<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1998
REGISTRATION NO. 333-48849
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
AMENDMENT NO. 6 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>
----------------------------
111 EAST KILBOURN AVE.
SUITE 2700
MILWAUKEE, WI 53202
(414) 615-2800
(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.
111 EAST KILBOURN AVE.
SUITE 2700
MILWAUKEE, WI 53202
(414) 615-2800
(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 8,357,500
share.................................... shares(3) $16.00 $133,720,000 $39,448
% Series A Cumulative Exchangeable 219,000
Redeemable Preferred Stock due 2009...... shares(4)(5) $1,000 $219,000,000 $64,605
% Subordinated Exchange Debentures due
2009..................................... $ (6) $ $219,000,000 (7)
% Senior Subordinated Notes due
2008..................................... $150,000,000 100% $150,000,000 $44,250
Guarantees of % Senior Subordinated
Notes due 2008........................... $150,000,000 (8) (8) (8)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) The total registration fee of $148,303 was previously paid in connection
with the Company's filings on March 30, 1998, May 18, 1998 and June 3, 1998.
(3) Includes 937,500 shares issuable upon exercise of the Underwriters'
over-allotment option.
(4) Includes $34,200,000 of % Series A Cumulative Exchangeable Redeemable
Preferred Stock due 2009 being issued in exchange for $34,200,000 of the
Registrant's Class A Preferred Stock.
(5) Includes 94,000 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.
(8) No additional consideration for the Guarantees of % Senior
Subordinated Notes due 2008. Pursuant to Rule 457(n), no separate fee is
payable therefor.
----------------------------
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>
TABLE OF OTHER REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY
EXACT NAME OF STATE OR OTHER STANDARD
REGISTRANT AS JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER
SPECIFIED IN ITS INCORPORATION OR CLASSIFICATION IDENTIFICATION
CHARTER ORGANIZATION CODE NUMBER NO.
- ------------------------------------------------------------- ----------------------- --------------- ----------------
<S> <C> <C> <C>
Cumulus Broadcasting, Inc.................................... Nevada 4832 36-4166963
Cumulus Licensing Corp....................................... Nevada 4832 36-4166966
Caribbean Communications Company Ltd......................... Montserrat 4832 N.A.
GEM Radio Five Ltd........................................... Trinidad and Tobago 4832 N.A.
Forjay Broadcasting Corporation.............................. South Carolina 4832 56-1003735
Forjay Licensing Corp........................................ Nevada 4832 36-4231735
Minority Radio Associates, Inc............................... Georgia 4832 58-1741314
MRA Licensing Corp........................................... Nevada 4832 36-4231737
</TABLE>
<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, "Underwriting" section and "Legal
Matters" 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,
"Underwriting" section and "Legal Matters" 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 JUNE 25, 1998
7,420,000 SHARES
[LOGO]
CUMULUS MEDIA INC.
CLASS A COMMON STOCK
--------------
Of the shares of Class A Common Stock, par value $.01 per share (the "Class
A Common Stock"), offered hereby, 6,250,000 shares are being sold by Cumulus
Media Inc. (the "Company") and 1,170,000 shares are being sold by State of
Wisconsin Investment Board (the "Selling Stockholder"). Of the 7,420,000 shares
of Class A Common Stock being offered, 5,936,000 shares are being offered in the
United States and Canada (the "U.S. Offering") by the U.S. Underwriters and
1,484,000 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 in "Prospectus
Summary--Reorganization and Corporate Structure"), 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 60% of the Common Stock (representing approximately 78% of the
voting power) and will have the ability to control the Company. See "Description
of Capital Stock."
Concurrently with the Stock Offerings, the Company is offering (the
"Preferred Stock Offering") $125.0 million of % Series A Cumulative
Exchangeable Redeemable Preferred Stock Due 2009 (the "Series A Preferred
Stock"), approximately $34.2 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 in
"Prospectus Summary--Reorganization and Capital Structure"), which had an
accreted value as of June 1, 1998 of $34,179,810, at a purchase price equal to
the price to public and $150.0 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
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources-- Sources of Liquidity") 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 $15 and $17 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 PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2) SELLING STOCKHOLDER
<S> <C> <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 750,000 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 187,500 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 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 ALEXu 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" (before non-cash stock
compensation expense) 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 (before non-cash stock compensation expense)
consists of operating income (loss) before depreciation and amortization and
non-cash stock compensation expense. EBITDA (before non-cash stock compensation
expense), as defined by the Company, may not be comparable to similarly titled
measures used by other companies. Although Broadcast Cash Flow and EBITDA
(before non-cash stock compensation expense) 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 (before non-cash stock compensation expense) 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 (AS DEFINED IN
"PROSPECTUS SUMMARY--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 OF 1933, AS AMENDED, AND THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, 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 OPTIONS ARE NOT EXERCISED AND THE
REORGANIZATION (AS DEFINED IN "--REORGANIZATION AND CORPORATE STRUCTURE") 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, 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 67 stations in 15 markets and provides sales and marketing services
under LMA agreements (pending FCC approval of acquisition) to 44 stations in 16
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 34 U.S. 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 U.S. markets. On a pro forma basis, after giving effect to
the Transactions, the Company would have generated net revenues of approximately
$111.8 million and $27.0 million and Broadcast Cash Flow (as defined under
"Certain Definitions and Market and Industry Data") of approximately $23.9
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 as of June 16, 1998 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 STATIONS ---------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF TOTAL PRO
CURRENTLY STATIONS STATIONS TO STATIONS TO BE FORMA
OWNED CURRENTLY BE PLACED ACQUIRED STATIONS
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 -- -- 6 -- -- 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 STATIONS ---------------------------------------------------
NUMBER OF NUMBER OF NUMBER OF TOTAL PRO
CURRENTLY STATIONS STATIONS TO STATIONS TO BE FORMA
OWNED CURRENTLY BE PLACED ACQUIRED STATIONS
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 4 2 -- -- -- 4
Beaumont-Port Arthur,
TX................... 128 3 2 -- -- -- 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.............. 46 21 44 4 61 124
<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 third and fourth quarters of 1998, although there can be no assurance
that the transactions will be consummated within that time frame. 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, FCC staff inquiries and
U.S. Department of Justice ("DOJ") reviews has raised questions concerning
whether the Company will be permitted to acquire its full complement of
proposed stations in two 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, FCC staff
inquiries or DOJ investigations. 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 upon any single industry or employer; (ii) a
regional fit with the Company's overall portfolio concentration
7
<PAGE>
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 is
implementing a proprietary application using Internet software standards to
support daily sales and inventory performance reporting by station, by
market and by cluster. The Company has completed implementation of the daily
sales reporting application and anticipates full implementation of the
inventory performance application by the end of 1998. Upon full
implementation, this application will allow the
9
<PAGE>
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.
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 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 (the "Reorganization").
All shares of the Company's 12% 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 June 1, 1998,
the liquidation value of the NML Preferred Stock was approximately $34.2
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 109
stations in 28 markets for an aggregate purchase price of approximately $245.1
million in transactions which have not yet been consummated (the "Pending
Acquisitions"). The Company expects to consummate most of the Pending
Acquisitions during the third and fourth quarters of 1998, although there can be
no assurance that the transactions will be consummated within that time frame.
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 non-binding arrangements with
potential sellers to conduct a diligence review of their radio stations and
propose the terms of a possible purchase agreement. At the present time,
discussions with potential sellers are at an early stage and no diligence
reviews have been commenced.
FINANCING PLAN
The Company intends to use the proceeds of the Offerings to finance the
Pending Acquisitions and to repay certain indebtedness. The following table
presents the sources and uses of funds, pro forma for the Offerings, the
acquisitions consummated after March 31, 1998 (the "Subsequent Acquisitions")
and the Pending Acquisitions as if such transactions had occurred as of March
31, 1998:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
---------------------
<S> <C>
SOURCES OF FUNDS:
Common Stock offered to public....................................... $ 100,000
Debt Offering........................................................ 150,000
Preferred Stock offered to public(1)................................. 91,488
Cash on hand......................................................... 21,916
Escrow funds(2)...................................................... 12,522
--------
Total............................................................ $ 375,926
--------
--------
USES OF FUNDS:
Purchase price of the Subsequent Acquisitions and the Pending
Acquisitions....................................................... $ 279,532
Repayment of Credit Facility(3)...................................... 79,696
Fees and expenses.................................................... 16,698
--------
Total............................................................ $ 375,926
--------
--------
</TABLE>
- ------------------------------
(1) Excludes exchange of NML Preferred Stock concurrent with the Preferred Stock
Offering. The Company will not receive any proceeds from the exchange of the
NML Preferred Stock for the Series A Preferred Stock.
(2) Represents funds deposited into escrow by the Company in connection with the
Subsequent and Pending Acquisitions.
(3) 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 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....... 6,250,000 shares
Class A Common Stock Offered
by the Selling Stockholder...................... 1,170,000 shares
----------------
Total......................................... 7,420,000 shares
Class A Common Stock Offered to Public:
U.S. Offering................................... 5,936,000 shares
International Offering.......................... 1,484,000 shares
----------------
Total......................................... 7,420,000 shares
Common Stock Outstanding after the
Stock Offerings(1):
Class A Common Stock(2)......................... 7,613,450 shares
Class B Common Stock............................ 8,711,367 shares
Class C Common Stock............................ 2,433,808 shares
----------------
Total......................................... 18,758,625 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 $245.1 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 125,000 shares of its % Series A
Cumulative Exchangeable Redeemable Preferred Stock
due 2009 (with a liquidation preference of $1,000
per share) and $150 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"
and "Use of Proceeds."
</TABLE>
- --------------------------
(1) As of March 31, 1998, the Company had 1,000 shares of common stock
outstanding. Pursuant to the Reorganization, Media LLC will exchange all
1,000 shares of outstanding common stock of the Company for 193,450 shares
of Class A Common Stock, 9,881,367 shares of Class B Common Stock and
2,433,808 shares of Class C Common Stock. Media LLC will be liquidated and
such shares will be distributed to its members in liquidation. Of the
9,881,367 shares of Class B Common Stock distributed to Media LLC's members,
1,170,000 of such shares will be converted into shares of Class A Common
Stock and are being offered hereby by the Selling Stockholder.
(2) If the Underwriters' over-allotment options were exercised in full,
8,550,950 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.............................................. $ 27,012 $ 111,776
Station operating expenses excluding depreciation and
amortization............................................ 23,930 87,909
Depreciation and amortization............................. 5,679 22,845
Corporate general and administrative expenses............. 969 4,760
Non-cash stock compensation expense....................... -- 1,967
Operating income (loss)................................... (3,566) (5,705)
Interest expense.......................................... 4,644 18,234
Net income (loss) before extraordinary item............... (8,130) (24,238)
Preferred stock dividends................................. 3,726 15,583
Net income (loss) attributable to common stockholders
before extraordinary item............................... (11,856) (39,821)
Basic and diluted earnings (loss) before extraordinary
item per share.......................................... $ (0.63) $ (2.12)
OTHER FINANCIAL DATA(1)(2):
Broadcast Cash Flow....................................... $ 3,082 $ 23,867
Broadcast Cash Flow margin................................ 11.4% 21.4%
EBITDA (before non-cash stock compensation expense)....... $ 2,113 $ 19,107
Net cash used in operating activities..................... 4,476 1,060
Net cash used in investing activities..................... 236 4,410
Net cash provided by financing activities................. 4,397 4,964
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------
<S> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Total assets(3)........................................................................... $ 483,733
Long-term debt, including current portion................................................. 190,568
Preferred stock subject to mandatory redemption........................................... 125,000
Total stockholders' equity................................................................ 144,154
</TABLE>
- ------------------------------
(1) Broadcast Cash Flow consists of operating income (loss) before depreciation
and amortization, non-cash stock compensation expense and corporate general
and administrative expenses. EBITDA (before non-cash stock compensation
expense) 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. Although
Broadcast Cash Flow, Broadcast Cash Flow margin and EBITDA (before non-cash
stock compensation expense), are not measures of performance calculated in
accordance with
14
<PAGE>
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 (before non-cash stock compensation expense) 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. As
Broadcast Cash Flow and EBITDA (before non-cash stock compensation expense)
are not measures calculated in accordance with GAAP, these measures may not
be comparable to similarly titled measures employed by other companies. See
"Certain Definitions and Market and Market and Industry Data."
(2) The pro forma financial results exclude the effects of estimated cost
savings resulting from the Completed and Pending Acquisitions. For the
twelve months ended December 31, 1997, pro forma Broadcast Cash Flow and
EBITDA (before non-cash stock compensation expense) were $23,867 and
$19,107, respectively. In addition, the Company expects to realize
approximately $7,430 of cost savings resulting from the elimination of
redundant station operating expenses arising from the Completed and Pending
Acquisitions, including elimination of certain management and staff
positions, the consolidation of station facilities and equipment, the
elimination of previous owner compensation benefits and new rates associated
with revised vendor contracts. Also, the Company expects to realize
approximately $2,029 of cost savings from the elimination of certain
corporate overhead functions, net of increased costs associated with the
implementation of the Company's corporate management structure. Corporate
cost savings reflect the expected level of annual corporate expenditures
arising from the Completed and Pending Acquisitions. There can be no
assurances that any operating or corporate cost savings will be achieved.
(3) The Company allocates the purchase prices of the acquired stations based on
complete evaluations of the assets acquired and liabilities assumed. The
Company believes that the excess of cost over the fair market value of
tangible net assets of an acquired radio station almost exclusively relates
to the value of the Federal Communications Commission broadcasting license
and goodwill. Depending on the terms of the acquisition agreement a portion
of the purchase price is also allocated to covenants not-to-compete which
are amortized over their respective contract terms (typically 3 to 5 years).
The Company also believes that the purchase price allocation method
described above is consistent with general practice in the radio
broadcasting industry.
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......................... N.M. N.M.
Pro forma basic and diluted earnings (loss) per share, as adjusted
for the Reorganization and the Stock Offerings.................... (0.33) (0.21)
OTHER FINANCIAL DATA:
Broadcast Cash Flow(2).............................................. $ 1,596 $ 2,016
EBITDA (before non-cash stock compensation expense)(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 3,511
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998 AS OF DECEMBER 31, 1997
--------------------- -----------------------
<S> <C> <C>
(DOLLARS IN
THOUSANDS) (DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Total assets...................................................... $ 220,126 $ 110,441
Long-term debt, including current portion......................... 120,264 42,801
Preferred stock subject to mandatory redemption................... 30,518 13,426
Total stockholders' equity........................................ 58,789 49,976
</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 (before non-cash stock compensation
expense) consists of operating income (loss) before depreciation and
amortization and non-cash stock compensation expense. EBITDA (before non-
cash stock compensation expense), as defined by the Company, may not be
comparable to similarly titled measures used by other companies. Although
Broadcast Cash Flow and EBITDA (before non-cash stock compensation expense)
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 (before non-cash stock compensation expense) 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 $3,511 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 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
Company is aware that the DOJ has opened an investigation with respect to the
Company's Pending Acquisitions in two markets which potentially affects the
acquisition of up to an additional nine stations in the aggregate.
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 in
"Description of Credit Facility and Notes"), the Certificate of Designation (as
defined in "Description of Capital Stock--Series A Preferred Stock and
Exchangeable Debentures") or the Exchange Debenture Indenture (as defined in
"Description of Capital Stock--Series A Preferred Stock and Exchangeable
Debentures") 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."
17
<PAGE>
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 initiating the integration
of new properties, future performance and profitability, if any, will depend in
part on the Company's ability to integrate fully the operations and systems of
acquired radio stations and radio groups, to hire qualified additional
personnel, and to implement necessary enhancements to its Internet-based and
other 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
$11.9 million for the three months ending March 31, 1998 and $39.8 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, 2000. 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 non-binding arrangements with potential sellers
could require substantial capital. The Company estimates that it will have
significant capital requirements for the remainder of 1998, including
approximately $245.1 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.
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 $190.6
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 leveraged position and the covenants
contained in the Credit Facility, the Indenture, the Certificate of
18
<PAGE>
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 approximately $3.5 million and $3.5 million for
the period from inception on May 22, 1997 to December 31, 1997 and for the three
months ended March 31, 1998, respectively. 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 Telecom Act and 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. 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 DOJ or the FTC 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% to 40% 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 are not or 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
21
<PAGE>
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 affects 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 improve its product,
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. See "Certain Relationships and Related Transactions."
TRANSACTIONS WITH AFFILIATES
QUAESTUS Management Corporation ("QUAESTUS"), an entity controlled by Mr.
Weening, and Stratford Research, Inc. ("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 $30.29 per share. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Stock Offerings, the Company will have outstanding
7,613,450 shares of Class A Common Stock, 8,711,367 shares of Class B Common
Stock and 2,433,808 shares of Class C Common Stock. In addition, there will be
outstanding options to purchase 1,216,480 shares of Class A Common Stock and
2,001,380 shares of Class C Common Stock. Of these shares, the 7,420,000 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, (which
officers will directly or indirectly own 193,450 shares of Class A Common Stock
and 790,594 shares of Class C Common Stock and options to purchase 265,355
shares of Class A Common Stock and 2,001,380 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 Company intends to use the proceeds of the Offerings to finance the
Pending Acquisitions and to repay certain indebtedness. The following table
presents the sources and uses of funds, pro forma for the Offerings, the
Subsequent Acquisitions and the Pending Acquisitions as if such transactions had
occurred as of March 31, 1998:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
---------------------
<S> <C>
SOURCES OF FUNDS:
Common Stock offered to public(1).................................... $ 100,000
Debt Offering........................................................ 150,000
Preferred Stock offered to public(2)................................. 91,488
Cash on hand......................................................... 21,916
Escrow funds(3)...................................................... 12,522
--------
Total............................................................ $ 375,926
--------
--------
USES OF FUNDS:
Purchase price of the Subsequent Acquisitions and the Pending
Acquisitions....................................................... $ 279,532
Repayment of Credit Facility(4)...................................... 79,696
Fees and expenses.................................................... 16,698
--------
Total............................................................ $ 375,926
--------
--------
</TABLE>
- ------------------------------
(1) $115.0 million if the Underwriters' over-allotment options are exercised in
full.
(2) Excludes exchange of NML Preferred Stock concurrent with the Preferred Stock
Offering. The Company will not receive any proceeds from the exchange of the
NML Preferred Stock for the Series A Preferred Stock.
(3) Represents funds deposited into escrow by the Company in connection with the
Subsequent and Pending Acquisitions.
(4) Affiliates of Lehman Brothers Inc. act as arranger and lender under the
Credit Facility. At June 1, 1998 the blended interest rate on the
outstanding borrowings under the Credit Facility was 8.45%.
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 Unaudited Pro Forma Combined Financial Statements
and the Consolidated Financial Statements of the Company included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------------------
(DOLLARS IN THOUSANDS)
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 $ 1,500 $ 195,035 $ 1,500
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
Long-term debt, including current maturities:
Old Credit Facility.............................. 12 12 12 12
Credit Facility(1)............................... 120,252 131,255 -- 40,556
Notes............................................ -- -- 150,000 150,000
----------- ----------- ------------- -------------
Total long-term debt........................... 120,264 131,267 150,012 190,568
----------- ----------- ------------- -------------
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; 1,363,450 shares
outstanding; 7,613,450 shares as adjusted for
the Stock Offerings............................ -- -- 76 76
Class B Common Stock, par value $.01 per share;
shares authorized; 8,711,367 shares
outstanding; 8,711,367 shares as adjusted for
the Stock Offerings............................ -- -- 87 87
Class C Common Stock, par value $.01 per share;
shares authorized; 2,433,808 shares
outstanding; 2,433,808 shares as adjusted for
the Stock Offerings............................ -- -- 24 24
Additional paid-in capital......................... 67,692 64,698 152,870 152,870
Accumulated deficit................................ (8,903) (8,903) (8,903) (8,903)
----------- ----------- ------------- -------------
Total stockholders' equity..................... 58,789 55,795 144,154 144,154
----------- ----------- ------------- -------------
Total capitalization........................... $ 209,571 $ 220,574 $ 419,166 $ 459,722
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
</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 (excluding the Stock Offerings), the Company had a net tangible
book value (deficit) of approximately $(360,134), or $(19.20) per share. After
giving effect to the sale by the Company of 6,250,000 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 $(268,005), or ($14.29) per share. This
represents an immediate increase in such net tangible book value of $4.91 per
share to existing stockholders and an immediate dilution to new investors of
$30.29 per share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share................................... $ 16.00
Pro forma net tangible book value (deficit) before the Stock
Offerings............................................................. ($ 19.20)
Increase in net tangible book value (deficit) per share attributable to
new investors......................................................... 4.91
---------
Pro forma net tangible book value (deficit) per share after the Stock
Offerings............................................................... (14.29)
---------
Dilution per share to new investors....................................... $ 30.29
---------
---------
</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................................ 11,338,625 60.4% $ 58,060,000 32.8% $ 5.12
New investors(1)..................................... 7,420,000 39.6 118,720,000 67.2% 16.00
------------- ----- -------------- -----
Total............................................ 18,758,625 100.0% $ 176,780,000 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>
- ------------------------
(1) If the Underwriters' over-allotment options were exercised in full, 937,500
additional 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" and "1998 Completed Acquisitions" reflects all
acquisitions consummated by the Company after March 31, 1998. The companies
acquired subsequent to March 31, 1998 and the related purchase prices are as
follows:
<TABLE>
<S> <C>
Big Country Broadcasting........................................... $ 1,812
IQ Radio, Inc...................................................... 390
Heritage Communications............................................ 1,000
West Jewell Management............................................. 675
Wiskes-Abaris Communications....................................... 3,150
Savannah Valley Broadcasting Radio Properties...................... 10,200
GHB Broadcasting................................................... 700
Ninety-Four Point One, Inc......................................... 10,770
Beaumont Skywave, Inc.............................................. 3,600
Westwind Broadcasting.............................................. 820
KIKR, Inc.......................................................... 1,350
---------
Total...................................................... $ 34,467
---------
---------
</TABLE>
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 34 U.S. markets. The
companies to be acquired as part of the Pending Acquisitions, including the
estimated purchase prices, are as follows:
<TABLE>
<S> <C>
Esprit' Communication Corporation................................. $ 1,700
K-Country, Inc.................................................... 3,300
Savannah Valley Broadcasting Radio Properties..................... 3,800
Albany Broadcasting Co............................................ 2,250
Tyron-Seacoast Communications, Inc................................ 4,000
Castle Broadcasting Limited Partnership........................... 6,400
Republic Corporation.............................................. 38,750
Chattanooga Broadcast Group....................................... 6,000
Communications Properties, Inc.................................... 6,000
JKJ Broadcasting, Inc., Missouri River Broadcasting, Inc., Ingstad
Mankato, Inc., James Ingstad Broadcasting, Inc., and Hometown
Wireless, Inc................................................... 40,200
Pamplico Broadcasting, L.P........................................ 3,650
Jan-Di Broadcasting, Inc.......................................... 5,000
Mustang Broadcasting Company...................................... 2,000
American Communications Company Inc............................... 2,500
Crystal Radio Group, Inc.......................................... 14,000
Louisiana Media Interests, Inc. and Subsidiaries.................. 16,200
Clearly Superior Radio Properties................................. 12,500
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
Lesnick Communications, Inc....................................... 3,300
New Frontier Communications, Inc.................................. 14,000
WWFG-FM and WOSC-FM............................................... 7,500
WJCL-FM........................................................... 7,250
Savannah Communications, L.P...................................... 5,250
Phoenix Broadcast Partners, Inc................................... 3,500
Tallahassee Broadcasting, Inc..................................... 4,000
Midland Broadcasters, Inc......................................... 10,425
WLOV--P&T Broadcasting............................................ 500
Mountain Wireless................................................. 2,200
Radio Ingstad Minnesota, Inc., Radio Albert Lea, Inc. and KRCH of
Minnesota, Inc.................................................. 9,300
Clarendon County Broadcasting..................................... 3,250
Nautical Broadcasting............................................. 525
Brillion Radio Company............................................ 2,065
Ocmulgee Broadcasting............................................. 5,250
Less: Sale of WIMX-FM............................................. (1,500)
---------
Total..................................................... $ 245,065
---------
---------
</TABLE>
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.
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>
(B) (D)
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS FOR THE (A)+(B)+(C)+
TO REFLECT COMPANY (D)=(E)
FULL YEAR HISTORICAL PRO FORMA AS
(A) 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 $21,363 $22,993 $-- $ 54,490
Less: agency commissions.... (971) (1,780) (2,034) -- (4,785)
----------- ------- ------- -------- --------
Net revenues................ 9,163 19,583 20,959 -- 49,705
Station operating expenses
excluding depreciation and
amortization............... 7,147 14,521 18,633 (430)(4) 39,871
Depreciation and
amortization............... 1,671 2,988 2,416 2,910(5) 9,985
Corporate general and
administrative expenses.... 1,276 -- -- 430(4) 1,706
Non-cash stock compensation
expense.................... 1,689(2) -- -- -- 1,689
----------- ------- ------- -------- --------
Operating income (loss)..... (2,620) 2,074 (90) (2,910) (3,546)
----------- ------- ------- -------- --------
Interest expense............ 837 1,125 1,743 5,464(6) 9,169
Gain (loss) on sale of
asset...................... -- 12,261 -- (12,261)(7) --
Other (income) expense...... 54 4 18 -- 76
----------- ------- ------- -------- --------
Income (loss) before income
taxes...................... (3,511) 13,206 (1,851) (20,635) (12,791)
Income tax (expense)
benefit.................... (67) (84) (44) -- (195)
----------- ------- ------- -------- --------
Net income (loss)........... (3,578) 13,122 (1,895) (20,635) (12,986)
Preferred stock dividends... 274 -- -- 4,087(8) 4,361
----------- ------- ------- -------- --------
Net income (loss)
attributable to common
stockholders............... $(3,852) $13,122 $(1,895) $(24,722) $(17,347)
----------- ------- ------- -------- --------
----------- ------- ------- -------- --------
Basic and diluted earnings
(loss) per share........... $(3,852) $ (0.92)
Average shares
outstanding................ 1,000 18,759
<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.................... $ -- $ 54,490 $68,478 $-- $122,968
Less: agency commissions.... -- (4,785) (6,407) -- (11,192)
----------- ------------ ------------ ----------- -----------
Net revenues................ -- 49,705 62,071 -- 111,776
Station operating expenses
excluding depreciation and
amortization............... -- 39,871 51,058 (3,020)(4) 87,909
Depreciation and
amortization............... -- 9,985 6,145 6,715(5) 22,845
Corporate general and
administrative expenses.... -- 1,706 34 3,020(4) 4,760
Non-cash stock compensation
expense.................... -- 1,689 278 -- 1,967
----------- ------------ ------------ ----------- -----------
Operating income (loss)..... -- (3,546) 4,556 (6,715) (5,705)
----------- ------------ ------------ ----------- -----------
Interest expense............ 5,962(9) 15,131 4,247 (1,144)(11) 18,234
Gain (loss) on sale of
asset...................... -- -- 5,547 (5,547)(12) --
Other (income) expense...... -- 76 150 (122)(13) 104
----------- ------------ ------------ ----------- -----------
Income (loss) before income
taxes...................... (5,962) (18,753) 5,706 (10,996) (24,043)
Income tax (expense)
benefit.................... -- (195) -- -- (195)
----------- ------------ ------------ ----------- -----------
Net income (loss)........... (5,962) (18,948) 5,706 (10,996) (24,238)
Preferred stock dividends... 11,222(10) 15,583 -- -- 15,583
----------- ------------ ------------ ----------- -----------
Net income (loss)
attributable to common
stockholders............... $(17,184) $(34,531) $ 5,706 $(10,996) $(39,821)
----------- ------------ ------------ ----------- -----------
----------- ------------ ------------ ----------- -----------
Basic and diluted earnings
(loss) per share........... $ (1.84) $ (2.12)
Average shares
outstanding................ 18,759 18,759
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Statement of Operations.
29
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(1) 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. The Company expects to realize
approximately $7,430 of cost savings resulting from the elimination of
redundant station operating expenses arising from the Completed and Pending
Acquisitions, including elimination of certain management and staff
positions, the consolidation of station facilities and equipment, the
elimination of previous owner compensation benefits and new rates associated
with revised vendor contracts. Also, the Company expects to realize
approximately $2,029 of cost savings from the elimination of certain
corporate overhead functions, net of increased costs associated with the
implementation of the Company's corporate management structure. Corporate
cost savings reflect the expected level of annual corporate expenditures
arising from the Completed and Pending Acquisitions. There can be no
assurances that any operating or corporate cost savings 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 the reclassification of $430 and $3,020 of expenses from
station operating expenses excluding depreciation and amortization to
corporate general and administrative expenses to conform with the Company's
accounting practices.
(5) 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 $3,894 and
amortization expense is $18,951 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 10 years for property and
equipment. Goodwill and other intangible assets amortization has been
calculated on a straight line basis over 25 years. Non-compete agreements
are being amortized over the lives of the agreements which ranges from 2-5
years.
The Company allocates the purchase prices of the acquired stations based on
complete evaluations of the assets acquired and the liabilities assumed. The
Company believes that the excess of cost over the fair value of tangible net
assets of an acquired radio station almost exclusively relates to the value
of the FCC broadcasting license and goodwill. The Company believes that the
purchase price allocation method described above is consistent with general
practice in the radio broadcasting industry.
(6) Adjustment to reflect increased interest expense resulting from:
<TABLE>
<S> <C>
Sources of funds:
Amount financed by the Credit Facility................................. $ 103,459
NML Preferred Stock investment......................................... 16,250
Private equity investment in common stock.............................. 15,000
---------
Total............................................................ $ 134,709
---------
---------
Uses of funds:
Purchase price of the 1998 Completed Acquisitions...................... $ 88,920
Repayment of the Old Credit Facility................................... 42,789
Credit Facility transaction costs...................................... 3,000
---------
Total............................................................ $ 134,709
---------
---------
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
Interest on the Credit Facility at 8.50%................................. $ 8,794
Amortization of $3,000 in debt issuance costs over 8 years............... 375
---------
Total interest expense................................................. 9,169
Less: Historical interest recorded by the Company and the Completed
Acquisitions......................................................... (3,705)
---------
Net adjustment......................................................... $ 5,464
---------
---------
</TABLE>
(7) 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.
(8) Reflects (i) the additional accretion of the NML Preferred Stock dividends
as if the NML Preferred Stock were outstanding for the full period 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
12.00%).......................................................... $ 4,079
Amortization of discount (over 11 years)........................... 282
---------
4,361
Less: Historical dividends recorded by the Company................. (274)
---------
Net adjustment..................................................... $ 4,087
---------
---------
</TABLE>
(9) Adjustment to reflect increased interest expense resulting from:
<TABLE>
<S> <C>
Interest on the Notes at 9.50%..................................... $ 14,250
Amortization of $5,057 debt issuance costs over 10 years........... 506
Amortization of $3,000 Credit Facility transaction costs over 8
years............................................................ 375
---------
Total interest expense........................................... 15,131
Less: Interest expense recorded pro forma as adjusted for the
Completed Acquisitions......................................... 9,169
---------
Net adjustment................................................... $ 5,962
---------
---------
</TABLE>
(10) To reflect additional accretion related to Series A Preferred Stock
dividend:
<TABLE>
<S> <C>
Accretion of Series A Preferred Stock dividend (compounded daily at
11.75%).......................................................... $ 15,583
Less: Pro forma dividends on NML Preferred Stock exchanged into
Series A Preferred Stock......................................... (4,361)
---------
Net adjustment..................................................... $ 11,222
---------
---------
</TABLE>
The dividend rate on the Series A Preferred Stock of 11.75% is based on the
Company's estimate, considering current market conditions for similar
securities. A one-eighth of one percent (0.125%) change in the dividend rate
on the Series A Preferred Stock results in a $156 increase or decrease in
the pro forma Preferred Stock dividends for the twelve months ended December
31, 1997.
31
<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 ($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
Amount financed by the Credit Facility.......................... 36,506
NML Preferred Stock investment.................................. 16,250
Private equity investment in common stock....................... 15,000
---------
Total........................................................... $ 392,546
---------
---------
Uses of funds:
Purchase price of the 1998 Completed Acquisitions and the
Pending Acquisitions.......................................... $ 346,757
Repayment of the Old Credit Facility............................ 42,789
Credit Facility transaction costs............................... 3,000
---------
Total........................................................... $ 392,546
---------
---------
Interest on the Notes at 9.50%.................................... $ 14,250
Interest on the Credit Facility at 8.50%.......................... 3,103
Amortization of $5,057 debt issuance costs over 10 years.......... 506
Amortization of $3,000 Credit Facility transaction costs over 8
years........................................................... 375
---------
Total interest expense.......................................... 18,234
Less: Interest expense recorded pro forma as adjusted for the
Pending Acquisitions and pro forma as adjusted for the
Offerings..................................................... (19,378)
---------
Net adjustment.................................................. $ (1,144)
---------
---------
</TABLE>
(12) Adjustment recorded to eliminate a non-recurring gain of $1,462 and $4,085
recognized by Communications Properties, Inc. and Radio Ingstad Minnesota,
Inc., Radio Albert Lea, Inc. and KRCH of Minnesota, Inc., respectively,
(Pending Acquisitions of the Company). The non-recurring gains were
recognized by the respective Pending Acquisitions upon the sale of radio
stations not acquired by the Company.
(13) Elimination of interests of minority shareholders in connection with a
Pending Acquisition.
The fixed interest rate used to calculate pro forma interest expense on the
Notes is nine and one-half percent (9.50%) and the floating interest rate used
to calculate pro forma interest expense on the Credit Facility is eight and
one-half percent (8.50%). The rates on the Notes and the Credit Facility are
based on the Company's estimates, considering current market conditions for
similar securities. A one-eighth of one percent (0.125%) change in the interest
rate on the Notes and the Credit Facility results in an $188 and a $46 increase
or decrease, respectively, in the pro forma interest expense for the twelve
months ended December 31, 1997.
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.
32
<PAGE>
PRO FORMA ADJUSTMENTS TO REFLECT FULL YEAR FOR THE COMPANY HISTORICAL
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CARIBBEAN THE MIDWESTERN
COMMUNICATIONS BROADCASTING COMPANY,
COMPANY LIMITED KLUR, KQXC AND RADIO STATIONS WWWM-
FOR THE FOUR MONTHS HVS PARTNERS KYYI RADIO FM AND WLQR-FM
ENDED FOR THE YEAR ENDED FOR THE ELEVEN MONTHS FOR THE TEN MONTHS
APRIL 30, 1997 DECEMBER 31, 1997 ENDED NOVEMBER 30, 1997 ENDED OCTOBER 31, 1997
--------------------- ------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS
DATA:
Revenues........ $ 191 $ 5,715 $ 1,173 $ 2,517
Less: agency
commissions... (14) (384) (107) (279)
------ ------- ------ ------
Net revenues.... 177 5,331 1,066 2,238
Station
operating
expenses
excluding
depreciation
and
amortization.. 524 4,948 655 1,691
Depreciation and
amortization.. 55 638 124 50
Corporate
general and
administrative
expenses...... -- -- -- --
Non-cash stock
compensation
expense....... -- -- -- --
------ ------- ------ ------
Operating income
(loss)........ (402) (255) 287 497
------ ------- ------ ------
Interest
expense....... 62 68 52 5
Gain (loss) on
sale of
asset......... -- 12,261 -- --
Other (income)
expense....... (1) -- -- 6
------ ------- ------ ------
Income (loss)
before income
taxes......... (463) 11,938 235 486
Income tax
(expense)
benefit....... -- -- -- (10)
------ ------- ------ ------
Net income
(loss)........ $ (463) $ 11,938 $ 235 $ 476
------ ------- ------ ------
------ ------- ------ ------
<CAPTION>
WILKS
BROADCAST WKKO-FM, WRQN-FM,
VALUE RADIO CORPORATION ACQUISITIONS, WTOD-AM AND WIMX-FM
-------------------------------------- INC. PERIOD FROM JANUARY
FOR THE YEAR FOR THE FOUR FOR THE EIGHT 1,
ENDED MONTHS ENDED MONTHS ENDED 1997 THROUGH DISPOSITION OF
AUGUST 30, 1997 DECEMBER 31, 1996 AUGUST 31, 1997 NOVEMBER 9, 1997 WIMX-FM OTHER
----------------- ------------------- ----------------- ------------------- --------------- -----------
<S> <C>
STATEMENT OF
OPERATIONS
DATA:
Revenues........ $ 3,607 $ (791) $ 2,625 $ 6,376 $ (461) $ 411
Less: agency
commissions... (226) 38 (23) (834) 50 (1)
------ ------- ------ ------ ----- -----
Net revenues.... 3,381 (753) 2,602 5,542 (411) 410
Station
operating
expenses
excluding
depreciation
and
amortization.. 2,462 (470) 1,869 2,813 (339) 368
Depreciation and
amortization.. 624 (29) 554 1,004 (58) 26
Corporate
general and
administrative
expenses...... -- -- -- -- -- --
Non-cash stock
compensation
expense....... -- -- -- -- -- --
------ ------- ------ ------ ----- -----
Operating income
(loss)........ 295 (254) 179 1,725 (14) 16
------ ------- ------ ------ ----- -----
Interest
expense....... 418 (21) 424 144 (43) 16
Gain (loss) on
sale of
asset......... -- -- -- -- -- --
Other (income)
expense....... 1 2 -- -- (4) --
------ ------- ------ ------ ----- -----
Income (loss)
before income
taxes......... (124) (235) (245) 1,581 33 --
Income tax
(expense)
benefit....... -- -- (74) -- --
------ ------- ------ ------ ----- -----
Net income
(loss)........ $ (124) $ (235) $ (245) $ 1,507 $ 33 $ --
------ ------- ------ ------ ----- -----
------ ------- ------ ------ ----- -----
<CAPTION>
TOTAL
---------
STATEMENT OF
OPERATIONS
DATA:
Revenues........ $ 21,363
Less: agency
commissions... (1,780)
---------
Net revenues.... 19,583
Station
operating
expenses
excluding
depreciation
and
amortization.. 14,521
Depreciation and
amortization.. 2,988
Corporate
general and
administrative
expenses...... --
Non-cash stock
compensation
expense....... --
---------
Operating income
(loss)........ 2,074
---------
Interest
expense....... 1,125
Gain (loss) on
sale of
asset......... 12,261
Other (income)
expense....... 4
---------
Income (loss)
before income
taxes......... 13,206
Income tax
(expense)
benefit....... (84)
---------
Net income
(loss)........ $ 13,122
---------
---------
</TABLE>
33
<PAGE>
1998 COMPLETED ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CAROLINA
BROADCASTING, INC.
BEAUMONT AND GEORGETOWN
ARBOR RADIO LP SKYWAVE, INC. RADIO, INC.
------------------- ------------------- -------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................................... $ 3,723 $ 704 $ 268
Less: agency commissions....................................... (289) (57) --
------ ----- -----
Net revenues................................................... 3,434 647 268
Station operating expenses excluding depreciation and
amortization................................................. 2,394 573 579
Depreciation and amortization.................................. 502 123 106
Corporate general and administrative expenses.................. -- -- --
Non-cash stock compensation expense............................ -- -- --
------ ----- -----
Operating income (loss)........................................ 538 (49) (417)
------ ----- -----
Interest expense............................................... 329 72 167
Gain (loss) on sale of asset................................... -- -- --
Other (income) expense......................................... -- -- --
------ ----- -----
Income (loss) before income taxes.............................. 209 (121) (584)
Income tax (expense) benefit................................... -- -- --
------ ----- -----
Net income (loss).............................................. $ 209 $ (121) $ (584)
------ ----- -----
------ ----- -----
<CAPTION>
FORJAY
BROADCASTING NINETY FOUR POINT
CORPORATION M&M PARTNERS ONE, INC.
------------------- ------------------- -------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................................... $ 1,667 $ 3,580 $ 4,172
Less: agency commissions....................................... (178) (394) (396)
------ ------ ------
Net revenues................................................... 1,489 3,186 3,776
Station operating expenses excluding depreciation and
amortization................................................. 1,278 2,573 3,300
Depreciation and amortization.................................. 29 496 185
Corporate general and administrative expenses.................. -- -- --
Non-cash stock compensation expense............................ -- -- --
------ ------ ------
Operating income (loss)........................................ 182 117 291
------ ------ ------
Interest expense............................................... 48 115 380
Gain (loss) on sale of asset................................... -- -- --
Other (income) expense......................................... -- (2) 22
------ ------ ------
Income (loss) before income taxes.............................. 134 4 (111)
Income tax (expense) benefit................................... (44) -- --
------ ------ ------
Net income (loss).............................................. $ 90 $ 4 $ (111)
------ ------ ------
------ ------ ------
<CAPTION>
SAVANNAH
VALLEY
BROADCASTING
RADIO
PROPERTIES SUBTOTAL
------------------- -----------
STATEMENT OF OPERATIONS DATA:
Revenues....................................................... $ 2,401 $ 16,515
Less: agency commissions....................................... (258) (1,572)
------ -----------
Net revenues................................................... 2,143 14,943
Station operating expenses excluding depreciation and
amortization................................................. 2,211 12,908
Depreciation and amortization.................................. 352 1,793
Corporate general and administrative expenses.................. -- --
Non-cash stock compensation expense............................ -- --
------ -----------
Operating income (loss)........................................ (420) 242
------ -----------
Interest expense............................................... 246 1,357
Gain (loss) on sale of asset................................... -- --
Other (income) expense......................................... -- 20
------ -----------
Income (loss) before income taxes.............................. (666) (1,135)
Income tax (expense) benefit................................... -- (44)
------ -----------
Net income (loss).............................................. $ (666) $ (1,179)
------ -----------
------ -----------
</TABLE>
34
<PAGE>
1998 COMPLETED ACQUISITIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEACOAST RADIO
COMPANY, LLC
---------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................................................. $ 820
Less: agency commissions.................................................................................. (80)
-----
Net revenues.............................................................................................. 740
Station operating expenses excluding depreciation and amortization........................................ 480
Depreciation and amortization............................................................................. 58
Corporate general and administrative expenses............................................................. --
Non-cash stock compensation expense....................................................................... --
-----
Operating income (loss)................................................................................... 202
-----
Interest expense.......................................................................................... 34
Gain (loss) on sale of asset.............................................................................. --
Other (income) expense.................................................................................... --
-----
Income (loss) before income taxes......................................................................... 168
Income tax (expense) benefit.............................................................................. --
-----
Net income (loss)......................................................................................... $ 168
-----
-----
<CAPTION>
SUNNY
BROADCASTERS, INC.
-------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................................................. $ 1,359
Less: agency commissions.................................................................................. (111)
------
Net revenues.............................................................................................. 1,248
Station operating expenses excluding depreciation and amortization........................................ 850
Depreciation and amortization............................................................................. 117
Corporate general and administrative expenses............................................................. --
Non-cash stock compensation expense....................................................................... --
------
Operating income (loss)................................................................................... 281
------
Interest expense.......................................................................................... 99
Gain (loss) on sale of asset.............................................................................. --
Other (income) expense.................................................................................... --
------
Income (loss) before income taxes......................................................................... 182
Income tax (expense) benefit.............................................................................. --
------
Net income (loss)......................................................................................... $ 182
------
------
<CAPTION>
TALLY RADIO, LC
-------------------
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................................................. $ 238
Less: agency commissions.................................................................................. (19)
-----
Net revenues.............................................................................................. 219
Station operating expenses excluding depreciation and amortization........................................ 374
Depreciation and amortization............................................................................. 76
Corporate general and administrative expenses............................................................. --
Non-cash stock compensation expense....................................................................... --
-----
Operating income (loss)................................................................................... (231)
-----
Interest expense.......................................................................................... 52
Gain (loss) on sale of asset.............................................................................. --
Other (income) expense.................................................................................... --
-----
Income (loss) before income taxes......................................................................... (283)
Income tax (expense) benefit.............................................................................. --
-----
Net income (loss)......................................................................................... $ (283)
-----
-----
<CAPTION>
VENICE BROADCASTING COR
P.
------------------------
- ---
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................................................. $ 681
Less: agency commissions.................................................................................. (70)
-----
Net revenues.............................................................................................. 611
Station operating expenses excluding depreciation and amortization........................................ 1,120
Depreciation and amortization............................................................................. 89
Corporate general and administrative expenses............................................................. --
Non-cash stock compensation expense....................................................................... --
-----
Operating income (loss)................................................................................... (598)
-----
Interest expense.......................................................................................... 22
Gain (loss) on sale of asset.............................................................................. --
Other (income) expense.................................................................................... --
-----
Income (loss) before income taxes......................................................................... (620)
Income tax (expense) benefit.............................................................................. --
-----
Net income (loss)......................................................................................... $ (620)
-----
-----
<CAPTION>
SUBTOTAL
-----------
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................................................. $ 3,098
Less: agency commissions.................................................................................. (280)
-----------
Net revenues.............................................................................................. 2,818
Station operating expenses excluding depreciation and amortization........................................ 2,824
Depreciation and amortization............................................................................. 340
Corporate general and administrative expenses............................................................. --
Non-cash stock compensation expense....................................................................... --
-----------
Operating income (loss)................................................................................... (346)
-----------
Interest expense.......................................................................................... 207
Gain (loss) on sale of asset.............................................................................. --
Other (income) expense.................................................................................... --
-----------
Income (loss) before income taxes......................................................................... (553)
Income tax (expense) benefit.............................................................................. --
-----------
Net income (loss)......................................................................................... $ (553)
-----------
-----------
</TABLE>
35
<PAGE>
1998 COMPLETED ACQUISITIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUBTOTAL PAGE
34
---------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................................................................. $ 16,515
Less: agency commissions................................................................................. (1,572)
---------------
Net revenues............................................................................................. 14,943
Station operating expenses excluding depreciation and amortization....................................... 12,908
Depreciation and amortization............................................................................ 1,793
Corporate general and administrative expenses............................................................ --
Non-cash stock compensation expense...................................................................... --
---------------
Operating income (loss).................................................................................. 242
---------------
Interest expense......................................................................................... 1,357
Gain (loss) on sale of asset............................................................................. --
Other (income) expense................................................................................... 20
---------------
Income (loss) before income taxes........................................................................ (1,135)
Income tax (expense) benefit............................................................................. (44)
---------------
Net income (loss)........................................................................................ $ (1,179)
---------------
---------------
<CAPTION>
SUBTOTAL PAGE
35
---------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................................................................. $ 3,098
Less: agency commissions................................................................................. (280)
---------------
Net revenues............................................................................................. 2,818
Station operating expenses excluding depreciation and amortization....................................... 2,824
Depreciation and amortization............................................................................ 340
Corporate general and administrative expenses............................................................ --
Non-cash stock compensation expense...................................................................... --
---------------
Operating income (loss).................................................................................. (346)
---------------
Interest expense......................................................................................... 207
Gain (loss) on sale of asset............................................................................. --
Other (income) expense................................................................................... --
---------------
Income (loss) before income taxes........................................................................ (553)
Income tax (expense) benefit............................................................................. --
---------------
Net income (loss)........................................................................................ $ (553)
---------------
---------------
<CAPTION>
OTHER TOTAL
---------- -----------
STATEMENT OF OPERATIONS DATA:
Revenues................................................................................................. $ 3,380 $ 22,993
Less: agency commissions................................................................................. (182) (2,034)
---------- -----------
Net revenues............................................................................................. 3,198 20,959
Station operating expenses excluding depreciation and amortization....................................... 2,901 18,633
Depreciation and amortization............................................................................ 283 2,416
Corporate general and administrative expenses............................................................ -- --
Non-cash stock compensation expense...................................................................... -- --
---------- -----------
Operating income (loss).................................................................................. 14 (90)
---------- -----------
Interest expense......................................................................................... 179 1,743
Gain (loss) on sale of asset............................................................................. -- --
Other (income) expense................................................................................... (2) 18
---------- -----------
Income (loss) before income taxes........................................................................ (163) (1,851)
Income tax (expense) benefit............................................................................. -- (44)
---------- -----------
Net income (loss)........................................................................................ $ (163) $ (1,895)
---------- -----------
---------- -----------
</TABLE>
36
<PAGE>
PENDING ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CASTLE
ALBANY BROADCASTING
BROADCASTING AMERICAN LIMITED
CO. COMMUNICATIONS PARTNERSHIP CHATTANOOGA
FOR THE YEAR COMPANY INC. FOR THE YEAR BROADCAST GROUP
ENDED FOR THE YEAR ENDED FOR THE YEAR
DECEMBER 31, ENDED DECEMBER 31, ENDED
1997 DECEMBER 31, 1997 1997 DECEMBER 31, 1997
--------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 394 $ 46 $ 1,778 $ 1,660
Less: agency commissions................................ (6) -- (142) (181)
----- ----- ------ ------
Net revenues............................................ 388 46 1,636 1,479
Station operating expenses excluding
depreciation and amortization......................... 373 224 1,449 1,310
Depreciation and amortization........................... 19 44 48 206
Corporate general and administrative expenses........... -- -- -- 34
Non-cash stock compensation expense..................... -- -- -- --
----- ----- ------ ------
Operating income (loss)................................. (4) (222) 139 (71)
----- ----- ------ ------
Interest expense........................................ 21 -- 150 --
Gain (loss) on sale of asset............................ -- -- -- --
Other (income) expense.................................. (45) (2) -- --
----- ----- ------ ------
Income (loss) before income taxes....................... 20 (220) (11) (71)
Income tax (expense) benefit............................ -- -- -- --
----- ----- ------ ------
Net income (loss)....................................... $ 20 $ (220) $ (11) $ (71)
----- ----- ------ ------
----- ----- ------ ------
<CAPTION>
CLEARLY SUPERIOR
RADIO PROPERTIES COMMUNICATIONS PROPERTIES, INC.
FOR THE YEAR --------------------------------------
ENDED YEAR ENDED FOUR MONTHS ENDED
DECEMBER 31, 1997 AUGUST 31, 1997 DECEMBER 31, 1997
----------------- ----------------- -------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 2,662 $ 2,528 $ 656
Less: agency commissions................................ (104) (151) (52)
------ ------ -------
Net revenues............................................ 2,558 2,377 604
Station operating expenses excluding
depreciation and amortization......................... 1,728 2,290 564
Depreciation and amortization........................... 211 67 28
Corporate general and administrative expenses........... -- -- --
Non-cash stock compensation expense..................... -- -- --
------ ------ -------
Operating income (loss)................................. 619 20 12
------ ------ -------
Interest expense........................................ 262 173 54
Gain (loss) on sale of asset............................ -- 1,462
Other (income) expense.................................. 75 (37)
------ ------ -------
Income (loss) before income taxes....................... 282 1,346 (42)
Income tax (expense) benefit............................ -- (168)
------ ------ -------
Net income (loss)....................................... $ 282 $ 1,178 $ (42)
------ ------ -------
------ ------ -------
<CAPTION>
FOUR MONTHS ENDED
DECEMBER 31, 1996 SUBTOTAL
------------------ -----------
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ (771) $ 8,953
Less: agency commissions................................ 63 (573)
-------- -----------
Net revenues............................................ (708) 8,380
Station operating expenses excluding
depreciation and amortization......................... (573) 7,365
Depreciation and amortization........................... (18) 605
Corporate general and administrative expenses........... 34
Non-cash stock compensation expense..................... --
-------- -----------
Operating income (loss)................................. (117) 376
-------- -----------
Interest expense........................................ (36) 624
Gain (loss) on sale of asset............................ 1,462
Other (income) expense.................................. (9)
-------- -----------
Income (loss) before income taxes....................... (81) 1,223
Income tax (expense) benefit............................ (168)
-------- -----------
Net income (loss)....................................... $ (81) $ 1,055
-------- -----------
-------- -----------
</TABLE>
37
<PAGE>
PENDING ACQUISITIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JKJ BROADCASTING,
INC., MISSOURI RIVER
BROADCASTING, INC.,
INGSTAD MANKATO,
CRYSTAL RADIO ESPRIT' INC., JAMES INGSTAD JAN-DI
GROUP, INC. COMMUNICATION BROADCASTING, INC., BROADCASTING,
FOR THE YEAR CORPORATION AND HOMETOWN INC.
ENDED FOR THE YEAR WIRELESS, INC. ---------------
DECEMBER 31, ENDED DECEMBER FOR THE YEAR ENDED YEAR ENDED
1997 31, 1997 DECEMBER 31, 1997 JUNE 30, 1997
------------- --------------- --------------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 4,580 $ 124 $ 10,363 $ 2,087
Less: agency commissions................... (601) (7) (449) (116)
------------- ------- ------- ------
Net revenues............................... 3,979 117 9,914 1,971
Station operating expenses excluding
depreciation and amortization............ 2,690 169 7,632 1,746
Depreciation and amortization.............. 237 26 805 112
Corporate general and administrative
expenses................................. -- -- -- --
Non-cash stock compensation expense........ -- -- -- --
------------- ------- ------- ------
Operating income (loss).................... 1,052 (78) 1,477 113
------------- ------- ------- ------
Interest expense........................... 212 -- 849 50
Gain (loss) on sale of asset............... -- -- -- --
Other (income) expense..................... -- -- -- (27)
------------- ------- ------- ------
Income (loss) before income taxes.......... 840 (78) 628 90
Income tax (expense) benefit............... -- -- -- --
------------- ------- ------- ------
Net income (loss).......................... $ 840 $ (78) $ 628 $ 90
------------- ------- ------- ------
------------- ------- ------- ------
<CAPTION>
K-COUNTRY, INC.
