against the Seller alleging any failure to comply with
any such law or regulation, including those relating to the employment of labor,
employee civil rights, and equal employment opportunities and relating to
antitrust matters.
(ii) In connection with operation of the Station, the Seller has filed
in a timely manner all reports, documents, and other materials it was required
to file (and the information contained therein was correct and complete in all
material respects) under all applicable laws (including rules and regulations
thereunder) of federal state, local and foreign governments (and all agencies
thereof). To the Seller's Knowledge, it has possession of all records and
documents it was required to retain under all applicable laws (including rules
and regulations thereunder).
(s) Advertising Contracts. Section 2(s) of the Disclosure Schedule lists all
arrangements for the sale of air time or advertising on the Station in excess of
$1000, and the amount to be paid to the Seller therefor. In connection with
operation of the Station, the Seller has no reason to believe and has not
received a notice or indication of the intention of any of the advertisers or
third parties to material contracts of the Seller to cease doing business or to
reduce in any material respect the business transacted with the Seller or to
terminate or modify any agreements with the Seller (whether as a result of
consummation of the transactions contemplated hereby or otherwise).
(t) Brokers' Fees. The Seller has no Liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
(u) Undisclosed Commitments or Liabilities. There are no commitments,
liabilities or obligations relating to the Station, whether accrued, absolute,
contingent or otherwise including, without limitation, guaranties by the Seller
of the liabilities of third parties, for which specific and adequate provisions
have not been made on the Financial Statements except those incurred in or as a
result of the Ordinary Course of Business since January 1, 1997 (none of which
Ordinary Course of Business obligations have had or will have a material adverse
effect on the Station).
(v) Disclosure. The representations and warranties contained in this Section
2 do not contain any untrue statement of a fact or omit to state any fact
necessary in order to make the statements and information contained in this
Section 2 not misleading.
15
<PAGE>
3. Representations and Warranties of the Buyer. Buyers represent and warrant
to the Seller that the statements contained in this Section 3 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3), except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged
in paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 3.
(a) Organization of the Buyers. Broadcasting and Licensing are corporations
duly organized, validly existing, and in good standing under the laws of Nevada.
(b) Authorization of Transaction. Buyers have full power and authority to
execute and deliver this Agreement and the Ancillary Agreements and to perform
their obligations hereunder and thereunder. This Agreement and the Ancillary
Agreements constitute the valid and legally binding obligation of the Buyers,
enforceable against the Buyers in accordance with their respective terms and
conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in Section 1(e) above), will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the Buyers
are subject or any provision of their articles of organization or other charter
documents, or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or third party
consent under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Buyers are a
party or by which they are bound or to which any of their assets is subject.
Other than the Assignment Application described in Section 4(b), the Buyers do
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any court or government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement or the Ancillary Agreements (including the assignments and
assumptions referred to in Section 1(e) above).
(d) Brokers' Fees. Other than fees payable to George Silverman & Associates,
which shall be the exclusive responsibility of the Buyers, Buyers have no
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
the Seller could become liable or obligated.
(e) Qualifications. The Buyers are legally, technically, financially and
otherwise qualified under the Communications Act of 1934, as amended, and under
the rules and regulations of the FCC to become the holder of the Station's FCC
Licenses.
16
<PAGE>
4. Pre-Closing Covenants. The Parties agree as follows with respect to
operation of the Station during the period between the execution of this
Agreement and the Closing:
(a) General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable to
consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 5 below).
(b) Assignment Application. The Seller and the Buyers have jointly filed
with the FCC an application for assignment of the FCC Licenses, permits and
authorizations pertaining to the Station from the Seller to Licensing (the
"Assignment Application"). The costs of the FCC filing fees in connection with
the Assignment Application shall be divided equally between the Parties. Each
party shall pay its own attorneys' fees. The Seller and the Buyers shall
thereafter prosecute the Assignment Application with all reasonable diligence
and otherwise use the commercially reasonable efforts to obtain the grant of the
Assignment Application as expeditiously as practicable (but neither the Seller
nor the Buyers shall have any obligation to satisfy complainants or the FCC by
taking any steps which would have material adverse effect upon the Station or
upon any Affiliate or impose significant costs on such party). If the FCC
imposes any condition on either party to the Assignment Application, such party
shall use commercially reasonable efforts to comply with such condition,
provided, that neither party shall be required hereunder to comply with any
condition that would have a material adverse effect upon the Station or any
Affiliate. The Seller and the Buyers shall jointly oppose any requests for
reconsideration or judicial review of FCC approval of the Assignment Application
and shall jointly request from the FCC extension of the effective period of FCC
approval of the Assignment Application if the Closing shall not have occurred
prior to the expiration of the original effective period of the FCC Consent.
Nothing in this Section 4(b) shall be construed to limit either party's right to
terminate this Agreement pursuant to Section 9 of this Agreement.
(c) Employment Offers. Upon notice to the Seller, and at mutually agreeable
times, the Seller will permit the Buyers to meet with its Station employees
listed on Section 2(o) of the Disclosure Schedule and designated as exclusive
employees of the Station prior to the Closing Date. Not earlier than one (1)
week prior to the Closing, the Buyers may, at their option, extend offers of
employment to all or any of the Seller's Station employees listed on Schedule
2(o) of the Disclosure Schedule and designated as exclusive employees of the
Station effective on the Closing Date. From and after the execution of this
Agreement, the Seller shall use its best efforts to assist Buyers in retaining
those employees of the Station which the Buyers wish to hire in connection with
the operation of the Station by the Buyers subsequent to the Closing, and the
Seller will not take any action to preclude or discourage any of the Seller's
Station employees from accepting any offer of employment extended by the Buyers.
(d) Notices and Consents. The Seller will give all notices to third parties
and shall have obtained all third party consents, that the Buyers reasonably may
request in connection with the matters pertaining to the Seller disclosed or
required to be disclosed in the Disclosure Schedule (including, without
limitation, consents to assignment of the Leases and other Assumed Contracts).
Each of the Parties will take any additional action that may be necessary,
proper,
17
<PAGE>
or advisable in connection with any other notices to, filings with, and
authorizations, consents, and approvals of governments, governmental agencies,
and third parties that it may be required to give, make, or obtain.
(e) Operation of Business. The Seller will not engage in any practice, take
any action, embark on any course of inaction, or enter into any transaction in
connection with operation of the Station outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Seller will not
engage in any practice, take any action, embark on any course of inaction, or
enter into any transaction of the sort described in Section 2(f) above in
connection with operation of the Station.
(f) Advertising Obligations. The Seller shall satisfy its air time
obligations under its agreements for sale of air time and advertising on the
Station for goods or services ("Barter Agreements") such that the outstanding
aggregate balance owing under all Barter Agreements as of the Closing Date shall
not exceed Five Thousand Dollars ($5,000.00) worth of air time without the
Buyers' consent. On the Closing Date, the Seller shall deliver to the Buyers a
schedule, certified by an officer of the Seller, reflecting the aggregate
outstanding balances under all Barter Agreements in existence as of the Closing
Date.
(g) Operating Statements. The Seller shall deliver to the Buyers, for the
Buyers' informational purposes only, monthly unaudited statements of operating
revenues and operating expenses of the Station within ten (10) days after each
such statement is prepared by or for the Seller.
(h) Contracts. The Seller will not without the prior written consent of the
Buyers amend, change, or modify any of the contracts listed on Section 2(k) of
the Disclosure Schedule in any material respect. The Seller will not without
prior written consent of the Buyers enter into any new contracts respecting the
Station or their properties, except (i) contracts for the sale of time on the
Station for cash, goods or services which are entered into in the Ordinary
Course of Business and comply with Sections 4(f) and 4(j) hereof, (ii) contracts
entered into in the Ordinary Course of Business which are cancelable on not more
than thirty-one (31) days' notice without penalty or premium, and (iii)
contracts entered into in the Ordinary Course of Business each of which does not
involve more than Five Thousand Dollars ($5,000) or all of which do not involve
more than Ten Thousand Dollars ($10,000) in the aggregate.
(i) Operation of Station. The Seller shall operate the Station in
substantial compliance with the FCC Licenses and the rules and regulations of
the FCC, and the FCC Licenses shall at all times remain in full force and
effect. The Seller shall file with the FCC all material reports, applications,
documents, instruments and other information required to be filed in connection
with the operation of the Station.
(j) Credit and Receivables. The Seller will follow its usual and customary
policies with respect to extending credit for sales of air time and advertising
on the Station and with respect to collecting accounts receivable arising from
such extension of credit.
18
<PAGE>
(k) Preservation of Business. The Seller will use its best efforts to keep
the Station's business and properties substantially intact, including its
present operations, physical facilities, working conditions, relationships with
lessors, licensors, advertisers, suppliers, customers, and employees, all of the
Confidential Information, call letters and trade secrets of the Station, and the
FCC Licenses.
(l) Full Access and Consultation. The Seller will permit representatives of
the Buyers to have full access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of the Station, to all
premises, properties, books, records, contracts, Tax records, and documents of
or pertaining to the Seller in connection with operation of the Station for the
purpose of permitting the Buyer to, among other things: (a) conduct its due
diligence review, (b) review financial statements of the Station (c) verify the
accuracy of representations and warranties of the Seller contained in this
Agreement, and (d) prepare for the consummation of the transactions contemplated
by this Agreement. The Seller will consult with the Buyers' management with a
view to informing Buyer's management as to the operations, management and
business of the Station. Without limiting the foregoing, the parties acknowledge
and agree that no investigation of the Station or the Seller's business by Buyer
shall create any obligation on the part of Seller or shall limit the Buyers'
obligations under this Agreement, except to the extent that Buyer discovers
circumstances which constitute a breach of a representation, warranty or
covenant of Seller made in this Agreement, or the failure of any such
representation or warranty to be true and correct in all material respects.
(m) Notice of Developments. The Seller will give prompt written notice to
the Buyers of any material development affecting the assets, Liabilities,
business, financial condition, operations, results of operations, or future
prospects of the Station. Each Party will give prompt written notice to the
other of any material development affecting the ability of the Parties to
consummate the transactions contemplated by this Agreement. No disclosure by any
Party pursuant to this Section 4(m), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
(n) Exclusivity. For as long as this Agreement is in effect, the Seller will
not (i) solicit, initiate, or encourage the submission of any proposal or offer
from any person relating to any (A) liquidation, dissolution, or
recapitalization, (B) merger or consolidation, (C) acquisition or purchase of
securities or assets, or (D) similar transaction or business combination
involving the Seller; or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any person to do or seek
any of the foregoing. The Seller will notify the Buyers immediately if any
person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
(o) Title Insurance, Surveys and Environmental Assessments. The Buyers at
their option and at their sole cost and expense may obtain such title insurance,
surveys and environmental assessments as they deem necessary or advisable in
connection with the consummation of transactions contemplated by this Agreement.
19
<PAGE>
(p) Control of Station. The transactions contemplated by this Agreement
shall not be consummated until after the FCC has given its consent and approval
to the Assignment Application. Between the date of this Agreement and the
Closing Date, the Buyers and their employees or agents shall not directly or
indirectly control, supervise, or direct, or attempt to control, supervise, or
direct, the operation of the Station, and such operation shall be the sole
responsibility of and in the control of the Seller.
(q) Risk of Loss. The risk of loss, damage, or destruction to any of the
Acquired Assets shall remain with the Seller until the Closing. In the event of
any such loss, damage, or destruction the Seller will promptly notify the Buyer
of all particulars thereof, stating the cause thereof (if known) and the extent
to which the cost of restoration, replacement and repair of the Acquired Assets
lost, damaged or destroyed will be reimbursed under any insurance policy with
respect thereto. The Seller will, at Seller's expense, repair or replace such
Acquired Assets to their former condition as soon as possible after loss, damage
or destruction thereof and shall use its best efforts to restore as promptly as
possible transmissions as authorized in the FCC Licenses. The Closing Date shall
be extended (with FCC consent, if necessary) for up to sixty (60) days to permit
such repair or replacement. If repair or replacement cannot be accomplished
within sixty (60) days of the date of the Seller's notice to the Buyers, and the
Buyers determine that the Seller's failure to repair or replace, alone or in the
aggregate with any other then existing factors, would have a material adverse
effect on the operation of the Station:
(a) the Buyers may elect to terminate this Agreement; or
(b) the Buyers may postpone the Closing Date until such time as the
property has been repaired, replaced or restored in a manner and to an
extent reasonably satisfactory to the Buyers, unless the same cannot be
reasonably effected within ninety (90) days of the date of the Seller's
notice to the Buyers, in which case either party may terminate this
Agreement; or
(c) the Buyers may choose to accept the Acquired Asset in their "then"
condition, together with the Seller's assignment to the Buyers of all rights
under any insurance claims covering the loss, damage or destruction and
payment over to the Buyers of any proceeds under any such insurance
policies, previously received by the Seller with respect thereto plus an
amount equal to the amount of any deductible or self-insurance maintained by
Seller on such Acquired Assets.
In the event the Closing Date is postponed pursuant to this Section 4(q),
the parties hereto will cooperate to extend the time during which this Agreement
must be closed as specified in the consent of the FCC.
5. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyers. The obligation of the Buyers to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
20
<PAGE>
(i) the representations and warranties set forth in Section 2 above
shall be true and correct in all respects at and as of the Closing Date as
though made on and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of its
covenants hereunder in all respects through the Closing;
(iii) the Seller shall have procured all of the third party consents
specified in Section 4(d) above, including but not limited to those relating to
transmitter and studio leases;
(iv) no action, suit, investigation, inquiry or other proceeding shall
be pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or impose damages or penalties upon any of the parties if such
transactions are consummated, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation, or (C) affect adversely
the right of the Buyer to own, operate, or control the Acquired Assets (and no
such judgment, order, decree, stipulation, injunction, or charge shall be in
effect);
(v) the Seller shall have delivered to the Buyer a certificate (without
qualification as to knowledge or materiality or otherwise) to the effect that
each of the conditions specified above in Sections 5(a)(i) through (iv) is
satisfied in all respects and the statements contained in such certificate shall
be deemed a warranty of the Seller which shall survive the Closing;
(vi) each of the Assignment Applications shall have been approved by a
Final Order of the FCC and the Buyer shall have received all governmental
approvals required to transfer all other authorizations, consents, and approvals
of governments and governmental agencies set forth in the Disclosure Schedule;
(vii) the parties shall have entered into the Transitional Services
Agreement;
(viii) the Buyers shall have received from counsel to the Seller an
opinion with respect to the matters set forth in Exhibit F attached hereto,
addressed to the Buyers and its lender and dated as of the Closing Date; and
(ix) all actions to be taken by the Seller in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyer.
In the event that any of the foregoing conditions to Closing shall not have been
satisfied in all material respects, the Buyers may elect to (i) terminate this
Agreement without liability to the Seller, or (ii) consummate the transactions
contemplated herein despite such failure. Regardless of whether the Buyers elect
to terminate this Agreement or consummate the transactions
21
<PAGE>
described herein, if such failure shall be as a result of a breach of any
provision of this Agreement by the Seller (including, without limitation, any
breach arising as a result of the failure of the Seller to execute and/or
deliver any item described in this Section 5(a), the Buyers may seek appropriate
remedies for any and all damages, costs and expenses incurred by the Buyers by
reason of such breach including, without limitation, indemnification pursuant to
Section 7, below, subject, however, to the dollar limitation on damages set
forth in Section 7(e) hereof.
(b) Conditions to Obligation of the Seller. The obligation of the Seller to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3 above
shall be true and correct in all respects at and as of the Closing Date as
though made on and as of the Closing Date;
(ii) the Buyers shall have performed and complied with all of their
covenants hereunder in all respects through the Closing;
(iii) no action, suit, investigation, inquiry or other proceeding shall
be pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or impose damages or penalties upon any of the Parties if such
transactions are consummated, or (B) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation (and no such judgment,
order, decree, stipulation, injunction, or charge shall be in effect);
(iv) the Buyers shall have delivered to the Seller a certificate
(without qualification as to knowledge or materiality or otherwise) to the
effect that each of the conditions specified above in Section 5(b)(i)-(iii) is
satisfied in all respects and the statements contained in such certificate shall
be deemed a warranty of the Buyers which shall survive the Closing;
(v) each of the Assignment Applications shall have been approved by a
Final Order of the FCC and the Buyers shall have received all governmental
approvals required to transfer all other authorizations, consents, and approvals
of governments and governmental agencies set forth in the Disclosure Schedule;
(vi) the parties shall have entered into the Transitional Services
Agreement; and
(vii) all actions to be taken by the Buyers in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller.
22
<PAGE>
In the event that any of the foregoing conditions to Closing shall not have been
satisfied in all material respects, the Seller may elect to (i) terminate this
Agreement without liability to the Buyers, or (ii) consummate the transactions
contemplated herein despite such failure. Regardless of whether the Seller
elects to terminate this Agreement or consummate the transactions described
herein, if such failure shall be as a result of a material breach of any
provision of this Agreement by the Buyers (including, without limitation, any
breach arising as a result of the failure of the Buyers to execute and/or
deliver any item described in this Section 5(a)), the Seller may seek
appropriate remedies for any and all damages, costs and expenses incurred by the
Seller by reason of such breach including, without limitation, indemnification
pursuant to Section 7, below.
6. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 7 below).
(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Station, each of the other Parties will reasonably cooperate with
the contesting or defending Party and its counsel in the contest or defense,
make available his or its personnel, and provide such testimony and access to
its books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section 7 below); provided, however, that such access and
cooperation does not unreasonably disrupt the normal operations of the
cooperating party.
(c) Adjustments. Operation of the Station and the income and expenses
attributable thereto up through the close of business on the day before the
Closing Date shall be for the account of the Seller and thereafter for the
account of the Buyers. Such items as employee salaries, vacation, sick day and
personal time accruals, and fringe benefits, power and utilities charges,
insurance, real and personal property taxes, prepaid expenses, deposits, music
license fees, and rents and payments pertaining to the Assumed Contracts
(including any contracts for the sale of time for cash, trade or barter so
assigned) shall be prorated between the Seller and the Buyers as of the Closing
Date in accordance with the foregoing principle. In addition, all commissions
payable with respect to the accounts receivable of the Seller (whether due
before or after Closing) shall be solely for the account and responsibility of
the Seller. Contractual arrangements that do not reflect an equal rate of
compensation to a Station over the term of the agreement shall be equitably
adjusted as of the Closing Date. The prorations and adjustments
23
<PAGE>
hereunder shall be made and paid insofar as feasible on the Closing Date, with a
final settlement sixty (60) days after the Closing Date. In the event of any
disputes between the Parties as to such adjustments, the amounts not in dispute
shall nonetheless be paid at such time and such disputes shall be determined by
an independent accounting firm mutually acceptable to both parties and the fees
and expenses of such accounting firm shall be paid one-half (1/2) by the Seller
and one-half (1/2) by the Buyer.
(d) Collection of Accounts Receivable. At the Closing, the Seller will turn
over to the Buyers, for collection only, the accounts receivable of the Station
owing to the Seller as of the close of business on the Closing Date. A schedule
of such accounts receivable will be delivered by the Seller to the Buyers on the
Closing Date or as soon thereafter as possible. The Buyers agree to use
commercially reasonable efforts in the ordinary course of business (but without
responsibility to institute legal or collection proceedings) to collect such
accounts receivable during the 120-day period following the Closing Date, and
will remit all payments received on such accounts during each calendar month
during this 120-day period on the one hundred twentieth (120th) day together
with an accounting of all payments received within such period. The Buyers shall
have the sole right to collect such accounts receivable during such one hundred
twenty (120) day period. In the event the Buyers receive monies during the
120-day period following the Closing Date from an advertiser who, after the
Closing Date, is advertising over any of the Station, and that advertiser was
included among the accounts receivable as of the Closing Date, the Buyer shall
apply said monies to the oldest outstanding balance due on the particular
account, except in the case of a "disputed" account receivable. For purposes of
this Section 6(d), a "disputed" account receivable means one which the account
debtor refuses to pay because he asserts that the money is not owed or the
amount is incorrect. In the case of such a disputed account, the Buyers shall
immediately return the account to the Seller prior to expiration of the 120-day
period following the Closing Date. If the Buyers return a disputed account to
the Seller, the Buyers shall have no further responsibility for its collection
and may accept payment from the account debtor for advertising carried on any of
the Station after the Closing Date. At the end of the 120-day period following
the Closing Date, the Buyers will turn back to the Seller all of the accounts
receivable of the Station as of the Closing Date owing to the Seller which have
not yet been collected, and the Buyers will thereafter have no further
responsibility with respect to the collection of such receivables. During the
120-day period following the Closing Date, the Buyers shall afford the Seller
reasonable access to the accounts receivable "aging list." The Seller
acknowledges and agrees that the Buyers are acting as its collection agent
hereunder for the sole benefit of the Seller and that Buyers have accepted such
responsibility for the accommodation of the Seller. The Buyer shall not have any
duty to inquire as to the form, manner of execution or validity of any item,
document, instrument or notice deposited, received or delivered in connection
with such collection efforts, nor shall the Buyers have any duty to inquire as
to the identity, authority or rights of the persons who executed the same. The
Seller shall indemnify Buyers and hold them harmless from and against any
judgments, expenses (including attorney's fees) costs or liabilities which the
Buyers may incur or sustain as a result of or by reason of such collection
efforts.
(f) Consents. In the event any of the Assumed Contracts are not assignable
or any consent to such assignment is not obtained on or prior to the Closing
Date, and the Buyers elect
24
<PAGE>
to consummate the transactions contemplated herein despite such failure or
inability to obtain such consent, the Seller shall continue to use commercially
reasonable efforts to obtain any such assignment or consent after the Closing
Date. Until such time as such assignment or approval has been obtained, the
Seller will cooperate with Buyers in any lawful and economically feasible
arrangement to provide that the Buyer shall receive the Seller's interest in the
benefits under any such Assumed Contract, including performance by the Seller as
agent, if economically feasible; provided, however, that the Buyers shall
undertake to pay or satisfy the corresponding liabilities for the enjoyment of
such benefit to the extent that Buyers would have been responsible therefor if
such consent or assignment had been obtained.
7. Remedies for Breaches of this Agreement.
(a) Survival. All of the representations and warranties of the Seller
contained in Section 2 of this Agreement shall survive the Closing and continue
in full force and effect for a period until 90 days after the applicable statute
of limitations has expired with respect to any claim by the Buyers based on a
claim or action by a third party and for a period of three (3) years following
Closing with respect to any claim by the Buyers not based on a claim or action
by a third party.
(b) Indemnification Provisions for the Benefit of the Buyers.
Except as described below in Section 7(e) with respect to a breach of a
warranty or covenant prior to the Closing Date, the Seller agrees to indemnify
the Buyers from and against the entirety of any Adverse Consequences the Buyers
may suffer resulting from, arising out of, relating to, in the nature of, or
caused by:
(i) any misrepresentation or breach of any of the Seller's
representations or warranties, and covenants contained in this Agreement or in
any Ancillary Agreement executed and/or delivered by the Seller (so long as the
Buyers make a written claim for indemnification within the applicable survival
period);
(ii) any breach or nonfulfillment of any agreement or covenant of the
Seller contained herein or in any Ancillary Agreement;
(iii) any Liability of the Seller which is not an Assumed Liability;
and/or
(iv) any Liability of the Buyers arising by operation of law (including
under any bulk transfer law of any jurisdiction or under any common law doctrine
of defacto merger or successor liability) which is not an Assumed Liability.
(c) Indemnification Provisions for the Benefit of the Seller. Except as
described below in Section 7(e) with respect to a breach of a warranty or
covenant prior to the Closing Date, the Buyer agrees to indemnify the Seller
from and against the entirety of any Adverse Consequences the Seller may suffer
resulting from, arising out of, relating to, in the nature of, or caused by (i)
any misrepresentation or breach of any of the Buyers' representations or
warranties contained
25
<PAGE>
in this Agreement or in any Ancillary Agreement executed and/or delivered by the
Buyers (so long as the Seller makes a written claim for indemnification within
the applicable survival period) or (ii) any breach or nonfulfillment of any
agreement or covenant of the Buyers contained herein or in any Ancillary
Agreement, or (iii) any Assumed Liability.
(d) Specific Performance. Each of the Parties acknowledges and agrees that
the other Party would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are materially breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 10(o)
below), in addition to any other remedy to which it may be entitled, at law or
in equity. Each of the Parties acknowledges and agrees that not withstanding the
provision in Section 7(e) with respect to the remedy of liquidated damages upon
a material breach of a warranty or covenant of this Agreement prior to the
Closing, money damages would not be an adequate remedy for a material breach of
any provision of this Agreement.
(e) Liquidated Damages. The Buyer and the Seller acknowledge that in the
event that the transactions contemplated by this Agreement are not closed
because of a default by either Party, the Adverse Consequences as a result of
such default may be difficult, if not impossible, to ascertain. Accordingly, in
lieu of indemnification pursuant to Section 7(b) or 7(c), the nondefaulting
Party shall be entitled to receive from the defaulting Party for such default
the sum of Two Hundred Fifty Thousand Dollars ($250,000) as liquidated damages
without the need for proof of damages, subject only to successfully proving in a
court of competent jurisdiction that the other Party has materially breached
this Agreement and that the transactions contemplated thereby have not occurred;
provided however, that the Buyers shall retain the option to receive, pursuant
to Section 7(d), and in lieu of receiving the liquidated damages provided in
this Section 7(e), the remedy of specific performance with respect to a breach
of this Agreement prior to the Closing. The Buyers and the Seller agree to pay
said sum of liquidated damages within ten (10) days of the date that the
non-defaulting party obtains such a judgment, and agree that in the event this
Agreement is terminated by the Seller prior to the Closing Date as a result of a
breach or default by the Buyers under this Agreement, the Seller shall proceed
against the Earnest Money as partial satisfaction of liquidated damages owed by
Buyers.
(f) Matters Involving Third Parties. If any third party shall notify any
Party (the "Indemnified Party") with respect to any matter which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 7, then the Indemnified Party shall notify the
Indemnifying Party thereof promptly; provided, however, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is damaged as a result
of such failure. In the event any Indemnifying Party notifies the Indemnified
Party within 15 days after the Indemnified Party has given notice of the matter
that the Indemnifying Party is assuming the defense thereof, (i)
26
<PAGE>
the Indemnifying Party will defend the Indemnified Party against the matter with
counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
(except that the Indemnifying Party will be responsible for the fees and
expenses of the separate co-counsel to the extent the Indemnified Party
reasonably concludes that the counsel the Indemnifying Party has selected has a
conflict of interest), (iii) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect to the matter without
the written consent of the Indemnifying Party (not to be withheld unreasonably),
and (iv) the Indemnifying Party will not consent to the entry of any judgment
with respect to the matter, or enter into any settlement which does not include
a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all Liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld unreasonably). In the event
the Indemnifying Party does not notify the Indemnified Party within 15 days
after the Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, however, and/or in the event the
Indemnifying Party shall fail to defend such claim actively and in good faith,
then the Indemnified Party may defend against, or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate.
(g) Retention of Assets. Seller agrees that in the event Seller sells or
otherwise divests substantially all of its assets prior to the expiration of the
survival of warranties provision of Section 7(a) hereof, Seller will deposit in
escrow Fifty Thousand Dollars ($50,000) for the purpose of satisfying any claims
by Buyers for indemnification made pursuant to this Agreement. This sum shall
remain in escrow until the expiration of the survival of warranties provision of
Section 7(a) hereof.
8. Definitions.
"Acquired Assets" means all right, title, and interest in and to all of the
assets of the Station listed in Section 2(h) of the Disclosure Schedule, other
than Retained Assets that are used or useful in the operation of the Station,
which are also listed in Section 2(h) of the Disclosure Schedule , wherever
located, including but not limited to all of its (a) leaseholds and other
interests of any kind therein, improvements, fixtures, and fittings thereon
(such as towers and antennae), and easements, rights-of-way, and other
appurtenances thereto); (b) tangible personal property (such as fixed assets,
computers, data processing equipment, electrical devices, monitoring equipment,
test equipment, switching, terminal and studio equipment, transmitters,
transformers, receivers, broadcast facilities, furniture, furnishings,
inventories of compact disks, records, tapes and other supplies, vehicles, and
all assignable warranties with respect thereto; (c) Intellectual Property,
goodwill associated therewith, licenses and sublicenses granted and obtained
with respect thereto, and rights thereunder, remedies against infringements
thereof, and rights to protection of interests therein under the laws of all
jurisdictions; (d) rights under orders and agreements (including those Barter
Agreements and Advertising Contracts identified on the Disclosure Schedule) now
existing or entered into in the Ordinary Course of Business for the sale of
advertising time on the Station; (e) Assumed Contracts, indentures, Security
Interests, guaranties, other similar arrangements, and rights thereunder; (f)
call letters
27
<PAGE>
of the Station, jingles, logos, slogans, and business goodwill of the Station;
(g) claims, deposits, prepayments, refunds, causes of action, choses in action,
rights of recovery (including rights under policies of insurance), rights of set
off, and rights of recoupment; (h) Licenses and similar rights obtained from
governments and governmental agencies; and (i) FCC logs and records and all
other books, records, ledgers, logs, files, documents, correspondence,
advertiser lists, all other lists, plats, architectural plans, drawings, and
specifications, creative materials, advertising and promotional materials,
program production materials, studies, reports, and other printed or written
materials; and (j) goodwill of the Station.
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including all attorneys' fees and court costs.
"Advertising Contracts" has the meaning set forth in Section 2(s), above.
"Affiliate" means with reference to any person or entity, another person or
entity controlled by, under the control of or under common control with that
person or entity.
"Assignment Application" has the meaning set forth in Section 4(b) above.
"Assumed Contracts" means the Leases, the Barter Agreements, the Advertising
Contracts and those contracts listed on Exhibit G attached hereto.
"Assumed Liabilities" means obligations of the Seller which accrue after the
Closing Date under the Assumed Contract either: (i) to furnish services, and
other non-Cash benefits to another party after the Closing; or (ii) to pay for
goods, services, and other non-Cash benefits that another party will furnish to
it after the Closing. The Assumed Liabilities shall not include any Retained
Liabilities.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyers" has the meaning set forth in the preface above.
"Cash" means cash and cash equivalents determined in accordance with GAAP
applied on a basis consistent with the preparation of the Financial Statements.
"Closing" has the meaning set forth in Section l(d) above.
"Closing Date" has the meaning set forth in Section l(d) above.
"Code" means the Internal Revenue Code of 1986, as amended.
28
<PAGE>
"Confidential Information" means any information concerning the businesses
and affairs of the Seller.
"Disclosure Schedule" has the meaning set forth in Section 2 above.
"Earnest Money Deposit" has the meaning set forth in Section l(c) above.
"Earnest Money Escrow Agreement" has the meaning set forth in Section l(c)
above.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"Environmental Laws" has the meaning set forth in Section 2(q), above.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means George Silverman & Associates.
"Extremely Hazardous Substance" has the meaning set forth in Section 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FCC" means the Federal Communications Commission of the United States.
"FCC Licenses" means the licenses, permits and other authorizations,
including any temporary waiver or special temporary authorization, issued by the
FCC to the Seller in connection with the conduct of the business and operation
of the Station.
"Final Order" means an action by the FCC as to which: (a) no request for
stay by the FCC is pending, no such stay is in effect, and any deadline for
filing a request for any such stay has passed; (b) no appeal, petition for
rehearing or reconsideration, or application for review is pending before the
FCC and the deadline for filing any such appeal, petition or application has
passed; (c) the FCC has not initiated reconsideration or review on its own
motion and the time in which such reconsideration or review is permitted has
passed; and (d) no appeal to a court, or request for stay by a court, of the
FCC's action is pending or in effect, and the deadline for filing any such
appeal or request has passed.
29
<PAGE>
"Financial Statements" has the meaning set forth in Section 2(e) above.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Indemnified Party" has the meaning set forth in Section 7(d) above.
"Indemnifying Party" has the meaning set forth in Section 7(d) above.
"Intellectual Property" means all (a) patents, patent applications, patent
disclosures, and improvements thereto, (b) trademarks, service marks, trade
dress, call letters, logos, trade names, and corporate names and registrations
and applications for registration thereof, (c) all programs, programming
materials, copyrights and registrations and applications for registration
thereof, (d) mask works and registrations and applications for registration
thereof, (e) computer software, data, and documentation, (f) trade secrets and
confidential business information (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, market and other research information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial, marketing, and business data, pricing and cost information, business
and marketing plans, and customer and supplier lists and information), (g) other
proprietary rights, and (b) copies and tangible embodiments thereof (in whatever
form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Leases" means those real estate leases to which Seller is a party governing
the Station's FM tower site, as described in Section 2(i) of the Disclosure
Schedule.
"Liability" means any liability (whether known or unknown, whether absolute
or contingent, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Licenses" means all FCC and other governmental licenses, franchises,
approvals, certificates, authorizations and rights of the Seller with respect to
the operations of the Station and all applications therefor, together with any
renewals, extension or modifications thereof and additions thereto.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Owned Real Estate" means the real property owned by the Seller in
connection with operation of the Station as described in Section 2(i) of the
Disclosure Schedule and all buildings, fixtures, and improvements located
thereon.
30
<PAGE>
"Party" has the meaning set forth in the preface above.
"Permitted Real Estate Encumbrances" shall have the meaning set forth in
Section 2(i), above.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Price" has the meaning set forth in Section l(c) above.
"Real Estate" means the Owned Real Estate and the real estate, building,
fixtures and improvements which are the subject of the Leases.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Retained Assets" means (i) the corporate charter, qualifications to conduct
business as a foreign corporation, arrangements with registered agents relating
to foreign qualifications, taxpayer and other identification numbers, seals,
minute books, stock transfer books, blank stock certificates, and other
documents relating to the organization, maintenance, and existence of the Seller
as a corporation; (ii) any of the rights of the Seller under this Agreement (or
under any side agreement between the Seller on the one hand and the Buyers on
the other hand entered into on or after the date of this Agreement); (iii)
accounts, notes and other receivables of the Seller; (iv) Cash; and (v) assets
that are used and useful in the operation of the Station which are listed as
Retained Assets in Section 2(h) of the Disclosure Schedule.
"Retained Liabilities" means any other obligations or Liabilities of the
Seller, including but not limited to: (i) any Liability relating to the
ownership or operation of the Station prior to the Closing; (ii) any Liability
of the Seller for income, transfer, sales, use, and other Taxes arising in
connection with the consummation contemplated hereby; (iii) any Liability of the
Seller for costs and expenses incurred in connection with this Agreement or the
consummation of the transactions contemplated hereby (except as set forth in
Section 4(i) relating to Surveys, title commitments and environmental audits and
Section 4(b) with regard to the Assignment Application; or (iv) any Liability or
obligation of the Seller under this Agreement (or under any side agreement
between the Seller on the one hand and the Buyers on the other hand entered into
on or after the date of this Agreement).
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due
and payable; and (b) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation.
"Seller" has the meaning set forth in the preface above.
"Station" means the radio broadcast station having the call letters WTOS-FM,
licensed by the FCC to operate in Skowhegan, Maine.
31
<PAGE>
"Subsidiary," with respect to any person, means any corporation,
partnership, joint venture, limited liability company, trust or estate of which
(or in which ) 50% or more of (i) the outstanding capital stock or other equity
interest having voting power to elect a majority of the Board of Directors of
such corporation or persons having a similar role as to an entity that is not a
corporation, (ii) the interest in the profits of such partnership or joint
venture, or (iii) the beneficial interest of such trust or estate are at such
time directly or indirectly owned by such person or one or more of such person's
Subsidiaries.
"Surveys" has the meaning set forth in Section 4(o) above.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Transitional Services Agreement" means the agreement between the parties in
the form attached here as Exhibit E.
9. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyers and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyers may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing in the event the Seller is in
material breach of any representation, warranty, or covenant contained in this
Agreement; provided, however, that if such breach is capable of being cured,
such breach also remains uncured for twenty (20) days after notice of breach is
received by the Seller from the Buyers;
(iii) the Seller may terminate this Agreement by giving written notice
to the Buyers at any time prior to the Closing in the event the Buyers are in
material breach of any representation, warranty, or covenant contained in this
Agreement; provided, however that if such breach is capable of being cured, such
breach remains uncured for twenty (20) days after notice of breach is received
by the Buyers from the Seller;
32
<PAGE>
(iv) the Buyers may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing if the Closing shall not have
occurred on or before the 270th day following the date of this Agreement by
reason of the failure of any condition precedent under Section 5(a) hereof
(unless the failure results primarily from the Buyers themselves materially
breaching any representation, warranty, or covenant contained in this
Agreement);
(v) the Seller may terminate this Agreement by giving written notice to
the Buyers at any time prior to the Closing if the Closing shall not have
occurred on or before the 270th day following the date of this Agreement by
reason of the failure of any condition precedent under Section 5(b) hereof
(unless the failure results primarily from the Seller itself materially
breaching any representation, warranty, or covenant contained in this
Agreement); or
(vi) the Buyers or the Seller may terminate this Agreement if any
Assignment Application is denied by Final Order.
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 9(a) above, all obligations of the Parties hereunder shall terminate
without any Liability of any Party to any other Party (except for any Liability
of any Party then in breach).
10. Miscellaneous.
(a) Survival. All of the representations, warranties, and covenants of the
Parties contained in this Agreement shall survive the Closing hereunder as and
to the extent provided in Section 7(a) hereof.
(b) Press Releases and Announcements. No Party shall issue any press release
or announcement relating to the subject matter of this Agreement prior to the
Closing without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by law or regulation (in which case the disclosing Party will advise
the other Party prior to making the disclosure).