----------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 JUNE 30, 1997 DECEMBER 31, 1997
----------------- ----------------- ------------- -------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 1,005 $ (1,024) $ 1,596 $ 901
Less: agency commissions................... (61) -- (129) (58)
----------------- ----------------- ------------- ------
Net revenues............................... 944 $ (1,024) 1,467 843
Station operating expenses excluding
depreciation and amortization............ 714 (736) 1,191 625
Depreciation and amortization.............. 61 160 82
Corporate general and administrative
expenses................................. -- -- -- --
Non-cash stock compensation expense........ -- -- -- --
----------------- ----------------- ------------- ------
Operating income (loss).................... 169 (288) 116 136
----------------- ----------------- ------------- ------
Interest expense........................... -- -- -- --
Gain (loss) on sale of asset............... -- -- -- --
Other (income) expense..................... 87 (41) -- --
----------------- ----------------- ------------- ------
Income (loss) before income taxes.......... 82 (247) 116 136
Income tax (expense) benefit............... -- -- (35) (44)
----------------- ----------------- ------------- ------
Net income (loss).......................... $ 82 $ (247) $ 81 $ 92
----------------- ----------------- ------------- ------
----------------- ----------------- ------------- ------
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1996 SUBTOTAL
----------------- -----------
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ (419) $ 19,213
Less: agency commissions................... 49 (1,372)
-------- -----------
Net revenues............................... (370) 17,841
Station operating expenses excluding
depreciation and amortization............ (255) 13,776
Depreciation and amortization.............. (81) 1,402
Corporate general and administrative
expenses................................. -- --
Non-cash stock compensation expense........ -- --
-------- -----------
Operating income (loss).................... (34) 2,663
-------- -----------
Interest expense........................... 73 1,184
Gain (loss) on sale of asset............... --
Other (income) expense..................... 2 21
-------- -----------
Income (loss) before income taxes.......... (109) 1,458
Income tax (expense) benefit............... (12) (91)
-------- -----------
Net income (loss).......................... $ (121) $ 1,367
-------- -----------
-------- -----------
</TABLE>
38
<PAGE>
PENDING ACQUISITIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LESNICK LOUISIANA MEDIA MIDLAND MUSTANG
COMMUNICATIONS, INTERESTS, INC. BROADCASTERS, BROADCASTING
INC. AND INC. COMPANY
FOR THE YEAR SUBSIDIARIES FOR THE YEAR FOR THE YEAR
ENDED FOR THE YEAR ENDED ENDED
DECEMBER 31, ENDED DECEMBER 31, DECEMBER 31,
1997 DECEMBER 31, 1997 1997 1997
---------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 438 $ 3,363 $ 3,206 $ 1,140
Less: agency commissions........................... (13) (299) (286) (47)
-------- ----------------- ---------------- ------------
Net revenues....................................... 425 3,064 2,920 1,093
Station operating expenses excluding
depreciation and amortization.................... 541 2,275 2,477 1,078
Depreciation and amortization...................... 30 394 212 96
Corporate general and administrative expenses...... -- -- -- --
Non-cash stock compensation expense................ -- 278 -- --
-------- ----------------- ---------------- ------------
Operating income (loss)............................ (146) 117 231 (81)
-------- ----------------- ---------------- ------------
Interest expense................................... -- 543 82 36
Gain (loss) on sale of asset....................... -- -- -- --
Other (income) expense............................. 5 122 -- --
-------- ----------------- ---------------- ------------
Income (loss) before income taxes.................. (151) (548) 149 (117)
Income tax (expense) benefit....................... (2) -- -- --
-------- ----------------- ---------------- ------------
Net income (loss).................................. $ (153) $ (548) $ 149 $ (117)
-------- ----------------- ---------------- ------------
-------- ----------------- ---------------- ------------
<CAPTION>
RADIO INGSTAD,
MINNESOTA,
INC., RADIO
PHOENIX ALBERT
NEW FRONTIER PAMPLICO BROADCAST LEA, INC., AND
COMMUNICATIONS, BROADCASTING, PARTNERS, KRCH OF REPUBLIC
INC. L.P. INC. MINNESOTA, INC. CORPORATION
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1997 1997 1997
---------------- ------------ ------------- --------------- ------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 4,642 $ 1,046 $ 778 $ 4,400 $ 11,691
Less: agency commissions........................... (384) (51) (47) (67) (2,360)
---------------- ------------ ------------- --------------- ------------
Net revenues....................................... 4,258 995 731 4,333 9,331
Station operating expenses excluding
depreciation and amortization.................... 3,304 1,232 790 3,530 6,323
Depreciation and amortization...................... 486 64 94 390 1,206
Corporate general and administrative expenses...... -- -- -- -- --
Non-cash stock compensation expense................ -- -- -- -- --
---------------- ------------ ------------- --------------- ------------
Operating income (loss)............................ 468 (301) (153) 413 1,802
---------------- ------------ ------------- --------------- ------------
Interest expense................................... 497 232 131 141 (11)
Gain (loss) on sale of asset....................... -- -- -- 4,085 --
Other (income) expense............................. 32 -- (8) -- 32
---------------- ------------ ------------- --------------- ------------
Income (loss) before income taxes.................. (61) (533) (276) 4,357 1,781
Income tax (expense) benefit....................... (6) -- -- -- 3,724
---------------- ------------ ------------- --------------- ------------
Net income (loss).................................. $ (67) $ (533) $ (276) $ 4,357 $ 5,505
---------------- ------------ ------------- --------------- ------------
---------------- ------------ ------------- --------------- ------------
<CAPTION>
SUBTOTAL
-----------
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 30,704
Less: agency commissions........................... (3,554)
-----------
Net revenues....................................... 27,150
Station operating expenses excluding
depreciation and amortization.................... 21,550
Depreciation and amortization...................... 2,972
Corporate general and administrative expenses...... --
Non-cash stock compensation expense................ 278
-----------
Operating income (loss)............................ 2,350
-----------
Interest expense................................... 1,651
Gain (loss) on sale of asset....................... 4,085
Other (income) expense............................. 183
-----------
Income (loss) before income taxes.................. 4,601
Income tax (expense) benefit....................... 3,716
-----------
Net income (loss).................................. $ 8,317
-----------
-----------
</TABLE>
39
<PAGE>
PENDING ACQUISITIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SAVANNAH TALLAHASSEE TRYON-SEACOAST
COMMUNICATIONS, BROADCASTING, COMMUNICATIONS,
L.P. INC. INC.
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1997 1997
---------------- ------------ ----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................................................... $ 1,405 $ 794 $ 1,197
Less: agency commissions......................................................... (148) (76) (61)
---------------- ------------ ----------------
Net revenues..................................................................... 1,257 718 1,136
Station operating expenses excluding
depreciation and amortization.................................................. 1,497 923 1,073
Depreciation and amortization.................................................... 507 170 34
Corporate general and administrative expenses.................................... -- -- --
Non-cash stock compensation expense.............................................. -- -- --
---------------- ------------ ----------------
Operating income (loss).......................................................... (747) (375) 29
---------------- ------------ ----------------
Interest expense................................................................. 366 84 87
Gain (loss) on sale of asset..................................................... -- -- --
Other (income) expense........................................................... (14) (42) --
---------------- ------------ ----------------
Income (loss) before income taxes................................................ (1,099) (417) (58)
Income tax (expense) benefit..................................................... -- -- --
---------------- ------------ ----------------
Net income (loss)................................................................ $ (1,099) $ (417) $ (58)
---------------- ------------ ----------------
---------------- ------------ ----------------
<CAPTION>
WJCL-FM WWFG-FM AND WOSC-FM
FOR THE YEAR -----------------------------------
ENDED AUGUST 1, 1997
DECEMBER 31, JANUARY 1, 1997 TO DECEMBER 31,
1997 TO JULY 31, 1997 1997
------------ ----------------- ----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................................................... $ 1,801 $ 998 $ 640
Less: agency commissions......................................................... (236) (58) (21)
------------ -------- ----------------
Net revenues..................................................................... 1,565 940 619
Station operating expenses excluding
depreciation and amortization.................................................. 1,469 953 604
Depreciation and amortization.................................................... 13 187 151
Corporate general and administrative expenses.................................... -- -- --
Non-cash stock compensation expense.............................................. -- -- --
------------ -------- ----------------
Operating income (loss).......................................................... 83 (200) (136)
------------ -------- ----------------
Interest expense................................................................. -- 5 --
Gain (loss) on sale of asset..................................................... -- -- --
Other (income) expense........................................................... -- -- --
------------ -------- ----------------
Income (loss) before income taxes................................................ 83 (205) (136)
Income tax (expense) benefit..................................................... -- -- --
------------ -------- ----------------
Net income (loss)................................................................ $ 83 $ (205) $ (136)
------------ -------- ----------------
------------ -------- ----------------
<CAPTION>
SUBTOTAL
-----------
STATEMENT OF OPERATIONS DATA:
Revenues......................................................................... $ 6,835
Less: agency commissions......................................................... (600)
-----------
Net revenues..................................................................... 6,235
Station operating expenses excluding
depreciation and amortization.................................................. 6,519
Depreciation and amortization.................................................... 1,062
Corporate general and administrative expenses.................................... --
Non-cash stock compensation expense.............................................. --
-----------
Operating income (loss).......................................................... (1,346)
-----------
Interest expense................................................................. 542
Gain (loss) on sale of asset..................................................... --
Other (income) expense........................................................... (56)
-----------
Income (loss) before income taxes................................................ (1,832)
Income tax (expense) benefit..................................................... --
-----------
Net income (loss)................................................................ $ (1,832)
-----------
-----------
</TABLE>
40
<PAGE>
PENDING ACQUISITIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUBTOTAL PAGE
37
---------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................................................. $ 8,953
Less: agency commissions............................................................................. (573)
---------------
Net revenues......................................................................................... 8,380
Station operating expenses excluding depreciation and amortization................................... 7,365
Depreciation and amortization........................................................................ 605
Corporate general and administrative expenses........................................................ 34
Non-cash stock compensation expense.................................................................. --
---------------
Operating income (loss).............................................................................. 376
---------------
Interest expense..................................................................................... 624
Gain (loss) on sale of asset......................................................................... 1,462
Other (income) expense............................................................................... (9)
---------------
Income (loss) before income taxes.................................................................... 1,223
Income tax (expense) benefit......................................................................... (168)
---------------
Net income (loss).................................................................................... $ 1,055
---------------
---------------
<CAPTION>
SUBTOTAL PAGE
38
---------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................................................. $ 19,213
Less: agency commissions............................................................................. (1,372)
---------------
Net revenues......................................................................................... 17,841
Station operating expenses excluding depreciation and amortization................................... 13,776
Depreciation and amortization........................................................................ 1,402
Corporate general and administrative expenses........................................................ --
Non-cash stock compensation expense.................................................................. --
---------------
Operating income (loss).............................................................................. 2,663
---------------
Interest expense..................................................................................... 1,184
Gain (loss) on sale of asset......................................................................... --
Other (income) expense............................................................................... 21
---------------
Income (loss) before income taxes.................................................................... 1,458
Income tax (expense) benefit......................................................................... (91)
---------------
Net income (loss).................................................................................... $ 1,367
---------------
---------------
<CAPTION>
SUBTOTAL PAGE
39
---------------
STATEMENT OF OPERATIONS DATA:
Revenues............................................................................................. $ 30,704
Less: agency commissions............................................................................. (3,554)
---------------
Net revenues......................................................................................... 27,150
Station operating expenses excluding depreciation and amortization................................... 21,550
Depreciation and amortization........................................................................ 2,972
Corporate general and administrative expenses........................................................ --
Non-cash stock compensation expense.................................................................. 278
---------------
Operating income (loss).............................................................................. 2,350
---------------
Interest expense..................................................................................... 1,651
Gain (loss) on sale of asset......................................................................... 4,085
Other (income) expense............................................................................... 183
---------------
Income (loss) before income taxes.................................................................... 4,601
Income tax (expense) benefit......................................................................... 3,716
---------------
Net income (loss).................................................................................... $ 8,317
---------------
---------------
<CAPTION>
SUBTOTAL PAGE
40 OTHER
--------------- -----------
STATEMENT OF OPERATIONS DATA:
Revenues............................................................................................. $ 6,835 $ 2,773
Less: agency commissions............................................................................. (600) (308)
--------------- -----------
Net revenues......................................................................................... 6,235 2,465
Station operating expenses excluding depreciation and amortization................................... 6,519 1,848
Depreciation and amortization........................................................................ 1,062 104
Corporate general and administrative expenses........................................................ -- --
Non-cash stock compensation expense.................................................................. -- --
--------------- -----------
Operating income (loss).............................................................................. (1,346) 513
--------------- -----------
Interest expense..................................................................................... 542 246
Gain (loss) on sale of asset......................................................................... -- --
Other (income) expense............................................................................... (56) 11
--------------- -----------
Income (loss) before income taxes.................................................................... (1,832) 256
Income tax (expense) benefit......................................................................... -- (3,457)
--------------- -----------
Net income (loss).................................................................................... $ (1,832) $ (3,201)
--------------- -----------
--------------- -----------
<CAPTION>
TOTAL
-----------
STATEMENT OF OPERATIONS DATA:
Revenues............................................................................................. $ 68,478
Less: agency commissions............................................................................. (6,407)
-----------
Net revenues......................................................................................... 62,071
Station operating expenses excluding depreciation and amortization................................... 51,058
Depreciation and amortization........................................................................ 6,145
Corporate general and administrative expenses........................................................ 34
Non-cash stock compensation expense.................................................................. 278
-----------
Operating income (loss).............................................................................. 4,556
-----------
Interest expense..................................................................................... 4,247
Gain (loss) on sale of asset......................................................................... 5,547
Other (income) expense............................................................................... 150
-----------
Income (loss) before income taxes.................................................................... 5,706
Income tax (expense) benefit......................................................................... --
-----------
Net income (loss).................................................................................... $ 5,706
-----------
-----------
</TABLE>
41
<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)
(B) PRO FORMA ADJUSTMENTS
PRO FORMA FOR THE (A)+(B)+(C)+
ADJUSTMENTS TO COMPANY (D)=(E)
REFLECT THE HISTORICAL PRO FORMA AS
(A) FULL PERIOD FOR (C) AND THE 1998 ADJUSTED FOR
THE COMPANY THE COMPANY 1998 COMPLETED COMPLETED THE 1998 COMPLETED
HISTORICAL HISTORICAL(1) ACQUISITIONS ACQUISITIONS ACQUISITIONS
-------------- --------------- ---------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 13,787 $ 1,083 $ 1,525 $ -- $ 16,395
Less: agency commissions...... (1,287) (99) (161) -- (1,547)
------- ------ ------- ------ -------
Net revenues.................. 12,500 984 1,364 -- 14,848
Station operating expenses
excluding depreciation and
amortization................. 10,904 973 1,317 -- 13,194
Depreciation and
amortization................. 2,748 175 156 (442)(3) 2,637
Corporate general and
administrative expenses...... 961 -- -- -- 961
Non-cash stock compensation
expense...................... -- -- -- -- --
------- ------ ------- ------ -------
Operating income (loss)....... (2,113) (164) (109) 442 (1,944)
------- ------ ------- ------ -------
Interest expense.............. 1,374 78 343 1,088(3) 2,883
Gain (loss) on sale of asset.. -- -- -- -- --
Other (income) expense........ 6 (56) 4 -- (46)
------- ------ ------- ------ -------
Income (loss) before income
taxes........................ (3,493) (186) (456) (646) (4,781)
Income tax (expense)
benefit...................... -- -- -- -- --
------- ------ ------- ------ -------
Net income (loss) before
extraordinary item........... (3,493) (186) (456) (646) (4,781)
------- ------ ------- ------ -------
Preferred stock dividends..... 842 -- -- -- 842
------- ------ ------- ------ -------
Net income (loss) before
extraordinary item
attributable to common
stockholders................. $ (4,335) $ (186) $ (456) $ (646) $ (5,623)
------- ------ ------- ------ -------
------- ------ ------- ------ -------
Basic and diluted earnings
(loss) before extraordinary
item per share............... $ (4,335) $ (0.30)
Average shares outstanding.... 1,000 18,759
<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...................... $ -- $ 16,395 $ 12,932 $ -- $ 29,327
Less: agency commissions...... -- (1,547) (768) -- (2,315)
------------- -------------- ------------ ------------- -------------
Net revenues.................. -- 14,848 12,164 -- 27,012
Station operating expenses
excluding depreciation and
amortization................. -- 13,194 10,736 -- 23,930
Depreciation and
amortization................. -- 2,637 1,850 1,192(2) 5,679
Corporate general and
administrative expenses...... -- 961 8 -- 969
Non-cash stock compensation
expense...................... -- -- -- -- --
------------- -------------- ------------ ------------- -------------
Operating income (loss)....... -- (1,944) (430) (1,192) (3,566)
------------- -------------- ------------ ------------- -------------
Interest expense.............. 899(4) 3,782 1,263 (401)(6) 4,644
Gain (loss) on sale of asset.. -- -- -- -- --
Other (income) expense........ -- (46) (14) (60)
------------- -------------- ------------ ------------- -------------
Income (loss) before income
taxes........................ (899) (5,680) (1,679) (791) (8,150)
Income tax (expense)
benefit...................... -- -- 20 -- 20
------------- -------------- ------------ ------------- -------------
Net income (loss) before
extraordinary item........... (899) (5,680) (1,659) (791) (8,130)
------------- -------------- ------------ ------------- -------------
Preferred stock dividends..... 2,884(5) 3,726 -- -- 3,726
------------- -------------- ------------ ------------- -------------
Net income (loss) before
extraordinary item
attributable to common
stockholders................. $ (3,783) $ (9,406) $ (1,659) $ (791) $ (11,856)
------------- -------------- ------------ ------------- -------------
------------- -------------- ------------ ------------- -------------
Basic and diluted earnings
(loss) before extraordinary
item per share............... $ (0.50) $ (0.63)
Average shares outstanding.... 18,759 18,759
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Statement of Operations.
42
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(1) 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.
(2) 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 $1,019 and
amortization expense is $4,660 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. Non-compete agreements
are being amortized over the lives of the agreements which ranges from 2-5
years.
The Company allocates the purchase prices of the acquired stations based
upon complete evaluations of the assets acquired and the liabilities
assumed. The Company believes that the excess of cost over the fair value of
the tangible net assets of an acquired radio station almost exclusively
relates to the value of the FCC broadcasting license and goodwill. The
Company believes that the purchase price allocation method described above
is consistent with general practice in the radio broadcasting industry.
(3) Adjustment to reflect increased interest expense resulting from:
<TABLE>
<S> <C>
Quarterly interest on the $131,255 of indebtedness under the Credit
Facility at 8.50%................................................ $ 2,789
Quarterly amortization of $3,000 in debt issuance costs over 8
years............................................................ 94
---------
Total interest expense........................................... 2,883
Less: Historical interest recorded by the Company and the
Completed Acquisitions......................................... (1,795)
---------
Net adjustment................................................... $ 1,088
---------
---------
</TABLE>
(4) Adjustment to reflect increased interest expense resulting from:
<TABLE>
<S> <C>
Quarterly interest expense on $150,000 Notes at 9.50%.............. $ 3,562
Quarterly amortization of $5,057 debt issuance cost, over 10
years............................................................ 126
Quarterly amortization of $3,000 credit facility, transaction, over
8 years.......................................................... 94
---------
Total interest expense............................................. 3,782
Less: Historical interest recorded by the Company and the completed
Acquisitions..................................................... (2,883)
---------
Net adjustment..................................................... $ 899
---------
---------
</TABLE>
43
<PAGE>
(5) To reflect additional accretion related to Series A Preferred Stock
dividend:
<TABLE>
<S> <C>
Accretion of Series A Preferred Stock dividend (compounded daily at
11.75%).......................................................... $ 3,726
Less: Pro forma dividends on NML Preferred Stock exchanged into
Series A Preferred Stock......................................... (842)
---------
Net adjustment..................................................... $ 2,884
---------
---------
</TABLE>
The dividend rate on the Series A Preferred Stock of 11.75% is based on the
Company's estimate, considering market conditions for similar securities. A
one-eighth of one percent (0.125%) change in the dividend rate on the Series
A Preferred Stock results in a $39 increase or decrease in the pro forma
Preferred Stock dividend for the three months ended March 31, 1998.
(6) 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 on hand.................................................... 21,916
Escrow funds.................................................... 12,522
---------
Total........................................................... $ 359,228
---------
---------
Uses of funds:
Purchase price of the Subsequent Acquisitions and the Pending
Acquisitions.................................................. $ 279,532
Repayment of Credit Facility.................................... 79,696
---------
Total........................................................... $ 359,228
---------
---------
Quarterly interest on the Notes at 9.50%.......................... $ 3,562
Quarterly interest on the Credit Facility at 8.50%................ 862
Quarterly amortization of $5,057 debt issuance costs over 10
years........................................................... 126
Quarterly amortization of $3,000 Credit Facility transaction costs
over 8 years.................................................... 94
---------
Total interest expense.......................................... 4,644
Less: Interest expense recorded pro forma as adjusted for the
Pending Acquisitions and pro forma as adjusted for the
Offerings..................................................... (5,045)
---------
Net adjustment.................................................. $ (401)
---------
---------
</TABLE>
The fixed interest rate used to calculate pro forma interest expense on the
Notes is nine and one-half percent (9.50%) and the floating interest rate used
to calculate pro forma interest expense on the Credit Facility is eight and
one-half percent (8.50%). The rates on the Notes and the Credit Facility are
based on the Company's estimates, considering market conditions for similar
securities. A one-eighth of one percent (0.125%) change in the interest rate on
the Notes and the Credit Facility results in a $47 and a $13 increase (or
decrease), respectively, in the pro forma interest expense for the three months
ending March 31, 1998.
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.
On March 2, 1998, the Company recorded an extraordinary loss on early
extinguishment of debt of $1,837.
44
<PAGE>
PRO FORMA ADJUSTMENTS TO REFLECT THE FULL PERIOD FOR THE COMPANY HISTORICAL
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CAROLINA BROADCASTING, FORJAY
INC. AND GEORGETOWN BROADCASTING
ARBOR RADIO, LP RADIO, INC. CORPORATION
------------------- ----------------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 395 $ 85 $ 275
Less: agency commissions............................... (27) -- (41)
----- ----- ------
Net revenues........................................... 368 85 234
Station operating expenses excluding depreciation and
amortization.......................................... 324 128 203
Depreciation and amortization.......................... 82 26 11
Corporate general and administrative expenses.......... -- -- --
Non-cash stock compensation expense.................... -- -- --
----- ----- ------
Operating income (loss)................................ (38) (69) 20
----- ----- ------
Interest expense....................................... 47 -- 6
Gain (loss) on sale of asset........................... -- -- --
Other (income) expense................................. 10 -- (9)
----- ----- ------
Income (loss) before income taxes...................... (95) (69) 23
Income tax (expense) benefit........................... -- -- --
----- ----- ------
Net income (loss)...................................... $ (95) $ (69) $ 23
----- ----- ------
----- ----- ------
<CAPTION>
SEACOAST SUNNY VENICE
RADIO BROADCASTERS, BROADCASTING
COMPANY, LLC INC. CORP. OTHER(1) TOTAL
--------------- ------------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 127 $ 195 $ 6 $ -- $ 1,083
Less: agency commissions............................... (13) (16) (2) -- (99)
------ ------ ------ ----------- ---------
Net revenues........................................... 114 179 4 -- 984
Station operating expenses excluding depreciation and
amortization.......................................... 103 177 33 5 973
Depreciation and amortization.......................... 15 30 7 4 175
Corporate general and administrative expenses.......... -- -- -- -- --
Non-cash stock compensation expense.................... -- -- -- -- --
------ ------ ------ ----------- ---------
Operating income (loss)................................ (4) (28) (36) (9) (164)
------ ------ ------ ----------- ---------
Interest expense....................................... 5 20 -- -- 78
Gain (loss) on sale of asset........................... -- -- -- -- --
Other (income) expense................................. (106) 85 -- (36) (56)
------ ------ ------ ----------- ---------
Income (loss) before income taxes...................... 97 (133) (36) 27 (186)
Income tax (expense) benefit........................... -- -- -- -- --
------ ------ ------ ----------- ---------
Net income (loss)...................................... $ 97 $ (133) $ (36) $ 27 $ (186)
------ ------ ------ ----------- ---------
------ ------ ------ ----------- ---------
</TABLE>
45
<PAGE>
NOTE TO PRO FORMA ADJUSTMENTS
TO REFLECT THE FULL PERIOD FOR THE COMPANY HISTORICAL
FOR THE THREE MONTHS ENDED
MARCH 31, 1998
(1) The operating results of M&M Partners, Tally Radio, LC and HVS Partners are
included in the consolidated financial statements of the Company for the
three month period from January 1, 1998 to March 31, 1998 because the entity
was either owned effective January 1, 1998 or operated under an LMA which
began on or before January 1, 1998.
46
<PAGE>
1998 COMPLETED ACQUISITIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BEAUMONT
SKYWAVE, INC.
---------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................................................... $ 95
Less: agency commissions.................................................................................... (14)
-----
Net revenues................................................................................................ 81
Station operating expenses excluding depreciation and amortization.......................................... 110
Depreciation and amortization............................................................................... 21
Corporate general and administrative expenses............................................................... --
Non-cash stock compensation expense......................................................................... --
-----
Operating income (loss)..................................................................................... (50)
-----
Interest expense............................................................................................ 18
Gain (loss) on sale of asset................................................................................ --
Other (income) expense...................................................................................... (30)
-----
Income (loss) before income taxes........................................................................... (38)
Income tax (expense) benefit................................................................................ --
-----
Net income (loss)........................................................................................... $ (38)
-----
-----
<CAPTION>
NINETY FOUR POINT
ONE, INC.
-------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................................................... $ 979
Less: agency commissions.................................................................................... (112)
-----
Net revenues................................................................................................ 867
Station operating expenses excluding depreciation and amortization.......................................... 754
Depreciation and amortization............................................................................... 47
Corporate general and administrative expenses............................................................... --
Non-cash stock compensation expense......................................................................... --
-----
Operating income (loss)..................................................................................... 66
-----
Interest expense............................................................................................ 105
Gain (loss) on sale of asset................................................................................ --
Other (income) expense...................................................................................... 12
-----
Income (loss) before income taxes........................................................................... (51)
Income tax (expense) benefit................................................................................ --
-----
Net income (loss)........................................................................................... $ (51)
-----
-----
<CAPTION>
SAVANNAH VALLEY
BROADCASTING
RADIO PROPERTIES
-----------------
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................................................... $ 308
Less: agency commissions.................................................................................... (26)
------
Net revenues................................................................................................ 282
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)..................................................................................... (83)
------
Interest expense............................................................................................ 217
Gain (loss) on sale of asset................................................................................ --
Other (income) expense...................................................................................... 75
------
Income (loss) before income taxes........................................................................... (375)
Income tax (expense) benefit................................................................................ --
------
Net income (loss)........................................................................................... $ (375)
------
------
<CAPTION>
OTHER TOTAL
--------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................................................... $ 143 $ 1,525
Less: agency commissions.................................................................................... (9) (161)
--------- ---------
Net revenues................................................................................................ 134 1,364
Station operating expenses excluding depreciation and amortization.......................................... 162 1,317
Depreciation and amortization............................................................................... 14 156
Corporate general and administrative expenses............................................................... -- --
Non-cash stock compensation expense......................................................................... -- --
--------- ---------
Operating income (loss)..................................................................................... (42) (109)
--------- ---------
Interest expense............................................................................................ 3 343
Gain (loss) on sale of asset................................................................................ -- --
Other (income) expense...................................................................................... (53) 4
--------- ---------
Income (loss) before income taxes........................................................................... 8 (456)
Income tax (expense) benefit................................................................................ -- --
--------- ---------
Net income (loss)........................................................................................... $ 8 $ (456)
--------- ---------
--------- ---------
</TABLE>
47
<PAGE>
PENDING ACQUISITIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CASTLE
BROADCASTING CHATTANOOGA
AMERICAN LIMITED BROADCAST CLEARLY
ALBANY BROADCASTING COMMUNICATIONS PATNERSHIP GROUP SUPERIOR RADIO
CO. COMPANY INC. FOR THE THREE FOR THE THREE PROPERTIES
FOR THE THREE FOR THE THREE MONTHS ENDED MONTHS ENDED FOR THE THREE
MONTHS ENDED MONTHS ENDED MARCH MARCH 31, MARCH 31, MONTHS ENDED
MARCH 31, 1998 31, 1998 1998 1998 MARCH 31, 1998
------------------- ------------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 76 $ 37 $ 392 $ 269 $ 220
Less: agency commissions.................. (2) -- (35) (24) --
--- --- ----- ----- -----
Net revenues.............................. 74 37 357 245 220
Station operating expenses excluding
depreciation and amortization............ 86 43 364 261 120
Depreciation and amortization............. 4 11 19 52 148
Corporate general and administrative
expenses................................. -- -- -- 8 --
Non-cash stock compensation expense....... -- -- -- -- --
--- --- ----- ----- -----
Operating income (loss)................... (16) (17) (26) (76) (48)
--- --- ----- ----- -----
Interest expense.......................... 5 -- 45 -- 76
Gain (loss) on sale of asset.............. -- -- -- -- --
Other (income) expense.................... (10) -- -- -- 61
--- --- ----- ----- -----
Income (loss) before income taxes......... (11) (17) (71) (76) (185)
Income tax (expense) benefit.............. -- -- -- -- --
--- --- ----- ----- -----
Net income (loss)......................... $ (11) $ (17) $ (71) $ (76) $ (185)
--- --- ----- ----- -----
--- --- ----- ----- -----
<CAPTION>
COMMUNICATIONS PROPERTIES, INC.
---------------------------------- CRYSTAL RADIO
FOR THE SEVEN GROUP, INC.
MONTH PERIOD FOR THE FOUR FOR THE THREE
ENDED MONTHS ENDED MONTHS ENDED
MARCH 31, 1998 DECEMBER 31, 1997 MARCH 31, 1998 SUBTOTAL
--------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 1,060 $ (670) $ 938 $ 2,322
Less: agency commissions.................. (89) 52 (79) (177)
------ ------ ----- -----------
Net revenues.............................. 971 (618) 859 2,145
Station operating expenses excluding
depreciation and amortization............ 959 (565) 672 1,940
Depreciation and amortization............. 180 (98) 94 410
Corporate general and administrative
expenses................................. -- -- -- 8
Non-cash stock compensation expense....... -- -- -- --
------ ------ ----- -----------
Operating income (loss)................... (168) 45 93 (213)
------ ------ ----- -----------
Interest expense.......................... 143 (77) 50 242
Gain (loss) on sale of asset.............. -- -- -- --
Other (income) expense.................... (48) 21 -- 24
------ ------ ----- -----------
Income (loss) before income taxes......... (263) 101 43 (479)
Income tax (expense) benefit.............. 22 (22) -- --
------ ------ ----- -----------
Net income (loss)......................... $ (241) $ 79 $ 43 $ (479)
------ ------ ----- -----------
------ ------ ----- -----------
</TABLE>
48
<PAGE>
PENDING ACQUISITIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JKJ BROADCASTING, INC.,
MISSOURI RIVER
BROADCASTING, INC.,
INGSTAD MANKATO, INC.,
ESPRIT' JAMES INGSTAD JAN-DI BROADCASTING, INC. K-COUNTRY, INC.
COMMUNICATION BROADCASTING, INC., ------------------------------- ---------------
CORPORATION HOMETOWN WIRELESS, INC. FOR THE SIX
FOR THE THREE FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED FOR THE NINE
MONTHS ENDED ENDED MONTHS ENDED DECEMBER 31, MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1998 MARCH 31, 1998 1997 MARCH 31, 1998
----------------- ----------------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $ 16 $ 2,549 $ 1,484 $ (1,005) $ 1,271
Less: agency
commissions............. (1) (115) (87) 60 (91)
--- ------ ------ -------------- ------
Net revenues............. 15 2,434 1,397 (945) 1,180
Station operating
expenses excluding
depreciation and
amortization............ 44 1,939 1,240 (775) 1,007
Depreciation and
amortization............ 6 191 86 (61) 115
Corporate general and
administrative
expenses................ -- -- -- -- --
Non-cash stock
compensation expense.... -- -- -- -- --
--- ------ ------ -------------- ------
Operating income (loss).. (35) 304 71 (109) 58
--- ------ ------ -------------- ------
Interest expense......... -- 210 30 (20) --
Gain (loss) on sale of
asset................... -- -- -- -- --
Other (income) expense... -- -- 1 (10) --
--- ------ ------ -------------- ------
Income (loss) before
income taxes............ (35) 94 40 (79) 58
Income tax (expense)
benefit................. -- -- -- -- (17)
--- ------ ------ -------------- ------
Net income (loss)........ $ (35) $ 94 $ 40 $ (79) $ 41
--- ------ ------ -------------- ------
--- ------ ------ -------------- ------
<CAPTION>
LOUISIANA MEDIA
INTERESTS, INC.
LESNICK AND
FOR THE SIX COMMUNICATIONS, INC. SUBSIDIARIES
MONTHS ENDED FOR THE THREE MONTHS FOR THE THREE
DECEMBER 31, ENDED MONTHS ENDED
1997 MARCH 31, 1998 MARCH 31, 1998 SUBTOTAL
----------------- --------------------- ----------------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $ (901) $ 69 $ 824 $ 4,307
Less: agency
commissions............. 58 (5) (72) (253)
----- ------ ------ -----------
Net revenues............. (843) 64 752 4,054
Station operating
expenses excluding
depreciation and
amortization............ (625) 136 638 3,604
Depreciation and
amortization............ (82) 9 136 400
Corporate general and
administrative
expenses................ -- -- -- --
Non-cash stock
compensation expense.... -- -- -- --
----- ------ ------ -----------
Operating income (loss).. (136) (81) (22) 50
----- ------ ------ -----------
Interest expense......... -- 4 174 398
Gain (loss) on sale of
asset................... -- -- -- --
Other (income) expense... -- -- 32 23
----- ------ ------ -----------
Income (loss) before
income taxes............ (136) (85) (228) (371)
Income tax (expense)
benefit................. 44 -- -- 27
----- ------ ------ -----------
Net income (loss)........ $ (92) $ (85) $ (228) $ (344)
----- ------ ------ -----------
----- ------ ------ -----------
</TABLE>
49
<PAGE>
PENDING ACQUISITIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MIDLAND MUSTANG NEW FRONTIER
BROADCASTERS, BROADCASTING COMMUNICATIONS,
INC. COMPANY INC.
<S> <C> <C> <C> <C>
FOR THE THREE FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1998 MARCH 31, 1998
----------------- ----------------- -----------------
STATEMENT OF OPERATIONS DATA:
Revenues............................................................ $ 741 $ 210 $ 815
Less: agency commissions............................................ (67) (7) --
----- ----- -------
Net revenues........................................................ 674 203 815
Station operating expenses
excluding depreciation and amortization........................... 529 237 576
Depreciation and amortization....................................... 45 25 115
Corporate general and administrative expenses....................... -- -- --
Non-cash stock compensation expense................................. -- -- --
----- ----- -------
Operating income (loss)............................................. 100 (59) 124
----- ----- -------
Interest expense.................................................... 19 1 147
Gain (loss) on sale of asset........................................ -- -- --
Other (income) expense.............................................. -- -- (7)
----- ----- -------
Income (loss) before income taxes................................... 81 (60) (16)
Income tax (expense) benefit........................................ -- -- 4
----- ----- -------
Net income (loss)................................................... $ 81 $ (60) $ (12)
----- ----- -------
----- ----- -------
<CAPTION>
RADIO INGSTAD
BROADCASTING, PHOENIX BROADCAST AND KRCH OF MINNESOTA,
L.P. PARTNERS, INC. INC.
<S> <C>
FOR THE THREE FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1998 MARCH 31, 1998
----------------- ----------------- -----------------------
STATEMENT OF OPERATIONS DATA:
Revenues............................................................ $ 135 $ 129 $ 1,018
Less: agency commissions............................................ (8) (6) (5)
------- ------- ------
Net revenues........................................................ 127 123 1,013
Station operating expenses
excluding depreciation and amortization........................... 245 159 837
Depreciation and amortization....................................... 23 27 121
Corporate general and administrative expenses....................... -- -- --
Non-cash stock compensation expense................................. -- -- --
------- ------- ------
Operating income (loss)............................................. (141) (63) 55
------- ------- ------
Interest expense.................................................... 60 24 186
Gain (loss) on sale of asset........................................ -- -- --
Other (income) expense.............................................. -- -- --
------- ------- ------
Income (loss) before income taxes................................... (201) (87) (131)
Income tax (expense) benefit........................................ -- -- --
------- ------- ------
Net income (loss)................................................... $ (201) $ (87) $ (131)
------- ------- ------
------- ------- ------
<CAPTION>
SUBTOTAL
-----------
STATEMENT OF OPERATIONS DATA:
Revenues............................................................ $ 3,048
Less: agency commissions............................................ (93)
-----------
Net revenues........................................................ 2,955
Station operating expenses
excluding depreciation and amortization........................... 2,498
Depreciation and amortization....................................... 441
Corporate general and administrative expenses....................... --
Non-cash stock compensation expense................................. --
-----------
Operating income (loss)............................................. 16
-----------
Interest expense.................................................... 437
Gain (loss) on sale of asset........................................ --
Other (income) expense.............................................. (7)
-----------
Income (loss) before income taxes................................... (414)
Income tax (expense) benefit........................................ 4
-----------
Net income (loss)................................................... $ (410)
-----------
-----------
</TABLE>
50
<PAGE>
PENDING ACQUISITIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TALLAHASSEE
REPUBLIC SAVANNAH BROADCASTING,
CORPORATION COMMUNICATIONS, INC. TRYON-SEACOAST
FOR THE THREE L.P. FOR THE THREE COMMUNICATIONS, INC.
MONTHS ENDED FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS
MARCH 31, MONTHS ENDED MARCH 31, ENDED
1998 MARCH 31, 1998 1998 MARCH 31, 1998
------------- ---------------- ------------- ---------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ 2,007 $ 105 $ -- $ 262
Less: agency commissions............................... (155) (3) -- (13)
------------- -------- ------------- -------
Net revenues........................................... 1,852 102 -- 249
Station operating expenses excluding depreciation and
amortization......................................... 1,429 107 15 265
Depreciation and amortization.......................... 321 161 39 11
Corporate general and administrative expenses.......... -- -- -- --
Non-cash stock compensation expense.................... -- -- -- --
------------- -------- ------------- -------
Operating income (loss)................................ 102 (166) (54) (27)
------------- -------- ------------- -------
Interest expense....................................... (1) 83 23 27
Gain (loss) on sale of asset........................... -- -- -- --
Other (income) expense................................. 15 3 (27) --
------------- -------- ------------- -------
Income (loss) before income taxes...................... 88 (252) (50) (54)
Income tax (expense) benefit........................... (11) -- -- --
------------- -------- ------------- -------
Net income (loss)...................................... $ 77 $ (252) $ (50) $ (54)
------------- -------- ------------- -------
------------- -------- ------------- -------
<CAPTION>
WJCL-FM WWFG-FM AND
FOR THE THREE WOSC-FM
MONTHS ENDED FOR THE THREE
MARCH 31, MONTHS ENDED
1998 MARCH 31, 1998 SUBTOTAL
------------- ------------------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................... $ -- $ 80 $ 2,454
Less: agency commissions............................... -- (4) (175)
------------- ------- -----------
Net revenues........................................... -- 76 2,279
Station operating expenses excluding depreciation and
amortization......................................... 31 108 1,955
Depreciation and amortization.......................... 2 64 598
Corporate general and administrative expenses.......... -- -- --
Non-cash stock compensation expense.................... -- -- --
------------- ------- -----------
Operating income (loss)................................ (33) (96) (274)
------------- ------- -----------
Interest expense....................................... -- -- 132
Gain (loss) on sale of asset........................... -- -- --
Other (income) expense................................. (11) (20) (40)
------------- ------- -----------
Income (loss) before income taxes...................... (22) (76) (366)
Income tax (expense) benefit........................... -- -- (11)
------------- ------- -----------
Net income (loss)...................................... $ (22) $ (76) $ (377)
------------- ------- -----------
------------- ------- -----------
</TABLE>
51
<PAGE>
PENDING ACQUISITIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUBTOTAL SUBTOTAL
PAGE 48 PAGE 49
--------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................................................................. $ 2,322 $ 4,307
Less: agency commissions.............................................................................. (177) (253)
--------- ---------
Net revenues.......................................................................................... 2,145 4,054
Station operating expenses excluding depreciation and amortization.................................... 1,940 3,604
Depreciation and amortization......................................................................... 410 400
Corporate general and administrative
expenses............................................................................................. 8 --
Non-cash stock compensation expense................................................................... -- --
--------- ---------
Operating income (loss)............................................................................... (213) 50
--------- ---------
Interest expense...................................................................................... 242 398
Gain (loss) on sale of asset.......................................................................... -- --
Other (income) expense................................................................................ 24 23
--------- ---------
Income (loss) before income taxes..................................................................... (479) (371)
Income tax (expense) benefit.......................................................................... -- 27
--------- ---------
Net income (loss)..................................................................................... $ (479) $ (344)
--------- ---------
--------- ---------
<CAPTION>
SUBTOTAL SUBTOTAL
PAGE 50 PAGE 51
--------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................................................................. $ 3,048 $ 2,454
Less: agency commissions.............................................................................. (93) (175)
--------- ---------
Net revenues.......................................................................................... 2,955 2,279
Station operating expenses excluding depreciation and amortization.................................... 2,498 1,955
Depreciation and amortization......................................................................... 441 598
Corporate general and administrative
expenses............................................................................................. -- --
Non-cash stock compensation expense................................................................... -- --
--------- ---------
Operating income (loss)............................................................................... 16 (274)
--------- ---------
Interest expense...................................................................................... 437 132
Gain (loss) on sale of asset.......................................................................... -- --
Other (income) expense................................................................................ (7) (40)
--------- ---------
Income (loss) before income taxes..................................................................... (414) (366)
Income tax (expense) benefit.......................................................................... 4 (11)
--------- ---------
Net income (loss)..................................................................................... $ (410) $ (377)
--------- ---------
--------- ---------
<CAPTION>
OTHER TOTAL
--------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues.............................................................................................. $ 801 $ 12,932
Less: agency commissions.............................................................................. (70) (768)
--------- ---------
Net revenues.......................................................................................... 731 12,164
Station operating expenses excluding depreciation and amortization.................................... 739 10,736
Depreciation and amortization......................................................................... 1 1,850
Corporate general and administrative
expenses............................................................................................. -- 8
Non-cash stock compensation expense................................................................... -- --
--------- ---------
Operating income (loss)............................................................................... (9) (430)
--------- ---------
Interest expense...................................................................................... 54 1,263
Gain (loss) on sale of asset.......................................................................... -- --
Other (income) expense................................................................................ (14) (14)
--------- ---------
Income (loss) before income taxes..................................................................... (49) (1,679)
Income tax (expense) benefit.......................................................................... -- 20
--------- ---------
Net income (loss)..................................................................................... $ (49) $ (1,659)
--------- ---------
--------- ---------
</TABLE>
52
<PAGE>
CUMULUS MEDIA INC.
UNAUDITED PRO FORMA 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 $ (21,916) $ 1,500
Accounts receivable............................................. 10,238 -- 10,238
Prepaid expenses and other current assets....................... 1,587 -- 1,587
------------- -------- -------------
Total current assets........................................ 35,241 (21,916) 13,325
Property and equipment, net..................................... 14,146 1,944 16,090
Intangible assets, net.......................................... 150,973 32,523 183,496
Other assets.................................................... 19,766 (1,548) 18,218
------------- -------- -------------
TOTAL ASSETS................................................ $ 220,126 $ 11,003 $ 231,129
------------- -------- -------------
------------- -------- -------------
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 11,003 131,255
Other long-term liabilities:
Deferred tax liability........................................ 853 -- 853
Other long-term liabilities................................... 1,083 -- 1,083
------------- -------- -------------
Total liabilities........................................... 130,819 11,003 141,822
Preferred stock subject to mandatory redemption................. 30,518 -- 30,518
------------- -------- -------------
Stockholders' equity:
Class A Common Stock.......................................... -- -- --
Class B Common Stock.......................................... -- -- --
Class C Common Stock.......................................... -- -- --
Additional paid in capital.................................... 67,692 -- 67,692
Accumulated other comprehensive income........................ 5 -- 5
Retained earnings (deficit)................................... (8,908) -- (8,908)
------------- -------- -------------
Total stockholders' equity.................................. 58,789 -- 58,789
------------- -------- -------------
Total liabilities and stockholders' equity.................. $ 220,126 $ 11,003 $ 231,129
------------- -------- -------------
------------- -------- -------------
<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....................................... $ 193,535(3) $ 195,035 $(193,535) $ 1,500
Accounts receivable............................................. -- 10,238 -- 10,238
Prepaid expenses and other current assets....................... -- 1,587 15 1,602
--------------- --------------- --------------- -------------
Total current assets........................................ 193,535 206,860 (193,520) 13,340
Property and equipment, net..................................... -- 16,090 24,647 40,737
Intangible assets, net.......................................... -- 183,496 228,663 412,159
Other assets.................................................... 5,057(4) 23,275 5,196 17,497
(10,974)
--------------- --------------- --------------- -------------
TOTAL ASSETS................................................ $ 198,592 $ 429,721 $ 54,012 $ 483,733
--------------- --------------- --------------- -------------
--------------- --------------- --------------- -------------
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............................................... (131,255)(6) -- 40,556 40,556
Other long-term liabilities:
Deferred tax liability........................................ -- 853 13,456 14,309
Other long-term liabilities................................... -- 1,083 -- 1,083
--------------- --------------- --------------- -------------
Total liabilities........................................... 18,745 160,567 54,012 214,579
91,488(7)
Preferred stock subject to mandatory redemption................. 2,994(2) 125,000 -- 125,000
--------------- --------------- --------------- -------------
Stockholders' equity:
Class A Common Stock.......................................... 76(8) 76 -- 76
Class B Common Stock.......................................... 87 87 -- 87
Class C Common Stock.......................................... 24 24 -- 24
Additional paid in capital.................................... 91,942(8) 152,870 -- 152,870
(3,770)(8)
(2,994)(2)
Accumulated other comprehensive income........................ -- 5 -- 5
Retained earnings (deficit)................................... -- (8,908) -- (8,908)
--------------- --------------- --------------- -------------
Total stockholders' equity.................................. 85,365 144,154 -- 144,154
--------------- --------------- --------------- -------------
Total liabilities and stockholders' equity.................. $ 198,592 $ 429,721 $ 54,012 $ 483,733
--------------- --------------- --------------- -------------
--------------- --------------- --------------- -------------
</TABLE>
See accompanying notes to the unaudited combined pro forma balance sheet.
53
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(1) To record the allocation of the $34,467 purchase price paid for transactions
through the use of cash of $21,916, escrow funds of $1,548, and Credit
Facility funds of $11,003 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 the 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 $245,065 in purchase price paid for the
Pending Acquisitions and the recording of the related deferred income taxes
of $13,456.
54
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE SUBSEQUENT ACQUISITIONS
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BEAUMONT NINETY FOUR
SKYWAVE, INC. POINT ONE, INC.
--------------- ---------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................................................. $ 15 $ 192
Accounts receivable................................................................... 57 491
Prepaid expenses and other current assets............................................. 69 33
------ ------
Total current assets................................................................ 141 716
Property and equipment, net........................................................... 161 756
Intangible assets, net................................................................ 797 124
Other assets.......................................................................... -- --
------ ------
Total assets........................................................................ $ 1,099 $ 1,596
------ ------
------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities................................................ $ 310 $ 206
Current portion of long-term debt..................................................... 41 --
------ ------
Total current liabilities........................................................... 351 206
Long-term debt:
Long-term debt........................................................................ 484 --
Notes................................................................................. -- --
Credit Facility....................................................................... -- --
Other long-term liabilities:
Deferred tax liability................................................................ -- --
Other long-term liabilities........................................................... -- --
------ ------
Total liabilities................................................................... 835 206
------ ------
Preferred stock subject to mandatory redemption....................................... -- --
------ ------
STOCKHOLDERS' EQUITY
Class A Common Stock.................................................................. 400 --
Class B Common Stock.................................................................. -- --
Class C Common Stock.................................................................. -- --
Additional paid in capital............................................................ -- 1,390
Accumulated other comprehensive income
Retained earnings (deficit)........................................................... (136) --
------ ------
Total stockholders' equity............................................................ 264 1,390
------ ------
Total liabilities and stockholders' equity.......................................... $ 1,099 $ 1,596
------ ------
------ ------
<CAPTION>
SAVANNAH VALLEY
BROADCASTING RADIO OTHER
PROPERTIES ACQUISITIONS
------------------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................................................. $ -- $ 19
Accounts receivable................................................................... 170 232
Prepaid expenses and other current assets............................................. 149 3
------ -----------
Total current assets................................................................ 319 254
Property and equipment, net........................................................... 302 572
Intangible assets, net................................................................ 2,416 258
Other assets.......................................................................... -- 74
------ -----------
Total assets........................................................................ $ 3,037 $ 1,158
------ -----------
------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities................................................ $ 988 $ 1,378
Current portion of long-term debt..................................................... 2,000 145
------ -----------
Total current liabilities........................................................... 2,988 1,523
Long-term debt:
Long-term debt........................................................................ -- 742
Notes................................................................................. -- --
Credit Facility....................................................................... -- --
Other long-term liabilities:
Deferred tax liability................................................................ -- --
Other long-term liabilities........................................................... -- 13
------ -----------
Total liabilities................................................................... 2,988 2,278
------ -----------
Preferred stock subject to mandatory redemption....................................... -- --
------ -----------
STOCKHOLDERS' EQUITY
Class A Common Stock.................................................................. -- 2
Class B Common Stock.................................................................. -- --
Class C Common Stock.................................................................. -- --
Additional paid in capital............................................................ 49 495
Accumulated other comprehensive income
Retained earnings (deficit)........................................................... -- (1,617)
------ -----------
Total stockholders' equity............................................................ 49 (1,120)
------ -----------
Total liabilities and stockholders' equity.......................................... $ 3,037 $ 1,158
------ -----------
------ -----------
<CAPTION>
PRO FORMA
ADJUSTMENTS TOTAL
----------- ---------
ASSETS:
Current assets:
Cash and cash equivalents............................................................. $ (22,142)(1) $ (21,916)
Accounts receivable................................................................... (950)(2) --
Prepaid expenses and other current assets............................................. (254)(2) --
----------- ---------
Total current assets................................................................ (23,346) (21,916)
Property and equipment, net........................................................... 153(3) 1,944
Intangible assets, net................................................................ 28,928(1) 32,523
Other assets.......................................................................... (1,622)(1) (1,548)
----------- ---------
Total assets........................................................................ $ 4,113 $ 11,003
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities................................................ $ (2,882)(2) $ --
Current portion of long-term debt..................................................... (2,186)(2) --
----------- ---------
Total current liabilities........................................................... (5,068) --
Long-term debt:
Long-term debt........................................................................ (1,226)(1) --
Notes................................................................................. -- --
Credit Facility....................................................................... 11,003(1) 11,003
Other long-term liabilities:
Deferred tax liability................................................................ -- --
Other long-term liabilities........................................................... (13)(2) --
----------- ---------
Total liabilities................................................................... 4,696 11,003
----------- ---------
Preferred stock subject to mandatory redemption....................................... -- --
----------- ---------
STOCKHOLDERS' EQUITY
Class A Common Stock.................................................................. (402)(2) --
Class B Common Stock.................................................................. -- --
Class C Common Stock.................................................................. -- --
Additional paid in capital............................................................ (1,934)(2) --
Accumulated other comprehensive income
Retained earnings (deficit)........................................................... 1,753(2) --
----------- ---------
Total stockholders' equity............................................................ (583) --
----------- ---------
Total liabilities and stockholders' equity.......................................... $ 4,113 $ 11,003
----------- ---------
----------- ---------
</TABLE>
55
<PAGE>
NOTES TO UNAUDITED PRO FORMA ADJUSTMENTS
FOR THE SUBSEQUENT ACQUISITIONS
AS OF MARCH 31, 1998
(1) To record the use of cash of $21,916, escrow funds of $1,548 and Credit
Facility funds of $11,003 to acquire assets with a purchase price of
$34,467. The Company did not acquire cash of $226 other assets of $74 or
assume debt of $1,226.
(2) To record the elimination of assets not acquired, liabilities not assumed
and stockholders' equity.
(3) To record the allocation of the purchase price of $34,467 to the property
and equipment and intangible assets acquired.
56
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICAN
ALBANY COMMUNICATIONS CASTLE BROADCASTING CHATTANOOGA BROADCAST
BROADCASTING CO. COMPANY INC. LIMITED PARTNERSHIP GROUP
----------------- ----------------- ------------------- -----------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.......... $ 128 $ 2 $ 15 $ 22
Accounts receivable................ 49 4 215 166
Prepaid expenses and other current
assets........................... 1 -- 13 22
------- ----- ------- ------
Total current assets........... 178 6 243 210
Property and equipment, net........ 239 215 252 419
Intangible assets, net............. -- 255 482 827
Other assets....................... -- -- 57 --
------- ----- ------- ------
Total assets................... $ 417 $ 476 $ 1,034 $ 1,456
------- ----- ------- ------
------- ----- ------- ------
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable and other
liabilities...................... $ 15 $ 246 $ 2,599 $ 67
Current portion of long-term
debt............................. 13 -- 120 --
------- ----- ------- ------
Total current liabilities...... 28 246 2,719 67
Long-term debt:
Long-term debt..................... 192 -- -- --
Notes..............................
Credit Facility....................
Other long-term liabilities:
Deferred tax liability............. -- -- -- --
Other long-term liabilities........ -- -- -- --
------- ----- ------- ------
Total liabilities.............. 220 246 2,719 67
Preferred Stock subject to
mandatory redemption............. -- -- -- --
------- ----- ------- ------
Stockholders' equity:
Class A Common Stock............... 1 532 -- --
Class B Common Stock...............
Class C Common Stock...............
Additional paid in capital......... -- -- -- 1,389
Accumulated other comprehensive
income...........................
Retained earnings (deficit)........ 196 (302) (1,685) --
------- ----- ------- ------
Total stockholders' equity..... 197 230 (1,685) 1,389
------- ----- ------- ------
Total liabilities and
stockholders' equity......... $ 417 $ 476 $ 1,034 $ 1,456
------- ----- ------- ------
------- ----- ------- ------
<CAPTION>
CLEARLY SUPERIOR RADIO COMMUNICATIONS CRYSTAL RADIO GROUP, ESPRIT' COMMUNICATION
PROPERTIES PROPERTIES, INC. INC. CORPORATION
----------------------- ----------------- --------------------- -------------------------
<S> <C>
ASSETS:
Current assets:
Cash and cash equivalents.......... $ 95 $ 26 $ 209 $ --
Accounts receivable................ 280 287 797 6
Prepaid expenses and other current
assets........................... 7 35 13 --
------ ------ ------ -----
Total current assets........... 382 348 1,019 6
Property and equipment, net........ 515 1,695 628 42
Intangible assets, net............. 2,663 703 950 81
Other assets....................... -- 12 -- --
------ ------ ------ -----
Total assets................... $ 3,560 $ 2,758 $ 2,597 $ 129
------ ------ ------ -----
------ ------ ------ -----
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable and other
liabilities...................... $ 33 $ 2,922 $ 741 $ 76
Current portion of long-term
debt............................. 27 38 1,814 --
------ ------ ------ -----
Total current liabilities...... 60 2,960 2,555 76
Long-term debt:
Long-term debt..................... 3,101 102 1,106 --
Notes..............................
Credit Facility....................
Other long-term liabilities:
Deferred tax liability............. -- 177 -- --
Other long-term liabilities........ -- -- -- --
------ ------ ------ -----
Total liabilities.............. 3,161 3,239 3,661 76
Preferred Stock subject to
mandatory redemption............. -- -- -- --
------ ------ ------ -----
Stockholders' equity:
Class A Common Stock............... -- 1 93 1
Class B Common Stock...............
Class C Common Stock...............
Additional paid in capital......... 399 229 (1,016) 496
Accumulated other comprehensive
income...........................
Retained earnings (deficit)........ -- (711) (141) (444)
------ ------ ------ -----
Total stockholders' equity..... 399 (481) (1,064) 53
------ ------ ------ -----
Total liabilities and
stockholders' equity......... $ 3,560 $ 2,758 $ 2,597 $ 129
------ ------ ------ -----
------ ------ ------ -----
<CAPTION>
SUBTOTAL
-----------
ASSETS:
Current assets:
Cash and cash equivalents.......... $ 497
Accounts receivable................ 1,804
Prepaid expenses and other current
assets........................... 91
-----------
Total current assets........... 2,392
Property and equipment, net........ 4,005
Intangible assets, net............. 5,961
Other assets....................... 69
-----------
Total assets................... $ 12,427
-----------
-----------
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable and other
liabilities...................... $ 6,699
Current portion of long-term
debt............................. 2,012
-----------
Total current liabilities...... 8,711
Long-term debt:
Long-term debt..................... 4,501
Notes..............................
Credit Facility....................
Other long-term liabilities:
Deferred tax liability............. 177
Other long-term liabilities........ --
-----------
Total liabilities.............. 13,389
Preferred Stock subject to
mandatory redemption............. --
-----------
Stockholders' equity:
Class A Common Stock............... 628
Class B Common Stock...............
Class C Common Stock...............
Additional paid in capital......... 1,497
Accumulated other comprehensive
income...........................
Retained earnings (deficit)........ (3,087)
-----------
Total stockholders' equity..... (962)
-----------
Total liabilities and
stockholders' equity......... $ 12,427
-----------
-----------
</TABLE>
57
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS (CONTINUED)
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JKJ
BROADCASTING,
INC.,
MISSOURI RIVER
BROADCASTING,
INC.,
INGSTAD
MANKATO, INC.,
JAMES INGSTAD
BROADCASTING,
JAN-DI INC., AND LESNICK
BROADCASTING, HOMETOWN K-COUNTRY, COMMUNICATIONS,
INC. WIRELESS, INC. INC. INC.
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............... $ 303 $ 148 $ 161 $ 8
Accounts receivable..................... 234 1,695 196 57
Prepaid expenses and other current
assets................................ 14 230 2 1
-------------- -------------- -------------- --------------
Total current assets................ 551 2,073 359 66
Property and equipment, net............. 440 3,985 630 12
Intangible assets, net.................. 193 2,208 529 178
Other assets............................ -- 5,155 -- --
-------------- -------------- -------------- --------------
Total assets........................ $ 1,184 $ 13,421 $ 1,518 $ 256
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other
liabilities........................... $ 119 $ 549 $ 85 $ 79
Current portion of long-term debt....... 24 451 1,161 238
-------------- -------------- -------------- --------------
Total current liabilities........... 143 1,000 1,246 317
Long-term debt:
Long-term debt.......................... 486 11,444 -- 14
Notes...................................
Credit Facility.........................
Other long-term liabilities
Deferred tax liability.................. -- -- -- --
Other long-term liabilities............. -- -- -- --
-------------- -------------- -------------- --------------
Total liabilities................... 629 12,444 1,246 331
Preferred Stock subject to long term
redemption............................ -- -- -- --
-------------- -------------- -------------- --------------
Stockholders' equity:
Class A Common stock.................. 52 121 1 75
Class B Common stock..................
Class C Common stock..................
Additional paid in capital............ -- 110 -- --
Accumulated other comprehensive income
Retained earnings (deficit)........... 503 746 271 (150)
-------------- -------------- -------------- --------------
Total stockholders' equity.......... 555 977 272 (75)
-------------- -------------- -------------- --------------
Total liabilities and stockholders'
equity............................ $ 1,184 $ 13,421 $ 1,518 $ 256
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
LOUISIANA
MEDIA
INTERESTS, MIDLAND MUSTANG
INC., AND BROADCASTERS, BROADCASTING
SUBSIDIARIES INC. COMPANY SUBTOTAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............... $ 32 $ 265 $ 50 $ 967
Accounts receivable..................... 530 421 124 3,257
Prepaid expenses and other current
assets................................ 15 51 -- 313
-------------- -------------- -------------- --------------
Total current assets................ 577 737 174 4,537
Property and equipment, net............. 1,137 688 283 7,175
Intangible assets, net.................. 5,965 483 350 9,906
Other assets............................ 7 -- -- 5,162
-------------- -------------- -------------- --------------
Total assets........................ $ 7,686 $ 1,908 $ 807 $ 26,780
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other
liabilities........................... $ 398 $ 241 $ 46 $ 1,495
Current portion of long-term debt....... 1,363 75 558 3,870
-------------- -------------- -------------- --------------
Total current liabilities........... 1,761 316 604 5,365
Long-term debt:
Long-term debt.......................... 6,258 813 219 19,234
Notes...................................
Credit Facility.........................
Other long-term liabilities
Deferred tax liability.................. -- -- -- --
Other long-term liabilities............. -- -- -- --
-------------- -------------- -------------- --------------
Total liabilities................... 8,019 1,129 823 24,599
Preferred Stock subject to long term
redemption............................ 762 -- -- 762
-------------- -------------- -------------- --------------
Stockholders' equity:
Class A Common stock.................. 598 60 1 908
Class B Common stock..................
Class C Common stock..................
Additional paid in capital............ (227) 99 684 666
Accumulated other comprehensive income
Retained earnings (deficit)........... (1,466) 620 (701) (155)
-------------- -------------- -------------- --------------
Total stockholders' equity.......... (1,095) 779 (16) 1,419
-------------- -------------- -------------- --------------
Total liabilities and stockholders'
equity............................ $ 7,686 $ 1,908 $ 807 $ 26,780
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
58
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS (CONTINUED)
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NEW FRONTIER PAMPLICO
COMMUNICATIONS, BROADCASTING, PHOENIX BROADCAST
INC. L.P. PARTNERS, INC.
----------------- ------------- -------------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................... $ 232 $ 4 $ --
Accounts receivable..................................... 699 24 71
Prepaid expenses and other current assets............... 94 2 --
------ ------------- -------
Total current assets................................ 1,025 30 71
Property and equipment, net............................. 1,435 400 149
Intangible assets, net.................................. 2,200 474 573
Other assets............................................ 27 -- 18
------ ------------- -------
Total assets........................................ $ 4,687 $ 904 $ 811
------ ------------- -------
------ ------------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities.................. $ 284 $ 3,845 $ 1,804
Current portion of long-term debt....................... 338 -- --
------ ------------- -------
Total current liabilities........................... 622 3,845 1,804
Long-term debt:
Long-term debt.......................................... 4,588 -- 8,955
Notes................................................... -- -- --
Credit Facility......................................... -- -- --
Other long-term liabilities:............................ -- -- --
Deferred tax liability.................................. 68 -- --
Other long-term liabilities............................. -- -- 95
------ ------------- -------
Total liabilities................................... 5,278 3,845 1,899
------ ------------- -------
Preferred Stock subject to mandatory redemption......... -- -- --
------ ------------- -------
Stockholders' equity:
Class A Common Stock.................................... 315 -- 1
Class B Common Stock.................................... -- -- --
Class C Common Stock.................................... -- -- --
Additional paid in capital.............................. -- -- 320
Accumulated other comprehensive income.................. -- -- --
Retained earnings (deficit)............................. (906) (2,941) (1,409)
------ ------------- -------
Total stockholders' equity.......................... (591) (2,941) (1,088)
------ ------------- -------
Total liabilities and stockholders' equity.......... $ 4,687 $ 904 $ 811
------ ------------- -------
------ ------------- -------
<CAPTION>
RADIO INGSTAD MINNESOTA,
INC.,
RADIO ALBERT LEA, INC.
AND KRCH OF SAVANNAH
MINNESOTA, REPUBLIC COMMUNICATIONS,
INC. CORPORATION L.P.
----------------------------- ------------- -----------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................... $ 342 $ 313 $ 60
Accounts receivable..................................... 503 159 97
Prepaid expenses and other current assets............... -- 752 2
------- ------------- ------
Total current assets................................ 845 1,224 159
Property and equipment, net............................. 3,531 2,997 1,385
Intangible assets, net.................................. 5,686 11,912 3,352
Other assets............................................ 11 621 --
------- ------------- ------
Total assets........................................ $ 10,073 $ 16,754 $ 4,896
------- ------------- ------
------- ------------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities.................. $ 130 $ 707 $ 257
Current portion of long-term debt....................... 360 -- 2,800
------- ------------- ------
Total current liabilities........................... 490 707 3,057
Long-term debt:
Long-term debt.......................................... -- -- 600
Notes................................................... -- -- --
Credit Facility......................................... -- -- --
Other long-term liabilities:............................ -- -- --
Deferred tax liability.................................. -- 272 --
Other long-term liabilities............................. -- -- --
------- ------------- ------
Total liabilities................................... 9,445 979 3,657
------- ------------- ------
Preferred Stock subject to mandatory redemption......... -- -- --
------- ------------- ------
Stockholders' equity:
Class A Common Stock.................................... 75 1 --
Class B Common Stock.................................... -- -- --
Class C Common Stock.................................... -- -- --
Additional paid in capital.............................. -- 8,003 --
Accumulated other comprehensive income.................. -- -- --
Retained earnings (deficit)............................. 553 7,771 1,239
------- ------------- ------
Total stockholders' equity.......................... 628 15,775 1,239
------- ------------- ------
Total liabilities and stockholders' equity.......... $ 10,073 $ 16,754 $ 4,896
------- ------------- ------
------- ------------- ------
<CAPTION>
TALLAHASSEE
BROADCASTING,
INC. SUBTOTAL
----------------- -----------
ASSETS:
Current assets:
Cash and cash equivalents............................... $ 7 $ 958
Accounts receivable..................................... 2 1,555
Prepaid expenses and other current assets............... 18 868
------- -----------
Total current assets................................ 27 3,381
Property and equipment, net............................. 542 10,439
Intangible assets, net.................................. -- 24,197
Other assets............................................ 3 680
------- -----------
Total assets........................................ $ 572 $ 38,697
------- -----------
------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities.................. $ 2,024 $ 9,051
Current portion of long-term debt....................... -- 3,498
------- -----------
Total current liabilities........................... 2,024 12,549
Long-term debt:
Long-term debt.......................................... -- 14,143
Notes................................................... -- --
Credit Facility......................................... -- --
Other long-term liabilities:............................ -- --
Deferred tax liability.................................. -- 340
Other long-term liabilities............................. -- 95
------- -----------
Total liabilities................................... 2,024 27,127
------- -----------
Preferred Stock subject to mandatory redemption......... -- --
------- -----------
Stockholders' equity:
Class A Common Stock.................................... 1 393
Class B Common Stock.................................... -- --
Class C Common Stock.................................... -- --
Additional paid in capital.............................. -- 8,323
Accumulated other comprehensive income.................. -- --
Retained earnings (deficit)............................. (1,453) 2,854
------- -----------
Total stockholders' equity.......................... (1,452) 11,570
------- -----------
Total liabilities and stockholders' equity.......... $ 572 $ 38,697
------- -----------
------- -----------
</TABLE>
59
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS (CONTINUED)
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TRYON-SEACOAST
COMMUNICATIONS, INC.
---------------------
<S> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................................................................ $ 20
Accounts receivable...................................................................................... 156
Prepaid expenses and other current assets................................................................ --
-------
Total current assets................................................................................. 176
Property and equipment, net.............................................................................. 185
Intangible assets, net................................................................................... 116
Other assets............................................................................................. 28
-------
Total assets......................................................................................... $ 505
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities................................................................... $ 344
Current portion of long-term debt........................................................................ 55
-------
Total current liabilities............................................................................ 399
Long-term debt:
Long-term debt........................................................................................... 656
Notes.................................................................................................... --
Credit Facility.......................................................................................... --
Other long-term liabilities:............................................................................. --
Deferred tax liability................................................................................... --
Other long-term liabilities.............................................................................. --
-------
Total liabilities.................................................................................... 1,055
-------
Preferred Stock subject to mandatory redemption.......................................................... --
-------
Stockholders' equity:
Class A Common Stock..................................................................................... --
Class B Common Stock..................................................................................... --
Class C Common Stock..................................................................................... --
Additional paid in capital............................................................................... 61
Accumulated other comprehensive income................................................................... --
Retained earnings (deficit).............................................................................. (611)
-------
Total stockholders' equity........................................................................... (550)
-------
Total liabilities and stockholders' equity........................................................... $ 505
-------
-------
<CAPTION>
WJCL-FM
-----------
<S> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................................................................ $ --
Accounts receivable...................................................................................... 42
Prepaid expenses and other current assets................................................................ --
-----------
Total current assets................................................................................. 42
Property and equipment, net.............................................................................. 18
Intangible assets, net................................................................................... --
Other assets............................................................................................. --
-----------
Total assets......................................................................................... $ 60
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities................................................................... $ --
Current portion of long-term debt........................................................................ --
-----------
Total current liabilities............................................................................ --
Long-term debt:
Long-term debt........................................................................................... --
Notes.................................................................................................... --
Credit Facility.......................................................................................... --
Other long-term liabilities:............................................................................. --
Deferred tax liability................................................................................... --
Other long-term liabilities.............................................................................. --
-----------
Total liabilities.................................................................................... --
-----------
Preferred Stock subject to mandatory redemption.......................................................... --
-----------
Stockholders' equity:
Class A Common Stock..................................................................................... --
Class B Common Stock..................................................................................... --
Class C Common Stock..................................................................................... --
Additional paid in capital............................................................................... 60
Accumulated other comprehensive income................................................................... --
Retained earnings (deficit).............................................................................. --
-----------
Total stockholders' equity........................................................................... 60
-----------
Total liabilities and stockholders' equity........................................................... $ 60
-----------
-----------
<CAPTION>
WWFG-FM AND
WOSC-FM
---------------
ASSETS:
Current assets:
Cash and cash equivalents................................................................................ $ 41
Accounts receivable...................................................................................... 236
Prepaid expenses and other current assets................................................................ 32
-------
Total current assets................................................................................. 309
Property and equipment, net.............................................................................. 720
Intangible assets, net................................................................................... 6,595
Other assets............................................................................................. --
-------
Total assets......................................................................................... $ 7,624
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities................................................................... $ 86
Current portion of long-term debt........................................................................ --
-------
Total current liabilities............................................................................ 86
Long-term debt:
Long-term debt........................................................................................... --
Notes.................................................................................................... --
Credit Facility.......................................................................................... --
Other long-term liabilities:............................................................................. --
Deferred tax liability................................................................................... --
Other long-term liabilities.............................................................................. --
-------
Total liabilities.................................................................................... 86
-------
Preferred Stock subject to mandatory redemption.......................................................... --
-------
Stockholders' equity:
Class A Common Stock..................................................................................... --
Class B Common Stock..................................................................................... --
Class C Common Stock..................................................................................... --
Additional paid in capital............................................................................... 7,750
Accumulated other comprehensive income................................................................... --
Retained earnings (deficit).............................................................................. (212)
-------
Total stockholders' equity........................................................................... 7,538
-------
Total liabilities and stockholders' equity........................................................... $ 7,624
-------
-------
<CAPTION>
SUBTOTAL
-----------
ASSETS:
Current assets:
Cash and cash equivalents................................................................................ $ 61
Accounts receivable...................................................................................... 434
Prepaid expenses and other current assets................................................................ 32
-----------
Total current assets................................................................................. 527
Property and equipment, net.............................................................................. 923
Intangible assets, net................................................................................... 6,711
Other assets............................................................................................. 28
-----------
Total assets......................................................................................... $ 8,189
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and other liabilities................................................................... $ 430
Current portion of long-term debt........................................................................ 55
-----------
Total current liabilities............................................................................ 485
Long-term debt:
Long-term debt........................................................................................... 656
Notes.................................................................................................... --
Credit Facility.......................................................................................... --
Other long-term liabilities:............................................................................. --
Deferred tax liability................................................................................... --
Other long-term liabilities.............................................................................. --
-----------
Total liabilities.................................................................................... 1,141
-----------
Preferred Stock subject to mandatory redemption.......................................................... --
-----------
Stockholders' equity:
Class A Common Stock..................................................................................... --
Class B Common Stock..................................................................................... --
Class C Common Stock..................................................................................... --
Additional paid in capital............................................................................... 7,871
Accumulated other comprehensive income................................................................... --
Retained earnings (deficit).............................................................................. (823)
-----------
Total stockholders' equity........................................................................... 7,048
-----------
Total liabilities and stockholders' equity........................................................... $ 8,189
-----------
-----------
</TABLE>
60
<PAGE>
PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS (CONTINUED)
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBTOTAL PAGE 57 SUBTOTAL PAGE 58
----------------- -----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 497 $ 967
Accounts receivable................................................................ 1,804 3,257
Prepaid expenses and other current assets.......................................... 91 313
------- -------
Total current assets............................................................. 2,392 4,537
Property and equipment, net........................................................ 4,005 7,175
Intangible assets, net............................................................. 5,961 9,906
Other assets....................................................................... 69 5,162
------- -------
Total assets..................................................................... $ 12,427 $ 26,780
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other liabilities............................................. $ 6,699 $ 1,495
Current portion of long-term debt.................................................. 2,012 3,870
------- -------
Total current liabilities........................................................ 8,711 5,365
Long-term debt:
Long-term debt..................................................................... 4,501 19,234
Notes.............................................................................. -- --
Credit Facility.................................................................... -- --
Other long-term liabilities:
Deferred tax liability............................................................. 177 --
Other long-term liabilities........................................................ -- --
------- -------
Total liabilities................................................................ 13,389 24,599
Preferred Stock subject to mandatory redemption.................................... -- 762
------- -------
Stockholders' equity:
Class A Common stock............................................................... 628 908
Class B Common Stock............................................................... -- --
Class C Common Stock............................................................... -- --
Additional paid in capital......................................................... 1,497 666
Accumulated other comprehensive income............................................. -- --
Retained earnings (deficit)........................................................ (3,087) (155)
------- -------
Total stockholders' equity....................................................... (962) 1,419
------- -------
Total liabilities and stockholders' equity....................................... $ 12,427 $ 26,780
------- -------
------- -------
<CAPTION>
SUBTOTAL PAGE 59 SUBTOTAL PAGE 60
----------------- -----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 958 $ 61
Accounts receivable................................................................ 1,555 434
Prepaid expenses and other current assets.......................................... 868 32
------- -------
Total current assets............................................................. 3,381 527
Property and equipment, net........................................................ 10,439 923
Intangible assets, net............................................................. 24,197 6,711
Other assets....................................................................... 680 28
------- -------
Total assets..................................................................... $ 38,697 $ 8,189
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other liabilities............................................. $ 9,051 $ 430
Current portion of long-term debt.................................................. 3,498 55
------- -------
Total current liabilities........................................................ 12,549 485
Long-term debt:
Long-term debt..................................................................... 14,143 656
Notes.............................................................................. -- --
Credit Facility.................................................................... -- --
Other long-term liabilities:
Deferred tax liability............................................................. 340 --
Other long-term liabilities........................................................ 95 --
------- -------
Total liabilities................................................................ 27,127 1,141
Preferred Stock subject to mandatory redemption.................................... -- --
------- -------
Stockholders' equity:
Class A Common stock............................................................... 393 --
Class B Common Stock............................................................... -- --
Class C Common Stock............................................................... -- --
Additional paid in capital......................................................... 8,323 7,871
Accumulated other comprehensive income............................................. -- --
Retained earnings (deficit)........................................................ 2,854 (823)
------- -------
Total stockholders' equity....................................................... 11,570 7,048
------- -------
Total liabilities and stockholders' equity....................................... $ 38,697 $ 8,189
------- -------
------- -------
<CAPTION>
PRO FORMA
OTHER ACQUISITIONS ADJUSTMENTS TOTAL
------------------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 383 $(196,401)(1) $(193,535)
Accounts receivable................................................................ 770 (7,820)(2) --
Prepaid expenses and other current assets.......................................... 1 (1,290)(3) 15
------- ----------- ---------
Total current assets............................................................. 1,154 (205,511) (193,520)
Property and equipment, net........................................................ 5,240 (3,135)(3) 24,647
Intangible assets, net............................................................. 5,686 176,202(3) 228,663
Other assets....................................................................... 208 (951)(3) 5,196
(10,974)(1) (10,974)
------- ----------- ---------
Total assets..................................................................... $ 12,288 $ (44,369) $ 54,012
------- ----------- ---------
------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other liabilities............................................. $ 347 $ (18,022)(2) $ --
Current portion of long-term debt.................................................. 360 (9,795)(2) --
------- ----------- ---------
Total current liabilities........................................................ 707 (27,817) --
Long-term debt:
Long-term debt..................................................................... 10,912 (49,446)(2) --
Notes.............................................................................. -- -- --
Credit Facility.................................................................... -- 40,556(1) 40,556
Other long-term liabilities:
Deferred tax liability............................................................. -- 12,939(3) 13,456
Other long-term liabilities........................................................ -- (95)(2) --
------- ----------- ---------
Total liabilities................................................................ 11,619 (23,863) 54,012
Preferred Stock subject to mandatory redemption.................................... -- (762) --
------- ----------- ---------
Stockholders' equity:
Class A Common stock............................................................... 75 (2,004)(2) --
Class B Common Stock............................................................... -- -- --
Class C Common Stock............................................................... -- -- --
Additional paid in capital......................................................... (18,357)(2) --
Accumulated other comprehensive income............................................. -- -- --
Retained earnings (deficit)........................................................ 594 617(2) --
------- ----------- ---------
Total stockholders' equity....................................................... 669 (19,774) --
------- ----------- ---------
Total liabilities and stockholders' equity....................................... $ 12,288 $ (44,369) $ 54,012
------- ----------- ---------
------- ----------- ---------
</TABLE>
61
<PAGE>
NOTES TO UNAUDITED PRO FORMA ADJUSTMENTS FOR THE PENDING ACQUISITIONS
AS OF MARCH 31, 1998
(1) To record the use of cash of $193,535, escrow funds of $10,974 and credit
facility funds of $40,556 to acquire assets with a purchase price of
$245,065. The Company did not acquire cash of $2,866 or other assets of
$6,147.
(2) To record the elimination of assets not acquired, liabilities and debt not
assumed and stockholders' equity.
(3) To record the allocation of the purchase price of $245,065 to prepaid
expenses and other current assets, property and equipment, intangible assets
and other assets acquired and the recording of the related deferred income
taxes of $13,456.
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<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 ON
THREE MONTHS MAY 22, 1997(1)
ENDED MARCH 31, TO DECEMBER 31,
1998 1997
--------------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
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........... N.M. N.M.
Pro forma basic and diluted earnings (loss) per share,
as adjusted for the Reorganization and the Stock
Offerings........................................... (0.33) (0.21)
OTHER FINANCIAL DATA:
Broadcast Cash Flow(2)................................ $ 1,596 $ 2,016
EBITDA (before non-cash stock compensation expense)... 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 3,511
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
1998 1997
----------------- ------------------
(DOLLARS IN (DOLLARS IN
THOUSANDS) THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets......................................... $ 220,126 $ 110,441
Long-term debt, including current portion............ 120,264 42,801
Preferred stock subject to mandatory redemption...... 30,518 13,426
Total stockholders' equity........................... 58,789 49,976
</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 (before non-cash stock compensation
expense) consists of operating income (loss) before depreciation and
amortization and non-cash stock compensation expense. Although Broadcast
Cash Flow and EBITDA (before non-cash stock compensation expense) 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 (before non-cash stock compensation expense) 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 $3,493 and $3,511 for the three
month period ended March 31, 1998 and for the period from inception on May
22, 1997 to December 31, 1997, respectively.
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<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. Unless otherwise indicated, amounts set
forth herein are expressed in thousands.
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 67 stations in 15 markets and
provides sales and marketing services under LMA agreements (pending FCC approval
of acquisition) to 44 stations in 16 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 34 U.S. 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 Completed
Acquisitions and the pending completion of the Pending Acquisitions, as
presented in the Unaudited Pro Forma Combined Financial Statements. Accordingly,
the discussion of the Completed Acquisitions and 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 it 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.
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
64
<PAGE>
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 (before non-cash stock compensation expense)
consists of operating income (loss) before depreciation and amortization and
non-cash stock compensation expense. EBITDA (before non-cash stock compensation
expense), as defined by the Company, may not be comparable to similarly titled
measures used by other companies. Although Broadcast Cash Flow and EBITDA
(before non-cash stock compensation expense) 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 (before non-cash stock compensation
expense) 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 and other expense were $1,374
and $6 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 (including an
extraordinary loss of $1,837) was $6,172. Broadcast Cash Flow and EBITDA (before
non-cash stock compensation expense) for the three month period ending March 31,
1998 were $1,596 and $635, respectively.
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
65
<PAGE>
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 was $3,852.
Broadcast Cash Flow and EBITDA (before non-cash stock compensation expense) 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 $27,012. Pro forma station operating expenses excluding depreciation
and amortization for this three month period would have been $23,930 and
depreciation and amortization for this period would have been $5,679. Pro forma
corporate general and administrative expenses would have been $969 and the
Company would have had net operating loss of $3,566 for this period. Pro forma
interest expense net of interest income and other expense (income) would have
been $4,644 and $(60), respectively, resulting in a net loss before
extraordinary item of $8,130. Pro forma net loss attributable to common
stockholders would have been $11,856. Basic and diluted loss per share before
extraordinary item for the three month period through March 31, 1998 would have
been $0.63. Pro forma Broadcast Cash Flow and pro forma EBITDA (before non-cash
stock compensation expense) for the three month period ending March 31, 1998
would have been $3,082 and $2,113, respectively. On March 2, 1998, the Company
recorded an extraordinary loss on early extinguishment of debt of $1,837.
PRO FORMA--YEAR ENDED 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 $111,776 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 $87,909 and pro forma depreciation
and amortization for the year would have been $22,845. Pro forma corporate
general and administrative expenses would have been $4,760 and pro forma
operating loss would have been $5,705 for the year. Pro forma interest expense,
pro forma other expense, and pro forma income tax expense would have been
$18,234, $104 and $195, respectively, resulting in a net loss of $24,238 for the
period. Pro forma net loss attributable to common stockholders would have been
$39,821 and pro forma basic and diluted loss per share for the year would have
been $2.12. Pro forma Broadcast Cash Flow and pro forma EBITDA (before non-cash
stock compensation expense) for the year would have been $23,867 and $19,107,
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.
The pro forma financial results exclude the effects of estimated cost
savings resulting from the Completed and Pending Acquisitions. For the twelve
months ended December 31, 1997, pro forma broadcast cash flow and pro forma
EBITDA (before non-cash stock compensation expense) were $23,867 and $19,107,
respectively. In addition, the Company expects to realize approximately $7,430
of cost savings resulting from the elimination of redundant station operating
expenses arising from the Completed and Pending Acquisitions, including
elimination of certain management and staff positions, the consolidation of
station facilities and equipment, the elimination of previous owner compensation
benefits and new rates associated with revised vendor contracts. Also, the
Company expects to realize approximately $2,029 of cost savings from the
elimination of certain corporate overhead functions, net of increased costs
associated with the implementation of the Company's corporate management
structure. Corporate cost savings reflect the expected level of annual corporate
expenditures arising from the Completed and Pending Acquisitions. There can be
no assurances that any operating or corporate cost savings will be achieved.
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
66
<PAGE>
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
Completed Acquisitions. 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 $91.3 million. Additional acquisitions have
been subsequently completed in 1998 for an aggregate purchase price of $101.7
million. 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 $245.1 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 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
(before non-cash stock compensation expense) (as defined under "Certain
Definitions and Market and Industry Data").
The Company expects to consummate most of the Pending Acquisitions during
the third and fourth quarters of 1998, although there can be no assurance that
the transactions will be consummated within that time frame. 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.
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.
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<PAGE>
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 $42.5 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. In March 1998, the Company had borrowed a total of $63.5 million
exclusive of the $10.5 million in outstanding letters of credit on the Old
Credit Facility. The Company received from Media LLC equity contributions
totaling $52.7 million for its common stock in 1997. These equity contributions
consisted of (i) $45.2 million in cash, (ii) stock of CCC valued at $7.2
million, and (iii) other non-cash contributions of $0.3 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 and 3,162 common shares of Media LLC 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 $10.5 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
recorded 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
June 1, 1998, approximately $137.0 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, 8.5% as of May 31, 1998) plus a
margin ranging between 0.50% to 1.75%, or the Eurodollar Rate (as defined under
the terms of the Credit Facility, 5.7% as of May 31, 1998) 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.
Effective as of May 1, 1998, the Company entered into an amendment to the
Credit Facility pursuant to which certain financial covenants and certain other
provisions therein were modified to take into account the proposed Offerings and
the Pending Acquisitions. The material terms of such covenants, as amended, are
described in "Description of Credit Facility and Notes--The Credit
Facility--Covenants." The Company believes that the Offerings and the amended
Credit Facility will be sufficient to fund the Pending Acquisitions and on-going
operations.
The Credit Facility was further amended on June 24, 1998 to take into
account the Subsidiary Guarantees (as defined in "Description of Credit Facility
and Notes--The Notes--Subsidiary Guarantees") and to reduce the revolving line
of credit to $100.0 million and the term loan facility to $50.0 million.
68
<PAGE>
Pursuant to the Debt Offering, the Company will issue $150.0 million in
aggregate principal amount of % Senior Subordinated Notes which have a
maturity date of , 2008. The Notes will be general unsecured obligations
of the Company and will be subordinated in right of payment to all existing and
future Senior Debt of the Company (including obligations under the Credit
Facility). 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 $125.0 million of % Series A Cumulative Exchangeable
Redeemable Preferred Stock Due 2009, approximately $34.2 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. 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 certain restrictive financial and operating covenants,
including but not limited to maximum leverage covenants, minimum interest and
fixed charge coverage covenants, limitations on asset dispositions and the
payment of dividends. 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
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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.
Each of the Indenture, the Exchange Debenture Indenture, and the Certificate of
Designation provides that the Company is not to, and is not to permit any of its
Restricted Subsidiaries (as defined in each of the Indenture, the Exchange
Debenture Indenture, and the Certificate of Designation) to incur any
Indebtedness (other than Permitted Indebtedness (as defined in each of the
Indenture, the Exchange Debenture Indenture, and the Certificate of
Designation)); however, the Company can incur Indebtedness if its leverage ratio
is less than 7.0 to 1.0. In addition, the Credit Facility contains operating and
financial covenants, including, without limitation, requirements to maintain
minimum ratios of cash flow to interest expense and 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 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.
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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 67 stations in 15
markets and provides sales and marketing services under LMA agreements (pending
FCC approval of acquisition) to 44 stations in 16 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 34 U.S. 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 U.S. markets. On a pro forma basis after giving effect to the Transactions,
the Company would have generated net revenues of approximately $111.8 million
and $27.0 million and Broadcast Cash Flow (as defined under "Certain Definitions
and Market and Industry Data") of approximately $23.9 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, product improvement 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.
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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 as of June 16, 1998 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 STATIONS NUMBER OF NUMBER OF TOTAL
CURRENTLY STATIONS STATIONS TO NUMBER OF PRO FORMA
OWNED CURRENTLY BE PLACED STATIONS TO BE STATIONS
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 -- -- 6 -- -- 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
Myrtle Beach, SC....... 175 3 1 2 -- -- 5
<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
Myrtle Beach, SC....... 1 20.3 1
</TABLE>
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<TABLE>
<CAPTION>
PENDING ACQUISITIONS (1)
NUMBER -----------------------------------------------------
OF STATIONS NUMBER OF NUMBER OF TOTAL
CURRENTLY STATIONS STATIONS TO NUMBER OF PRO FORMA
OWNED CURRENTLY BE PLACED STATIONS TO BE STATIONS
MARKET ------------------------ UNDER UNDER ACQUIRED -----------
MARKET(2) RANK FM AM LMA (2) LMA WITHOUT LMA FM
- ----------------------- --------- ----------- ----------- --------------- --------------- ------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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 4 2 -- -- -- 4
Beaumont-Port Arthur,
TX................... 128 3 2 -- -- -- 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.............. 46 21 44 4 61 124
<CAPTION>
ADULTS 12+ REVENUE
MARKET(2) AM SHARE(%) RANK (4)
- ----------------------- ------------- --------------- ---------------
<S> <C> <C> <C>
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 third and fourth quarters of 1998, although there can be no assurance
that the transactions will be consummated within that time frame. 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, FCC staff inquiries and
DOJ reviews have raised questions concerning whether the Company will be
permitted to acquire its full complement of proposed stations in two
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, FCC staff inquiries or DOJ investigations.
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 opportunities for the Company.
In executing this strategy, the Company adheres to certain key acquisition
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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 national and regional advertisers. The Company
also believes that its cluster approach will allow it to
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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.
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IMPLEMENT INTERNET-BASED MANAGEMENT INFORMATION SYSTEMS. The Company is
implementing a proprietary application using Internet software standards to
support daily sales and inventory performance reporting by station, by
market and by cluster. The Company has completed implementation of the daily
sales reporting application and anticipates full implementation of the
inventory performance application by the end of 1998. Upon full
implementation, this application will allow 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.
76
<PAGE>
A station's local sales staff generates the majority of its local and
regional advertising sales through direct solicitations of local advertising
agencies and businesses. To generate national advertising sales, a station
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
77
<PAGE>
surveys), (ii) the supply of and demand for radio advertising time generally and
for time targeted at 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
78
<PAGE>
FCC, and the number of radio stations that an entity can operate in a given
market is limited by the availability of FM and AM radio frequencies allotted by
the FCC to communities in that market, as well as by the FCC's multiple
ownership rules regulating the number of stations that may be owned and
controlled by a single entity. The FCC's multiple ownership rules have changed
significantly as a result of the 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.
79
<PAGE>
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 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.
80
<PAGE>
The following table sets forth the market, call letters, FCC license
classification, antenna 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 AM 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>
81
<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
Monroe, MI 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
<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
Monroe, MI 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
</TABLE>
82
<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>
WLWI FM Montgomery, AL 92.3 April 1, 2004 C 1096
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.
<CAPTION>
POWER
(IN
KILOWATTS)
--------------------
MARKET DAY NIGHT
- -------------------- --------- ---------
<S> <C> <C>
100.0 100.0
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
</TABLE>
83
<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>
Lake Charles, LA KKGB FM Sulphur, LA 101.3 June 1, 2004 C3 289
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>
Lake Charles, LA 25.0 25.0
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
84
<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:
85
<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
86
<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.
87
<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
88
<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 Acquisitions in two
markets which potentially affect the acquisition of up to an additional nine
stations in the aggregate, and there can be no assurance that one or more of the
Pending Acquisitions are not or will not be the subject of an investigation or
enforcement action by the DOJ or the FTC. 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
89
<PAGE>
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 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.
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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 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 June 1, 1998, the liquidation value of the NML Preferred Stock was
approximately $34.2 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.
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PENDING ACQUISITIONS
The Company has entered into definitive purchase agreements to acquire 109
stations in 28 markets for an aggregate purchase price of approximately $245.1
million in Pending Acquisitions. The Company expects to consummate most of the
Pending Acquisitions during the third and fourth quarters of 1998, although
there can be no assurance that the transactions will be consummated within that
time frame. 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.
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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, 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 has
served as Chairman and Chief Executive Officer of Media LLC since its inception
in April 1997. 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 has
served as Executive Vice Chairman and a Director of Media LLC since its
inception in April 1997. 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 National Association of
Broadcasters ("NAB"), one of the industry's leading texts on competition and
strategy.
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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 has served
as Executive Vice President of Stratford Research since June 1988. 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
March 1998, 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 Heller's
Corporate Finance Group in 1992, Mr. O'Donnell held a number of offices within
Heller
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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 has served as a
member of the Investment Committee of Media LLC since April 1997. 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.
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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 $ 170,000 $ 50,000 $ 7,000 $ 205,000
Richard J. Bonick, Jr............................... 1997 $ 170,000 $ 25,000 $ 7,000 $ 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 services performed on behalf of the
Company. In addition, the Company paid $184,000 to Stratford Research, 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 Research 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, an entity
controlled by Mr. Dickey receiving $120,000 of such fee), and (ii) a
management fee of $206,000 (with QUAESTUS receiving $123,600 of such fee and
DBBC receiving $82,400 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, DBBC, 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 in
"Management--Executive Stock Incentive Plan")) of the Company, as well as
consultants to the Company, with additional incentives by increasing their
proprietary interest in the Company. An aggregate of 1,288,834 shares of Class A
Common Stock will be subject to the 1998 Plan, of which a maximum of 1,228,834
shares of Class A Common Stock will be subject to incentive stock options and a
maximum of 100,000 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
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options for more than 300,000 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 $500,000.
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 June 22, 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 1998 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.
Upon consummation of the Offerings, there will be outstanding options to
purchase a total of 375,018 shares of Class A Common Stock exercisable at the
initial public offering price under the 1998 Plan.
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 2,001,380 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 1,000,690 shares in any one calendar year. Richard
W. Weening and Lewis W. Dickey, Jr. 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) of 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.
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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. Prior to the completion of the Offering, there will be outstanding
options to purchase a total of 2,001,380 shares of Class C Common Stock under
the Executive Plan.
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, 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
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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. 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.
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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 $1,000 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 30,000 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
20% of the total optioned shares upon the first anniversary of the grant of the
options and for an additional 20% of the total optioned shares upon each
succeeding anniversary until the option is fully exercisable at the end of the
fifth year.
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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.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of June 24, 1998 (assuming the
consummation of the Reorganization as of such date) 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 A COMMON STOCK CLASS B COMMON STOCK(1)
--------------------------------------------------------------- -----------------------------------
AFTER
PRIOR TO STOCK PRIOR TO STOCK STOCK
OFFERINGS SHARES AFTER STOCK OFFERINGS OFFERINGS OFFERINGS
------------------------ BEING -------------------------- ------------------------ ---------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER
- -------------------------- --------- ------------- --------- ----------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
State of Wisconsin
Investment Board 1,170,000 85.8% 1,170,000 -- -- 3,751,950 43.1% 3,751,950
NationsBanc Capital Corp. -- -- -- -- -- 3,343,417 38.4% 3,343,417
Heller Equity Capital
Corporation -- -- -- -- -- 922,272 10.6% 922,272
The Northwestern Mutual
Life Insurance Company -- -- -- -- -- 693,728 8.0% 693,728
CML Holdings, LLC -- -- -- -- -- -- -- --
QUAESTUS Management
Corporation -- -- -- -- -- -- -- --
DBBC of Georgia, LLC -- -- -- -- -- -- -- --
Richard W. Weening -- -- -- -- -- -- -- --
Lewis W. Dickey, Jr.
William M. Bungeroth 96,725 7.1% -- 96,725(4) 1.3% -- -- --
Richard J. Bonick, Jr. 96,725 7.1% -- 96,725(4) 1.3% -- -- --
Robert H. Sheridan, III -- -- -- -- (5) -- -- -- --
Ralph B. Everett -- -- -- -- (5) -- -- -- --
All Executive Officers and
Directors, as a group (6
persons)................ 193,450 14.2% -- 193,450 2.6% -- -- --
<CAPTION>
CLASS C COMMON STOCK(2)
--------------------------------------------------
PRIOR TO STOCK
OFFERINGS AFTER STOCK OFFERINGS
------------------------ ------------------------
NAME PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
- -------------------------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
State of Wisconsin
Investment Board 43.1% -- -- -- --
NationsBanc Capital Corp. 38.4% -- -- -- --
Heller Equity Capital
Corporation 10.6% -- -- -- --
The Northwestern Mutual
Life Insurance Company 8.0% -- -- -- --
CML Holdings, LLC -- 1,643,214 67.5% 1,643,214 67.5%
QUAESTUS Management
Corporation -- 474,356 19.5% 474,356 19.5%
DBBC of Georgia, LLC -- 316,238 13.0% 316,238 13.0%
Richard W. Weening -- 474,356 19.5% 474,356(3) 19.5%
Lewis W. Dickey, Jr. 316,238 13.0% 316,238(3) 13.0%
William M. Bungeroth -- -- -- -- --
Richard J. Bonick, Jr. -- -- -- -- --
Robert H. Sheridan, III -- -- -- -- --
Ralph B. Everett -- -- -- -- --
All Executive Officers and
Directors, as a group (6
persons)................ -- 790,594 32.5% 790,594 32.5%
</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) Represents beneficial ownership attributable to Messrs. Weening and Dickey
as a result of their controlling interests in QUAESTUS and DBBC,
respectively. Does not include options to purchase 1,000,690 shares of Class
C Common Stock granted to each of Messrs. Weening and Dickey under the
Executive Plan.
(4) Does not include options to purchase 235,000 and 30,355 shares of Class A
Common Stock granted to Messrs. Bungeroth and Bonick, respectively, under
the 1998 Plan.
(5) Does not include options to purchase 30,000 shares of Class A Common Stock
granted to each of Messrs. Sheridan and Everett upon their election to the
Board of Directors.
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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.
Upon consummation of the Reorganization, the Company's authorized capital
stock will consist of: (i) 50,000,000 shares of Class A Common Stock, $.01 par
value per share; (ii) 20,000,000 shares of Class B Common stock, $.01 par value
per share; (iii) 30,000,000 shares of Class C Common Stock, $.01 par value per
share and (iv) 262,000 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 Amended and Restated 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
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the following actions without the unanimous vote of the Board of Directors
(including the Class C Director): (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 Amended and Restated 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 Amended and Restated 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
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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.
A record or beneficial owner of shares of Class C Common Stock may transfer
such shares (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 first
been obtained, and PROVIDED FURTHER, that the transferee is not an affiliate or
a related party of Richard Weening or Lewis W. Dickey, Jr., then, concurrently
with any such transfer, each such transferred share of Class C Common Stock
shall automatically be converted into one share of 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
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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 8,711,367 shares of Class B
Common Stock (which are convertible into 8,711,367 shares of Class A Common
Stock upon the exercise of conversion rights with respect to the 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,
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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, 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
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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.
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") 125,000 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
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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 50% 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, provided, however, that
at least 50% of the original aggregate liquidation preference of the Series A
Preferred Stock 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 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 U.S. Bank Trust National Association,
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 50% of the original aggregate
principal amount of
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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.
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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 June 1, 1998, approximately $129.0 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 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 interest expense and cash flow to debt service and
maximum ratios of total debt to cash flow and senior debt to cash flow. The
Credit Facility provides that the Company must maintain (a) for any four fiscal
quarters, a minimum ratio of cash flow to interest expense that increases
incrementally from 1.30 to 1.00 as of the date hereof to 2.50 to 1.00 for the
period ending July 1, 2001 or thereafter; (b) for any four fiscal quarters, a
minimum ratio of cash flow to debt service of 1.10 to 1.00; (c) for any four
fiscal quarters, a maximum ratio of total debt to cash flow decreasing
incrementally from 8.00 to 1.00 as of the date hereof to 5.50 to 1.00 for the
period ending
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January 1, 2000 and thereafter; and (d) for any four fiscal quarters, a maximum
ratio of senior debt to cash flow decreasing incrementally from 5.00 to 1.00
upon the consummation of the Offerings to 3.50 to 1.00 for the period ending
January 1, 2000 and thereafter. 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, 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.
Effective as of May 1, 1998, the Company entered into an amendment to the
Credit Facility therein, pursuant to which certain financial covenants and
certain other provisions were modified to take into account the proposed
Offerings and the Pending Acquisitions. The material terms of such covenants, as
amended, are described in "Description of Credit Facility and Notes--The Credit
Facility--Covenants."
The Credit Facility was further amended on June 24, 1998 to take into
account the Subsidiary Guarantees and to reduce the revolving line of credit to
$100.0 million and the term loan facility to $50.0 million.
THE NOTES
GENERAL. Concurrently with the Common Stock Offerings, the Company is
offering $150.0 million 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.
SUBSIDIARY GUARANTEES. The Notes will be fully and unconditionally
guaranteed (the "Subsidiary Guarantees") on an unsecured, senior subordinated
basis by each Subsidiary of the Company in existence on the date of the
Indenture and any Restricted Subsidiary created or acquired by the Company after
such date (the "Subsidiary Guarantors"). The Subsidiary Guarantees will be
subordinated to all Guarantor Senior Debt (as defined in the Indenture) on the
same basis as the Notes are subordinated to Senior Debt of the Company.
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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, 1998, the Company would have had
outstanding $40.6 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.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Stock Offerings, the Company will have outstanding
7,613,450 shares of Class A Common Stock, 8,711,367 shares of Class B Common
Stock and 2,433,808 shares of Class C Common Stock. In addition, the Company
will have outstanding options to purchase 1,216,480 shares of Class A Common
Stock and 2,001,380 shares of Class C Common Stock. Of these shares, the
7,420,000 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, (which
officers will directly or indirectly own 193,450 shares of Class A Common Stock
and 790,594 shares of Class C Common Stock and options to purchase 265,355
shares of Class A Common Stock and 2,001,380 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.
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."
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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..................................................................... 5,936,000
----------
----------
</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 Securities...........................................................
----------
Total..................................................................... 1,484,000
----------
----------
</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
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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 750,000 shares and 187,500
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
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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.
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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 400 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.
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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 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
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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 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
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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 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,
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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.
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 Holleb & Coff, Chicago,
Illinois. 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 of Cumulus Media Inc., Albany
Broadcasting Company, American Communications Company, Inc., Beaumont Skywave,
Inc., Castle Broadcasting Limited Partnership, Clearly Superior Radio
Properties, Crystal Radio Group, Inc., Esprit' Communication Corporation,
Lesnick Communications, Inc., Louisiana Media Interests, Inc. and Subsidiaries,
Midland Broadcasters, Inc., Mustang Broadcasting Company, Ninety Four Point One,
Inc. and KAYD AM/FM, Pamplico Broadcasting, L.P., Phoenix Broadcast Partners,
Inc., Radio Ingstad Minnesota, Inc., Radio Albert Lea, Inc. and KRCH of
Minnesota, Inc., Tallahassee Broadcasting, Inc., Tryon-Seacoast Communications,
Inc., WJCL-FM, and WWFG-FM and WOSC-FM as they relate to the unaudited
three-month periods ended March 31, 1998 and 1997, except for the financial
statements of Communications Properties, Inc. as they relate to the unaudited
seven-month period ended March 31, 1997, and except for the financial statements
of Jan-Di Broadcasting, Inc. as they relate to the unaudited nine-month period
ended March 31, 1997, have been audited by Price Waterhouse LLP, independent
accountants.
Cumulus Media Inc.
Albany Broadcasting Company
American Communications Company, 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.
Esprit' Communication Corporation
Forjay Broadcasting Corporation
HVS Partners
Jan-Di Broadcasting, Inc.
K-Country, Inc.
Lesnick Communications, Inc.
Louisiana Media Interests, Inc. and Subsidiaries
M&M Partners
Midland Broadcasters, Inc.
The Midwestern Broadcasting Company, Radio Stations WWWM-FM and WLQR-AM
Mustang Broadcasting Company
Ninety Four Point One, Inc. and KAYD AM/FM
Pamplico Broadcasting, L.P.
Phoenix Broadcast Partners, Inc.
Radio Ingstad Minnesota, Inc., Radio Albert Lea, Inc. and KRCH of Minnesota,
Inc.
Savannah Valley Broadcasting Radio Properties
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Seacoast Radio Company, LLC
Sunny Broadcasters, Inc.
Tallahassee Broadcasting, Inc.
Tally Radio, LC
Tryon-Seacoast Communications, Inc.
Value Radio Corporation
Venice Broadcasting Corp.
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.
The financial statements of Chattanooga Broadcast Group as of December 31,
1997 and 1996, and for each of the years in the three-year period ended December
31, 1997, have been included herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The 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 KLUR, KQXC, KYYI Radio as of November 30, 1997
and for the eleven months then ended 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 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 the period October 1, 1995 through December 31, 1995 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
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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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CUMULUS MEDIA INC.
Report of Independent Accountants................................................... F-10
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997.............. F-11
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-12
Consolidated Statement of Stockholder's Equity for the period from inception on May
22, 1997 to December 31, 1997..................................................... F-13
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-14
Notes to Consolidated Financial Statements.......................................... F-15
ALBANY BROADCASTING COMPANY
Report of Independent Accountants................................................... F-35
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-36
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-37
Statements of Changes in Stockholders' Equity for the years ended December 31, 1997
and 1996.......................................................................... F-38
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-39
Notes to Financial Statements....................................................... F-40
AMERICAN COMMUNICATIONS COMPANY, INC.