(c) No Third Party Beneficiaries. This Agreement shall not confer any rights
or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, that may have related in any way to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party, provided that (i) the Buyers may assign all of their right,
title and interest in, to and under this Agreement to one or more
33
<PAGE>
Affiliates (provided that the Buyers hereby guarantee performance by such entity
of the Buyers' obligations hereunder), who shall then, subject to the terms and
conditions of this Agreement, have the right to receive the Acquired Assets,
assume the Assumed Liabilities, and to pay to the Seller the Purchase Price
therefor or to any successor to the Buyers in the event of any sale, merger or
consolidation of the Buyers, and (ii) Buyers may assign their indemnification
claims and their rights under the warranties and representations of the Sellers
to the financial institution(s) providing financing to the Buyers in connection
with this transaction.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing and shall be considered to be given
and received in all respects when hand delivered, when delivered via prepaid
express or courier delivery service, when sent by facsimile transmission
actually received by the receiving equipment or three (3) days after deposited
in the United States mail, certified mail, postage prepaid, return receipt
requested, in each case addressed to the intended recipient as set forth below:
If to the Seller:
Copy to:
(which copy shall not constitute notice to Seller)
If to the Buyers:
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
c/o QUAESTUS Management Corp.
330 E. Kilbourn Avenue, Suite 250
Milwaukee, WI 53202
Attn: Terrence J. Leahy
Fax: (414) 283-4505
34
<PAGE>
With a copy to:
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
875 N. Michigan Avenue
Suite 3650
Chicago, Illinois 60611
Attn: Richard J. Bonick
Fax: (312) 867-0098
and a copy (which shall not constitute notice to Buyer) to:
David D. Burns, Esq.
Paul Hastings Janofsky & Walker, L.L.P.
1299 Pennsylvania Avenue, N.W.
10th Floor
Washington, D.C. 20004-2400
Fax: (202) 508-9700
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim or other communication shall
be deemed to have been duly given unless and until it actually is received by
the party for whom it is intended. Any party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
Maine.
(j) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Buyers and
the Seller. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction. If the final judgment of a court of competent
jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
35
<PAGE>
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
(1) Expenses. The Buyers and the Seller, will each bear their own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby, other than as set forth in
Section 4(b) with regard to the Assignment Applications and as set forth in
Section 4(o) with respect to Surveys, title commitments and environmental
audits. The Seller will pay all income taxes. The Seller and the Buyers will
each pay one-half (1/2) of any transfer or sales taxes and other recording or
similar fees necessary to vest title to each of the Acquired Assets in the
Buyers.
(m) Construction. The language used in this Agreement will be deemed to be
the language chosen by the Parties to express their mutual intent, and no rule
of strict construction shall be applied against any Party. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise. Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless the
Disclosure Schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail. The Parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Portland, Maine, in any
action or proceeding arising out of or relating to this Agreement, agrees that
all claims in respect of the action or proceeding may be heard and determined in
any such court, and agrees not to bring any action or proceeding arising out of
or relating to this Agreement in any other court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of
any other Party with respect thereto. Any Party may make service on the other
Party by sending or delivering a copy of the process to the Party to be served
at the address and in the manner provided for the giving of notices in Section
10(h) above. Nothing in this Section 10(o), however, shall affect the right of
any Party to serve legal process in any other manner permitted by law. Each
Party agrees that a final judgment in any action or proceeding so brought shall
be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law.
36
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as of
the date first above written.
CUMULUS BROADCASTING, INC.
By:
-------------------------
(printed)
-------------------------
Title:
----------------------
CUMULUS LICENSING CORPORATION
By:
-------------------------
(printed)
-------------------------
Title:
----------------------
MOUNTAIN WIRELESS, INC.
By:
-------------------------
(printed)
-------------------------
Title:
----------------------
37
<PAGE>
Exhibit 10.73
ASSET PURCHASE AGREEMENT
This Agreement ("Agreement") is entered into as of February 5, 1998, by
and among Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting"),
Cumulus Licensing Corporation, a Nevada corporation ("Licensing"), and Castle
Broadcasting Limited Partnership, a Maine limited partnership (the "Seller").
Broadcasting and Licensing are referred to collectively herein as the "Buyers."
The Buyers and the Seller are referred to collectively herein as the "Parties."
Capitalized terms used in this Agreement are defined in Section 8 hereof.
Subject to the terms and conditions of this Agreement, the Buyers hereby
agree to purchase substantially all of the assets (and assume certain of the
liabilities) of the Seller that are used or useful in the operation of radio
stations WQCB-FM and WBZN-FM, licensed to Brewer, Maine and Old Town, Maine,
respectively (the "Stations") in return for cash.
Now, therefore, in consideration of the above premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, Licensing agrees to purchase from the Seller, and
the Seller agrees to sell, transfer, convey, and deliver to Licensing, all of
the FCC Licenses listed in Section 2(l) of the Disclosure Schedule. In addition,
Broadcasting agrees to purchase from the Seller, and the Seller agrees to sell,
transfer, convey, and deliver to Broadcasting, all of the Acquired Assets other
than the FCC Licenses. Both such sales shall take place at the Closing for the
consideration specified below in this Section 1.
(b) Assumption of Liabilities. On and subject to the terms and conditions
of this Agreement, the Buyers agree to assume and become responsible for all of
the Assumed Liabilities at the Closing. The Buyers will not assume or have any
responsibility, however, with respect to the Retained Liabilities and the Seller
agrees to pay and discharge all of the Retained Liabilities.
(c) Purchase Price. The Buyers agree to pay to the Seller, as
consideration for the Acquired Assets, the purchase price as set forth on
Exhibit 1(c)-1 hereto (the "Purchase Price"). The Purchase Price shall be
payable as follows:
(i) on the Closing Date, the Buyers shall pay to the Seller the
amount of the Purchase Price less $50,000.00; and
(ii) on the Closing Date, the Buyer shall pay to the Seller, on
behalf of all parties to the Postclosing Agreement, the amount of Fifty Thousand
Dollars ($50,000) as consideration for the agreements set forth in the
Post-Closing Agreement.
<PAGE>
On the date of this Agreement, the Buyers will deposit with the Escrow Agent an
irrevocable letter of credit in the amount of the earnest money deposit as set
forth on Exhibit 1(c)-1 hereto (the "Earnest Money Deposit") pursuant to an
escrow agreement in the form attached hereto as Exhibit 1(c)-2 (the "Earnest
Money Escrow Agreement"). If this Agreement is terminated without Closing of the
transaction contemplated herein, the Earnest Money Deposit shall be paid to the
Buyers or the Seller as provided in the Earnest Money Escrow Agreement.
(d) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Rudman & Winchell,
LLC, 84 Harlow Street, Bangor, Maine (or such other place as the parties may
agree), commencing at 9:00 a.m. local time on the date set by the Buyers not
later than the fifth business day after the FCC approval of the Assignment
Application becomes a Final Order (,subject to the provisions of Section 4(r),
and further subject to the satisfaction of all other conditions to the
obligations of the Parties to consummate the transactions contemplated hereby,
or such other date as the Parties may mutually determine (the "Closing Date").
(e) Deliveries at the Closing. At the Closing, (i) the Seller will deliver
to the Buyers the various certificates, instruments, and documents referred to
in Section 5(a) below; (ii) the Buyers will deliver to the Seller the various
certificates, instruments, and documents referred to in Section 5(b) below;
(iii) the Seller will execute, acknowledge (if appropriate), and deliver to the
Buyers (A) assignments (including Lease and other Assumed Contract assignments
and Intellectual Property transfer documents), bills of sale and quit claim
deeds with covenants, all in form and substance reasonably satisfactory to
Buyers (B) such affidavits, transfer tax returns, memorandums of lease, and
other additional documents as may be required by the terms of the title
insurance commitments described in Section 4(o) hereof, as necessary to furnish
title insurance as required by such section or as may be necessary to convey
title to the Real Estate to the Buyers in the condition required herein or
provide public notice of existence of the Leases, and (C) such other instruments
of sale, transfer, conveyance, and assignment as the Buyers and their counsel
reasonably may request; (iv) the Buyers will execute, acknowledge (if
appropriate), and deliver to the Seller such instruments of assumption as the
Seller and its counsel reasonably may request; and (v) the Buyers will deliver
to the Seller the consideration specified in Section 1(c) above.
(f) Postclosing Agreement. On the Closing Date, the Seller shall execute,
and shall cause the sole shareholder of its corporate general partner to
execute, a Postclosing Agreement with the Buyer including covenants not to
compete with the Buyer in the markets served by the Stations and agreements to
indemnify the Buyer in the form of Exhibit 1(f) attached hereto. As set forth in
Section 1(c)(ii), a portion of the Purchase Price equal to Fifty Thousand
Dollars ($50,000) shall be paid to the Seller by the Buyers on the Closing Date
as consideration for the agreements set forth in the Postclosing Agreement.
(g) Allocation. Within 30 days after the Closing Date, Seller and Buyers
shall negotiate in good faith an allocation of the Purchase Price (and all other
capitalizable costs) among the Acquired Assets, and shall file all required
forms with the Internal Revenue Service in accordance with such allocation. If
Seller and Buyers are unable to agree on an allocation within such period,
Seller and Buyers will retain Broadcast Investment Associates to perform an
asset
2
<PAGE>
appraisal and shall allocate the Purchase Price in accordance therewith. The
costs of such appraisal shall be borne equally by Seller on the one hand and
Buyers on the other.
2. Representations and Warranties of the Seller. The Seller represents and
warrants to the Buyers that the statements contained in this Section 2 are
correct and complete as of the date of this Agreement except as set forth in the
lettered and numbered paragraphs contained in the disclosure schedule
accompanying this Agreement and initialed by the Parties (the "Disclosure
Schedule") corresponding to the lettered and numbered sections of this Section
2.
(a) Organization of the Seller. The Seller is a limited partnership duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its organization. The Seller does not have any Subsidiaries. The
Seller has the power and authority to own or lease its properties and to carry
on all business activities now conducted by it. The partners of the Seller and
their respective partnership interests and status as a general or limited
partner are set forth in the Disclosure Schedule.
(b) Authorization of Transaction. The Seller has full power and authority
(including full partnership power and authority) to execute and deliver this
Agreement, the Earnest Money Escrow Agreement and the Post-Closing Agreement
(collectively, the "Ancillary Agreements") and all agreements and instruments to
be executed and delivered by Seller pursuant to this Agreement and the Ancillary
Agreements, and to perform its obligations hereunder and thereunder. Without
limiting the generality of the foregoing, the partners of the Seller have duly
authorized the execution, delivery, and performance of this Agreement and the
Ancillary Agreements by the Seller. This Agreement and the Ancillary Agreements
constitute the valid and legally binding obligations of the Seller, enforceable
in accordance with their respective terms and conditions, except as
enforceability may be limited by laws applying to creditors' rights generally
and by equitable principles.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in Section 1(e) above), will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the Seller
is subject or any provision of the partnership agreement or certificate of
limited partnership of the Seller; or (ii) except as noted in Section 2(c) of
the Disclosure Schedule, conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or third party
consent under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other agreement, arrangement to which the
Seller is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets). Other than with respect to the Assignment Application described in
Section 4(b) and with respect to agreements set forth in Section 2(c) of the
Disclosure Schedule, the Seller does not need to give any notice to, make any
filing with, or obtain any Licenses, consent, or approval of any court or
government or governmental agency in order for the Parties to enter into this
agreement or the Ancillary Agreements or to consummate the transactions
contemplated by this Agreement or the
3
<PAGE>
Ancillary Agreements (including the assignments and assumptions referred to in
Section 1(e) above).
(d) Title to Acquired Assets. Other than the Security Interests set forth
on Section 2(d) of the Disclosure Schedule (which shall be released at or before
the Closing), the Seller has good and marketable title to all of the Acquired
Assets, free and clear of any Security Interest or restriction on transfer.
(e) Financial Statements. Included in Section 2(e) of the Disclosure
Schedule are the following financial statements (collectively the "Financial
Statements"): (i) unaudited balance sheets and statements of income, and cash
flow as of and for the fiscal years ended December 31, 1993, December 31, 1994,
December 31, 1995 and December 31, 1996, for Station WQCB(FM); (ii) unaudited
balance sheets and statements of income, as of and for each month during 1996
and each month during 1997 through the month ended October 31, 1997 for Station
WQCB(FM); and unaudited balance sheets and statements of income, for the month
ended October 31, 1997 for station WBZN(FM) and combined unaudited balance sheet
and statement of income for the month ended November 30, 1997 for Stations
WQCB(FM) and WBZN(FM) combined. The Financial Statements have been prepared on a
consistent basis throughout the periods covered thereby, and fairly present the
financial condition of the Stations on such dates and the results of operations
for the periods designated therein, and are consistent with the books and
records of the Stations (which books and records are correct and complete).
(f) Subsequent Events. Except as set forth in Section 2(f) of the
Disclosure Schedule or as otherwise disclosed in the Financial Statements, since
December 31, 1996 with respect to Station WQCB(FM), and since October 1, 1997
with respect to Station WBZN(FM), there has not been any adverse change in the
assets, Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Seller with respect to the operation of
the Stations. Without limiting the generality of the foregoing, since December
31, 1996 with respect to the operation of Station WQCB(FM), and since October 1,
1997 with respect to the operation of Station WBZN(FM), except as set forth on
Schedule 2(f):
(i) the Seller has not sold, leased, transferred, or assigned any of its
material assets, tangible or intangible;
(ii) other than this Agreement, the Seller has not entered into any
agreement, contract, lease, sublease, license, or sublicense (or series of
related agreements, contracts, leases, subleases, licenses, and sublicenses)
outside the Ordinary Course of Business;
(iii) no party has accelerated, terminated, modified, or canceled any
agreement, contract, lease, sublease, license, or sublicense (or series of
related agreements, contracts, leases, subleases, licenses, and sublicenses)
involving more than $5,000 to which the Seller is a party or by which it or any
of its assets are bound;
(iv) no Security Interest has been imposed upon any of Seller's assets,
tangible or intangible;
4
<PAGE>
(v) the Seller has not made any capital expenditure (or series of related
capital expenditures) outside the Ordinary Course of B__iness;
(vi) the Seller has not made any capital investment in, any loan (other
than extensions of credit in the Ordinary Course of Business) to, or any
acquisition of the securities or assets (other than acquisitions of assets in
the Ordinary Course of Business) of any other person (or series of related
capital investments, loans, and acquisitions);
(vii) [Intentionally Deleted]
(viii) the Seller has not delayed or postponed (beyond its normal practice
in the Ordinary Course of Business) the payment of accounts payable and other
Liabilities;
(ix) the Seller has not canceled, compromised, waived, or released any
right or claim (or series of related rights and claims) outside the Ordinary
Course of Business;
(x) the Seller has not granted any license or sublicense of any rights
under or with respect to any Intellectual Property;
(xi) the Seller has not experienced any material damage, destruction, or
loss (whether or not covered by insurance) to any of its property or any action
adversely affecting the FCC Licenses;
(xii) the Seller has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees giving rise to
any claim or right on its part against the person or on the part of the person
against it;
(xiii) the Seller has not entered into any employment contract, consulting
contract or severance agreement or collective bargaining agreement, written or
oral, or modified the terms of any such existing contract or agreement;
(xiv) the Seller has not granted any increase (outside routine salary and
wage increases in the Ordinary Course of Business) in the rate of compensation,
commissions, bonus or other remuneration payable, or granted any severance or
termination pay to, any of its directors, officers, and employees;
(xv) the Seller has not adopted any (A) bonus, (B) profit-sharing, (C)
incentive compensation, (D) pension, (E) retirement, (F) medical,
hospitalization, life, or other insurance, (G) severance, or (H) other plan,
contract, or commitment for any of its directors, officers, and employees, or
modified or terminated any existing such plan, contract, or commitment;
(xvi) the Seller has not made any other change in employment terms for any
of its directors, officers, and employees outside the Ordinary Course of
Business;
(xvii) there has not been any other occurrence, event, incident, action,
failure to act, or transaction outside the Ordinary Course of Business involving
the Seller;
5
<PAGE>
(xviii) the Seller has not altered its credit and collection policies or
its accounting policies;
(xix) the Seller has not materially altered the programming, format or
call letters of the Stations, or its promotional and marketing activities;
(xx) the Seller has not applied to the FCC for any modification of the FCC
Licenses or failed to take any action necessary to preserve the FCC Licenses and
has operated the Stations in compliance therewith and with all FCC rules and
regulations; or
(xxi) the Seller has not committed to do any of the foregoing.
(g) Tax Matters. The Seller and its partners have timely and
properly filed all Tax Returns that they were required to file with respect to
the Seller's operations. All such Tax Returns were correct and complete in all
respects and properly reflect the tax liability of the Seller. The Seller has
not requested any extension of time within which to file returns in respect of
any Taxes with respect to the Seller's operations. No Tax deficiencies have been
proposed or assessed against the Seller. There are no pending, or to the
Seller's knowledge, threatened audits, investigations, or claims for or relating
to any liability in respect of Taxes with respect to the Seller's operations.
All Taxes owed by the Seller with respect to its operations (whether or not
shown on any Tax Return) have been paid. The Seller has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other third party.
No claim has ever been made by any authority in any jurisdiction where the
Seller does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets of the
Seller that arose in connection with any failure (or alleged failure) to pay any
Tax.
(h) Tangible Assets. Section 2(h) of the Disclosure Schedule sets
forth a listing of all transmitter and station equipment, vehicles and other
material tangible personal property used in conducting the operation and
business of the Stations. Except as set forth in Section 2(h) of the Disclosure
Schedule, the Seller owns or leases all tangible assets necessary for the
conduct of the operation and business of the Stations as presently conducted and
as presently proposed to be conducted and all leased assets are specifically
identified as such in Section 2(h) of the Disclosure Schedule. Except as set
forth in Section 2(h) of the Disclosure Schedule, each such tangible asset is
free from material defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition and
repair in all material respects (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used. Except as set forth in
Section 2(h) of the Disclosure Schedule, no such tangible asset currently used
in the operation of the Stations is in need of replacement. Any leased personal
property included within the tangible personal property is, in all material
respects, in the condition required of such property by the terms of the lease
applicable thereto during the term of the lease and upon the expiration thereof.
Except as set forth in Section 2(h) of the Disclosure Schedule, all of the
equipment utilized in the operation of the Stations is in material compliance
with all FCC and FAA requirements and is sufficient in all material respects to
satisfy the intended needs of the normal customary operations of the Stations at
all times of the year.
(i) Real Property. Section 2(i) of the Disclosure Schedule lists and
describes briefly all Owned Real Estate and real property leased to the Seller
(including, without limitation, complete legal descriptions for
6
<PAGE>
all of the Real Estate). The Seller has delivered to the Buyer correct and
complete copies of the Leases. With respect to the Real Estate:
(i) the Seller has good and marketable title to all of the Owned
Real Estate free and clear of all liens, charges, mortgages, security interests,
easements, restrictions or other encumbrances of any nature whatsoever except
real estate taxes for the year of Closing and municipal and zoning ordinances
and recorded utility easements and other matters of record which do not impair
the current use, occupancy or value or the marketability of title of the
property collectively, the "Permitted Real Estate Encumbrances");
(ii) the Leases are and, following the Closing will continue to be,
legal, valid, binding, enforceable, and in full force and effect;
(iii) with respect to the Leases, Seller is not (and to the Seller's
Knowledge, no other party to any such Lease is) in breach or default (or has
repudiated any provision thereof), and no event has occurred which, with notice
or lapse of time, would constitute a breach or default thereunder or permit
termination, modification, or acceleration thereunder;
(iv) there are no disputes, oral agreements, or forbearance programs
in effect as to any Lease;
(v) none of the Owned Real Estate and to the Seller's Knowledge,
none of the properties subject to the Leases is subject to any lease (other than
Leases), option to purchase or rights of first refusal;
(vi) except for Permitted Real Estate Encumbrances, there are no (i)
actual or, to the Seller's Knowledge, proposed special assessments with respect
to any of the Real Estate; (ii) pending or, to the Seller's Knowledge,
threatened condemnation proceedings with respect to any of the Real Estate;
(iii) pending or, to the Seller's Knowledge, threatened litigation or
administrative actions with respect to any of the Real Estate; (iv) mechanic's
or materialmens' liens with respect to the Owned Real Estate; (v) material
structural or mechanical defects in any of the buildings or improvements located
in the Real Estate; (vi) planned or commenced improvements which will result in
an assessment or otherwise affect the Real Estate; (vii) governmental agency or
court orders requiring the repair, alteration or correction of any existing
condition with respect to the Real Estate or any portion thereof; or (viii) any
pending or, to the Seller's Knowledge, threatened change in any zoning laws or
ordinances which may affect any of the Real Estate or Seller's use thereof;
(vii) all buildings and improvements on the Real Estate are in good
operating condition and repair in all material respects, normal wear and tear
excepted;
(viii) the Seller has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the Leases or its
rights thereunder;
(ix) to the Seller's Knowledge, all facilities on the Real Estate
have received all approvals of governmental authorities (including licenses,
permits and zoning approvals) required in connection with the operation thereof
and have been operated and maintained in accordance with applicable laws, rules,
and regulations;
(x) except as set forth in Section 2(i) of the Disclosure Schedule,
all facilities on the Real Estate are supplied with utilities and other services
necessary for the operation of said facilities; and
7
<PAGE>
(xi) to the Seller's Knowledge, the owner of each leased facility
has good and marketable title to the underlying parcel of real property, free
and clear of any Security Interest, easement, covenant, or other restriction,
except for Permitted Real Estate Encumbrances and Seller's leasehold interest in
each Lease has priority over any other interest except for the fee interest
therein and Permitted Real Estate Encumbrances;
(j) Intellectual Property. Section 2(j) of the Disclosure Schedule
lists all Intellectual Property of Seller used in, or necessary for, the conduct
of the operations of the Stations, specifying as to each, as applicable: (i) the
nature of such Intellectual Property, (ii) the owner of such Intellectual
Property, (iii) the jurisdictions in which such Intellectual Property is
recognized without registration or has been registered, or registration has been
applied for, and (iv) material licenses, sublicenses and other agreements as to
which Seller is a party and pursuant to which any person is authorized to use
such Intellectual Property. The Seller owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for or currently used in the operation of the business of the Seller
as presently conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by the Seller immediately prior to the
Closing hereunder will be owned or available for use by the Buyer on identical
terms and conditions immediately subsequent to the Closing hereunder. Except as
set forth in Section 2(j) of the Disclosure Schedule, the Seller has taken all
necessary or desirable action to protect each item of Intellectual Property that
it owns or uses. The Seller has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of third parties, and the Seller has never received any charge,
complaint, claim, or notice alleging any such interference, infringement,
misappropriation, or violation. Except as set forth in Section 2(j) of the
Disclosure Schedule, to the Knowledge of the Seller, no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of the Seller. No Intellectual
Property of Seller is subject to any order, judgment or agreement restricting
the use thereof by Seller in the operation of the Stations.
(k) Contracts. Section 2(k) of the Disclosure Schedule lists the
following contracts, agreements, and other written arrangements (other than with
advertisers for the sale of air time which are listed in Section 2(s) of the
Disclosure Schedule) to which the Seller is a party:
(i) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third parties
providing for lease payments in excess of $5,000 per year;
(ii) any written arrangement (or group of related written
arrangements) for the purchase or sale of supplies, products, or other
personal property or for the furnishing or receipt of services which
either calls for performance over a period of more than one year or
involves more than the sum of $5,000;
(iii) any written arrangement concerning a partnership or joint
venture;
(iv) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or guaranteed
(or may create, incur, assume, or guarantee) indebtedness (including
capitalized lease obligations) involving more than $15,000 or under which
it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(v) any written arrangement concerning confidentiality or
noncompetition;
8
<PAGE>
(vi) any written arrangement with any of its employees in the nature
of a collective bargaining agreement, consulting agreement, compensation
agreement, employment agreement, commission agreement, or severance
agreement;
(vii) any written arrangement under which the consequences of a
default or termination could have a material adverse effect on the assets,
Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Seller or the Stations;
(viii) any written arrangement concerning a guaranty by the Seller
of the obligations of any other party; or
(ix) any other written arrangement (or group of related written
arrangements) either involving more than $10,000 or not entered into in
the Ordinary Course of Business.
The Seller has delivered to the Buyer a correct and complete copy of each
written arrangement listed in Section 2(k) of the Disclosure Schedule (as
amended to date). With respect to each written arrangement so listed which is
specifically identified in Section 2(k) of the Disclosure Schedule as an Assumed
Contract: (A) the written arrangement is legal, valid, binding, enforceable, and
in full force and effect; (B) the written arrangement will continue to be legal,
valid, binding, and enforceable and in full force and effect on identical terms
following the Closing (if the arrangement has not expired according to its
terms); (C) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration, under the written arrangement; and
(D) no party has repudiated any provision of the written arrangement. The Seller
is not a party to any verbal contract, agreement, or other arrangement which, if
reduced to written form, would be required to be listed in Section 2(k) of the
Disclosure Schedule under the terms of this Section 2(k). Except for the Assumed
Contracts, the Buyer shall not have any Liability or obligations for or in
respect of any of the contracts set forth in Section 2(k) of the Disclosure
Schedule or any other contracts or agreements of the Seller. Except as set forth
in Section 2(k) of the Disclosure Schedule, no advertiser of the Stations has
indicated within the past year that it will stop, or decrease the rate of,
buying services from them.
(l) Commission Licenses and Compliance with Commission Requirements.
(i) Except as set forth in Section 2(1) of the Disclosure Schedule, all
licenses, permits, authorizations, franchises, certificates of compliance, and
consents of governmental bodies, including, without limitation, the FCC
Licenses, used or useful in the operation of the Stations as they are now being
operated are (A) in full force and effect, (B) unimpaired by any acts or
omissions of the Seller or the Seller's employees or agents, (C) free and clear
of any restrictions which might limit the full operation of the Stations, and
(D) detailed in Section 2(1) of the Disclosure Schedule. With respect to the
licenses, permits, authorizations, franchises, certificates of compliance and
consents referenced in the preceding sentence, Section 2(1) of the Disclosure
Schedule also sets forth, without limitation, the date of the last renewal, the
expiration date thereof, and any conditions or contingencies related thereto. To
Seller's Knowledge, no condition exists or event has occurred that permits, or
after notice or lapse of time, or both, would permit, the revocation or
termination of any such license, permit, consent, franchise, or authorization
(other than pursuant to their express expiration date) or the imposition of any
material restriction or limitation upon the operation of the Stations as now
conducted. The Seller is not aware of any reason why the FCC Licenses might not
be renewed in the ordinary course.
9
<PAGE>
(ii) The Stations are each in material compliance with the FCC's policy on
exposure to radio frequency radiation. No renewal of any FCC License would
constitute a major environmental action under the FCC's rules or policies.
Access to the Stations' transmission facilities is restricted in accordance with
the policies of the FCC.
(iii) To the Seller's Knowledge, the Seller is not the subject of any FCC
or other governmental investigation or any notice of violation or order, or any
material complaint, objection, petition to deny, or opposition issued by or
filed with the FCC or any other governmental authority in connection with the
operation of or authorization for the Stations, and there are no proceedings
(other than rule making proceedings of general applicability) before the FCC or
any other governmental authority that could adversely affect any of the
Licenses.
(iv) The Seller has filed with the FCC and all other governmental
authorities having jurisdiction over the Stations all material reports,
applications, documents, instruments, and other information required to be
filed, and will continue to make such filings through the Closing Date.
(v) The Seller is not aware of any information concerning the Stations
that would be reasonably likely to cause the FCC not to grant the Assignment
Application free of any conditions that would be reasonably likely to cause a
material adverse effect on the consummation of the transactions contemplated by
this Agreement or on Buyers' operation of the Stations after the Closing.
(m) Insurance. Except as set forth in Section 2(m) of the Disclosure
Schedule, Seller has delivered to Buyers true and complete copies of each
insurance policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety arrangements) to which
the Seller is a party, a named insured, or otherwise the beneficiary of
coverage. There is no claim by Seller under any such policies as to which
coverage has been disputed, and Seller is in material compliance with the terms
of each such policy, including payment of premiums.
(n) Litigation. Section 2(n) of the Disclosure Schedule sets forth each
instance in which the Seller: (i) is subject to any unsatisfied judgment, order,
decree, stipulation, injunction, or charge; or (ii) is a party or, to the
Knowledge of the Seller, is threatened to be made a party to any charge,
complaint, action, suit, proceeding, hearing, or investigation of or in any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. None of the charges,
complaints, actions, suits, proceedings, hearings, and investigations set forth
in Section 2(n) of the Disclosure Schedule could result in any adverse change in
the assets, Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Seller or the Stations taken as a whole.
The Seller has no reason to believe that any such charge, complaint, action,
suit, proceeding, hearing, or investigation may be brought or threatened against
the Seller.
(o) Employees. Section 2(o) of the Disclosure Schedule sets forth a
listing of the names, positions, job descriptions, current salary or wage rates,
salary or wage rate increases, and all other forms of compensation paid or to be
paid for work at the Stations of each employee of the Seller. Section 2(o) of
the Disclosure Schedule also sets forth a list of all employee handbooks and/or
manuals relating to the employees of the Seller, true and correct copies of
which have been delivered to the Buyer. The Seller is not a party to or bound by
any understanding (whether written or oral), agreement or contract with any
union, labor
10
<PAGE>
organization, employee group or other entity or individual which affects the
employment of employees of the Seller including, but not limited to any
collective bargaining agreement, nor has it experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes. The
Seller has no Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of the
Seller. The Seller has not been subject to a strike, slow down or other work
stoppage during the five (5) year period immediately preceding the date hereof
and, to the Seller's Knowledge, there are no strikes, slow downs or work
stoppages threatened against the Seller. To the Seller's Knowledge, it has not
committed any unfair labor practice. To Seller's Knowledge, there is no basis
for any claim by any past or present employee of the Seller that such employee
was subject to wrongful discharge or any employment discrimination by the Seller
or its management arising out of or relating to the employee's race, sex, age,
religion, national origin, ethnicity, handicap or any other protected
characteristic under applicable law. No proceedings are pending before any
court, governmental agency or instrumentality or arbitrator relating to labor
matters, and, to Seller's Knowledge, there is no pending investigation by any
governmental agency or, to the Knowledge of the Seller, threatened claim by any
such agency or other person relating to labor or employment matters.
(p) Employee Benefits. Section 2(p) of the Disclosure Schedule lists all
Employee Benefit Plans that the Seller maintains or to which the Seller
contributes or is required to contribute for the benefit of any current or
former employee of the Seller and true and correct copies of each such Employee
Benefit Plan have been delivered to the Buyers. Each Employee Benefit Plan (and
each related trust or insurance contract) complies and at all times has complied
in form and in operation in all respects with the applicable requirements of
ERISA and the Code. The Seller does not have any commitment to create any
additional Employee Benefit Plan or modify or change any existing Employee
Benefit Plan that would affect any employee or terminated employee of the
Seller. There are no pending or, to the Knowledge of the Seller, threatened
claims under, by or on behalf of any of the Employee Benefit Plans, by any
employee or beneficiary covered by any such Employee Benefit Plan, or otherwise
involving any such Employee Benefit Plan (other than routine claims for
benefits), nor have there been any Reportable Events or Prohibited Transactions
with respect to any Employee Benefit Plan.
(q) Environment, Health, and Safety
Except as set forth in Section 2(q) of the Disclosure Schedule:
(i) With respect to the operation of the Stations and the Real Estate, the
Seller is, and at all times in the past has been, in compliance in all material
respects with all Environmental Laws and all laws (including rules and
regulations thereunder) of federal, state, and local governments (and all
agencies thereof) concerning employee health and safety, and no charge,
complaint, action, suit, proceeding, hearing, investigation, claim, demand, or
notice has ever been filed or commenced or, to the Seller's Knowledge, is
threatened, against the Seller alleging any failure to comply with any such
Environmental Law or laws concerning employee health and safety.
(ii) With respect to the operation of the Stations and the Real Estate,
the Seller has no Liability (and to Seller's Knowledge there is no Basis related
to the past or present operations of the Seller or its predecessors for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against the Seller giving rise to any Liability)
under the Comprehensive
11
<PAGE>
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act
of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of 1974, the
Toxic Substances Control Act of 1976, the Refuse Act of 1899, or the Emergency
Planning and Community Right-to-Know Act of 1986 (each as amended), or any other
law of any federal, state, local, or foreign government or agency thereof
(including rules, regulations, codes, plans, judgments, orders, decrees,
stipulations, injunctions, and charges thereunder) relating to public health and
safety, or pollution or protection of the environment, including, without
limitation, laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
("Environmental Laws");
(iii) The Seller has no Liability (and to Seller's Knowledge there is no
Basis for any present or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand against the Seller giving rise to any
Liability) under the Occupational Safety and Health Act, as amended, or any
other law (or rule or regulation thereunder) of any federal, state, local, or
foreign government (or agency thereof) concerning employee health and safety, or
for any illness of or personal injury to any employee.
(iv) The Seller has obtained and at all times has been in compliance in
all material respects with all of the terms and conditions of all permits,
licenses, and other authorizations which are required under, and has complied in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
which are contained in, all Environmental Laws or law of any federal, state, or
local or foreign government relating to worker health and safety.
(v) To Seller's Knowledge all properties and equipment used in the
business of the Seller have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1, 2-trans-dichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances.
(vi) To Seller's Knowledge, no pollutant, contaminant, or chemical,
industrial, hazardous, or toxic material or waste ever has been buried, stored,
spilled, leaked, discharged, emitted, or released on any of the Real Estate in a
manner that would constitute a violation of any Environmental Laws.
(vii) To Seller's Knowledge none of the Acquired Assets are required to be
upgraded, modified or replaced to be in compliance with Environmental Laws.
(viii) Seller has delivered to Buyers a copy of all environmental claims,
reports, studies, compliance actions or the like of the Seller or which are
available to the Seller with respect to any of the Real Estate or any of the
Acquired Assets.
(ix) No septic systems or wells exist on, in or under any of the Real
Estate. No above ground or underground storage tanks have ever been located at,
on or under the Real Estate. To Seller's Knowledge, none of the Real Estate is
contaminated by hazardous or toxic substances or waste, as defined under
Environmental Laws, originating from off-site sources.
12
<PAGE>
(r) Legal Compliance
(i) The Seller has complied in all material respects with all material
laws (including rules and regulations thereunder) of federal, state, local and
foreign governments (and all agencies thereof), and no charge, complaint,
action, suit, proceeding, hearing, investigation, claim, demand, or notice has
been filed or commenced or, to the Seller's Knowledge, is threatened, against
the Seller alleging any failure to comply with any such law or regulation,
including those relating to the employment of labor, employee civil rights, and
equal employment opportunities and antitrust matters.
(ii) The Seller has filed in a timely manner all material reports,
documents, and other materials it was required to file (and the information
contained therein was correct and complete in all material respects) under all
applicable laws (including rules and regulations thereunder) of federal state,
local and foreign governments (and all agencies thereof). Except as set forth in
Section 2(r) of the Disclosure Schedule , to the Seller's Knowledge, it has
possession of all records and documents it was required to retain under all
applicable laws (including rules and regulations thereunder).
(s) Advertising and Material Contracts. Section 2(s) of the Disclosure
Schedule lists all arrangements for the sale of air time or advertising on the
Stations in excess of $3,000, and the amount to be paid to the Seller therefor.
Except as set forth in Section 2(s) of the Disclosure Schedule, the Seller has
no reason to believe and has not received a notice or indication of the
intention of any of the advertisers or third parties to material contracts of
the Seller to cease doing business or to reduce in any material respect the
business transacted with the Seller or to terminate or modify any agreements
with the Seller (whether as a result of consummation of the transactions
contemplated hereby or otherwise).
(t) Brokers' Fees. The Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(u) Undisclosed Commitments or Liabilities. Except as set forth in
Schedule 2(u), there are no commitments, liabilities or obligations relating to
any of the Stations, whether accrued, absolute, contingent or otherwise
including, without limitation, guaranties by the Seller of the liabilities of
third parties, for which specific and adequate provisions have not been made on
the Financial Statements (collectively, "Undisclosed Liabilities") except those
incurred in or as a result of the Ordinary Course of Business, with respect to
station WQCB(FM), since December 31, 1996, and with respect to Station WBZN(FM),
since October 1, 1997 (none of which Ordinary Course of Business, obligations
have had or will have a material adverse effect on any Stations).
(v) Disclosure. The representations and warranties contained in this
Section 2 do not contain any untrue statement of a fact or omit to state any
fact necessary in order to make the statements and information contained in this
Section 2 not misleading.
3. Representations and Warranties of the Buyer. Buyers represent and
warrant to the Seller that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement except as set forth in the
Disclosure Schedule.
13
<PAGE>
(a) Organization of the Buyers. Broadcasting and Licensing are
corporations duly organized, validly existing, and in good standing under the
laws of Nevada, and on the Closing Date will be duly qualified to conduct
business in Maine.
(b) Authorization of Transaction. Buyers have all necessary corporate
power and authority to enter into and perform this Agreement and the Ancillary
Agreements and the transactions contemplated thereby, and to acquire the FCC
Licenses and to own or lease the Acquired Assets and to carry on the business of
the Stations upon the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements. Buyers' execution, delivery and
performance of this Agreement and the Ancillary Agreements and the transactions
contemplated thereby have been duly and validly authorized by all necessary
action on their part and, assuming the due authorization, execution and delivery
of this Agreement and the Ancillary Agreements by Seller, this Agreement and the
Ancillary Agreements constitute valid and binding obligations of Buyers,
enforceable against them in accordance with their terms, except as the
enforceability of this Agreement and the Ancillary Agreements may be affected by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
by judicial discretion in the enforcement of equitable remedies.