Report of Independent Accountants................................................... F-43
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-44
Statements of Operations for the three month periods ended March 31, 1998 and 1997,
for the year ended December 31, 1997 and for the period from inception on April
16, 1996 to December 31, 1996..................................................... F-45
Statements of Changes in Stockholder's Equity for the year ended December 31, 1997
and for the period from inception on April 16, 1996 to December 31, 1996.......... F-46
Statements of Cash Flows for the three months periods ended March 31, 1998 and 1997,
for the year ended December 31, 1997 and for the period from inception on April
16, 1996 to December 31, 1996..................................................... F-47
Notes to Financial Statements....................................................... F-48
ARBOR RADIO LP
Report of Independent Accountants................................................... F-51
Balance Sheets as of December 31, 1997 and 1996..................................... F-52
Statements of Operations and Partners' Capital for the years ended December 31,
1997, 1996 and 1995............................................................... F-53
Statements of Cash Flows for the years ended December 31 1997, 1996 and 1995........ F-54
Notes to Financial Statements....................................................... F-55
BEAUMONT SKYWAVE, INC. (A WHOLLY-OWNED SUBSIDIARY OF PACIFIC BROADCASTING OF
BEAUMONT, INC.)
Report of Independent Accountants................................................... F-60
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-61
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-62
Statement of Changes in Stockholder's Equity for the years ended December 31, 1997
and 1996.......................................................................... F-63
</TABLE>
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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-64
Notes to Financial Statements....................................................... F-65
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
Report of Independent Accountants................................................... F-69
Consolidated Balance Sheet as of April 30, 1997..................................... F-70
Consolidated Statement of Operations for the four month period ended April 30,
1997.............................................................................. F-71
Consolidated Statement of Changes in Stockholder's Equity (Deficit) for the four
month period ended April 30, 1997................................................. F-72
Consolidated Statement of Cash Flows for the four month period ended April 30,
1997.............................................................................. F-73
Notes to Consolidated Financial Statements.......................................... F-74
CAROLINA BROADCASTING, INC. AND GEORGETOWN RADIO, INC.
Report of Independent Accountants................................................... F-78
Combined Balance Sheet as of December 31, 1997...................................... F-79
Combined Statement of Operations for the year ended December 31, 1997............... F-80
Combined Statement of Changes in Stockholders' Deficit for the year ended December
31, 1997.......................................................................... F-81
Combined Statement of Cash Flows for the year ended December 31, 1997............... F-82
Notes to Combined Financial Statements.............................................. F-83
CASTLE BROADCASTING LIMITED PARTNERSHIP
Report of Independent Accountants................................................... F-87
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-88
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-89
Statement of Changes in Partners' Deficit for the years ended December 31, 1997,
1996 and 1995..................................................................... F-90
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-91
Notes to Financial Statements....................................................... F-92
CHATTANOOGA BROADCAST GROUP
Independent Auditors' Report........................................................ F-96
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-97
Statements of Operations and Changes in Division Equity for the three month periods
ended March 31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and
1995.............................................................................. F-98
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-99
Notes to Financial Statements....................................................... F-100
CLEARLY SUPERIOR RADIO PROPERTIES
Report of Independent Accountants................................................... F-104
Combined Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996......... F-105
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-106
Combined Statement of Owner's Equity in Stations for the years ended December 31,
1997 and 1996..................................................................... F-107
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-108
Notes to Combined Financial Statements.............................................. F-109
COMMUNICATIONS PROPERTIES, INC.
Report of Independent Accountants................................................... F-114
Balance Sheets as of March 31, 1998 and August 31, 1997 and 1996.................... F-115
</TABLE>
F-2
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Statements of Operations for the seven month periods ended March 31, 1998 and 1997
and for the years ended August 31, 1997, 1996 and 1995............................ F-116
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, 1996 and
1995.............................................................................. F-117
Statements of Cash Flows for the seven month periods ended March 31, 1998 and 1997
and for the years ended August 31, 1997, 1996 and 1995............................ F-118
Notes to Financial Statements....................................................... F-119
CRYSTAL RADIO GROUP, INC.
Report of Independent Accountants................................................... F-126
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-127
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-128
Statements of Changes in Stockholders' Equity (Deficit) for the years ended December
31, 1997, 1996 and 1995........................................................... F-129
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-130
Notes to Financial Statements....................................................... F-131
ESPRIT' COMMUNICATION CORPORATION
Report of Independent Accountants................................................... F-134
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-135
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-136
Statement of Changes in Stockholder's Equity for the years ended December 31, 1997
and 1996.......................................................................... F-137
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-138
Notes to Financial Statements....................................................... F-139
FORJAY BROADCASTING CORPORATION
Report of Independent Accountants................................................... F-142
Balance Sheets as of December 31, 1997 and 1996..................................... F-143
Statements of Operations for the years ended December 31, 1997 and 1996............. F-144
Statements of Changes in Shareholder's Equity for the years ended December 31, 1997
and 1996.......................................................................... F-145
Statements of Cash Flows for the years ended December 31, 1997 and 1996............. F-146
Notes to Financial Statements....................................................... F-147
FRITZ BROADCASTING, INC. TOLEDO DIVISION
Independent Auditor's Report........................................................ F-151
Divisional Balance Sheet as of December 29, 1996 and December 31, 1995.............. F-152
Statement of Divisional Income for the years ended December 29, 1996 and December
31, 1995.......................................................................... F-153
Statement of Changes in Divisional Equity for the years ended December 29, 1996 and
December 31, 1995................................................................. F-154
Statement of Divisional Cash Flows for the years ended December 29, 1996 and
December 31, 1995................................................................. F-155
Notes to Financial Statements....................................................... F-156
HVS PARTNERS
Report of Independent Accountants................................................... F-160
Balance Sheets as of December 31, 1997 and 1996..................................... F-161
Statements of Operations for the years ended December 31, 1997, 1996 and 1995....... F-162
Statements of Changes in Partners' Equity for the years ended December 31, 1997,
1996 and 1995..................................................................... F-163
</TABLE>
F-3
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Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995....... F-164
Notes to Financial Statements....................................................... F-165
JKJ BROADCASTING, INC., MISSOURI RIVER BROADCASTING, INC., INGSTAD MANKATO, INC.,
JAMES INGSTAD BROADCASTING, INC., AND HOMETOWN WIRELESS, INC.
Independent Auditor's Report........................................................ F-170
Combined Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996......... F-171
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-173
Combined Statements of Stockholder's Equity for the three month period ended March
31, 1998 and for the years ended December 31, 1997, 1996 and 1995................. F-174
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-175
Notes to Combined Financial Statements.............................................. F-176
JAN-DI BROADCASTING, INC.
Report of Independent Accountants................................................... F-184
Balance Sheets as of March 31, 1998 and June 30, 1997 and 1996...................... F-185
Statements of Operations for the nine months ended March 31, 1998 and 1997 and for
the years ended June 30, 1997 and 1996............................................ F-186
Statements of Changes in Shareholders' Equity for the nine months ended March 31,
1998 and for the years ended June 30, 1997 and 1996............................... F-187
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-188
Notes to Financial Statements....................................................... F-189
K--COUNTRY, INC.
Report of Independent Accountants................................................... F-193
Combined Balance Sheets as of March 31, 1998 and June 30, 1997...................... F-194
Combined Statements of Income and Retained Earnings for the nine month period ended
March 31, 1998, the year ended June 30, 1997 and for the three month period ended
March 31, 1997.................................................................... F-195
Combined Statements of Cash Flows for the nine month period ended March 31, 1998,
for the year ended June 30, 1997 and for the three month period ended March 31,
1997.............................................................................. F-196
Notes to Combined Financial Statements.............................................. F-197
KLUR, KQXC, KYYI RADIO
Report of Independent Certified Public Accountants.................................. F-201
Combined Balance Sheet as of November 30, 1997...................................... F-202
Combined Statement of Earnings for the eleven months ended November 30, 1997........ F-203
Combined Statement of Changes in Owner's Equity in Stations for the eleven months
ended November 30, 1997........................................................... F-204
Combined Statement of Cash Flows for the eleven months ended November 30, 1997...... F-205
Notes to Financial Statements....................................................... F-206
LESNICK COMMUNICATIONS, INC.
Report of Independent Accountants................................................... F-209
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-210
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-211
Statement of Changes in Stockholders' Equity (Deficit) for the years ended December
31, 1997, 1996 and 1995........................................................... F-212
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-213
Notes to Financial Statements....................................................... F-214
</TABLE>
F-4
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LOUISIANA MEDIA INTERESTS, INC. AND SUBSIDIARIES
Report of Independent Accountants................................................... F-217
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996..... F-218
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-219
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1997, 1996 and 1995.................................................. F-220
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-221
Notes to Consolidated Financial Statements.......................................... F-222
M&M PARTNERS
Report of Independent Accountants................................................... F-228
Balance Sheets as of December 31, 1997 and 1996..................................... F-229
Statements of Operations for the years ended December 31, 1997, 1996 and 1995....... F-230
Statements of Changes in Partners' Capital for the years ended December 31, 1997,
1996 and 1995..................................................................... F-231
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995....... F-232
Notes to Financial Statements....................................................... F-233
MIDLAND BROADCASTERS, INC.
Report of Independent Accountants................................................... F-238
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-239
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-240
Statements of Changes in Stockholders' Equity for the years ended December 31, 1997,
1996 and 1995..................................................................... F-241
Statement 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-242
Notes to Financial Statements....................................................... F-243
THE MIDWESTERN BROADCASTING COMPANY, RADIO STATIONS WWWM-FM AND WLQR-AM
Report of Independent Accountants................................................... F-248
Combined Balance Sheets as of October 31, 1997 and December 31, 1996................ F-249
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-251
Combined Statements of Cash Flows for the period January 1, to October 31, 1997 and
the years ended December 31, 1996 and 1995........................................ F-252
Notes to Combined Financial Statements.............................................. F-253
MUSTANG BROADCASTING COMPANY
Report of Independent Accountants................................................... F-256
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-257
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-258
Statement of Changes in Stockholder's Equity for the years ended December 31, 1997,
1996, and 1995.................................................................... F-259
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 Financial Statements....................................................... F-261
</TABLE>
<TABLE>
<S> <C>
NEW FRONTIER COMMUNICATIONS, INC.
Report of Independent Certified Public Accountants.................................. F-264
Balance Sheet as of March 31, 1998 and December 31, 1997 and 1996................... F-265
</TABLE>
F-5
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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-266
Statement of Stockholders' Deficit for the years ended December 31, 1997, 1996 and
1995.............................................................................. F-267
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-268
Notes to Financial Statements....................................................... F-269
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-278
Combined Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996......... F-279
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-280
Combined Statement of Changes in Net Investment of Parent for the years ended
December 31, 1997, 1996 and 1995.................................................. F-281
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-282
Notes to Financial Statements....................................................... F-283
PAMPLICO BROADCASTING, L.P.
Report of Independent Accountants................................................... F-287
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-288
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-289
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-290
Notes to Financial Statements....................................................... F-291
PHOENIX BROADCAST PARTNERS, INC.
Report of Independent Accountants................................................... F-295
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-296
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, 1996 and
1995.............................................................................. F-297
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-298
Notes to Financial Statements....................................................... F-299
RADIO INGSTAD MINNESOTA, INC., RADIO ALBERT LEA, INC. AND KRCH OF MINNESOTA, INC.
Report of Independent Accountants................................................... F-306
Combined Statement of Financial Position as of March 31, 1998 and December 31,
1997.............................................................................. F-307
Combined Statement of Operation for the three month periods ended March 31, 1998 and
1997 and for the year ended December 31, 1997..................................... F-308
Combined Statement of Changes in Stockholder's Equity for the year ended December
31, 1997.......................................................................... F-309
Combined Statement of Cash Flows for the three month periods ended March 31, 1998
and 1997 and for the year ended December 31, 1997................................. F-310
Notes to Combined Financial Statements.............................................. F-311
REPUBLIC CORPORATION (RADIO BROADCASTING OPERATIONS ONLY)
Report of Independent Accountants................................................... F-318
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996..... F-319
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-320
Consolidated Statements of Changes in Stockholder's Equity for the years ended
December 31, 1997, 1996 and 1995.................................................. F-321
</TABLE>
F-6
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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-322
Notes to Consolidated Financial Statements.......................................... F-323
SAVANNAH COMMUNICATIONS, L.P.
Report of Independent Accountants................................................... F-330
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-331
Statements of Operations for the three month periods ended March 31, 1998 and 1997
and for the years ended December 31, 1997 and 1996 and for the period October 1,
1995 (inception) through December 31, 1995........................................ F-332
Statements of Partners' Capital for the years ended December 31, 1997 and 1996 and
for the period October 1, 1995 (inception) through December 31, 1995.............. F-333
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 and for the period October 1,
1995 (inception) through December 31, 1995........................................ F-334
Notes to Financial Statements....................................................... F-335
SAVANNAH VALLEY BROADCASTING RADIO PROPERTIES
Report of Independent Accountants................................................... F-339
Combined Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996......... F-340
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-341
Combined Statements of Changes in Owner's Equity (Deficit) in Stations for the years
ended December 31, 1997, 1996 and 1995............................................ F-342
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-343
Notes to Combined Financial Statements.............................................. F-344
SEACOAST RADIO COMPANY, LLC
Report of Independent Accountants................................................... F-348
Balance Sheets as of December 31, 1997 and 1996..................................... F-349
Statements of Operations for the years ended December 31, 1997, 1996 and 1995....... F-350
Statements of Changes in Members' Equity for the years ended December 31, 1997, 1996
and 1995.......................................................................... F-351
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995....... F-352
Notes to Financial Statements....................................................... F-353
SUNNY BROADCASTERS, INC.
Report of Independent Accountants................................................... F-357
Balance Sheets as of December 31, 1997 and 1996..................................... F-358
Statements of Operations for the years ended December 31, 1997, 1996 and 1995....... F-359
Statement of Changes in Stockholders' Equity for the years ended December 31, 1997,
1996 and 1995..................................................................... F-360
Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995........ F-361
Notes to Financial Statements....................................................... F-362
TALLAHASSEE BROADCASTING, INC.
Report of Independent Accountants................................................... F-367
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-368
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-369
Statements of Changes in Stockholders' Equity (Deficit) for the years ended December
31, 1997, 1996 and 1995........................................................... F-370
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-371
Notes to Financial Statements....................................................... F-372
</TABLE>
F-7
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<TABLE>
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TALLY RADIO, LC
Report of Independent Accountants................................................... F-376
Balance Sheets as of December 31, 1997 and 1996..................................... F-377
Statements of Operations for the year ended December 31, 1997 and for the period
from inception on March 1, 1996 to December 31, 1996.............................. F-378
Statements of Changes in Members' Equity (Deficit) for the year ended December 31,
1997 and for the period from inception on March 1, 1996 to December 31, 1996...... F-379
Statements of Cash Flows for the year ended December 31, 1997 and for the period
from inception on March 1, 1996 to December 31, 1996.............................. F-380
Notes to Financial Statements....................................................... F-381
TRYON-SEACOAST COMMUNICATIONS, INC.
Report of Independent Accountants................................................... F-386
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-387
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-388
Statements of Changes in Stockholders' Deficit for the years ended December 31,
1997, 1996 and 1995............................................................... F-389
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-390
Notes to Financial Statements....................................................... F-391
VALUE RADIO CORPORATION
Report of Independent Accountants................................................... F-396
Balance Sheets as of August 30, 1997 and August 31, 1996............................ F-397
Statements of Operations for the years ended August 30, 1997 and August 31, 1996 and
1995.............................................................................. F-398
Statement of Changes in Stockholders' Equity for the years ended August 30, 1997,
and August 31, 1996 and 1995...................................................... F-399
Statements of Cash Flows for the years ended August 30, 1997 and August 31, 1996 and
1995.............................................................................. F-400
Notes to Financial Statements....................................................... F-401
VENICE BROADCASTING CORP.
Report of Independent Accountants................................................... F-406
Balance Sheets as of December 31, 1997 and 1996..................................... F-407
Statements of Operations for the years ended December 31, 1997 and 1996............. F-408
Statements of Changes in Stockholder's Deficit for the years ended December 31, 1997
and 1996.......................................................................... F-409
Statements of Cash Flows for the years ended December 31, 1997 and 1996............. F-410
Notes to Financial Statements....................................................... F-411
WILKS BROADCAST ACQUISITIONS, INC.
Report of Independent Accountants................................................... F-414
Balance Sheets as of August 31, 1997 and December 31, 1996.......................... F-415
Statements of Operations for the eight months ended August 31, 1997 and for the
years ended December 31, 1996 and 1995............................................ F-416
Statement 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-417
Statements of Cash Flows for the eight months ended August 31, 1997 and for the
years ended December 31, 1996 and 1995............................................ F-418
Notes to Financial Statements....................................................... F-419
WJCL-FM (A DIVISION OF LEWIS BROADCASTING CORPORATION)
Report of Independent Accountants................................................... F-423
Balance Sheets as of March 31, 1998 and December 31, 1997 and 1996.................. F-424
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-425
</TABLE>
F-8
<PAGE>
<TABLE>
<S> <C>
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-426
Statements of Changes in Owners' Net Investment for the years ended December 31,
1997, 1996 and 1995............................................................... F-427
Notes to Financial Statements....................................................... F-428
WKKO-FM, WRQN-FM, WTOD-AM AND WIMX-FM (A WHOLLY OWNED ENTITY OF 62ND STREET
BROADCASTING LLC)
Reports of Independent Accountants.................................................. F-429
Combined Balance Sheet as of November 9, 1997....................................... F-431
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-434
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-435
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-436
Notes to Combined Financial Statements.............................................. F-437
WWFG-FM AND WOSC-FM
Report of Independent Accountants................................................... F-442
Combined Balance Sheets as of March 31, 1998 and December 31, 1997.................. F-443
Combined Statements of Operations for the period January 1, 1998 to March 31, 1998,
for the period from August 1, 1997 to December 31, 1997, for the period January 1,
1997 to March 31, 1997 and for the period January 1, 1997 to July 31, 1997........ F-444
Combined Statements of Changes in Owner's Equity for the period January 1, 1998 to
March 31, 1998, for the period from August 1, 1997 to December 31, 1997 and for
the period January 1, 1997 to July 31, 1997....................................... F-445
Combined Statements of Cash Flows for the period January 1, 1998 to March 31, 1998,
for the period from August 1, 1997 to December 31, 1997, for the period January 1,
1997 to March 31, 1997 and for the period January 1, 1997 to July 31, 1997........ F-446
Notes to the Combined Financial Statements.......................................... F-447
</TABLE>
F-9
<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,
except as to Note 15,
which is as of June 18, 1998
F-10
<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-11
<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) (3,578)
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
------- -------
------- -------
Pro forma basic and diluted loss per share (unaudited).................... $ (0.33) $ (0.21)
------- -------
------- -------
Pro forma average shares outstanding (unaudited) (in thousands)........... 18,759 18,759
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<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
adjustment)...................... $ 5 $ 5
Preferred and common stock offering
costs............................ (614)
Preferred stock dividend and
accretion of discount............ (274)
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............... 14,985
Preferred stock dividend and
accretion of discount............ (842)
Net loss........................... (5,330) (5,330)
----- --------- ----------- ------- ------------ -------
Balance at March 31, 1998
(unaudited)...................... 1,000 $ 67,692 $ 5 $ (8,908) $ (8,903)
----- --------- ----------- ------- ------------ -------
----- --------- ----------- ------- ------------ -------
</TABLE>
See Notes to Consolidated Financial Statements.
F-13
<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-14
<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 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.
F-15
<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)
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 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-16
<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)
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...................................... $ 125
---------
---------
</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.
PRO FORMA BASIC AND DILUTED LOSS PER SHARE (UNAUDITED)
The calculation of pro forma basic and diluted loss per share was determined
by dividing net loss by the pro forma average shares outstanding. The pro forma
average shares outstanding give effect to the exchange of the Company's shares
by Cumulus Media, LLC and the anticipated initial public offering as described
in Note 16.
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-17
<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-18
<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-19
<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 LMA EFFECTIVE 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
ABILENE, TX
Big Country Broadcasting
(KBCY-FM and KCDD-FM)............................................ November 1, 1997
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-20
<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-21
<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.
F-22
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2. ACQUISITIONS AND DISPOSITION: (CONTINUED)
During the quarter ended March 31, 1998, the Company operated the following
stations under an LMA:
<TABLE>
<CAPTION>
MARKET AND STATIONS LMA EFFECTIVE DATE
- ------------------------------------------------------------------- -------------------------
<S> <C>
GREEN BAY, WISCONSIN
American Communications Co.
(WJLW-FM)........................................................ February 15, 1998
Brillion Radio Company
(WEZR-FM)........................................................ February 15, 1998
AUGUSTA, GEORGIA
Savannah Valley Broadcasting Radio Properties
(WBBQ-AM and WBBQ-FM)............................................ September 4, 1997
SALISBURY, MARYLAND
WWFG-FM and WOSC-FM
(WWFG-FM and WOSC-FM)............................................ February 1, 1998
TALLAHASSEE, FLORIDA
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)........................................................ August 18, 1997
ABILENE, TEXAS
Big Country Broadcasting
(KBCY-FM and KCDD-FM)............................................ November 1, 1997
IQ Radio, Inc.
(KHXS-FM)........................................................ November 1, 1997
AMARILLO, TEXAS
Westwind
(KPUR-FM and KPUR-AM)............................................ January 1, 1998
Heritage Communications
(KZRK-FM and KZRK-AM)............................................ January 1, 1998
West Jewel
(KARX-FM)........................................................ January 1, 1998
Wiskes-Abaris
(KQIZ-FM)........................................................ February 15, 1998
</TABLE>
F-23
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
2. ACQUISITIONS AND DISPOSITION: (CONTINUED)
<TABLE>
<S> <C>
ODESSA-MIDLAND, TEXAS
New Frontier Communications, Inc.
(KGEE-FM, KODM-FM, KNFM-FM, KMND-AM and KBAT-FM)................. January 1, 1998
MARION CARBONDALE, ILLINOIS
Clearly Superior Radio Properties
(WDDD-FM, WDDD-AM, WTAO-FM, WVZA-FM, WQUL-FM and WFRX-AM)........ January 1, 1998
COLUMBUS, GEORGIA
Minority Associates
(WAGH-FM)........................................................ January 1, 1998
SAVANNAH, GEORGIA
Savannah Communications, L.P.
(WBMQ-AM, WIXV-FM and WSGF-FM)................................... January 1, 1998
WJCL-FM
(WJCL-FM)........................................................ January 1, 1998
Phoenix Broadcast Partners, Inc.
(WZAT-FM)........................................................ March 16, 1998
BEAUMONT, TEXAS
Beaumont Skywave, Inc.
(KTCX-FM)........................................................ February 15, 1998
MYRTLE BEACH, SOUTH CAROLINA
Carolina Broadcasting, Inc.
(WXJY-FM)........................................................ March 16, 1998
FLORENCE, SOUTH CAROLINA
Clarendon County Broadcasting
(WHLZ-FM, WYMB-AM)............................................... March 18, 1998
Pamplico Broadcasting, L.P.
(WBZF-FM, WMXT-FM, WWFN-FM)...................................... March 16, 1998
MONTGOMERY, ALABAMA
Republic Corporation
(WMSP-AM, WNZZ-AM, WMXS-FM and WLWI-FM).......................... February 11, 1998
CHATTANOOGA, TENNESSEE
Republic Corporation
(WUSY-FM)........................................................ February 11, 1998
</TABLE>
The unaudited March 31, 1998 consolidated statement of operations includes
the revenue and broadcast operating expenses of these radio stations and any
related fees associated with the LMA.
F-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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. SUBSEQUENT EVENT GUARANTOR'S FINANCIAL INFORMATION
The Company is planning to register and issue senior subordinated notes
under the Securities Act of 1933, as amended (the "Act"). Pursuant to the
registration and issuance of the senior subordinated notes under the Act, all of
the direct and indirect subsidiaries (all such subsidiaries are directly or
indirectly wholly-owned by the Company) of the Company will provide full and
unconditional senior subordinated guarantees for the senior subordinated notes
on a joint and several basis. There are no significant restrictions on the
ability of the guarantor subsidiaries to pay dividends or make loans to the
Company.
F-30
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
15. SUBSEQUENT EVENT GUARANTOR'S FINANCIAL INFORMATION (CONTINUED)
Following is consolidating condensed financial information pertaining to the
Company and its subsidiary guarantors. The Company has not presented separate
financial statements for the subsidiary guarantors because management has
determined that such information is not material to investors.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM INCEPTION ON MAY 22, 1997 TO
DECEMBER 31, 1997
--------------------------------------------------------
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- ------------- -----------------
<S> <C> <C> <C> <C>
Net revenues........................................ $ -- $ 9,163 $ -- $ 9,163
Operating expenses.................................. 3,072 8,711 -- 11,783
--------- ----------- ----- --------
Operating income (loss)............................. (3,072) 452 -- (2,620)
Net interest income (expense) and other............. (891) -- -- (891)
--------- ----------- ----- --------
Income (loss) before income taxes................... (3,963) 452 -- (3,511)
Income tax expense.................................. 67 -- -- 67
--------- ----------- ----- --------
Income (loss) before equity income in
subsidiaries...................................... (4,030) 452 -- (3,578)
Equity income in subsidiaries....................... 452 -- (452) --
--------- ----------- ----- --------
Income (loss)....................................... (3,578) 452 (452) (3,578)
Preferred stock dividend............................ 274 -- -- 274
--------- ----------- ----- --------
Net income (loss) attributable to common
stockholders...................................... $ (3,852) $ 452 $ (452) $ (3,852)
--------- ----------- ----- --------
--------- ----------- ----- --------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------------------------------
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Current assets.............................................. $ 3,588 $ 3,514 $ -- $ 7,102
Property and equipment, net................................. 317 7,803 -- 8,120
Investment in subsidiaries.................................. 101,732 40 (101,772) --
Intangible assets, net...................................... -- 90,217 -- 90,217
Other assets................................................ 2,706 2,296 -- 5,002
---------- ----------- ------------ ------------
Total assets.............................................. $ 108,343 $ 103,870 $ (101,772) $ 110,441
---------- ----------- ------------ ------------
---------- ----------- ------------ ------------
Current liabilities......................................... $ 1,869 $ 1,981 $ -- $ 3,850
Long-term debt, excluding current portion................... 42,789 -- -- 42,789
Other liabilities........................................... 286 2,269 (2,155) 400
---------- ----------- ------------ ------------
Total liabilities......................................... 44,944 4,250 (2,155) 47,039
---------- ----------- ------------ ------------
Preferred stock............................................. 13,426 -- -- 13,426
---------- ----------- ------------ ------------
Stockholder's equity........................................ 49,973 99,620 (99,617) 49,976
---------- ----------- ------------ ------------
Total liabilities and stockholder's equity................ $ 108,343 $ 103,870 $ (101,772) $ 110,441
---------- ----------- ------------ ------------
---------- ----------- ------------ ------------
</TABLE>
F-31
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
15. SUBSEQUENT EVENT GUARANTOR'S FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM INCEPTION ON MAY
22, 1997 TO DECEMBER 31, 1997
------------------------------------
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net cash (used in) provided by operating activities...... $ (2,970) $ 1,083 $ -- $ (1,887)
--------- ----------- ------------ ------------
Cash flows from investing activities:
Acquisitions............................................... -- (91,289) -- (91,289)
Investment in subsidiaries................................. (91,289) -- 91,289 --
Escrow deposits on pending acquisitions.................... (1,999) -- -- (1,999)
Other...................................................... (1,273) (539) -- (1,812)
--------- ----------- ------------ ------------
Net cash used by investing activities.................... (94,561) (91,828) 91,289 (95,100)
Cash flows from financing activities:
Contribution from parent................................... -- 91,289 (91,289) --
Net proceeds from revolving line of credit................. 42,535 -- -- 42,535
Proceeds from issuance of common stock..................... 45,245 -- -- 45,245
Proceeds from issuance of preferred stock.................. 13,152 -- -- 13,152
Other...................................................... (2,372) -- -- (2,372)
--------- ----------- ------------ ------------
Net cash provided by financing activities................ 98,560 91,289 (91,289) 98,560
--------- ----------- ------------ ------------
Increase in cash and cash equivalents.................... 1,029 544 -- 1,573
Cash and cash equivalents at beginning of period......... -- -- -- --
--------- ----------- ------------ ------------
Cash and cash equivalents at end of period............... $ 1,029 $ 544 $ -- $ 1,573
--------- ----------- ------------ ------------
--------- ----------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
--------------------------------------------------------
<S> <C> <C> <C> <C>
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- ------------- -----------------
Net revenues............................................ $ -- $ 12,500 $ -- $ 12,500
Operating expenses...................................... 1,015 13,598 -- 14,613
--------- ----------- ------ -------
Operating loss.......................................... (1,015) (1,098) -- (2,113)
Net interest income (expense) and other................. (1,373) (7) -- (1,380)
--------- ----------- ------ -------
Loss before extraordinary item.......................... (2,388) (1,105) -- (3,493)
Extraordinary loss...................................... (1,837) -- -- (1,837)
--------- ----------- ------ -------
Net loss before equity adjustment....................... (4,225) (1,105) -- (5,330)
Equity loss in subsidiaries............................. (1,105) -- 1,105 --
--------- ----------- ------ -------
Net loss................................................ (5,330) (1,105) 1,105 (5,330)
Preferred stock dividend................................ 842 -- -- 842
--------- ----------- ------ -------
Net loss attributable to common stockholders............ $ (6,172) $ (1,105) $ 1,105 $ (6,172)
--------- ----------- ------ -------
--------- ----------- ------ -------
</TABLE>
F-32
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
15. SUBSEQUENT EVENT GUARANTOR'S FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
(UNAUDITED)
---------------------------------------------------
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Current assets.............................................. $ 23,007 $ 12,234 $ -- $ 35,241
Property and equipment, net................................. 576 13,570 -- 14,146
Investment in subsidiaries.................................. 171,046 150 (171,196) --
Intangible assets, net...................................... -- 150,973 -- 150,973
Other assets................................................ 18,226 1,540 -- 19,766
---------- ----------- ------------ ------------
Total assets.............................................. $ 212,855 $ 178,467 $ (171,196) $ 220,126
---------- ----------- ------------ ------------
---------- ----------- ------------ ------------
Current liabilities......................................... $ 2,469 $ 6,217 $ (55) $ 8,631
Long-term debt, excluding current portion................... 120,252 -- -- 120,252
Other liabilities........................................... 853 4,470 (4,470) 853
Deferred income taxes....................................... -- 1,083 -- 1,083
---------- ----------- ------------ ------------
Total liabilities......................................... 123,574 11,770 (4,525) 130,819
---------- ----------- ------------ ------------
Preferred stock............................................. 30,518 -- -- 30,518
---------- ----------- ------------ ------------
Stockholder's equity........................................ 58,763 166,697 (166,671) 58,789
---------- ----------- ------------ ------------
Total liabilities and stockholder's equity................ $ 212,855 $ 178,467 $ (171,196) $ 220,126
---------- ----------- ------------ ------------
---------- ----------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
------------------------------------------------
GUARANTOR TOTAL
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net cash (used in) provided by operating
activities..................................... $ (6,185) $ 1,596 $ -- $ (4,589)
Cash flows from investing activities:
Acquisitions.................................. -- (67,224) -- (67,224)
Investment in subsidiaries.................... (67,224) -- 67,224 --
Escrow deposits on pending acquisitions....... (10,523) -- -- (10,523)
Other......................................... (566) (840) -- (1,406)
--------- ----------- ----------- -----------
Net cash used in investing activities....... (78,313) (68,064) 67,224 (79,153)
Cash flows from financing activities:
Net proceeds from revolving line of credit.... 77,465 -- -- 77,465
Contribution from parent...................... 67,224 (67,224) --
Proceeds from issuance of preferred stock..... 16,250 -- -- 16,250
Proceeds from issuance of common stock........ 14,985 -- -- 14,985
Other......................................... (3,115) -- -- (3,115)
--------- ----------- ----------- -----------
Net cash provided by financing activities... 105,585 67,224 (67,224) 105,585
--------- ----------- ----------- -----------
Increase in cash and cash equivalents....... 21,087 756 -- 21,843
Cash and cash equivalents at beginning of
period.................................... 1,029 544 -- 1,573
--------- ----------- ----------- -----------
Cash and cash equivalents at end of
period.................................... $ 22,116 $ 1,300 $ -- $ 23,416
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
F-33
<PAGE>
CUMULUS MEDIA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
16. 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 Credit Facility was further amended on June 24, 1998 to take into
account the subsidiary guarantees and to reduce the revolving line of credit to
$100.0 million and the term loan facility to $50 million.
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 exchanged by Cumulus Media, LLC for 193,450 shares of
Class A Common Stock, 9,881,367 shares of Class B Common Stock and 2,433,808
shares of Class C Common Stock. Such shares will be distributed to Cumulus
Media, LLC's members. In conjunction with an anticipated initial public
offering, the Company plans to offer for sale 6,250,000 shares of Class A Common
Stock.
F-34
<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 stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of Albany Broadcasting Company
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.
PRICE WATERHOUSE LLP
Chicago, Illinois
May 28, 1998
F-35
<PAGE>
ALBANY BROADCASTING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash...................................................................... $ 127,590 $ 126,407 $ 86,258
Accounts receivable, less allowance for doubtful accounts of $9,669,
$8,169 and $5,400, respectively......................................... 48,653 64,437 86,730
Prepaid expenses and other current assets................................. 1,378 1,408 586
----------- ---------- ----------
Total current assets.................................................... 177,621 192,252 173,574
Property and equipment, net................................................. 239,282 243,062 262,516
----------- ---------- ----------
Total assets............................................................ $ 416,903 $ 435,314 $ 436,090
----------- ---------- ----------
----------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................................... 12,673 16,757 15,087
Note payable to stockholder............................................... -- -- 9,746
Accounts payable.......................................................... 7,303 6,116 2,873
Accrued wages and commissions............................................. 7,621 11,927 11,438
----------- ---------- ----------
Total current liabilities................................................. 27,597 34,800 39,144
Long-term debt.............................................................. 191,582 191,582 208,339
----------- ---------- ----------
Total liabilities....................................................... 219,179 226,382 247,483
Commitments and contingent liabilities...................................... -- -- --
Stockholders' equity:
Common stock, $10 par value, 2,500 shares authorized, 85 shares issued and
outstanding............................................................. 850 850 850
Retained earnings......................................................... 196,874 208,082 187,757
----------- ---------- ----------
Total stockholders' equity.............................................. 197,724 208,932 188,607
----------- ---------- ----------
Total liabilities and stockholders' equity.............................. $ 416,903 $ 435,314 $ 436,090
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-36
<PAGE>
ALBANY BROADCASTING COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE THREE MONTHS YEARS ENDED
ENDED MARCH 31, DECEMBER 31,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.......................................................... $ 75,645 $ 67,211 $ 393,796 $ 450,620
Less: agency commissions.......................................... (2,399) (1,052) (5,987) (10,018)
---------- ---------- ---------- ----------
Net revenues.................................................... 73,246 66,159 387,809 440,602
---------- ---------- ---------- ----------
Operating expenses:
Programming..................................................... 18,881 20,182 84,139 87,005
Sales........................................................... 19,594 19,686 96,503 102,945
Technical....................................................... 10,230 8,817 33,728 41,629
General and administrative...................................... 37,165 34,791 157,728 150,738
Depreciation and amortization................................... 3,780 4,800 19,454 28,804
---------- ---------- ---------- ----------
Total operating expenses...................................... 89,650 88,276 391,552 411,121
---------- ---------- ---------- ----------
Income (loss) from operations..................................... (16,404) (22,117) (3,743) 29,481
Other income...................................................... 10,111 15,146 44,981 41,481
Interest expense.................................................. (4,915) (5,278) (20,913) (21,957)
---------- ---------- ---------- ----------
Income (loss) before income taxes................................. (11,208) (12,249) 20,325 49,005
Income tax expense (benefit)...................................... -- -- -- --
---------- ---------- ---------- ----------
Net loss.......................................................... $ (11,208) $ (12,249) $ 20,325 $ 49,005
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-37
<PAGE>
ALBANY BROADCASTING COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
----------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1995................................................... $ 850 $ 138,752 $ 139,602
Net income..................................................................... 49,005 49,005
----- ---------- ----------
Balance at December 31, 1996................................................... 850 187,757 188,607
Net income..................................................................... 20,325 20,325
----- ---------- ----------
Balance at December 31, 1997................................................... $ 850 $ 208,082 $ 208,932
----- ---------- ----------
----- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-38
<PAGE>
ALBANY BROADCASTING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOR THE THREE MONTHS 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................................................... $ (11,208) $ (12,249) $ 20,325 $ 49,005
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 3,780 4,800 19,454 28,804
(Increase) decrease in accounts receivable................. 15,814 28,178 21,471 2,073
Increase (decrease) in accounts payable
and accrued expenses..................................... 1,187 2,750 3,243 (2,033)
Increase (decrease) in accrued wages
and commissions.......................................... (4,306) (4,831) 489 2,366
----------- ---------- ---------- ---------
Net cash provided by operating activities.................... 5,267 18,648 64,982 80,215
Cash flows from investing activities:
Purchases of property and equipment.......................... -- -- -- 28,955
----------- ---------- ---------- ---------
Cash used for investing activities........................... -- -- -- 28,955
Cash flows from financing activities:
Repayment of long-term obligations........................... 4,084 3,861 15,087 14,164
Repayment of note to stockholder............................. -- 4,315 9,746 19,960
----------- ---------- ---------- ---------
Cash used for financing activities........................... 4,084 8,176 24,833 34,124
Increase in cash............................................... 1,183 10,472 40,149 17,136
Cash at beginning of year...................................... 126,407 86,258 86,258 69,122
----------- ---------- ---------- ---------
Cash at end of year............................................ $ 127,590 $ 96,730 $ 126,407 $ 86,258
----------- ---------- ---------- ---------
----------- ---------- ---------- ---------
Supplemental disclosure of cash information:
Cash paid for interest....................................... $ 4,922 $ 5,351 $ 20,560 $ 23,421
Non-cash operating and financing activities:
Trade revenue................................................ $ 1,365 $ 3,740 $ 20,688 $ 28,219
Trade expense................................................ $ 4,165 $ 7,786 $ 26,012 $ 32,881
</TABLE>
See Notes to Financial Statements.
F-39
<PAGE>
ALBANY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Albany Broadcasting Company (the "Company") owns and operates radio stations
WGPC-FM and WGPC-AM located in Albany, GA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of commercial announcements to
local advertisers. Revenue is recognized as commercials are broadcast. Other
income includes $44,981 and $41,481 of tower and transmitter rental income for
the years ended December 31, 1997 and 1996, respectively. Tower rental income
and transmitter rental income is recognized on a straight line basis over the
terms of the related leases.
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.
F-40
<PAGE>
ALBANY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 straight line over their estimated useful lives as follows:
<TABLE>
<S> <C>
Broadcasting towers and equipment 5-20 years
Buildings 30 years
Office furniture and equipment 5 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INCOME TAXES
The Company is a C-corporation and files separate federal and state income
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.
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................................ $ 507,963 $ 507,963
Buildings........................................................ 77,411 77,411
Office furniture and equipment................................... 25,343 25,343
------------ ------------
610,717 610,717
Accumulated depreciation......................................... (448,254) (428,800)
------------ ------------
Land............................................................. 80,599 80,599
------------ ------------
Property and equipment, net...................................... $ 243,062 $ 262,516
------------ ------------
------------ ------------
</TABLE>
Depreciation expense for 1997 and 1996 was $19,454 and $28,804,
respectively.
F-41
<PAGE>
ALBANY BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS:
At December 31, 1996, the controlling stockholder held a note payable due
from the Company for $9,746. The note payable paid interest at 8.0 percent per
annum and was payable in $1,500 monthly installments including interest. The
note was paid in full during 1997.
5. LONG-TERM DEBT
At December 31, 1997 and 1996, a term loan was outstanding with monthly
principal and interest installments of $3,000. Upon the expiration of the loan
on November 11, 1999 the remaining balance is due in full. The loan bears
interest at one percent over the Security Bank and Trust Company prime rate and
approximated 9.50 percent per annum and 9.75 percent per annum for the years
ended December 31, 1997 and 1996, respectively. Aggregate maturities of
long-term debt outstanding at December 31, 1997 are $16,757 and $191,582 for the
years ended December 31, 1998 and 1999, respectively. The loan is secured by
substantially all of the Company's assets.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of 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. INCOME TAXES
During the years ended December 31, 1997 and 1996, the Company utilized net
operating loss carryforwards that fully offset income tax expense. At December
31, 1997, the Company had a net operating loss carryforward of $49,000 expiring
primarily in 2009. The Company's other temporary differences are insignificant.
The deferred tax asset at December 31, 1997 and 1996 related to the net
operating loss carryforward is fully offset by a valuation allowance. Ownership
changes, as defined in the Internal Revenue Code may limit the amount of net
operating loss and tax credit carryforwards that may be utilized annually to
offset future taxable income or tax liabilities in future years.
8. SUBSEQUENT EVENT
On May 26, 1998, the Company entered into an asset purchase agreement with
Cumulus Broadcasting, Inc., a wholly owned subsidiary of Cumulus Media Inc. to
sell certain assets of the Company, subject to approval of the Federal
Communications Commissions, to Cumulus for $2,250,000.
F-42
<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 stockholder's equity and of cash flows present
fairly, in all material respects, the financial position of American
Communications Company, Inc. at December 31, 1997 and 1996, and the results of
its operations and its cash flows for the year ended December 31, 1997 and the
period from inception on April 16, 1996 to 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.
PRICE WATERHOUSE LLP
Chicago, Illinois
May 29, 1998
F-43
<PAGE>
AMERICAN COMMUNICATIONS COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 2,255 $ 56 $ 39,337
Accounts receivable, less allowance for doubtful accounts of $0, $4,000
and $0, respectively.................................................... 4,497 8,335 --
----------- ---------- ----------
Total current assets.................................................. 6,752 8,391 39,337
Property and equipment, net................................................. 214,572 218,155 210,639
Intangible asset, net of accumulated amortization of $28,333, $23,333 and
$3,333, respectively...................................................... 255,000 260,000 280,000
----------- ---------- ----------
Total assets.......................................................... $ 476,324 $ 486,546 $ 529,976
----------- ---------- ----------
----------- ---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Loans from stockholder.................................................... $ 229,256 $ 225,731 $ --
Accounts payable.......................................................... 3,333 5,613 49,304
Accrued and other liabilities............................................. 13,769 8,608 13,970
----------- ---------- ----------
Total current liabilities............................................... 246,358 239,952 63,274
Commitments and contingent liabilities...................................... -- -- --
Stockholder's equity:
Common stock, no par value, 2,200 shares authorized, 1,100 issued and
outstanding............................................................. 532,331 532,331 532,331
Accumulated deficit....................................................... (302,365) (285,737) (65,629)
----------- ---------- ----------
Total stockholder's equity............................................ 229,966 246,594 466,702
----------- ---------- ----------
Total liabilities and stockholder's equity............................ $ 476,324 $ 486,546 $ 529,976
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-44
<PAGE>
AMERICAN COMMUNICATIONS COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
FOR THE THREE MONTHS FOR THE ON APRIL 16,
ENDED MARCH 31, YEAR ENDED 1996
---------------------- DECEMBER 31, TO DECEMBER 31,
1998 1997 1997 1996
---------- ---------- ------------ ----------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Advertising revenues..................................... $ 6,081 $ 1,722 $ 45,924 --
LMA fees................................................. 31,166 -- -- --
---------- ---------- ------------ --------
Total revenues..................................... 37,247 1,722 45,924 --
Operating expenses:
Programming and promotion.............................. 20,555 22,587 69,603 $ 2,734
Sales.................................................. -- -- -- --
Technical.............................................. 3,253 14,475 24,043 34,605
General and administrative............................. 19,018 35,177 130,205 41,990
Depreciation and amortization.......................... 10,940 10,940 43,760 5,900
---------- ---------- ------------ --------
Total operating expenses........................... 53,766 83,179 267,611 85,229
---------- ---------- ------------ --------
Loss from operations..................................... (16,519) (81,457) (221,687) (85,229)
Other (income) expense................................... -- (25) (1,669) (19,600)
Interest expense......................................... 109 89 90 --
---------- ---------- ------------ --------
Net loss................................................. $ (16,628) $ (81,521) $ (220,108) $ (65,629)
---------- ---------- ------------ --------
---------- ---------- ------------ --------
</TABLE>
See Notes to Financial Statements.
F-45
<PAGE>
AMERICAN COMMUNICATIONS COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
---------- ------------ ----------
<S> <C> <C> <C>
Initial contribution of capital............................................. $ 391,004 $ -- $ 391,004
Cash contributions.......................................................... 141,327 -- 141,327
Net loss.................................................................... -- (65,629) (65,629)
---------- ------------ ----------
Balance at December 31, 1996................................................ 532,331 (65,629) 466,702
Net loss.................................................................... -- (220,108) (220,108)
---------- ------------ ----------
Balance at December 31, 1997................................................ $ 532,331 $ (285,737) $ 246,594
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
See Notes to Financial Statements.
F-46
<PAGE>
AMERICAN COMMUNICATIONS COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE THREE MONTHS FOR THE FROM INCEPTION ON
ENDED MARCH 31, YEAR ENDED APRIL 16, 1996
---------------------- DECEMBER 31, TO DECEMBER 31,
1998 1997 1997 1996
---------- ---------- ------------ -----------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss.............................................. $ (16,628) $ (81,521) $ (220,108) $ (65,629)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization....................... 10,940 10,940 43,760 5,900
(Increase) decrease in accounts receivable.......... 3,838 -- (8,335) --
Increase (decrease) in accounts payable............. (2,280) (45,808) (43,691) 49,304
Increase (decrease) in accrued and other
liabilities....................................... 5,161 (11,096) (5,362) 13,970
---------- ---------- ------------ --------
Net cash provided by (used in) operating activities... 1,031 (127,485) (233,736) 3,545
---------- ---------- ------------ --------
Cash flows from investing activities:
Purchases of property and equipment................... (2,357) (26,176) (31,276) (125,109)
Proceeds from sale of assets.......................... -- -- -- 19,573
---------- ---------- ------------ --------
Cash used for investing activities.................... (2,357) (26,176) (31,276) (105,536)
---------- ---------- ------------ --------
Cash flows from financing activities:
Proceeds from loans from shareholder.................. 3,525 117,155 225,731 --
Cash contributions from shareholder................... -- -- -- 141,328
---------- ---------- ------------ --------
Cash provided by financing activities................. 3,525 117,155 225,731 141,328
---------- ---------- ------------ --------
Increase (decrease) in cash and cash equivalents........ 2,199 (36,506) (39,281) 39,337
Cash and cash equivalents at beginning of year.......... 56 39,337 39,337 --
---------- ---------- ------------ --------
Cash and cash equivalents at end of year................ $ 2,255 $ 2,831 $ 56 $ 39,337
---------- ---------- ------------ --------
---------- ---------- ------------ --------
</TABLE>
F-47
<PAGE>
AMERICAN COMMUNICATIONS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
American Communications Company, Inc. (the "Company") was formed on April
16, 1996. Effective October 31, 1996, the stockholder of the Company contributed
rights to a construction permit granted by the Federal Communications Commission
("FCC") for a new FM radio station to serve Allouez, WI. The stockholder of the
Company had been granted the construction permit by the FCC after paying a total
of $300,000 in cash to competing bidders to obtain their agreement to withdraw
applications for the construction permit. In addition, the stockholder of the
Company contributed broadcasting equipment. The construction permit and the
broadcasting equipment were recorded by the Company at predecessor basis as such
assets were previously controlled by the stockholder of the Company.
Construction of the station was substantially complete by December 1996. The
station began commercial broadcast in January 1997.
On February 12, 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 FCC, to
Cumulus for $2,500,000. On February 16, 1998, the Company entered into a local
marketing agreement ("LMA") with Cumulus whereby Cumulus operates the station.
Under the terms of the LMA, Cumulus has the right to broadcast certain
programming and sell advertising on the station. In exchange, Cumulus has agreed
to reimburse the Company for its cash operating expenses incurred during the LMA
period. In addition, Cumulus agreed to advance the Company $5,000 per month to
be applied to the purchase price until the closing date or the termination of
the LMA. As of March 31, 1998, the Company has received one advance payment of
$5,000 which has been reflected in accrued and other liabilities in the balance
sheet at March 31, 1998.
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.
F-48
<PAGE>
AMERICAN COMMUNICATIONS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 using accelerated methods over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Broadcasting towers and equipment 5-20
years
Office furniture and equipment 3-10
years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSET
Intangible asset consists of an FCC license. The intangible asset is stated
at cost and is being amortized using the straight-line method over an estimated
useful life of 15 years. Amortization expense was $20,000 and $3,333 in 1997 and
1996, respectively. The Company evaluates the carrying value of its intangible
asset periodically in relation to the projected future undiscounted net cash
flows of the related business.
INCOME TAXES
The Company's stockholder has elected S Corporation status. In lieu of
corporate income taxes, the Company's taxable income or loss is reported by its
stockholder.
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-49
<PAGE>
AMERICAN COMMUNICATIONS COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.......................................... $ 174,868 $ 145,938
Office furniture and equipment............................................. 69,614 67,268
------------ ------------
244,482 213,206
Accumulated depreciation................................................... (26,327) (2,567)
------------ ------------
Property and equipment, net................................................ $ 218,155 $ 210,639
------------ ------------
------------ ------------
</TABLE>
Depreciation expense for 1997 and 1996 was $23,760 and $2,567, respectively.
3. RELATED PARTY TRANSACTIONS:
The Company is dependent on the controlling stockholder for financing. Note
payable to stockholder is payable on demand and is non-interest bearing.
4. 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.
5. COMMITMENTS AND CONTINGENCIES
The Company leases its office and studio facilities under an operating
lease. Rent expense for 1997 and 1996 was $10,800 and $900, respectively. The
lease can be canceled by the Company with six months notice.
F-50
<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-51
<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-52
<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-53
<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-54
<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. 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. Trade revenues and trade
expenses for the years ended December 31, 1997, 1996 and 1995 was $245,000,
$262,000 and $251,000, respectively.
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 for its accounts receivable. The Partnership
maintains reserves for potential credit losses based upon the expected
collectibility of all accounts receivable.
F-55
<PAGE>
ARBOR RADIO LP
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 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,
--------------------------
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>
Depreciation expense for 1997, 1996 and 1995 was $308,000 and $478,000 and
$726,000, respectively.
F-56
<PAGE>
ARBOR RADIO LP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
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-57
<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-58
<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-59
<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 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 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
May 21, 1998
F-60
<PAGE>
BEAUMONT SKYWAVE, INC.
(A WHOLLY-OWNED SUBSIDIARY
OF PACIFIC BROADCASTING OF BEAUMONT, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
MARCH 31, ------------ ------------
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................................. $ 14,980 $ 14,699 $ 9,207
Accounts receivable, net of allowance for doubtful accounts of
$26,143, $11,143 and $2,075, respectively........................... 57,363 120,734 26,263
Employee receivables.................................................. 5,274 2,891 2,021
Other current assets.................................................. 10,369 3,604 1,470
Intercompany receivable............................................... 52,678 -- --
------------ ------------ ------------
Total current assets.............................................. 140,664 141,928 38,961
Property and equipment, net............................................. 160,993 168,311 219,527
Intangible assets, net.................................................. 797,289 811,051 855,548
------------ ------------ ------------
Total assets...................................................... $ 1,098,946 $ 1,121,290 $ 1,114,036
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt.................................. $ 41,208 $ 41,208 $ 3,434
Accrued interest payable.............................................. 18,344 14,896 1,146
Accrued compensation.................................................. 1,457 20,088 14,240
Accrued expenses...................................................... 26,147 29,884 3,405
Advanced payments received from Cumulus............................... 45,000 -- --
Advances payable to Parent............................................ 94,132 107,869 19,699
Note payable to related party......................................... 125,000 125,000 125,000
------------ ------------ ------------
Total current liabilities......................................... 351,288 338,945 166,924
Long-term debt.......................................................... 483,782 480,358 521,566
------------ ------------ ------------
Total liabilities................................................. 835,070 819,303 688,490
------------ ------------ ------------
Commitments and contingencies
Stockholder's equity:
Common stock, no par value, 400 shares
authorized, 1 share issued and outstanding.......................... 400,000 400,000 400,000
Accumulated deficit................................................... (136,124) (98,013) 25,546
------------ ------------ ------------
Total stockholder's equity........................................ 263,876 301,987 425,546
------------ ------------ ------------
Total liabilities and stockholder's equity........................ $ 1,098,946 $ 1,121,290 $ 1,114,036
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-61
<PAGE>
BEAUMONT SKYWAVE, INC.
(A WHOLLY-OWNED SUBSIDIARY
OF PACIFIC BROADCASTING OF BEAUMONT, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
---------------------- ------------------------------
1998 1997 1997 1996
---------- ---------- ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................................................. $ 94,945 $ 95,598 $ 703,524 $ 245,329
Less: agency commissions................................ (13,855) (7,138) (57,320) (4,571)
---------- ---------- ----------- --------
Net revenues....................................... 81,090 88,460 646,204 240,758
Operating expenses:
Programming............................................. 16,844 25,375 109,475 26,561
Sales and promotions.................................... 40,015 35,250 222,753 48,208
General and administrative.............................. 53,386 38,681 240,709 110,400
Depreciation and amortization........................... 21,080 25,068 122,826 24,084
---------- ---------- ----------- --------
Total operating expenses............................ 131,325 124,374 695,763 209,253
---------- ---------- ----------- --------
(Loss) income from operations............................. (50,235) (35,914) (49,559) 31,505
Interest expense.......................................... 17,876 17,876 71,500 5,959
LMA fee income............................................ 30,000 -- -- --
---------- ---------- ----------- --------
Net (loss) income......................................... $ (38,111) $ (53,790) $ (121,059) $ 25,546
---------- ---------- ----------- --------
---------- ---------- ----------- --------
</TABLE>
See Notes to Financial Statements.
F-62
<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 Decemer 31, 1995................................................ $ 400,000 $ -- $ 400,000
Net income................................................................. -- 25,546 25,546
---------- ------------ -----------
Balance at December 31, 1996............................................... 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-63
<PAGE>
BEAUMONT SKYWAVE, INC.
(A WHOLLY-OWNED SUBSIDIARY
OF PACIFIC BROADCASTING OF BEAUMONT, INC.)
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 (loss) income..................................... $ (38,111) $ (53,790) $ (121,059) $ 25,546
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 21,080 25,068 122,826 24,084
Decrease (increase) in accounts receivable.......... 63,371 (24,185) (94,471) (26,263)
Decrease (increase) in employee receivables......... (2,383) 1,338 (870) (2,021)
Increase in other current assets.................... (6,765) (50) (2,134) (1,470)
Increase in intangibles............................. -- -- (15,823) --
Increase in accrued interest payable................ 3,448 3,438 13,750 1,146
(Decrease) in accrued compensation.................. (18,631) (12,717) 5,848 14,240
(Decrease) increase in accrued expenses............. (3,737) -- 26,147 3,405
(Decrease) increase in other accrued liabilities.... -- (3,405) 332 --
Increase in inter-company receivable................ (52,678) -- -- --
Advance payments received from Cumulus.............. 45,000 -- -- --
---------- ---------- ----------- ----------
Net cash used in operating activities............. 10,594 (64,303) (65,454) 38,667
---------- ---------- ----------- ----------
Cash flows used in investing activities:
Purchases of property and equipment................... -- -- (11,290) (49,159)
---------- ---------- ----------- ----------
Cash used in investing activities................. -- -- (11,290) (49,159)
---------- ---------- ----------- ----------
Cash flows provided by financing activities:
Advances from (payments to) Parent, net............... (13,737) 82,502 88,170 19,699
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 19,699
---------- ---------- ----------- ----------
Increase in cash........................................ 281 18,189 5,492 9,207
Cash at beginning of period............................. 14,699 9,207 9,207 --
---------- ---------- ----------- ----------
Cash at end of period................................... 14,980 27,396 $ 14,699 $ 9,207
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Non-cash operating activities:
Trade revenue......................................... $ 8,500 $ 8,600 $ 52,085 $ 51,005
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Trade expense......................................... $ 8,500 $ 8,600 $ 49,711 $ 51,005
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
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-64
<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. The station began
broadcasting in September 1996.
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.
F-65
<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)
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 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-66
<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 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Broadcasting towers and equipment..................................... $ 186,190 $ 178,339
Studio equipment...................................................... 35,173 34,923
Furniture, fixtures and leasehold improvements........................ 17,486 14,297
---------- ----------
238,849 227,559
Accumulated depreciation.............................................. (70,538) (8,032)
---------- ----------
Property and equipment, net........................................... $ 168,311 $ 219,527
---------- ----------
---------- ----------
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was
$62,506 and $8,032, respectively.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Broadcast license..................................................... $ 100,000 $ 100,000
Organization costs.................................................... 32,423 16,600
Goodwill.............................................................. 755,000 755,000
---------- ----------
887,423 871,600
Accumulated amortization.............................................. (76,372) (16,052)
---------- ----------
Intangible assets, net................................................ $ 811,051 $ 855,548
---------- ----------
---------- ----------
</TABLE>
Amortization expense for the years ended December 31, 1997 and 1996 was
$60,320 and $16,052, respectively.
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 and 1996, the Company recorded interest expense
of $57,750 and $5,959, respectively, and made principal payments totaling $3,434
and $0, respectively.
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-67
<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
1996, the Company recorded interest expense of $13,750 and $1,146, respectively,
and made no principal payments.
At December 31, 1997 and 1996, the Company had net advances due to the
Parent totaling $107,869 and $19,699, respectively. 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 and 1996, the Company had outstanding loan receivable
balances due from the Station's General Manager totaling $2,691 and $200,
respectively, and a certain employee totaling $200 and $1,821, 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 and $12,000 in 1997 and 1996, respectively. 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-68
<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-69
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30,
1997
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................................ $ 86,514
Accounts receivable, less allowance for doubtful accounts of $30,688............................. 127,658
Prepaid expenses and other receivables........................................................... 24,233
-------------
Total current assets......................................................................... 238,405
Property and equipment, net........................................................................ 1,108,215
Intangible assets, net............................................................................. 219,633
-------------
Total assets................................................................................. $ 1,566,253
-------------
-------------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................................................. $ 136,981
Accrued interest................................................................................. 44,576
Capital lease obligation......................................................................... 15,588
Accrued professional fees........................................................................ 40,137
Due to related parties........................................................................... 2,496,950
Other accrued expenses........................................................................... 7,588
-------------
Total current liabilities.................................................................... 2,741,820
-------------
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
Cumulative translation adjustment................................................................ 682
Accumulated deficit.............................................................................. (3,601,156)
-------------
(1,315,717)
Less treasury stock, at cost (50 shares)......................................................... (4,850)
-------------
Total stockholder's equity (deficit)......................................................... (1,320,567)
-------------
Total liabilities and stockholder's equity (deficit)............................................... $ 1,566,253
-------------
-------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-70
<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-71
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CAPITAL IN CUMULATIVE
COMMON TREASURY EXCESS OF TRANSLATION ACCUMULATED
STOCK STOCK PAR VALUE ADJUSTMENT DEFICIT TOTAL
--------- --------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997......... $ 17,058 $ -- $ 2,267,699 $ -- $ (3,138,700) $ (853,943)
Purchase of treasury stock......... (4,850) (4,850)
Foreign currency translation
adjustment....................... 682 682
Net loss........................... -- -- -- -- (462,456) (462,456)
--------- --------- ------------ ----- ------------- -------------
Balance at April 30, 1997.......... $ 17,058 $ (4,850) $ 2,267,699 $ 682 $ (3,601,156) $ (1,320,567)
--------- --------- ------------ ----- ------------- -------------
--------- --------- ------------ ----- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-72
<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....................................................................... 16,374
Increase in prepaid expenses and other assets................................................. (3,666)
Increase in accounts payable.................................................................. 38,829
Decrease in accrued expenses and other current liabilities.................................... (50,257)
------------
Net cash used in operating activities............................................................... (405,548)
------------
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.............................................................. (2,822)
Payments of deferred compensation................................................................. (80,000)
Purchase of treasury stock........................................................................ (4,850)
------------
Net cash provided by financing activities........................................................... 499,818
------------
Increase in cash and cash equivalents............................................................... 73,925
Cash and cash equivalents at beginning of period.................................................... 12,589
------------
Cash and cash equivalents at end of period.......................................................... $ 86,514
------------
------------
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-73
<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-74
<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. The Company used the exchange
rate at April 30, 1997 to translate assets and liabilities.
F-75
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
1997
------------
<S> <C>
Broadcast equipment............................................................. $ 1,004,727
Towers, masts and transmitter buildings......................................... 229,686
Leasehold improvements and site preparation..................................... 67,314
Furniture and fixtures.......................................................... 352,107
Vehicles........................................................................ 63,095
Network infrastructure.......................................................... 218,673
------------
1,935,602
Accumulated depreciation........................................................ (836,290)
Land............................................................................ 8,903
------------
Property and equipment, net..................................................... $ 1,108,215
------------
------------
</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................................................................ $ 264,870
Accumulated amortization.......................................................... (45,237)
----------
Intangible assets, net............................................................ $ 219,633
----------
----------
</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.
F-76
<PAGE>
CARIBBEAN COMMUNICATIONS COMPANY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 $16,898 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-77
<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-78
<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-79
<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-80
<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-81
<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-82
<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-83
<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-84
<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
---------
$1,704,800
---------
---------
</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-85
<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-86
<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 each of the three years 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
May 21, 1998
F-87
<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-88
<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> <C>
1998 1997 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:............................. $ 391,899 $ 321,312 $ 1,778,115 $ 1,689,508 $ 1,449,315
Less: agency commissions........... (35,207) (24,692) (142,134) (122,773) (106,138)
------------- ------------- ------------- ------------- -------------
Net revenues.................. 356,692 296,620 1,635,981 1,566,735 1,343,177
------------- ------------- ------------- ------------- -------------
Operating expenses:
Programming and technical........... 100,506 70,894 370,702 257,933 263,514
Sales............................... 112,620 84,982 485,093 441,120 375,031
Engineering......................... 4,770 3,012 9,778 9,907 18,275
News................................ 25,786 27,343 109,446 103,087 91,927
General and administrative.......... 95,559 67,462 367,949 364,325 297,232
Promotions.......................... 24,943 19,974 106,055 128,307 118,634
Depreciation and amortization....... 18,575 7,710 47,908 31,275 34,024
------------- ------------- ------------- ------------- -------------
Total operating expenses........ 382,759 281,377 1,496,931 1,335,954 1,198,637
------------- ------------- ------------- ------------- -------------
Income from operations................ (26,067) 15,243 139,050 230,781 144,540
------------- ------------- ------------- ------------- -------------
Other income (expense):
Gain (loss) on sale of equipment.... -- -- -- 75 (359)
Interest income..................... 9 518 1,340 1,100 1,609
Interest expense.................... (45,469) (34,030) (151,200) (133,680) (142,025)
------------- ------------- ------------- ------------- -------------
Other income (expense) net...... (45,460) (33,512) (149,860) (132,505) (140,775)
------------- ------------- ------------- ------------- -------------
Net income (loss)..................... $ (71,527) $ (18,269) $ (10,810) $ 98,276 $ 3,765
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-89
<PAGE>
CASTLE BROADCASTING LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<S> <C>
Balance at January 1, 1995...................................................... $(1,704,743)
Net income...................................................................... 3,765
----------
Balance at December 31, 1995.................................................... (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-90
<PAGE>
CASTLE BROADCASTING LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $ (71,527) $ (18,269) $ (10,810) $ 98,276 $ 3,765
Adjustments to reconcile net income(loss) to
net cash provided by operating activities:
Depreciation and amortization............. 18,575 7,710 47,908 31,275 34,024
Loss on sale of equipment................. -- -- -- (75) 359
(Increase) decrease in accounts
receivable.............................. (6,052) 24,603 (24,636) (5,249) (35,149)
(Increase) decrease in prepaid expenses
and other current assets................ 3,484 (8,643) 2,680 11,238 (7,989)
Increase (decrease) in accounts payable... (34,190) (846) 33,157 (132) (669)
Increase (decrease) in accrued and other
current liabilities..................... 14,079 (7,310) 10,035 784 11,053
Increase (decrease) in accrued interest to
a limited partner....................... 43,511 (1,664) (76,552) (125,320) (11,825)
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by operating
activities.................................... (32,120) (4,419) (18,218) 10,797 (6,431)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment............... -- -- -- 75 492
Purchases of property and equipment........... (13,971) (2,051) (66,991) (13,056) (17,472)
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) (16,980)
----------- ----------- ----------- ----------- -----------
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) (23,411)
Cash at beginning of period..................... 22,925 106,242 106,242 108,426 131,837
----------- ----------- ----------- ----------- -----------
Cash at end of period........................... $ 15,506 $ 99,772 $ 22,925 $ 106,242 $ 108,426
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental cash flow information:
Cash payments for interest.................... $ -- $ 36,000 $ 238,257 $ 259,000 $ 153,850
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Non-cash operating activities:
Trade revenue................................. $ 6,308 $ 8,888 $ 28,200 $ 23,938 $ 20,688
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Trade expense................................. $ 3,230 $ 3,738 $ 28,365 $ 26,510 $ 15,979
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-91
<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-92
<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-93
<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, 1996 and 1995
was $28,173, $19,335 and $22,084, 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, 1996 and 1995
was $19,735, $11,940 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-94
<PAGE>
CASTLE BROADCASTING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
The Partnership incurred expenses of $52,632, $46,498 and $46,548 for the
years ended December 31, 1997, 1996 and 1995, 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-95
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Chattanooga Broadcast Group:
(a division of Wicks Broadcast Group Limited Partnership)
We have audited the accompanying balance sheets of Chattanooga Broadcast
Group (a division of Wicks Broadcast Group Limited Partnership) as of December
31, 1997 and 1996, and the related statements of operations and changes in
division equity, and cash flows for each of the years in the three-year period
ended December 31, 1997. These financial statements are the responsibility of
Chattanooga Broadcast Group'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 Chattanooga Broadcast Group
(a division of Wicks Broadcast Group Limited Partnership) as of December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
McLean, Virginia
May 18, 1998
F-96
<PAGE>
CHATTANOOGA BROADCAST GROUP
(A DIVISION OF WICKS BROADCAST GROUP LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash.................................................................. $ 17,065 6,105 22,394
Accounts receivable, net of allowance for doubtful accounts of $90,403
and $69,826 at December 31, 1997 and 1996, respectively............. 294,776 227,681 165,779
Prepaid expenses and other assets..................................... 4,350 11,305 21,534
------------ ------------ ------------
Total current assets.............................................. 316,191 245,091 209,707
Property and equipment, net (note 3).................................... 544,468 448,733 419,281
Intangible assets, net (note 4)......................................... 920,697 845,537 826,747
------------ ------------ ------------
Total assets...................................................... $ 1,781,356 1,539,361 1,455,735
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable and accrued expenses................................. $ 88,613 74,083 66,300
------------ ------------ ------------
Total liabilities................................................. 88,613 74,083 66,300
Division equity......................................................... 1,692,743 1,465,278 1,389,435
------------ ------------ ------------
Total liabilities and division equity............................. $ 1,781,356 1,539,361 1,455,735
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-97
<PAGE>
CHATTANOOGA BROADCAST GROUP
(A DIVISION OF WICKS BROADCAST GROUP LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS AND CHANGES IN DIVISION EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Broadcast................................ $ 1,587,083 1,828,421 1,644,549 312,453 266,366
Other revenue............................ 12,297 4,044 15,159 3,472 2,756
------------ ------------ ------------ ------------ ------------
Gross revenues............................. 1,599,380 1,832,465 1,659,708 315,925 269,122
Less--agency commissions................. 178,159 208,031 180,446 35,244 24,292
------------ ------------ ------------ ------------ ------------
Net revenue................................ 1,421,221 1,624,434 1,479,262 280,681 244,830
------------ ------------ ------------ ------------ ------------
Operating costs:
Station operating expenses............... 683,007 754,759 461,294 109,677 87,146
Selling expenses......................... 510,731 546,266 508,428 76,559 91,047
General and administrative
expenses............................... 310,909 265,607 339,910 86,239 83,013
Depreciation............................. 130,238 135,390 131,091 32,649 32,972
Amortization of intangible assets........ 75,160 75,160 75,160 18,790 18,790
Corporate overhead....................... 33,975 33,975 33,975 8,494 8,494
------------ ------------ ------------ ------------ ------------
1,744,020 1,811,157 1,549,858 332,408 321,462
Net loss................................... (322,799) (186,723) (70,596) (51,727) (76,632)
------------ ------------ ------------ ------------ ------------
Division equity, beginning of period....... 1,811,783 1,877,913 1,692,743 1,692,743 1,465,278
Net corporate transfers
(distributions).......................... 388,929 1,553 (156,869) (6,807) 789
------------ ------------ ------------ ------------ ------------
Division equity, end of period............. $ 1,877,913 1,692,743 1,465,278 1,634,209 1,389,435
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-98
<PAGE>
CHATTANOOGA BROADCAST GROUP
(A DIVISION OF WICKS BROADCAST GROUP LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $ (322,799) (186,723) (70,596) (51,727) (76,632)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation................................ 130,238 135,390 131,091 32,649 32,972
Amortization of intangible assets........... 75,160 75,160 75,160 18,790 18,790
(Increase) decrease in receivables........ 9,042 (2,888) 67,095 86,764 61,902
(Increase) decrease in prepaid and other
current assets.......................... 7,038 -- (6,955) 143 (10,229)
Increase (decrease) in accounts payable
and accrued expenses.................... (76,657) (18,839) (14,530) 16,504 (7,783)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities.................................... (177,978) 2,100 181,265 103,123 19,020
----------- ----------- ----------- ----------- -----------
Cash flows used in investing activities-
additions to property and equipment........... (188,638) (22,878) (35,356) (31,650) (3,520)
----------- ----------- ----------- ----------- -----------
Cash flows provided by (used in) financing
activities--net corporate transfers
(distributions)............................... 388,929 1,553 (156,869) (6,807) 789
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................... 22,313 (19,225) (10,960) 64,666 16,289
Cash and cash equivalents,
beginning of period........................... 13,977 36,290 17,065 17,065 6,105
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents,
end of period................................. $ 36,290 17,065 6,105 81,731 22,394
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-99
<PAGE>
CHATTANOOGA BROADCAST GROUP
(A DIVISION OF WICKS BROADCAST GROUP LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(1) BUSINESS DESCRIPTION
DESCRIPTION OF BUSINESS
The Chattanooga Broadcast Group (the "Broadcast Group") is a division of
Wicks Broadcast Group Limited Partnership (the "Partnership"). The Broadcast
Group consists of the broadcast properties WLMX-FM/AM in Rossville, Georgia and
WXKT-FM (formerly WZST-FM) in Signal Mountain, Tennessee.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flows, cash equivalents consist
of highly liquid investments with original maturities of three months or less.
The fair market value of such instruments approximates cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is computed
using the straight-line method over the estimated useful lives of the assets,
which range from three to twenty years.
INTANGIBLE ASSETS AND RECOVERY OF LONG-LIVED ASSETS
Intangible assets consist principally of network affiliation agreements,
broadcasting licenses, and the excess of costs over the fair value of net assets
acquired. Amortization expense is computed on a straight-line basis over the
estimated lives of the assets, which is 15 years.
The Partnership's policy is to review its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. The Partnership recognizes an impairment loss when the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset.
INCOME TAXES
The Broadcast Group is not an entity subject to income taxes. The Broadcast
Group's income or loss is passed through to the Partnership and the related tax
attributes are deemed to be distributed to, and to be reportable by, the
partners of the Partnership on their respective income tax returns.
REVENUES
Broadcasting revenues are derived principally from the sale of program time
and spot announcements to local, regional, and national advertisers. Advertising
revenue is recognized in the period during which the program time and spot
announcements are broadcast.
F-100
<PAGE>
CHATTANOOGA BROADCAST GROUP
(A DIVISION OF WICKS BROADCAST GROUP LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BARTER TRANSACTIONS
Barter transactions are recorded at the estimated fair values of the
products and services received. Barter revenues are recognized when commercials
are broadcast. The assets or services received in exchange for broadcast time
are recorded when received or used.
CORPORATE OVERHEAD
A number of overhead services are maintained centrally by the Partnership
and are allocated to its business units based on the benefits provided. These
services include most of the costs associated with the human resources function
and certain general and administrative costs of the corporate function such as
accounting and finance, treasury and legal.
In addition, the Partnership provides for the working capital needs of the
Broadcast Group. There is no borrowing arrangement between the Partnership and
the Broadcast Group. Accordingly, no interest expense is recorded in the
accompanying financial statements. However, all of the assets of the Broadcast
Group have been pledged as collateral on the Partnership's credit facility.
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.
CONCENTRATION OF CREDIT RISK
A significant portion of the Broadcast Group's accounts receivable are due
from advertising agencies.
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited balance sheet, statements of operations and changes in
division equity, and cash flows as of March 31, 1998 and for the three months
ended March 31, 1998 and 1997 have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions of Regulation S-X. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the interim period are
not necessarily indicative of the results that may be expected for any future
period including the year ending December 31, 1998.
F-101
<PAGE>
CHATTANOOGA BROADCAST GROUP
(A DIVISION OF WICKS BROADCAST GROUP LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- ---------
<S> <C> <C>
Land................................................................ $ 76,633 76,633
Buildings and improvements.......................................... 204,071 204,071
Office equipment, furniture, and fixtures........................... 33,348 40,835
Broadcast and production equipment.................................. 587,959 615,828
Vehicles............................................................ 18,828 18,828
---------- ---------
920,839 956,195
Less accumulated depreciation....................................... 376,371 507,462
---------- ---------
$ 544,468 448,733
---------- ---------
---------- ---------
</TABLE>
(4) INTANGIBLE ASSETS AND AMORTIZATION
Intangible assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE ------------------------
IN YEARS 1996 1997
--------------- ------------ ----------
<S> <C> <C> <C>
FCC licenses........................................... 15 $ 947,000 947,000
Network affiliations................................... 15 94,275 94,275
Goodwill............................................... 15 86,109 86,109
--
------------ ----------
1,127,384 1,127,384
Accumulated amortization............................... 206,687 281,847
------------ ----------
$ 920,697 845,537
------------ ----------
------------ ----------
</TABLE>
F-102
<PAGE>
CHATTANOOGA BROADCAST GROUP
(A DIVISION OF WICKS BROADCAST GROUP LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(5) LEASES
The Broadcast Group leases certain property and equipment under
noncancelable operating lease agreements. Rental expense was approximately
$21,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Future minimum lease payments under noncancelable operating leases are
approximately:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- --------------------------------------------------------------
<S> <C>
1998.......................................................... $ 21,000
1999.......................................................... 21,000
2000.......................................................... 21,000
2001.......................................................... 21,000
2002.......................................................... 14,000
Thereafter.................................................... 36,000
----------
$ 134,000
----------
----------
</TABLE>
(6) SUBSEQUENT EVENTS
In May 1998, the Partnership entered into an agreement with Cumulus
Broadcasting Media, Inc. ("Cumulus") to sell the Broadcast Group to Cumulus for
$5.5 million, subject to approval from the Federal Communications Commission.
F-103
<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-104
<PAGE>
CLEARLY SUPERIOR RADIO PROPERTIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 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-105
<PAGE>
s
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-106
<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-107
<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-108
<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-109
<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-110
<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,
--------------------------
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,
--------------------------
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>
F-111
<PAGE>
CLEARLY SUPERIOR RADIO PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. INTANGIBLE ASSETS: (CONTINUED)
Amortization expense for the years ended December 31, 1997 and 1996 was
$100,632 and $30,276, respectively.
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-112
<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-113
<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, 1996 and 1995
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 26, 1998
F-114
<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-115
<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> <C>
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:.................................. $ 1,060,259 $ 1,372,597 $ 2,527,771 $ 1,849,712 $ 2,056,943
Less: agency commissions................. (89,284) (122,199) (150,876) (104,880) (116,164)
------------ ------------ ------------ ------------ ------------
Net revenues........................... 970,975 1,250,398 2,376,895 1,744,832 1,940,779
Operating expenses:
Programming.............................. 331,035 409,813 767,710 595,159 620,844
Sales and promotions..................... 208,738 290,294 516,833 434,666 382,195
Technical................................ 48,628 53,636 104,923 96,649 90,300
General and administrative............... 370,771 414,434 900,768 577,270 604,603
Depreciation and amortization............ 179,906 31,230 67,190 55,271 60,589
------------ ------------ ------------ ------------ ------------
Total operating expenses............... 1,139,078 1,199,407 2,357,424 1,759,015 1,758,531
------------ ------------ ------------ ------------ ------------
Income (loss) from operations.............. (168,103) 50,991 19,471 (14,183) 182,248
Other income (expense):
Gain on sale of stations................. -- -- 1,462,261 -- --
Interest expense......................... (143,421) (77,136) (172,802) (139,260) (162,821)
Other.................................... 47,705 32,703 37,200 30,898 67,825
------------ ------------ ------------ ------------ ------------
(95,716) (44,433) 1,326,659 (108,362) (94,996)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes.......... (263,819) 6,558 1,346,130 (122,545) 87,252
Provision (benefit) for income taxes....... (22,000) -- 167,598 -- --
------------ ------------ ------------ ------------ ------------
Net income (loss).......................... $ (241,819) $ 6,558 $ 1,178,532 $ (122,545) $ 87,252
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-116
<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, 1994........ $ 710 $ 467 $ 1,137,591 $ (1,506,809) $ (508,605) $ (32,755) $ (909,401)
Net income........................ 87,252 87,252
----- ----- ------------ ------------- ----------- ----------- -------------
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-117
<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> <C>
1998 1997 1997 1996 1995
--------- ----------- ---------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $(241,819) $ 6,558 $1,178,532 $(122,545) $ 87,252
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 (7,936)
Provision (benefit) for deferred income taxes...... (22,000) -- 166,000 -- --
Depreciation and amortization...................... 179,906 31,230 67,190 55,271 60,589
Provision for doubtful accounts.................... 5,000 -- (7,280) -- --
(Increase) decrease in accounts receivable......... 22,473 (86,141) (167,442) (10,616) 48,383
Decrease (increase) in prepaid expenses and other
current assets................................... 14,032 (74,483) 5,416 (164) 19,934
Increase (decrease) in accounts payable............ (27,456) 50,004 41,134 22,910 (3,143)
Increase (decrease) in accrued and other
liabilities...................................... (22,915) (54,939) 66,512 25,612 (4,083)
--------- ----------- ---------- --------- ---------
Net cash provided by (used in) operating
activities....................................... (104,572) (127,771) (112,199) (29,495) 200,996
--------- ----------- ---------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment.................. (47,152) (12,529) (18,189) (21,580) (36,626)
Purchase of stations................................. -- -- (2,290,855) -- --
Proceeds from sale of assets......................... 84,175 -- 1,825,609 -- 9,500
Other................................................ -- -- 5,539 (6,974) (5,792)
--------- ----------- ---------- --------- ---------
Net cash provided by (used for) investing
activities..................................... 37,023 (12,529) (477,896) (28,554) (32,918)
--------- ----------- ---------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term borrowings................... -- -- -- 53,350 (122,783)
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) (122,783)
--------- ----------- ---------- --------- ---------
Increase (decrease) in cash and cash equivalents....... (22,092) 3,483 30,818 (85,419) 45,295
Cash and cash equivalents at beginning of period....... 47,812 16,994 16,994 102,413 57,118
--------- ----------- ---------- --------- ---------
Cash and cash equivalents at end of period............. $ 25,720 $ 20,477 $ 47,812 $ 16,994 $ 102,413
--------- ----------- ---------- --------- ---------
--------- ----------- ---------- --------- ---------
Cash paid for interest................................. $ 92,086 $ 66,780 $ 122,639 $ 119,836 $ 149,166
--------- ----------- ---------- --------- ---------
--------- ----------- ---------- --------- ---------
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-118
<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-119
<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-120
<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, 1996 and 1995 was $54,646, $46,283 and $51,601, 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, 1996 and 1995 was $12,544, $8,988 and $8,988, respectively.
F-121
<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-122
<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
MARCH 31, YEAR ENDED AUGUST 31,
----------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ----------- ---------- ---------- ----------
<S> <C> <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
MARCH 31, YEAR ENDED AUGUST 31,
----------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Computed "expected" tax expense (benefit) at 34%..... $ (90,000) $ 3,000 $ 457,700 $ (41,600) $ 29,600
Increase (decrease) in income taxes resulting from:
Effect of graduated rates lower than 34%........... 42,000 (1,000) (167,802) 10,600 (11,900)
State income taxes................................. -- -- 1,600 -- --
Increase (reduction) in valuation allowance........ 31,000 (4,000) (133,000) 15,000 (34,000)
Expiration of general business tax credits......... -- -- 3,000 8,400 8,800
Reduction in contribution carryforward............. -- -- 2,000 -- --
Permanently nondeductible expenses................. 2,000 2,000 4,100 7,600 7,500
Adjustment of prior year taxes..................... (7,000) -- -- -- --
---------- ----------- ---------- ---------- ----------
Total income tax expense....................... $ (22,000) $ -- $ 167,598 $ -- $ --
---------- ----------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ----------
</TABLE>
F-123
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities consisted of the following:
<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, $80,040 and $80,040 for the years ended August
31, 1997, 1996 and 1995, 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.
F-124
<PAGE>
COMMUNICATIONS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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-125
<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-126
<PAGE>
CRYSTAL RADIO GROUP, 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 and cash equivalents.......................................... $ 209,270 $ 320,622 $ 93,459
Accounts receivable, less allowance for
doubtful accounts of $9,000 for all periods...................... 796,696 784,716 667,819
Receivable from shareholder........................................ -- -- 41,289
Prepaid expenses and other current assets.......................... 12,833 8,538 7,116
------------- ------------- ------------
Total current assets........................................... 1,018,799 1,113,876 809,683
Property and equipment, net.......................................... 627,697 637,162 693,866
Intangible assets, net of accumulated amortization
of $560,477 and $406,025, respectively............................. 950,063 1,020,266 474,718
Deposits and other................................................... 350 2,438 3,888
------------- ------------- ------------
Total assets................................................... $ 2,596,909 $ 2,773,742 $ 1,982,155
------------- ------------- ------------
------------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings.............................................. $ 326,530 $ 326,530 $ --
Current portion of long-term debt.................................. 1,215,888 1,326,250 457,747
Accounts payable................................................... 62,988 21,391 60,717
Notes payable--stockholders........................................ 250,000 250,000 250,000
Current portion of payable to former stockholder................... 596,959 579,978 --
Dividends payable.................................................. -- -- 131,537
Accrued wages and commissions...................................... 71,780 69,735 65,761
Accrued and other current liabilities.............................. 30,594 25,853 28,589
------------- ------------- ------------
Total current liabilities...................................... 2,554,739 2,599,737 994,351
------------- ------------- ------------
Long-term debt....................................................... -- -- 1,363,360
Long term payable to former stockholder.............................. 1,106,374 1,106,374 --
------------- ------------- ------------
Total liabilities.............................................. 3,661,113 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 93,094
Additional paid-in capital......................................... 303,036 303,036 290,664
Accumulated deficit................................................ (141,313) (9,478) (759,314)
Less--treasury stock at cost, 26,264 shares........................ (1,319,021) (1,319,021) --
------------- ------------- ------------
Total stockholders' equity (deficit)........................... (1,064,204) (932,369) (375,556)
------------- ------------- ------------
Total liabilities and stockholders' equity (deficit)........... $ 2,596,909 $ 2,773,742 $ 1,982,155
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See Notes to Financial Statements.
F-127
<PAGE>
CRYSTAL RADIO GROUP, INC.
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................................... $ 937,842 $ 851,323 $ 4,579,576 $ 4,125,962 $ 3,774,516
Less: agency commissions................. (78,909) (98,032) (601,172) (530,197) (472,154)
------------ ------------ ------------ ------------ ------------
Net revenues......................... 858,933 753,291 3,978,404 3,595,765 3,302,362
Operating expenses:
Programming.............................. 231,698 186,457 1,037,483 973,259 900,929
Sales and promotions..................... 215,085 145,899 733,875 682,557 673,289
Technical................................ 31,236 22,203 116,504 60,741 56,750
General and administrative............... 194,357 152,493 802,006 866,620 804,973
Depreciation and amortization............ 93,692 30,441 237,108 141,769 122,189
------------ ------------ ------------ ------------ ------------
Total operating expenses............. 766,068 537,493 2,926,976 2,724,946 2,558,130
------------ ------------ ------------ ------------ ------------
Income from operations..................... 92,865 215,798 1,051,428 870,819 744,232
Interest expense........................... 52,434 45,138 221,735 217,674 269,374
Interest income............................ (2,734) (2,102) (9,430) (4,752) (6,899)
------------ ------------ ------------ ------------ ------------
Net income................................. $ 43,165 $ 172,762 $ 839,123 $ 657,897 $ 481,757
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-128
<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-129
<PAGE>
CRYSTAL RADIO GROUP, INC.
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 income.................................. $ 43,165 $ 172,762 $ 839,123 $ 657,897 $ 481,757
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 93,692 30,441 237,108 141,769 122,189
(Increase) decrease in accounts
receivable.............................. (11,980) 70,942 (116,897) (18,495) (114,574)
Increase in shareholder receivable........ -- -- -- -- (11,961)
Non-compete payment....................... -- -- (175,000) -- --
(Increase) decrease in prepaid expenses
and other assets........................ (2,207) (10,353) 28 (295) (5,757)
Increase (decrease) in accounts payable... 41,597 (20,642) (39,326) (58,888) 100,394
Increase (decrease) in accrued and other
liabilities............................. 23,767 (70,440) 28,030 (37,358) 16,014
------------ ----------- ------------ ----------- -----------
Net cash provided by operating activities... 188,034 172,710 773,066 684,630 588,062
------------ ----------- ------------ ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment......... (14,024) (10,378) (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.......... (14,024) (10,378) (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.......... (110,362) (110,562) (494,857) (456,238) (471,596)
Dividends paid.............................. (175,000) (220,824) (175,533) (101,083)
Purchase of treasury stock.................. -- (330,800) -- --
Sale of treasury stock...................... -- 200,000 -- --
------------ ----------- ------------ ----------- -----------
Cash used for financing activities.......... (285,362) (110,562) (519,951) (631,771) (322,679)
------------ ----------- ------------ ----------- -----------
Increase (decrease) in cash and cash
equivalents................................. (111,352) 51,770 227,163 (10,765) (60,278)
Cash and cash equivalents at beginning of
period...................................... 320,622 93,459 93,459 104,224 164,502
------------ ----------- ------------ ----------- -----------
Cash and cash equivalents at end of period.... $ 209,270 $ 145,229 $ 320,622 $ 93,459 $ 104,224
------------ ----------- ------------ ----------- -----------
------------ ----------- ------------ ----------- -----------
Supplemental disclosure of cash flow
information:
Cash paid for interest...................... $ 35,571 $ 45,138 $ 194,943 $ 217,674 $ 269,374
------------ ----------- ------------ ----------- -----------
------------ ----------- ------------ ----------- -----------
Non-cash operating and financing activities:
Trade revenue............................... $ 43,930 $ 62,312 $ 179,578 $ 138,410 $ 96,813
------------ ----------- ------------ ----------- -----------
------------ ----------- ------------ ----------- -----------
Trade expense............................... $ 403 $ 9,728 $ 101,539 $ 131,719 $ 106,567
------------ ----------- ------------ ----------- -----------
------------ ----------- ------------ ----------- -----------
Purchase of treasury stock.................. $ -- $ -- $ 1,175,849 $ -- $ --
------------ ----------- ------------ ----------- -----------
------------ ----------- ------------ ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-130
<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-131
<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.
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,
--------------------------
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
F-132
<PAGE>
CRYSTAL RADIO GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS: (CONTINUED)
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 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-133
<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 stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of Esprit' Communication
Corporation 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.
PRICE WATERHOUSE LLP
Chicago, Illinois
May 26, 1998
F-134
<PAGE>
ESPRIT' COMMUNICATION CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31 ----------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash...................................................................... $ -- $ -- $ 3,105
Accounts receivable, less allowance for doubtful accounts of $5,800 in
1998 and $11,000 in 1997 and 1996....................................... 5,952 14,009 17,597
Receivable from stockholder............................................... -- -- 17,375
Prepaid expenses and other current assets................................. -- -- 2,067
----------- ---------- ----------
Total current assets.................................................. 5,952 14,009 40,144
Property and equipment, net................................................. 41,351 45,095 64,506
Intangible assets, net...................................................... 81,339 83,175 90,519
----------- ---------- ----------
Total assets.......................................................... $ 128,642 $ 142,279 $ 195,169
----------- ---------- ----------
----------- ---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................................... $ 16,866 $ 15,892 $ 15,582
Accrued wages and withholding taxes....................................... 10,828 7,584 13,051
Loan from stockholder..................................................... 47,796 30,727 --
----------- ---------- ----------
Total current liabilities............................................. 75,490 54,203 28,633
Commitments and contingencies (Note 7)
Stockholder's equity:
Common stock, $1 par value, 1,000 shares authorized, issued and
outstanding............................................................. 1,000 1,000 1,000
Paid-in capital........................................................... 496,000 496,000 496,000
Retained deficit.......................................................... (443,848) (408,924) (330,464)
----------- ---------- ----------
Total stockholder's equity............................................ 53,152 88,076 166,536
----------- ---------- ----------
Total liabilities and stockholder's equity............................ $ 128,642 $ 142,279 $ 195,169
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-135
<PAGE>
ESPRIT' COMMUNICATION CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.......................................................... $ 16,235 $ 28,614 $ 124,576 $ 118,364
Less: agency commissions.......................................... (608) (2,250) (7,092) (12,148)
---------- ---------- ---------- ----------
Net revenues.................................................. 15,627 26,364 117,484 106,216
---------- ---------- ---------- ----------
Operating expenses:
Programming..................................................... 13,741 12,404 40,986 37,006
Sales and promotions............................................ 14,398 9,494 43,001 28,816
Technical....................................................... 3,600 4,284 15,014 5,643
General and administrative...................................... 13,232 16,206 70,188 52,324
Depreciation and amortization................................... 5,580 6,634 26,755 33,677
---------- ---------- ---------- ----------
Total operating expenses...................................... 50,551 49,022 195,944 157,466
---------- ---------- ---------- ----------
Net loss $ (34,924) $ (22,658) $ (78,460) $ (51,250)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See Notes to Finanical Statements.
F-136
<PAGE>
ESPRIT' COMMUNICATION CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL DEFICIT TOTAL
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996........................................ $ 1,000 $ 496,000 $ (280,214) $ 216,786
Net loss.......................................................... (50,250) (50,250)
----------- ---------- ----------- ----------
Balance at December 31, 1996...................................... 1,000 496,000 (330,464) 166,536
Net loss.......................................................... (78,460) (78,460)
----------- ---------- ----------- ----------
Balance at December 31, 1997...................................... $ 1,000 $ 496,000 $ (408,924) $ 88,076
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
See Notes to Financial Statements.
F-137
<PAGE>
ESPRIT' COMMUNICATION CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED DECEMBER
MARCH 31, 31,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1998 1997 1997 1996
---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (34,924) $ (22,658) $ (78,460) $ (51,250)
Adjustments to reconcile net loss to net cash (provided
by) used in operating activities:
Depreciation and amortization........................... 5,580 6,634 26,755 33,677
Decrease in accounts receivable......................... 8,057 787 3,588 4,193
Decrease (increase) in prepaid expenses and other
current assets........................................ -- (5,343) 2,067 (2,067)
Increase in accounts payable............................ 974 9,995 310 15,582
Increase (decrease) in accrued wages and withholding
taxes................................................. 3,244 (6,732) (5,467) 14,895
---------- ---------- ---------- ----------
Net cash (used in) provided by operating activities..... (17,069) (17,317) (51,207) 15,030
---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment....................... -- -- -- (6,656)
---------- ---------- ---------- ----------
Cash used in investing activities....................... -- -- -- (6,656)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Decrease (increase) in receivable from stockholder........ -- 14,212 17,375 (13,762)
Increase in loan from stockholder......................... 17,069 -- 30,727 --
---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities....... 17,069 14,212 48,102 (13,762)
---------- ---------- ---------- ----------
Increase (decrease) in cash................................. -- (3,105) (3,105) (5,388)
Cash at beginning of period................................. -- 3,105 3,105 8,493
---------- ---------- ---------- ----------
Cash at end of period....................................... $ -- $ -- $ -- $ 3,105
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Non-cash operating activities:
Trade revenue............................................. $ 3,536 $ 2,483 $ 16,740 $ 16,808
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Trade expense............................................. $ 7,633 $ 3,530 $ 21,520 $ 12,394
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-138
<PAGE>
ESPRIT' COMMUNICATION CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Esprit' Communication Corporation owns and operates radio station KFQX-FM
(the "Station" or the "Company") located in Abilene, Texas. The accompanying
financial statements reflect the operations of the Station and the expenses of a
consulting firm owned by the sole stockholder and an employee of the Company.
Expenses of the consulting firm of $15,648 consisting primarily of rent and
telephone expenses is included in general and administrative expenses as
compensation expense for the year ended December 31, 1997. Expenses of the
consulting firm of $919 consisting of rent is included in general and
administrative expenses as compensation expense for the year ended December 31,
1996. Expenses of the consulting firm of $4,019 (unaudited) and $4,456
(unaudited) consisting primarily of rent and telephone expenses are included in
general and administrative expenses as compensation expense for the three months
ended March 31, 1998 and 1997, respectively.
The significant accounting principles followed by the Company and the
methods of applying those principles that 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.
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.
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 double declining-balance method over their estimated
useful lives of 5 to 7 years. Maintenance, repairs, and minor replacements of
these items are charged to expense as incurred.
F-139
<PAGE>
ESPRIT' COMMUNICATION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets include a Federal Communications Commission ("FCC")
license and goodwill. Intangible assets are stated at cost and are being
amortized using the straight-line method over the 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.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Broadcasting equipment and vehicle................................................... $ 156,365 $ 156,365
Accumulated depreciation............................................................. (111,270) (91,859)
------------ ------------
Property and equipment, net.......................................................... $ 45,095 $ 64,506
------------ ------------
------------ ------------
</TABLE>
Depreciation expense for the year ended December 31, 1997 and 1996 was
$19,411 and $26,333, respectively.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Goodwill, FCC license and others..................................................... $ 110,100 $ 110,100
Accumulated amortization............................................................. (26,925) (19,581)
------------ ------------
Intangible assets, net............................................................... $ 83,175 $ 90,519
------------ ------------
------------ ------------
</TABLE>
Amortization expense for the years ended December 31, 1997 and 1996 was
$7,344 in each year.
4. JOINT SALES AGREEMENT
The Company's sales, engineering and accounting services are provided by
Dynamic Broadcasting Company ("Dynamic") under a joint sales agreement. The
Company is charged, or pays directly, for such costs. In addition, the Company
leases studio and office space from Dynamic at an annual rate of $1. Dynamic
also provides cash for operations to the Station as needed, through loans to the
stockholder of the Company.
5. RELATED PARTY TRANSACTIONS
At December 31, 1997, the Company had a balance payable to the stockholder
of $30,727. At December 31, 1996, the Company had a receivable balance from the
stockholder of $17,375. The balance is payable on demand of the stockholder, and
does not carry interest.
F-140
<PAGE>
ESPRIT' COMMUNICATION CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
The Company is organized as a Subchapter S-Corporation. Accordingly, all
income is personally taxable to the stockholder, and no provision for income
taxes has been recorded in the accompanying financial statements.
7. COMMITMENTS AND CONTINGENCIES
The Company incurred expenses of approximately $10,962 for the year ended
December 31, 1997 and $11,742 for the year ended December 31, 1996, under an
operating lease for space on a radio broadcasting tower. This operating lease is
cancelable with 9 months' notice. Future minimum annual payments under this
operating lease as of December 31, 1997 include payments of $10,962 in 1998.
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 March 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 Federal Communications Commission, for $1.7 million.
F-141
<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 December 31, 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
May 21, 1998
F-142
<PAGE>
FORJAY BROADCASTING CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
ASSETS
Current assets:
Cash.................................................................................. $ 217,000 $ 99,000
Accounts receivable, less allowance for doubtful accounts of $13,000 and $12,000...... 228,000 221,000
Income tax refund receivable.......................................................... -- 32,000
Accounts receivable from related party................................................ -- 17,000
----------- -----------
Total current assets................................................................ 445,000 369,000
Property and equipment, net............................................................. 203,000 220,000
Intangible assets, net.................................................................. 145,000 151,000
Other assets, net....................................................................... 32,000 31,000
----------- -----------
Total assets........................................................................ $ 825,000 $ 771,000
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of note payable to related party................................... $ 17,000 $ 16,000
Accounts payable...................................................................... 35,000 54,000
Accrued and other current liabilities................................................. 137,000 73,000
Deferred compensation................................................................. 191,000 114,000
----------- -----------
Total current liabilities........................................................... 380,000 257,000
----------- -----------
Note payable to related party........................................................... 42,000 59,000
Long-term debt.......................................................................... 384,000 526,000
----------- -----------
Total long-term liabilities......................................................... 426,000 585,000
----------- -----------
Total liabilities................................................................... 806,000 842,000
----------- -----------
Commitments and contingencies
Shareholder's equity:
Common stock, $100 par value, 200 shares authorized,
40 shares issued and outstanding.................................................... 20,000 20,000
Retained earnings..................................................................... 390,000 300,000
Less: treasury stock at cost, 160 shares.............................................. (391,000) (391,000)
----------- -----------
Total shareholder's equity.......................................................... 19,000 (71,000)
----------- -----------
Total liabilities and shareholder's equity.......................................... $ 825,000 $ 771,000
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements.
F-143
<PAGE>
FORJAY BROADCASTING CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Revenues.............................................................................. $ 1,667,000 $ 1,396,000
Less: agency commissions............................................................ (178,000) (128,000)
------------ ------------
Net revenues...................................................................... 1,489,000 1,268,000
------------ ------------
Operating expenses:
Programming......................................................................... 305,000 274,000
Sales and promotions................................................................ 465,000 453,000
Technical........................................................................... 23,000 23,000
General and administrative.......................................................... 485,000 327,000
Depreciation and amortization....................................................... 29,000 42,000
------------ ------------
Total operating expenses.......................................................... 1,307,000 1,119,000
------------ ------------
Income from operations................................................................ 182,000 149,000
Interest expense...................................................................... (48,000) (83,000)
------------ ------------
Income before income tax.............................................................. 134,000 66,000
Income tax expense.................................................................... (44,000) (21,000)
------------ ------------
Net income............................................................................ $ 90,000 $ 45,000
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
F-144
<PAGE>
FORJAY BROADCASTING CORPORATION
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
RETAINED TREASURY
COMMON STOCK EARNINGS STOCK TOTAL
-------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996................................. $ 20,000 $ 255,000 $ (391,000) $ (116,000)
Net income................................................. -- 45,000 -- 45,000
------- ---------- ----------- -----------
Balance at December 31, 1996............................... 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-145
<PAGE>
FORJAY BROADCASTING CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Cash flows from operating activities:
Net income.............................................................................. $ 90,000 $ 45,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 29,000 42,000
Decrease (increase) in accounts receivable............................................ (7,000) (55,000)
Decrease (increase) in other assets................................................... 47,000 (32,000)
Decrease in accounts payable.......................................................... (19,000) 43,000
Increase in accrued and other liabilities............................................. 64,000 11,000
Increase in deferred compensation..................................................... 77,000 114,000
---------- ----------
Net cash provided by operating activities............................................. 281,000 168,000
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment..................................................... (5,000) (20,000)
---------- ----------
Cash used for investing activities.................................................... (5,000) (20,000)
---------- ----------
Cash flows from financing activities:
Payments on bank notes payable.......................................................... (142,000) (154,000)
Payments on borrowings from related party............................................... (16,000) (17,000)
---------- ----------
Cash used for financing activities.................................................... (158,000) (171,000)
---------- ----------
Increase (decrease) in cash............................................................... 118,000 (23,000)
Cash at beginning of year................................................................. 99,000 122,000
---------- ----------
Cash at end of year....................................................................... $ 217,000 $ 99,000
---------- ----------
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid for interest................................................................ $ 48,000 $ 83,000
---------- ----------
---------- ----------
Cash paid for income taxes............................................................ $ 22,000 $ 54,000
---------- ----------
---------- ----------
Non-cash operating and financing activities:
Trade revenue........................................................................... $ 104,000 $ 98,000
---------- ----------
---------- ----------
Trade expense........................................................................... $ 91,000 $ 131,000
---------- ----------
---------- ----------
</TABLE>
See Notes to Financial Statements.
F-146
<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. If the Company receives products and services before advertising
air time is provided, a trade liability is recognized.
F-147
<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,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
Office furniture and equipment...................................... $ 229,000 $ 223,000
Buildings........................................................... 69,000 69,000
Broadcasting towers and equipment................................... 194,000 194,000
----------- -----------
492,000 486,000
Accumulated depreciation............................................ (379,000) (356,000)
Land................................................................ 90,000 90,000
----------- -----------
Property and equipment, net......................................... $ 203,000 $ 220,000
----------- -----------
----------- -----------
</TABLE>
Depreciation expense was $23,000 and $36,000 for the years ended December
31, 1997 and 1996, respectively.
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
FCC license......................................................... $ 182,000 $ 182,000
Accumulated amortization............................................ (37,000) (31,000)
----------- -----------
Intangible assets, net.............................................. $ 145,000 $ 151,000
----------- -----------
----------- -----------
</TABLE>
Amortization expense was $6,000 for the years ended December 31, 1997 and
1996.
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 and a receivable from the sole
shareholder of $17,000. During 1997, the deferred compensation was paid with
cash of $97,000 and the forgiveness of the $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
F-148
<PAGE>
FORJAY BROADCASTING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS: (CONTINUED)
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.
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 years ended December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Current income taxes:
Federal............................................................... $ 38,000 $ 17,000
State and local....................................................... 7,000 5,000
--------- ---------
Total............................................................... 45,000 22,000
Deferred income taxes:
Federal............................................................... (1,000) (1,000)
--------- ---------
Total............................................................... $ 44,000 $ 21,000
--------- ---------
--------- ---------
</TABLE>
During 1997 and 1996, the effective tax rate differs from the federal
statutory tax rate of 34% and 20% as a result of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Federal income tax expense at U.S. statutory rate....................... $ 45,000 $ 13,000
State income tax expense, net of U.S. benefit........................... 5,000 3,000
Impact of U.S. surtax exemption......................................... (9,000) (1,000)
Nondeductible items..................................................... 3,000 6,000
--------- ---------
$ 44,000 $ 21,000
--------- ---------
--------- ---------
</TABLE>
F-149
<PAGE>
FORJAY BROADCASTING CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES: (CONTINUED)
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.
On March 23, 1998, the stock of the Company was sold to Cumulus
Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media Inc.) for
$4,300,000.
F-150
<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-151
<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 1,368,827
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-152
<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-153
<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-154
<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
------------ ------------
------------ ------------
Non-cash operating and financing activities:
Trade revenue...................................................................... $ 33,000 $ 51,000
------------ ------------
------------ ------------
Trade expense...................................................................... $ 33,000 $ 51,000
------------ ------------
------------ ------------
</TABLE>
The Division paid approximately $280,000 in 1996 and $224,000 in 1995 for
interest expense.
See Notes to Financial Statements.
F-155
<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-156
<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-157
<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-158
<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 stations WKKO-FM, WRQN-FM and
WIMX-FM of its Toledo division to a wholly owned entity of 62nd Street
Broadcasting LLC. These stations were resold to Cumulus Media Inc. in 1997. All
assets were sold for amounts in excess of their carrying amounts at December 29,
1996.
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 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-160
<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-161
<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-162
<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-163
<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-164
<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-165
<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-166
<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,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
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-167
<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-168
<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-169
<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-170
<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-171
<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-172
<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-173
<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-174
<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-175
<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-176
<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-177
<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-178
<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-179
<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-180
<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-181
<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-182
<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-183
<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-184
<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-185
<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 (expense), net.................................... (1) 6 27 13
--------- ----------- --------- ---------
Net income..................................................... $ 40 $ 121 $ 90 $ 373
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
See Notes to Financial Statements.
F-186
<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-187
<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-188
<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-189
<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-190
<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-191
<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 Media, Inc.) for $5 million.
F-192
<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
March 31, 1998 and June 30, 1997, and the results of its operations and its cash
flows for the nine months ended March 31, 1998 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
May 29, 1998
F-193
<PAGE>
K-COUNTRY, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 160,852 $ 76,153
Accounts receivable, less allowance for doubtful accounts of $11,880 and $11,880,
respectively.................................................................... 196,136 271,236
Prepaid expenses.................................................................. 2,131 4,973
-------------- ------------
Total current assets.......................................................... 359,119 352,362
Property and equipment, net......................................................... 630,123 706,711
Intangible assets, net of accumulated amortization of $105,409 and $71,876,
respectively...................................................................... 529,241 562,774
-------------- ------------
Total asset................................................................... $ 1,518,483 $ 1,621,847
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable on demand to stockholder............................................. $ 1,161,157 $ 1,296,156
Accounts payable.................................................................. 33,571 41,862
Accrued salaries and commissions payable.......................................... 20,268 22,342
Income taxes payable.............................................................. 22,511 2,206
Other accrued expenses............................................................ 8,256 11,998
-------------- ------------
Total current liabilities..................................................... 1,245,763 1,374,564
-------------- ------------
Commitment and contingencies
Stockholders' equity:
Common stock, $1 par value, 5,000 shares authorized, 500 issued and outstanding... 500 500
Retained earnings................................................................. 272,220 246,783
-------------- ------------
Total stockholders' equity.................................................... 272,720 247,283
-------------- ------------
Total liabilities and stockholders' equity.................................... $ 1,518,483 $ 1,621,847
-------------- ------------
-------------- ------------
</TABLE>
See Notes to Combined Financial Statements.