(c) Qualification as FCC Licensee. Licensing is legally, financially and
otherwise qualified to be the licensee of, acquire, own and operate the Stations
under the Communications Act of 1934, as amended, and the rules, regulations and
policies of the FCC. Buyers know of no fact that would, under existing law and
the existing rules, regulations, policies and procedures of the FCC disqualify
Licensing as an assignee of the Stations' FCC Licenses or as the owner and
operator of the Stations. No waiver of any FCC rule or policy is necessary to be
obtained by Licensing for the grant of the Assignment Application.
(d) Noncontravention. The execution and the delivery of this Agreement and
the Ancillary Agreements, and the consummation of the transactions contemplated
hereby and thereby (including the assignments and assumptions referred to in
Section 1(e) above), do not (i) violate any statute, regulation, rule, judgment,
order, decree, stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which the Buyers are subject or any
provision of their articles of organization or other charter documents, or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice or third party consent under any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest, or
other arrangement to which the Buyers are a party or by which they are bound or
to which any of their assets is subject. Other than the Assignment Application
described in Section 4(b), the Buyers do not need to give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any court
or government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement or the Ancillary Agreements
(including the assignments and assumptions referred to in Section 1(e) above).
(e) Brokers' Fees. Other than the fee payable to George Silverman, which
shall be the exclusive liability of the Buyers, the Buyers have no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which the Seller
could become liable or obligated.
(f) Litigation. Except for FCC rulemaking proceedings generally affecting
the radio broadcasting industry and not particular to Buyers, there is no claim,
litigation, proceeding or investigation pending or, to the best
14
<PAGE>
of Buyers' Knowledge, threatened against Buyers, which would reasonably be
expected, in any material respect, to impair or hinder Buyers' ability to
perform their obligations pursuant to this Agreement, the Ancillary Agreements
and the documents contemplated thereby.
(g) Compliance With Laws. Buyers are in compliance with all federal, state
and local laws, rules, regulations and ordinances applicable to Buyers, except
for any noncompliance by Buyers that would not have a material adverse effect on
Buyers' ability to perform their obligations pursuant to this Agreement, the
Ancillary Agreements and the documents contemplated thereby.
(h) Availability of Funds. Buyers will have available on the Closing Date
sufficient funds to enable them to consummate the transactions contemplated
hereby.
4. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing:
(a) General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable to
consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 5 below).
(b) Assignment Applications. The Seller and the Buyers have jointly filed
with the FCC an application for assignment of the FCC Licenses, permits and
authorizations pertaining to the Stations from the Seller to Licensing (the
"Assignment Application"). The costs of the FCC filing fees in connection with
the Assignment Application shall be divided equally between the Parties. Each
party shall pay its own attorneys' fees. The Seller and the Buyers shall
thereafter prosecute the Assignment Application with all reasonable diligence
and otherwise use commercially reasonable efforts to obtain the grant of the
Assignment Application as expeditiously as practicable (but neither the Seller
nor the Buyers shall have any obligation to satisfy complainants or the FCC by
taking any steps which would have a material adverse effect upon the Stations or
upon any Affiliate or impose significant costs on such party). If the FCC
imposes any condition on either party to the Assignment Application, such party
shall use commercially reasonable efforts to comply with such condition,
provided, that neither party shall be required hereunder to comply with any
condition that would have a material adverse effect upon the Stations, the
party, or any Affiliate. The Seller and the Buyers shall jointly oppose any
requests for reconsideration or judicial review of FCC approval of the
Assignment Application and shall jointly request from the FCC an extension of
the effective period of FCC approval of the Assignment Application if the
Closing shall not have occurred prior to the expiration of the original
effective period of the FCC Consent. Nothing in this Section 4(b) shall be
construed to limit either party's right to terminate this Agreement pursuant to
Section 9 of this Agreement. Notwithstanding the foregoing, the parties shall
not file Exhibit 1(c)-1 to this Agreement unless requested by the FCC, and if so
requested shall not file Exhibit 1(c)-1 prior to January 31, 1998.
(c) Employment Offers. Upon notice to the Seller, and at mutually
agreeable times, the Seller will permit the Buyers to meet with its employees
prior to the Closing Date. Not earlier than one (1) week prior to the Closing,
the Buyers may, at their option, extend offers of employment to all or any of
the Seller's employees effective on the Closing Date. From and after the
execution of this Agreement, the Seller will not take any action to preclude or
discourage any of the Seller's employees from accepting any offer of employment
extended by the Buyers.
15
<PAGE>
(d) Notices and Consents. The Seller will give all notices to third
parties and shall use commercially reasonable efforts to obtain all third party
consents, that the Buyers reasonably may request in connection with the matters
pertaining to the Seller disclosed or required to be disclosed in the Disclosure
Schedule (including, without limitation, consents to assignment of the Leases
and other Assumed Contracts). Each of the Parties will take any additional
action that may be necessary, proper, or advisable in connection with any other
notices to, filings with, and authorizations, consents, and approvals of
governments, governmental agencies, and third parties that it may be required to
give, make, or obtain.
(e) Operation of Business. Except as set forth in section 4(e) of the
Disclosure Schedule, the Seller will not engage in any practice, take any
action, embark on any course of inaction, or enter into any transaction outside
the Ordinary Course of Business. Without limiting the generality of the
foregoing, except as set forth in section 4(e) of the Disclosure Schedule the
Seller will not engage in any practice, take any action, embark on any course of
inaction, or enter into any transaction of the sort described in Section 2(f)
above.
(f) Advertising Obligations. The Seller shall satisfy its air time
obligations under its agreements for sale of air time and advertising on the
Stations for goods or services ("Barter Agreements") such that the outstanding
aggregate balance owing under all Barter Agreements as of the Closing Date shall
not exceed Five Thousand Dollars ($5,000.00) worth of air time without the
Buyers' consent. On the Closing Date, the Seller shall deliver to the Buyers a
schedule, certified by an officer of the Seller, reflecting the aggregate
outstanding balances under all Barter Agreements in existence as of the Closing
Date.
(g) Operating Statements. The Seller shall deliver to the Buyers, for the
Buyers' informational purposes only, monthly unaudited statements of operating
revenues and operating expenses of the Stations within ten (10) days after each
such statement is prepared by or for the Seller.
(h) Contracts. The Seller will not without the prior written consent of
the Buyers amend, change, or modify any of the contracts listed on Section 2(k)
of the Disclosure Schedule in any material respect. The Seller will not without
prior written consent of the Buyers enter into any new contracts respecting the
Stations or their properties, except (i) contracts for the sale of time on the
Stations for cash, goods or services which are entered into in the Ordinary
Course of Business and comply with Sections 4(f) and 4(j) hereof, (ii) contracts
entered into in the Ordinary Course of Business which are cancelable on not more
than thirty-one (31) days' notice without penalty or premium, and (iii)
contracts entered into in the Ordinary Course of Business each of which does not
involve more than Ten Thousand Dollars ($10,000) or all of which do not involve
more than Twenty Thousand Dollars ($20,000) in the aggregate.
(i) Operation of Stations. The Seller shall operate the Stations in
material compliance with the FCC Licenses and the rules and regulations of the
FCC, and the FCC Licenses shall at all times remain in full force and effect.
The Seller shall file with the FCC all material reports, applications,
documents, instruments and other information required to be filed in connection
with the operation of the Stations.
(j) Credit and Receivables. The Seller will follow its usual and customary
policies with respect to extending credit for sales of air time and advertising
on the Stations and with respect to collecting accounts receivable arising from
such extension of credit.
(k) Preservation of Business. The Seller will use its best efforts to keep
its business and properties substantially intact, including its present
operations, physical facilities, working conditions, relationships
16
<PAGE>
with lessors, licensors, advertisers, suppliers, customers, and employees, all
of the Confidential Information, call letters and trade secrets of the Stations,
and the FCC Licenses.
(l) Full Access and Consultation. The Seller will permit representatives
of the Buyers to have full access upon reasonable notice during business hours,
and in a manner so as not to interfere with the normal business operations of
the Stations, to all premises, properties, books, records, contracts, Tax
records, and documents of or pertaining to the Stations for the purpose of
permitting the Buyer to, among other things: (a) review financial statements of
the Stations, (b) verify the accuracy of representations and warranties of the
Seller contained in this Agreement, and (c) prepare for the consummation of the
transactions contemplated by this Agreement. The Seller will consult with the
Buyers' management with a view to informing Buyer's management as to the
operations, management and business of the Stations.
(m) Notice of Developments. The Seller will give prompt written notice to
the Buyers of any material development affecting the assets, Liabilities,
business, financial condition, operations, results of operations, or future
prospects of the Stations. Each Party will give prompt written notice to the
other of any material development affecting the ability of the Parties to
consummate the transactions contemplated by this Agreement. No disclosure by any
Party pursuant to this Section 4(m), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
(n) Exclusivity. The Seller will not (i) solicit, initiate, or encourage
the submission of any proposal or offer from any person relating to any (A)
liquidation, dissolution, or recapitalization of the Seller, (B) merger or
consolidation of the Seller, (C) acquisition or purchase of securities or all or
substantially all of the Seller assets, or (D) similar transaction or business
combination involving a transfer of control of the Seller or the Stations; or
(ii) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person to do or seek any of the
foregoing.
(o) Title Insurance, Surveys and Environmental Assessments. The Seller
will obtain (i) with respect to each parcel of Real Estate subject to the
Leases, a leasehold owner's policy issued by a title insurer reasonably
satisfactory to the Buyer, in an amount equal to the fair market value of such
Real Estate (including all improvements located thereon), insuring over the
standard pre-printed exceptions, except mechanics liens, and insuring leasehold
title to such Real Estate in the Buyers as of the Closing subject only to the
Permitted Real Estate Encumbrances, (ii) with respect to each parcel of Owned
Real Estate, an owner's policy of title insurance by a title insurer reasonably
satisfactory to the Buyer, in an amount equal to the fair market value of such
Real Estate (including all improvements located thereon), insuring over the
standard pre-printed exceptions, except mechanics liens, and insuring title to
the Owned Real Estate to be vested in the Buyers as of the Closing free and
clear of all liens and encumbrances except Permitted Real Estate Encumbrances,
(iii) a current survey of each parcel of Real Estate certified to the Buyer and
its lender, prepared by a licensed surveyor and conforming to current ALTA
Minimum Detail Requirements for Land Title Surveys, disclosing the location of
all improvements, easements, party walls, sidewalks, roadways, utility lines,
and other matters shown customarily on such surveys, and showing access
affirmatively to public streets and roads (the "Surveys") which shall not
disclose any survey defect or encroachment from or onto any of the Real Estate
which has not been cured or insured over prior to the Closing; and (iv) with
respect to each parcel of Real Estate, a current Phase I environmental site
assessment from an environmental consultant or engineer reasonably satisfactory
to the Buyers which does not indicate
17
<PAGE>
that the Seller and the Real Estate are not in compliance with any Environmental
Law and which shall not disclose or recommend any action with respect to any
condition to be remediated or investigated or any contamination on the site
assessed. The Buyers and the Seller will each pay one-half (1/2) of the costs of
these title policies (including costs for title searches, title premiums,
abstracting and title examinations), Surveys and environmental assessments.
(p) Control of Stations. The transactions contemplated by this Agreement
shall not be consummated until after the FCC has given its consent and approval
to the Assignment Application. Between the date of this Agreement and the
Closing Date, the Buyers and their employees or agents shall not directly or
indirectly control, supervise, or direct, or attempt to control, supervise, or
direct, the operation of the Stations, and such operation shall be the sole
responsibility of and in the control of the Seller.
(q) Risk of Loss. The risk of loss, damage, or destruction to any of the
Acquired Assets shall remain with the Seller until the Closing. In the event of
any such loss, damage, or destruction the Seller will promptly notify the Buyer
of all particulars thereof, stating the cause thereof (if known) and the extent
to which the cost of restoration, replacement and repair of the Acquired Assets
lost, damaged or destroyed will be reimbursed under any insurance policy with
respect thereto. The Seller will, at Seller's expense, repair or replace such
Acquired Assets to their former condition as soon as possible after loss, damage
or destruction thereof and shall use commercially reasonable efforts to restore
as promptly as possible transmissions as authorized in the FCC Licenses. The
Closing Date shall be extended (with FCC consent, if necessary) for up to sixty
(60) days to permit such repair or replacement. If repair or replacement cannot
be accomplished within sixty (60) days of the date of the Seller's notice to the
Buyers, and the Buyers determine that the Seller's failure to repair or replace,
alone or in the aggregate with any other then existing factors, would have a
material adverse effect on the operation of the Stations:
(a) the Buyers may elect to terminate this Agreement; or
(b) the Buyers may postpone the Closing Date until such time as the
property has been repaired, replaced or restored in a manner and to an
extent reasonably satisfactory to the Buyers, unless the same cannot be
reasonably effected within sixty (60) days of the date of the Seller's
notice to the Buyers, in which case either party may terminate this
Agreement; or
(c) the Buyers may choose to accept the Acquired Asset in their then
existing condition, together with the Seller's assignment to the Buyers of
all rights under any insurance claims covering the loss, damage or
destruction and payment over to the Buyers of any proceeds under any such
insurance policies, previously received by the Seller with respect thereto
plus an amount equal to the amount of any deductible or self-insurance
maintained by Seller on such Acquired Assets.
In the event the Closing Date is postponed pursuant to this Section 4(q),
the parties hereto will cooperate to extend the time during which this Agreement
must be closed as specified in the consent of the FCC.
(r) Waiver of Final Order Condition. Immediately following the grant of
the FCC's consent to the Assignment Applications, and if no petitions to deny or
other objections have been filed with respect to the Assignment Applications,
the Buyer shall use commercially reasonable efforts to obtain the agreement of
Buyer's lender to the funding of the Purchase Price prior to the time at which
such FCC consent has become a Final Order. If Buyer's lender so agrees, the
Buyer agrees to waive the condition set forth in
18
<PAGE>
Section 5(a)(vi) to the extent it requires that the FCC consent to the
Assignment Applications be a Final Order, and the parties agree to consummate
the Closing as soon as practicable thereafter.
5. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyers. The obligation of the Buyers
to consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 2 above shall
be true and correct in all material respects (without giving effect to any
materiality qualifiers contained in such representations and warranties) at and
as of the Closing Date as though made on and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of its
covenants hereunder in all material respects (without giving effect to any
materiality qualifiers contained in such covenants) through the Closing;
(iii) the Seller shall have procured all of the third party consents
specified in Section 4(d) above, including but not limited to those relating to
transmitter and studio leases, and all of the title insurance commitments (and
endorsements), Surveys and environmental site assessments described in Section
4(o) above;
(iv) no action, suit, investigation, inquiry or other proceeding shall be
pending or, to Seller's Knowledge, threatened before any court or quasi-judicial
or administrative agency of any federal, state, local, or foreign jurisdiction
wherein an unfavorable judgment, order, decree, stipulation, injunction, or
charge would (A) prevent consummation of any of the transactions contemplated by
this Agreement or impose damages or penalties upon Buyers if such transactions
are consummated, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, or (C) affect adversely the
right of the Buyer to own, operate, or control the Acquired Assets (and no such
judgment, order, decree, stipulation, injunction, or charge shall be in effect);
(v) the Seller shall have delivered to the Buyer a certificate (without
qualification as to knowledge or materiality or otherwise) to the effect that
each of the conditions specified above in Sections 5(a)(i) through (iv) is
satisfied in all respects;
(vi) each of the Assignment Applications shall have been approved by a
Final Order of the FCC, subject to the provisions of Section 4(r), and the Buyer
shall have received all governmental approvals required to transfer all other
authorizations, consents, and approvals of governments and governmental agencies
set forth in the Disclosure Schedule;
(vii) the relevant parties shall have entered into the Postclosing
Agreement;
(viii) the Buyers shall have received from counsel to the Seller an
opinion with respect to the matters set forth in Exhibit 5(a)(viii) attached
hereto, addressed to the Buyers and its lender and dated as of the Closing Date;
(ix) the Buyers shall, by November 17, 1997, be satisfied as to the
results of their examination and due diligence review referred to in Section
4(l) hereof. If, on or prior to November 17, 1997, Buyers do not
19
<PAGE>
deliver to Seller a written notice terminating this Agreement in regard to the
contingency described in this Section 5(a) (ix), then the contingency set forth
in this Section 5(a) (ix) shall be deemed waived by Buyers; (x) the Acquired
Assets shall be free and clear of all Security Interests;
(xi) three-phase electrical power from Bangor Hydro shall be available at
the WBZN(FM) transmitter site at Alton, Maine; provided, however, that if the
Seller is unable to cause such power to be available at such site by the date
which would otherwise be the Closing Date, the Parties shall proceed to
consummate the Closing following agreement on appropriate procedures which shall
result in completion of such project as soon as practicable after Closing at the
sole cost and expense of Seller;
(xii) Seller shall have completed, to Buyers' reasonable satisfaction, the
remedial actions described in Seller's letter of November 24, 1997 to Buyers
responding to Buyers' due diligence investigation; and
(xiii) all actions to be taken by the Seller in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyer.
In the event that any of the foregoing conditions to Closing, other than
the need for FCC approval, shall not have been satisfied, the Buyers may elect
to (i) terminate this Agreement, or (ii) consummate the transactions
contemplated herein despite such failure. Regardless of whether the Buyers elect
to terminate this Agreement or consummate the transactions described herein, if
such failure shall be as a result of a breach of any provision of this Agreement
by the Seller (including, without limitation, any breach arising as a result of
the failure of the Seller to execute and/or deliver any item described in this
Section 5(a)), the Buyers may seek appropriate remedies for any and all damages,
costs and expenses incurred by the Buyers by reason of such breach including,
without limitation, indemnification pursuant to Section 7, below.
(b) Conditions to Obligation of the Seller. The obligation of the Seller
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3 above shall
be true and correct in all material respects (without giving effect to any
materiality qualifiers contained in such representations and warranties) at and
as of the Closing Date as though made on and as of the Closing Date;
(ii) the Buyers shall have performed and complied with all of their
covenants hereunder in all material respects (without giving effect to any
materiality qualifiers contained in such covenants) through the Closing;
(iii) no action, suit, investigation, inquiry or other proceeding shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or impose damages or penalties upon Seller if such transactions are
consummated, or (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation (and no such judgment, order, decree,
stipulation, injunction, or charge shall be in effect);
20
<PAGE>
(iv) the Buyers shall have delivered to the Seller a certificate (without
qualification as to knowledge or materiality or otherwise) to the effect that
each of the conditions specified above in Section 5(b)(i)-(iii) is satisfied in
all respects;
(v) the relevant parties shall have entered into the Postclosing
Agreement;
(vi) the Seller shall have received from FCC counsel to the Buyers an
opinion with respect to the matters set forth on Exhibit 5(b)(vi) attached
hereto, addressed to the Seller and dated as of the Closing Date;
(vii) the Seller shall have received from the Buyers certificates from the
appropriate public officials in the States of Nevada and Maine as to the good
standing of the Buyers in each of such states.
(viii) all actions to be taken by the Buyers in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller.
In the event that any of the foregoing conditions to Closing, other than
the need for FCC approval, shall not have been satisfied, the Seller may elect
to (i) terminate this Agreement, or (ii) consummate the transactions
contemplated herein despite such failure. Regardless of whether the Seller
elects to terminate this Agreement or consummate the transactions described
herein, if such failure shall be as a result of a breach of any provision of
this Agreement by the Buyers (including, without limitation, any breach arising
as a result of the failure of the Buyers to execute and/or deliver any item
described in this Section 5(a)), the Seller may seek appropriate remedies for
any and all damages, costs and expenses incurred by the Seller by reason of such
breach including, without limitation, liquidated damages pursuant to Section
9(d) of this Agreement or indemnification pursuant to Section 7, below.
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 7 below).
(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Stations, each of the other Parties will reasonably cooperate with
the contesting or defending Party and its counsel in the contest or defense,
make available its personnel, and provide such testimony and access to its books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 7 below); provided, however, that such access and cooperation does not
unreasonably disrupt the normal operations of the cooperating party.
21
<PAGE>
(c) Adjustments. Operation of the Stations and the income and expenses
attributable thereto up through the close of business on the day before the
Closing Date shall be for the account of the Seller and thereafter for the
account of the Buyers. Such items as employee salaries, vacation, sick day and
personal time accruals, and fringe benefits, power and utilities charges,
insurance, real and personal property taxes, prepaid expenses, deposits, music
license fees, and rents and payments pertaining to the Assumed Contracts
(including any contracts for the sale of time for cash, trade or barter so
assigned) shall be prorated between the Seller and the Buyers as of the Closing
Date in accordance with the foregoing principle. In addition, all commissions
payable with respect to the accounts receivable of the Seller (whether due
before or after Closing) shall be solely for the account and responsibility of
the Seller. Contractual arrangements that do not reflect an equal rate of
compensation to a Station over the term of the agreement shall be equitably
adjusted as of the Closing Date. The prorations and adjustments hereunder shall
be made and paid insofar as feasible on the Closing Date, with a final
settlement sixty (60) days after the Closing Date. In the event of any disputes
between the Parties as to such adjustments, the amounts not in dispute shall
nonetheless be paid at such time and such disputes shall be determined by an
independent accounting firm mutually acceptable to both parties and the fees and
expenses of such accounting firm shall be paid one-half (1/2) by the Seller and
one-half (1/2) by the Buyer.
(d) Collection of Accounts Receivable. At the Closing, the Seller will
turn over to the Buyers, for collection only, the accounts receivable of the
Stations owing to the Seller as of the close of business on the Closing Date. A
schedule of such accounts receivable will be delivered by the Seller to the
Buyers on the Closing Date or as soon thereafter as possible. The Buyers agree
to use commercially reasonable efforts in the ordinary course of business (but
without responsibility to institute legal or collection proceedings) to collect
such accounts receivable during the 120-day period following the Closing Date,
and will remit all payments received on such accounts during each calendar month
during this 120-day period on the tenth day of the next calendar month following
receipt of the payment together with an accounting of all payments received
within such month. The Buyers shall have the sole right to collect such accounts
receivable during such one hundred twenty (120) day period. In the event the
Buyers receive monies during the 120-day period following the Closing Date from
an advertiser who, after the Closing Date, is advertising over any of the
Stations, and that advertiser was included among the accounts receivable as of
the Closing Date, the Buyer shall apply said monies to the oldest outstanding
balance due on the particular account, except in the case of a "disputed"
account receivable. For purposes of this Section 6(d), a "disputed" account
receivable means one that the account debtor refuses in writing to pay because
he asserts that the money is not owed or the amount is incorrect. In the case of
such a disputed account, the Buyers shall immediately return the account to the
Seller prior to expiration of the 120-day period following the Closing Date
together with any written refusals to pay from the account debtor. If the Buyers
return a disputed account to the Seller, the Buyers shall have no further
responsibility for its collection and may accept payment from the account debtor
for advertising carried on any of the Stations after the Closing Date. At the
end of the 120-day period following the Closing Date, the Buyers will turn back
to the Seller all of the accounts receivable of the Stations as of the Closing
Date owing to the Seller which have not yet been collected, and the Buyers will
thereafter have no further responsibility with respect to the collection of such
receivables. During the 120-day period following the Closing Date, the Buyers
shall afford the Seller reasonable access to the accounts receivable "aging
list." The Seller acknowledges and agrees that the Buyers are acting as its
collection agent hereunder for the sole benefit of the Seller and that Buyers
have accepted such responsibility for the accommodation of the Seller. The Buyer
shall not have any duty to inquire as to the form, manner of execution or
validity of any item, document, instrument or notice deposited, received or
delivered in connection with such collection efforts,
22
<PAGE>
nor shall the Buyers have any duty to inquire as to the identity, authority or
rights of the persons who executed the same. The Seller shall indemnify Buyers
and hold them harmless from and against any judgments, expenses (including
attorney's fees) costs or liabilities which the Buyers may incur or sustain as a
result of or by reason of such collection efforts.
(e) Consents. In the event any of the Assumed Contracts are not assignable
or any consent to such assignment is not obtained on or prior to the Closing
Date, and the Buyers elect to consummate the transactions contemplated herein
despite such failure or inability to obtain such consent, the Seller shall
continue to use commercially reasonable efforts to obtain any such assignment or
consent after the Closing Date. Until the later of such time as such assignment
or approval has been obtained or sixty (60) days following the Closing Date, the
Seller will cooperate with Buyers in any lawful and economically feasible
arrangement to provide that the Buyer shall receive the Seller's interest in the
benefits under any such Assumed Contract, including performance by the Seller as
agent, if economically feasible; provided, however, that the Buyers shall
undertake to pay or satisfy the corresponding liabilities for the enjoyment of
such benefit to the extent that Buyers would have been responsible therefor if
such consent or assignment had been obtained.
7. Survival of Representations and Warranties; Indemnification.
(a) Survival. All of the representations and warranties of the Seller
contained in Section 2 of this Agreement (other than the representations and
warranties of the Seller contained in Sections 2(a), 2(b), and 2(d) hereof or
relating to the Seller's organization, authorization, and title to the Acquired
Assets), and the representations of Buyers contained in Section 3 of this
Agreement (other than the representations of Buyer contained in Sections 3(a)
and 3(b) hereof), shall survive the Closing and continue in full force and
effect for a period of three (3) years following Closing. All of the
representations and warranties of the Seller contained in Sections 2(a), 2(b),
and 2(d) hereof or relating to the Seller's title to the Acquired Assets, all
representation and warranties of the Buyers contained in Sections 3(a) and 3(b)
hereof, and all covenants of the Buyers and the Seller contained in this
Agreement shall survive the Closing and continue in full force and effect
forever thereafter.
(b) Indemnification Provisions for the Benefit of the Buyers.
After the Closing Date, the Seller agrees to indemnify the Buyers from and
against the entirety of any Adverse Consequences the Buyers may suffer resulting
from, arising out of, relating to, in the nature of, or caused by:
(i) any misrepresentation or breach of any of the Seller's representations
or warranties, and covenants (without regard to any materiality qualifier
contained therein) contained in this Agreement or in any Ancillary Agreement
executed and/or delivered by the Seller;
(ii) any breach or nonfulfillment of any agreement or covenant (without
regard to any materiality qualifier contained therein) of the Seller contained
herein or in any Ancillary Agreement;
(iii) any Retained Liability.
23
<PAGE>
(c) Indemnification Provisions for the Benefit of the Seller. After the
Closing Date, the Buyers agree to indemnify the Seller from and against the
entirety of any Adverse Consequences the Seller may suffer resulting from,
arising out of, relating to, in the nature of, or caused by (i) any
misrepresentation or breach of any of the Buyers' representations or warranties
(without regard to any materiality qualifier contained therein) contained in
this Agreement or in any Ancillary Agreement executed and/or delivered by the
Buyers or (ii) any breach or nonfulfillment of any agreement or covenant
(without regard to any materiality qualifier contained therein) of the Buyers
contained herein or in any Ancillary Agreement, or (iii) any Assumed Liability.
(d) Matters Involving Third Parties. If any third party shall notify any
Party (the "Indemnified Party") with respect to any matter which may give rise
to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 7, then the Indemnified Party shall notify the
Indemnifying Party thereof promptly; provided, however, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is damaged as a result
of such failure. In the event any Indemnifying Party notifies the Indemnified
Party within 15 days after the Indemnified Party has given notice of the matter
that the Indemnifying Party is assuming the defense thereof, (i) the
Indemnifying Party will defend the Indemnified Party against the matter with
counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
(except that the Indemnifying Party will be responsible for the fees and
expenses of the separate co-counsel to the extent the Indemnified Party
reasonably concludes that the counsel the Indemnifying Party has selected has a
conflict of interest), (iii) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect to the matter without
the written consent of the Indemnifying Party (not to be withheld unreasonably),
and (iv) the Indemnifying Party will not consent to the entry of any judgment
with respect to the matter, or enter into any settlement which does not include
a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all Liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld unreasonably). In the event
the Indemnifying Party does not notify the Indemnified Party within 15 days
after the Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, however, and/or in the event the
Indemnifying Party shall fail to defend such claim actively and in good faith,
then the Indemnified Party may defend against, or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate.
(e) Limitations on Indemnification. Notwithstanding the foregoing,
Seller's obligation to indemnify Buyers under Section 7(b)(i) or (ii), and
Buyers' obligation to indemnify Seller under Section 7(c)(i) or (ii), shall be
subject to the following limitations:
(i) No indemnification shall be required to be made by Buyers or
Seller as the Indemnifying Party, as the case may be, under Section 7(c) or 7(b)
until the aggregate amount of damages of Buyers or Seller as Indemnified Party
exceeds Thirty-Five Thousand Dollars ($35,000), in which case the Indemnifying
Party shall be liable for all such Liability.
(ii) The Indemnified Party shall be entitled to Indemnification only
for those Adverse Consequences arising with respect to any claim as to which
Indemnified Party has given the Indemnifying Party written notice within the
appropriate time period set forth in Section 7(a) hereof for such claim.
24
<PAGE>
(iii) All of Buyer's or Seller's recovery sought under Section 7(b)
or 7(c) hereof shall be net of any insurance proceeds received by Buyers or
Seller as Indemnified Parties, as the case may be, or which such party shall be
entitled to receive, with respect to the events giving rise to such Adverse
Consequences. Buyers and Seller agree that, subsequent to Closing, each party
shall look first to recover under its applicable insurance policies, if any,
prior to seeking indemnity as Indemnified Party from the other party hereto as
Indemnifying Party.
(iv) In no event shall Indemnifying Party's right to indemnify
exceed the amount of the Purchase Price of the transactions contemplated by this
Agreement.
(v) Following the consummation, the sole and exclusive remedy for
either party for any claim arising out of a breach of any representation,
warranty, covenant, or other agreement herein shall be a claim for
indemnification pursuant to this Section 7 except with respect to any claim for
injunctive relief regarding a breach by any party of its obligations under the
covenant not to compete set forth in the Post-Closing Agreement or except as
otherwise provided in the Post-Closing Agreement.
8. Definitions
"Acquired Assets" means all right, title, and interest in and to all of
the assets of the Seller, other than Retained Assets, that are used or useful in
the operation of the Stations, wherever located, including but not limited to
all of its (a) leaseholds and other interests of any kind therein, improvements,
fixtures, and fittings thereon (such as towers and antennae), and easements,
rights-of-way, and other appurtenances thereto); (b) tangible personal property
(such as fixed assets, computers, data processing equipment, electrical devices,
monitoring equipment, test equipment, switching, terminal and studio equipment,
transmitters, transformers, receivers, broadcast facilities, furniture,
furnishings, inventories of compact disks, records, tapes and other supplies,
vehicles, and all assignable warranties with respect thereto; (c) Intellectual
Property, goodwill associated therewith, licenses and sublicenses granted and
obtained with respect thereto, and rights thereunder, remedies against
infringements thereof, and rights to protection of interests therein under the
laws of all jurisdictions; (d) rights under orders and agreements (including
those Barter Agreements and Advertising Contracts identified on the Disclosure
Schedule) now existing or entered into in the Ordinary Course of Business for
the sale of advertising time on the Stations; (e) Assumed Contracts, indentures,
Security Interests, guaranties, other similar arrangements, and rights
thereunder; (f) call letters of the Stations, jingles, logos, slogans, and
business goodwill of the Stations; (g) Licenses and similar rights obtained from
governments and governmental agencies; and (h) FCC logs and records and all
other books, records, ledgers, logs, files, documents, correspondence,
advertiser lists, all other lists, plats, architectural plans, drawings, and
specifications, creative materials, advertising and promotional materials,
program production materials, studies, reports, and other printed or written
materials; and (i) goodwill of the Stations.
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including all attorneys' fees and court costs.
"Advertising Contracts" has the meaning set forth in Section 2(s), above.
25
<PAGE>
"Affiliate" means with reference to any person or entity, another person
or entity controlled by, under the control of or under common control with that
person or entity.
"Assignment Application" has the meaning set forth in Section 4(b) above.
"Assumed Contracts" means the Leases, the Barter Agreements, the
Advertising Contracts and those contracts specifically identified as Assumed
Contracts in Section 2(k) of the Disclosure Schedule.
"Assumed Liabilities" means obligations of the Seller which accrue after
the Closing Date under the Assumed Contract either: (i) to furnish services, and
other non-Cash benefits to another party after the Closing; or (ii) to pay for
goods, services, and other non-Cash benefits that another party will furnish to
it after the Closing. The Assumed Liabilities shall not include any Retained
Liabilities.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or would reasonably be expected to
form the basis for any specified consequence.
"Buyers" has the meaning set forth in the preface to this Agreement.
"Cash" means cash and cash equivalents determined in accordance with GAAP
applied on a basis consistent with the preparation of the Financial Statements.
"Closing" has the meaning set forth in Section 1(d) above.
"Closing Date" has the meaning set forth in Section 1(d) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of the Seller.
"Disclosure Schedule" has the meaning set forth in Section 2 above.
"Earnest Money Deposit" has the meaning set forth in Section 1(c) above.
"Earnest Money Escrow Agreement" has the meaning set forth in Section 1(c)
above.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
26
<PAGE>
"Environmental Laws" has the meaning set forth in Section 2(q), above.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means the George Mason Bank.
"Extremely Hazardous Substance" has the meaning set forth in Section 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FCC" means the Federal Communications Commission of the United States.
"FCC Licenses" means the licenses, permits and other authorizations,
including any temporary waiver or special temporary authorization, issued by the
FCC to the Seller in connection with the conduct of the business and operation
of the Stations.
"Final Order" means an action by the FCC as to which: (a) no request for
stay by the FCC is pending, no such stay is in effect, and any deadline for
filing a request for any such stay has passed; (b) no appeal, petition for
rehearing or reconsideration, or application for review is pending before the
FCC and the deadline for filing any such appeal, petition or application has
passed; (c) the FCC has not initiated reconsideration or review on its own
motion and the time in which such reconsideration or review is permitted has
passed; and (d) no appeal to a court, or request for stay by a court, of the
FCC's action is pending or in effect, and the deadline for filing any such
appeal or request has passed.
"Financial Statements" has the meaning set forth in Section 2(e) above.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Indemnified Party" has the meaning set forth in Section 7(d) above.
"Indemnifying Party" has the meaning set forth in Section 7(d) above.
"Intellectual Property" means all (a) trademarks, service marks, trade
dress, call letters, logos, trade names, and corporate names and registrations
and applications for registration thereof, (b) all programs, programming
materials, copyrights and registrations and applications for registration
thereof, (c) computer software, data, and documentation, (d) trade secrets and
confidential business information (including ideas, and compositions) know-how,
market and other research information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing, and
business data, pricing and cost information, business and marketing plans, and
customer and supplier lists and information), (e) other proprietary rights, and
(f) copies and tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Leases" means those real estate leases to which Seller is a party
governing Seller's studios and FM tower sites in Brewer, Old Town, Garland and
Alton, Maine, as described in Section 2(i) of the Disclosure Schedule.
27
<PAGE>
"Liability" means any liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), including any liability for Taxes.
"Licenses" means all FCC and other governmental licenses, franchises,
approvals, certificates, authorizations and rights of the Seller with respect to
the operations of the Stations and all applications therefor, together with any
renewals, extension or modifications thereof and additions thereto.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Owned Real Estate" means the real property owned by the Seller in
Garland, Maine as described in Section 2(i) of the Disclosure Schedule and all
buildings, fixtures, and improvements located thereon.
"Party" has the meaning set forth in the preface to this Agreement.
"Permitted Real Estate Encumbrances" shall have the meaning set forth in
Section 2(i), above.
"Post-Closing Agreement" means the Post-Closing Agreement with Seller's
owners in the form attached hereto as Exhibit 1(f). "Prohibited Transaction" has
the meaning set forth in ERISA Section 406 and Code Section 4975.
"Purchase Price" has the meaning set forth in Section 1(c) above.
"Real Estate" means the Owned Real Estate and the real estate, building,
fixtures and improvements which are the subject of the Leases.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Retained Assets" means (i) the certificate of limited partnership,
taxpayer and other identification numbers, seals, minute books, and other
documents relating to the organization, maintenance, and existence of the
Seller; (ii) any of the rights of the Seller under this Agreement (or under any
side agreement between the Seller on the one hand and the Buyers on the other
hand entered into on or after the date of this Agreement); (iii) accounts, notes
and other receivables of the Seller; (iv) claims, deposits, prepayments,
refunds, causes of action, chooses in action, rights of recovery (including
rights under policies of insurance), rights of set off, and rights of
recoupment; (v) Cash, and (vi) Seller's partnership name.
"Retained Liabilities" means any obligations or Liabilities of the Seller
other than the Assumed Liabilities, including but not limited to: (i) any
Liability relating to the ownership or operation of the Stations prior to the
Closing; (ii) subject to Buyers' obligations under Sections 4(o) and 10(l) to
pay one-half (1/2) of the costs of title policies, Surveys, environmental
assessments, and transfer or sales taxes and other recording or similar fees,
any Liability of the Seller for income, transfer, sales, use, and other Taxes of
the transactions arising in connection with the consummation contemplated
hereby; (iii) any Liability of the Seller for costs and expenses incurred in
connection with this Agreement or the consummation of the
28
<PAGE>
transactions contemplated hereby (except as set forth in Section 4(o) relating
to Surveys, title commitments and environmental audits, Section 4(b) with regard
to the Assignment Application, and Section 10(l) relating to transfer or sales
taxes and other recording or similar fees), or (iv) any Liability or obligation
of the Seller under this Agreement (or under any side agreement between the
Seller on the one hand and the Buyers on the other hand entered into on or after
the date of this Agreement).
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due
and payable; and (b) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation.
"Seller" has the meaning set forth in the preface to this Agreement.