F-194
<PAGE>
K-COUNTRY, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31, YEAR ENDED
1998 1997 JUNE 30, 1997
---------------- ---------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues:...................................................... $ 1,270,964 $ 411,459 $ 1,595,971
Less: agency commissions..................................... (91,294) (10,070) (128,526)
---------------- -------- -------------
Net revenues............................................. 1,179,670 401,389 1,467,445
Operating expenses:
Programming.................................................. 298,650 102,415 423,610
Selling and promotions expenses.............................. 395,855 87,051 459,242
General and administrative................................... 312,525 115,417 308,426
Depreciation and amortization................................ 114,850 36,083 159,649
---------------- -------- -------------
Total operating expenses................................. 1,121,880 340,966 1,350,927
---------------- -------- -------------
Income from continuing operations before income taxes.......... 57,790 60,423 116,518
Income taxes expense........................................... (16,776) (17,712) (35,440)
---------------- -------- -------------
Income from continuing operations.............................. 41,014 42,711 81,078
Income (loss) from discontinued operations of Albany Magazine
(less applicable income taxes of $19,327, $9,801 and
($10,663), respectively...................................... 49,699 23,996 (24,880)
---------------- -------- -------------
Net income..................................................... 90,713 66,707 56,198
Beginning retained earnings.................................... 246,783 196,895 190,585
Dividend....................................................... (65,276) -- --
---------------- -------- -------------
Ending retained earnings....................................... $ 272,220 $ 263,602 $ 246,783
---------------- -------- -------------
---------------- -------- -------------
</TABLE>
See Notes to Combined Financial Statements.
F-195
<PAGE>
K-COUNTRY, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997 JUNE 30, 1997
-------------- -------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)............................................... $ 90,713 $ 66,707 $ 56,198
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization............................... 114,850 36,083 159,649
(Increase) decrease in accounts receivable.................. 75,100 (97,389) (5,435)
(Increase) decrease in prepaid insurance.................... 2,842 (16,505) 5,311
Increase (decrease) in accounts payable..................... (8,291) 12,400 (80,790)
Increase (decrease) in accrued liabilities.................. (5,814) (2,750) (10,677)
Increase (decrease) in income taxes payable................. 20,305 27,513 1,095
-------------- -------------- -------------
Net cash provided by operating activities................. 289,705 26,059 125,351
-------------- -------------- -------------
Cash flows from investing activities:
Acquisition of radio station.................................... -- -- (804,000)
Purchases of property and equipment............................. (4,730) (8,169) (65,757)
-------------- -------------- -------------
Cash used for investing activities.............................. (4,730) (8,169) (869,757)
-------------- -------------- -------------
Cash flows from financing activities:
Repayment of note payable to stockholder........................ (135,000) (45,000) (165,000)
Dividend........................................................ (65,276) -- --
Proceeds from borrowings from stockholder....................... -- 28,303 895,538
-------------- -------------- -------------
Cash provided by financing activities........................... (200,276) (16,697) 730,538
-------------- -------------- -------------
Increase (decrease) in cash and cash equivalents.................. 84,699 1,193 (13,868)
Cash and cash equivalents at beginning of period.................. 76,153 97,591 90,021
-------------- -------------- -------------
Cash and cash equivalents at end of period........................ $ 160,852 $ 98,784 $ 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-196
<PAGE>
K--COUNTRY, INC.
NOTES TO 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 with the distribution of accounts receivable of $65,276 to
the family member reflected as a dividend in the combined statement of income
and retained earnings. The combined statements of income and retained earnings
have been restated to reflect Albany Magazine as a discontinued operation. Net
revenues of Albany Magazine for the nine months ended March 31, 1998 and the
year ended June 30, 1997 were $139,483 and $226,107, respectively.
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.
F-197
<PAGE>
K--COUNTRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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 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-198
<PAGE>
K--COUNTRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment at March 31, 1998 and June 30, 1997 consists of the
following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 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............................................ (339,054) (257,736)
----------- -----------
600,123 676,711
Land................................................................ 30,000 30,000
----------- -----------
Property and equipment, net......................................... $ 630,123 $ 706,711
----------- -----------
----------- -----------
</TABLE>
Depreciation expense for the nine months ended March 31, 1998 and the year
ended June 30, 1997 was $81,318 and $114,873, respectively.
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 nine months ended March 31, 1998 and the year
ended June 30, 1997 as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
---------- ---------
<S> <C> <C>
Income tax benefit at federal statutory rate........................... $ 20,924 $ 27,531
State income taxes (net of federal benefit)............................ 3,481 3,616
Other.................................................................. (9,380) (6,370)
---------- ---------
$ 15,025 $ 24,777
---------- ---------
---------- ---------
</TABLE>
Temporary differences are insignificant.
F-199
<PAGE>
K--COUNTRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $5,719 for the nine months
ended March 31, 1998 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 March 31, 1998 are as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------
<S> <C>
1998........................................................................ $ 7,650
1999........................................................................ 7,650
2000........................................................................ 7,650
2001........................................................................ 1,850
Thereafter.................................................................. 45,393
----------------
$ 70,193
----------------
----------------
</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-200
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
of Cumulus Media, Inc.
We have audited the accompanying combined balance sheet of KLUR, KQXC and
KYYI Radio (the Stations) at November 30, 1997, and the related combined
statements of earnings, changes in owners' equity and of cash flows for the
eleven months ended November 30, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of KLUR, KQXC and KYYI
Radio as of November 30, 1997, and the combined results of their operations and
their combined cash flows for the eleven months then ended in conformity with
generally accepted accounting principles.
/s/ JOHNSON, MILLER & CO.
Odessa, Texas
May 28, 1998
F-201
<PAGE>
KLUR, KQXC AND KYYI RADIO
COMBINED BALANCE SHEET
NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................................. $ --
Accounts receivable, less allowance for doubtful accounts of
$148,646............................................................ 202,061
---------
Total current assets.............................................. $ 202,061
PROPERTY AND EQUIPMENT, NET............................................. 395,493
INTANGIBLE ASSETS, NET.................................................. 148,507
---------
Total assets...................................................... $ 746,061
---------
---------
LIABILITIES AND OWNER'S EQUITY IN STATIONS
CURRENT LIABILITIES
Bank overdraft........................................................ $ 21,856
Notes payable to bank................................................. 585,649
Accounts payable...................................................... 6,444
Accrued and other current liabilities................................. 15,244
---------
Total current liabilities......................................... $ 629,193
OWNER'S EQUITY IN STATIONS.............................................. 116,868
---------
Total liabilities and owner's equity in stations.................. $ 746,061
---------
---------
</TABLE>
See notes to combined financial statements.
F-202
<PAGE>
KLUR, KQXC AND KYYI RADIO
COMBINED STATEMENT OF EARNINGS
ELEVEN MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
Revenues:
Broadcast revenues................................................. $1,093,325
Less: agency commissions......................................... (107,311)
Income from local marketing agreement............................ 79,594
---------
Net revenues................................................... $1,065,608
Operating expenses:
Programming........................................................ 48,101
Sales and promotions............................................... 44,475
Technical.......................................................... 39,624
General and administrative......................................... 522,891
Depreciation and amortization...................................... 123,625
---------
Total operating expenses....................................... 778,716
---------
Earnings from operations............................................. 286,892
Interest expense..................................................... 51,900
---------
NET EARNINGS................................................... $ 234,992
---------
---------
</TABLE>
See notes to combined financial statements.
F-203
<PAGE>
KLUR, KQXC AND KYYI RADIO
COMBINED STATEMENT OF CHANGES IN
OWNER'S EQUITY IN STATIONS
ELEVEN MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C>
Balance at January 1, 1997........................................................ $ 112,291
Distribution to owner............................................................. (230,415)
Net earnings...................................................................... 234,992
---------
Balance at November 30, 1997...................................................... $ 116,868
---------
---------
</TABLE>
See notes to combined financial statements.
F-204
<PAGE>
KLUR, KQXC AND KYYI RADIO
COMBINED STATEMENT OF CASH FLOWS
ELEVEN MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities:
Net earnings.......................................................... $ 234,992
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization..................................... 123,625
Decrease in accounts receivable................................... 24,902
Decrease in bank overdraft........................................ (67,625)
Decrease in accounts payable...................................... (6,121)
Increase in accrued and other liabilities......................... 10,647
---------
Net cash provided by operating activities....................... $ 320,420
Cash flows from financing activities:
Payments of notes payable to banks.................................... (90,005)
Distribution to owner................................................. (230,415)
---------
Cash used in financing activities............................... (320,420)
---------
Net change in cash...................................................... --
Cash at beginning of year............................................... --
---------
Cash at end of year..................................................... $ --
---------
---------
Cash paid during the period for:
Interest.............................................................. $ 54,040
</TABLE>
See notes to combined financial statements.
F-205
<PAGE>
KLUR, KQXC AND KYYI RADIO
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. DESCRIPTION OF BUSINESS
KLUR, KQXC and KYYI Radio (the Stations) are located in Wichita Falls, Texas
and are owned and operated by local proprietors (Sam and Pamela Beard).
In September, 1997, KLUR, KQXC and KYYI Radio entered into an agreement with
Cumulus Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media Inc.)
("Cumulus"), to sell the assets of the Stations, subject to approval of the
Federal Communications Commission, to Cumulus. Effective September 30, 1997, the
Stations have been operating under local marketing agreements ("LMAs") with
Cumulus. Under these LMAs, 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
LMA 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
LMA fee. This LMA fee has been reflected in the combined statement of earnings.
The Stations retain responsibility for ultimate control of the Stations in
accordance with FCC policies.
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.
2. 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
twenty-two years.
Maintenance, repairs and minor replacements of these items are charged to
expense as incurred.
3. 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 Stations' management evaluates the
carrying value of intangibles periodically in relation to the projected future
undiscounted net cash flows of the related businesses.
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. INCOME TAXES
The Stations are operated as a part of a proprietorship for Federal tax
purposes. As such, the income or loss of the Stations is included in the tax
return of the owner. Accordingly, federal income taxes are not included in the
accompanying financial statements.
F-206
<PAGE>
KLUR, KQXC AND KYYI RADIO
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
6. 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.
NOTE B--PROPERTY AND EQUIPMENT
Property and equipment consists of the following at November 30, 1997:
<TABLE>
<S> <C>
Building and improvements........................................ $ 72,020
Broadcasting towers.............................................. 653,703
Radio equipment.................................................. 428,048
Office furniture and equipment................................... 23,794
Autos............................................................ 28,521
---------
1,206,086
Accumulated depreciation......................................... (825,593)
Land............................................................. 15,000
---------
Property and equipment, net...................................... $ 395,493
---------
---------
</TABLE>
Depreciation expense for the eleven months ended November 30, 1997 was
$112,387.
NOTE C--INTANGIBLE ASSETS
Intangible assets consist of the following at November 30, 1997:
<TABLE>
<S> <C>
FCC licenses...................................................... $ 183,897
Accumulated amortization.......................................... (35,390)
---------
Intangible assets, net............................................ $ 148,507
---------
---------
</TABLE>
Amortization expense for the eleven months ended November 30, 1997 was
$11,238.
NOTE D--NOTES PAYABLE
In October 1996, the Stations entered into a note agreement with a bank
which provided for a note payable in the amount of $210,175. The note is payable
in 18 monthly installments of principal and interest of $10,118. The interest
rate on this note was 9.0% at November 30, 1997. The note is secured by the
personal guarantee of the owner. Subsequent to November 30, 1997, the principal
balance of the note and
F-207
<PAGE>
KLUR, KQXC AND KYYI RADIO
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1997
NOTE D--NOTES PAYABLE (CONTINUED)
all remaining accrued interest was paid in full; therefore, the balance of this
note of $190,291 as of November 30, 1997 has been classified as a current
liability.
In December 1995, the Stations entered into a note agreement with a bank
which provided financing in the amount of $610,000. The note is payable in
sixty-seven monthly installments of principal and interest of $10,357, with the
balance due at the time of the last payment. The interest rate on this note was
9.0% at November 30, 1997. The note is secured by substantially all of the
Stations' assets. Subsequent to November 30, 1997, the principal balance of the
note and all remaining accrued interest was paid in full; therefore, the balance
of this note of $395,358 as of November 30, 1997 has been classified as a
current liability.
NOTE E--COMMITMENTS AND CONTINGENCIES
The Company incurred expenses of approximately $10,480, for eleven months
ended November 30, 1997, under operating leases for radio broadcasting tower
space. Future minimum annual payments under these non-cancelable operating lease
agreements are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 10,032
1999............................................................... 10,032
2000............................................................... 836
---------
$ 20,900
---------
---------
</TABLE>
F-208
<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 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
May 19, 1998
F-209
<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-210
<PAGE>
LESNICK COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
---------- ---------- ----------- ----------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 68,841 $ 79,626 $ 438,062 $ 482,946 $ 569,598
Less: agency commissions........................... (4,668) (1,836) (12,947) (22,129) (40,334)
---------- ---------- ----------- ----------- ----------
Net revenues................................. 64,173 77,790 425,115 460,817 529,264
---------- ---------- ----------- ----------- ----------
Operating expenses:
Programming...................................... 40,440 32,242 126,953 135,012 138,630
Sales and promotions............................. 22,510 20,436 147,619 155,647 171,863
Technical........................................ 9,259 6,994 23,082 21,474 30,806
General and administrative....................... 63,736 57,189 242,874 267,561 235,642
Depreciation and amortization.................... 9,059 5,787 29,882 22,383 29,747
---------- ---------- ----------- ----------- ----------
Total operating expenses..................... 145,004 122,648 570,410 602,077 606,688
---------- ---------- ----------- ----------- ----------
Loss from operations............................... (80,831) (44,858) (145,295) (141,260) (77,424)
Interest income.................................... -- -- 91 1,194 1,598
Interest expense................................... (4,342) (1,161) (5,645) (3,056) (1,606)
Other expense...................................... -- -- -- (70,000) --
---------- ---------- ----------- ----------- ----------
Loss before income taxes........................... (85,173) (46,019) (150,849) (213,122) (77,432)
Income tax expense (benefit)....................... -- 1,625 1,625 (24,613) (15,982)
---------- ---------- ----------- ----------- ----------
Net loss........................................... $ (85,173) $ (47,644) $ (152,474) $ (188,509) $ (61,450)
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
</TABLE>
See Notes to Financial Statements.
F-211
<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, 1995................................................... $ 75,000 $ 337,494 $ 412,494
Net loss..................................................................... (61,450) (61,450)
---------- ---------- ----------
Balance at December 31, 1995................................................. 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-212
<PAGE>
LESNICK COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, FOR THE YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $ (85,173) $ (47,644) $ (152,474) $ (188,509) $ (61,450)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 9,059 7,674 29,882 22,383 29,747
Decrease (increase) in accounts
receivable................................ 20,458 8,062 (14,228) 12,671 12,502
Decrease (increase) in income tax
receivable................................ 1,625 (4,375) 22,975 -- (39,600)
Decrease (increase) in prepaid expenses and
other current assets...................... 2,650 449 (201) 19,601 1,330
Increase (decrease) in accounts payable..... (8,106) 24,325 3,509 7,509 8,582
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 (51,530)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities..... (52,666) (31,538) (138,493) (49,899) (100,419)
Cash flows from investing activities:
Purchases of property and equipment........... -- -- (5,883) (2,153) (9,954)
----------- ----------- ----------- ----------- -----------
Cash used for investing activities........ -- -- (5,883) (2,153) (9,954)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayment of borrowings....................... -- -- -- (4,324) (5,284)
Proceeds from borrowings...................... 53,250 28,500 143,530 27,000 --
----------- ----------- ----------- ----------- -----------
Cash provided by financing activities..... 53,250 28,500 143,530 22,676 (5,284)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash..................... 584 (3,038) (846) (29,376) (115,657)
Cash at beginning of period..................... 7,678 8,524 8,524 37,900 153,557
----------- ----------- ----------- ----------- -----------
Cash at end of period........................... $ 8,262 $ 5,486 $ 7,678 $ 8,524 $ 37,900
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Non-cash operating activities:
Trade revenue................................. $ 24,724 $ 20,199 $ 97,096 $ 80,795 $ 85,173
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Trade expense................................. $ 22,601 $ 18,620 $ 90,405 $ 74,481 $ 85,563
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-213
<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-214
<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,
--------------------------
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 years ended December 31, 1997, 1996 and 1995
was $7,132, $4,183 and $11,547, respectively.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
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 years ended December 31, 1997, 1996 and 1995
was $22,750, $18,200 and $18,200, respectively.
F-215
<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, 1996 and 1995. 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, $12,375 and $12,225
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 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-216
<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-217
<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,
$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-218
<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-219
<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-220
<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-221
<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-222
<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-223
<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,
--------------------------
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,
--------------------------
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-224
<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-225
<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-226
<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-227
<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 December 31, 1997 and December 31, 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 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
June 4, 1998
F-228
<PAGE>
M&M PARTNERS
BALANCE SHEETS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 214 $ 144
Accounts receivable, less allowance
for doubtful accounts of $35 and $25, respectively............................... 546 386
Deposit on broadcast property...................................................... 100 --
Prepaid and other current assets................................................... 11 3
------ ------
Total current assets........................................................... 871 533
------ ------
Property and equipment, net.......................................................... 563 589
Intangible assets, net............................................................... 2,335 2,641
------ ------
Total assets................................................................... $ 3,769 $ 3,763
------ ------
------ ------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities........................................... $ 48 $ 45
Related party notes payable........................................................ -- 1,245
Current portion of notes payable................................................... 100 1,432
------ ------
Total current liabilities...................................................... 148 2,722
Commitments and contingencies
Notes payable........................................................................ -- 100
------ ------
Total liabilities.............................................................. 148 2,822
------ ------
Partners' capital.................................................................... 3,621 941
------ ------
Total liabilities and partners' capital........................................ $ 3,769 $ 3,763
------ ------
------ ------
</TABLE>
See Notes to Financial Statements.
F-229
<PAGE>
M&M PARTNERS
STATEMENTS OF OPERATIONS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------------
1997 1996 995
--------------- ------------- -------------
<S> <C> <C> <C>
Revenues........................................................... $ 3,580 $ 2,332 $ 1,531
Less: agency commissions........................................... (394) (264) (177)
------ ------ ------
Net revenues................................................. 3,186 2,068 1,354
Operating expenses:
Programming...................................................... 612 401 238
Sales and promotions............................................. 427 247 152
Technical........................................................ 23 21 16
General and administrative....................................... 895 702 429
Trade............................................................ 531 238 108
Time brokerage fees.............................................. 85 48 --
Depreciation and amortization.................................... 496 335 222
------ ------ ------
Total operating expenses..................................... 3,069 1,992 1,165
------ ------ ------
Income from operations............................................. 117 76 189
Interest expense, net.............................................. (115) (118) (152)
Other income....................................................... 2 2 8
------ ------ ------
Net income (loss)............................................ $ 4 $ (40) $ 45
------ ------ ------
------ ------ ------
</TABLE>
See Notes to Financial Statements.
F-230
<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................................................................ 3,255
Partner withdrawal.................................................................. (579)
Net income.......................................................................... 4
---------
Balance at December 31, 1997........................................................ $ 3,621
---------
---------
</TABLE>
See Notes to Financial Statements.
F-231
<PAGE>
M&M PARTNERS
STATEMENTS OF CASH FLOWS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------------------
1997 1996 1995
--------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ 4 $ (40) $ 45
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization................................ 496 335 222
Increase in accounts receivable.............................. (160) (93) (58)
Increase in prepaid and other current assets................. (8) -- --
Increase in accounts payable and accrued liabilities......... 3 8 26
------ ------ ------
Net cash provided by operating activities.................. 335 210 235
------ ------ ------
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............................................ 3,255 672 478
Partner withdrawal............................................... (579) (285) --
------ ------ ------
Net cash provided by (used in) investing activities........ (1) 1,830 (57)
------ ------ ------
Net increase in cash and cash equivalents.......................... 70 37 105
Cash and cash equivalents at beginning of year..................... 144 107 2
------ ------ ------
Cash and cash equivalents at end of year........................... $ 214 $ 144 $ 107
------ ------ ------
------ ------ ------
Supplemental disclosures of cash flow information:
Cash paid for interest........................................... $ 115 $ 118 $ 152
------ ------ ------
------ ------ ------
Non-cash operating activities:
Trade revenue.................................................... $ 526 $ 238 $ 108
------ ------ ------
Trade expense.................................................... $ 531 $ 238 $ 108
------ ------ ------
------ ------ ------
</TABLE>
See Notes to Financial Statements.
F-232
<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-233
<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 each of the two years in the
period ended December 31, 1997 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 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 YEAR ENDED
DECEMBER 31,
------------------------------
1997 1996
--------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Net revenues.................................................... $ 3,191 $ 2,486
------ ------
------ ------
Income from operations.......................................... $ 117 $ 181
------ ------
------ ------
Net income...................................................... $ 4 $ 32
------ ------
------ ------
</TABLE>
F-234
<PAGE>
M&M PARTNERS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
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......................................... (741) (554)
Land............................................................. 27 27
----- -----
Property and equipment, net...................................... $ 563 $ 589
----- -----
----- -----
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $187, $91 and $25, respectively.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
FCC licenses..................................................... $ 4,623 $ 4,620
Accumulated amortization......................................... (2,288) (1,979)
------ ------
Intangible assets, net........................................... $ 2,335 $ 2,641
------ ------
------ ------
</TABLE>
Amortization expense for the years ended December 31, 1997, 1996 and 1995
was $309, $244 and $197, respectively.
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 $18 for the
years ended December 31, 1997, 1996 and 1995.
F-235
<PAGE>
M&M PARTNERS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
5. RELATED PARTY TRANSACTIONS: (CONTINUED)
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 $80,
$51 and $46 for the years ended December 31, 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
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>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Line of credit loan, interest at prime
(8.5% at December 31, 1997), principal
and interest payments due monthly.............................. $ 50 $ 804
Line of credit loan, interest at prime
(8.5% at December 31, 1997), principal
and interest payments due monthly.............................. 50 728
------ ------
100 1,532
Less current maturities.......................................... (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 $31, $20 and $15,
respectively for the years ended December 31, 1997, 1996 and 1995 under
operating leases for equipment and broadcast towers and a time brokerage
arrangement. Future minimum annual payments under these non-cancelable operating
leases and agreements as of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998.................................................................. $ 30
1999.................................................................. 5
---
$ 35
---
---
</TABLE>
F-236
<PAGE>
M&M PARTNERS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
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-237
<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-238
<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-239
<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-240
<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-241
<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-242
<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-243
<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-244
<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-245
<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-246
<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-247
<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-248
<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-249
<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-250
<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-251
<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-252
<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-253
<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-254
<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-255
<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 stockholder's equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Mustang
Broadcasting Company 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
May 21, 1998
F-256
<PAGE>
MUSTANG BROADCASTING COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------
1998 1997 1996
----------- ---------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 49,508 $ 51,353 $ 83,618
Accounts receivable, less allowance for doubtful accounts of $5,000...... 123,752 160,167 180,151
Prepaid expenses......................................................... 125 227 13,430
----------- ---------- ------------
Total current assets................................................. 173,385 211,747 277,199
----------- ---------- ------------
Property and equipment, net................................................ 283,175 295,303 339,562
Intangible assets, net..................................................... 350,041 362,606 412,867
----------- ---------- ------------
Total asset.......................................................... $ 806,601 $ 869,656 1,029,628
----------- ---------- ------------
----------- ---------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................................................... $ -- $ 4,067 $ 12,904
Accrued expenses......................................................... 45,882 40,793 52,045
Current portion of debt.................................................. 21,540 21,540 18,049
Current portion of stockholder advances.................................. 536,633 515,203 612,371
----------- ---------- ------------
Total current liabilities............................................ 604,055 581,603 695,369
----------- ---------- ------------
Long-term debt............................................................. 27,012 31,134 39,250
Stockholder advances....................................................... 192,130 213,560 299,280
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, $.01 par value, 100,000 shares authorized, 68,500 issued
and outstanding at December 31, 1997; 52,000 issued and outstanding at
December 31, 1996...................................................... 685 685 520
Additional paid-in-capital............................................... 684,315 684,315 519,480
Accumulated deficit...................................................... (701,596) (641,641) (524,271)
----------- ---------- ------------
Total stockholder's equity (deficit)................................. (16,596) 43,359 (4,271)
----------- ---------- ------------
Total liabilities and stockholder's equity (deficit)................. $ 806,601 $ 869,656 $ 1,029,628
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
See Notes to Financial Statements.
F-257
<PAGE>
MUSTANG BROADCASTING COMPANY
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..................................... $ 210,303 $ 251,171 $ 1,139,924 $ 1,290,022 $ 1,004,458
Less: agency commissions................... (6,976) (9,389) (46,753) (52,868) (32,276)
----------- ----------- ------------ ------------ ------------
Net revenues........................... 203,327 241,782 1,093,171 1,237,154 972,182
Operating expenses:
Programming................................ 83,119 80,442 334,345 347,031 311,511
Sales and promotions....................... 84,805 100,035 436,741 484,073 375,604
Technical.................................. 16,587 17,259 68,058 64,467 62,458
General and administrative................. 52,813 56,146 238,628 248,557 207,947
Depreciation and amortization.............. 24,693 24,168 96,673 95,430 82,425
----------- ----------- ------------ ------------ ------------
Total operating expenses............... 262,017 278,050 1,174,445 1,239,558 1,039,945
----------- ----------- ------------ ------------ ------------
Loss from operations......................... (58,690) (36,268) (81,274) (2,404) (67,763)
Interest expense............................. (1,265) (14,323) (36,096) (36,079) (55,152)
----------- ----------- ------------ ------------ ------------
Net loss..................................... $ (59,955) $ (50,591) $ (117,370) $ (38,483) $ (122,915)
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-258
<PAGE>
MUSTANG BROADCASTING COMPANY
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1995...................................... $ 400 $ 399,600 $ (362,873) $ 37,127
Issuance of common stock........................................ 120 119,880 -- 120,000
Net loss........................................................ -- -- (122,915) (122,915)
----- ---------- ------------ -----------
Balance at December 31, 1995.................................... $ 520 $ 519,480 $ (485,788) $ 34,212
Net Loss........................................................ -- -- (38,483) (38,483)
----- ---------- ------------ -----------
Balance at December 31, 1996.................................... 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-259
<PAGE>
MUSTANG BROADCASTING COMPANY
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...................................... $ (59,955) $ (50,591) $ (117,370) $ (38,483) $ (122,915)
Adjustments to reconcile net loss to cash
provided by (used for) operating activities:
Depreciation and amortization............... 24,693 24,168 96,673 95,430 82,425
Loss on disposal of assets.................. -- -- 21,616 -- 7,887
Changes in assets and liabilities:
Accounts receivable......................... 36,415 5,797 19,984 (17,086) (44,083)
Prepaid expenses and other current assets... 102 (5,849) 13,203 (2,202) 937
Accounts payable............................ (4,067) (7,749) (8,837) (1,116) 13,763
Accrued and other liabilities............... 5,089 (16,660) (11,252) 17,306 (4,559)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for) operating
activities.................................. 2,277 (50,884) 14,017 53,849 (66,545)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures.......................... -- -- (23,769) (93,861) --
----------- ----------- ----------- ----------- -----------
Net cash used for investing activities........ -- -- (23,769) (93,861) --
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings...................... -- -- 9,466 60,000 --
Repayment of borrowings....................... (4,122) (3,211) (14,091) (2,701) --
Proceeds from issuance of stock............... -- -- 165,000 -- 120,000
Stockholder advances, net..................... -- -- (182,888) 38,990 (31,290)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used for) financing
activities.................................. (4,122) (3,211) (22,513) 96,289 88,710
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................... (1,845) (54,095) (32,265) 56,277 22,165
Cash and cash equivalents at beginning of
period........................................ 51,353 83,618 83,618 27,341 5,176
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period...... $ 49,508 $ 29,523 $ 51,353 83,618 27,341
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental disclosure of cash flow
information:
Interest paid................................... $ 1,265 $ 14,323 $ 36,096 $ 36,079 $ 55,152
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Non-cash operating activities:
Trade revenue................................. $ 24,968 $ 18,720 $ 93,878 $ 138,699 $ 114,790
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Trade expense................................. $ 24,968 $ 18,720 $ 93,878 $ 138,699 $ 114,790
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-260
<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-261
<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 years
ended December 31, 1997, 1996 and 1995.
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 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Equipment............................................................. $ 272,476 $ 274,421
Office Furniture and Leasehold improvements........................... 30,340 33,589
---------- ----------
302,816 308,010
Accumulated depreciation.............................................. (132,789) (93,724)
---------- ----------
170,027 214,286
Land.................................................................. 125,276 125,276
---------- ----------
Property and equipment, net........................................... $ 295,303 $ 339,562
---------- ----------
---------- ----------
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $46,412, $45,169 and $32,164, respectively.
F-262
<PAGE>
MUSTANG BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- -----------
<S> <C> <C>
Organization costs................................................... $ 105,263 $ 105,263
Goodwill and FCC license............................................. 438,124 438,124
---------- -----------
543,387 543,387
Accumulated amortization............................................. (180,781) (130,520)
---------- -----------
Intangible assets, net............................................... $ 362,606 $ 412,867
---------- -----------
---------- -----------
</TABLE>
Amortization expense for the years ended December 31, 1997, 1996 and 1995
was $50,261.
4. LONG-TERM DEBT:
The Company had a note payable for $52,674 and $57,299 at December 31, 1997
and 1996, respectively, with Alpine Bank related to equipment purchases. The
notes bear 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. Net advances were $728,763 and $911,651 at December 31,
1997 and 1996, respectively. Of this amount, $515,203 and $612,371 was due on
demand at December 31, 1997 and 1996, respectively, and has been classified as a
current liability. The remaining $213,560 and $299,280 at December 31, 1997 and
1996, respectively, is outstanding pursuant to a promissory note payable and is
due in quarterly installments with the balance due April 15, 1999. In 1997, no
interest was paid or accrued related to the stockholder advances. In 1996 and
1995, the amounts outstanding pursuant to the promissory note carried a 7.25%
interest rate.
A summary of the future maturities of long-term debt as of December 31, 1997
is as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 536,743
1999.............................................................. 235,100
2000.............................................................. 9,594
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $32,836, $29,431 and $27,177,
respectively, for the years ended December 31, 1997, 1996 and 1995 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:
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-263
<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-264
<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-265
<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-266
<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-267
<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-268
<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-269
<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-270
<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-271
<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-272
<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-273
<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-274
<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-275
<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-276
<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-277
<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-278
<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-279
<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-280
<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-281
<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-282
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCASTING 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-283
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCASTING 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-284
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCASTING 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-285
<PAGE>
NINETY FOUR POINT ONE, INC.
(A SUBSIDIARY OF PETRACOM BROADCASTING, INC.)
AND KAYD AM/FM
(A DIVISION OF PETRACOM BROADCASTING 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-286
<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 of cash flows present fairly, in all material respects, the
financial positions of Pamplico Broadcasting, L.P. (the "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 audit. 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 provides a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
May 28, 1998
F-287
<PAGE>
PAMPLICO BROADCASTING, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
---------------- --------------------------------------
1998 1997 1996
---------------- ------------------ ------------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash.................................................. $ 4,169 $ -- $ 884
Accounts receivable, less allowance for doubtful
accounts of $53,127, $53,127 and $29,329,
respectively........................................ 24,133 91,915 102,735
Other current assets.................................. 1,960 6,000 --
---------------- ---------- ----------
Total current assets.............................. 30,262 97,915 103,619
Property and equipment, net............................. 399,889 413,197 149,689
Intangible assets, net.................................. 474,167 483,333 510,001
---------------- ---------- ----------
Total assets...................................... $ 904,318 $ 994,445 $ 763,309
---------------- ---------- ----------
---------------- ---------- ----------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable...................................... $ 65,376 $ 66,331 $ 73,533
Accrued and other current liabilities................. 157,275 132,643 68,532
Demand notes.......................................... 3,524,799 3,476,993 2,729,282
Due to affiliate...................................... 98,092 58,092 99,858
---------------- ---------- ----------
Total current liabilities......................... 3,845,542 3,734,059 2,971,205
---------------- ---------- ----------
Commitments and contingencies
Partners' capital (deficit):
Beginning capital (deficit)........................... (2,739,614) (2,207,896) (2,008,986)
Current year loss..................................... (201,610) (531,718) (198,910)
---------------- ---------- ----------
Total partners' capital (deficit)................. (2,941,224) (2,739,614) (2,207,896)
---------------- ---------- ----------
Total liabilities and partners' capital
(deficit)....................................... $ 904,318 $ 994,445 $ 763,309
---------------- ---------- ----------
---------------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-288
<PAGE>
PAMPLICO BROADCASTING, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------------- --------------------------
1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues................................................. $ 119,560 $ 228,291 $ 1,046,516 $ 870,801
Less: agency commissions............................... (7,992) (12,181) (51,325) (55,296)
Income from time brokerage agreement..................... 15,000 -- -- --
------------ ------------ ------------ ------------
Net revenues....................................... 126,568 216,110 995,191 815,505
Operating expenses:
Sales and promotions................................... 25,052 30,040 132,955 169,070
Technical.............................................. 82,035 94,673 356,387 270,140
General and administrative............................. 107,510 98,184 365,794 303,942
Trade.................................................. 53,350 75,628 440,082 240,085
------------ ------------ ------------ ------------
Total operating expenses........................... 267,947 298,525 1,295,218 983,237
------------ ------------ ------------ ------------
Loss from operations..................................... (141,379) (82,415) (300,027) (167,732)
Other income (expense):
Interest expense....................................... (60,231) (48,022) (231,691) (206,028)
Other.................................................. -- -- -- 174,850
------------ ------------ ------------ ------------
Net loss................................................. $ (201,610) $ (130,437) $ (531,718) $ (198,910)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-289
<PAGE>
PAMPLICO BROADCASTING, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------------ ------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows used in operating activities:
Net loss................................................... $ (201,610) $ (130,437) $ (531,718) $ (198,910)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 22,855 15,855 63,419 59,024
Decrease/(increase) in accounts receivable............. 67,782 (56,031) 10,820 52,063
Decrease/(increase) in other current assets............ 4,040 (5,000) (6,000) 13,000
Increase/(decrease) in accounts payable................ (955) 18,054 (7,202) (41,020)
Increase in accrued and other current liabilities...... 24,632 31,559 64,111 58,086
Increase/(decrease) in payable to affiliate............ 40,000 (16,950) (41,766) 99,858
----------- ----------- ----------- -----------
Net cash used in operating activities................ (43,256) (142,950) (448,336) 42,101
----------- ----------- ----------- -----------
Cash flows used in investing activities--
Purchases of property and equipment........................ (381) (6,141) (25,259) (32,068)
Purchase of WBZF-FM........................................ (275,000) (150,000)
----------- ----------- ----------- -----------
Net cash used in investing activities................ (381) (6,141) (300,259) (182,068)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds of borrowings of notes payable, net............... 47,806 153,671 747,711 140,288
----------- ----------- ----------- -----------
Net cash provided by financing activities............ 47,806 153,671 747,711 140,288
----------- ----------- ----------- -----------
Increase (decrease) in cash.................................. 4,169 4,580 (884) 321
Cash at beginning of period.................................. -- 884 884 563
----------- ----------- ----------- -----------
Cash at end of period........................................ $ 4,169 $ 5,464 $ -- $ 884
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental disclosures of cash flow information:
Interest paid.............................................. $ 51,631 $ 39,422 $ 197,291 $ 200,904
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Non-cash operating activities:
Trade revenue.............................................. $ 53,350 $ 75,628 $ 440,082 $ 240,085
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Trade expense.............................................. $ 53,350 $ 75,628 $ 440,082 $ 240,085
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-290
<PAGE>
PAMPLICO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Pamplico Broadcasting, L.P. (the "Partnership") located in Florence, South
Carolina and established in August 1990, is a limited partnership comprised of a
general partner and two limited partners. The Partnership owns and operates
WMXT-FM and WBZF-FM, maintains a program service and time brokerage agreement to
operate WWFN-FM, and owns a license for WYNA-FM.
In February 1998, the Partnership entered into an asset purchase agreement
to sell, subject to approval from the Federal Communications Commission, certain
assets of the Partnership, excluding WYNA-FM, to Cumulus Broadcasting Inc.
("Cumulus" and a wholly-owned subsidiary of Cumulus Media Inc.). In conjunction
with the sale, the Partnership entered into a program services and time
brokerage agreement with Cumulus effective March 16, 1998. Under the terms of
the agreement, Cumulus has the right 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 $15,000 and reimburse the cash operating expenses
of the Partnership during the term of the agreement. In addition, Cumulus
advanced $50,000 to the Partnership which is reflected in accrued and other
liabilities in the balance sheet at March 31, 1998.
The Partnership is entirely dependent on the continued financial support of
its partners to meet its obligations as they come due.
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.
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-291
<PAGE>
PAMPLICO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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..................................................... 30 years
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 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. ACQUISITIONS:
On December 30, 1997, the Partnership completed the acquisition of WBZF-FM,
which had been previously run by the Partnership under a time brokerage
agreement that had been in effect since August 30, 1996. The Partnership paid a
total of $425,000 in cash for WBZF-FM consisting of a $150,000 deposit
F-292
<PAGE>
PAMPLICO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS: (CONTINUED)
paid in 1996 and $275,000 paid in 1997. The acquisition was accounted for as a
purchase, with the purchase price allocated to tangible and intangible assets as
follows:
<TABLE>
<S> <C>
Land.............................................................. $ 50,000
Building.......................................................... 125,000
Equipment, transmitter and tower.................................. 100,000
Broadcast license................................................. 150,000
---------
$ 425,000
---------
---------
</TABLE>
The unaudited pro forma results of operations for the year ended December
31, 1997 assuming the acquisition of WBZF-FM occurred as of the beginning of the
year are as follows:
<TABLE>
<S> <C>
Net revenues..................................................... $ 995,191
Loss from operations............................................. (328,478)
</TABLE>
Pro forma results may not be indicative of the results that would have been
reflected if the transactions had actually occurred at the beginning of the
year. Pro forma financial information for the year ended December 31, 1996 is
not available.
In July 1995, the Partnership purchased WYNA-FM. The acquisition was
accounted for as a purchase, with the purchase price of $400,000 allocated to
the broadcast license. The Partnership subsequently entered into an agreement on
August 28, 1995 with WTAB-AM, which ran the station under a program services
agreement until April 8, 1996, at which time the station went silent. Subsequent
to April 8, 1996, the Partnership entered into an agreement with a third party
to simulcast programming on WYNA-FM. At December 31, 1997, the simulcast
agreement was no longer in effect. The Partnership expects to begin broadcasting
on WYNA-FM in June 1998 at a newly constructed site.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Land............................................................. $ 50,000 $ --
Building......................................................... 125,000 --
Broadcasting towers and equipment................................ 456,341 331,082
Office furniture and equipment................................... 26,016 26,016
Leasehold improvements........................................... 12,317 12,317
----------- -----------
669,674 369,415
Accumulated depreciation......................................... (256,477) (219,726)
----------- -----------
Property and equipment, net...................................... $ 413,197 $ 149,689
----------- -----------
----------- -----------
</TABLE>
Depreciation expense for the year ended December 31, 1997 and 1996 was
$36,751 and $32,356, respectively.
F-293
<PAGE>
PAMPLICO BROADCASTING, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
FCC licenses....................................................... $ 550,000 $ 400,000
Deposit on FCC license............................................. -- 150,000
Accumulated amortization........................................... (66,667) (39,999)
---------- ----------
Intangible assets, net............................................. $ 483,333 $ 510,001
---------- ----------
---------- ----------
</TABLE>
Amortization expense for the years ended December 31, 1997 and 1996 was
$26,668.
5. DEMAND NOTES:
Demand notes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Note payable at prime rate minus 1% and secured by
substantially all assets of the Partnership and the
personal stock of a certain partner.................. $ 1,900,000 $ 1,900,000
Note payable at 9.25%.................................. 190,143 171,157
Note payable on demand to partners at prime rate plus
1%................................................... 1,386,850 658,125
----------------- -----------------
$ 3,476,993 $ 2,729,282
----------------- -----------------
----------------- -----------------
</TABLE>
6. 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 and 1996,
$58,092 and $99,858, respectively, were 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%.
7. COMMITMENTS AND CONTINGENCIES:
The Partnership incurred expenses of approximately $57,042 and $58,710 for
the years ended December 31, 1997 and 1996, 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 as
follows:
<TABLE>
<CAPTION>
PAYMENTS
----------
<S> <C>
1998.............................................................................. $ 57,000
1999.............................................................................. 55,800
2000.............................................................................. 55,800
2001.............................................................................. --
Thereafter........................................................................ --
----------
$ 168,600
----------
----------
</TABLE>
Other income for the year ended December 31, 1996 includes $168,000 received
by the Partnership related to a legal settlement.
F-294
<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 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
May 20, 1998
F-295
<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-296
<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 1995
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues................................ $ 128,652 $ 148,365 $ 777,905 $ 636,638 $ 612,312
Less: agency commissions................ (5,589) (7,262) (46,633) (27,060) (20,550)
------------- ------------- ------------- ------------- -----------
Net revenues.................... 123,063 141,103 731,272 609,578 591,762
------------- ------------- ------------- ------------- -----------
Operating expenses:
Programming........................... 54,187 57,888 267,448 205,132 183,659
Sales and promotions.................. 39,719 43,451 222,603 141,430 125,522
Technical and engineering............. 12,665 16,503 81,492 81,182 101,686
General and administrative............ 48,277 31,524 171,130 175,805 173,058
Bad debt expense...................... 4,200 12,996 47,059 41,727 52,713
Depreciation and amortization......... 26,836 23,542 94,069 90,697 119,537
------------- ------------- ------------- ------------- -----------
Total operating expenses........ 185,884 185,904 883,801 735,973 756,175
------------- ------------- ------------- ------------- -----------
Loss from operations.................... (62,821) (44,801) (152,529) (126,395) (164,413)
Other income............................ -- -- 7,645 -- --
Interest expense...................... (23,981) (32,650) (130,600) (102,580) (239,432)
------------- ------------- ------------- ------------- -----------
Loss before income taxes.............. (86,802) (77,451) (275,484) (228,975) (403,845)
Income taxes.......................... -- -- -- -- --
------------- ------------- ------------- ------------- -----------
Net loss................................ (86,802) (77,451) (275,484) (228,975) (403,845)
Accumulated deficit at beginning of
period................................ (1,322,401) (1,046,917) (1,046,917) (817,942) (414,079)
------------- ------------- ------------- ------------- -----------
Accumulated deficit at end of period.... $ (1,409,203) $ (1,124,368) $ (1,322,401) $ (1,046,917) $ (817,924)
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
</TABLE>
See Notes to Financial Statements.
F-297
<PAGE>
PHOENIX BROADCAST PARTNERS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
---------------------------- -------------------------------------
1998 1997 1997 1996 1995
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net loss.................................. $ (86,802) $ (77,451) $ (275,484) $ (228,975) $ (403,845)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization......... 26,836 23,542 94,069 90,697 119,537
Decrease (increase) in accounts
receivable.......................... 30,188 3,305 (25,647) (18,905) (10,429)
Increase (decrease) in accounts
payable............................. (2,966) 9,432 10,718 21,412 3,410
Increase in accrued interest.......... 17,782 26,528 70,280 59,095 172,949
Decrease in long term liabilities..... (1,904) (1,904) (7,614) (7,614) (7,524)
Increase in due to related parties,
net................................. 13,192 9,580 180,111 53,624 39,944
Increase (decrease) in accrued
expenses and other.................. 3,131 25,164 (21,271) 44,298 99,944
------------- ------------- ----------- ----------- -----------
Net cash provided by (used for) operating
activities................................ (543) 18,196 25,162 13,632 13,986
------------- ------------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of intangible assets............. -- -- -- (1,500) --
Purchases of property and equipment....... -- (2,227) (24,619) (12,904) (15,389)
------------- ------------- ----------- ----------- -----------
Net cash used for investing activities...... -- (2,227) (24,619) (14,404) (15,389)
------------- ------------- ----------- ----------- -----------
Net increase (decrease) in cash............. (543) 15,969 543 (772) (1,403)
Cash at beginning of period................. 543 -- -- 772 2,175
------------- ------------- ----------- ----------- -----------
Cash at end of period....................... $ -- $ 15,969 $ 543 $ -- $ 772
------------- ------------- ----------- ----------- -----------
------------- ------------- ----------- ----------- -----------
Supplemental disclosures of cash flow
information:
Cash paid for taxes....................... $ -- $ -- $ -- $ -- $ --
------------- ------------- ----------- ----------- -----------
------------- ------------- ----------- ----------- -----------
Cash paid for interest.................... $ -- $ $ 30,496 $ 14,070 $ 43,875
------------- ------------- ----------- ----------- -----------
------------- ------------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-298
<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-299
<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-300
<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 and 1995, WGUL
advanced $29,335 and $14,005 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, 1996
and 1995 was 8.27%, 8.44% and 8.83%, respectively.
Interest expense on the note payable was $24,788, $24,289 and $15,128 in
1997, 1996 and 1995, 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, 1996 and 1995, was $42,852, $39,305 and
$68,319, respectively.
F-301
<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, 1996 and 1995 was $51,217, $51,392 and
$51,218, 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).
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 outstanding principal at the date of default and 15% on
outstanding interest accrued subsequent to default. Interest, late charges and
attorneys' fees amounted to $70,889, $76,015 and $217,125 in 1997, 1996 and
1995, 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-302
<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,
$5,126 and $5,296 for the years ended December 31, 1997, 1996 and 1995,
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 1995
---------------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax benefit at federal
statutory rate...................... $ (93,665) (34.0%) $ (77,852) (34.0%) $ (137,307) (34.0%)
State income taxes (net of federal
benefit)............................ (10,902) (4.0%) (9,060) (4.0%) (15,993) (4.0%)
Non-deductible items.................. 60 -- 60 -- -- --
Change in valuation allowance......... 104,507 38.0% 86,852 38.0% 153,300 38.0%
----------- --------- ---------- --------- ----------- ---------
$ -- --% $ -- --% $ -- --%
----------- --------- ---------- --------- ----------- ---------
----------- --------- ---------- --------- ----------- ---------
</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-303
<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-304
<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 appealed the
court's decision with respect to the option agreement being void.
On April 8, 1998, the Company signed an agreement with Lewis to settle the
suit for $1,700,000. The settlement agreement will satisfy the Company's and its
shareholders' obligations with respect to the following: (1) all principle,
interest, late fees, origination fees and attorneys fees related to the Lewis
note referred to above; (2) rent and late fees related to the lease of the
Company's antenna and tower from Lewis for the period up 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. (see Note
10) under the option agreement discussed above; and (4) any and all remaining
obligations of the Company with respect to the note and option agreement with
Lewis.
10. SUBSEQUENT EVENTS
On March 16, 1998, the Company entered into a one year Local Marketing
Agreement (LMA) with Cumulus Broadcasting, Inc., a wholly owned subsidiary of
Cumulus Holdings, Inc., in return for a monthly license fee. On April 8, 1998,
the Company signed an agreement with Cumulus Broadcasting, Inc., to sell certain
assets of WZAT-FM and WSGA-AM, subject to approval of the Federal Communications
Commission, in return for consideration of approximately $3.5 million.
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 for each of the defendants. Management believes that the Company
will prevail in this matter.
F-305
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
of Cumulus Media Inc.
In our opinion, the accompanying combined statement of financial position
and the related combined statements of operations, of changes in stockholder's
equity and of cash flows present fairly, in all material respects, the financial
position of Radio Ingstad Minnesota, Inc., Radio Albert Lea, Inc. and KRCH of
Minnesota, Inc. at December 31, 1997, and the results of their operations and
their cash flows for the year then ended 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
May 29, 1998
F-306
<PAGE>
RADIO INGSTAD MINNESOTA, INC.,
RADIO ALBERT LEA, INC. AND
KRCH OF MINNESOTA, INC.
COMBINED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
------------- ------------
MARCH 31, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................... $ 341,738 $ 67,069
Accounts receivable, less allowance for doubtful accounts of $17,767 and $112,792,
respectively.................................................................... 502,980 514,130
------------- ------------
Total current assets.......................................................... 844,718 581,199
Note receivable..................................................................... -- 3,500,000
Property, plant and equipment, net.................................................. 3,531,172 782,791
Intangible assets, net.............................................................. 5,685,624 280,101
Due from related party, net......................................................... -- 728,840
Other assets........................................................................ 11,544 30,996
------------- ------------
Total assets.................................................................. $ 10,073,058 $5,903,927
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of notes payable.................................................. $ 359,921 $ 79,520
Current portion of long-term debt................................................. -- 354,003
Accounts payable.................................................................. 46,434 86,523
Deferred revenue.................................................................. -- 16,473
Accrued and other current liabilities............................................. 83,905 173,130
------------- ------------
Total current liabilities..................................................... 490,260 709,649
Due to related party, net........................................................... 2,685,702 --
Long-term portion of notes payable.................................................. 6,268,847 --
Long-term debt...................................................................... -- 1,366,941
------------- ------------
Total liabilities............................................................. 9,444,809 2,076,590
------------- ------------
Commitments and contingencies....................................................... -- --
Stockholder's equity:
Common stock, $1 par value; 75,000 shares authorized; 75,000 shares issued and
outstanding; and $1 par value; 504,200 shares authorized; 404,200 shares issued
and outstanding, respectively................................................... 75,000 404,200
Additional paid-in capital.......................................................... -- 294,997
Retained earnings................................................................... 553,249 3,128,140
------------- ------------
Total stockholder's equity.................................................... 628,249 3,827,337
------------- ------------
Total liabilities and stockholder's equity.............................. $ 10,073,058 $5,903,927
------------- ------------
------------- ------------
</TABLE>
See Notes to Financial Statements.
F-307
<PAGE>
RADIO INGSTAD MINNESOTA, INC.,
RADIO ALBERT LEA, INC. AND
KRCH OF MINNESOTA, INC.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR PREDECESSOR
------------- ------------- ------------
FOR THE THREE FOR THE THREE FOR THE YEAR
MONTHS ENDED MONTHS ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1998 1997 1997
------------- ------------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues: $ 1,018,435 $ 1,032,197 $4,400,777
Less: Agency commissions............................................. (4,661) (24,362) (67,446)
------------- ------------- ------------
Net revenues..................................................... 1,013,774 1,007,835 4,333,331
------------- ------------- ------------
Operating expenses:
Programming........................................................ 157,962 162,399 590,301
Sales.............................................................. 277,005 261,978 1,119,513
Engineering and technical.......................................... 13,827 22,264 87,978
News............................................................... 3,075 11,704 29,133
Promotions......................................................... 20,462 17,375 141,114
General and administrative......................................... 249,068 238,392 925,334
Trade expense...................................................... 99,522 149,244 566,000
Depreciation and amortization...................................... 121,242 80,300 389,705
Provision for bad debts............................................ 16,133 16,128 70,894
------------- ------------- ------------
Total operating expenses......................................... 958,296 959,784 3,919,972
------------- ------------- ------------
Income from operations............................................... 55,478 48,051 413,359
------------- ------------- ------------
Other income/(expense):
Gain on sale of assets (Note 2).................................... -- -- 4,085,000
Interest income.................................................... -- -- 29,000
Interest expense................................................... (185,781) (39,662) (170,516)
------------- ------------- ------------
Total other income/(expense), net................................ (185,781) (39,662) 3,943,484
------------- ------------- ------------
Net income/(loss).................................................... $ (130,303) $ 8,389 $4,356,843
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See Notes to Financial Statements.
F-308
<PAGE>
RADIO INGSTAD MINNESOTA, INC.,
RADIO ALBERT LEA, INC. AND
KRCH OF MINNESOTA, INC.
COMBINED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
PREDECESSOR
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996................................ $ 404,200 $ 294,997 $ (1,228,703) $ (529,506)
Net income for the year ended December 31, 1997............. -- -- 4,356,843 4,356,843
---------- ---------- ------------- ------------
Balance at December 31, 1997................................ $ 404,200 $ 294,997 $ 3,128,140 $3,827,337
---------- ---------- ------------- ------------
---------- ---------- ------------- ------------
</TABLE>
See Notes to Financial Statements.
F-309
<PAGE>
RADIO INGSTAD MINNESOTA, INC.,
RADIO ALBERT LEA, INC. AND
KRCH OF MINNESOTA, INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR PREDECESSOR
-------------- -------------- --------------
FOR THE THREE FOR THE THREE FOR THE YEAR
MONTHS ENDED MONTHS ENDED ENDED
MARCH 31, MARCH 31, DECEMBER 31,
1998 1997 1997
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income/(loss).............................................................. $ (130,303) $ 8,389 $ 4,356,843
Adjustments to reconcile net income/(loss) to net cash (used in)/provided by
operating activities:
Gain on sale of assets......................................................... -- -- (4,085,000)
Depreciation and amortization.................................................. 121,242 80,300 389,705
Changes in current assets and liabilities:
Decrease/(increase) in accounts receivable................................... (352,663) 26,085 136,480
Decrease/(increase) in other assets.......................................... (49,444) 60,651 (104,764)
Increase/(decrease) in accounts payable...................................... 26,337 (56,647) 14,383
Increase/(decrease) in deferred revenue...................................... -- -- 16,473
Increase/(decrease) in accrued and
other current liabilities.................................................. 81,374 (7,448) (14,280)
-------------- -------------- --------------
Net cash (used in)/provided by operating activities............................ (303,457) 111,330 709,840
-------------- -------------- --------------
Cash flows from investing activities:
Cash payment for acquisition................................................... (1,600,000) -- --
Direct costs of acquisition.................................................... (8,881) -- --
Purchases of property, plant and equipment..................................... -- (77,521) (106,424)
-------------- -------------- --------------
Net cash (used in)/provided by investing activities.......................... (1,608,881) (77,521) (106,424)
-------------- -------------- --------------
Cash flows from financing activities:
Decrease/(increase) in due to/from related party............................... 2,085,984 34,856 (318,986)
Principal payments on notes payable............................................ (71,232) -- (103,008)
Principal payments on long-term debt........................................... -- (67,000) (203,147)
-------------- -------------- --------------
Net cash (used in)/provided by financing activities.......................... 2,014,752 (32,144) (625,141)
-------------- -------------- --------------
Net increase/(decrease) in cash and cash equivalents:............................ 102,414 1,665 (21,725)
Cash and cash equivalents at beginning of period................................. 239,324 88,794 88,794
-------------- -------------- --------------
Cash and cash equivalents at end of period....................................... $ 341,738 $ 90,459 $ 67,069
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental disclosures of cash flow information:
Cash payments for interest..................................................... $ 207,320 $ 34,099 $ 78,624
-------------- -------------- --------------
-------------- -------------- --------------
Non-cash operating, investing and
financing activities:
Note received on sale of assets (Note 2)....................................... $ -- $ -- $ 3,500,000
-------------- -------------- --------------
-------------- -------------- --------------
Increase in due from related party related to sale of assets (Note 2).......... $ -- $ -- $ 1,000,000
-------------- -------------- --------------
-------------- -------------- --------------
Property, plant and equipment sold (Note 2).................................... $ -- $ -- $ 1,339,994
-------------- -------------- --------------
-------------- -------------- --------------
Accumulated depreciation written off........................................... $ -- $ -- $ (925,000)
-------------- -------------- --------------
-------------- -------------- --------------
Note payable executed in connection
with acquisition............................................................. $ 3,200,000 $ -- $ --
-------------- -------------- --------------
-------------- -------------- --------------
Trade revenue.................................................................. $ 99,522 $ 149,244 $ 566,000
-------------- -------------- --------------
-------------- -------------- --------------
Trade expense.................................................................. $ 99,522 $ 149,244 $ 566,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See Notes to Financial Statements.
F-310
<PAGE>
RADIO INGSTAD MINNESOTA, INC.,
RADIO ALBERT LEA, INC. AND
KRCH OF MINNESOTA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
The combined financial statements as of December 31, 1997 and for the year
then ended and for the three months ended March 31, 1997 include the accounts of
Radio Ingstad Minnesota, Inc., Radio Albert Lea, Inc. and KRCH of Minnesota,
Inc. (collectively, the "Companies" or "Predecessor"), which are under common
ownership, control and financing. The Companies' operations are in the radio
broadcasting industry. The Companies own and operate Faribault, MN radio
stations KDHL-AM and KQCL-FM; Albert Lea, MN radio station KQPR-FM; Austin, MN
radio station KNFX-AM; Rochester, MN radio stations KRCH-FM, KWEB- AM and
KMFX-FM; and Wabasha, MN radio station KMFX-AM (collectively, the "Stations").
On December 1, 1997, Radio Iowa Broadcasting, Inc. (the "Successor")
acquired KDHL-AM, KQCL-FM, KQPR-FM and KNFX-AM from the Predecessor. On January
1, 1998, the Successor acquired KRCH-FM, KWEB-AM, KMFX-FM and KMFX-AM from the
Predecessor.
As a result of the change in ownership, the financial position, results of
operations and cash flows of the Stations as of December 31, 1997 and prior
periods are labeled "Predecessor" in the accompanying combined financial
statements and the financial position, results of operations and cash flows of
the Stations subsequent to December 31, 1997 are labeled "Successor" in the
accompanying combined financial statements.
The significant accounting principles followed by the Companies and the
methods of applying those principles which materially affect the determination
of financial position, results of operations, and cash flows are summarized
below.
PRINCIPLES OF COMBINATION
All material related party balances and transactions between the Companies
have been eliminated in combination.
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.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1998 and for the three months
ended March 31, 1998 and 1997 is unaudited. The accompanying unaudited financial
statements have been prepared in accordance
F-311
<PAGE>
RADIO INGSTAD MINNESOTA, INC.,
RADIO ALBERT LEA, INC. AND
KRCH OF MINNESOTA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
PROPERTY, PLANT AND EQUIPMENT
Purchases of property, plant 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 using accelerated methods over their estimated useful
lives as follows:
<TABLE>
<CAPTION>
PREDECESSOR
-------------
<S> <C>
Building....................................................................... 31-39 years
Studio......................................................................... 5-7 years
Transmitter.................................................................... 5 years
Broadcasting towers and technical equipment.................................... 5-15 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 are stated at cost and are being amortized using the
straight- line method over their estimated useful lives as follows:
<TABLE>
<S> <C>
10-25
FCC licenses.................................................... years
Covenants not to compete........................................ 10 years
</TABLE>
The Companies evaluate the carrying value of intangibles periodically in
relation to the projected future undiscounted net cash flows of the related
businesses.
FEDERAL INCOME TAXES
The Predecessor and Successor are organized as S-Corporations and,
therefore, are not taxpaying entities for federal income tax purposes;
accordingly, no income tax expense has been recorded in the combined financial
statements. Income from the Stations is included in the tax returns of the
respective owners.
F-312
<PAGE>
RADIO INGSTAD MINNESOTA, INC.,
RADIO ALBERT LEA, INC. AND
KRCH OF MINNESOTA, INC.
NOTES TO COMBINED 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 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. Trade revenue and trade
expense for the year ended December 31, 1997 were $566,000.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Companies to
concentrations of credit risk consist principally of accounts receivable. The
Companies perform ongoing credit evaluations of its customers and generally do
not require collateral for their accounts receivable. The Companies maintain
reserves for potential credit losses based upon the expected collectibility of
all accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, note receivable, accounts
payable, notes payable and debt approximates fair value because of the short
maturity of these instruments.
2. SALES OF ASSETS:
On December 1, 1997, substantially all of the assets, licenses and
broadcasting rights of KDHL-AM, KQCL-FM, KQPR-FM and KNFX-AM were sold to Radio
Iowa Broadcasting, Inc. for $1,000,000 in cash plus a 10% promissory note for
$3,500,000. In connection with this transaction, the Companies recognized a gain
of $4,085,000. Accordingly, the combined financial statements of the Companies
include the results of operations of the stations sold through November 30,
1997.
On January 1, 1998, substantially all of the assets, licenses and
broadcasting rights of KRCH-FM, KWEB-AM, KMFX-FM and KMFX-AM were also sold to
Radio Iowa Broadcasting, Inc. for $1,600,000 in cash plus a 10% promissory note
for $3,200,000. In connection with this transaction, the Companies recognized a
gain of $3,590,000. As the transaction did not occur until after the fiscal year
end, the accompanying combined financial statements include the results of
operations of the stations sold through December 31, 1997.
3. RELATED PARTY TRANSACTIONS:
The Companies participate in a centralized cash management program with the
owner's other businesses. Accordingly, the Companies' cash receipts and
disbursements are controlled centrally by the owner and the net activity under
this program is reflected in due from related party or due to related party
F-313
<PAGE>
RADIO INGSTAD MINNESOTA, INC.,
RADIO ALBERT LEA, INC. AND
KRCH OF MINNESOTA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS: (CONTINUED)
in the combined statement of financial position. Additionally, the cash proceeds
of $1,000,000 received on the sale of assets discussed in Note 2 are included in
due from related party at December 31, 1997.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31, 1997 consists of the
following:
<TABLE>
<S> <C>
Buildings....................................................... $ 99,531
Studio.......................................................... 45,584
Transmitter..................................................... 561,396
Broadcasting towers and technical equipment..................... 1,409,755
Office furniture and equipment.................................. 97,749
Leasehold improvements.......................................... 65,856
Vehicles........................................................ 30,912
----------
2,310,783
Accumulated depreciation........................................ (1,612,492)
----------
698,291
Land............................................................ 84,500
----------
Property, plant and equipment, net............................ $ 782,791
----------
----------
</TABLE>
Depreciation expense for the year ended December 31, 1997 was $344,918.
5. INTANGIBLE ASSETS:
Intangible assets at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
FCC licenses..................................................... $ 428,754
Covenants not to compete......................................... 90,000
Other............................................................ 36,779
---------
555,533
Accumulated amortization......................................... (275,432)
---------
Intangible assets, net......................................... $ 280,101
---------
---------
</TABLE>
Amortization expense for the year ended December 31, 1997 was $44,787.
F-314
<PAGE>
RADIO INGSTAD MINNESOTA, INC.,
RADIO ALBERT LEA, INC. AND
KRCH OF MINNESOTA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED AND OTHER CURRENT LIABILITIES:
Accrued and other current liabilities at December 31, 1997 consists of the
following:
<TABLE>
<S> <C>
Payroll taxes payable............................................. $ 26,497
Accrued vacation and commission................................... 111,648
Accrued interest.................................................. 24,892
Accrued property taxes............................................ 5,498
Other............................................................. 4,595
---------
$ 173,130
---------
---------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
The Companies lease certain of their station buildings and studios,
equipment and vehicles under various non-cancelable operating lease agreements.
Rent expense under these agreements for 1997 was $114,806. Future minimum annual
payments under these agreements as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 120,606
1999.............................................................................. 82,886
2000.............................................................................. 61,326
2001.............................................................................. 46,414
2002.............................................................................. 40,294
Thereafter........................................................................ 175,840
----------
$ 527,366
----------
----------
</TABLE>
8. NOTE PAYABLE:
Note payable at December 31, 1997 consists of the balance due on a $350,000,
10- year, 12% promissory note issued by the Companies in 1988 in connection with
the acquisition of Fairbault, MN radio station KDHL-AM. The remaining balance
due is payable in 1998.
Interest expense on note payable for 1997 was $8,200.
9. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DESCRIPTION SHORT-TERM LONG-TERM TOTAL
- ------------------------------------------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Line of credit with State Bank of Faribault, principal and interest at
10.5% payable monthly, final payment due August, 1998.................. $ 10,553 $ -- $ 10,553
Line of credit with State Bank of Faribault, principal and interest at
10.0% payable monthly, final payment due June, 1999.................... 4,300 2,618 6,918
</TABLE>
F-315
<PAGE>
RADIO INGSTAD MINNESOTA, INC.,
RADIO ALBERT LEA, INC. AND
KRCH OF MINNESOTA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT: (CONTINUED)
<TABLE>
<CAPTION>
DESCRIPTION SHORT-TERM LONG-TERM TOTAL
- ------------------------------------------------------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Line of credit with State Bank of Faribault, principal and interest at
9.5% payable monthly, final payment due November, 1999................. 27,424 139,817 167,241
Line of credit with State Bank of Faribault, principal and interest at
10.0% payable monthly, final payment due April, 2000................... 20,766 36,931 57,697
Line of credit with State Bank of Faribault, principal and interest at
10.0% payable monthly, final payment due October, 2001................. 6,952 24,927 31,879
Line of credit with State Bank of Faribault, principal and interest at
10.0% payable monthly, final payment due June, 1998.................... 199,299 -- 199,299
Note payable to Rochester Communications Corporation, principal and
interest at 8.0% payable monthly, final payment due January, 2008...... 82,000 1,162,648 1,244,648
Other.................................................................... 2,709 -- 2,709
----------- ------------ ------------
Totals................................................................... $ 354,003 $ 1,366,941 $ 1,720,944
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
All amounts available to the Companies under the lines of credit have been
drawn upon. Substantially all assets of the Companies are pledged as collateral
for the lines of credit and notes payable. The carrying amounts reported for
lines of credit and notes payable approximate fair market value.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1998............................................................................ $ 354,003
1999............................................................................ 261,635
2000............................................................................ 118,568
2001............................................................................ 112,746
2002............................................................................ 112,473
Thereafter...................................................................... 761,519
------------
1,720,944
Less current portion............................................................ 354,003
------------
Long-term portion............................................................. $ 1,366,941
------------
------------
</TABLE>
Interest expense on long-term debt for 1997 was $95,316.
F-316
<PAGE>
RADIO INGSTAD MINNESOTA, INC.,
RADIO ALBERT LEA, INC. AND
KRCH OF MINNESOTA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
10. STOCKHOLDER'S EQUITY:
Common stock, all of which is owned by the same individual, additional
paid-in capital and retained earnings of the Companies consist of the following
at December 31, 1997:
<TABLE>
<CAPTION>
ADDITIONAL
AMOUNT PAID-IN RETAINED
LEGAL ENTITY PAR VALUE OUTSTANDING CAPITAL EARNINGS
- --------------------------------------- ------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Radio Ingstad Minnesota, Inc........... $ 1 $ 400,000 $ 153,092 $ 1,156,067
Radio Albert Lea, Inc.................. 1 3,000 116,530 957,301
KRCH of Minnesota, Inc................. 1 1,200 25,375 1,014,772
----------- -------------- ------------
$ 404,200 $ 294,997 $ 3,128,140
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
11. DEFINED CONTRIBUTION RETIREMENT PLAN
The Companies have a 401(k) plan covering substantially all of their
employees which allows eligible employees to contribute a portion of their
compensation to the plan. There is no provision in the plan document for any
contribution to be made by the Companies.
12. PENDING SALE OF BUSINESS
On February 19, 1998, Radio Iowa Broadcasting, Inc. agreed to sell all radio
station assets and liabilities, as defined in the agreement, to Cumulus
Broadcasting, Inc. (a wholly owned subsidiary of Cumulus Media Inc.). Approval
of the sale must be received from the Federal Communications Commission.
F-317
<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-318
<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-319
<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-320
<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-321
<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-322
<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-323
<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-324
<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-325
<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-326
<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-327
<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-328
<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-329
<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 period
October 1, 1995 (inception) through December 31, 1995 and for each of the two
years in the period ended December 31, 1997. 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 period October 1, 1995 (inception) through December 31, 1995
and for each of the two years in the period ended December 31, 1997 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-330
<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-331
<PAGE>
SAVANNAH COMMUNICATIONS, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD
OCTOBER 1,
1995
(INCEPTION)
THREE MONTHS FOR THE YEARS ENDED THROUGH
ENDED MARCH 31, DECEMBER 31, DECEMBER 31,
--------------------------- --------------------------- ------------
1998 1997 1997 1996 1995
------------- ------------ ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Advertising............................ $ 30,763 $ 282,410 $ 1,405,307 $ 1,785,059 $ 422,814
Income from local Marketing
Agreement............................ 73,992 -- -- -- --
Less commissions....................... (2,878) (25,899) (147,772) (216,604) (42,433)
------------- ------------ ------------- ------------ ------------
Net revenues....................... 101,877 256,511 1,257,535 1,568,455 380,381
------------- ------------ ------------- ------------ ------------
Operating expenses:
Promotion.............................. 1,000 10,947 32,511 66,349 14,080
Programming............................ 26,118 110,437 553,475 439,130 95,051
Selling, general and administrative.... 79,887 154,229 898,676 744,145 141,883
Depreciation and amortization.......... 160,523 119,529 507,168 149,480 260
Local management agreement fees........ -- 12,000 12,000 365,813 128,858
------------- ------------ ------------- ------------ ------------
267,528 407,142 2,003,830 1,764,917 380,132
------------- ------------ ------------- ------------ ------------
Operating income (loss)............ (165,651) (150,631) (746,295) (196,462) 249
------------- ------------ ------------- ------------ ------------
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 income (loss).................. $ (251,945) $ (236,392) $ (1,098,124) $ (311,515) $ 249
------------- ------------ ------------- ------------ ------------
------------- ------------ ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-332
<PAGE>
SAVANNAH COMMUNICATIONS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND THE PERIOD OCTOBER 1, 1995
(INCEPTION) THROUGH DECEMBER 31, 1995
<TABLE>
<S> <C>
Initial capital contribution, October 1, 1995................................... $1,313,100
Net income.................................................................... 249
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-333
<PAGE>
SAVANNAH COMMUNICATIONS, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD
OCTOBER 1,
1995
(INCEPTION)
THREE MONTHS FOR THE YEARS ENDED DECEMBER THROUGH
ENDED MARCH 31, 31, DECEMBER 31,
---------------------------- ---------------------------- -------------
1998 1997 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................... $ (251,945) $ (236,392) $ (1,098,124) $ (311,515) $ 249
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 71,895 260
Changes in operating assets and
liabilities:
Accounts receivable............. 80,083 41,174 90,096 (10,611) (244,284)
Prepaid expenses................ 1,118 (23,430) 5,999 (8,804)
Accounts payable and accrued
expenses...................... 16,477 (72,209) (25,002) 134,754 23,265
------------- ------------- ------------- ------------- -------------
Net cash from (used by)
operating activities........ 6,256 (171,328) (519,855) (46,696) (220,510)
------------- ------------- ------------- ------------- -------------
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) (23,965)
Purchases of property and
equipment......................... (5,057) (104,883)
------------- ------------- ------------- ------------- -------------
Net cash used in investing
activities.................. (5,057) (733,456) (733,456) (4,616,462) (23,965)
------------- ------------- ------------- ------------- -------------
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 1,300,000
------------- ------------- ------------- ------------- -------------
Net cash provided by financing
activities.................. 55,000 900,000 1,247,858 3,616,898 1,300,000
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
cash........................ 56,199 (4,784) (5,453) (1,046,260) 1,055,525
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 1,055,525
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
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-334
<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-335
<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-336
<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-337
<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, $50,500 and $11,400 for
the years ended December 31, 1997, 1996 and for the period October 1, 1995
(inception) through December 31, 1995, respectively.
7. RELATED PARTY TRANSACTIONS:
Included in other expenses are fees paid to the general partner in the
amounts of $19,400, $43,800, and $0 in 1997, 1996 and 1995, 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-338
<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-339
<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-340
<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
----------- ---------- ------------ ------------ ------------
(UNAUDITED)
<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-341
<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-342
<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 1997 1996 1995
----------- ---------- ----------- ----------- -----------
(UNAUDITED)
<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........ 4,000 -- (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-343
<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-344
<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-345
<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-346
<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-347
<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 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
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
June 12, 1998
F-348
<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-349
<PAGE>
SEACOAST RADIO COMPANY, LLC
STATEMENTS OF OPERATIONS (DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Revenues.................................................................................. $ 820 $ 752 $ 253
Less: agency commissions.................................................................. (80) (66) (10)
--------- --------- ---------
Net revenues.......................................................................... 740 686 243
--------- --------- ---------
Operating expenses:
Programming............................................................................. 131 89 66
Sales and promotions.................................................................... 101 92 46
Technical............................................................................... 15 18 20
General and administrative.............................................................. 168 165 140
Trade................................................................................... 65 71 26
Depreciation and amortization........................................................... 58 56 46
--------- --------- ---------
Total operating expenses.............................................................. 538 491 344
--------- --------- ---------
Income (loss) from operations............................................................. 202 195 (101)
Interest expense, net..................................................................... (34) (37) (38)
--------- --------- ---------
Net income (loss)......................................................................... $ 168 $ 158 $ (139)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Financial Statements.
F-350
<PAGE>
SEACOAST RADIO COMPANY, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DOLLARS IN 000'S)
<TABLE>
<S> <C>
Balance at January 1, 1995........................................... $ 67
Net income (loss).................................................... (139)
---------
Balance at December 31, 1995......................................... (72)
Dividend to members.................................................. (42)
Net income (loss).................................................... 158
---------
Balance at December 31, 1996......................................... 44
Dividend to members.................................................. (200)
Net income (loss).................................................... 168
---------
Balance at December 31, 1997......................................... $ 12
---------
---------
</TABLE>
See Notes to Financial Statements.
F-351
<PAGE>
SEACOAST RADIO COMPANY, LLC
STATEMENTS OF CASH FLOWS (DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities:
Net income (loss)....................................................................... $ 168 $ 158 $ (139)
Adjustments to reconcile net income to net cash provided by/(used for) operating
activities:
Depreciation and amortization........................................................... 58 56 46
Increase in accounts receivable......................................................... (23) (41) (35)
Decrease (increase) in prepaid expenses and other current assets........................ -- 2 (6)
Increase (decrease) in accounts payable................................................. 20 (31) 121
--------- --------- ---------
Net cash provided by/(used for) operating activities.................................. 223 144 (13)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment..................................................... (1) (17) (56)
--------- --------- ---------
Net cash used for investing activities................................................ (1) (17) (56)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowing................................................................. -- 18 68
Repayments of borrowing................................................................. (51) (59) (20)
Dividends to members.................................................................... (200) (42) --
Members capital contribution............................................................ -- -- 16
--------- --------- ---------
Net cash (used for)/provided by financing activities.................................. (251) (83) 64
--------- --------- ---------
(Decrease) increase in cash and cash equivalents.......................................... (29) 44 (5)
Cash and cash equivalents at beginning of year............................................ 44 -- 5
--------- --------- ---------
Cash and cash equivalents at end of year.................................................. $ 15 $ 44 $ --
--------- --------- ---------
--------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid for interest.................................................................. $ 34 $ 38 $ 38
--------- --------- ---------
--------- --------- ---------
Non-cash operating activities:
Trade revenue........................................................................... $ 65 $ 71 $ 27
--------- --------- ---------
--------- --------- ---------
Trade expense........................................................................... $ 65 $ 71 $ 27
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Financial Statements.
F-352
<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-353
<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, 1996 and 1995
was $40, $38 and $28, 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, 1996 and 1995
was $18, $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-354
<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, $86 and $111 for the years ended December 31, 1997, 1996
and 1995, respectively, including rent expense of $7 for each of the periods
ended December 31, 1997, 1996 and 1995.
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-355
<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, 1996 and 1995 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-356
<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 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
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
June 12, 1998
F-357
<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, 1,000 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-358
<PAGE>
SUNNY BROADCASTERS, INC.
STATEMENTS OF OPERATIONS (DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Revenues............................................................................. $ 1,359 $ 1,268 $ 1,031
Less: agency commissions............................................................. (111) (101) (70)
--------- --------- ---------
Net revenues..................................................................... 1,248 1,167 961
Operating expenses:
Programming........................................................................ 253 227 193
Sales and promotions............................................................... 182 174 137
Technical.......................................................................... 27 29 19
General and administrative......................................................... 271 256 227
Trade.............................................................................. 117 131 161
Depreciation and amortization...................................................... 117 113 110
--------- --------- ---------
Total operating expenses......................................................... 967 930 847
--------- --------- ---------
Income from operations............................................................... 281 237 114
Other income and expense:
Interest expense................................................................... (99) (107) (115)
--------- --------- ---------
Net income (loss).................................................................... $ 182 $ 130 $ (1)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Financial Statements.
F-359
<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, 1995................................ $ 10 $ 400 $ (499) $ (164) $ (253)
Net income (loss)......................................... -- -- (1) -- (1)
--- ----- ----- ----- ---------
Balance at December 31, 1995.............................. 10 400 (500) (164) (254)
Dividends................................................. -- -- (2) -- (2)
Net income (loss)......................................... -- -- 130 -- 130
--- ----- ----- ----- ---------
Balance at December 31, 1996.............................. 10 400 (372) (164) (126)
Dividends................................................. -- -- (172) -- (172)
Net income (loss)......................................... -- -- 182 -- 182
--- ----- ----- ----- ---------
Balance at December 31, 1997.............................. $ 10 $ 400 $ (362) $ (164) $ (116)
--- ----- ----- ----- ---------
--- ----- ----- ----- ---------
</TABLE>
See Notes to Financial Statements.
F-360
<PAGE>
SUNNY BROADCASTERS, INC.
STATEMENT OF CASH FLOWS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities:
Net income (loss)............................................................... $ 182 $ 130 $ (1)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization................................................. 117 113 110
Increase in accounts receivable............................................... (17) (60) (113)
(Increase) decrease in receivable from related party.......................... (22) 21 (13)
Increase (decrease) in accounts payable....................................... 1 (39) 42
Increase in accounts payable--trades.......................................... 8 -- --
--------- --------- ---------
Net cash provided by operating activities................................... 269 165 25
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment............................................. (9) (27) (13)
--------- --------- ---------
Net cash used for investing activities...................................... (9) (27) (13)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowing......................................................... -- 39 213
Repayments of borrowing......................................................... (108) (118) (99)
Purchase of common stock........................................................ -- -- (171)
Dividends paid to stockholders.................................................. (172) (2) --
--------- --------- ---------
Net cash used for financing activities...................................... (280) (81) (57)
--------- --------- ---------
(Decrease) increase in cash and cash equivalents.................................. (20) 57 (45)
Cash and cash equivalents at beginning of year.................................... 58 1 46
--------- --------- ---------
Cash and cash equivalents at end of year.......................................... $ 38 $ 58 $ 1
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information
Cash paid for interest.......................................................... $ 93 $ 100 $ 115
--------- --------- ---------
--------- --------- ---------
Non-cash operating activities:
Trade revenue................................................................... $ 109 $ 131 $ 161
--------- --------- ---------
--------- --------- ---------
Trade expense................................................................... $ 117 $ 131 $ 161
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Financial Statements.
F-361
<PAGE>
SUNNY BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS
(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-362
<PAGE>
SUNNY BROADCASTERS, INC.
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. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
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, 1996 and 1995 was
$107, $103 and $100, respectively.
3. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
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, 1996 and 1995 was
$10, $10 and $10, respectively.
F-363
<PAGE>
SUNNY BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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, $86 and $111 for the years ended December 31, 1997, 1996 and
1995, respectively, including rent income of $7 for each of the periods ended
December 31, 1997, 1996 and 1995.
5. NOTES PAYABLE:
Notes payable consists of the following:
<TABLE>
<CAPTION>
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-364
<PAGE>
SUNNY BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN 000'S)
6. NOTE PAYABLE-STOCKHOLDERS
Notes payable-stockholders consist of the following:
<TABLE>
<CAPTION>
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-365
<PAGE>
SUNNY BROADCASTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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-366
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Holdings, 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 Tallahassee
Broadcasting, Inc. (the "Company") 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
May 22, 1998
F-367
<PAGE>
TALLAHASSEE BROADCASTING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
MARCH 31, ------------- ------------
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 6,857 $ 6,653 $ 11,669
Accounts receivable, less allowance for doubtful accounts of
$3,692, $7,693 and $5,000, respectively.......................... 2,008 37,761 130,920
Other current assets............................................... 18,001 19,517 --
------------- ------------- ------------
Total current assets........................................... 26,866 63,931 142,589
Property and equipment, net of accumulated depreciation of
$1,261,771, $1,222,771 and $1,055,010, respectively................ 542,014 581,014 761,240
Other assets......................................................... 3,404 3,404 2,802
------------- ------------- ------------
Total assets................................................... $ 572,284 $ 648,349 $ 906,631
------------- ------------- ------------
------------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................... $ 52,711 $ 68,533 $ 30,940
Accrued property taxes............................................. 27,870 27,870 --
Accrued compensation............................................... 2,848 29,322 47,097
Due to related parties, net........................................ 1,941,178 1,925,182 1,814,295
------------- ------------- ------------
Total current liabilities...................................... 2,024,607 2,050,907 1,892,332
------------- ------------- ------------
Commitments and contingencies........................................ -- -- --
Stockholders' equity (deficit):
Common stock, $1.00 par value, 500 shares authorized, issued and
outstanding........................................................ 500 500 500
Accumulated deficit................................................ (1,452,823) (1,403,058) (986,201)
------------- ------------- ------------
Total stockholders' equity (deficit)........................... (1,452,323) (1,402,558) (985,701)
------------- ------------- ------------
Total liabilities and stockholders' equity (deficit)........... $ 572,284 $ 648,349 $ 906,631
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See Notes to Financial Statements.
F-368
<PAGE>
TALLAHASSEE BROADCASTING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
---------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
---------- ---------- ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues....................................... $ -- $ 227,855 $ 794,377 $ 913,266 $ 923,638
Less: Agency commissions....................... -- (17,485) (75,516) (88,412) (114,136)
---------- ---------- ------------ ------------ ------------
Net revenue.............................. -- 210,370 718,861 824,854 809,502
---------- ---------- ------------ ------------ ------------
Operating expenses:
Sales and promotions......................... 3,659 48,566 276,765 327,522 331,514
Programming.................................. 1,418 57,510 197,185 254,948 223,221
Engineering.................................. 513 13,364 55,327 55,580 69,818
General and administrative................... 9,841 76,553 393,824 407,813 464,319
Depreciation................................. 39,000 39,000 170,107 151,386 148,758
---------- ---------- ------------ ------------ ------------
Total operating expenses................. 54,431 234,993 1,093,208 1,197,249 1,237,630
---------- ---------- ------------ ------------ ------------
Loss from operations........................... (54,431) (24,623) (374,347) (372,395) (428,128)
Other income................................... 27,190 11,744 41,848 29,786 21,674
Interest expense--related party................ (22,524) (21,253) (84,358) (71,068) (56,836)
---------- ---------- ------------ ------------ ------------
Loss before income taxes....................... (49,765) (34,132) (416,857) (413,677) (463,290)
---------- ---------- ------------ ------------ ------------
Income tax benefit............................. -- -- -- -- --
---------- ---------- ------------ ------------ ------------
Net loss....................................... $ (49,765) $ (34,132) $ (416,857) $ (413,677) $ (463,290)
---------- ---------- ------------ ------------ ------------
---------- ---------- ------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-369
<PAGE>
TALLAHASSEE BROADCASTING, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
----------- ------------- -------------
<S> <C> <C> <C>
Balance at January 1, 1995............................................... $ 500 $ (109,234) $ (108,734)
Net loss................................................................. -- (463,290) (463,290)
----- ------------- -------------
Balance at December 31, 1995............................................. 500 (572,524) (572,024)
Net loss................................................................. -- (413,677) (413,677)
----- ------------- -------------
Balance at December 31, 1996............................................. 500 (986,201) (985,701)
Net loss................................................................. -- (416,857) (416,857)
----- ------------- -------------
Balance at December 31, 1997............................................. $ 500 $ (1,403,058) $ (1,402,558)
----- ------------- -------------
----- ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-370
<PAGE>
TALLAHASSEE BROADCASTING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
-------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
--------- --------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (49,765) $ (34,132) $ (416,857) $ (413,677) $ (463,290)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation..................................... 39,000 39,000 170,107 151,386 148,758
Loss on equipment disposals...................... -- 15,947 15,947 -- --
Provision for doubtful accounts.................. -- -- 23,980 8,852 8,174
(Increase) decrease in accounts receivable....... 35,753 (39,231) 69,179 3,546 (15,535)
(Increase) decrease in other current assets...... 1,516 (17,323) (19,517) -- --
Increase in other assets......................... -- (602) (602) -- --
Increase (decrease) in accounts payable.......... (15,822) 29,963 37,593 (17,517) 22,061
Increase in accrued property taxes............... -- -- 27,870 -- --
Increase (decrease) in accrued compensation...... (26,474) (47,097) (17,775) 17,742 29,355
Increase in due to related parties, net.......... 15,996 56,336 110,887 378,825 380,475
--------- --------- ---------- ---------- ----------
Cash provided by operating activities.............. 204 2,861 812 129,157 109,998
--------- --------- ---------- ---------- ----------
Cash flows used in investing activities--
Purchases of property and equipment................ -- (2,547) (5,828) (127,475) (113,337)
--------- --------- ---------- ---------- ----------
Cash used in investing activities................ -- (2,547) (5,828) (127,475) (113,377)
--------- --------- ---------- ---------- ----------
Increase (decrease) in cash and cash equivalents..... 204 314 (5,016) 1,682 (3,339)
Cash and cash equivalents at beginning of period..... 6,653 11,669 11,669 9,987 13,326
--------- --------- ---------- ---------- ----------
Cash and cash equivalents at end of period........... $ 6,857 $ 11,983 $ 6,653 $ 11,669 $ 9,987
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Non-cash operating and financing activities:
Trade revenue...................................... $ -- $ 51,386 $ 127,141 $ 92,764 $ 113,458
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
Trade expense...................................... $ -- $ 12,981 $ 148,935 $ 93,342 $ 107,048
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-371
<PAGE>
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 accompanying financial statements were prepared pursuant to the sale of
the Station (Note 5). The financial statements of a wholly-owned subsidiary of
the Company, Sterling Communications Corporation ("Sterling"), are not presented
herein as they were not included in the prospective sale of the Station.
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-372
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
The Company files consolidated federal and state income tax returns with its
wholly-owned subsidiary, Sterling. The Company has provided for federal income
taxes in the accompanying financial statements on a stand-alone basis based on
an informal tax allocation agreement with Sterling.
Deferred tax assets and liabilities are determined based on differences
between financial reporting and the tax bases 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:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Due to Timm........................................................................... $ 475,639 $ 447,201
Advances due to other affiliates...................................................... 897,179 856,640
Advances due to shareholder........................................................... 324,064 306,154
Accrued rent payable.................................................................. 228,300 204,300
------------ ------------
$ 1,925,182 $ 1,814,295
------------ ------------
------------ ------------
</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
above net balance due to Timm. 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,
$89,493 in 1996 and $103,000 in 1995.
F-373
<PAGE>
2. RELATED PARTY TRANSACTIONS: (CONTINUED)
Advances due to other affiliates represent amounts received from certain
affiliated companies who share common owners and officers. Advances due to
shareholder represent amounts received from a shareholder of the Company to fund
operating activities of the Station. The advances from other affiliates and from
the shareholder are due on demand and accrue interest annually. Interest rates
on the advances ranged from 5.77% to 6.58% for the years ended December 31,
1997, 1996 and 1995, respectively, resulting in interest expense during those
periods of $84,358, $71,068 and $56,836, respectively. No interest was paid
during 1997, 1996 or 1995.
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 of the Station (Note 5). The
Company recorded rent expense of $24,000 annually and has recorded an accrued
rent payable to the shareholder of $228,300 at December 31, 1997 and $204,300 at
December 31, 1996. In addition, the Company pays the property taxes associated
with this facility. Property taxes totaled $27,870, $27,540 and $32,687 in 1997,
1996 and 1995, respectively. Accrued property taxes aggregated $27,870 at
December 31, 1997.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Broadcasting tower and equipment...................................................... $ 1,339,500 $ 1,339,500
Building and improvements............................................................. 51,931 51,931
Studio equipment...................................................................... 119,920 122,798
Furniture and other equipment......................................................... 235,434 250,564
------------ ------------
1,746,785 1,764,793
Accumulated depreciation.............................................................. (1,222,771) (1,055,010)
------------ ------------
524,014 709,783
Land.................................................................................. 57,000 51,457
------------ ------------
Property and equipment, net........................................................... $ 581,014 $ 761,240
------------ ------------
------------ ------------
</TABLE>
4. INCOME TAXES:
Significant components of the deferred tax assets (liabilities) are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Deferred tax assets (liabilities):
Net operating loss carryforwards........................................................ $ 723,275 $ 581,007
Allowance for doubtful accounts......................................................... 2,895 1,882
Depreciation............................................................................ (51,522) (64,020)
---------- ----------
Net deferred tax asset.................................................................. 674,648 518,869
Less valuation allowance................................................................ (674,648) (518,869)
---------- ----------
Total net deferred tax asset............................................................ $ -- $ --
---------- ----------
---------- ----------
</TABLE>
F-374
<PAGE>
4. INCOME TAXES: (CONTINUED)
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.
The Company's effective income tax rate differs from the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income tax benefit at federal statutory rate (34%)........................... $ 141,732 $ 140,650 $ 157,518
State taxes (net of federal benefit)......................................... 15,027 14,909 16,732
Non-deductible items......................................................... (980) (1,010) (802)
Change in valuation allowance................................................ (155,779) (154,549) (173,448)
---------- ---------- ----------
Income tax benefit........................................................... $ -- $ -- $ --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
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............................................................................ 378,069
---------
$1,922,028
---------
---------
</TABLE>
5. SUBSEQUENT EVENT:
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-375
<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 members' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Tally Radio, LC (the
"Company") at December 31, 1997 and 1996, and the results of its operations and
its cash flows for the year ended December 31, 1997, and the period from
inception on March 1, 1996 to 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.
PRICE WATERHOUSE LLP
Chicago, Illinois
May 22, 1998
F-376
<PAGE>
TALLY RADIO, LC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ -- $ 3,902
Accounts receivable, less allowance for doubtful accounts of $27,261 and $5,234,
respectively..................................................................... 8,943 71,919
Net due from related parties....................................................... 26,266 5,982
------------ ------------
Total current assets......................................................... 35,209 81,803
Property and equipment, net of accumulated depreciation of $23,374 and $7,576,
respectively....................................................................... 91,524 101,324
Intangible assets, net of accumulated amortization of $90,435 and $30,144,
respectively....................................................................... 736,019 796,310
------------ ------------
Total assets................................................................. $ 862,752 $ 979,437
------------ ------------
------------ ------------
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Promissory note, current portion................................................... $ 157,397 $ 144,245
Accounts payable................................................................... 52,276 65,057
Notes payable to members........................................................... 445,070 181,170
Proceeds received under TBA from Cumulus........................................... 51,000 --
Accrued wages and commissions...................................................... 2,023 5,284
------------ ------------
Total current liabilities.................................................... 707,766 395,756
Promissory note, long-term portion................................................... 381,353 538,760
------------ ------------
Total liabilities............................................................ 1,089,119 934,516
Commitments and contingent liabilities............................................... -- --
Members' equity (deficit)............................................................ (226,367) 44,921
------------ ------------
Total liabilities and members' equity (deficit).............................. $ 862,752 $ 979,437
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
F-377
<PAGE>
TALLY RADIO, LC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FROM INCEPTION
YEAR ENDED ON MARCH 1, 1996
DECEMBER 31, TO DECEMBER 31,
1997 1996
------------ ----------------
<S> <C> <C>
Revenues......................................................................... $ 238,161 $ 318,379
Less: agency commissions......................................................... (18,762) (21,988)
------------ ----------------
Net revenues............................................................... 219,399 296,391
------------ ----------------
Operating expenses:
Programming.................................................................... 99,502 116,010
Sales.......................................................................... 111,790 62,534
Technical...................................................................... 28,485 22,972
General and administrative..................................................... 134,934 186,678
Depreciation and amortization.................................................. 76,089 37,720
------------ ----------------
Total operating expenses................................................... 450,800 425,914
------------ ----------------
Loss from operations............................................................. (231,401) (129,523)
Other income..................................................................... 102 1,500
Interest expense................................................................. (51,689) (52,056)
------------ ----------------
Net loss......................................................................... $ (282,988) $ (180,079)
------------ ----------------
------------ ----------------
</TABLE>
See Notes to Financial Statements.
F-378
<PAGE>
TALLY RADIO, LC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
MEMBERS'
EQUITY
(DEFICIT)
--------------
<S> <C>
Balance at inception on March 1, 1996............................................................. $ --
Capital contribution from members............................................................... 225,000
Net loss........................................................................................ (180,079)
--------------
Balance at December 31, 1996...................................................................... 44,921
Operating facilities provided by a member of the Company free of rent........................... 11,700
Net loss........................................................................................ (282,988)
--------------
Balance at December 31, 1997...................................................................... $ (226,367)
--------------
--------------
</TABLE>
See Notes to Financial Statements.
F-379
<PAGE>
TALLY RADIO, LC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FROM INCEPTION ON
YEAR ENDED MARCH 1, 1996
DECEMBER 31, TO DECEMBER 31,
1997 1996
------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................................................... $ (282,988) $ (180,079)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................. 76,089 37,720
Operating facilities provided by a member of the Company free of rent..... 11,700 --
(Increase) decrease in net accounts receivable............................ 62,976 (71,919)
Increase in due from related parties...................................... (20,284) (5,982)
Increase (decrease) in accounts payable................................... (12,781) 65,057
Increase (decrease) in accrued liabilities................................ (3,261) 5,284
------------ -----------------
Cash used in operating activities....................................... (168,549) (149,919)
------------ -----------------
Cash flows from investing activities:
Capital expenditures.......................................................... (5,998) (46,400)
Acquisition of WWLD-FM........................................................ -- (148,954)
------------ -----------------
Cash used in investing activities....................................... (5,998) (195,354)
------------ -----------------
Cash flows from financing activities:
Repayments under promissory note.............................................. (144,255) (56,995)
Capital contribution from members............................................. -- 225,000
Net advances from members..................................................... 314,900 181,170
------------ -----------------
Cash provided by financing activities................................... 170,645 349,175
------------ -----------------
Net increase (decrease) in cash and cash equivalents............................ (3,902) 3,902
Cash and cash equivalents at beginning of period................................ 3,902 --
------------ -----------------
Cash and cash equivalents at end of year........................................ $ -- $ 3,902
------------ -----------------
------------ -----------------
Supplemental disclosure of cash information:
Cash paid for interest........................................................ $ 52,699 $ 47,137
------------ -----------------
------------ -----------------
Non-cash operating and financing activities:
Trade revenue................................................................. $ 33,817 $ 61,948
------------ -----------------
------------ -----------------
Trade expense................................................................. $ 45,294 $ 46,461
------------ -----------------
------------ -----------------
Issuance of promissory note................................................... $ -- $ 740,000
------------ -----------------
------------ -----------------
</TABLE>
See Notes to Financial Statements.
F-380
<PAGE>
TALLY RADIO, LC
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
Tally Radio, LC (the "Company"), a Florida limited liability company, was
formed in 1996 to own and operate radio station WWLD-FM located in Tallahassee,
Florida.
On February 26, 1996, the Company's members, on behalf of the Company,
entered into an agreement with Southeast Broadcasters, Inc. ("Southeast") to
purchase substantially all of the assets used in the operation of radio station
WWLD-FM (formerly WRZK-FM). The transaction with Southeast closed on July 1,
1996. Effective March 1, 1996, the Company's members, on behalf of the Company,
entered into a Time Brokerage Agreement ("TBA") with Southeast, which extended
through June 30, 1996, whereby Southeast provided airtime on the station to the
Company. The Company provided programming which was broadcast during such
airtime and collected revenues from advertising it sold for broadcast during
such programming. The Company reimbursed Southeast for all of Southeast's
expenses of operating the station. As such, the accompanying financial
statements reflect activity from the inception of the TBA on March 1, 1996. In
addition, the Company paid Southeast approximately $16,000 per month during the
term of the TBA which was deducted from the aggregate purchase price to be paid
at closing on July 1, 1996.
On August 18, 1997, the Company entered into an asset purchase agreement
with Cumulus Broadcasting, Inc., a wholly owned subsidiary of Cumulus Media Inc.
("Cumulus"), to sell the assets of the Company, subject to approval of the
Federal Communications Commission ("FCC"), to Cumulus for $1,200,000. Effective
August 18, 1997, the Company also entered into a TBA with Cumulus which extended
through January 15, 1998. Under the TBA, the Company provides air time on the
station to Cumulus which provides programming to be broadcast during such air
time and collects revenues from advertising it sells for broadcast during such
programming. Cumulus reimburses the Company for the Company's expenses of
operating the station. Accordingly, the statement of operations for the year
ended December 31, 1997 includes no advertising revenues or related cash
operating expenses from August 18, 1997 through year end. In addition, Cumulus
pays a monthly installment of $12,000 during the term of the TBA which will be
deducted from the aggregate purchase price paid at closing. Such installment
payments aggregated $51,000 at December 31, 1997. On January 15, 1998, the
Company completed the sale of its assets to Cumulus.
As more fully described in Note 5, the Company has transactions with related
parties and is dependent upon the related parties and its members 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
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.
F-381
<PAGE>
TALLY RADIO, LC
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.
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. The provision for doubtful accounts aggregated $26,562
and $5,234 during 1997 and 1996, respectively.
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 straight-line methods over their estimated useful lives as
follows:
<TABLE>
<S> <C>
5-15
Broadcasting towers and equipment................................ years
Automobiles...................................................... 3-5 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 an FCC license, goodwill, customer lists and
organizational costs. Intangible assets are stated at cost and are being
amortized using the straight-line method over estimated useful lives ranging
from 5 to 15 years. The Company evaluates the carrying value of intangibles
periodically in relation to the projected future undiscounted net cash flows of
the business.
F-382
<PAGE>
TALLY RADIO, LC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
The Company has organized in the state of Florida 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 pro-rata share of the Company's
earnings. The Company's net income or loss is allocated among the members.
2. ACQUISITION:
On July 1, 1996, the Company acquired WWLD-FM for $850,000, consisting of
cash of $110,000 and the issuance of a note payable of $740,000, and incurred
$38,954 of direct costs of acquisition. The acquisition was accounted for as a
purchase. The purchase price was allocated to property and equipment ($62,500)
and intangible assets ($826,454). The Company operated the station under a TBA
agreement with Southeast from March 1, 1996 to the acquisition date.
Accordingly, the accompanying financial statements include the results of
operations of the acquired station from March 1, 1996. Amortization and
depreciation of acquired assets commenced on July 1, 1996, the date of the
acquisition.
After giving effect to increased depreciation and amortization as if the
acquisition occurred at March 1, 1996 (inception), unaudited pro forma net
revenues would aggregate $296,391 and unaudited pro forma net loss would
aggregate $202,974 for the period from inception on March 1, 1996 to December
31, 1996. The unaudited pro forma results may not be indicative of the results
that would have been reported if the transaction had actually occurred at March
1, 1996, or of the results that may be obtained in the future.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Broadcasting towers and equipment................................ $ 100,426 $ 94,428
Automobiles...................................................... 6,240 6,240
Office furniture and equipment................................... 8,232 8,232
------------ ------------
114,898 108,900
Accumulated depreciation..................................... (23,374) (7,576)
------------ ------------
Property and equipment, net...................................... $ 91,524 $ 101,324
------------ ------------
------------ ------------
</TABLE>
Depreciation expense for 1997 and 1996 was $15,798 and $7,576, respectively.
F-383
<PAGE>
TALLY RADIO, LC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
FCC License, net of accumulated amortization of $70,998 and
$23,665, respectively.......................................... $ 639,002 $ 686,335
Goodwill, net of accumulated amortization of $5,001 and $1,667,
respectively................................................... 44,999 48,333
Other intangible assets, net of accumulated amortization of
$14,436 and $4,812, respectively............................... 52,018 61,642
------------ ------------
Intangible Assets................................................ $ 736,019 $ 796,310
------------ ------------
------------ ------------
</TABLE>
Amortization expense was $60,291 and $30,144 in 1997 and 1996, respectively.
5. RELATED PARTY TRANSACTIONS:
Balances due from (to) related parties consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Notes payable to members......................................... $ (445,070) $ (181,170)
Due from Monte Radio............................................. 18,612 4,412
Due from Talstar Communication................................... 854 1,470
Due from Talstar................................................. 6,800 100
</TABLE>
During the period from inception on March 1, 1996 to December 31, 1997, the
Company received advances from members of the Company. Such advances are due on
demand and do not bear interest.
Advances due from other affiliates represent amounts paid to certain
affiliated companies who share common owners and officers. The advances are due
on demand and do not accrue interest.
The Company utilized office and studio space owned by a member of the
Company free of rent from January 1, 1997 through December 31, 1997. The
estimated fair value of annual rent related to this space is approximately
$11,700 and has been reflected in the accompanying financial statements.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, notes payable and the promissory note approximates fair value
because of the short maturity of these instruments.
7. LONG-TERM DEBT:
In conjunction with the acquisition of the radio station on July 1, 1996,
the Company issued a promissory note for $740,000 to Southeast. The promissory
note, which is guaranteed by the Company's members, bears interest at 8.5% and
is payable in monthly installments through January 2000 or upon the sale of the
Company.
F-384
<PAGE>
TALLY RADIO, LC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT: (CONTINUED)
Maturities of debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, PRINCIPAL
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 157,397
1999.............................................................................. 171,109
2000.............................................................................. 194,011
2001.............................................................................. 16,233
</TABLE>
8. LEASES:
The Company leases certain property under operating leases. Rent expense
under these leases for 1997 and 1996 was $7,693 and $7,515, respectively. Future
minimum annual lease payments under these non-cancelable operating lease
agreements as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 6,000
1999................................................................ 6,000
2000................................................................ 6,000
2001................................................................ 6,000
2002................................................................ 6,000
</TABLE>
F-385
<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 each of the three years 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
May 22, 1998
F-386
<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-387
<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 1995
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues..................................... $ 262,476 $ 268,115 $ 1,196,630 $ 1,289,985 $ 1,096,328
Less: Agency commissions..................... (13,398) (12,782) (61,045) (65,422) (42,259)
----------- ----------- ------------ ------------ ------------
Net revenues......................... 249,078 255,333 1,135,585 1,224,563 1,054,069
Operating expenses:
Programming................................ 69,534 68,503 255,462 247,771 196,775
Sales and promotions....................... 72,376 88,327 388,961 341,231 355,488
Technical.................................. 29,047 22,359 102,170 95,840 93,289
General and administrative................. 93,706 78,424 326,201 332,498 299,155
Depreciation and amortization.............. 11,440 10,658 33,882 45,838 57,222
----------- ----------- ------------ ------------ ------------
Total operating expenses............. 276,103 268,271 1,106,676 1,063,178 1,001,929
----------- ----------- ------------ ------------ ------------
Income (loss) from operations................ (27,025) (12,938) 28,909 161,385 52,140
Interest income.............................. 198 324 1,689 883 890
Interest expense............................. (27,626) (34,370) (88,692) (95,440) (92,654)
----------- ----------- ------------ ------------ ------------
Income (loss) before income taxes............ (54,453) (46,984) (58,094) 66,828 (39,624)
Income tax expense (benefit)................. -- -- -- -- --
----------- ----------- ------------ ------------ ------------
Net income (loss).................... $ (54,453) $ (46,984) $ (58,094) $ 66,828 $ (39,624)
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-388
<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, 1995...................................... $ -- $ -- $ (526,352) $ (526,352)
Net Income...................................................... -- -- (39,624) (39,624)
----------- ----------- ------------ -----------
Balance at December 31, 1995.................................... -- -- (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-389
<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> <C>
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<CAPTION>
UNAUDITED
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ (54,453) $ (46,984) $ (58,094) $ 66,828 $ (39,624)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 11,440 10,658 33,882 45,838 48,539
Provision for doubtful accounts................. -- -- 4,994 2,563 4,665
Decrease (increase) in accounts receivable...... 29,274 69,905 69,830 (25,305) (66,582)
Increase (decrease) in accounts payable and
other liabilities............................. 30,593 (23,679) 6,345 (29,542) 20,465
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities.................................. 16,854 9,900 56,957 60,382 (32,537)
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisition of radio station........................ -- -- (40,000) -- --
Purchases of property and equipment................. -- -- (14,956) (7,115) (18,843)
Payment of escrow deposit........................... -- -- (25,000) -- --
Other............................................... 500 -- 362 846 --
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities.................................. 500 -- (79,594) (6,269) (18,843)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Principal payments for debt reduction............... (11,135) (7,240) (34,745) (51,199) (33,021)
Stockholder contribution............................ -- -- 61,000 -- --
Proceeds from short term borrowings................. -- -- -- -- 35,331
Borrowings from shareholders........................ -- -- -- -- 54,900
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities.................................. (11,135) (7,240) 26,255 (51,199) 57,210
---------- ---------- ---------- ---------- ----------
Increase in cash and cash equivalents................. 6,219 2,660 3,618 2,914 5,830
Cash and cash equivalents at beginning of period...... 13,869 10,251 10,251 7,337 1,507
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period............ $ 20,088 $ 12,911 $ 13,869 $ 10,251 $ 7,337
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Supplemental disclosures of cash flow information:
Cash paid for interest.............................. $ 21,744 $ 28,488 $ 82,810 $ 95,440 $ 92,654
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash paid for income taxes.......................... $ -- $ -- $ -- $ -- $ --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See Notes to Financial Statements.