"Stations" means the radio broadcast stations having the call letters
WQCB(FM) and WBZN(FM), licensed by the FCC to operate in Brewer, Maine, and Old
Town, Maine, respectively.
"Surveys" has the meaning set forth in Section 4(o) above.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
9. Termination
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyers and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyers may terminate this Agreement by giving written notice to
the Seller at any time prior to the Closing in the event the Seller is in
material breach of any representation, warranty, or covenant contained in this
Agreement; provided, however, that Seller shall have twenty (20) days following
such notice to cure the breach, after which time if such breach remains uncured,
Buyers may terminate this Agreement;
(iii) the Seller may terminate this Agreement by giving written notice to
the Buyers at any time prior to the Closing in the event the Buyers are in
material breach of any representation, warranty, or covenant contained in this
Agreement; provided, that Buyer shall have twenty (20) days following such
notice to cure the breach, after which time if such breach remains uncured,
Seller may terminate this Agreement;
(iv) the Buyers may terminate this Agreement by giving written notice to
the Seller at any time prior to the Closing if the Closing shall not have
occurred on or before the 360th day following the date of this
29
<PAGE>
Agreement by reason of the failure of any condition precedent under Section 5(a)
hereof (unless the failure results primarily from the Buyers themselves
breaching any representation, warranty, or covenant contained in this
Agreement);
(v) the Seller may terminate this Agreement by giving written notice to
the Buyers at any time prior to the Closing if the Closing shall not have
occurred on or before the 360th day following the date of this Agreement by
reason of the failure of any condition precedent under Section 5(b) hereof
(unless the failure results primarily from the Seller itself breaching any
representation, warranty, or covenant contained in this Agreement); or
(vi) the Buyers or the Seller may terminate this Agreement if any
Assignment Application is denied by Final Order.
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 9(a) above, all obligations of the Parties hereunder shall terminate
without any Liability of any Party to any other Party (except for any Liability
of any Party then in breach).
(c) Specific Performance. Seller acknowledges and agrees that the Buyers
would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the Parties agrees that the Buyers shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States or
any state thereof having jurisdiction over the Parties and the matter (subject
to the provisions set forth in Section 10(o) below), in addition to any other
remedy to which it may be entitled, at law or in equity.
(d) Liquidated Damages. The Buyer and the Seller acknowledge that in the
event that the transactions contemplated by this Agreement are not closed
because of a default by Buyers, the Adverse Consequences to Seller as a result
of such default may be difficult, if not impossible, to ascertain. Accordingly,
in lieu of indemnification pursuant to Section 7(c), Seller shall be entitled to
receive, as liquidated damages, the Earnest Money Deposit plus Three Hundred
Twenty Thousand Dollars in the event of a termination of this Agreement pursuant
to Section 9(a)(iii), without the need for proof of damages, subject only to
successfully proving in a court of competent jurisdiction that the other Party
has materially breached this Agreement and that the transactions contemplated
hereby have not occurred as a result thereof. The Buyers and the Seller agree
that the Earnest Money Deposit plus Three Hundred Twenty Thousand Dollars, as
liquidated damages, will be released and paid to Seller within ten (10) days of
the date that the Seller obtains such a judgment.
10. Miscellaneous
(a) Survival. The representations, warranties, and covenants of the
Parties contained in this Agreement shall survive the Closing hereunder as and
to the extent provided in Section 7(a) hereof and the Post-Closing Agreement
with respect to Seller's owners.
(b) Press Releases and Announcements. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement prior
to the Closing without the prior written approval of the other
30
<PAGE>
Party; provided, however, that any Party may make any public disclosure it
believes in good faith is required by law or regulation (in which case the
disclosing Party will advise the other Party prior to making the disclosure).
(c) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, that may have related in any way to the subject matter hereof,
provided, however, that the Parties' obligations under Section 6 of the letter
agreement dated October 3, 1997 between Seller and Buyers shall survive
execution of this Agreement.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party, provided that (i) the Buyers may assign all of its right,
title and interest in, to and under this Agreement to one or more Affiliates,
who shall then, subject to the terms and conditions of this Agreement, have the
right to receive the Acquired Assets, assume the Assumed Liabilities, and to pay
to the Seller the Purchase Price therefor, and (ii) Buyers may assign their
indemnification claims and their rights under the warranties and representations
of the Sellers to the financial institution(s) providing financing to the Buyers
in connection with this transaction); provided further, however, an assignment
by Buyers pursuant to Section 10(e)(i) shall not be permitted if it would result
in a major amendment to, or otherwise delay processing of, the Assignment
Application.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing and shall be considered to be given
and received in all respects when hand delivered, when delivered via prepaid
express or courier delivery service, when sent by facsimile transmission
actually received by the receiving equipment or three (3) days after deposited
in the United States mail, certified mail, postage prepaid, return receipt
requested, in each case addressed to the intended recipient as set forth below:
If to the Seller:
Castle Broadcasting Limited Partnership
200 Danforth Street
Portland, ME 04102
Attn: Rudolph F. Haffenreffer; IV
Fax: (207) 773-9727
31
<PAGE>
Copy to:
Dow Lohnes & Alberton
1200 New Hampshire Ave., N.W.
Washington, DC 20036
Attn: M. Anne Swanson, Esq.
Fax: (202) 776-2222
Rudman & Winchell, LLC
84 Harlow Street
P.O. Box 1401
Bangor, Maine 04402-1401
Attn: George F. Eaton, II, Esq.
Fax: (207) 941-9715
(which copies shall not constitute notice to Seller)
32
<PAGE>
If to the Buyers:
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
c/o QUAESTUS Management Corp.
330 E. Kilbourn Avenue, Suite 250
Milwaukee, WI 53202
Attn: Terrence J. Leahy
Fax: (414) 283-4505
With a copy to:
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
875 N. Michigan Avenue
Suite 3650
Chicago, Illinois 60611
Attn: Richard J. Bonick
Fax: (312) 867-0098
and
Paul, Hastings, Janofsky & Walker LLP
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attn: J. Griffith Johnson, Jr., Esq.
Fax: (202) 508-9700
(which copy shall not constitute notice to Buyer)
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim or other communication shall
be deemed to have been duly given unless and until it actually is received by
the party for whom it is intended. Any party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
Maine.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyers and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent
33
<PAGE>
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
(l) Expenses. The Buyers and the Seller, will each bear their own costs
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby, other than as set forth
in Section 4(b) with regard to the Assignment Applications and as set forth in
Section 4(o) with respect to Surveys, title commitments and environmental
audits. The Seller will pay all income taxes related to pre-Closing income of
the Stations. The Seller and the Buyers will each pay one-half (1/2) of any
transfer or sales taxes and other recording or similar fees necessary to vest
title to each of the Acquired Assets in the Buyers.
(m) Construction. The language used in this Agreement will be deemed to be
the language chosen by the Parties to express their mutual intent, and no rule
of strict construction shall be applied against any Party. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise. Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless the
Disclosure Schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail. The Parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in the State of Maine in any
action or proceeding arising out of or relating to this Agreement, agrees that
all claims in respect of the action or proceeding may be heard and determined in
any such court, and agrees not to bring any action or proceeding arising out of
or relating to this Agreement in any other court. Each of the
34
<PAGE>
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other Party with respect thereto. Any Party may
make service on the other Party by sending or delivering a copy of the process
to the Party to be served at the address and in the manner provided for the
giving of notices in Section 10(h) above. Nothing in this Section 10(o),
however, shall affect the right of any Party to serve legal process in any other
manner permitted by law. Each Party agrees that a final judgment in any action
or proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
CUMULUS BROADCASTING, INC.
By:
(printed)
- ------------------------------------
Title:
CUMULUS LICENSING CORPORATION
By:
(printed)
- ------------------------------------
Title:
CASTLE BROADCASTING LIMITED PARTNERSHIP
By:
(printed)
- ------------------------------------
Title:
35
<PAGE>
EXHIBIT 1(c)-1
The Purchase Price shall be Six Million Four Hundred Thousand Dollars
($6,400,000.00).
The Earnest Money Deposit shall be Three Hundred Twenty Thousand Dollars
($320,000.00).
36
<PAGE>
Exhibit 10.74
ASSET PURCHASE AGREEMENT
This Agreement ("Agreement") are entered into as of March 5, 1998, by and
between Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting"),
Cumulus Licensing Corporation, a Nevada corporation ("Licensing), Missouri River
Broadcasting, Inc. ("Missouri River"), a North Dakota corporation, and JKJ
Broadcasting, Inc. ("JKJ") a North Dakota corporation. Broadcasting and
Licensing are referred to collectively herein as the "Buyers;" Missouri River
and JKJ are referred to collectively herein as the "Seller." The Buyers and the
Sellers are referred to individually as the "Party" or collectively as the
"Parties." Capitalized terms used in this Agreement are defined in Section 9
hereof.
Subject to the terms and conditions of this Agreement, the Buyers hereby
agree to purchase substantially all of the assets (and assume certain of the
liabilities) of the Sellers that are used or useful in the operation of the
Stations, as defined below, in return for cash.
Now, therefore, in consideration of the above premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Basic Transaction.
a. Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, the Sellers agree to sell, transfer, convey and
deliver to (i) Licensing, and Licensing agrees to purchase from the Sellers, all
of the FCC Licenses listed in Section 2(k) of the disclosure schedule
("Disclosure Schedule"); and (ii) Broadcasting, and Broadcasting agrees to
purchase from the Sellers, all of the Acquired Assets other than the FCC
Licenses. Both such sales shall take place at the Closing for the consideration
specified below in this Section 1.
b. Assumption of Liabilities. On and subject to the terms and
conditions of this Agreement, Broadcasting agrees to assume and become
responsible for all of the Assumed Liabilities at the Closing. The Buyers will
not assume or has any responsibility, however, with respect to any other
obligation or Liability of the Sellers not included within the definition of
Assumed Liabilities and assumed by Broadcasting, and the Sellers agree to pay
and discharge all Liabilities and obligations of the Sellers other than the
Assumed Liabilities.
c. Purchase Price. The Buyers agree to pay to the Sellers, as
consideration for the Acquired Assets, the purchase price (the "Purchase Price")
described in Schedule A to this Agreement, and agree to make the escrow deposit
(the "Escrow Deposit") in the form and manner described in Schedule A and more
particularly in the earnest money escrow agreement ("Earnest Money Escrow
Agreement") attached hereto as Exhibit A.
d. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at a mutually agreed location,
commencing at 9:00 a.m. local time on the last day of the month in which the FCC
approval of the Assignment Application
<PAGE>
becomes a Final Order, by which date all other conditions to the obligations of
the Parties to consummate the transactions contemplated hereby will has been
satisfied, or such other date as the Parties may mutually determine (the
"Closing Date").
e. Deliveries at the Closing. At the Closing, (i) the Sellers will
deliver to the Buyers the various certificates, instruments, and documents
referred to in Section 5(a) below; (ii) the Buyers will deliver to the Sellers
the various certificates, instruments, and documents referred to in Section 5(b)
below; (iii) the Sellers will execute, acknowledge (if appropriate), and deliver
to the Buyers (A) assignments (including Lease and other Assumed Contract
assignments and Intellectual Property transfer documents), bills of sale and
warranty deeds in form acceptable to the Buyers, (B) such affidavits, transfer
tax returns, memorandums of lease, and other additional documents as may be
required by the terms of the title insurance commitments described in Section
4(o) hereof, as necessary to obtain title insurance as required by such section
or as may be necessary to convey title to the Real Estate to the Buyers in the
condition required herein or provide public notice of existence of the Leases,
and (C) such other instruments of sale, transfer, conveyance, and assignment as
the Buyers and their counsel reasonably may request; (iv) the Buyers will
execute, acknowledge (if appropriate), and deliver to the Sellers (A) an
assumption in the form attached hereto as Exhibit B and (B) such other
instruments of assumption as the Sellers and their counsel reasonably may
request; and (v) the Buyers will deliver to the Sellers the consideration
specified in Section 1(c) above.
f. Postclosing Agreement. On the Closing Date, the Sellers shall
execute, and shall cause each of their shareholders to execute, a Postclosing
Agreement with the Buyers including covenants not to compete with the Buyers in
the market served by the Stations for a period not to exceed three years and
agreements to indemnify the Buyers in the form of Exhibit C attached hereto. A
portion of the Purchase Price equal to Fifty Thousand Dollars ($50,000) shall be
paid to the Sellers by the Buyers on the Closing Date as consideration for the
agreements set forth in the Postclosing Agreement.
2. Representations and Warranties of the Seller.
The Sellers represent and warrant to the Buyers that the statements
contained in this Section 2 is correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date, except as set
forth in the Disclosure Schedule.
a. Organization of the Seller. Sellers are corporations duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of their incorporation. The Sellers do not has any Subsidiaries.
The Sellers has the power and authority to own or lease their properties and to
carry on all business activities now conducted by it. The sole shareholder of
each of Sellers is James Ingstad.
b. Authorization of Transaction. The Sellers have full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and all agreements and instruments to be executed and delivered
by Sellers pursuant to this Agreement
-2-
<PAGE>
(collectively, the "Ancillary Agreements") and to perform their obligations
hereunder and thereunder. Without limiting the generality of the foregoing, the
Boards of Directors of the Sellers has duly authorized the execution, delivery,
and performance of this Agreement and the Ancillary Agreements by the Seller.
This Agreement and the Ancillary Agreements constitute the valid and legally
binding obligations of the Sellers, enforceable in accordance with their
respective terms and conditions.
c. Noncontravention. Except as set forth in the Disclosure Schedule,
neither the execution and the delivery of this Agreement nor the Ancillary
Agreements, nor the consummation of the transactions contemplated hereby and
thereby (including the assignments and assumptions referred to in Section l(e)
above), will (i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which the Sellers is subject or any provision
of the charter or bylaws of the Sellers; or (ii) Materially conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice or third party consent under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest, or
other agreement, arrangement to which the Sellers is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets) subject to the giving of required
notices and obtaining required consents of contracts identified in Section 2(j)
of the Disclosure Schedule. Other than with respect to the Assignment
Application described in Section 4(b), and the possible need for actions
pursuant to the Hart-Scott-Rodino Act, the Sellers do not need to give any
notice to, make any filing with, or obtain any Licenses, consent, or approval of
any court or government or governmental agency in order for the Parties to enter
into this agreement or the Ancillary Agreements or to consummate the
transactions contemplated by this Agreement or the Ancillary Agreements
(including the assignments and assumptions referred to in Section 1(e) above).
d. Title to Acquired Assets. Other than the Security Interests set
forth on Section 2(d) of the Disclosure Schedule (which shall be released at or
before the Closing) the Sellers has good and marketable title to all of the
Acquired Assets, free and clear of any Security Interest or restriction on
transfer.
e. Financial Statements. Included in Section 2(e) of the Disclosure
Schedule is unaudited statements of income as of and for the fiscal year
December 31, 1996, for the Sellers and unaudited statements of income as of and
for each month during 1997 for the Sellers(collectively the "Financial
Statements"). The Financial Statements has been prepared in conformity with the
Seller's normal accounting policies, practices and procedures applied on a
consistent basis, throughout the periods covered thereby, and is correct and
complete, fairly present the financial condition of the Sellers and the results
of operation of at the dates and for the periods indicated (without
consideration of certain "group home office" expenses that has been identified
to Buyers and that will not be incurred subsequent bo the Closing, and subject
to adjustments consistent with Seller's past practices, is consistent with the
books and records of the
-3-
<PAGE>
Sellers (which books and records is correct and complete). The Financial
Statements accurately state the revenues of the Stations for the period
indicated therein and include a Materially accurate breakout of cash and trade
revenues.
f. Events Subsequent to January 1, 1997. Since January 1, 1997,
except as set forth in Section 2(f) of the Disclosure Schedule, there have not
been any Material Adverse effects on the assets, Liabilities, business,
financial condition, operations, results of operations, or future prospects of
the Sellers with respect to the operation of the Stations. Without limiting the
generality of the foregoing and with respect to the operation of the Stations
since January 1, 1997, to Seller's Knowledge, except as set forth in Section
2(f) of the Disclosure Schedule:
i. Sellers has not, other than this Agreement, entered into
any Material agreement, contract, lease, sublease, license, or sublicense (or
series of related agreements, contracts, leases, subleases, licenses, and
sublicenses) outside the Ordinary Course of Business;
ii. Sellers has not Materially delayed or postponed (beyond
its normal practice in the Ordinary Course of Business) the payment of accounts
payable and other Liabilities;
iii. Sellers has not Materially altered its credit and
collection policies or its accounting policies;
iv. Sellers has not entered into or terminated any Material
employment arrangement, employment contract, consulting contract or severance
agreement or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
v. there has been no Material changes to, nor threatened
changes to, employment terms for any of Seller's employees;
vi. there has not been any other Material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving the Seller;
vii. the Sellers has not Materially altered the programming,
format or call letters of the Stations, or their promotional and marketing
activities;
viii. the Sellers has not applied to the FCC for any
modification of the FCC Licenses or failed to take any material action necessary
to preserve the FCC Licenses and has operated the Stations in material
compliance therewith and in material compliance with all FCC rules and
regulations;
ix. the Sellers has not terminated or received notice of
termination for any Material syndicated programming; and
-4-
<PAGE>
x. the Sellers has not committed to any of the foregoing.
g. Tax Matters. The Sellers has timely and properly filed all Tax
Returns that it was required to file with respect to the Seller's operations.
All such Tax Returns were correct and complete and properly reflect the tax
liability of the Seller. No Tax deficiencies has been proposed or assessed
against the Seller. All Taxes owed by the Sellers with respect to its operations
(whether or not shown on any Tax Return) has been paid. The Sellers has withheld
and paid all Taxes required to has been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third party. No claim has ever been made by any authority in any
jurisdiction where the Sellers does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction.
h. Tangible Assets. Section 2(h) of the Disclosure Schedule sets
forth a Materially complete listing of transmitter and station equipment,
vehicles and other tangible personal property used in conducting the operation
and business of the Stations. The Sellers own or lease all tangible assets
Materially necessary for the conduct of the operation and business of the
Stations as presently conducted and as presently proposed to be conducted and
all leased assets is specifically identified as such in Section 2(h) of the
Disclosure Schedule.
i. Real Property. Section 2(i) of the Disclosure Schedule lists and
describes briefly all Owned Real Estate and real property leased to the Sellers
(including, without limitation, complete legal descriptions for all of the Real
Estate). The Sellers has delivered to the Buyers correct and complete copies of
the Leases. With respect to the Real Estate, except as set forth in Section 2(i)
of the Disclosure Schedule:
i. the Sellers has good and marketable title to all of the
Owned Real Estate which, at Closing, with the exception of the Stations' studios
and the KLXX (AM) transmitter site to be retained by Seller, will be delivered
to Buyers free and clear of all liens, charges, mortgages, security interests,
easements, restrictions or other encumbrances of any nature whatsoever except
real estate taxes for the year of Closing and municipal and zoning ordinances
and recorded utility easements which do not impair the current use, occupancy or
value or the marketability of title of the property and which is disclosed in
Section 2(i) of the Disclosure Schedule (collectively, the "Permitted Real
Estate Encumbrances");
ii. to Seller's Knowledge, the Leases is and, following the
Closing will continue to be, legal, valid, binding, enforceable, and in full
force and effect;
iii. to Seller's Knowledge, no party to any Lease is in
Material breach or default (or has repudiated any provision thereof), and no
event has occurred which, with notice or lapse of time, would constitute a
Material breach or default thereunder or permit termination, modification, or
acceleration thereunder;
-5-
<PAGE>
iv. to Seller's Knowledge, there is no Material disputes or
oral agreements, or any forbearance programs in effect as to any Lease;
v. none of the Owned Real Estate and to the Seller's
Knowledge, none of the properties subject to the Leases is subject to any lease
(other than Leases), option to purchase or rights of first refusal;
vi. except for Permitted Real Estate Encumbrances, to Seller's
Knowledge, there is no (i) actual or proposed special assessments with respect
to any of the Real Estate; (ii) pending or threatened condemnation proceedings
with respect to any of the Real Estate; (iii) structural or mechanical defects
in any of the buildings or improvements located on the Real Estate that would
prevent their continued use in the manner in which they is presently used; or
(iv) any pending or threatened change in any zoning laws or ordinances which may
Materially adversely affect any of the Real Estate or Seller's use thereof; and
vii. the Sellers has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the Leases or its
rights thereunder;
viii. to the Seller's Knowledge, all facilities on the Real
Estate has received all Material approvals of governmental authorities
(including Material licenses, permits and zoning approvals) required in
connection with the operation thereof and has been operated and maintained in
Material accordance with applicable laws, rules, and regulations.
j. Contracts. Section 2(j) of the Disclosure Schedule lists any
written arrangement (or group of related written arrangements) either involving
more than $25,000 or not entered into in the Ordinary Course of Business. The
Sellers has delivered to the Buyers a correct and complete copy of each written
arrangement listed in Section 2(j) of the Disclosure Schedule (as amended to
date). With respect to each written arrangement so listed which constitutes an
Assumed Contract: (A) to Seller's Knowledge, the written arrangement is legal,
valid, binding, enforceable, and in full force and effect; (B) subject to the
giving of required notices and obtaining required consents, the written
arrangement will continue to be legal, valid, binding, and enforceable and in
full force and effect on identical terms following the Closing (if the
arrangements has not expired according to their terms); (C) to Seller's
Knowledge, no party is in Material breach or default, and no event has occurred
which with notice or lapse of time would constitute a Material breach or default
or permit termination, modification, or acceleration, under the written
arrangement; and (D) to Seller's Knowledge, no party has repudiated any
provision of the written arrangement. The Sellers is not a party to any verbal
contract, agreement, or other arrangement which, if reduced to written form,
would be required to be listed in Section 2(j) of the Disclosure Schedule under
the terms of this Section 2(j). Except for the Assumed Contracts, the Sellers
shall hold Buyers harmless and indemnify Buyers from any Liability or
obligations for or in respect of any of the contracts set forth in Section 2(j)
of the Disclosure Schedule or any other contracts or agreements of the Seller.
-6-
<PAGE>
k. Commission Licenses and Compliance with Commission Requirements.
Except as set forth in Section 2(k) of the Disclosure Statement:
i. All licenses, permits, authorizations, franchises,
certificates of compliance, and consents of governmental bodies, including,
without limitation, the FCC Licenses, used or useful in the operation of the
Stations as they is now being operated is (A) in full force and effect, and (B)
to Seller's knowledge, unimpaired by any acts or omissions of the Sellers or the
Seller's employees or agents. Copies of all FCC licenses, permits, and
authorizations is included in Section 2(k) of the Disclosure Schedule. To
Seller's Knowledge, no condition exists or event has occurred that permits, or
after notice or lapse of time, or both, would permit, the revocation or
termination of any such license, permit, consent, franchise, or authorization
(other than pursuant to their express expiration date) or the imposition of any
Material restriction or limitation upon the operation of the Stations as now
conducted. Except as set forth in Section 2(k) of the Disclosure Schedule, the
Sellers is not aware of any reason why the FCC licenses might not be renewed in
the ordinary course or revoked.
ii. The Sellers has been advised by its engineering staff that
the Stations is in compliance with the FCC's policy on exposure to radio
frequency radiation, and knows of no reason to dispute said information. To
Seller's Knowledge, no renewal of any FCC License would constitute a major
environmental action under the FCC's rules or policies. To Seller's Knowledge,
access to the Stations' transmission facilities is restricted in accordance with
the policies of the FCC.
iii. Except as set forth in Section 2(k) of the Disclosure
Schedule, to the Seller's Knowledge, the Sellers is not the subject of any FCC
or other governmental investigation or any notice of violation or order, or any
Material complaint, objection, petition to deny, or opposition issued by or
filed with the FCC or any other governmental authority in connection with the
operation of or authorization for the Stations, and there is no proceedings
(other than rule making proceedings of general applicability) before the FCC or
any other governmental authority that could adversely affect any of the FCC
Licenses or the authorizations listed in Section 2(k) of the Disclosure
Schedule.
iv. To Seller's Knowledge, the Sellers has filed with the FCC
and all other governmental authorities having jurisdiction over the Stations all
Material reports, applications, documents, instruments, and other information
required to be filed, including but not limited to Antenna Structure
Registration Forms, and will continue to make such filings through the Closing
Date.
v. The Sellers is not aware of any information concerning the
Seller's ownership or operation of the Stations that could cause the FCC not to
issue to the Buyers all regulatory certificates and approvals necessary for the
consummation of the transactions contemplated hereunder or the Buyer's operation
and/or ownership of the Stations.
-7-
<PAGE>
l. Intellectual Property. To Seller's Knowledge, the Sellers owns or
has the right to use pursuant to license, sublicense, agreement or permission
all Intellectual Property Materially necessary for the operation of the
businesses of the Sellers as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by the Sellers
immediately prior to the Closing hereunder is set forth on Section 2(l) of the
Disclosure Schedule and each item listed will be owned or available for use the
by the Buyers on identical terms and conditions immediately subsequent to the
Closing hereunder. To Seller's Knowledge, the Sellers has not interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and the Sellers has never
received any charge, complaint, or notice alleging any such interference,
infringement, misappropriation, or violation, that has not been, or will not be
by the Closing, resolved. To the Knowledge of the Seller, no third party has
Materially interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the Seller.
m. Insurance. Section 2(m) of the Disclosure Schedule sets forth a
Materially complete and accurate description of all Seller's insurance coverage.
With respect to each such insurance policy, to Seller's Knowledge: (A) the
policy is legal, valid, binding, and enforceable and in full force and effect;
and (B) the policy will continue to be legal, valid, binding, and enforceable
and in full force and effect on identical terms through the Closing Date.
n. Litigation. Section 2(n) of the Disclosure Schedule sets forth
each instance in which the Seller: (i) is subject to any unsatisfied judgment,
order, decree, stipulation, injunction, or charge; or (ii) is a party or, to the
Knowledge of the Seller, is threatened to be made a party to any charge,
complaint, action, suit, proceeding, hearing, or investigation of or in any
court or quasi judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. To Seller's Knowledge, none of
the charges, complaints, actions, suits, proceedings, hearings, and
investigations set forth in Section 2(n) of the Disclosure Schedule could result
in any Materially Adverse Effect. The Sellers has no Knowledge of any Basis for
any such charge, complaint, action, suit, proceeding, hearing, or investigation
against the Seller.
o. Employees. Section 2(o) of the Disclosure Schedule sets forth a
Materially complete listing of the names, positions, job descriptions, salary or
wage rates and all other forms of compensation paid for work at the Stations of
each employee. To the Knowledge of the Seller, no key employee or group of
employees has any plans to terminate employment with the Seller. The Sellers is
not a party to or bound by any collective bargaining or similar agreement, nor
has they experienced any strikes, grievances, claims of unfair labor practices
or other collective bargaining disputes. The Sellers has no knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to the employees of the Seller. The Sellers has no
knowledge of any Basis for any Material claim by past or current employees of
the Sellers or applicants for employment that the Sellers or its management has
discriminated based on each individuals race, sex, national origin, religion,
ethnicity, handicap or any other protected characteristic under applicable law.
-8-
<PAGE>
p. Employee Benefits. Section 2(p) of the Disclosure Schedule lists
all Employee Benefit Plans that the Sellers maintains or to which the Sellers
contributes or is required to contribute for the benefit of any current or
former employee of the Sellers and true and correct copies of each such Employee
Benefit Plan has been delivered to the Buyers. Each Employee Benefit Plan (and
each related trust or insurance contract) Materially complies and at all times
has Materially complied in form and in operation in all respects with the
applicable requirements of ERISA and the Code. The Sellers does not has any
commitment to create any additional Employee Benefit Plan or modify or change
any existing Employee Benefit Plan that would affect any employee or terminated
employee of the Seller. There is no pending or, to the Knowledge of the Seller,
threatened claims under, by or on behalf of any of the Employee Benefit Plans,
by any employee or beneficiary covered by any such Employee Benefit Plan, or
otherwise involving any such Employee Benefit Plan (other than routine claims
for benefits), nor has there been any Reportable Events or Prohibited
Transactions with respect to any Employee Benefit Plan of which Sellers has
Knowledge.
q. Environment, Health, and Safety. Except as disclosed in Section
2(q) of the Disclosure Schedule:
i. With respect to the operation of the Stations and the Real
Estate, the Sellers is, and at all times in the past has been, in compliance in
all Material respects with all then-effective Environmental Laws and all laws
(including rules and regulations thereunder) of federal, state, and local
governments (and all agencies thereof) concerning employee health and safety,
and, to Seller's Knowledge, the Sellers has no Liability (and there is no Basis
related to the past or present operations of the Sellers or its predecessors for
any present or future Material Liability) under any Environmental Law. To
Seller's Knowledge, the Sellers has no Liability (and there is no Basis for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against the Sellers giving rise to any
Liability) under the Occupational Safety and Health Act, as amended, or any
other law (or rule or regulation thereunder) of any federal, state, local, or
foreign government (or agency thereof) concerning employee health and safety, or
for any illness of or personal injury to any employee.
ii. The Sellers has obtained and at all times has been in
compliance in all Material respects with all of the terms and conditions of all
permits, licenses, and other authorizations which is required under, and has
Materially complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
which is contained in, all Environmental Laws or law of any federal, state, or
local or foreign government relating to worker health and safety.
iii. To Seller's Knowledge, all properties and equipment used
in the Stations and the Acquired Assets has been free of asbestos, PCB's,
methylene chloride, trichloroethylene, 1, 2-transdichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances unless the presence of such
Materials is in conformity with Environmental Laws. Sellers has no Knowledge
that any pollutant, contaminant, or chemical, industrial, hazardous, or
-9-
<PAGE>
toxic material or waste ever has been unlawfully buried, stored, spilled,
leaked, discharged, emitted, or released on any of the Real Estate. To Seller's
Knowledge, no above ground or underground storage tanks has ever been located
at, on or under the Real Estate. The Sellers has delivered to the Buyers a
Materially complete copy of all environmental claims, reports, studies,
compliance actions or the like of the Sellers or which is available to the
Sellers with respect to any of the Real Estate or any of the Acquired Assets.
r. Legal Compliance. Except as set forth in Section 2(r) of the
Disclosure Schedule, the Sellers has complied in all Material respects with all
laws (including rules and regulations thereunder) of federal, state, local and
foreign governments (and all agencies thereof). To Seller's Knowledge, the
Sellers has filed all reports, documents, and other materials it was required to
file (and the information contained therein was correct and complete in all
Material respects) under all applicable laws.
s. Advertising Contracts. Section 2(s) of the Disclosure Schedule
lists all arrangements for the sale of air time or advertising on the Stations
in excess of $10,000, and the amount to be paid to the Sellers therefor, which
will not be completed prior to Closing. The Sellers has no reason to believe and
has not received a notice or indication of the intention of any of the
advertisers or third parties to Material contracts of the Sellers to cease doing
business or to reduce in any Material respect the business transacted with the
Sellers or to terminate or modify any agreements with the Sellers (whether as a
result of consummation of the transactions contemplated hereby or otherwise)
which, collectively or individually, would has a Material Adverse Effect.
t. Brokers' Fees. Other than the fee payable to Media Venture
Partners, which shall be the exclusive responsibility of Seller, the Sellers has
no Liability or obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement.
u. Undisclosed Commitments or Liabilities. Except as set forth in
Section 2(u) of the Disclosure Schedule, there is no Material commitments,
liabilities or obligations relating to the Stations, whether accrued, absolute,
contingent or otherwise including, without limitation, guaranties by the Sellers
of the liabilities of third parties, for which specific and adequate provisions
has not been made on the Financial Statements except those incurred in or as a
result of the Ordinary Course of Business since January 1, 1997.
v. Disclosure. The representations and warranties contained in this
Section 2 do not contain any Materially untrue statement of a fact or omit to
state any fact necessary in order to make the statements and information
contained in this Section 2 Materially not misleading.
-10-
<PAGE>
3. Representations and Warranties of the Buyer.
Buyers represent and warrant to the Sellers that the statements
contained in this Section 3 is correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date except as set
forth in the Disclosure Schedule.
a. Organization of the Buyers. Broadcasting and Licensing is
corporations duly organized, validly existing, and in good standing under the
laws of Nevada.
b. Authorization of Transaction. Buyers has full power and authority
to execute and deliver this Agreement and the Ancillary Agreements and to
perform their obligations hereunder and thereunder. This Agreement and the
Ancillary Agreements constitute legally binding obligations of the Buyers,
enforceable against the Buyers in accordance with their respective terms and
conditions.
c. Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in Section l(e) above), will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the Buyers
is subject or any provision of their articles of organization or other charter
documents, or (ii) Materially conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or third party
consent under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Buyers is a
party or by which they is bound or to which any of their assets is subject.
Other than the Assignment Application described in Section 4(b), and the
possible need for actions pursuant to the Hart-Scott-Rodino Act, the Buyers do
not need to give any notice to, make any filing with; or obtain any
authorization, consent, or approval of any court or government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement or the Ancillary Agreements (including the assignments and
assumptions referred to in Section 1 (e) above).
d. Brokers' Fees. The Buyers has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Sellers could become
liable or obligated.
d. Qualifications to Acquire Stations. The Buyers is legally,
financially, technically, and otherwise qualified to acquire the Stations from
Seller. The Buyers is not aware of any information that could cause the FCC not
to issue to the Buyers all regulatory certificates and approvals necessary for
the consummation of the transactions contemplated hereunder or the Buyer's
operation and/or ownership of the Stations.
-11-
<PAGE>
4. Pre-Closing Covenants.
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
a. General. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary, proper, or advisable to
consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 5 below).
b. Assignment Application. Within ten (10) business days after the
execution of this Agreement, the Sellers and the Buyers shall jointly file with
the FCC an appropriate application for assignment of the FCC Licenses, permits
and authorizations pertaining to the Stations from the Sellers to Licensing (the
"Assignment Application"). The costs of the FCC filing fees in connection with
the Assignment Application shall be divided equally between the Parties. Each
party shall pay their own attorneys' fees. The Sellers and the Buyers shall
thereafter prosecute the Assignment Application with all reasonable diligence
and otherwise use commercially reasonable efforts to obtain the grant of the
Assignment Application as expeditiously as practicable (but neither the Sellers
nor the Buyers shall has any obligation to satisfy complainants or the FCC by
taking any steps which would has a Material Adverse Effect upon the Stations or
impose significant costs on such party). If the FCC imposes any condition on
either party to the Assignment Application, such party shall use commercially
reasonable efforts to comply with such condition, provided, that neither party
shall be required hereunder to comply with any condition that would has a
Material Adverse Effect upon the Stations or any Affiliate. The Sellers and the
Buyers shall jointly oppose any requests for reconsideration or judicial review
of FCC approval of the Assignment Application and shall jointly request from the
FCC extension of the effective period of FCC approval of the Assignment
Application if the Closing shall not has occurred prior to the expiration of the
original effective period of the FCC Consent. Nothing in this Section 4(b) shall
be construed to limit either party's right to terminate this Agreement pursuant
to Section 10 of this Agreement.
c. Employment Offers. Upon notice to the Seller, and at mutually
agreeable times, the Sellers will permit the Buyers to meet with its employees
prior to the Closing Date. The Buyers may, at their option, extend offers of
employment to all or any of the Seller's employees effective on the Closing
Date. From and after the execution of this Agreement, the Sellers shall use its
best efforts to assist Buyers in retaining those employees of the Stations which
the Buyers wish to hire in connection with the operation of the Stations by the
Buyers subsequent to the Closing, and the Sellers will not take any action to
preclude or discourage any of the Seller's employees from accepting any offer of
employment extended by the Buyers.
d. Notices and Consents. The Sellers will give all notices to third
parties and shall use commercially reasonable efforts to obtain all third party
consents, that the Buyers reasonably may request. Each of the Parties will file
any notification and report forms and related
-12-
<PAGE>
material that it may be required to file with the Federal Trade Commission and
the Antitrust Division of the United States Department of Justice under the
Hart-Scott-Rodino Act, will use their best efforts to obtain an early
termination of the applicable waiting period, and will make any further filings
pursuant thereto that may be necessary, proper or advisable. Each of the Parties
will take any additional action that may be necessary, proper, or advisable in
connection with any other notices to, filings with, and authorizations,
consents, and approvals of governments, governmental agencies, and third parties
that it may be required to give, make, or obtain.
e. Advertising Obligations. The Sellers shall take commercially
reasonable steps, without Materially adversely impacting the cash financial
performance of the Stations, to satisfy its outstanding obligations under its
agreements for sale of air time and advertising on the Stations for goods or
services ("Barter Agreements") and shall only enter into new Barter Agreements
in the Ordinary Course of Business of the Stations. On the Closing Date, the
Sellers shall deliver to the Buyers a report (the "Trade Report") which lists
all Barter Agreements included in the Acquired Assets and the contract end date
for each such Barter Agreement together with an itemized statement, determined
in accordance with generally accepted accounting principles, of the aggregate
value of the barter payable and the barter receivable pursuant to each of the
Barter Agreements. To the extent that the aggregate value as reflected on the
Trade Report of the Stations' barter payable is more than Twenty Thousand
Dollars ($20,000.00) greater than the aggregate value of the barter receivable,
Buyer shall be entitled to receive as a credit against the purchase price the
amount of the excess barter imbalance.
f. Operating Statements. The Sellers shall deliver to the Buyers,
for the Buyers' informational purposes only, monthly unaudited statements of
operating revenues and operating expenses of the Stations within ten (10) days
after each such statement is prepared by or for the Seller.
g. Contracts. The Sellers will not without the prior written consent
of the Buyers amend, change, or modify any of the contracts listed on Section
2(k) of the Disclosure Schedule in any Material respect. The Sellers will not
without prior written consent of the Buyers enter into any contract outside the
Ordinary Course of Business which involves an obligation which will survive the
Closing under which Buyer will be obligated to expend more than Five Thousand
Dollars ($5,000).
h. Operation of Stations. The Sellers will not engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business which will has a Material Adverse Effect. The Sellers shall
operate the Stations Materially in compliance with the FCC Licenses and the
rules and regulations of the FCC, and the FCC Licenses shall at all times remain
in full force and effect. The Sellers shall file with the FCC all Material
reports, applications, documents, instruments and other information required to
be filed in connection with the operation of the Stations.
-13-
<PAGE>
i. Credit and Receivables. The Sellers will follow its usual and
customary policies with respect to extending credit for sales of air time and
advertising on the Stations and with respect to collecting accounts receivable
arising from such extension of credit.
j. Preservation of Stations and the Acquired Assets. The Sellers
will take all commercially reasonable actions to keep its Stations and the
Acquired Assets and properties substantially intact, including their present
operations, physical facilities, working conditions, relationships with lessors,
licensors, advertisers, suppliers, customers, and employees, all of the
Confidential Information, call letters and trade secrets of the Stations, and
the FCC Licenses.
k. Access and Consultation. The Sellers will permit representatives
of the Buyers to has commercially reasonable access at all reasonable times, and
in a manner so as not to interfere with the normal business operations of the
Stations, to all premises, properties, books, records, contracts, Tax records,
and documents of or pertaining to the Seller. The Sellers will consult with the
Buyers' management with a view to informing Buyers' management as to the
operations, management and business of the Stations. Without limiting the
foregoing, Sellers acknowledges and agrees that they will provide the Buyers and
their representatives with such access to the properties, books, records,
documents and operations of the Sellers as contemplated herein in a manner which
will permit the Buyers to fully complete their due diligence review within the
thirty (30) day period referenced in Section 9(a) (vi), below.
l. Notice of Developments. The Sellers will give prompt written
notice to the Buyers of any Material development affecting business, operations
or prospects of the Stations or the Acquired Assets or the ability of the
Sellers to perform hereunder.
m. Exclusivity. The Sellers will not (i) solicit, initiate, or
encourage the submission of any proposal or offer from any person relating to
any (A) merger or consolidation, (B) acquisition or purchase of securities or
assets, or (C) similar transaction or business combination involving the Seller,
or (ii) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person to do or seek any of the
foregoing. The Sellers will notify the Buyers immediately if any person makes
any proposal, offer, inquiry, or contact with respect to any of the foregoing.
n. Title Insurance. Surveys and Environmental Assessments. The
Sellers will take all commercially reasonable actions to assist Buyer in
obtaining, at Buyers' own cost (i) with respect to each parcel of Real Estate
subject to the Leases, a leasehold owner's policy issued by a title insurer
reasonably satisfactory to the Buyers, in an amount equal to the fair market
value of such Real Estate (including all improvements located thereon), insuring
over the standard pre-printed exceptions and insuring leasehold title to such
Real Estate in the Buyers as of the Closing subject only to the Permitted Real
Estate Encumbrances, together with such endorsements for zoning, contiguity,
public access and extended coverage as the Buyers or their lender reasonably
request, (ii) with respect to each parcel of Owned Real Estate being sold to
Buyers, an owner's
-14-
<PAGE>
policy of title insurance by a title insurer reasonably satisfactory to the
Buyers, in an amount equal to the fair market value of such Real Estate
(including all improvements located thereon), insuring over the standard
preprinted exceptions and insuring title to the Owned Real Estate to be vested
in the Buyers as of the Closing free and clear of all liens and encumbrances
except Permitted Real Estate Encumbrances, together with such endorsements for
zoning, contiguity, public access and extended coverage as the Buyers or their
lender reasonably request, (iii) a current survey of each parcel of Real Estate
certified to the Buyers and their lender, prepared by a licensed surveyor and
conforming to current ALTA Minimum Detail Requirements for Land Title Surveys,
disclosing the location of all improvements, easements, party walls, sidewalks,
roadways, utility lines, and other matters shown customarily on such surveys,
and showing access affirmatively to public streets and roads (the "Surveys ")
which shall not disclose any survey defect or encroachment from or onto any of
the Real Estate which has not been cured or insured over prior to the Closing;
and (iv) with respect to each parcel of Real Estate, a current Phase I
environmental site assessment from an environmental consultant or engineer
reasonably satisfactory to the Sellers which does not indicate that the Sellers
and the Real Estate is not in compliance with any Environmental Law and which
shall not disclose or recommend any action with respect to any condition to be
remediated or investigated or any contamination on the site assessed. Sellers
shall provide to Buyers copies of all existing title insurance policies, land
surveys, Phase I and other environmental surveys that is in the possession of
Seller.
o. Control of Stations. The transactions contemplated by this
Agreement shall not be consummated until after the FCC has given its consent and
approval to the Assignment Application. Between the date of this Agreement and
the Closing Date, the Buyers and their employees or agents shall not directly or
indirectly control, supervise, or direct, or attempt to control, supervise, or
direct, the operation of the Stations, and such operation shall be the sole
responsibility of and in the control of the Seller. The costs of obtaining title
insurance, surveys and environmental assessments shall be borne by Buyers.
p. Risk of Loss. The risk of loss, damage, or destruction to any of
the Acquired Assets shall remain with the Sellers until the Closing. In the
event of any Material loss, damage, or destruction to any of the Acquired
Assets, the Sellers will promptly notify the Buyers of all particulars thereof,
stating the cause thereof (if known) and the extent to which the cost of
restoration, replacement and repair of the Acquired Assets lost, damaged or
destroyed will be reimbursed under any insurance policy with respect thereto.
The Sellers will, at Seller's expense, repair or replace such Acquired Assets to
their former condition as soon as possible after loss, damage or destruction
thereof and shall use its best efforts to restore as promptly as possible
transmissions as authorized in the FCC Licenses. The Closing Date shall be
extended (with FCC consent, if necessary) for up to sixty (60) days to permit
such repair or replacement. If repair or replacement cannot be accomplished
within sixty (60) days of the date of the Seller's notice to the Buyers and the
Buyers determine that the Seller's failure to repair or replace would has a
Material Adverse Effect on the operation of the Stations:
i. the Buyers may elect to terminate this Agreement; or
-15-
<PAGE>
ii. the Buyers may postpone the Closing Date until such time
as the property has been repaired, replaced or restored in a manner and to an
extent reasonably satisfactory to the Buyers, unless the same cannot be
reasonably effected within ninety (90) days of the date of the Seller's notice
to the Buyers, in which case either party may terminate this Agreement; or
iii. the Buyers may choose to accept the Acquired Asset in
their "then" condition, together with the Seller's assignment to the Buyers of
all rights under any insurance claims covering the loss, damage or destruction
and payment over to the Buyers of any proceeds under any such insurance
policies, previously received by the Sellers with respect thereto plus an amount
equal to the amount of any deductible or self-insurance maintained by Sellers on
such Acquired Assets. In the event the Closing Date is postponed pursuant to
this Section 4(p), the parties hereto will cooperate to extend the time during
which this Agreement must be closed as specified in the consent of the FCC.
r. Priority of Transaction. Buyers will take no action which will
prevent or unduly delay the issuance of any required regulatory clearance
relating to the transactions contemplated by this Agreement. In the event of a
conflict between the transactions proposed in this Agreement and another
subsequent transaction involving the Buyers, Buyer will defer, delay, or
terminate such other transaction if necessary to permit the grant of required
regulatory consent for the transactions contemplated herein.
5. Conditions to Obligation to Close.
a. Conditions to Obligation of the Buyers. The obligation of Buyers
to consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
i. the representations and warranties set forth in Section 2
above shall be true and correct in all respects at and as of the Closing Date as
though made on and as of the Closing Date;
ii. the Sellers shall has performed and complied with all of
its covenants hereunder in all respects through the Closing;
iii. the Sellers shall has procured all of the third party
consents specified in Section 4(d) above (or taken such action to Buyers'
satisfaction as will provide the full benefits of such contracts, agreements or
arrangements to Buyer) and all of the title insurance commitments (and
endorsements), Surveys and environmental site assessments described in Section
4(o) above;
iv. no action, suit, investigation, inquiry or other
proceeding shall be pending or threatened before any court or quasijudicial or
administrative agency of any federal,
-16-
<PAGE>
state, local, or foreign jurisdiction wherein an unfavorable judgment, order,
decree, stipulation, injunction, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement or impose damages or
penalties upon any of the parties if such transactions is consummated, (B) cause
any of the transactions contemplated by this Agreement to be rescinded following
consummation, or (C) adversely affect the right of the Buyers to own, operate,
or control the Acquired Assets (and no such judgment, order, decree,
stipulation, injunction, or charge shall be in effect);
v. the Sellers shall has delivered to the Buyers a certificate
(without qualification as to knowledge or Materiality or otherwise) to the
effect that each of the conditions specified above in Sections 5(a)(I) through
(iv) is satisfied in all respects;
vi. the Assignment Application shall has been approved by a
Final Order of the FCC, all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall has expired or been terminated,
and the Buyers shall has received all governmental approvals required to
transfer all other authorizations, consents, and approvals of governments and
governmental agencies set forth in the Disclosure Schedule;
vii. the relevant parties shall has entered into the
Postclosing Agreement;
viii. the Buyers shall has received from counsel to the
Sellers an opinion with respect to the matters set forth in Exhibit E attached
hereto, addressed to the Buyers and their lender and dated as of the Closing
Date;
ix. the Parties shall has agreed to allocate the Purchase
Price (and all other capitalizable costs) among the Acquired Assets for all
purposes (including financial accounting and tax purposes) in accordance with an
allocation schedule to be delivered at closing; and
x. The Parties shall has entered into a lease with terms
reasonably acceptable to each party, providing for the lease to Buyers, for a
period of twelve months from the Closing Date, of the Stations studios and the
KLXX (AM) transmitter site. The lease shall be without rent, except that during
the term of the lease Buyers will pay directly or reimburse Sellers within five
(5) days for all out-of-pocket costs relating to its occupation of the leased
premises, including but not limited to power and utility costs, real estate and
other taxes, maintenance and other costs.
xi. all actions to be taken by the Sellers in connection with
the consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyers.
-17-
<PAGE>
b. Conditions to Obligation of the Seller. The obligation of the
Sellers to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
i. the representations and warranties set forth in Section 3
above shall be true and correct in all respects at and as of the Closing Date as
though made on and as of the Closing Date;
ii. the Buyers shall has performed and complied with all of
their covenants hereunder in all respects through the Closing;
iii. no action, suit, investigation, inquiry or other
proceeding shall be pending or threatened before any court or quasi judicial or
administrative agency of any federal, state, local, or foreign jurisdiction
wherein an unfavorable judgment, order, decree, stipulation, injunction, or
charge would (A) prevent consummation of any of the transactions contemplated by
this Agreement or impose damages or penalties upon any of the Parties if such
transactions is consummated, or (B) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation (and no such judgment,
order, decree, stipulation, injunction, or charge shall be in effect);
iv. the Buyers shall has delivered to the Sellers one or more
certificate(s) (without qualification as to knowledge or Materiality or
otherwise) to the effect that each of the conditions specified above in Section
5(b)(i)-(iii) is satisfied in all respects and the statements contained in such
certificate shall be deemed a warranty of the Buyers which shall survive the
Closing;
v. the Assignment Application shall has been approved by a
Final Order of the FCC and the Buyers shall has received all governmental
approvals required to transfer all other authorizations, consents, and approvals
of governments and governmental agencies set forth in the Disclosure Schedule;
and
vi. the relevant parties shall has entered into the
Postclosing Agreement;
vii. the Parties shall has agreed to allocate the Purchase
Price (and all other capitalizable costs) among the Acquired Assets for all
purposes (including financial accounting and tax purposes) in accordance with an
allocation schedule to be delivered at closing; and
viii. The Parties shall has entered into a lease with terms
reasonably acceptable to each party, providing for the lease to Buyers, for a
period of twelve months from the Closing Date, of the Stations studios and the
KLXX (AM) transmitter site. The lease shall be without rent, except that during
the term of the lease Buyers will pay directly or reimburse Sellers
-18-
<PAGE>
within five (5) days for all out-of-pocket costs relating to its occupation of
the leased premises, including but not limited to power and utility costs, real
estate and other taxes, maintenance and other costs.
ix. all actions to be taken by the Buyers in connection with
the consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller.
6. Post-Closing Covenants.
The Parties agree as follows with respect to the period following the
Closing:
a. General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 7 below).
b. Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Stations, each of the other Parties will reasonably cooperate with
the contesting or defending Party and their counsel in the contest or defense,
make available his or their personnel, and provide such testimony and access to
their books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section 7 below); provided, however, that such access and
cooperation does not unreasonably disrupt the normal operations of the
cooperating party.
c. Adjustments. Operation of the Stations and the income and
expenses attributable thereto up through the close of business on the day before
the Closing Date shall be for the account of the Sellers and thereafter for the
account of the Buyers. Such items as employee salaries, vacation, sick day and
personal time accruals, and fringe benefits, power and utilities charges,
insurance, real and personal property taxes, prepaid expenses, deposits, music
license fees, and rents and payments pertaining to the Assumed Contracts
(including any contracts for the sale of time for cash so assigned) shall be
prorated between the Sellers and the Buyers as of the Closing Date in accordance
with the foregoing principle. Outstanding barter balances shall be adjusted as
provided in Section 4(e) of this Agreement. In addition, all commissions payable
with respect to the accounts receivable of the Sellers (whether due before or
after Closing) shall be
-19-
<PAGE>
solely for the account and responsibility of the Seller. Contractual
arrangements that do not reflect an equal rate of compensation to a Stations
over the term of the agreement shall be equitably adjusted as of the Closing
Date. The prorations and adjustments hereunder shall be made and paid insofar as
feasible on the Closing Date, with a final settlement sixty (60) days after the
Closing Date. In the event of any disputes between the Parties as to such
adjustments, the amounts not in dispute shall nonetheless be paid at such time
and such disputes shall be determined by an independent accounting firm mutually
acceptable to both parties and the fees and expenses of such accounting firm
shall be paid one-half (1/2) by the Sellers and one-half (1/2) by the Buyer.
d. Collection of Accounts Receivable. At the Closing, the Sellers
will turn over to the Buyers, for collection only, the accounts receivable of
the Stations owing to the Sellers as of the close of business on the day before
the Closing Date. A schedule of such accounts receivable will be delivered by
the Sellers to the Buyers on the Closing Date or as soon thereafter as possible.
The Buyers agree to use commercially reasonable efforts in the ordinary course
of business (but without responsibility to institute legal or collection
proceedings) to collect such accounts receivable during the 120-day period
following the Closing Date, and will remit all payments received on such
accounts during this 120-day period on the one hundred twentieth (120th) day
together with an accounting of all payments received within such period. The
Buyers shall has the sole right to collect such accounts receivable during such
one hundred twenty (120) day period. In the event the Buyers receive monies
during the 120-day period following the Closing Date from an advertiser who,
after the Closing Date, is advertising on the Stations, and that advertiser was
included among the accounts receivable as of the Closing Date, the Buyers shall
apply said monies to the oldest outstanding balance due on the particular
account, except in the case of a "disputed" account receivable. For purposes of
this Section 6(d), a "disputed" account receivable means one which the account
debtor refuses to pay because he asserts that the money is not owed or the
amount is incorrect. Buyers shall not knowingly encourage any account debtor to
dispute any amounts outstanding on the Closing Date. In the case of such a
disputed account, the Buyers shall immediately return the account to the Sellers
prior to expiration of the 120-day period following the Closing Date. If the
Buyers return a disputed account to the Seller, the Buyers shall has no further
responsibility for their collection and may accept payment from the account
debtor for advertising carried on the Stations after the Closing Date. At the
end of the 120-day period following the Closing Date, the Buyers will turn back
to the Sellers all of the accounts receivable of the Stations as of the Closing
Date owing to the Sellers which has not yet been collected (including all
records and documents of the Stations relating to such uncollected accounts),
and the Buyers will thereafter has no further responsibility with respect to the
collection of such receivables. During the 120-day period following the Closing
Date, the Buyers shall afford the Sellers reasonable access to the accounts
receivable "aging list." The Sellers acknowledges and agrees that the Buyers is
acting as collection agent hereunder for the sole benefit of the Sellers and
that Buyers has accepted such responsibility for the accommodation of the
Seller. The Buyers shall not has any duty to inquire as to the form, manner of
execution or validity of any item, document, instrument or notice deposited,
received or delivered in connection with such collection efforts, nor shall the
Buyers has any duty to inquire as to the identity, authority or rights of the
persons who executed the same. The Sellers shall indemnify
-20-
<PAGE>
Buyers and hold them harmless from and against any judgments, expenses
(including attorney's fees) costs or liabilities which the Buyers may incur or
sustain as a result of or by reason of such collection efforts taken in good
faith. To the extent that Sellers (i) satisfy accounts payable related to the
Stations with cash payments following the Closing Date and (2) provide Buyers
with documentation of such accounts payable and cash payments, Buyers shall
reimburse Sellers for such expenses no later than the tenth (10th) day of the
month following that in which Sellers makes such cash payments in satisfaction
of accounts payable, and such amounts shall be deducted from the amounts due
Sellers as a result of the collection of accounts receivable owing to the
Sellers as of the close of business on the day before the Closing Date
e. Consents. In the event any of the Assumed Contracts is not
assignable or any consent to such assignment is not obtained on or prior to the
Closing Date, and the Buyers elect to consummate the transactions contemplated
herein despite such failure or inability to obtain such consent, the Sellers
shall continue to use commercially reasonable efforts to obtain any such
assignment or consent after the Closing Date. Until such time as such assignment
or approval has been obtained, the Sellers will cooperate with Buyers in any
lawful and economically feasible arrangement to provide that the Buyers shall
receive the Seller's interest in the benefits under any such Assumed Contract,
including performance by the Sellers as agent, if economically feasible;
provided, however, that the Buyers shall undertake to pay or satisfy the
corresponding liabilities for the enjoyment of such benefit to the extent that
Buyers would has been responsible therefore if such consent or assignment had
been obtained.
7. Remedies for Breaches of this Agreement.
a. Survival. All of the representations and warranties of the
Sellers contained in Section 2 of this Agreement (other than the representations
and warranties of the Sellers contained in Sections 2(a), 2(b), 2(c), and 2(d)
hereof or relating to the Seller's title to the Acquired Assets) shall survive
the Closing and continue in full force and effect for a period until 90 days
after the applicable statute of limitations has expired with respect to any
claim by the Buyers based on a claim or action by a third party and for a period
of three (3) years following Closing with respect to any claim by the Buyers not
based on a claim or action by a third party. All of the other representations
and warranties (including the representations and warranties Sellers contained
in Sections 2(a), 2(b), 2(c),. and 2(d) hereof or relating to the Seller's title
to the Acquired Assets) and all covenants of the Buyers and the Sellers
contained in this Agreement shall survive the Closing and continue in full force
and effect forever thereafter.
b. Indemnification Provisions for the Benefit of the Buyers. Except as
described below in Section 7(e) with respect to a breach of a warranty or
covenant prior to the Closing Date, the Sellers agrees to indemnify the Buyers
from and against the entirety of any Adverse Consequences the Buyers may suffer
resulting from, arising out of, relating to, in the nature of, or caused by:
-21-
<PAGE>
i. any misrepresentation or breach of any of the Seller's
representations or warranties, and covenants contained in this Agreement or in
any Ancillary Agreement executed and/or delivered by the Sellers (so long as the
Buyers make a written claim for indemnification within the applicable survival
period);
ii. any breach or nonfulfillment of any agreement or covenant
of the Sellers contained herein or in any Ancillary Agreement;
iii. any Liability of the Sellers which is not an Assumed
Liability; and/or
iv. any Liability of the Buyers arising by operation of law
(including under any bulk transfer law of any jurisdiction or under any common
law doctrine of defacto merger or successor liability) which is not an Assumed
Liability.
c. Indemnification Provisions for the Benefit of the Seller. Except
as described below in Section 7(e) with respect to a breach of a warranty or
covenant prior to the Closing Date, the Buyers agree to indemnify the Sellers
from and against the entirety of any Adverse Consequences the Sellers may suffer
resulting from, arising out of, relating to, in the nature of, or caused by (i)
any misrepresentation or breach of any of the Buyers' representations or
warranties contained in this Agreement or in any Ancillary Agreement executed
and/or delivered by the Buyers (so long as the Sellers makes a written claim for
indemnification within the applicable survival period) or (ii) any breach or
nonfulfillment of any agreement or covenant of the Buyers contained herein or in
any Ancillary Agreement, or (iii) any Assumed Liability.
d. Specific Performance. Each of the Parties acknowledges and agrees
that the Buyers would be damaged irreparably in the event any of the provisions
of this Agreement is not performed in accordance with their specific terms or
otherwise is breached. Accordingly, each of the Parties agrees that the Buyers
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the Parties and the matter
(subject to the provisions set forth in Section 11(o) below), in addition to any
other remedy to which it may be entitled, at law or in equity. Each of the
Parties acknowledges and agrees that not withstanding the provision in Section
7(e) with respect to the remedy of liquidated damages upon a breach of a
warranty or covenant of this Agreement prior to the Closing, money damages would
not be an adequate remedy for Buyers for a breach of any provision of this
Agreement.
e. Liquidated Damages. The Buyers and the Sellers acknowledge that
in the event that the transactions contemplated by this Agreement is not closed
because of a default by the Buyers, the Adverse Consequences to the Sellers as a
result of such default may be difficult, if not impossible, to ascertain.
Accordingly, in lieu of indemnification pursuant to Section 7(c), the Sellers
shall be entitled to receive from the defaulting Party for such default the
Earnest Money
-22-
<PAGE>
Deposit as liquidated damages without the need for proof of damages, subject
only to successfully proving in a court of competent jurisdiction that the Buyer
Materially breached this Agreement and that the transactions contemplated
thereby has not occurred. The Sellers shall proceed against the Earnest Money
Deposit as full satisfaction of liquidated damages owed by the Buyers and as
their sole remedy for a failure of the transactions contemplated hereby to occur
as a result of a Material breach of the terms of this Agreement by the Buyers.
f. Matters Involving Third Parties. If any third party shall notify
any Party (the "Indemnified Party") with respect to any matter which may give
rise to a claim for indemnification against any other Party (the "Indemnifying
Party") under this Section 7, then the Indemnified Party shall notify the
Indemnifying Party thereof promptly; provided. however, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is damaged as a result
of such failure. In the event any Indemnifying Party notifies the Indemnified
Party within 15 days after the Indemnified Party has given notice of the matter
that the Indemnifying Party is assuming the defense thereof, (i) the
Indemnifying Party will defend the Indemnified Party against the matter with
counsel of their choice reasonably satisfactory to the Indemnified Party, (ii)
the Indemnified Party may retain separate co-counsel at their sole cost and
expense (except that the Indemnifying Party will be responsible for the fees and
expenses of the separate co-counsel to the extent the Indemnified Party
reasonably concludes that the counsel the Indemnifying Party has selected has a
conflict of interest), (iii) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect to the matter without
the written consent of the Indemnifying Party (not to be withheld unreasonably),
and (iv) the Indemnifying Party will not consent to the entry of any judgment
with respect to the matter, or enter into any settlement which does not include
a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all Liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld unreasonably). In the event
the Indemnifying Party does not notify the Indemnified Party within 15 days
after the Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, however, and/or in the event the
Indemnifying Party shall fail to defend such claim actively and in good faith,
then the Indemnified Party may defend against, or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate.
g. Limitation of Liability. Notwithstanding anything in this
Agreement to the contrary, after the Closing neither party shall indemnify or
otherwise be liable to the other party from and after the Closing Date except to
the extent that the Adverse Consequences suffered by the Identified Party, in
the aggregate from all indemnifiable events shall exceed Ten Thousand Dollars
($10,000) and indemnification shall be made by the indemnifying party only to
the extent of such excess over Ten Thousand Dollars ($10,000); provided however
that the foregoing limitation shall not be applicable to: (i) the obligations of
the Buyer to pay and discharge any Liability of the Sellers to third parties
from and after the Closing Date assumed by the Buyer under the terms of this
Agreement; (ii) the obligation of the Sellers to pay and discharge any
-23-
<PAGE>
Liability to third parties not assumed by the Buyer under the terms of this
Agreement, or (iii) the Seller's obligation to deliver clear title to the
Acquired Assets.
8. Option. Seller hereby grants Buyer an option to purchase the Stations
studios and KLXX(AM) transmitter site for the amount of FIVE HUNDRED THOUSAND
DOLLARS ($500,000) (the "Option"). Buyer shall notify Seller in writing of its
exercise of the Option within six (6) months of the Closing Date and shall close
on the Option within twelve (12) months of the Closing Date. Buyer's failure to
notify Seller of its exercise or close pursuant to this paragraph shall
terminate Buyer's Option.
9. Definitions.
"Acquired Assets" means all right, title, and interest in and to all of
the assets of the Seller, other than Retained Assets that is used or useful in
the operation of the Stations, wherever located, including but not limited to
all of its (a) leaseholds and other interests of any kind therein, improvements,
fixtures, and fittings thereon (such as towers and antennae), and easements,
rights-of way, and other appurtenances thereto); (b) tangible personal property
(such as fixed assets, computers, data processing equipment, electrical devices,
monitoring equipment, test equipment, switching, terminal and studio equipment,
transmitters, transformers, receivers, broadcast facilities, furniture,
furnishings, inventories of compact disks, records, tapes and other supplies,
vehicles) and all assignable warranties with respect thereto; (c) Intellectual
Property, goodwill associated therewith, licenses and sublicenses granted and
obtained with respect thereto, and rights thereunder, remedies against
infringements thereof, and rights to protection of interests therein under the
laws of all jurisdictions; (d) rights under orders and agreements (including
those Barter Agreements and Advertising Contracts identified on the Disclosure
Schedule) now existing or entered into in the Ordinary Course of Business for
the sale of advertising time on the Stations to be broadcast after the Closing;
(e) Assumed Contracts, indentures, Security Interests, guaranties, other similar
arrangements, and rights thereunder; (f) call letters of the Stations, jingles,
logos, slogans, and business goodwill of the Stations; (g) claims, deposits,
prepayments, refunds, causes of action, chooses in action, rights of recovery
(including rights under policies of insurance), rights of set off, and rights of
recoupment; (h) Licenses and similar rights obtained from governments and
governmental agencies; and (i) FCC logs and records and all other books,
records, ledgers, logs, files, documents, correspondence, advertiser lists, all
other lists, plats, architectural plans, drawings, and specifications, creative
materials, advertising and promotional materials, program production materials,
studies, reports, and other printed or written materials; and (j) goodwill of
the Stations.
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including all attorneys' fees and court costs.
-24-
<PAGE>
"Advertising Contracts" has the meaning set forth in Section 2(s), above.
"Affiliate" means with reference to any person or entity, another person
or entity controlled by, under the control of or under common control with that
person or entity.
"Assignment Application" shall has the meaning set forth in Section 4(b)
above.
"Assumed Contracts" means the Leases, the Barter Agreements, the
Advertising Contracts and those contracts identified on Section 2(k) of the
Disclosure Schedule as those to be assumed by Broadcasting.
"Assumed Liabilities" means (a) obligations of the Sellers which accrue
after the Closing Date under the Assumed Contract either: (i) to furnish
services, and other non-Cash benefits to another party after the Closing; or
(ii) to pay for goods, services, and other non-Cash benefits that another party
will furnish to it after the Closing. The Assumed Liabilities shall not include
any Retained Liabilities.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyers" has the meaning set forth in the preface above.
"Cash" means cash and cash equivalents determined in accordance with GAAP
applied on a basis consistent with the preparation of the Financial Statements.
"Closing" has the meaning set forth in Section 1 (d) above.
"Closing Date" has the meaning set forth in Section 1(d) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of the Seller.
"Disclosure Schedule" has the meaning set forth in Section 1 above.
"Earnest Money Deposit" has the meaning set forth in Section 1(c) above.
"Earnest Money Escrow Agreement" has the meaning set forth in Section
1(c).
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined
-25-
<PAGE>
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multi-employer Plan), or (d)
Employee Welfare Benefit Plan or Material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and Recovery
Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act
of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act
of 1976, the Refuse Act of 1899, or the Emergency Planning and Community
Right-to-Know Act of 1986 (each as amended), or any other law of any federal,
state, local, or foreign government or agency thereof (including rules,
regulations, codes, plans, judgments, orders, decrees, stipulations,
injunctions, and charges thereunder) relating to public health and safety, or
pollution or protection of the environment, including, without limitation, laws
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous or toxic materials
or wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means Media Venture Partners.
"Extremely Hazardous Substance" has the meaning set forth in Section 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FCC" means the Federal Communications Commission of the United States.
"FCC Licenses" means the licenses, permits and other authorizations,
including any temporary waiver or special temporary authorization, issued by the
FCC to the Sellers in connection with the conduct of the business and operation
of the Stations.
"Final Order" means an action by the FCC as to which: (a) no request for
stay by the FCC is pending, no such stay is in effect, and any deadline for
filing a request for any such stay has passed; (b) no appeal, petition for
rehearing or reconsideration, or application for review is pending before the
FCC and the deadline for filing any such appeal, petition or application has
passed; (c) the FCC has not initiated reconsideration or review on its own
motion and the time in which such reconsideration or review is permitted has
passed; and (d) no appeal to a court, or
-26-
<PAGE>
request for stay by a court, of the FCC's action is pending or in effect, and
the deadline for filing any such appeal or request has passed.
"Financial Statements" has the meaning set forth in Section 2(e) above.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in Section 7(d) above.
"Indemnifying Party" has the meaning set forth in Section 7(d) above.
"Intellectual Property" means all (a) patents, patent applications, patent
disclosures, and improvements thereto, (b) trademarks, service marks, trade
dress, call letters, logos, trade names, and corporate names and registrations
and applications for registration thereof, (c) all programs, programming
materials, copyrights and registrations and applications for registration
thereof, (d) mask works and registrations and applications for registration
thereof, (e) computer software, data, and documentation, (f) trade secrets and
confidential business information (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, market and other research information, drawings,
specifications, designs, plans proposals, technical data, copyrightable works,
financial, marketing, and business data, pricing and cost information, business
and marketing plans, and customer and supplier lists and information), (g) other
proprietary rights, and (h) copies and tangible embodiments thereof (in whatever
form or medium).
"Knowledge" means actual knowledge after reasonable investigation. It is
understood and agreed that prior to the execution of this Agreement, Sellers has
not informed any employees of Sellers or the Stations as to the negotiations
between Sellers and Buyers or the contemplated sale of the Stations, and
therefore the warranties and representations set forth herein reflect
information known to James Ingstad, Roger Sayler, and Kevin Lein. Promptly after
this Agreement has been executed, Sellers will inquire of the Stations' general
managers regarding the accuracy of the representations and warranties set forth
herein, and shall supplement the schedules hereto within ten days from the date
of execution of this Agreement reflecting information obtained through such
inquiry, if any.
"Leases" means those real estate leases to which Sellers is a party, as
described in Section 2(i) of the Disclosure Schedule.
-27-
<PAGE>
"Liability" means any liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), including any liability for Taxes.
"Licenses" means all FCC and other governmental licenses, franchises,
approvals, certificates, authorizations and rights of the Sellers with respect
to the operations of the Stations and all applications therefor, together with
any renewals, extension or modifications thereof and additions thereto.
"Material" or "Materially" means having or likely to has a Material
Adverse Effect.
"Material Adverse Effect" means any effect that (i) is material and
adverse to the business, assets, liabilities, results of operations or financial
condition of the Stations, or (ii) materially impairs the ability of the Sellers
or the Buyers to consummate the transactions contemplated hereby; provided,
however, that Material Adverse Effect shall not be deemed to include the impact
of (a) actions contemplated by this Agreement, and (b) changes in laws and
regulations or interpretations thereof that is generally applicable to the
broadcasting industry."
"Multi-employer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Option" has the meaning set forth in Section 8 above.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Owned Real Estate" means the real property owned by the Sellers as
described in Section 2(i) of the Disclosure Schedule and all buildings,
fixtures, and improvements located thereon, which is directly used and useful in
the operation of the Stations, provided, however, that the Station's studio
building and the KLXX (AM) tower site is specifically excluded from the assets
being assigned to Buyers hereunder.
"Party" has the meaning set forth in the preface above.
"Permitted Real Estate Encumbrances" shall has the meaning set forth in
Section 2(i),
"Post-Closing Agreement" means the Post-Closing Agreement with Seller's
owner in the form attached hereto as Exhibit C.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Purchase Price " has the meaning set forth in Section l(c) above.
-28-
<PAGE>
"Real Estate" means the Owned Real Estate and the real estate, building,
fixtures and improvements which is the subject of the Leases.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Retained Assets" means (i) the corporate charter, qualifications to
conduct business as a foreign corporation, arrangements with registered agents
relating to foreign qualifications, taxpayer and other identification numbers,
seals, minute books, stock transfer books, blank stock certificates, and other
documents relating to the organization, maintenance, and existence of the
Sellers as a corporation, including, without limitation, the general ledger and
tax records of Sellers and the Stations (although Sellers will provide access to
such records available to Buyers upon request at commercially reasonable times);
(ii) any of the rights of the Sellers under this Agreement (or under any side
agreement between the Sellers on the one hand and the Buyers on the other hand
entered into on or after the date of this Agreement); (iii) accounts, notes and
other receivables of the Seller; and (iv) Cash.
"Retained Liabilities" means any other obligations or Liabilities of the
Seller, including but not limited to: (i) any Liability relating to the
ownership or operation of the Stations prior to the Closing; (ii) any Liability
of the Sellers for income, transfer, sales, use, and other Taxes arising in
connection with the consummation contemplated hereby; (iii) any Liability of the
Sellers for costs and expenses incurred in connection with this Agreement or the
consummation of the transactions contemplated hereby (except as set forth in
Section 4(i) relating to Surveys, title commitments and environmental audits and
Section 4(b) with regard to the Assignment Application; or (iv) any Liability or
obligation of the Sellers under this Agreement (or under any side agreement
between the Sellers on the one hand and the Buyers on the other hand entered
into on or after the date of this Agreement).
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due
and payable; and (b) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation.
"Seller" has the meaning set forth in the preface above.
"Stations" means the following radio broadcast stations: KBYZ-FM, KACL-FM,
KKCT-FM and KLXX (AM), Bismarck, North Dakota.
"Subsidiary," with respect to any person, means any corporation,
partnership, joint venture, limited liability company, trust or estate of which
(or in which ) 50% or more of (i) the outstanding capital stock or other equity
interest having voting power to elect a majority of the Board of Directors of
such corporation or persons having a similar role as to an entity that is not a
corporation, (ii) the interest in the profits of such partnership or joint
venture, or (iii) the beneficial
-29-
<PAGE>
interest of such trust or estate is at such time directly or indirectly owned by
such person or one or more of such person's Subsidiaries.
"Surveys" has the meaning set forth in Section 4(o) above.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
10. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate
this Agreement as provided below:
i. the Buyers and the Sellers may terminate this Agreement by
mutual written consent at any time prior to the Closing;
ii. the Buyers may terminate this Agreement by giving written
notice to the Sellers at any time prior to the Closing in the event the Sellers
is in breach of any representation, warranty, or covenant contained in this
Agreement; provided, however, that if such breach is capable of being cured,
such breach also remains uncured for twenty (20) days after notice of breach is
received by the Sellers from the Buyers;
iii. the Sellers may terminate this Agreement by giving
written notice to the Buyers at any time prior to the Closing in the event the
Buyers is in breach of any representation, warranty, or covenant contained in
this Agreement; provided, however that if such breach is capable being cured,
such breach remains uncured for twenty (20) days after notice of breach is
received by the Buyers from the Seller;
iv. the Buyers may terminate this Agreement by giving written
notice to the Sellers at any time prior to the Closing if the Closing shall not
has occurred on or before the 270th day following the date of this Agreement by
reason of the failure of any condition precedent under Section 5(a) hereof
(unless the failure results primarily from the Buyers themselves breaching any
representation, warranty, or covenant contained in this Agreement);
-30-
<PAGE>
v. the Sellers may terminate this Agreement by giving written
notice to the Buyers at any time prior to the Closing if the Closing shall not
has occurred on or before the 270th day following the date of this Agreement by
reason of the failure of any condition precedent under Section 5(b) hereof
(unless the failure results primarily from the Sellers themselves breaching any
representation, warranty, or covenant contained in this Agreement);
vi. the Buyers or the Sellers may terminate this Agreement if
any Assignment Application is denied by Final Order.
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section above, all obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party then in breach).
11. Miscellaneous.
a. Press Releases and Announcements. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement prior
to the Closing without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by law or regulation (in which case the disclosing Party will advise
the other Party prior to making the disclosure).
b. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
c. Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, that may has related in any way to the
subject matter hereof.
d. Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of their rights, interests, or obligations hereunder without the prior
written approval of the other Party, provided that (i) the Buyers may assign all
of their right, title and interest in, to and under this Agreement to one or
more Affiliates, who shall then, subject to the terms and conditions of this
Agreement, has the right to receive the Acquired Assets, assume the Assumed
Liabilities, and to pay to the Sellers the Purchase Price therefor or to any
successor to the Buyers in the event of any sale, merger or consolidation of the
Buyers, and (ii) Buyers may assign their indemnification claims and their rights
under the warranties and representations of the Sellers to the financial
institution(s) providing financing to the Buyers in connection with this
transaction.
-31-
<PAGE>
e. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
f. Headings. The section headings contained in this Agreement is
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
g. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing and shall be considered to be given
and received in all respects when hand delivered, when delivered via prepaid
express or courier delivery service, when sent by facsimile transmission
actually received by the receiving equipment or three (3) days after deposited
in the United States mail, certified mail, postage prepaid, return receipt
requested, in each case addressed to the intended recipient as set forth below:
If to the Seller:
Mr. James Ingstad
James Ingstad Broadcast Group
P.O. Box 9919
Fargo, ND 58106-9439
With a copy to:
Clifford M. Harrington, Esq.
Fisher Wayland Cooper Leader & Zaragoza L.L.P.
2001 Pennsylvania Avenue, N.W.
Suite 400
Washington, D.C. 20006-1851
Fax: (202) 296-5618
(which copy shall not constitute notice to Seller)
If to the Buyers:
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
c/o QUAESTUS Management Corp.
330 E. Kilbourn Avenue, Suite 250
Milwaukee, WI 53202
Attn: Terrence J. Leahy Fax: (414) 283-4505
With a copy to:
-32-
<PAGE>
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
875 N. Michigan Avenue
Suite 3650
Chicago, Illinois 60611
Attn..: Richard J. Bonick
Fax: (312) 867-0098
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim or other communication shall
be deemed to has been duly given unless and until it actually is received by the
party for whom it is intended. Any party may change the address to which
notices, requests, demands, claims, and other communications hereunder is to be
delivered by giving the other party notice in the manner herein set forth.
h. Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws (and not the law of conflicts) of the State
of North Dakota.
i. Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyers and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
j. Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall has the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
k. Expenses. The Buyers and the Sellers will each bear their own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby, other than as set
forth in Section 4(b) with regard to the Assignment Application. The Sellers
will pay all income taxes. The Sellers and the Buyers will
-33-
<PAGE>
each pay one-half (1/2) of any transfer or sales taxes and other recording or
similar fees necessary to vest title to each of the Acquired Assets in the
Buyers.
l. Construction. The language used in this Agreement will be deemed
to be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference to
any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Nothing in the Disclosure Schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein unless the
Disclosure Schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail. The Parties intend that each
representation, warranty, and covenant contained herein shall has independent
significance. If any Party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty, or covenant.
m. Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement is incorporated herein by reference and
made a part hereof.
n. Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Minneapolis, Minnesota in
any action or proceeding arising out of or relating to this Agreement, agree
that all claims in respect of the action or proceeding may be heard and
determined in any such court, and agree not to bring any action or proceeding
arising out of or relating to this Agreement in any other -court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other Party with respect thereto. Any Party may
make service on the other Party by sending or delivering a copy of the process
to the Party to be served at the address and in the manner provided for the
giving of notices in Section 10(g) above. Nothing in this Section 10(n),
however, shall affect the right of any Party to serve legal process in any other
manner permitted by law. Each Party agrees that a final judgment in any action
or proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law.
* * * * *
-34-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto has executed this Agreement on as
of the date first above written.
CUMULUS BROADCASTING, INC.
By:
(printed)
Title:
CUMULUS LICENSING CORPORATION
By:
(printed)
Title:
MISSOURI RIVER BROADCASTING, INC.
By:
(printed)
Title:
JKJ BROADCASTING, INC.
By:
(printed)
Title:
-35-
<PAGE>
SCHEDULE A
Purchase Price. The Buyers agree to pay to the Seller, as consideration
for the Acquired Assets, the amount of Seven Million and no/100 Dollars
($7,000,000.00), payable as follows:
(i) on the date of this Agreement, the Buyers will deposit
with the Escrow Agent the amount of Three Hundred Fifty Thousand and no/100
Dollars ($350,000.00) (the "Earnest Money Deposit') in the form of an
irrevocable letter of credit from Lehman Commercial Paper Inc.; and
(ii) on the Closing Date, the Buyers shall pay to the Sellers
the amount of Seven Million and no/100 Dollars ($7,000,000.00), with adjustments
as provided specifically in this Agreement.
The Earnest Money Deposit referenced in this Schedule A shall be placed in
escrow with the Escrow Agent pursuant to an escrow agreement in the form
attached hereto as Exhibit A (the "Earnest Money Escrow Agreement's, and shall
be disbursed to Sellers or returned to Buyer as provided in the Earnest Money
Escrow Agreement.
-36-
<PAGE>
Exhibit 10.75
ASSET PURCHASE AGREEMENT
This Agreement ("Agreement") is entered into as of March 11, 1998, by and
between Cumulus Broadcasting, Inc., a Nevada corporation ("Broadcasting"),
Cumulus Licensing Corporation, a Nevada corporation ("Licensing"), and Clarendon
County Broadcasting Co., Inc., a South Carolina corporation (the "Seller").
Broadcasting and Licensing are referred to collectively herein as the "Buyers."
The Buyers and the Seller are referred to collectively herein as the "Parties."
Capitalized terms used in this Agreement are defined in Section 8 hereof.
Subject to the terms and conditions of this Agreement, the Buyers hereby
agree to purchase substantially all of the assets (and assume certain of the
liabilities) of the Seller that are used or useful in the operation of radio
stations WHLZ-FM, licensed to Manning, South Carolina, and WYMB-AM, licensed to
Manning, South Carolina (collectively, the "Stations") in return for cash.
Now, therefore, in consideration of the above premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, Licensing agrees to purchase from the Seller, and
the Seller agrees to sell, transfer, convey, and deliver to Licensing, all of
the FCC Licenses listed in Section 2(l) of the Disclosure Schedule. In addition,
Broadcasting agrees to purchase from the Seller, and the Seller agrees to sell,
transfer, convey, and deliver to Broadcasting, all of the Acquired Assets other
than the FCC Licenses. Both such sales shall take place at the Closing for the
consideration specified below in this Section 1.
(b) Assumption of Liabilities. On and subject to the terms and conditions
of this Agreement, the Buyer agrees to assume and become responsible for all of
the Assumed Liabilities at the Closing. The Buyer will not assume or have any
responsibility, however, with respect to any other obligation or Liability of
the Seller not included within the definition of Assumed Liabilities and the
Seller agrees to pay and discharge all Liabilities and obligations of the Seller
other than the Assumed Liabilities.
(c) Purchase Price. The Buyers agree to pay to the Seller, as
consideration for the Acquired Assets, the amount of Three Million Two Hundred
Fifty Thousand Dollars ($3,250,000.00) (the "Purchase Price"). The Purchase
Price shall be payable as follows:
(i) on the date of this Agreement, the Buyers will deliver to the Escrow
Agent an irrevocable letter of credit issued by NationsBank of
Texas, N.A. for the benefit of the Escrow Agent in substantially
similar form as the letter of credit attached hereto
1
<PAGE>
as Exhibit A in the amount of One Hundred Sixty-Two Thousand Five
Hundred Dollars ($162,500.00) (the "Earnest Money Deposit"); and
(ii) on the Closing Date, the Buyers shall pay to the Seller the amount
of Three Million Two Hundred Fifty Dollars ($3,250,000.00), with
adjustments as specifically provided in this Agreement.
The Earnest Money Deposit referenced in this Section 1(c) shall be held in
escrow by the Escrow Agent pursuant to an escrow agreement in the form attached
hereto as Exhibit B (the "Earnest Money Escrow Agreement"). If this Agreement is
terminated without Closing of the transaction contemplated herein, the Earnest
Money Deposit shall be paid to the Seller or returned to the Buyers as provided
in the Earnest Money Escrow Agreement.
(d) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Stations in
Manning, South Carolina, commencing at 9:00 a.m. local time on the date set by
the Buyers not earlier than the fifth business day or later than the tenth
business day after the FCC approval of the Assignment Application becomes a
Final Order, by which date all other conditions to the obligations of the
Parties to consummate the transactions contemplated hereby will have been
satisfied or such other date as the Parties may mutually determine (the "Closing
Date").
(e) Deliveries at the Closing. At the Closing, (i) the Seller will deliver
to the Buyers the various certificates, instruments, and documents referred to
in Section 5(a) below; (ii) the Buyers will deliver to the Seller the various
certificates, instruments, and documents referred to in Section 5(b) below;
(iii) the Seller will execute, acknowledge (if appropriate), and deliver to the
Buyers (A) assignments (including Lease and other Assumed Contract assignments
and Intellectual Property transfer documents), bills of sale and warranty deeds
in the forms attached hereto as Exhibits C-1 through C-2, (B) such affidavits,
transfer tax returns, memorandums of lease, and other additional documents as
may be required by the terms of the title insurance commitments described in
Section 4(o) hereof, as necessary to furnish title insurance as required by such
section or as may be necessary to convey title to the Real Estate to the Buyers
in the condition required herein or provided public notice of existence of the
Leases, and (C) such other instruments of sale, transfer, conveyance, and
assignment as the Buyers and their counsel reasonably may request; (iv) the
Buyers will execute, acknowledge (if appropriate), and deliver to the Seller (A)
an assumption in the form attached hereto as Exhibit D and (B) such other
instruments of assumption as the Seller and its counsel reasonably may request;
and (v) the Buyers will deliver to the Seller the consideration specified in
Section 1(c) above.
(f) Postclosing Agreement. On the Closing Date, the Seller shall execute,
and shall cause shareholder Mrs. Betty Roper to execute, a Postclosing Agreement
with the Buyer including covenants not to compete with the Buyer in the markets
served by the Stations and agreements to indemnify the Buyer in the form of
Exhibit E attached hereto. A portion of the Purchase Price equal to Fifty
Thousand Dollars ($50,000) shall be paid to the Seller by the Buyers on the
Closing Date as consideration for the agreements set forth in the Postclosing
Agreement.
2
<PAGE>
(g) Allocation. The Parties agree to allocate the Purchase Price (and all
other capitalizable costs) among the Acquired Assets for all purposes (including
financial accounting and tax purposes) in accordance with the allocation
schedule attached hereto as Exhibit F.
2. Representations and Warranties of the Seller. The Seller represents and
warrants to the Buyers that the statements contained in this Section 2 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 2),
except as set forth in the lettered and numbered paragraphs contained in the
disclosure schedule accompanying this Agreement and initialed by the Parties
(the "Disclosure Schedule") corresponding to the lettered and numbered sections
of this Section 2.
(a) Organization of the Seller. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. The Seller does not have any Subsidiaries.
The Seller has the power and authority to own or lease its properties and to
carry on all business activities now conducted by it. The sole shareholder of
the Seller is Mrs. Betty Roper.
(b) Authorization of Transaction. The Seller has full power and authority
(including full partnership power and authority) to execute and deliver this
Agreement and all agreements and instruments to be eexecuted and delivered by
such Party pursuant to this Agreement (collectively, the "Ancillary Agreements")
and to perform its obligations hereunder and thereunder. Without limiting the
generality of the foregoing, the Board of Directors of the Seller has duly
authorized the execution, delivery, and performance of this Agreement and the
Ancillary Agreements by the Seller. This Agreement and the Ancillary Agreements
constitute the valid and legally binding obligation of the Seller, enforceable
in accordance with their respective terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in Section 1(e) above), will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the Seller
is subject or any provision of the charter or bylaws of the Seller; or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice or third party consent under any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest, or
other agreement, arrangement to which the Seller is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Security Interest upon any of its assets). Other than with respect to the
Assignment Application described in Section 4(b) the Seller does not need to
give any notice to, make any filing with, or obtain any Licenses, consent, or
approval of any court or government or governmental agency in order for the
Parties to enter into this agreement or the Ancillary Agreements or to
consummate the transactions
3
<PAGE>
contemplated by this Agreement or the Ancillary Agreements (including the
assignments and assumptions referred to in Section 1(e) above).
(d) Title to Acquired Assets. Other than the Security Interests set forth
on Section 2(d) of the Disclosure Schedule (which shall be released at or before
the Closing) the Seller has good and marketable title to all of the Acquired
Assets, free and clear of any Security Interest or restriction on transfer.
(e) Financial Statements. Included in Section 2(e) of the Disclosure
Schedule are the following financial statements (collectively the "Financial
Statements"): (i) unaudited balance sheets and statements of income, and cash
flow as of and for the fiscal years ended December 31, 1993, December 31, 1994,
December 31, 1995 and December 31, 1996, for the Seller; and (ii) unaudited
balance sheets and statements of income, as of and for each month during 1996
and each month ending August 31 in 1997 for the Seller. The Financial Statements
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, are correct and complete, fairly
represent the financial condition of the Seller on such dates and the results of
operations for the periods designated therein, and are consistent with the books
and records of the Seller (which books and records are correct and complete).
(f) Events Subsequent to January 1, 1997. Since January 1, 1997, except as
set forth in Section 2(f) of the Disclosure Schedule, there has not been any
adverse change in the assets, Liabilities, business, financial condition,
operations, results of operations, or future prospects of the Seller with
respect to the operation of the Stations. Without limiting the generality of the
foregoing and with respect to the operation of the Stations since that date:
(i) the Seller has not sold, leased, transferred, or assigned any of its
material assets, tangible or intangible;
(ii) other than this Agreement, the Seller has not entered into any
agreement, contract, lease, sublease, license, or sublicense (or series of
related agreements, contracts, leases, subleases, licenses, and sublicenses)
outside the Ordinary Course of Business;
(iii) no party has accelerated, terminated, modified, or canceled any
agreement, contract, lease, sublease, license, or sublicense (or series of
related agreements, contracts, leases, subleases, licenses, and sublicenses)
involving more than $5,000 to which the Seller is a party or by which it or any
of its assets are bound;
(iv) no Security Interest has been imposed upon any of Seller's assets,
tangible or intangible;
(v) the Seller has not made any capital expenditure (or series of related
capital expenditures) outside the Ordinary Course of Business;
4
<PAGE>
(vi) the Seller has not made any capital investment in, any loan to, or
any acquisition of the securities or assets of any other person (or series of
related capital investments, loans, and acquisitions);
(vii) the Seller has not created, incurred, assumed, or guaranteed any
indebtedness (including capitalized lease obligations) outside the Ordinary
Course of Business;
(viii) the Seller has not delayed or postponed (beyond its normal practice
in the Ordinary Course of Business) the payment of accounts payable and other
Liabilities;
(ix) the Seller has not canceled, compromised, waived, or released any
right or claim (or series of related rights and claims) outside the Ordinary
Course of Business;
(x) the Seller has not granted any license or sublicense of any rights
under or with respect to any Intellectual Property;
(xi) the Seller has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to any of its property or any action
adversely affecting the FCC Licenses;
(xii) the Seller has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees giving rise to
any claim or right on its part against the person or on the part of the person
against it;
(xiii) the Seller has not entered into any employment contract, consulting
contract or severance agreement or collective bargaining agreement, written or
oral, or modified the terms of any existing such contract or agreement;
(xiv) the Seller has not granted any increase (outside routine salary and
wage increases in the Ordinary Course of Business) in the rate of compensation,
commissions, bonus or other remuneration payable, or granted any severance or
termination pay to, any of its directors, officers, and employees;
(xv) the Seller has not adopted any (A) bonus, (B) profit-sharing, (C)
incentive compensation, (D) pension, (E) retirement, (F) medical,
hospitalization, life, or other insurance, (G) severance, or (H) other plan,
contract, or commitment for any of its directors, officers, and employees, or
modified or terminated any existing such plan, contract, or commitment;
(xvi) the Seller has not made any other change in employment terms for any
of its directors, officers, and employees;
(xvii) the Seller has not made or pledged to make any charitable or other
capital contribution;
5
<PAGE>
(xviii) there has not been any other occurrence, event, incident, action,
failure to act, or transaction outside the Ordinary Course of Business involving
the Seller;
(xix) the Seller has not altered its credit and collection policies or its
accounting policies;
(xx) the Seller has not materially altered the programming, format or call
letters of the Stations, or its promotional and marketing activities;
(xxi) the Seller has not applied to the FCC for any modification of the
FCC Licenses or failed to take any action necessary to preserve the FCC Licenses
and has operated the Stations in compliance therewith and with all FCC rules and
regulations; or
(xxii) the Seller has not committed to any of the foregoing.
(g) Tax Matters. The Seller and its partners have timely and properly
filed all Tax Returns that they were required to file with respect to the
Seller's operations. All such Tax Returns were correct and complete in all
respects and properly reflect the tax liability of the Seller. The Seller has
not requested any extension of time within which to file returns in respect of
any Taxes with respect to the Seller's operations. No Tax deficiencies have been
proposed or assessed against the Seller. There are no pending, or to the
Seller's knowledge, threatened audits, investigations, or claims for or relating
to any liability in respect of Taxes with respect to the Seller's operations.
All Taxes owed by the Seller with respect to its operations (whether or not
shown on any Tax Return) have been paid. The Seller has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other third party.
No claim has ever been made by any authority in any jurisdiction where the
Seller does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets of the
Seller that arose in connection with any failure (or alleged failure) to pay any
Tax.
(h) Tangible Assets. Section 2(h) of the Disclosure Schedule sets forth a
listing of all transmitter and station equipment, vehicles and other tangible
personal property used in conducting the operation and business of the Stations.
The Seller owns or leases all tangible assets necessary for the conduct of the
operation and business of the Stations as presently conducted and as presently
proposed to be conducted and all leased assets are specifically identified as
such in Section 2(h) of the Disclosure Schedule. Each such tangible asset is
free from defects (patent and latent), has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it presently
is used. No such tangible asset is in need of replacement. Any leased personal
property included within the tangible personal property is in the condition
required of such property by the terms of the lease applicable thereto during
the term of the lease and upon the expiration thereof. All of the equipment
utilized in the operation of the stations is in compliance with all FCC and FAA
requirements and is sufficient to satisfy the intended needs of the normal
customary operations of the Stations at all times of the year and all such
equipment is in compliance with all applicable laws.
6
<PAGE>
(i) Real Property. Section 2(i) of the Disclosure Schedule lists and
describes briefly all Owned Real Estate and real property leased to the Seller
(including, without limitation, complete legal descriptions for all of the Real
Estate). The Seller has delivered to the Buyer correct and complete copies of
the Leases. With respect to the Real Estate:
(i) the Seller has good and marketable title to all of the Owned Real
Estate free and clear of all liens, charges, mortgages, security interests,
easements, restrictions or other encumbrances of any nature whatsoever except
real estate taxes for the year of Closing and municipal and zoning ordinances
and recorded utility easements which do not impair the current use, occupancy or
value or the marketability of title of the property and which are disclosed in
Section 2(i) of the Disclosure Schedule (collectively, the "Permitted Real
Estate Encumbrances");
(ii) the Leases are and, following the Closing will continue to be, legal,
valid, binding, enforceable, and in full force and effect;
(iii) no party to any Lease is in breach or default (or has repudiated any
provision thereof), and no event has occurred which, with notice or lapse of
time, would constitute a breach or default thereunder or permit termination,
modification, or acceleration thereunder;
(iv) there are no disputes, oral agreements, or forbearance programs in
effect as to any Lease;
(v) none of the Owned Real Estate and to the Seller's Knowledge, none of
the properties subject to the Leases is subject to any lease (other than
Leases), option to purchase or rights of first refusal;
(vi) except for Permitted Real Estate Encumbrances, there are no (i)
actual or, to the Seller's Knowledge, proposed special assessments with respect
to any of the Real Estate; (ii) pending or, to the Seller's Knowledge,
threatened condemnation proceedings with respect to any of the Real Estate;
(iii) pending or, to the Seller's Knowledge, threatened litigation or
administrative actions with respect to any of the Real Estate; (iv) mechanic's
or materialmens' liens with respect to the Owned Real Estate; (v) structural or
mechanical defects in any of the buildings or improvements located in the Real
Estate; (vi) planned or commenced improvements which will result in an
assessment or otherwise affect the Real Estate; (vii) governmental agency or
court orders requiring the repair, alteration or correction of any existing
condition with respect to the Real Estate or any portion thereof; or (viii) any
pending or, to the Seller's Knowledge, threatened changed in any zoning laws or
ordinances which may affect any of the Real Estate or Seller's use thereof;
(vii) all buildings and improvements on the Real estate are in good
operating condition and repair, normal wear and tear excepted;
(viii) the Seller has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the Leases or its rights
thereunder;
7
<PAGE>
(ix) to the Seller's Knowledge, all facilities on the Real Estate have
received all approvals of governmental authorities (including licenses, permits
and zoning approvals) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws, rules, and
regulations;
(x) all facilities on the Real EState are supplied with utilities and
other services necessary for the operation of said facilities; and
(viii) to the Seller's Knowledge, the owner of each leased facility has
good and marketable title to the underlying parcel of real property, free and
clear of any Security Interest, easement, covenant, or other restriction, except
for Permitted Real Estate Encumbrances and Seller's leasehold interest in each
Lease has priority over any other interest except for the fee interest therein
and Permitted Real Estate Encumbrances;
(j) Intellectual Property. The Seller owns or has the right to use
pursuant to license, sublicense, agreement, or permission all Intellectual
Property necessary for or currently used in the operation of the business of the
Seller as presently conducted and as presently proposed to be conducted. Each
item of Intellectual Property owned or used by the Seller immediately prior to
the Closing hereunder will be owned or available for use by the Buyer on
identical terms and conditions immediately subsequent to the Closing hereunder.
The Seller has taken all necessary or desirable action to protect each item of
Intellectual Property that it owns or uses. With respect to such Intellectual
Property:
(i) The Seller has not interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights of third
parties, and the Seller has never received any charge, complaint, claim, or
notice alleging any such interference, infringement, misappropriation, or
violation. To the Knowledge of the Seller, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Seller.
(ii) Section 2(j) of the Disclosure Schedule identifies each patent,
trademark or copyright registration which has been issued to the Seller with
respect to any of its Intellectual Property and the call letters (current and
past) of the Stations, identifies each pending patent, trademark or copyright
application for registration which the Seller has made with respect to any of
its Intellectual Property, and identifies each license, agreement, or other
permission which the Seller has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions). The Seller has
delivered to the Buyer correct and complete copies of all such patents,
trademarks or copyright registrations, applications, licenses, agreements, and
permissions (as amended to date) and has made available to the Buyer correct and
complete copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. With respect to each item of
Intellectual Property that the Seller owns:
8
<PAGE>
(A) the Seller possesses all right, title, and interest in and to
the item and all registrations and applications are in full force and
effect;
(B) the item is not subject to any outstanding judgment, order,
decree, stipulation, injunction, or charge;
(C) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending or, to the Knowledge of the
Seller, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) the Seller has not ever agreed to indemnify any person or entity
for or against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(iii) Section 2(j) of the Disclosure Schedule also identifies each item of
Intellectual Property that any third party owns and that the Seller uses
pursuant to license, sublicense, agreement, or permission including, but not
limited to the call letters of the Stations. The Seller has supplied the Buyer
with correct and complete copies of all such licenses, sublicenses, agreements,
and permissions (as amended to date). With respect to each such item of used
Intellectual Property:
(A) the license, sublicense, agreement, or permission covering the
item is, and following the Closing will continue to be on identical terms,
legal, valid, binding, enforceable, and in full force and effect;
(B) no party to the license, sublicense, agreement, or permission is
in breach or default (or has repudiated any provision thereof), and no
event has occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or acceleration
thereunder;
(C) with respect to each sublicense, the representations and
warranties set forth in subsections (A) and (B) above are true and correct
with respect to the underlying license;
(D) the underlying item of Intellectual Property is not subject to
any outstanding judgment, order, decree, stipulation, injunction, or
charge;
(E) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending, or, to the Knowledge of the
Seller, is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property;
(F) the Seller has not agreed to indemnify any person or entity for
or against any interference, infringement, misappropriation, or other
conflict with respect to the underlying item of Intellectual Property; and
9
<PAGE>
(G) the Seller has not granted any sublicense or similar right with
respect to the license, sublicense, agreement, or permission.
(iv) The Seller has no Knowledge of any new products, inventions,
procedures, or methods of processing that any competitors or other third parties
have developed which reasonably could be expected to supersede or make obsolete
any product or process of the Seller.
(k) Contracts. Section 2(k) of the Disclosure Schedule lists the following
contracts, agreements, and other written arrangements (other than with
advertisers for the sale of air time which are listed in Section 2(s) of the
Disclosure Schedule) to which the Seller is a party:
(i) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third parties
providing for lease payments in excess of $1,000 per year;
(ii) any written arrangement (or group of related written
arrangements) for the purchase or sale of supplies, products, or other
personal property or for the furnishing or receipt of services which
either calls for performance over a period of more than one year or
involves more than the sum of $1,000;
(iii) any written arrangement concerning a partnership or joint
venture;
(iv) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or guaranteed
(or may create, incur, assume, or guarantee) indebtedness (including
capitalized lease obligations) involving more than $1,000 or under which
it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(v) any written arrangement concerning confidentiality or
noncompetition;
(vi) any written arrangement with any of its employees in the nature
of a collective bargaining agreement, consulting agreement, compensation
agreement, employment agreement, commission agreement, or severance
agreement;
(vii) any written arrangement under which the consequences of a
default or termination could have an adverse effect on the assets,
Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Seller or the Stations;
(viii) any written arrangement concerning a guaranty by the Seller
of the obligations of any other party; or
(ix) any other written arrangement (or group of related written
arrangements) either involving more than $5,000 or not entered into in the
Ordinary Course of Business.
10
<PAGE>
The Seller has delivered to the Buyer a correct and complete copy of each
written arrangement listed in Section 2(k) of the Disclosure Schedule (as
amended to date). With respect to each written arrangement so listed which
constitutes an Assumed Contract: (A) the written arrangement is legal, valid,
binding, enforceable, and in full force and effect; (B) the written arrangement
will continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms following the Closing (if the arrangement has not
expired according to its terms); (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification, or acceleration, under the
written arrangement; and (D) no party has repudiated any provision of the
written arrangement. The Seller is not a party to any verbal contract,
agreement, or other arrangement which, if reduced to written form, would be
required to be listed in Section 2(k) of the Disclosure Schedule under the terms
of this Section 2(k). Except for the Assumed Contracts, the Buyer shall not have
any Liability or obligations for or in respect of any of the contracts set forth
in Section 2(k) of the Disclosure Schedule or any other contracts or agreements
of the Seller. No advertiser of the Stations has indicated within the past year
that it will stop, or decrease the rate of, buying services from them.
(l) Commission Licenses and Compliance with Commission Requirements.
(i) All licenses, permits, authorizations, franchises, certificates of
compliance, and consents of governmental bodies, including, without limitation,
the FCC Licenses, used or useful in the operation of the Stations as they are
now being operated are (A) in full force and effect, (B) unimpaired by any acts
or omissions of the Seller or the Seller's employees or agents, (C) free and
clear of any restrictions which might limit the full operation of the Stations,
and (D) detailed in Section 2(l) of the Disclosure Schedule. With respect to the
licenses, permits, authorizations, franchises, certificates of compliance and
consents referenced in the preceding sentence, Section 2(l) of the Disclosure
Schedule also sets forth, without limitation, the date of the last renewal, the
expiration date thereof, and any conditions or contingencies related thereto.
Except as set forth in Section 2(l) of the Disclosure Schedule, no condition
exists or event has occurred that permits, or after notice or lapse of time, or
both, would permit, the revocation or termination of any such license, permit,
consent, franchise, or authorization (other than pursuant to their express
expiration date) or the imposition of any material restriction or limitation
upon the operation of the Stations as now conducted. Except as set forth in
Section 2(l) of the Disclosure Schedule, the Seller is not aware of any reason
why the FCC licenses might not be renewed in the ordinary course or revoked.
(ii) The Stations are each in compliance with the FCC's policy on exposure
to radio frequency radiation. No renewal of any FCC License would constitute a
major environmental action under the FCC's rules or policies. Access to the
Stations' transmission facilities is restricted in accordance with the policies
of the FCC.
(iii) Except as set forth in Section 2(1) of the Disclosure Schedule, to
the Seller's Knowledge, the Seller is not the subject of any FCC or other
governmental investigation or any
11
<PAGE>
notice of violation or order, or any material complaint, objection, petition to
deny, or opposition issued by or filed with the FCC or any other governmental
authority in connection with the operation of or authorization for the Stations,
and there are no proceedings (other than rule making proceedings of general
applicability) before the FCC or any other governmental authority that could
adversely affect any of the FCC Licenses or the authorizations listed in Section
2(l) of the Disclosure Schedule.
(iv) The Seller has filed with the FCC and all other governmental
authorities having jurisdiction over the Stations all material reports,
applications, documents, instruments, and other information required to be
filed, and will continue to make such filings through the Closing Date.
(v) The Seller is not aware of any information concerning the Stations
that could cause the FCC or any other regulatory authority not to issue to the
Buyer all regulatory certificates and approvals necessary for the consummation
of the transactions contemplated hereunder or the Buyer's operation and/or
ownership of the Stations. Seller is not aware of any pending FCC applications
which, if approved, would allow for the operation of a new radio station with a
signal reaching the signal area of the Stations and, in addition, Seller is not
aware of any plans or proposals by existing radio stations with a signal
reaching the signal area of the Stations to alter or change their format to a
format similar to that of the Stations.
(m) Insurance. Section 2(m) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Seller is a party, a named insured,
or otherwise the beneficiary of coverage:
(i) the name, address, and telephone number of. the agent;
(ii) the name of the insurer, the name of the policyholder, and the name
of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was on a
claims made, occurrence, or other basis) and amount (including a description of
how deductibles and ceilings are calculated and operate) of coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, and enforceable and in full force and effect; (B) the policy will
continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms through the Closing Date.
12
<PAGE>
(n) Litigation. Section 2(n) of the Disclosure Schedule sets forth each
instance in which the Seller: (i) is subject to any unsatisfied judgment, order,
decree, stipulation, injunction, or charge; or (ii) is a party or, to the
Knowledge of the Seller, is threatened to be made a party to any charge,
complaint, action, suit, proceeding, hearing, or investigation of or in any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. None of the charges,
complaints, actions, suits, proceedings, hearings, and investigations set forth
in Section 2(n) of the Disclosure Schedule could result in any adverse change in
the assets, Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Seller or the Stations taken as a whole.
The Seller has no reason to believe that any such charge, complaint, action,
suit, proceeding, hearing, or investigation may be brought or threatened against
the Seller.
(o) Employees. Section 2(o) of the Disclosure Schedule sets forth a
listing of the names, positions, job descriptions, salary or wage rates and all
other forms of compensation paid for work at the Stations of each employee of
the Seller. Section 2(o) of the Disclosure Schedule also sets forth a list of
all employee handbooks and/or manuals relating to the employees of the Seller,
true and correct copies of which have been delivered to the Buyer. To the
Knowledge of the Seller, no key employee or group of employees has any plans to
terminate employment with the Seller. The Seller is not a party to or bound by
any understanding (whether written or oral), agreement or contract with any
union, labor organization, employee group or other entity or individual which
affects the employment of employees of the Seller including, but not limited to
any collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. The Seller has no Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of any of the Seller. The Seller has not been subject to a strike,
slow down or other work stoppage during the five (5) year period immediately
preceding the date hereof and, to the Seller's Knowledge, there are no strikes,
slow downs or work stoppages threatened against the Seller. To the Seller's
Knowledge, it has not committed any unfair labor practice. There is no basis for
any claim by any past or present employee of the Seller that such employee was
subject to wrongful discharge or any employment discrimination by the Seller or
its management arising out of or relating to the employee's race, sex, age,
religion, national origin, ethnicity, handicap or any other protected
characteristic under applicable law. No proceedings are pending before any
court, governmental agency or instrumentality or arbitrator relating to labor
matters, and there is no pending investigation by any governmental agency or, to
the Knowledge of the Seller, threatened claim by any such agency or other person
relating to labor or employment matters.
(p) Employee Benefits. Section 2(p) of the Disclosure Schedule lists all
Employee Benefit Plans that the Seller maintains or to which the Seller
contributes or is required to contribute for the benefit of any current or
former employee of the Seller and true and correct copies of each such Employee
Benefit Plan have been delivered to the Buyers. Each Employee Benefit Plan (and
each related trust or insurance contract) complies and at all times has complied
in form and in operation in all respects with the applicable requirements of
ERISA and the Code. The Seller does not have any commitment to create any
additional Employee
13
<PAGE>
Benefit Plan or modify or change any existing Employee Benefit Plan that would
affect any employee or terminated employee of the Seller. There are no pending
or, to the Knowledge of the Seller, threatened claims under, by or on behalf of
any of the Employee Benefit Plans, by any employee or beneficiary covered by any
such Employee Benefit Plan, or otherwise involving any such Employee Benefit
Plan (other than routine claims for benefits), nor have there been any
Reportable Events or Prohibited Transactions with respect to any Employee
Benefit Plan.
(q) Environment, Health, and Safety.
(i) With respect to the operation of the Stations and the Real
Estate, the Seller is, and at all times in the past has been, in
compliance in all material respects with all Environmental Laws and all
laws (including rules and regulations thereunder) of federal, state, and
local governments (and all agencies thereof) concerning employee health
and safety, and no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand, or notice has ever been filed or commenced
or, to the Seller's Knowledge, is threatened, against the Seller alleging
any failure to comply with any such Environmental Law or laws concerning
employee health and safety.
(ii) With respect to the operation of the Stations and the Real
Estate, the Seller has no Liability (and to Seller's Knowledge there is no
Basis related to the past or present operations of the Seller or its
predecessors for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against the Seller
giving rise to any Liability) under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Federal Water Pollution Control
Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of
1974, the Toxic Substances Control Act of 1976, the Refuse Act of 1899, or
the Emergency Planning and Community Right-to-Know Act of 1986 (each as
amended), or any other law of any federal, state, local, or foreign
government or agency thereof (including rules, regulations, codes, plans,
judgments, orders, decrees, stipulations, injunctions, and charges
thereunder) relating to public health and safety, or pollution or
protection of the environment, including, without limitation, laws
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous or toxic
materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or
wastes ("Environmental Laws");
(iii) The Seller has no Liability (and to Seller's Knowledge there
is no Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against the Seller
giving rise to any Liability) under the Occupational Safety and Health
Act, as amended, or any other law (or rule or regulation thereunder)
14
<PAGE>
of any federal, state, local, or foreign government (or agency thereof)
concerning employee health and safety, or for any illness of or personal
injury to any employee.
(iv) The Seller has obtained and at all times has been in compliance
in all material respects with all of the terms and conditions of all
permits, licenses, and other authorizations which are required under, and
has complied with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental Laws or law of any
federal, state, or local or foreign government relating to worker health
and safety.
(v) All properties and equipment used in the business of the Seller
have been free of asbestos, PCB's, methylene chloride, trichloroethylene,
1, 2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely
Hazardous Substances.
(vi) No pollutant, contaminant, or chemical, industrial, hazardous,
or toxic material or waste ever has been buried, stored, spilled, leaked,
discharged, emitted, or released on any of the Real Estate
(vii) None of the Acquired Assets are required to be upgraded,
modified or replaced to be in compliance with Environmental Laws.
(viii) Section 2(q) of the Disclosure Schedule contains a copy of
all environmental claims, reports, studies, compliance actions or the like
of the Seller or which are available to the Seller with respect to any of
the Real Estate or any of the Acquired Assets.
(ix) No septic systems or wells exist on, in or under any of the
Real Estate. No above ground or underground storage tanks have ever been
located at, on or under the Real Estate. None of the Real Estate is
contaminated by hazardous or toxic substances or waste, as defined under
Environmental Laws, originating from off-site sources.
(r) Legal Compliance.
(i) The Seller has complied in all material respects with all laws
(including rules and regulations thereunder) of federal, state, local and
foreign governments (and all agencies thereof, and no charge, complaint, action,
suit, proceeding, hearing, investigation, claim, demand, or notice has been
filed or commenced or, to the Seller's Knowledge, is threatened, against the
Seller alleging any failure to comply with any such law or regulation, including
those relating to the employment of labor, employee civil rights, and equal
employment opportunities and relating to antitrust matters.
(ii) The Seller has filed in a timely manner all reports, documents, and
other materials it was required to file (and the information contained therein
was correct and complete in all material respects) under all applicable laws
(including rules and regulations thereunder) of
15
<PAGE>
federal state, local and foreign governments (and all agencies thereof). To the
Seller's Knowledge, it has possession of all records and documents it was
required to retain under all applicable laws (including rules and regulations
thereunder).
(s) Advertising Contracts. Section 2(s) of the Disclosure Schedule lists
all arrangements for the sale of air time or advertising on the Stations in
excess of $1000, and the amount to be paid to the Seller therefor. The Seller
has no reason to believe and has not received a notice or indication of the
intention of any of the advertisers or third parties to material contracts of
the Seller to cease doing business or to reduce in any material respect the
business transacted with the Seller or to terminate or modify any agreements
with the Seller (whether as a result of consummation of the transactions
contemplated hereby or otherwise).
(t) Brokers' Fees. Other than the fee payable to Gary Whittle Agency,
which shall be the exclusive responsibility of the Seller, the Seller has no
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(u) Undisclosed Commitments or Liabilities. There are no commitments,
liabilities or obligations relating to any of the Stations, whether accrued,
absolute, contingent or otherwise including, without limitation, guaranties by
the Seller of the liabilities of third parties, for which specific and adequate
provisions have not been made on the Financial Statements except those incurred
in or as a result of the Ordinary Course of Business since January 1, 1997 (none
of which Ordinary Course of Business obligations have had or will have a
material adverse effect on any Station).
(v) Disclosure. The representations and warranties contained in this
Section 2 do not contain any untrue statement of a fact or omit to state any
fact necessary in order to make the statements and information contained in this
Section 2 not misleading.
3. Representations and Warranties of the Buyer. Buyers represent and
warrant to the Seller that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 3),
except as set forth in the Disclosure Schedule. The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 3.
(a) Organization of the Buyers. Broadcasting and Licensing are
corporations duly organized, validly existing, and in good standing under the
laws of Nevada.
(b) Authorization of Transaction. Buyers have full power and authority to
execute and deliver this Agreement and the Ancillary Agreements and to perform
their obligations hereunder and thereunder. This Agreement and the Ancillary
Agreements constitute the valid and legally
16
<PAGE>
binding obligation of the Buyers, enforceable against the Buyers in accordance
with their respective terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement or the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby and thereby (including the assignments and assumptions
referred to in Section 1(e) above), will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the Buyers
are subject or any provision of their articles of organization or other charter
documents, or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or third party
consent under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Buyers are a
party or by which they are bound or to which any of their assets is subject.
Other than the Assignment Application described in Section 4(b), the Buyers do
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any court or government or governmental
agency in order for the Parties to consummate the transactions contemplated by
this Agreement or the Ancillary Agreements (including the assignments and
assumptions referred to in Section 1(e) above).
(d) Brokers' Fees. The Buyers have no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
4. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing:
(a) General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable to
consummate and make effective the transactions contemplated by this Agreement
(including satisfying the closing conditions set forth in Section 5 below).
(b) Assignment Applications. Within ten (10) business days after the
execution of this Agreement, the Seller and the Buyers shall jointly file with
the FCC an application for assignment of the FCC Licenses, permits and
authorizations pertaining to the Stations from the Seller to Licensing (the
"Assignment Application"). The costs of the FCC filing fees in connection with
the Assignment Application shall be divided equally between the Parties. Each
party shall pay its own attorneys' fees. The Seller and the Buyers shall
thereafter prosecute the Assignment Application with all reasonable diligence
and otherwise use the commercially reasonable efforts to obtain the grant of the
Assignment Application as expeditiously as practicable (but neither the Seller
nor the Buyers shall have any obligation to satisfy complainants or the FCC by
taking any steps which would have material adverse effect upon the Stations or
upon any Affiliate or impose significant costs on such party). If the FCC
imposes any condition on either party to the Assignment Application, such party
shall use commercially
17
<PAGE>
reasonable efforts to comply with such condition, provided, that neither party
shall be required hereunder to comply with any condition that would have a
material adverse effect upon the Stations or any Affiliate. The Seller and the
Buyers shall jointly oppose any requests for reconsideration or judicial review
of FCC approval of the Assignment Application and shall jointly request from the
FCC extension of the effective period of FCC approval of the Assignment
Application if the Closing shall not have occurred prior to the expiration of
the original effective period of the FCC Consent. Nothing in this Section 4(b)
shall be construed to limit either party's right to terminate this Agreement
pursuant to Section 9 of this Agreement.
(c) Employment Offers. Upon notice to the Seller, and at mutually
agreeable times, the Seller will permit the Buyers to meet with its employees
prior to the Closing Date. Not earlier than one (1) week prior to the Closing,
the Buyers may, at their option, extend offers of employment to all or any of
the Seller's employees effective on the Closing Date. From and after the
execution of this Agreement, the Seller shall use its best efforts to assist
Buyers in retaining those employees of the Stations which the Buyers wish to
hire in connection with the operation of the stations by the Buyers subsequent
to the Closing, and the Seller will not take any action to preclude or
discourage any of the Seller's employees from accepting any offer of employment
extended by the Buyers.
(d) Notices and Consents. The Seller will give all notices to third
parties and shall have obtained all third party consents, that the Buyers
reasonably may request in connection with the matters pertaining to the Seller
disclosed or required to be disclosed in the Disclosure Schedule (including,
without limitation, consents to assignment of the Leases and other Assumed
Contracts). Each of the Parties will take any additional action that may be
necessary, proper, or advisable in connection with any other notices to, filings
with, and authorizations, consents, and approvals of governments, governmental
agencies, and third parties that it may be required to give, make, or obtain.
(e) Operation of Business. The Seller will not engage in any practice,
take any action, embark on any course of inaction, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality of the
foregoing, the Seller will not engage in any practice, take any action, embark
on any course of inaction, or enter into any transaction of the sort described
in Section 2(f) above.
(f) Advertising Obligations. The Seller shall satisfy its air time
obligations under its agreements for sale of air time and advertising on the
Stations for goods or services ("Barter Agreements") such that the outstanding
aggregate balance owing under all Barter Agreements as of the Closing Date shall
not exceed Five Thousand Dollars ($5,000.00) worth of air time without the
Buyers' consent. On the Closing Date, the Seller shall deliver to the Buyers a
schedule, certified by an officer of the Seller, reflecting the aggregate
outstanding balances under all Barter Agreements in existence as of the Closing
Date.
(g) Operating Statements. The Seller shall deliver to the Buyers, for the
Buyers' informational purposes only, monthly unaudited statements of operating
revenues and operating
18
<PAGE>
expenses of the Stations within ten (10) days after each such statement is
prepared by or for the Seller.
(h) Contracts. The Seller will not without the prior written consent of
the Buyers amend, change, or modify any of the contracts listed on Section 2(k)
of the Disclosure Schedule in any material respect. The Seller will not without
prior written consent of the Buyers enter into any new contracts respecting the
Stations or their properties, except (i) contracts for the sale of time on the
Stations for cash, goods or services which are entered into in the Ordinary
Course of Business and comply with Sections 4(f) and 4(j) hereof, (ii) contracts
entered into in the Ordinary Course of Business which are cancelable on not more
than thirty-one (31) days' notice without penalty or premium, and (iii)
contracts entered into in the Ordinary Course of Business each of which does not
involve more than Five Thousand Dollars ($5,000) or all of which do not involve
more than Ten Thousand Dollars ($10,000) in the aggregate.
(i) Operation of Stations. The Seller shall operate the Stations in
compliance with the FCC Licenses and the rules and regulations of the FCC, and
the FCC Licenses shall at all times remain in full force and effect. The Seller
shall file with the FCC all material reports, applications, documents,
instruments and other information required to be filed in connection with the
operation of the Stations.
(j) Credit and Receivables. The Seller will follow its usual and customary
policies with respect to extending credit for sales of air time and advertising
on the Stations and with respect to collecting accounts receivable arising from
such extension of credit.
(k) Preservation of Business. The Seller will keep its business and
properties substantially intact, including its present operations, physical
facilities, working conditions, relationships with lessors, licensers,
advertisers, suppliers, customers, and employees, all of the Confidential
Information, call letters and trade secrets of the Stations, and the FCC
Licenses.
(l) Full Access and Consultation. The Seller will permit representatives
of the Buyers to have full access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of the Stations, to all
premises, properties, books, records, contracts, Tax records, and documents of
or pertaining to the Seller for the purpose of permitting the Buyer to, among
other things: (a) conduct its due diligence review, (b) review financial
statements of the Seller, (c) verify the accuracy of representations and
warranties of the Seller contained in this Agreement, and (d) prepare for the
consummation of the transactions contemplated by this Agreement. The Seller will
consult with the Buyers' management with a view to informing Buyer's management
as to the operations, management and business of the Stations. Without limiting
the foregoing, Seller acknowledges and agrees that it will provide the Buyers
and their representatives with such access to the properties, books, records,
documents and operations of the Seller as contemplated herein in a manner which
will permit the Buyers to fully complete their due diligence review within the
thirty (30) day period reference in Section 5(a) (ix), below.
19
<PAGE>
(m) Notice of Developments. The Seller will give prompt written notice to
the Buyers of any material development affecting the assets, Liabilities,
business, financial condition, operations, results of operations, or future
prospects of the Seller or the Stations. Each Party will give prompt written
notice to the other of any material development affecting the ability of the
Parties to consummate the transactions contemplated by this Agreement. No
disclosure by any Party pursuant to this Section 4(m), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(n) Exclusivity. The Seller will not (i) solicit, initiate, or encourage
the submission of any proposal or offer from any person relating to any (A)
liquidation, dissolution, or recapitalization, (B) merger or consolidation, (C)
acquisition or purchase of securities or assets, or (D) similar transaction or
business combination involving the Seller; or (ii) participate in any
discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or
attempt by any person to do or seek any of the foregoing. The Seller will notify
the Buyers immediately if any person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(o) Title Insurance, Surveys and Environmental Assessments. The Seller
will obtain with respect to each parcel of Real Estate subject to the Leases, a
leasehold owner's policy issued by a title insurer reasonably satisfactory to
the Buyer, in an amount equal to the fair market value of such Real Estate
(including all improvements located thereon), insuring over the standard
pre-printed exceptions and insuring leasehold title to such Real Estate in the
Buyers as of the Closing subject only to the Permitted Real Estate Encumbrances,
together with such endorsements for zoning, contiguity, public access and
extended coverage as the Buyers or their lender reasonably requests, (ii) with
respect to each parcel of Owned Real Estate, an owner's policy of title
insurance by a title insurer reasonably satisfactory to the Buyer, in an amount
equal to the fair market value of such Real Estate (including all improvements
located thereon), insuring over the standard pre-printed exceptions and insuring
title to the Owned Real Estate to be vested in the Buyers as of the Closing free
and clear of all liens and encumbrances except Permitted Real Estate
Encumbrances, together with such endorsements for zoning, contiguity, public
access and extended coverage as the Buyer or its lender reasonably requests,
(iii) a current survey of each parcel of Real Estate certified to the Buyer and
its lender, prepared by a licensed surveyor and conforming to current ALTA
Minimum Detail Requirements for Land Title Surveys, disclosing the location of
all improvements, easements, party walls, sidewalks, roadways, utility lines,
and other matters shown customarily on such surveys, and showing access
affirmatively to public streets and roads (the "Surveys") which shall not
disclose any survey defect or encroachment from or onto any of the Real Estate
which has not been cured or insured over prior to the Closing; and (iv) with
respect to each parcel of Real Estate, a current Phase I environmental site
assessment from an environmental consultant or engineer reasonably satisfactory
to the Buyers which does not indicate that the Seller and the Real Estate are
not in compliance with any Environmental Law and which shall not disclose or
recommend any action with respect to any condition to be remediated or
investigated or any contamination on the site
20
<PAGE>
assessed. The Buyers and the Seller will each pay one-half (1/2) of the costs of
these title policies, Surveys and environmental assessments.
(p) Control of Stations. The transactions contemplated by this Agreement
shall not be consummated until after the FCC has given its consent and approval
to the Assignment Application. Between the date of this Agreement and the
Closing Date, the Buyers and their employees or agents shall not directly or
indirectly control, supervise, or direct, or attempt to control, supervise, or
direct, the operation of the Stations, and such operation shall be the sole
responsibility of and in the control of the Seller.
(q) Risk of Loss. The risk of loss, damage, or destruction to any of the
Acquired Assets shall remain with the Seller until the Closing. In the event of
any such loss, damage, or destruction the Seller will promptly notify the Buyer
of all particulars thereof, stating the cause thereof (if known) and the extent
to which the cost of restoration, replacement and repair of the Acquired Assets
lost, damaged or destroyed will be reimbursed under any insurance policy with
respect thereto. The Seller will, at Seller's expense, repair or replace such
Acquired Assets to their former condition as soon as possible after loss, damage
or destruction thereof and shall use its best efforts to restore as promptly as
possible transmissions as authorized in the FCC Licenses. The Closing Date shall
be extended (with FCC consent, if necessary) for up to sixty (60) days to permit
such repair or replacement. If repair or replacement cannot be accomplished
within sixty (60) days of the date of the Seller's notice to the Buyers, and the
Buyers determine that the Seller's failure to repair or replace, alone or in the
aggregate with any other then existing factors, would have a material adverse
effect on the operation of the Stations:
(a) the Buyers may elect to terminate this Agreement; or
(b) the Buyers may postpone the Closing Date until such time as the
property has been repaired, replaced or restored in a manner and to an
extent reasonably satisfactory to the Buyers, unless the same cannot be
reasonably effected within ninety (90) days of the date of the Seller's
notice to the Buyers, in which case either party may terminate this
Agreement; or
(c) the Buyers may choose to accept the Acquired Asset in their
"then" condition, together with the Seller's assignment to the Buyers of
all rights under any insurance claims covering the loss, damage or
destruction and payment over to the Buyers of any proceeds under any such
insurance policies, previously received by the Seller with respect thereto
plus an amount equal to the amount of any deductible or self-insurance
maintained by Seller on such Acquired Assets..
In the event the Closing Date is postponed pursuant to this Section 4(q),
the parties hereto will cooperate to extend the time during which this Agreement
must be closed as specified in the consent of the FCC.
5. Conditions to Obligation to Close.
21
<PAGE>
(a) Conditions to Obligation of the Buyers. The obligation of the Buyers
to consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 2 above shall
be true and correct in all respects at and as of the Closing Date as though made
on and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of its
covenants hereunder in all respects through the Closing;
(iii) the Seller shall have procured all of the third party consents
specified in Section 4(d) above, including but not limited to those relating to
transmitter and studio leases, and all of the title insurance commitments (and
endorsements), Surveys and environmental site assessments described in Section
4(o) above;
(iv) no action, suit, investigation, inquiry or other proceeding shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or impose damages or penalties upon any of the parties if such
transactions are consummated, (B) cause any of the transactions contemplated by
this Agreement to be rescinded following consummation, or (C) affect adversely
the right of the Buyer to own, operate, or control the Acquired Assets (and no
such judgment, order, decree, stipulation, injunction, or charge shall be in
effect);
(v) the Seller shall have delivered to the Buyer a certificate (without
qualification as to knowledge or materiality or otherwise) to the effect that
each of the conditions specified above in Sections 5(a)(i) through (iv) is
satisfied in all respects and the statements contained in such certificate shall
be deemed a warranty of the Seller which shall survive the Closing;
(vi) each of the Assignment Applications shall have been approved by a
Final Order of the FCC and the Buyer shall have received all governmental
approvals required to transfer all other authorizations, consents, and approvals
of governments and governmental agencies set forth in the Disclosure Schedule;
(vii) the relevant parties shall have entered into the Postclosing
Agreement;
(viii) the Buyers shall have received from counsel to the Seller an
opinion with respect to the matters set forth in Exhibit F attached hereto,
addressed to the Buyers and its lender and dated as of the Closing Date; and
22
<PAGE>
(ix) the Buyers shall, within thirty (30) days after the date hereof, be
satisfied as to the results of their examination and due diligence review
referred to in Section 4(l) hereof. If, within thirty (30) days after the date
hereof, Buyers do not deliver to Seller a written notice terminating this
Agreement in regard to the contingency described in this Section 5(a) (ix), then
the contingency set forth in this Section 5(a) (ix) shall be deemed waived by
Buyers; and
(x) all actions to be taken by the Seller in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Buyer.
In the event that any of the foregoing conditions to Closing shall not have been
satisfied, the Buyers may elect to (i) terminate this Agreement without
liability to the Seller, or (ii) consummate the transactions contemplated herein
despite such failure. Regardless of whether the Buyers elect to terminate this
Agreement or consummate the transactions described herein, if such failure shall
be as a result of a breach of any provision of this Agreement by the Seller
(including, without limitation, any breach arising as a result of the failure of
the Seller to execute and/or deliver any item described in this Section 5(a),
the Buyers may seek appropriate remedies for any and all damages, costs and
expenses incurred by the Buyers by reason of such breach including, without
limitation, indemnification pursuant to Section 7, below.
(b) Conditions to Obligation of the Seller. The obligation of the Seller
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3 above shall
be true and correct in all respects at and as of the Closing Date as though made
on and as of the Closing Date;
(ii) the Buyers shall have performed and complied with all of their
covenants hereunder in all respects through the Closing;
(iii) no action, suit, investigation, inquiry or other proceeding shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or impose damages or penalties upon any of the Parties if such
transactions are consummated, or (B) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation (and no such judgment,
order, decree, stipulation, injunction, or charge shall be in effect);
23
<PAGE>
(iv) the Buyers shall have delivered to the Seller a certificate (without
qualification as to knowledge or materiality or otherwise) to the effect that
each of the conditions specified above in Section 5(b)(i)-(iii) is satisfied in
all respects and the statements contained in such certificate shall be deemed a
warranty of the Buyers which shall survive the Closing;
(v) each of the Assignment Applications shall have been approved by a
Final Order of the FCC and the Buyers shall have received all governmental
approvals required to transfer all other authorizations, consents, and approvals
of governments and governmental agencies set forth in the Disclosure Schedule;
(vi) the relevant parties shall have entered into the Postclosing
Agreement; and
(viii) all actions to be taken by the Buyers in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller.
In the event that any of the foregoing conditions to Closing shall not have been
satisfied, the Seller may elect to (i) terminate this Agreement without
liability to the Buyers, or (ii) consummate the transactions contemplated herein
despite such failure. Regardless of whether the Seller elects to terminate this
Agreement or consummate the transactions described herein, if such failure shall
be as a result of a breach of any provision of this Agreement by the Buyers
(including, without limitation, any breach arising as a result of the failure of
the Buyers to execute and/or deliver any item described in this Section 5(a),
the Seller may seek appropriate remedies for any and all damages, costs and
expenses incurred by the Seller by reason of such breach including, without
limitation, indemnification pursuant to Section 7, below.
6. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 7 below).
(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Stations, each of the other Parties will reasonably cooperate with
the contesting or defending Party and its counsel in the contest or defense,
make available his or its personnel, and provide such testimony and access to
its books and records as shall be necessary in
24
<PAGE>
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under Section 7 below); provided, however,
that such access and cooperation does not unreasonably disrupt the normal
operations of the cooperating party.
(c) Adjustments. Operation of the Stations and the income and expenses
attributable thereto up through the close of business on the day before the
Closing Date shall be for the account of the Seller and thereafter for the
account of the Buyers. Such items as employee salaries, vacation, sick day and
personal time accruals, and fringe benefits, power and utilities charges,
insurance, real and personal property taxes, prepaid expenses, deposits, music
license fees, and rents and payments pertaining to the Assumed Contracts
(including any contracts for the sale of time for cash, trade or barter so
assigned) shall be prorated between the Seller and the Buyers as of the Closing
Date in accordance with the foregoing principle. In addition, all commissions
payable with respect to the accounts receivable of the Seller (whether due
before or after Closing) shall be solely for the account and responsibility of
the Seller. Contractual arrangements that do not reflect an equal rate of
compensation to a Station over the term of the agreement shall be equitably
adjusted as of the Closing Date. The prorations and adjustments hereunder shall
be made and paid insofar as feasible on the Closing Date, with a final
settlement sixty (60) days after the Closing Date. In the event of any disputes
between the Parties as to such adjustments, the amounts not in dispute shall
nonetheless be paid at such time and such disputes shall be determined by an
independent accounting firm mutually acceptable to both parties and the fees and
expenses of such accounting firm shall be paid one-half (1/2) by the Seller and
one-half (1/2) by the Buyer.
(d) Collection of Accounts Receivable. At the Closing, the Seller will
turn over to the Buyers, for collection only, the accounts receivable of the
Stations owing to the Seller as of the close of business on the Closing Date. A
schedule of such accounts receivable will be delivered by the Seller to the
Buyers on the Closing Date or as soon thereafter as possible. The Buyers agree
to use commercially reasonable efforts in the ordinary course of business (but
without responsibility to institute legal or collection proceedings) to collect
such accounts receivable during the 120-day period following the Closing Date,
and will remit all payments received on such accounts during each calendar month
during this 120-day period on the one hundred twentieth (120th) day together
with an accounting of all payments received within such period. The Buyers shall
have the sole right to collect such accounts receivable during such one hundred
twenty (120) day period. In the event the Buyers receive monies during the
120-day period following the Closing Date from an advertiser who, after the
Closing Date, is advertising over any of the Stations, and that advertiser was
included among the accounts receivable as of the Closing Date, the Buyer shall
apply said monies to the oldest outstanding balance due on the particular
account, except in the case of a "disputed" account receivable. For purposes of
this Section 6(d), a "disputed" account receivable means one which the account
debtor refuses to pay because he asserts that the money is not owed or the
amount is incorrect. In the case of such a disputed account, the Buyers shall
immediately return the account to the Seller prior to expiration of the 120-day
period following the Closing Date. If the Buyers return a disputed account to
the Seller, the Buyers shall have no further responsibility for its collection
and may
25
<PAGE>
accept payment from the account debtor for advertising carried on any of the
Stations after the Closing Date. At the end of the 120-day period following the
Closing Date, the Buyers will turn back to the Seller all of the accounts
receivable of the Stations as of the Closing Date owing to the Seller which have
not yet been collected, and the Buyers will thereafter have no further
responsibility with respect to the collection of such receivables. During the
120-day period following the Closing Date, the Buyers shall afford the Seller
reasonable access to the accounts receivable "aging list." The Seller
acknowledges and agrees that the Buyers are acting as its collection agent
hereunder for the sole benefit of the Seller and that Buyers have accepted such
responsibility for the accommodation of the Seller. The Buyer shall not have any
duty to inquire as to the form, manner of execution or validity of any item,
document, instrument or notice deposited, received or delivered in connection
with such collection efforts, nor shall the Buyers have any duty to inquire as
to the identity, authority or rights of the persons who executed the same. The
Seller shall indemnify Buyers and hold them harmless from and against any
judgments, expenses (including attorney's fees) costs or liabilities which the
Buyers may incur or sustain as a result of or by reason of such collection
efforts.
(e) Consents. In the event any of the Assumed Contracts are not assignable
or any consent to such assignment is not obtained on or prior to the Closing
Date, and the Buyers elect to consummate the transactions contemplated herein
despite such failure or inability to obtain such consent, the Seller shall
continue to use commercially reasonable efforts to obtain any such assignment or
consent after the Closing Date. Until such time as such assignment or approval
has been obtained, the Seller will cooperate with Buyers in any lawful and
economically feasible arrangement to provide that the Buyer shall receive the
Seller's interest in the benefits under any such Assumed Contract, including
performance by the Seller as agent, if economically feasible; provided, however,
that the Buyers shall undertake to pay or satisfy the corresponding liabilities
for the enjoyment of such benefit to the extent that Buyers would have been
responsible therefor if such consent or assignment had been obtained.
7. Remedies for Breaches of this Agreement.
(a) Survival. All of the representations and warranties of the Seller
contained in Section 2 of this Agreement (other than the representations and
warranties of the Seller contained in Sections 2(a), 2(b), 2(c), 2(d), 2(g),
2(r) and 2(t) hereof or relating to the Seller's title to the Acquired Assets)
shall survive the Closing and continue in full force and effect for a period
until 90 days after the applicable statute of limitations has expired with
respect to any claim by the Buyers based on a claim or action by a third party
and for a period of three (3) years following Closing with respect to any claim
by the Buyers not based on a claim or action by a third party. All of the other
representations and warranties (including the representations and warranties of
the Seller contained in Sections 2(a), 2(b), 2(c), 2(d), 2(g) 2(r) and 2(t)
hereof or relating to the Seller's title to the Acquired Assets) and all
covenants of the Buyers and the Seller contained in this Agreement shall survive
the Closing and continue in full force and effect forever thereafter.
(b) Indemnification Provisions for the Benefit of the Buyers.
26
<PAGE>
Except as described below in Section 7(e) with respect to a breach of a
warranty or covenant prior to the Closing Date, the Seller agrees to indemnify
the Buyers from and against the entirety of any Adverse Consequences the Buyers
may suffer resulting from, arising out of, relating to, in the nature of, or
caused by:
(i) any misrepresentation or breach of any of the Seller's representations
or warranties, and covenants contained in this Agreement or in any Ancillary
Agreement executed and/or delivered by the Seller (so long as the Buyers make a
written claim for indemnification within the applicable survival period);
(ii) any breach or nonfulfillment of any agreement or covenant of the
Seller contained herein or in any Ancillary Agreement;
(iii) any Liability of the Seller which is not an Assumed Liability;
and/or
(iv) any Liability of the Buyers arising by operation of law (including
under any bulk transfer law of any jurisdiction or under any common law doctrine
of defacto merger or successor liability) which is not an Assumed Liability.
(c) Indemnification Provisions for the Benefit of the Seller. Except as
described below in Section 7(e) with respect to a breach of a warranty or
covenant prior to the Closing Date, the Buyer agrees to indemnify the Seller
from and against the entirety of any Adverse Consequences the Seller may suffer
resulting from, arising out of, relating to, in the nature of, or caused by (i)
any misrepresentation or breach of any of the Buyers' representations or
warranties contained in this Agreement or in any Ancillary Agreement executed
and/or delivered by the Buyers (so long as the Seller makes a written claim for
indemnification within the applicable survival period) or (ii) any breach or
nonfulillment of any agreement or covenant of the Buyers contained herein or in
any Ancillary Agreement, or (iii) any Assumed Liability.
(d) Specific Performance. Each of the Parties acknowledges and agrees that
the other Party would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the other
Party shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the Parties and the
matter (subject to the provisions set forth in Section 10(o) below), in addition
to any other remedy to which it may be entitled, at law or in equity. Each of
the Parties acknowledges and agrees that not withstanding the provision in
Section 7(e) with respect to the remedy of liquidated damages upon a breach of a
warranty or covenant of this Agreement prior to the Closing, money damages would
not be an adequate remedy for a breach of any provision of this Agreement.
27
<PAGE>
(e) Liquidated Damages. The Buyer and the Seller acknowledge that in the
event that the transactions contemplated by this Agreement are not closed
because of a default by either Party, the Adverse Consequences as a result of
such default may be difficult, if not impossible, to ascertain. Accordingly, in
lieu of indemnification pursuant to Section 7(b) or 7(c), the non defaulting
Party shall be entitled to receive from the defaulting Party for such default
the sum of Three Hundred FiftyThousand Dollars ($350,000) as liquidated damages
without the need for proof of damages, subject only to successfully proving in a
court of competent jurisdiction that the other Party has materially breached
this Agreement and that the transactions contemplated thereby have not occurred;
provided however, that the Buyers shall retain the option to receive, pursuant
to Section 7(d), and in lieu of receiving the liquidated damages provided in
this Section 7(e), the remedy of specific performance with respect to a breach
of this Agreement prior to the Closing. The Buyers and the Seller agree to pay
said sum of liquidated damages within ten (10) days of the date that the
non-defaulting party obtains such a judgment, and agree that in the event this
Agreement is terminated by the Seller prior to the Closing Date as a result of a
breach or default by the Buyers under this Agreement, the Seller shall proceed
against the Earnest Money as partial satisfaction of liquidated damages owed by
Buyers.
(f) Matters Involving Third Parties. If any third party shall notify any
Party (the "Indemnified Party") with respect to any matter which may give rise
to a claim for indemnifica tion against any other Party (the "Indemnifying
Party") under this Section 7, then the Indemnified Party shall notify the
Indemnifying Party thereof promptly; provided, however, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is damaged as a result
of such failure. In the event any Indemnifying Party notifies the Indemnified
Party within 15 days after the Indemnified Party has given notice of the matter
that the Indemnifying Party is assuming the defense thereof, (i) the
Indemnifying Party will defend the Indemnified Party against the matter with
counsel of its choice reasonably satisfactory to the Indemnified Party, (ii) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
(except that the Indemnifying Party will be responsible for the fees and
expenses of the separate co-counsel to the extent the Indemnified Party
reasonably concludes that the counsel the Indemnifying Party has selected has a
conflict of interest), (iii) the Indemnified Party will not consent to the entry
of any judgment or enter into any settlement with respect to the matter without
the written consent of the Indemnifying Party (not to be withheld unreasonably),
and (iv) the Indemnifying Party will not consent to the entry of any judgment
with respect to the matter, or enter into any settlement which does not include
a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all Liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld unreasonably). In the event
the Indemnifying Party does not notify the Indemnified Party within 15 days
after the Indemnified Party has given notice of the matter that the Indemnifying
Party is assuming the defense thereof, however, and/or in the event the
Indemnifying Party shall fail to defend such claim actively and in good faith,
then the Indemnified Party may defend against, or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate.
28
<PAGE>
8. Definitions.
"Acquired Assets" means all right, title, and interest in and to all of
the assets of the Seller, other than Retained Assets that are used or useful in
the operation of the Stations, wherever located, including but not limited to
all of its (a) leaseholds and other interests of any kind therein, improvements,
fixtures, and fittings thereon (such as towers and antennae), and easements,
rights-of-way, and other appurtenances thereto); (b) tangible personal property
(such as fixed assets, computers, data processing equipment, electrical devices,
monitoring equipment, test equipment, switching, terminal and studio equipment,
transmitters, transformers, receivers, broadcast facilities, furniture,
furnishings, inventories of compact disks, records, tapes and other supplies,
vehicles, and all assignable warranties with respect thereto; (c) Intellectual
Property, goodwill associated therewith, licenses and sublicenses granted and
obtained with respect thereto, and rights thereunder, remedies against
infringements thereof, and rights to protection of interests therein under the
laws of all jurisdictions; (d) rights under orders and agreements (including
those Barter Agreements and Advertising Contracts identified on the Disclosure
Schedule) now existing or entered into in the Ordinary Course of Business for
the sale of advertising time on the Stations; (e) Assumed Contracts, indentures,
Security Interests, guaranties, other similar arrangements, and rights
thereunder; (f) call letters of the Stations, jingles, logos, slogans, and
business goodwill of the Stations; (g) claims, deposits, prepayments, refunds,
causes of action, choses in action, rights of recovery (including rights under
policies of insurance), rights of set off, and rights of recoupment; (h)
Licenses and similar rights obtained from governments and governmental agencies;
and (i) FCC logs and records and all other books, records, ledgers, logs, files,
documents, correspondence, advertiser lists, all other lists, plats,
architectural plans, drawings, and specifications, creative materials,
advertising and promotional materials, program production materials, studies,
reports, and other printed or written materials; and (j) goodwill of the
Stations.
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including all attorneys' fees and court costs.
"Advertising Contracts" has the meaning set forth in Section 2(s), above.
"Affiliate" means with reference to any person or entity, another person
or entity controlled by, under the control of or under common control with that
person or entity.
"Assignment Application" has the meaning set forth in Section 4(b) above.
"Assumed Contracts" means the Leases, the Barter Agreements, the
Advertising Contracts and those contracts listed on Exhibit G attached hereto.
"Assumed Liabilities" means (a) obligations of the Seller which accrue
after the Closing Date under the Assumed Contract either: (i) to furnish
services, and other non-Cash
29
<PAGE>
benefits to another party after the Closing; or (ii) to pay for goods, services,
and other non-Cash benefits that another party will furnish to it after the
Closing. The Assumed Liabilities shall not include any Retained Liabilities.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyers" has the meaning set forth in the preface above.
"Cash" means cash and cash equivalents determined in accordance with GAAP
applied on a basis consistent with the preparation of the Financial Statements.
"Closing" has the meaning set forth in Section 1(d) above.
"Closing Date" has the meaning set forth in Section 1(d) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of the Seller.
"Disclosure Schedule" has the meaning set forth in Section 2 above.
"Earnest Money Deposit" has the meaning set forth in Section 1(c) above.
"Earnest Money Escrow Agreement" has the meaning set forth in Section 1(c)
above.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"Environmental Laws" has the meaning set forth in Section 2(q), above.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
30
<PAGE>
"Escrow Agent" means the Gary Whittle Agency.
"Extremely Hazardous Substance" has the meaning set forth in Section 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FCC" means the Federal Communications Commission of the United States.
"FCC Licenses" means the licenses, permits and other authorizations,
including any temporary waiver or special temporary authorization, issued by the
FCC to the Seller in connection with the conduct of the business and operation
of the Stations.
"Final Order" means an action by the FCC as to which: (a) no request for
stay by the FCC is pending, no such stay is in effect, and any deadline for
filing a request for any such stay has passed; (b) no appeal, petition for
rehearing or reconsideration, or application for review is pending before the
FCC and the deadline for filing any such appeal, petition or application has
passed; (c) the FCC has not initiated reconsideration or review on its own
motion and the time in which such reconsideration or review is permitted has
passed; and (d) no appeal to a court, or request for stay by a court, of the
FCC's action is pending or in effect, and the deadline for filing any such
appeal or request has passed.
"Financial Statements" has the meaning set forth in Section 2(e) above.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Indemnified Party" has the meaning set forth in Section 7(d) above.
"Indemnifying Party" has the meaning set forth in Section 7(d) above.
"Intellectual Property" means all (a) patents, patent applications, patent
disclosures, and improvements thereto, (b) trademarks, service marks, trade
dress, call letters, logos, trade names, and corporate names and registrations
and applications for registration thereof, (c) all programs, programming
materials, copyrights and registrations and applications for registration
thereof, (d) mask works and registrations and applications for registration
thereof, (e) computer software, data, and documentation, (f) trade secrets and
confidential business information (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, market and other research information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial, marketing, and business data, pricing and cost information, business
and marketing plans, and customer and supplier lists and information), (g) other
proprietary rights, and (b) copies and tangible embodiments thereof (in whatever
form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
31
<PAGE>
"Leases" means those real estate leases to which Seller is a party
governing Seller's studios and FM tower sites in Manning, South Carolina, as
described in Section 2(i) of the Disclosure Schedule.
"Liability" means any liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), including any liability for Taxes.
"Licenses" means all FCC and other governmental licenses, franchises,
approvals, certificates, authorizations and rights of the Seller with respect to
the operations of the Stations and all applications therefor, together with any
renewals, extension or modifications thereof and additions thereto.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Owned Real Estate" means the real property owned by the Seller in
_________ as described in Section 2(i) of the Disclosure Schedule and all
buildings, fixtures, and improvements located thereon.
"Party" has the meaning set forth in the preface above.
"Permitted Real Estate Encumbrances" shall have the meaning set forth in
Section 2(i), above.
"Post-Closing Agreement" means the Post-Closing Agreement with Seller's
owners in the form attached hereto as Exhibit D.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Purchase Price" has the meaning set forth in Section 1(c) above.
"Real Estate" means the Owned Real Estate and the real estate, building,
fixtures and improvements which are the subject of the Leases.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Retained Assets" means (i) the corporate charter, qualifications to
conduct business as a foreign corporation, arrangements with registered agents
relating to foreign qualifications, taxpayer and other identification numbers,
seals, minute books, stock transfer books, blank stock certificates, and other
documents relating to the organization, maintenance, and existence
32
<PAGE>
of the Seller as a corporation; (ii) any of the rights of the Seller under this
Agreement (or under any side agreement between the Seller on the one hand and
the Buyers on the other hand entered into on or after the date of this
Agreement); (iii) accounts, notes and other receivables of the Seller; (iv) the
real estate located 517 Sunset Drive, Manning, South Carolina; and (v) Cash.
"Retained Liabilities" means any other obligations or Liabilities of the
Seller, including but not limited to: (i) any Liability relating to the
ownership or operation of the Stations prior to the Closing; (ii) any Liability
of the Seller for income, transfer, sales, use, and other Taxes arising in
connection with the consummation contemplated hereby; (iii) any Liability of the
Seller for costs and expenses incurred in connection with this Agreement or the
consummation of the transactions contemplated hereby (except as set forth in
Section 4(i) relating to Surveys, title commitments and environmental audits and
Section 4(b) with regard to the Assignment Application; or (iv) any Liability or
obligation of the Seller under this Agreement (or under any side agreement
between the Seller on the one hand and the Buyers on the other hand entered into
on or after the date of this Agreement).
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) liens for Taxes not yet due
and payable; and (b) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation.
"Seller" has the meaning set forth in the preface above.
"Stations" means the radio broadcast stations having the call letters
WHLZ-FM and WYMB-AM, licensed by the FCC to operate in Manning, South Carolina.
"Subsidiary," with respect to any person, means any corporation,
partnership, joint venture, limited liability company, trust or estate of which
(or in which ) 50% or more of (i) the outstanding capital stock or other equity
interest having voting power to elect a majority of the Board of Directors of
such corporation or persons having a similar role as to an entity that is not a
corporation, (ii) the interest in the profits of such partnership or joint
venture, or (iii) the beneficial interest of such trust or estate are at such
time directly or indirectly owned by such person or one or more of such person's
Subsidiaries.
"Surveys" has the meaning set forth in Section 4(o) above.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
33
<PAGE>
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
9. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyers and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyers may terminate this Agreement by giving written notice to
the Seller at any time prior to the Closing in the event the Seller is in breach
of any representation, warranty, or covenant contained in this Agreement;
provided, however, that if such breach is capable of being cured, such breach
also remains uncured for twenty (20) days after notice of breach is received by
the Seller from the Buyers;
(iii) the Seller may terminate this Agreement by giving written notice to
the Buyers at any time prior to the Closing in the event the Buyers are in
breach of any representation, warranty, or covenant contained in this Agreement;
provided, however that if such breach is capable being cured, such breach
remains uncured for twenty (20) days after notice of breach is received by the
Buyers from the Seller;
(iv) the Buyers may terminate this Agreement by giving written notice to
the Seller at any time prior to the Closing if the Closing shall not have
occurred on or before the 270th day following the date of this Agreement by
reason of the failure of any condition precedent under Section 5(a) hereof
(unless the failure results primarily from the Buyers themselves breaching any
representation, warranty, or covenant contained in this Agreement);
(v) the Seller may terminate this Agreement by giving written notice to
the Buyers at any time prior to the Closing if the Closing shall not have
occurred on or before the 270th day following the date of this Agreement by
reason of the failure of any condition precedent under Section 5(b) hereof
(unless the failure results primarily from the Seller itself breaching any
representation, warranty, or covenant contained in this Agreement); or
(vi) the Buyers or the Seller may terminate this Agreement if any
Assignment Application is denied by Final Order.
34
<PAGE>
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 9(a) above, all obligations of the Parties hereunder shall terminate
without any Liability of any Party to any other Party (except for any Liability
of any Party then in breach).
10. Miscellaneous.
(a) Survival. All of the representations, warranties, and covenants of the
Parties contained in this Agreement shall survive the Closing hereunder as and
to the extent provided in Section 7(a) hereof and the Post-Closing Agreement
with respect to Seller's owners.
(b) Press Releases and Announcements. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement prior
to the Closing without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by law or regulation (in which case the disclosing Party will advise
the other Party prior to making the disclosure).
(c) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, that may have related in any way to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party, provided that (i) the Buyers may assign all of its right,
title and interest in, to and under this Agreement to one or more Affiliates,
who shall then, subject to the terms and conditions of this Agreement, have the
right to receive the Acquired Assets, assume the Assumed Liabilities, and to pay
to the Seller the Purchase Price therefor or to any successor to the Buyers in
the event of any sale, merger or consolidation of the Buyers, and (ii) Buyers
may assign their indemnification claims and their rights under the warranties
and representations of the Sellers to the financial institution(s) providing
financing to the Buyers in connection with this transaction.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
35
<PAGE>
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing and shall be considered to be given
and received in all respects when hand delivered, when delivered via prepaid
express or courier delivery service, when sent by facsimile transmission
actually received by the receiving equipment or three (3) days after deposited
in the United States mail, certified mail, postage prepaid, return receipt
requested, in each case addressed to the intended recipient as set forth below:
If to the Seller:
Mrs. Betty Roper
Clarendon County Broadcasting Co., Inc.
517 Sunset Drive
Manning, South Carolina 29102
Copy to:
Coffey, Chandler & Johnson, Attorneys
Post Office Box 1292
Manning, South Carolina 29102
Attn: W.C. Coffey, Jr.
Phone: (803) 435-8847
Fax: (803) 435-8915
(which copy shall not constitute notice to Seller)
If to the Buyers:
Cumulus Broadcasting, Inc.
c/o QUAESTUS Management Corporation
330 E. Kilbourn Avenue, Suite 250
Milwaukee, WI 53202
Attn: Terrence J. Leahy
With a copy to:
Cumulus Broadcasting, Inc.
Cumulus Licensing Corp.
875 N. Michigan Avenue
Suite 3650
Chicago, Illinois 60611
Attn: Richard J. Bonick
Baker & Daniels
205 W. Jefferson Boulevard
Suite 250
36
<PAGE>
South Bend, Indiana 46601
Attn: Peter Trybula
(which copies shall not constitute notice to Buyers)
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim or other communication shall
be deemed to have been duly given unless and until it actually is received by
the party for whom it is intended. Any party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
South Carolina.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyers and the Seller. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
(l) Expenses. The Buyers and the Seller, will each bear their own costs
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby, other than as set forth
in Section 4(b) with regard to the Assignment Applications and as set forth in
Section 4(o) with respect to Surveys, title commitments and environmental
audits. The Seller will pay all income taxes. The Seller and the Buyers will
each pay one-half (1/2) of any transfer or sales taxes and other recording or
similar fees necessary to vest title to each of the Acquired Assets in the
Buyers.
37
<PAGE>
(m) Construction. The language used in this Agreement will be deemed to be
the language chosen by the Parties to express their mutual intent, and no rule
of strict construction shall be applied against any Party. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise. Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless the
Disclosure Schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail. The Parties intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any Party has breached any representation, warranty, or
covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Charleston, South
Carolina, in any action or proceeding arising out of or relating to this
Agreement, agrees that all claims in respect of the action or proceeding may be
heard and determined in any such court, and agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Any
Party may make service on the other Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 10(h) above. Nothing in this Section 10(o),
however, shall affect the right of any Party to serve legal process in any other
manner permitted by law. Each Party agrees that a final judgment in any action
or proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
CUMULUS BROADCASTING, INC.
By:
-----------------------------------
(printed)
- --------------------------------------
Title:
--------------------------------
CUMULUS LICENSING CORPORATION
By:
-----------------------------------
38
<PAGE>
(printed)
- --------------------------------------
Title:
--------------------------------
CLARENDON COUNTY BROADCASTING CO., INC.
By:
-----------------------------------
(printed)
- --------------------------------------
Title:
--------------------------------
39
<PAGE>
Exhibit 10.76
SERVICES AGREEMENT
THIS AGREEMENT, made and entered into as of this 1st day of May, 1998, by
and between QUAESTUS MANAGEMENT CORPORATION, a Delaware corporation ("QUAESTUS")
and CUMULUS MEDIA INC., an Illinois corporation (the "Company") (QUAESTUS and
the Company shall be referred to collectively as the "Parties").
R E C I T A L S:
WHEREAS, the Company is in the business of identifying and entering into
acquisitions of media properties;
WHEREAS, QUAESTUS has expertise and resources in the areas of market
identification, due diligence, and corporate finance support; and
WHEREAS, the Company wishes to outsource the provision of these services
to QUAESTUS.
NOW, THEREFORE, the Parties agree as follows:
1. Term. The effective date of this Agreement shall be _____________
("Effective Date") and it shall continue in effect until the second anniversary
of the Effective Date unless terminated before then as provided below.
2. Provision of Services. The Company agrees to purchase, and QUAESTUS
agrees to provide, services under the terms and conditions described herein.
3. Duties of Service Provider. QUAESTUS has and will maintain a staff
trained and experienced in identifying broadcast and media properties, analyzing
media markets, using broadcast research tools and methods, and developing cash
flow and analytical financial models to support the process of identifying
attractive broadcast markets and prospective acquisition candidates for the
Company within those markets. Such staff is and will be adequate for the
performance of QUAESTUS' duties under this Agreement. Services to be rendered by
QUAESTUS under this Agreement shall include the services identified in Exhibit A
to this Agreement. In addition to the services of its own staff, QUAESTUS shall,
after consultation with the Company regarding services to be rendered at the
Company's request, arrange for and coordinate the services of other
professionals and experts, such as consulting engineers, broadcast research
services, or other outside service providers. Such use of service providers
other than QUAESTUS shall be at the expense of the Company. QUAESTUS shall
report to and be accountable to the Chief Executive Officer and Chief Financial
Officer in connection with the performance of its services under this Agreement.
4. Compensation. In consideration of the services to be provided by
QUAESTUS, the
<PAGE>
Company agrees to pay QUAESTUS the amounts listed in Exhibit B to this
Agreement. Such amounts shall be due and payable upon the closing of the
transactions which relate to the services provided. No amounts shall be due for
transactions which do not close. In addition, the Company shall promptly, but in
no event later than thirty (30) days, reimburse QUAESTUS for all of its
documented out-of-pocket and direct expenses incurred in connection with the
performance of its services under this Agreement. The Chief Financial Officer of
the Company may request QUAESTUS to provide corporate support services in
addition to those outlined in Appendix A to this agreement, such as marketing
support, graphic design, administrative services, shareholder relations, and
other services. Such services shall be provided under such terms as may be
agreed between the Chief Financial Officer and QUAESTUS and approved by the
outside members of the Company's Board of Directors
5. Termination. This Agreement may be terminated for cause by either Party
upon thirty (30) days' notice, plus the cure period described in section 6
below. "Cause" for this purpose shall consist of a Party's failure substantially
to perform its duties under this Agreement. Otherwise the Agreement shall
terminate upon the expiration of the term described in Section 1 above.
Notwithstanding the termination of the Agreement, QUAESTUS shall be entitled to
compensation for services provided before termination in connection with Company
transactions which are consummated after termination.
6. Cure Period. The defaulting party shall have thirty (30) days from the
date on which the non-defaulting party has provided the defaulting party with
written notice specifying the event(s) of default to curer any such event(s) of
default. If the event of default cannot be cured by the defaulting party within
such time period but commercially reasonably efforts are being made to effect a
cure or otherwise secure or protect the interests of the non-defaulting party
(in which case, if successful, the event of default shall be deemed cured), then
the defaulting party shall have an additional period not to exceed thirty (30)
days to effect a cure or a deemed cure.
7. Renewal. The Agreement shall be renewed for an additional twelve-month
term beyond the initial term upon the same terms and conditions, unless either
Party provides written notice to the other Party no later than thirty (30) days
before the expiration of the initial term, of its intent to terminate the
Agreement.
8. Amendment. This Agreement can be modified or amended only by a writing
signed by the parties hereto.
9. Entire Agreement. This Agreement reflects the sole understanding of the
Parties with respect to the subject matter hereof and supersedes and replaces
any agreement (whether oral or written) between the Parties with respect to the
subject matter hereof.
10. Indemnification. The Company shall indemnify, defend, and hold
harmless QUAESTUS from and against any and all claims, losses, costs,
liabilities, damages, and expenses (including reasonable attorneys' fees and
other expenses incidental thereto) of every kind, nature and description arising
out of QUAESTUS' provision of services to the Company under this Agreement,
except and to the extent that QUAESTUS has committed gross negligence or willful
misconduct.
<PAGE>
11. Assignment; Binding Effect. Neither party may assign its rights or
obligations hereunder without the prior written consent of the other party. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
12. Governing Law. The Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the undersigned have executed this Services Agreement
as of the date first above written.
QUAESTUS MANAGEMENT CORPORATION
By:
--------------------------------------
Charles F. Wright, Vice President
CUMULUS MEDIA INC.
By:
--------------------------------------
Title:
-----------------------------------
<PAGE>
EXHIBIT A
Services to be Provided by QUAESTUS
1. Industry Research
-- Perform function comparable to media research group of investment bank
-- Monitor current status of acquisition multiples
-- Review trade press
-- Public company research, filings retrieval, etc
-- Analyze competitors' acquisition strategy, capital structures
2. Deal Sourcing and Origination
-- Identify and screen potential radio markets based on Cumulus criteria
-- Retrieve and distribute BIA and other data
-- Review trade press
-- Discuss potential markets with brokers, analysts, industry experts
-- Prepare profiles of markets and competitors
-- Market modeling and assessment
-- Bid discussions and strategies
-- Research on sellers/competitors
-- Prepare valuations based on cash flow and other criteria
-- Analyze comparable sales
3. Due Diligence/Acquisition Support
-- Prepare and distribute due diligence request lists
-- Collate and distribute due diligence materials received from Sellers
-- Follow-up with Sellers to make certain all necessary information
received
-- Follow-up with Company personnel to make certain all data analyzed
-- Re-formatting of financial data to Company's management format
-- Coordinate and oversee outside diligence efforts by environmental
consultants, financial consultants, and engineers
-- Prepare contract summaries
-- Schedule audits as needed at Seller locations
-- Prepare contour and engineering analysis to support FCC applications
4. Support for Board of Directors
-- Prepare acquisition materials and other board decision materials for
Directors
-- Respond to requests for additional information
<PAGE>
5. Corporate Finance /Treasury Support
-- Prepare and maintain current actual and projected financial models
-- Respond to financial questions from investors, lenders
-- Cash needs analysis
-- Equity/debt discussion
-- Covenant compliance forecasts
-- Investor return models
-- Prepare and revise models to test various financial forecasts and
conditions
-- Budgeting process support
6. Public Relations /Marketing Support
-- Draft, maintain and update Company and personnel brochure
-- Serve as chief public contact for the Company
-- Develop Company's public and community services programs
-- Develop and maintain relationships with public officials on Company's
behalf
<PAGE>
EXHIBIT B
Compensation
For each transaction which is successfully consummated, upon closing the Company
shall pay QUAESTUS:
$15,000 for each transaction involving one FM station;
$30,000 for each transaction involving two FM stations;
$45,000 for each transaction involving three FM stations; and.
$60,000 for each transaction involving four or more FM stations.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF CUMULUS MEDIA INC.
Cumulus Broadcasting, Inc., a Nevada corporation
Caribbean Communications Company, a Montserrat corporation
Gem Radio Five Ltd., a Trinidad & Tobago corporation
Minority Radio Associates, a Georgia corporation
Forjay Broadcasting, Inc. a South Carolina corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports as of the dates and relating
to the financial statements of the companies listed below, which appear in such
Prospectus.
<TABLE>
<CAPTION>
COMPANY DATE OF REPORT
- -------------------------------------------------------------------------------------- --------------------------
<S> <C>
Cumulus Media Inc. March 18, 1998
Arbor Radio LP February 19, 1998
Beaumont Skywave, Inc. February 10, 1998
Caribbean Communications Company Limited March 9, 1998
Carolina Broadcasting, Inc. and Georgetown Radio, Inc. March 4, 1998
Castle Broadcasting Limited Partnership March 18, 1998
Clearly Superior Radio Properties February 24, 1998
Communications Properties, Inc. January 10, 1998
Crystal Radio Group, Inc. March 13, 1998
Forjay Broadcasting Corporation January 23, 1998
HVS Partners February 25, 1998
Jan-Di Broadcasting, Inc. February 24, 1998
K-Country, Inc. February 27, 1998
Lesnick Communications, Inc. February 20, 1998
Louisiana Media Interests, Inc. and Subsidiaries March 9, 1998
M&M Partners February 24, 1998
The Midwestern Broadcasting Company, Radio Stations
WWWM-FM and WLQR-AM February 11, 1998
Midland Broadcasters, Inc. May 12, 1998
Mustang Broadcasting Company March 5, 1998
Ninety Four Point One, Inc. and KAYD AM/FM February 20, 1998,
except as to Note 7,
which is as of March 6,
1998
Pamplico Broadcasting, L.P. February 13, 1998
Phoenix Broadcast Partners, Inc. March 16, 1998
Savannah Valley Broadcasting Radio Properties February 27, 1998
Seacoast Radio Company, LLC February 24, 1998
Sunny Broadcasters, Inc. February 24, 1998
Tallahassee Broadcasting, Inc. February 20, 1998
Tryon-Seacoast Communications, Inc. February 20, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPANY DATE OF REPORT
- -------------------------------------------------------------------------------------- --------------------------
<S> <C>
Value Radio Corporation February 24, 1998
Wilks Broadcast Acquisitions, Inc. February 16, 1998
WJCL-FM February 27, 1998
WKKO-FM, WRQN-FM, WTOD-AM and WIMX-FM February 6, 1998
WWFG-FM and WOSC-FM March 18, 1998
</TABLE>
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
May 14, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated March 2, 1998 on our audit of the consolidated financial
statements of Republic Corporation and subsidiary (radio broadcasting operations
only) as of December 31, 1997 and 1996 and for each of the three years in the
period ended December 31, 1997. We also consent to the reference to our firm
under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Montgomery, Alabama
May 14, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated February 27, 1998 on our audit of the financial statements of
Savannah Communications, L.P. as of December 31, 1997 and 1996 and for each of
the two years in the period ended December 31, 1997. We also consent to the
reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
May 14, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We have issued our reports dated February 24, 1998, accompanying the
financial statements of New Frontier Communications, Inc. contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
/s/ Johnson, Miller & Co.
Odessa, Texas
May 14, 1998
1
<PAGE>
EXHIBIT 23.5
CONSENT OF MCGLADREY & PULLEN, LLP
To the Board of Directors
Cumulus Media Inc.
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated February 11, 1998, except for Note 12 as to which the date is
February 19, 1998, relating to the combined financial statements of JKJ
Boradcasting, Inc., Missouri River Broadcasting, Inc., Ingstad Mankato, Inc.,
James Ingstad Broadcasting, Inc. and Hometown Wireless, Inc. We also consent to
the reference to our Firm under the captions "Experts" in the Prospectus.
/s/ McGladrey & Pullen, LLP
Pierre, South Dakota
May 14, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated February 11, 1997 on the
divisional financial statements of Fritz Broadcasting, Inc. Toledo Division for
the years ended December 29, 1996 and December 31, 1995 in the Registration
Statement on Form S-1 filed on March 15, 1998 by Cumulus Media Inc. for the
registration of Class A Common Stock.
/s/ Plante & Moran, LLP
Troy, Michigan
May 14, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
------------------------------
FIRSTAR BANK OF MINNESOTA, N.A.
(Exact name of Trustee as specified in its charter)
A National Banking Association 41-0122055
(State of incorporation if (IRS Employer
not a national bank) Identification No.)
101 East Fifth Street
Corporate Trust Department
St. Paul, Minnesota 55101
(Address of principal executive offices) (Zip Code)
FIRSTAR BANK OF MINNESOTA, N.A.
101 East Fifth Street
St. Paul, Minnesota 55101
(612) 229-2600
(Exact name, address and telephone number of agent for service)
------------------------------
Cumulus Media, Inc.
(Exact name of obligor as specified in its charter)
Illinois 36-4159663
(State of incorporation or (IRS Employer
other jurisdiction) Identification No.)
330 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
(Address of principal executive offices) (Zip Code)
------------------------------
% Senior Subordinated Notes due 2008
(Title of Indenture securities)
<PAGE>
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Comptroller of the Currency
Treasury Department
Washington, DC
Federal Deposit Insurance Corporation
Washington, DC
The Board of Governors of the Federal Reserve System
Washington, DC
(b) The Trustee is authorized to exercise corporate trust powers.
GENERAL
Item 2. Affiliations with Obligor and Underwriters. If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe
each such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's knowledge
the obligor is not in default under any Indenture for which the Trustee acts
as Trustee.
Item 16. List of Exhibits. Listed below are all the exhibits filed as a part
of this statement of eligibility and qualification. Exhibits 1-4 are
incorporated by reference from filing 333-37723.
Exhibit 1. Copy of Articles of Association of the trustee now in
effect.
Exhibit 2. a. A copy of the certificate of the Comptroller of
Currency dated June 1, 1965, authorizing Firstar Bank
of Minnesota, N.A. to act as fiduciary.
b. A copy of the certificate of authority of the trustee
to commence business issued June 9, 1903, by the
Comptroller of the Currency to Firstar Bank of
Minnesota, N.A.
<PAGE>
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued by the Federal Reserve
Board.
Exhibit 4. Company of the By-Laws of the trustee as now in effect.
Exhibit 5. Copy of each Indenture referred to in Item 4. - Not
Applicable
Exhibit 6. The consent of the trustee required by Section 321(b) of
the Act.
Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligor within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligor, or affiliates, are based
upon information furnished to the Trustee by the obligor. While the Trustee
has no reason to doubt the accuracy of any such information, it cannot accept
any responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, a national banking association organized and existing under the laws
of the United States, has duly caused this statement of Eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City
of Saint Paul and State of Minnesota on the 13th day of May, 1998.
FIRSTAR BANK OF MINNESOTA, N.A.
(Seal)
/s/ Frank P. Leslie
--------------------------------
Frank P. Leslie III
Vice President
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, Firstar Bank of Minnesota, N.A., hereby consents that reports of
examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Dated: May 13, 1998
FIRSTAR BANK OF MINNESOTA, N.A.
/s/ Frank P. Leslie
--------------------------------
Frank P. Leslie III
Vice President
<PAGE>
FIRSTAR BANK OF MINNESOTA, N.A.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$(000) $(000) $(000) $(000) $(000) $(000) $(000) $(000)
ASSETS
Cash and balances due from
depository institutions:
Noninterest-bearing balances..... 116,623 132,057 87,322 60,020 80,393 63,001 65,548 59,561 (17,217),
Interest-bearing balances........ 2,490 736 201 144 0 0 2,400 3,600
Securities......................... 432,648 446,668 454,809 395,074 371,004 379,371 360,790 348,473
Federal funds sold and securities
purchased under agreements to
resell:
Federal funds sold............... 301,169 0 0 0 0 0 7,275 26,050 (29,450)A
Securities purchased under
agreements to resell........... 0 0 0 0 0 0 0 0
Loans and lease financing
receivables:
Loans and leases, net of unearned
income......................... 1,834,544 2,276,562 1,797,918 723,375 615,578 540,293 551,347 525,883
LESS: Allowance for loan and
lease losses................... 32,327 34,218 23,978 15,665 16,317 15,049 10,763 13,739
LESS: Allocated transfer risk
reserve........................ 0 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- -------
Loans and leases, net of unearned
income, allowance, and
reserve........................ 1,802,217 2,242,344 1,773,940 707,710 599,261 525,244 540,584 512,144
Assets held in trading accounts.... 0 300 0 0 0 0 0 0
Premises and fixed assets
(including capitalized leases)... 31,607 31,539 25,944 17,465 17,661 20,809 23,464 23,090
Other real estate owned............ 210 326 599 272 1,380 3,402 4,398 2,844
Investments in unconsolidated
subsidiaries and associated
companies........................ 0 0 0 0 0 0 0 0
Customers' liability to this bank
on acceptances outstanding....... 0 0 0 0 0 0 0 0
Intangible assets.................. 111,806 118,287 25,260 26,456 29,644 32,832 36,020 114
Other assets....................... 40,512 53,778 32,009 22,492 21,079 23,090 20,424 19,275
--------- --------- --------- --------- --------- --------- --------- -------
Total assets....................... 2,839,282 3,026,035 2,400,084 1,229,633 1,120,422 1,047,749 1,060,903 995,151
--------- --------- --------- --------- --------- --------- --------- -------
--------- --------- --------- --------- --------- --------- --------- -------
LIABILITIES
Deposits:
In domestic offices:
Noninterest-bearing.......... 326,189 375,851 227,405 213,066 195,136 181,238 166,447 179,811 (17,217),
Interest-bearing............. 1,705,713 1,783,187 1,375,794 724,995 719,091 724,573 764,840 724,382
--------- --------- --------- --------- --------- --------- --------- -------
Total domestic deposits........ 2,031,902 2,159,038 1,603,199 938,061 914,227 905,811 931,287 904,193
In foreign offices:.............. 0 0 0 0 0 0 0 0
Federal funds purchased and
securities sold under agreements
to repurchase:
Federal funds purchased.......... 28,089 104,476 167,903 151,614 69,211 410 0 750 (29,450)A
Securities sold under agreements
to repurchase.................. 0 0 0 0 0 0 0 4,772
Demand notes issued to the U.S.
Treasury......................... 28,176 0 0 0 0 0 0 1,067
Other borrowed money............... 405,544 331,207 391,500 0 154 0 37 37
Mortgage indebtedness and
obligations under capitalized
leases........................... 0 1,142 367 0 0 0 3,290 2,334
Bank's liability on acceptances
executed and outstanding......... 0 0 0 0 0 0 0 0
Notes and debentures subordinated
to deposits...................... 0 0 0 0 0 0 0 0
Other liabilities.................. 16,010 46,822 28,205 13,955 13,397 18,769 10,447 9,128
--------- --------- --------- --------- --------- --------- --------- -------
Total liabilities.................. 2,509,721 2,642,685 2,191,174 1,103,630 996,989 924,990 945,061 922,281
Limited-life preferred stock....... 0 0 0 0 0 0 0 0
EQUITY CAPITAL
Perpetual preferred stock.......... 0 0 0 0 0 0 0 0
Common stock....................... 35,730 35,730 35,730 35,730 35,730 35,730 35,730 6,336
Surplus............................ 220,268 220,084 101,435 64,948 64,886 64,834 64,834 39,666
Undivided profits and capital
reserves......................... 72,084 126,450 69,527 25,325 22,817 22,195 15,278 26,868
LESS: Net unrealized loss on
marketable equity securities..... 1,479 1,086 2,218 0 0 0 0 0
Total equity capital............... 329,561 383,350 208,910 126,003 123,433 122,759 115,842 72,870
--------- --------- --------- --------- --------- --------- --------- --------
Total liabilities, limited-life
preferred stock, and equity
capital.......................... 2,839,282 3,026,035 2,400,084 1,229,633 1,120,422 1,047,749 1,060,903 995,151
--------- --------- --------- --------- --------- --------- --------- -------
--------- --------- --------- --------- --------- --------- --------- -------
</TABLE>
<PAGE>
FIRSTAR BANK OF MINNESOTA, N.A.
INCOME STATEMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- --------- -------
$(000) $(000) $(000) $(000) $(000) $(000) $(000) $(000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income
Interest and fee income on loans:
Loans secured by real estate... 110,027 115,978 106,902 20,644 18,049 19,637 21,473 23,398
Loans to finance agricultural
production and other loans to
farmers...................... 0 0 20 10 12 17 39
Commercial and industrial
loans........................ 36,492 28,852 18,155 13,667 10,758 12,703 16,082
Loans to individuals for
household, family, and other
personal expenditures:
Credit cards and related
plans...................... 2,461 2,618 2,040 1,324 725 1,084 1,250 1,093
Other........................ 20,351 20,090 15,979 15,082 14,969 16,229 14,938 12,068
Loans to foreign governments
and official institutions.... 0 0 0 0 0 0 0 0
Obligations (other than
securities and leases) of
states and political
subdivisions in the U.S.:
Taxable obligations.......... 0 0 0 0 0 0 0 0
Tax-exempt obligations....... 1,760 621 497 428 418 374 712
All other loans................ 4,435 3,200 1,195 814 248 80 147 21,536
Income from lease financing
receivables:
Taxable leases................. 2,945 1,318 99 10 4 23 117 217
Tax-exempt leases.............. 47 25 0 6 17 61 149 312
Interest income on balances due
from depository institutions... 54 48 529 5 0 140 262 493
Interest and dividend income on
securities:
U.S. Treasury securities and
U.S. Government agency and
corporation obligations...... 14,423 17,220 18,752 15,540 17,511 17,791 19,660 17,767
Securities issued by states and
political subdivisions in the
U.S.:
Taxable securities........... 0 0 1 41 51 75 120 205
Tax-exempt securities........ 8,110 7,114 6,871 6,443 6,473 7,094 8,246 8,008
Other domestic debt
securities................... 14 161 796 466 856 1,337 1,775 1,968
Foreign debt securities........ 107 67 24 19 19 16 22 23
Equity securities (including
investments in mutual
funds)....................... 3,703 2,560 2,112 305 174 156 21 22
Interest income from assets held
in trading accounts............ 0 0 0 0 0 0 0 0
Interest income on federal funds
sold and securities purchased
under agreements to resell..... 3,713 37 0 0 0 377 433 2,329
--------- --------- --------- --------- --------- --------- --------- -------
Total interest income............ 208,642 199,909 173,972 74,804 70,284 77,194 85,446 89,439
Interest expense
Interest on deposits:
Transaction accounts (NOW
accounts, ATS accounts, and
telephone and preauthorized
transfer accounts)........... 3,551 2,290 1,635 1,420 1,676 2,786 5,350 6,930
Nontransaction accounts:
Money market deposit accounts
(MMDAs).................... 19,180 12,518 8,288 4,947 5,322 7,108 10,877 11,417
Other savings deposits....... 1,785 2,283 2,439 1,317 1,767 2,120 3,782 2,876
Time certificates of deposit
of $100,000 or more........ 7,035 6,401 4,614 1,318 1,154 1,796 3,571 5,818
All other time deposits...... 41,400 43,188 43,023 10,458 10,024 12,757 18,595 20,771
Expense of federal funds
purchased and securities sold
under agreements to
repurchase..................... 5,822 9,817 11,834 4,539 1,489 135 598 643
Interest on demand notes issued
to the U.S. Treasury and on
other borrowed money........... 20,418 19,168 23,582 0 0 0 21 62
Interest on mortgage indebtedness
and obligations under
capitalized leases............. 0 56 43 0 0 199 220 184
Interest on notes and debentures
subordinated to deposits....... 0 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- -------
Total interest expense........... 99,191 95,721 95,458 23,999 21,432 26,901 43,014 48,701
--------- --------- --------- --------- --------- --------- --------- -------
Net interest income................ 109,451 104,188 78,514 50,805 48,852 50,293 42,432 40,738
Provisions:
Provision for loan and lease
losses......................... 925 774 5,738 0 2,980 7,000 3,020 7,196
Provision for allocated transfer
risk........................... 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
FIRSTAR BANK OF MINNESOTA, N.A.
INCOME STATEMENT (continued)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$(000) $(000) $(000) $(000) $(000) $(000) $(000) $(000)
Noninterest income
Income from fiduciary
activities..................... 5,378 3,220 0 0 0 0 0 0
Service charges on deposit
accounts....................... 11,979 10,508 9,536 9,721 10,482 9,066 7,974 7,488 (78)B
Trading gains (losses) and fees
from foreign exchange
transactions................... 226 461 58 16 (4) 14 32 1
Other foreign transaction gains
(losses)....................... 0 0 0 0 0 0 0 1
Gains (losses) and fees from
assets held in trading
accounts....................... 0 0 0 0 0 0 0 0
Other noninterest income:........ 2,896
Other fee income............... 5,638 8,439 12,770 3,919 3,783 3,375 2,820
All other noninterest income... 435 1,110 1,358 816 379 440 470
--------- --------- --------- --------- --------- --------- --------- -------
Total noninterest income......... 23,656 23,738 23,722 14,472 14,640 12,895 11,296 10,386
Gains (losses) on securities not
held in trading accounts......... 0 36 (537) 22 28 341 134 20
Noninterest expense
Salaries and employee benefits... 28,497 31,590 28,091 17,566 16,855 16,365 11,993 15,939
Expenses of premises and fixed
assets (net of rental income)
(excluding salaries and
employee benefits and mortgage
interest)...................... 10,458 13,167 7,837 5,279 8,464 7,844 9,804 6,379
Other noninterest expense........ 40,445 37,650 27,411 20,432 21,431 21,754 23,964 16,232 (78)B
--------- --------- --------- --------- --------- --------- --------- -------
Total noninterest expense........ 79,400 82,407 63,339 43,277 46,750 45,963 45,761 38,550
--------- --------- --------- --------- --------- --------- --------- -------
Income (loss) before taxes and
extraordinary items and other
adjustments...................... 52,782 44,781 32,622 22,022 13,790 10,566 5,081 5,398
Applicable income taxes............ 20,148 17,099 12,724 8,513 4,838 3,649 984 (452)
--------- --------- --------- --------- --------- --------- --------- -------
Income (loss) before extraordinary
items and other adjustments...... 32,634 27,682 19,898 13,509 8,952 6,917 4,097 5,850
Extraordinary items and other
adjustments:
Extraordinary items and other
adjustments, gross of income
taxes.......................... 0 0 0 0 2,370 0 0 0
Applicable income taxes.......... 0 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- -------
Extraordinary items and other
adjustments, net of income
taxes.......................... 0 0 0 0 2,370 0 0 0
--------- --------- --------- --------- --------- --------- --------- -------
Net income (loss).................. 32,634 27,682 19,898 13,509 11,322 6,917 4,097 5,850
--------- --------- --------- --------- --------- --------- --------- -------
--------- --------- --------- --------- --------- --------- --------- -------
CHANGES IN EQUITY CAPITAL
Total equity capital originally
reported at end of previous
calendar year.................... 383,350 208,910 126,003 123,433 122,759 115,842 72,870 70,570
Equity capital adjustments from
amended Reports of Income, net... 0 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- -------
Amended balance at end of previous
calendar year.................... 383,350 208,910 126,003 123,433 122,759 115,842 72,870 70,570
Net income (loss).................. 32,634 27,682 19,898 13,509 11,322 6,917 4,097 5,850
Sale, conversion, acquisition, or
retirement of capital stock,
net.............................. 0 711 269 61 52 0 0 0
Changes incident to business
combination, net................. 0 159,313 70,922 0 0 0 38,875 0
LESS: Cash dividends declared on
preferred stock.................. 0 0 0 0 0 0 0 0
LESS: Cash dividends declared on
common stock..................... 87,000 24,000 10,400 11,000 10,700 0 0 4,050
Cumulative effect of changes in
accounting principles from prior
years............................ 0 0 0 0 0 0 0 0
Corrections of material accounting
errors from prior years.......... 0 0 0 0 0 0 0 0
Change in net unrealized loss on
marketable equity securities..... 393 (1,132) 2,218 0 0 0 0 0
Other transactions with parent
holding company.................. 184 11,866 0 0 0 0 0 500
--------- --------- --------- --------- --------- --------- --------- -------
Total equity capital at end of
period........................... 329,561 383,350 208,910 126,003 123,433 122,759 115,842 72,870
--------- --------- --------- --------- --------- --------- --------- -------
--------- --------- --------- --------- --------- --------- --------- -------
</TABLE>
<PAGE>
FIRSTAR BANK OF MINNESOTA, N.A.
CHANGES IN ALLOWANCE FOR LOAN AND LEASE LOSSES
AND IN ALLOCATED TRANSFER RISK RESERVE
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$(000) $(000) $(000) $(000) $(000) $(000) $(000) $(000)
Allowance for loan and lease
losses:
Balance originally reported at
end of previous year........... 34,218 23,978 15,665 16,317 15,049 10,763 13,739 10,932
Recoveries....................... 3,117 2,780 2,321 2,829 1,890 2,213 1,417 1,704
LESS: Charge-offs................ 5,933 2,735 3,368 3,481 3,602 4,927 7,413 6,093 (33)C
Provision for loan and lease
losses......................... 925 774 5,738 0 2,980 7,000 3,020 7,196
Adjustments...................... 0 9,421 3,622 0 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- -------
Balance at end of period......... 32,327 34,218 23,978 15,665 16,317 15,049 10,763 13,739
--------- --------- --------- --------- --------- --------- --------- -------
--------- --------- --------- --------- --------- --------- --------- -------
Allocated transfer risk reserve:
Balance originally reported at
end of previous year........... 0 0 0 0 0 0 0 0
Recoveries....................... 0 0 0 0 0 0 0 0
LESS: Charge-offs................ 0 0 0 0 0 0 0 0
Provision for allocated transfer
risk........................... 0 0 0 0 0 0 0 0
Adjustments...................... 0 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- -------
Balance at end of period......... 0 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- -------
--------- --------- --------- --------- --------- --------- --------- -------
PAST DUE AND NONACCRUAL LOANS,
LEASES AND OTHER ASSETS
Loans, leases, and other assets
past due 90 days or more and
still accruing:
Real estate loans................ 2,260 8,112 792 112 684 540 1,713 147
Installment loans................ 842 435 85 75 106 139 724 299
Credit cards and related plans... 191 271 125 81 77 129 20 0
Commercial (time and demand) and
all other loans................ 1,452 3,925 620 306 1,936 583 780 900
Lease financing receivables...... 0 28 0 0 0 0 0 357
--------- --------- --------- --------- --------- --------- --------- -------
Total past due and still
accruing....................... 4,745 12,771 1,622 574 2,803 1,391 3,237 1,703
--------- --------- --------- --------- --------- --------- --------- -------
--------- --------- --------- --------- --------- --------- --------- -------
Nonaccrual:
Real estate loans................ 8,647 9,358 8,960 2,863 3,854 3,288 3,055 7,872
Installment loans................ 17 46 82 56 389 1,577 932 273
Credit cards and related plans... 22 22 0 14 18 2 5 0
Commercial (time and demand) and
all other loans................ 724 523 516 447 640 1,008 2,484 6,944
Lease financing receivables...... 0 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- -------
Total nonaccrual................. 9,410 9,949 9,558 3,380 4,901 5,875 6,476 15,089
--------- --------- --------- --------- --------- --------- --------- -------
--------- --------- --------- --------- --------- --------- --------- -------
OFF BALANCE SHEET ITEMS
Standby letters of credit.......... 45,166 36,939 20,364 16,725 17,371 15,620
Amount of standby letters of
credit conveyed to others...... 0 0 5,947 3,507 3,691 3,756
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
, To eliminate Shelard cash balances
A To eliminate Shelard intercompany fed fund
B To eliminate Shelard service charges
C To adjust 1992 Charge-offs due to Eagan
error corrected in 1992
<PAGE>
Exhibit 25.2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designed to act as Trustee
U.S. BANK TRUST NATIONAL ASSOCIATION
FORMERLY KNOWN AS
FIRST TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
CUMULUS MEDIA INC.
(Exact name of Registrant as specified in its charter)
Illinois 36-4159663
(State of Incorporation) (I.R.S. Employer
Identification No.)
330 East Kilbourn Avenue
Milwaukee, WI 53202
(Address of Principal Executive Offices) (Zip Code)
% SUBORDINATED EXCHANGE DEBENTURES DUE 2009
(Title of the Indenture Securities)
<PAGE>
GENERAL
1. GENERAL INFORMATION Furnish the following information as to the Trustee.
(a) Name and address of each examining or supervising authority
to which it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any underwriter
for the obligor is an affiliate of the Trustee, describe each such
affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the trustee's knowledge
the obligor is not in default under any Indenture for which the trustee acts
as Trustee.
16. LIST OR EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2: no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published pursuant
to law or the requirements of its supervising or examining authority is
incorporated by reference to Registration Number 333-42147.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what persons
have been underwriters for any securities of the obligors within three years
prior to the date of filing this statement, or what persons are owners of 10% or
more of the voting securities of the obligors, or affiliates, are based upon
information furnished to the Trustee by the obligors. While the Trustee has no
reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefore.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association f/k/a First Trust National
Association, as Association organized and existing under the laws of the United
State, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the City of Saint Paul and State of
Minnesota on the 15th day of May, 1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
f/k/a FIRST TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
---------------------------------
Richard H. Prokosch
Assistant Vice President
/s/ Kathe M. Barrett
- -----------------------------
Kathe M. Barrett
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION f/k/a FIRST TRUST NATIONAL
ASSOCIATION hereby consents that reports of examination of the undersigned by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon its request therefor.
Dated: May 15, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
f/k/a FIRST TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
----------------------------------
Richard H. Prokosch
Assistant Vice President
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what persons
have been underwriters for any securities of the obligors within three years
prior to the date of filing this statement, or what persons are owners of 10% or
more of the voting securities of the obligors, or affiliates, are based upon
information furnished to the Trustee by the obligors. While the Trustee has no
reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefore.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association f/k/a First Trust National
Association, as Association organized and existing under the laws of the United
State, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the City of Saint Paul and State of
Minnesota on the 15th day of May, 1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
f/k/a FIRST TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
----------------------------------
Richard H. Prokosch
Assistant Vice President
/s/ Kathe M. Barrett
- -----------------------------
Kathe M. Barrett
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION f/k/a FIRST TRUST NATIONAL
ASSOCIATION hereby consents that reports of examination of the undersigned by
Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon its request therefor.
Dated: May 15, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
f/k/a FIRST TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
-------------------------------
Richard H. Prokosch
Assistant Vice President