F-390
<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-391
<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, $118,347 and $145,253 for the years
ended December 31, 1997, 1996, and 1995, 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-392
<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, 1996 and 1995
was $28,882, $40,835, and $40,204, 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, 1996 and 1995
was $5,000, $5,003, and $8,335, 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-393
<PAGE>
TRYON-SEACOAST COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
The Company incurred expenses of approximately $1,441, $4,538, and $9,774
for the years ended December 31, 1997, 1996 and 1995, 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-394
<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-395
<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-396
<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-397
<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-398
<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-399
<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-400
<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-401
<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-402
<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-403
<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-404
<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-405
<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 stockholder's deficit and of cash flows present
fairly, in all material respects, the financial position of Venice Broadcasting
Corp. 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
June 9, 1998
F-406
<PAGE>
VENICE BROADCASTING CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
ASSETS
Current assets:
Cash................................................................................. $ 4,432 $ 4,101
Accounts receivable, less allowance for doubtful accounts of $20,935 in 1997 and $0
in 1996............................................................................ 10,670 81,230
Prepaid expenses and other current assets............................................ -- 1,250
----------- -----------
Total current assets............................................................... 15,102 86,581
Property and equipment, net............................................................ 314,264 340,624
Intangible assets, net................................................................. 234,200 296,609
Other assets........................................................................... 1,760 1,760
----------- -----------
Total assets....................................................................... $ 565,326 $ 725,574
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses................................................ $ 121,837 $ 88,478
Accrued interest payable............................................................. 1,086,574 1,086,574
Notes payable........................................................................ -- 95,271
Related party payable................................................................ 4,224,613 3,702,613
----------- -----------
Total current liabilities.......................................................... 5,433,024 4,972,936
----------- -----------
Stockholder's deficit:
Common stock, no par value, 500 shares authorized, 100 shares issued and
outstanding........................................................................ 500 500
Retained deficit..................................................................... (4,868,198) (4,247,862)
----------- -----------
Total stockholder's deficit............................................................ (4,867,698) (4,247,362)
----------- -----------
Total liabilities and stockholder's deficit............................................ $ 565,326 $ 725,574
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements.
F-407
<PAGE>
VENICE BROADCASTING CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Revenues:............................................................................. $ 681,021 $ 1,030,361
Less: agency commissions.............................................................. (70,504) (152,393)
------------ ------------
Net revenues...................................................................... 610,517 877,968
------------ ------------
Operating expenses:
Programming......................................................................... 190,939 261,206
Sales and promotions................................................................ 351,651 366,765
Technical........................................................................... 104,651 51,901
General and administrative.......................................................... 472,718 222,350
Depreciation and amortization....................................................... 88,769 168,771
------------ ------------
Total operating expenses.......................................................... 1,208,728 1,070,993
------------ ------------
Loss from operations.................................................................. (598,211) (193,025)
Interest expense...................................................................... 22,125 193,193
------------ ------------
Net loss.............................................................................. $ (620,336) $ (386,218)
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements.
F-408
<PAGE>
VENICE BROADCASTING CORP.
STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK DEFICIT TOTAL
----------- ------------- -------------
<S> <C> <C> <C>
Balance at January 1, 1996............................................... $ 500 $ (3,861,644) $ (3,861,144)
Net loss................................................................. -- (386,218) (386,218)
----- ------------- -------------
Balance at December 31, 1996............................................. 500 (4,247,862) (4,247,362)
Net loss................................................................. -- (620,336) (620,336)
----- ------------- -------------
Balance at December 31, 1997............................................. $ 500 $ (4,868,198) $ (4,867,698)
----- ------------- -------------
----- ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-409
<PAGE>
VENICE BROADCASTING CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1996
----------- -----------
Cash flows from operating activities:
Net loss.............................................................................. $ (620,336) $ (386,218)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization....................................................... 88,769 168,771
Decrease in accounts receivable..................................................... 70,560 260,475
Decrease in prepaid expenses and other current assets............................... 1,250 --
(Decrease) increase in accounts payable and accrued expenses........................ 33,359 (106,238)
Increase in accrued interest payable................................................ -- 173,472
----------- -----------
Net cash (used in) provided by operating activities................................. (426,398) 110,262
----------- -----------
Cash flows from financing activities:
Proceeds from notes................................................................... 522,000 64,325
Principal payments on notes........................................................... (95,271) (176,559)
----------- -----------
Cash provided by (used for) financing activities...................................... 426,729 (112,234)
----------- -----------
Increase (decrease) in cash and cash equivalents........................................ 331 (1,972)
Cash at beginning of year............................................................... 4,101 6,073
----------- -----------
Cash at end of year..................................................................... $ 4,432 $ 4,101
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid for interest.................................................................. $ 22,125 $ 19,721
----------- -----------
----------- -----------
Non-cash operating activities:
Trade revenue......................................................................... $ 249,315 $ 360,006
----------- -----------
----------- -----------
Trade expense......................................................................... $ 249,315 $ 360,006
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements.
F-410
<PAGE>
VENICE BROADCASTING CORP.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Venice Broadcasting Corp. owns and operates radio station WXKR-FM (the
"Station" or "Company") located in Port Clinton, Ohio. The Company acquired
WXKR-FM in 1990.
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.
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 equipment............................................. 5 years
Office furniture and equipment..................................... 7 years
Tower and antenna.................................................. 31.5
Leasehold improvement.............................................. 31.5
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
INTANGIBLE ASSETS
Intangible assets include goodwill and FCC license. 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 25 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, with the consent of its stockholder, has elected under the
Internal Revenue Code to be an S corporation. In lieu of corporation income
taxes, the stockholder of an S corporation includes the Company's taxable income
or loss in its tax return. Therefore, no provision or liability for federal
income taxes has been included in these 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.
F-411
<PAGE>
VENICE BROADCASTING CORP.
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.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Broadcasting equipment.............................................. $ 614,258 $ 614,258
Office furniture and equipment...................................... 201,985 201,985
Tower and antenna................................................... 223,074 223,074
Leasehold improvements.............................................. 150,642 150,642
---------- ----------
1,189,959 1,189,959
Accumulated depreciation............................................ 875,695 849,335
---------- ----------
Property and equipment, net......................................... $ 314,264 $ 340,624
---------- ----------
---------- ----------
</TABLE>
Depreciation expense was $26,360 and $38,028 for the years ended December 31
1997 and 1996, respectively.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Goodwill, FCC license............................................. $ 1,220,000 $ 1,220,000
Accumulated amortization.......................................... 985,800 923,391
------------ ------------
Intangible assets, net............................................ $ 234,200 $ 296,609
------------ ------------
------------ ------------
</TABLE>
Amortization expense was $62,409 and $130,743 for the years ended December
1997 and 1996, respectively.
4. RELATED PARTY TRANSACTIONS:
The stockholder of the Company and a related party provide cash for the
operations of the Station as needed. In addition, the related party provided
financing to the stockholder to acquire the Station. At December 31, 1997 and
1996, the Company had a balance payable to stockholder of $955,244 and $557,244,
respectively. Also, at December 31, 1997 and 1996, the Company had a balance
payable to a related party of $3,269,369 and $3,145,369, respectively. The
interest rate applicable to the payable balance stockholder accrued at a rate of
5.5%. The interest rate applicable to the payable balance related party
F-412
<PAGE>
VENICE BROADCASTING CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RELATED PARTY TRANSACTIONS: (CONTINUED)
accrued at a rate of 5.5% through December 31, 1996. The payable balances have
no defined payment terms.
5. COMMITMENTS AND CONTINGENCIES
The Company incurred expenses of approximately $12,000 for the years ended
December 31, 1997 and 1996 under an operating lease for radio broadcasting
facilities. Future minimum annual payments under this non-cancelable operating
lease is $12,000 each year through the year 2000.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and accounts payable and
settlements payable approximates fair value because of the short maturity of
these instruments.
7. SUBSEQUENT EVENTS
In January 1998, the Company completed the sale of substantially all
property and equipment of the station to Cumulus Media Inc. for approximately
$5,000,000.
F-413
<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-414
<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-415
<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-416
<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-417
<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-418
<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-419
<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. Because this acquisition occurred
in March 1996, which is near January 1, 1996, the beginning of the fiscal year,
the Company does not believe the pro forma effects of this acquisition is
material in relation to the financial statements for the year ended December 31,
1996.
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-420
<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-421
<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-422
<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 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
Atlanta, Georgia
May 21, 1998
F-423
<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-424
<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 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues................................... $ -- $ 318,925 $ 1,800,955 $ 1,924,745 $ 1,886,065
Less: agency commissions................. -- (38,529) (236,084) (261,440) (278,628)
------------ ------------ ------------ ------------ ------------
Net revenues......................... -- 280,396 1,564,871 1,663,305 1,607,437
------------ ------------ ------------ ------------ ------------
Operating expense
Programming.............................. 88,366 379,521 393,565 357,781
Sales and promotions..................... 86,917 413,957 459,593 450,494
Technical................................ 18,985 29,686 52,024 57,623 46,509
General and administrative............... 12,502 97,936 622,857 621,430 575,095
Depreciation............................. 2,015 3,900 13,043 8,333 1,460
------------ ------------ ------------ ------------ ------------
33,502 306,805 1,481,402 1,540,544 1,431,339
Other income............................... 11,430
------------ ------------ ------------ ------------ ------------
Net income (loss).......................... $ (22,072) $ (26,409) $ 83,469 $ 122,761 $ 176,098
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Pro forma adjustments (unaudited)
Net income (loss) before pro forma
adjustment................................ $ (22,072) $ (26,409) $ 83,469 $ 122,761 176,098
Pro forma adjustment for provision
(benefit) for federal and state income
taxes..................................... (8,387) (10,035) 31,685 46,600 66,845
------------ ------------ ------------ ------------ ------------
Pro forma net income (loss)................ $ (13,685) $ (16,374) $ 51,784 $ 76,161 $ 109,253
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
F-425
<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 1995
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)............................... $ (22,072) $ (26,409) $ 83,469 $ 122,761 $ 176,092
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 2,015 3,900 13,043 8,333 1,460
(Increase) decrease in accounts receivable.... 328,302 80,141 (72,699) 15,297 (117,112)
Increase (decrease) in accounts payable....... (8,693) 2,360 2,485 (5,091) 5,160
Increase (decrease) in accrued expenses....... (23,107) 1,699 9,623 919 (19,121)
---------- ----------- ---------- ----------- -----------
Net cash provided by operating activities......... 276,445 61,691 35,921 142,219 46,479
---------- ----------- ---------- ----------- -----------
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) (46,479)
---------- ----------- ---------- ----------- -----------
Change in cash.................................... -- -- -- -- --
Cash balance, beginning of period................. -- -- -- -- --
---------- ----------- ---------- ----------- -----------
Cash balance, end of period....................... $ -- $ -- $ -- $ -- $ --
---------- ----------- ---------- ----------- -----------
---------- ----------- ---------- ----------- -----------
</TABLE>
See notes to financial statements.
F-426
<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 1995
---------- ----------- -----------
<S> <C> <C> <C>
Owners' net investment, beginning.......................................... $ 307,977 $ 291,263 $ 161,650
Net income................................................................. 83,469 122,761 176,092
Net distributions to owners................................................ (32,506) (106,047) (46,479)
---------- ----------- -----------
Owners' net investment, ending............................................. $ 358,940 $ 307,977 $ 291,263
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See notes to financial statements.
F-427
<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, $64,806, and
$49,149 for the years ended December 31, 1997, 1996 and 1995, 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-428
<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, $255,434 and
$230,029 for the years ended December 31, 1997, 1996 and 1995, 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,
1996 and 1995, 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-429
<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 1997, 1996 and 1995. The Business makes a matching contribution equal
to the required 2% contribution made by all participants.
F-430
<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-431
<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-432
<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-433
<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-434
<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-435
<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-436
<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-437
<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-438
<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-439
<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-440
<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.
Effective August 1, 1997, Capstar Radio Broadcasting Partners, Inc. acquired
the Stations from Benchmark Communications Radio Limited Partnership, Inc., L.P.
As discussed in Note 2 to the financial statements, the acquisition was
accounted for as a purchase.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 18, 1998
F-441
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Cumulus Media Inc.
In our opinion, the accompanying combined statements of operations, 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 WWFG-FM and
WOSC-FM (the "Stations") for the period from January 1, 1997 through July 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.
Effective August 1, 1997, Capstar Radio Broadcasting Partners, Inc. acquired
the Stations from Benchmark Communications Radio Limited Partnership Inc., L.P.
As discussed in Note 2 to the financial statements, the acquisition was
accounted for as a purchase.
/s/ PRICE WATERHOUSE LLP
Chicago, Illinois
March 18, 1998
F-442
<PAGE>
WWFG-FM AND WOSC-FM
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
SUCCESSOR
--------------------------
DECEMBER 31,
1997
MARCH 31, ------------
1998
------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................... $ 41,179 $ 1,361
Accounts receivable, less allowance for doubtful accounts of $45,549 and $44,596,
respectively..................................................................... 236,026 242,570
Due from related party............................................................. -- 92,218
Prepaid expenses and other current assets.......................................... 31,810 11,782
------------ ------------
Total current assets............................................................. 309,015 347,931
Property and equipment, net.......................................................... 720,431 699,679
Intangible assets, net............................................................... 6,595,024 6,636,945
------------ ------------
Total assets..................................................................... $ 7,624,470 $7,684,555
------------ ------------
------------ ------------
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable................................................................... $ 758 $ 35,633
Accrued expenses and other current liabilities..................................... 606 22,434
Due to related party............................................................... 75,173 --
Capital lease obligation........................................................... 9,742 11,963
------------ ------------
Total current liabilities........................................................ 86,279 70,030
------------ ------------
Owner's equity:
Owner's equity..................................................................... 7,750,000 7,750,000
Accumulated deficit................................................................ (211,809) (135,475)
------------ ------------
Total owner's equity............................................................. 7,538,191 7,614,525
------------ ------------
Total liabilities and owner's equity............................................. $ 7,624,470 $7,684,555
------------ ------------
------------ ------------
</TABLE>
See Notes to Combined Financial Statements.
F-443
<PAGE>
WWFG-FM AND WOSC-FM
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------------------------- --------------------------------
AUGUST 1, 1997 JANUARY 1, 1997
TO DECEMBER 31, TO JULY 31,
1997 1997
JANUARY 1, 1998 --------------- JANUARY 1, 1997 ---------------
TO MARCH 31, TO MARCH 31,
1998 1997
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues...................................... $ 79,914 $ 639,973 $ 284,528 $ 998,269
Less: agency commissions.................... (3,909) (20,556) (15,460) (57,955)
--------------- --------------- --------------- ---------------
Net revenues............................ 76,005 619,417 269,068 940,314
Operating expenses:
Sales....................................... 21,960 166,411 93,876 250,402
Programming................................. 22,189 111,394 67,768 167,617
Other operating expenses.................... 11,755 121,563 101,753 182,917
General and administrative.................. 52,016 204,594 121,901 352,675
Depreciation and amortization............... 64,419 150,930 92,600 186,568
--------------- --------------- --------------- ---------------
Total operating expenses.................. 172,339 754,892 477,898 1,140,179
--------------- --------------- --------------- ---------------
Loss from operations.......................... (96,334) (135,475) (208,830) (199,865)
Other income (expense)...................... 20,000 -- -- (4,585)
--------------- --------------- --------------- ---------------
Net loss...................................... $ (76,334) $ (135,475) $ (208,830) $ (204,450)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
See Notes to Combined Financial Statements.
F-444
<PAGE>
WWFG-FM AND WOSC-FM
COMBINED STATEMENT OF CHANGES IN OWNER'S EQUITY
<TABLE>
<S> <C>
PREDECESSOR
- ----------
Balance at January 1, 1997...................................................... $(432,690)
Net loss........................................................................ (204,450)
---------
Balance at July 31, 1997........................................................ $(637,140)
---------
---------
SUCCESSOR
- --------
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
Net loss for the three months ended March 31, 1998.............................. (76,334)
---------
Balance at March 31, 1998....................................................... $7,538,191
---------
---------
</TABLE>
See Notes to Combined Financial Statements.
F-445
<PAGE>
WWFG-FM AND WOSC-FM
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
-------------------------------- --------------------------------
AUGUST 1, 1997 JANUARY 1, 1997
TO DECEMBER 31, JANUARY 1, 1997 TO JULY 31,
1997 TO MARCH 31, 1997
--------------- 1997 ---------------
---------------
JANUARY 1, 1998 (UNAUDITED)
TO MARCH 31,
1998
---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $ (76,334) $ (135,475) $ (208,830) $ (204,450)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization............. 64,419 150,930 92,600 186,568
Decrease (increase) in accounts
receivable.............................. 6,544 85,763 94,238 (37,187)
Increase (decrease) in due to/due from
related party........................... 167,391 (85,146) -- --
Decrease (increase) in prepaid expenses
and other current assets................ (20,028) 9,594 (9,698) (15,308)
(Decrease) increase in accounts payable... (34,875) (218) 9,094 98,338
Increase in payable from parent........... -- -- -- 2,269
Decrease in accrued expenses and other
current liabilities..................... (21,828) (8,265) -- (105,402)
Other..................................... -- 141 -- --
--------------- --------------- --------------- ---------------
Net cash provided by operating
activities............................ 85,289 17,324 (22,596) (75,172)
--------------- --------------- --------------- ---------------
Cash flows from investing activities:
Purchase of property, plant and equipment... (43,250) (1,700) (3,710) (6,774)
--------------- --------------- --------------- ---------------
Net cash used for investing
activities............................ (43,250) (1,700) (3,710) (6,774)
--------------- --------------- --------------- ---------------
Cash flows from financing activities:
Principal payments under long-term
obligations............................... (2,221) (14,263) (7,466) (18,078)
--------------- --------------- --------------- ---------------
Net cash used by financing activities... (2,221) (14,263) (7,466) (18,078)
--------------- --------------- --------------- ---------------
Increase (decrease) in cash................... 39,818 1,361 (33,772) (100,024)
Cash at beginning of period................... 1,361 -- 100,024 100,024
--------------- --------------- --------------- ---------------
Cash at end of period......................... $ 41,179 $ 1,361 $ 66,252 $ --
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Supplemental disclosure of cash flow
information
Cash payments for interest.................. $ -- $ -- $ -- $ 1,924
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Non-cash operating activities:
Trade revenue............................... $ 9,888 $ 52,547 $ 42,771 $ 86,615
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Trade expense............................... $ -- $ 74,729 $ 93,305 $ 108,150
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
See Notes to Combined Financial Statements.
F-446
<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. To reflect 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 all periods prior to the acquisition are
labeled "Predecessor".
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 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.
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>
Broadcasting towers and equipment..................................................... 15-39 years 12 years
Office furniture and equipment........................................................ 7 years 5-7 years
Music library......................................................................... 5 years 5 years
Vehicles.............................................................................. 5 years 5 years
Leasehold improvements................................................................ 39 years 13 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-447
<PAGE>
WWFG-FM AND WOSC-FM
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
Benchmark and BRAF IV are limited partnerships which are exempt from federal
and state income taxes. Accordingly, no provision for income taxes has been made
in the accompanying financial statements, as all items of tax attributes pass
through pro rata to each partner in accordance with the partnership agreements.
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.
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 August 1, 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.
F-448
<PAGE>
WWFG-FM AND WOSC-FM
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SUCCESSOR
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>
Successor depreciation expense was $81,068. Predecessor depreciation expense
was $99,213.
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
SUCCESSOR
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>
Successor amortization expense was $69,862. Predecessor amortization expense
was $87,355.
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 also participated in a centralized cash
management system with Benchmark during the Predecessor period. 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.
F-449
<PAGE>
WWFG-FM AND WOSC-FM
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 Predeccessor and Successor were included in a 401(k)
profit sharing plan.
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 16, 1998, the Stations entered into a local agreement with
Cumulus Broadcasting, Inc. ("Cumulus"), a wholly-owned subsidiary of Cumulus
Media Inc.
F-450
<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................ 63
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 64
Business.......................................... 71
Pending Acquisitions.............................. 92
Management........................................ 93
Certain Relationships and Related Transactions.... 101
Principal and Selling Stockholders................ 102
Description of Capital Stock...................... 103
Description of Credit Facility and Notes.......... 111
Shares Eligible for Future Sale................... 114
Underwriting...................................... 115
Certain United States Tax Consequences to
Non-United States Holders of Class A Common
Stock........................................... 119
Legal Matters..................................... 122
Experts........................................... 122
Additional Information............................ 123
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.
7,420,000 SHARES
[LOGO]
CUMULUS MEDIA INC.
CLASS A COMMON STOCK
-------------------
PROSPECTUS
, 1998
-------------------
LEHMAN BROTHERS
BEAR, STEARNS & CO. INC.
BT ALEXu 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 June 25, 1998
7,420,000 Shares
[LOGO]
CUMULUS MEDIA INC.
CLASS A COMMON STOCK
--------------
Of the shares of Class A Common Stock, par value $.01 per share (the "Class
A Common Stock") offered hereby, 6,250,000 shares are being sold by Cumulus
Media Inc. (the "Company") and 1,170,000 shares are being sold by State of
Wisconsin Board (the "Selling Stockholder"). Of the 7,420,000 shares of Class A
Common Stock being offered, 1,484,000 shares are being offered outside the U.S.
and Canada (the "International Offering") by the International Managers and
5,936,000 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 in "Prospectus
Summary--Reorganization and Corporate Structure"), 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 60% of the Common Stock
(representing approximately 78% of the voting power) and will have the ability
to control the Company. See "Description of Capital Stock."
Concurrently with the Stock Offerings, the Company is offering (the
"Preferred Stock Offering") $125.0 million of % Series A Cumulative
Exchangeable Redeemable Preferred Stock Due 2009 (the "Series A Preferred
Stock"), approximately $34.2 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 in
"Prospectus Summary--Reorganization and Corporate Structure") which had an
accreted value as of June 1, 1998 of $34,179,810, at a purchase price equal to
the price to public and $150.0 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 in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources-- Sources
of Liquidity") 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 $15 and $17 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 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 PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2) SELLING STOCKHOLDER
<S> <C> <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 187,500 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 750,000 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
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 ALEXu BROWN INTERNATIONAL
CREDIT LYONNAIS SECURITIES
, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ALTERNATE PAGE FOR INTERNATIONAL
COMMON STOCK PROSPECTUS]
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................ 63
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 64
Business.......................................... 71
Pending Acquisitions.............................. 92
Management........................................ 93
Certain Relationships and Related Transactions.... 101
Principal and Selling Stockholders................ 102
Description of Capital Stock...................... 103
Description of Credit Facility and Notes.......... 111
Shares Eligible for Future Sale................... 114
Underwriting...................................... 115
Certain United States Tax Consequences to
Non-United States Holders of Class A Common
Stock........................................... 119
Legal Matters..................................... 122
Experts........................................... 122
Additional Information............................ 123
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.
7,420,000 SHARES
[LOGO]
CUMULUS MEDIA INC.
CLASS A COMMON STOCK
-------------------
PROSPECTUS
, 1998
-------------------
LEHMAN BROTHERS
BEAR, STEARNS
INTERNATIONAL LIMITED
BT ALEXuBROWN
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 JUNE 25, 1998
PRELIMINARY PROSPECTUS
$150,000,000
[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
in "Description of Notes--Optional Redemption"), 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
in "Description of Notes--Certain Definitions"), 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 in
"Description of Notes--Certain Definitions") of the Company, including all
borrowings of the Company under the Credit Facility (as defined in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Sources of Liquidity"). The Notes
will be fully and unconditionally guaranteed (the "Subsidiary Guarantees") on an
unsecured, senior subordinated basis by each subsidiary of the Company in
existence on the date of the Indenture (as defined in "Description of Notes--
General") and any Restricted Subsidiary (as defined in "Description of
Notes--Certain Definitions") created or acquired by the Company after such date
(the "Subsidiary Guarantors"). On a pro forma basis after giving effect to the
Transactions (as defined in "Prospectus Summary") as if they had occurred on
March 31, 1998, the Company would have had outstanding approximately $40.6
million of Senior Debt that would effectively rank senior to the Notes and the
Subsidiary Guarantors would have had $40.6 million (constituting guarantees of
borrowings by the Company under the Credit Facility) of outstanding Guarantor
Senior Debt (as defined in "Description of Notes--Certain Definitions") which
would have ranked senior in right of payment to the Subsidiary Guarantees. See
"Description of Notes -- Subordination." The Indenture (as defined in
"Description of Notes--General') pursuant to which the Notes will be issued
permits the Company and its subsidiaries to incur additional Indebtedness (as
defined in "Description of Notes--Certain Definitions"), including Senior Debt
and Guarantor Senior Debt, subject to certain limitations. See "Capitalization"
and "Description of Notes."
Concurrently with the Debt Offering, the Company is offering $125.0 million
of % Series A Cumulative Exchangeable Redeemable Preferred Stock Due 2009,
(the "Series A Preferred Stock" ), approximately $34.2 million of which is being
offered directly by the Company, and not through the Underwriters (as defined in
"Prospectus Summary--Reorganization and Corporate Structure"), to The
Northwestern Mutual Life Insurance Company, the sole owner of the NML Preferred
Stock (as defined in "Prospectus Summary--Reorganization and Corporate
Structure) which had an accreted value as of June 1, 1998 of $34,179,810, at a
purchase price equal to the price to public (the "Preferred Stock Offering") and
7,420,000 shares of the Company's Class A Common Stock, par value $.01 per share
(the "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
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE 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."
i
<PAGE>
THE DEBT OFFERING
<TABLE>
<S> <C>
ISSUER............................ Cumulus Media Inc.
SECURITIES OFFERED................ $150.0 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."
SUBSIDIARY GUARANTEES............. The Notes will be fully and unconditionally guaranteed
on an unsecured, senior subordinated basis by each
Subsidiary of the Company in existence on the date of
the Indenture and any Restricted Subsidiary created or
acquired by the Company after such date. The Subsidiary
Guarantors will also guarantee the Credit Facility. In
addition, the Credit Facility is secured by pledges of
all of the capital stock of the Subsidiary Guarantors
and security interests in substantially all other
tangible and intangible assets of the Company and the
Subsidiary Guarantors. See "Description of
Notes--Subsidiary Guarantees."
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. The Subsidiary Guarantees will be
subordinated to all Guarantor Senior Debt on the same
basis as the Notes are subordinated to Senior Debt of
the Company. On a pro forma basis, after giving effect
to the Transactions as if they had occurred on March 31,
1998, the Company would have had outstanding
approximately $40.6
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
million of Senior Debt and the Subsidiary Guarantors
would have had $40.6 million (constituting guarantees of
borrowings by the Company under the Credit Facility) of
outstanding Guarantor Senior Debt which would have
ranked senior in right of payment to the Subsidiary
Guarantees.
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 of business of certain
Unrestricted Subsidiaries. See "Description of Notes --
Certain Covenants."
SECURITY.......................... None.
USE OF PROCEEDS................... Approximately $245.1 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 6,250,000 shares of its Class A Common Stock
and 125,000 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 "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 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
Company is aware that the DOJ has opened an investigation with respect to the
Company's Pending Acquisitions in two markets which potentially affects the
acquisition of up to an additional nine stations in the aggregate.
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 in "Description of Capital Stock--Series
A Preferred Stock and Exchangeable Debentures") or the Exchange Debenture
Indenture (as defined in "Description of Capital Stock--Series A Preferred Stock
and Exchangeable Debentures") 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."
A-3
<PAGE>
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 initiating the integration
of new properties, future performance and profitability, if any, will depend in
part on the Company's ability to integrate fully the operations and systems of
acquired radio stations and radio groups, to hire qualified additional
personnel, and to implement necessary enhancements to its Internet-based and
other 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
$11.9 million for the three months ending March 31, 1998 and $39.8 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, 2000. 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 non-binding arrangements with potential sellers
could require substantial capital. The Company estimates that it will have
significant capital requirements for the remainder of 1998, including
approximately $245.1 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.
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 $190.6
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 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
A-4
<PAGE>
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 approximately $3.5 million and $3.5 million for
the period from inception on May 22, 1997 to December 31, 1997 and for the three
months ended March 31, 1998, respectively. 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 Exchange Debenture
Indenture will be dependent upon the Company's future performance and various
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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 AND THE SUBSIDIARY GUARANTEES
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 $40.6 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. The
Subsidiary Guarantees will be subordinated to all Guarantor Senior Debt on the
same basis as the Notes are subordinated to Senior Debt of the Company. 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 in "Description of Notes--Certain
Definitions") 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 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 March 31, 1998, on a pro forma basis after giving effect to the Transactions,
there would have been $0.3 million of 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
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Indebtedness (whether as a result of the failure to comply with a payment or
other covenant, a cross-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 or the Subsidiary Guarantees and the
Company's financial condition and the value of the Notes could be materially
adversely affected. See "Description of Credit Facility."
PURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon a Change of Control (as defined in "Description of Notes--Certain
Definitions"), 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 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
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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.
In addition, the Subsidiary Guarantees may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
any of the Subsidiary Guarantors. In such a case, the analysis set forth above
would generally apply, except that the Subsidiary Guarantees could also be
subject to the claim that, since the Subsidiary Guarantees were incurred for the
benefit of the Company (and only indirectly for the benefit of the Subsidiary
Guarantors), the obligations of the Subsidiary Guarantors thereunder were
incurred for less than reasonably equivalent value of fair consideration. A
court could void any of the Subsidiary Guarantors' obligations under the
Subsidiary Guarantees, subordinate the Subsidiary Guarantees to other
indebtedness of a Subsidiary Guarantor or take other action detrimental to the
holders of the Notes.
POSSIBLE UNENFORCEABILITY OF SUBSIDIARY GUARANTEES
The Company derives certain of its operating income from its subsidiaries.
The holders of the Notes will have no direct claim against such subsidiaries
other than a claim created by one or more of the Subsidiary Guarantees, which
may themselves be subject to legal challenge in a bankruptcy or reorganization
case or a lawsuit by or on behalf of creditors of a Subsidiary Guarantor. See
"--Fraudulent Conveyance Risks." If such a challenge were upheld, such
Subsidiary Guarantees would be invalid and unenforceable. To the extent that any
of such Subsidiary Guarantees are not enforceable, the rights of the holders of
the Notes to participate in any distribution of assets of any Subsidiary
Guarantor upon liquidation, bankruptcy, reorganization or otherwise will, as is
the case with other unsecured creditors of the Company, be subject to prior
claims of creditors of that Subsidiary Guarantor. The Company must rely in part
upon distributions from its subsidiaries to generate the funds necessary to meet
its obligations, including the payment of principal of and interest on the
Notes. The Indenture contains covenants that restrict the ability of the
Company's subsidiaries to enter into any agreement limiting distributions and
transfers, including dividends. However, the ability of the Company's
subsidiaries to make distributions may be restricted by among other things,
applicable state corporate laws and other laws and regulations or by terms of
agreements to which they are or may become a party. In addition, there can be no
assurance that such distributions will be adequate to fund the interest and
principal payments on the Credit Facility and the Notes when due. See
"Description of Notes."
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
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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 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
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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 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 Telecom Act and 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. There can be no
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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 DOJ or the FTC 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% to 40% 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% to 40% 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 are not or 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
Acquisitions in two markets which potentially affects 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
improve its product, 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 Management Corporation ("QUAESTUS"), an entity controlled by Mr.
Weening, and Stratford Research, Inc. ("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."
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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.
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DESCRIPTION OF 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 June 1, 1998
approximately $129.0 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.
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COVENANTS
The terms of the Credit Facility contain operating and financial covenants,
including, without limitation, requirements to maintain minimum ratios of cash
flow to interest expense and cash flow to debt service and maximum ratios of
total debt to cash flow and senior debt to cash flow. The Credit Facility
provides that the Company must maintain (a) for any four fiscal quarters, a
minimum ratio of cash flow to interest expense that increases incrementally from
1.30 to 1.00 as of the date hereof to 2.50 to 1.00 for the period ending July 1,
2001 or thereafter; (b) for any four fiscal quarters, a minimum ratio of cash
flow to debt service of 1.10 to 1.00; (c) for any four fiscal quarters, a
maximum ratio of total debt to cash flow decreasing incrementally from 8.00 to
1.00 as of the date hereof to 5.50 to 1.00 for the period ending January 1, 2000
and thereafter; and (d) for any four fiscal quarters, a maximum ratio of senior
debt to cash flow decreasing incrementally from 5.00 to 1.00 upon the
consummation of the Offerings to 3.50 to 1.00 for the period ending January 1,
2000 and thereafter. 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, 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.
Effective as of May 1, 1998, the Company entered into an amendment to the
Credit Facility pursuant to which certain financial covenants and certain other
provisions therein were modified to take into account the proposed Offerings and
the Pending Acquisitions. The material terms of such covenants, as amended, are
described in "Description of Credit Facility--Covenants."
The Credit Facility was further amended on June 24, 1998 to take into
account the Subsidiary Guarantees and to reduce the revolving line of credit to
$100.0 million and the term loan facility to $50.0 million.
A-14
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to an Indenture (the "Indenture") among
the Company, the Subsidiary Guarantors 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 Terrence Leahy, Secretary
and General Counsel of the Company at 111 East Kilbourn Avenue, Milwaukee,
Wisconsin 53202, Telephone: (414) 615-2800, Facsimile: (414) 615-2880. 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 $40.6 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 other than CCC 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 (i) 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), so long as the rights
of the holders of such Senior Debt are not altered or impaired without their
consent, and (ii) payments made from the trust described under "-- Legal
Defeasance and Covenant Defeasance", so long as such trust at the time of its
creation does not violate the Credit Facility).
The Company also may not make any payment (whether by redemption, purchase,
retirement, defeasance or otherwise) upon or in respect of the Notes (except (i)
in such subordinated securities, so long as the rights of the holders of such
Senior Debt are not altered or impaired without their consent or
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<PAGE>
(ii) from the trust described under "-- Legal Defeasance and Covenant
Defeasance", so long as such trust at the time of its creation does not violate
the Credit Facility) 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 (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, would have been approximately
$40.6 million, which includes $40.6 million of borrowings under the Credit
Facility. See "Description of 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 $150.0 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.
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<PAGE>
SUBSIDIARY GUARANTEES
Each Subsidiary Guarantor will unconditionally guarantee, jointly and
severally, to each holder and the Trustee, on a senior subordinated basis, the
full and prompt payment of principal of, premium, if any, and interest on the
Notes, and of all other obligations under the Indenture.
The Indebtedness evidenced by each Subsidiary Guarantee (including the
payment of principal of, premium, if any, and interest on the Notes) will be
subordinated to all Guarantor Senior Debt of such Subsidiary Guarantor on the
same basis as the Notes are subordinated to Senior Debt of the Company. As of
March 31, 1998, on a pro forma basis after giving effect to the Transactions,
there would have been approximately $40.6 million of Guarantor Senior Debt of
Subsidiary Guarantors (all of which would have represented Guarantees of
borrowings under the Credit Facility). Although the Indenture contains
limitations on the amount of additional Indebtedness that the Subsidiary
Guarantors may incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any case, such Indebtedness may be
Guarantor Senior Debt. See "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock" below. See "--Subordination" above.
The obligations of each Subsidiary Guarantor will be limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor (including, without limitation, any
Guarantees under the Credit Facility) and after giving effect to any collections
from or payments made by or on behalf of any other Subsidiary Guarantor in
respect of the obligations of such other Subsidiary Guarantor under its
Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation. Each
Subsidiary Guarantor may consolidate with or merge into or sell all or
substantially all its assets to a corporation, partnership or trust other than
the Company or another Subsidiary Guarantor (whether or not affiliated with the
Subsidiary Guarantor), except that if the surviving corporation of any such
merger or consolidation is a Subsidiary of the Company, such Subsidiary shall
not be a foreign Subsidiary. Upon the sale or disposition of a Subsidiary
Guarantor (by merger, consolidation, the sale of its Capital Stock or the sale
of all or substantially all of its assets) to a Person (whether or not an
Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the Company,
which sale or disposition is otherwise in compliance with the Indenture
(including the covenant described under "Repurchase at the Option of the the
Holders--Asset Sales"), such Subsidiary Guarantor will be deemed released from
all its obligations under the Indenture and its Subsidiary Guarantee and such
Subsidiary Guarantee will terminate; provided, however, that any such
termination will occur only to the extent that all obligations of such
Subsidiary Guarantor under the Credit Facility and all of its guarantees of, and
under all of its pledges of assets or other security interests which secure, any
other Indebtedness of the Company will also terminate upon such release, sale or
transfer.
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
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<PAGE>
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 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)
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(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, 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. The
outcome of any claim in this area which more clearly defines the phrase
"substantially all" would assist to resolve such uncertainty. In the absence of
a definitive judicial determination of the definition of "substantially all," it
will be necessary for a Holder to seek to clarify such interpretation through
litigation or other proceedings.
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<PAGE>
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
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
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<PAGE>
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) the net proceeds
of such sale, liquidation or repayment and (B) the amount of such Restricted
Investment, PLUS (iv) $5.0 million.
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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 pursuant to the test set forth
in the first paragraph of the covenant described 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 pursuant to the test set forth in the
first paragraph of the covenant described 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 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
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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 and the
Subsidiary Guarantors may incur Indebtedness (including Acquired Debt) and the
Company may issue shares of Disqualified Stock if the Company's Leverage Ratio
at the time of the incurrence of such Indebtedness or issuance of such
Disqualified Stock, after giving pro forma effect thereto and to the use of
proceeds therefrom, is less than 7.0 to 1.0. Accrual of interest, accretion or
amortization of original issue discount and the payment of interest in the form
of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
Notwithstanding the foregoing, the Indenture will not prohibit any of the
following (collectively, "Permitted Indebtedness"): (a) the Indebtedness
evidenced by the Notes and the Subsidiary Guarantees; (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
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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 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; (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 and (n) Guarantor Senior Debt
constituting Guarantees by the Subsidiary Guarantors of Senior Debt incurred
under a Credit Agreement that is permitted by the terms of the Indenture to be
incurred.
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 $1.0 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 and the Subsidiary Guarantors
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 or Guarantor Senior Debt, respectively, and senior in any respect in right
of payment to the Notes or the Subsidiary Guarantees, respectively; PROVIDED,
HOWEVER, the foregoing
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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.
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) the Debentures and the Exchange
Debenture Indenture, (d) the Certificate of Designation, (e) applicable law, (f)
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, (g) customary non-assignment
provisions in leases entered into in the ordinary course of business, (h)
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 (i) 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
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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
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 Affiliate Transactions
complies with clause (i) above and that such Affiliate Transaction or series of
Affiliate 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
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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.
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
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public availability within the time periods set forth in the Commission's rules
and regulations (unless the Commission will not accept such a filing).
FUTURE SUBSIDIARY GUARANTORS
After the date of the Indenture, the Company will cause each Restricted
Subsidiary created or acquired by the Company after such date to execute and
deliver to the Trustee a Subsidiary Guarantee pursuant to which such Subsidiary
Guarantor will unconditionally Guarantee, on a joint and several basis, the full
and prompt payment of the principal of, premium, if any and interest on the
Notes on a senior subordinated basis.
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
captions, "Repurchase at the Option of Holders", "Certain Covenants--Merger,
Consolidation, or Sale of Assets; Issuances and Sales of Capital Stock of Wholly
Owned Subsidiaries" and the provisions regarding Asset Sale Offers under the
caption "Asset Sales"; (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 (net of any amounts with respect to which a creditworthy insurance
company has acknowledged full liability in writing), which judgments remain
unpaid or discharged for a period of 60 days; (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 or (viii) any Subsidiary Guarantee ceases to be in full force and
effect (except as contemplated by the terms of the Indenture) or any Subsidiary
Guarantor denies or disaffirms its obligations under the Indenture or its
Subsidiary Guarantee.
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.
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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, 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. If the
Company exercises its legal defeasance option, the Subsidiary Guarantees in
effect at such time will terminate. 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
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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. 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.
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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 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, the Notes and the Subsidiary Guarantees 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.
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"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 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'
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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.
"CCC" means Caribbean Communications Company Ltd., a corporation organized
under the laws of Montserrat.
"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 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
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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.
"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
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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.
"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.
"GUARANTOR SENIOR DEBT" means (i) Indebtedness of any Subsidiary Guarantor
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 of any Subsidiary Guarantor 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 Subsidiary Guarantees. Notwithstanding anything to the contrary
in the foregoing sentence, Guarantor Senior Debt will not include (w) any
liability for federal, state, local or other taxes owed by a Subsidiary
Guarantor, (x)
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any Indebtedness of a Subsidiary Guarantor 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 the applicable Subsidiary Guarantor is
permitted to incur such Indebtedness under the Indenture).
"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 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
A-36
<PAGE>
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 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
A-37
<PAGE>
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.
"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
A-38
<PAGE>
of business; (j) any guarantees permitted to be made pursuant to the covenant
entitled "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" and (k) all Investments of the Company and its Restricted
Subsidiaries in existence as of the date of the Indenture.
"PERMITTED LIENS" means (i) Liens outstanding on the date of issuance of
the Notes and Liens securing Senior Debt or Guarantor 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 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
A-39
<PAGE>
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.
"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).
"SUBSIDIARY GUARANTEE" means, individually, any Guarantee of payment of the
Notes by a Subsidiary Guarantor pursuant to the terms of the Indenture, and,
collectively, all such Guarantees. Each such Subsidiary Guarantee will be in the
form prescribed in the Indenture.
"SUBSIDIARY GUARANTOR" means each Subsidiary of the Company in existence on
the date of the Indenture and any Restricted Subsidiary created or acquired by
the Company after such date.
"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), (ii) any Subsidiary
of an Unrestricted Subsidiary and (iii) CCC. 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
A-40
<PAGE>
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 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-41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of June 24, 1998 (assuming consummation of
the Reorganization as of such date and assuming an offering price of $16.00 per
share) and as adjusted to give effect to the sale of Class A Common 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 CLASS B COMMON STOCK(1)
--------------------------------------------------------------- -----------------------------------
AFTER
PRIOR TO STOCK PRIOR TO STOCK STOCK
OFFERINGS SHARES AFTER STOCK OFFERINGS OFFERINGS OFFERINGS
------------------------ BEING -------------------------- ------------------------ ---------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER
- -------------------------- --------- ------------- --------- ----------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
State of Wisconsin
Investment Board 1,170,000 85.8% 1,170,000 -- -- 3,751,950 43.1% 3,751,950
NationsBanc Capital Corp. -- -- -- -- -- 3,343,417 38.4% 3,343,417
Heller Equity Capital
Corporation -- -- -- -- -- 922,272 10.6% 922,272
The Northwestern Mutual
Life Insurance Company -- -- -- -- -- 693,728 8.0% 693,728
CML Holdings, LLC -- -- -- -- -- -- -- --
QUAESTUS Management
Corporation -- -- -- -- -- -- -- --
DBBC of Georgia, LLC -- -- -- -- -- -- -- --
Richard W. Weening -- -- -- -- -- -- -- --
Lewis W. Dickey, Jr.
William M. Bungeroth 96,725 7.1% -- 96,725(4) 1.3% -- -- --
Richard J. Bonick, Jr. 96,725 7.1% -- 96,725(4) 1.3% -- -- --
Robert H. Sheridan, III -- -- -- -- (5) -- -- -- --
Ralph B. Everett -- -- -- -- (5) -- -- -- --
All Executive Officers and
Directors, as a group (6
persons)................ 193,450 14.2% -- 193,450 2.6% -- -- --
<CAPTION>
CLASS C COMMON STOCK(2)
--------------------------------------------------
PRIOR TO STOCK
OFFERINGS AFTER STOCK OFFERINGS
------------------------ ------------------------
NAME PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
- -------------------------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
State of Wisconsin
Investment Board 43.1% -- -- -- --
NationsBanc Capital Corp. 38.4% -- -- -- --
Heller Equity Capital
Corporation 10.6% -- -- -- --
The Northwestern Mutual
Life Insurance Company 8.0% -- -- -- --
CML Holdings, LLC -- 1,643,214 67.5% 1,643,214 67.5%
QUAESTUS Management
Corporation -- 474,356 19.5% 474,356 19.5%
DBBC of Georgia, LLC -- 316,238 13.0% 316,238 13.0%
Richard W. Weening -- 474,356 19.5% 474,356(3) 19.5%
Lewis W. Dickey, Jr. 316,238 13.0% 316,238(3) 13.0%
William M. Bungeroth -- -- -- -- --
Richard J. Bonick, Jr. -- -- -- -- --
Robert H. Sheridan, III -- -- -- -- --
Ralph B. Everett -- -- -- -- --
All Executive Officers and
Directors, as a group (6
persons)................ -- 790,594 32.5% 790,594 32.5%
</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) Represents beneficial ownership attributable to Messrs. Weening and Dickey
as a result of their controlling interests in QUAESTUS and DBBC,
respectively. Does not include options to purchase 1,000,690 shares of Class
C Common Stock granted to each of Messrs. Weening and Dickey under the
Executive Plan.
(4) Does not include options to purchase 235,000 and 30,355 shares of Class A
Common Stock granted to Messrs. Bungeroth and Bonick, respectively, under
the 1998 Plan.
(5) Does not include options to purchase 30,000 shares of class A Common Stock
granted to each of Messrs. Sheridan and Everett upon their election to the
Board of Directors.
A-42
<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........................................................................................... $ 150,000,000
----------------
----------------
</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
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<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-44
<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-45
<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-46
<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-47
<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-48
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Notes 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.
A-49
<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................................
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.
$150,000,000
[LOGO]
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 JUNE 25, 1998
PRELIMINARY PROSPECTUS
$125,000,000
[LOGO]
CUMULUS MEDIA INC.
% SERIES A CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK DUE 2009
Cumulus Media Inc. is offering $125.0 million of its % Series A
Cumulative Exchangeable Redeemable Preferred Stock due 2009 (the "Series A
Preferred Stock"), approximately $34.2 million of which are being offered
directly by the Company, and not through the Underwriters (as defined in
"Underwriting"), to The Northwestern Mutual Life Insurance Company, the sole
owner of the NML Preferred Stock (as defined in "Prospectus
Summary--Reorganization and Corporate Structure"), which had an accreted value
as of June 1, 1998 of $34,179,810, at a purchase price equal to the price to
public (the "Preferred Stock Offering"). The Company will issue 125,000 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 50% 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 in "Description of Series A Preferred Stock and Exchange
Debentures--Optional Redemption") at the redemption price set forth herein. Upon
the occurrence of a Change of Control (as defined in "Description of Series A
Preferred Stock and Exchange Debentures--Certain Definitions"), 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 in "Description of Series A Preferred Stock
and Exchange Debentures--Certain Definitions") of the Company, including all
borrowings of the Company under the Company's Credit Facility (as defined in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations") and the Notes (as defined below). On a pro forma basis after giving
effect to the Transactions (as defined in "Prospectus Summary") as if they had
occurred on March 31, 1998, the Company would have had outstanding approximately
$40.6 million of Exchange Debenture Senior Debt that would effectively rank
senior to the Exchange Debentures. See "Description of Series A Preferred Stock
and Exchange Debentures--Exchange Debentures--Subordination." The Exchange
Debenture Indenture (as defined in "Description of the Series A Preferred Stock
and Exchange Debentures--Exchange Debentures--General") 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, $150.0 million of %
Senior Subordinated Notes Due 2008 (the "Notes") and 7,420,000 shares of the
Company's Class A Common Stock, par value $.01 per share (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."
i
<PAGE>
THE PREFERRED STOCK OFFERING
<TABLE>
<S> <C>
ISSUER....................................... Cumulus Media Inc.
SECURITIES OFFERED........................... 125,000 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 in "Description of the Series A
Preferred Stock and Exchange
Debentures--Series A Preferred Stock"). See
"Description of the Series A Preferred Stock
and Exchange Debentures--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 50% of the
liquidation preference of the Series A
Preferred Stock, with the proceeds of one or
more
</TABLE>
B-1
<PAGE>
<TABLE>
<S> <C>
Equity Offerings at a redemption price equal
to % of the original aggregate liquidation
preference thereof, together with accumulated
and 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 (as defined in "Description of
Series A Preferred Stock and Exchange
Debentures--Certain Definitions"); (ii) the
redemption or repurchase of Junior Securities
(as defined in "Description of the Series A
Preferred Stock and Exchange
Debentures--Rank") or Parity Securities (as
defined in "Description of the Series A
Preferred Stock and Exchange
Debentures--Rank") 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
</TABLE>
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<TABLE>
<S> <C>
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 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 50% 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.
</TABLE>
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<TABLE>
<S> <C>
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 in "Description of Series A
Preferred Stock and Exchange
Debentures--Certain Definitions") of the
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 Series A
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; (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 $245.1 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
</TABLE>
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<TABLE>
<S> <C>
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 6,250,000
shares of its Class A Common Stock and $150
million aggregate principal amount of its
% Senior Subordinated Notes due 2008. Each
Offering is conditioned upon consummation of
each of the other Offerings. See "Use of
Proceeds."
</TABLE>
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.
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<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 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
Company is aware that DOJ has opened an investigation with respect to the
Company's Pending Acquisitions in two markets which potentially affects the
acquisition of up to an additional nine stations in the aggregate.
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 in Description of Capital Stock--Series A
Preferred Stock and Exchangeable Debentures) or the Exchange Debenture Indenture
(as defined in Description of Capital Stock--Series A Preferred Stock and
Exchangeable Debentures) 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.
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<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 initiating the integration
of new properties, future performance and profitability, if any, will depend in
part on the Company's ability to integrate fully the operations and systems of
acquired radio stations and radio groups, to hire qualified additional
personnel, and to implement necessary enhancements to its Internet-based and
other 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
$11.9 million for the three months ending March 31, 1998 and $39.8 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, 2000. 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 non-binding arrangements with potential sellers
could require substantial capital. The Company estimates that it will have
significant capital requirements for the remainder of 1998, including
approximately $245.1 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.
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 $190.6
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
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.
B-7
<PAGE>
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 approximately $3.5 million and $3.5 million for
the period from inception on May 22, 1997 to December 31, 1997 and for the three
months ended March 31, 1998, respectively. 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.
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
B-8
<PAGE>
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 the Series A Preferred Stock and Exchange
Debentures -- 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
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
B-9
<PAGE>
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 Exchange Debentures, 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
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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 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
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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 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 Telecom Act and 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. There can be no
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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 DOJ or the FTC 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% to 40% 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% to 40% 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 are not or 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 affects 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
improve its product, 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. See "Certain Relationships and Related Transactions."
TRANSACTIONS WITH AFFILIATES
QUSTUS Management Corporation ("QUSTUS"), an entity controlled by Mr.
Weening, and Stratford Research, Inc. ("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 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
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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 125,000 shares of Series A Preferred Stock, all of which 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."
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<PAGE>
DESCRIPTION OF THE SERIES A PREFERRED STOCK
AND EXCHANGE DEBENTURES
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."
SERIES A PREFERRED STOCK
GENERAL
The Board of Directors of the Company intends to adopt resolutions creating
a maximum of 125,000 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 94,000 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
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<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>
Prior to , 2001, the Company may, at its option, on any one or
more occasions, redeem up to 50% of the original aggregate liquidation
preference of the Series A Preferred Stock, in whole or in
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<PAGE>
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 50% 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.
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
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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 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.
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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
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
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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 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 and the Subsidiary Guarantors may incur Indebtedness (including Acquired
Debt) and the Company may issue shares of Disqualified Stock if the Company's
Leverage Ratio at the time of the incurrence of such Indebtedness or issuance of
such Disqualified Stock, after giving pro-forma effect thereto and to the use of
proceeds therefrom, is less than 7.0 to 1.0. Accrual of interest, accretion or
amortization of original issue discount and the payment of interest in the form
of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
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Notwithstanding the foregoing, the Certificate of Designation will not
prohibit any of the following (collectively, "Permitted Indebtedness"): (a) the
Indebtedness evidenced by the Notes and the Subsidiary Guarantees; (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 $150.0 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; (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) Guarantor Senior Debt constituting Guarantees by the Subsidiary
Guarantors of Indebtedness
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incurred under the Credit Facility that is permitted by the terms of the
Certificate of Designation to be incurred.
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) 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
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(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.
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
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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 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
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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."
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-
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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 (i) 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 exchange for Exchange Debenture Senior Debt), so long as
the rights of the holders of such Senior Debt are not altered or impaired
without their consent, and (ii) payments made from the trust described under
"--Legal Defeasance and Covenant Defeasance", so long as such trust at the time
of its creation does not violate the Credit Facility).
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 (i) in such subordinated securities or from the trust
described under "--Legal Defeasance and Covenant Defeasance", so long as such
trust at the time of its creation does not violate the Credit Facility) 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
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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 50% 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 50% 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 and the Subsidiary Guarantors may incur Indebtedness
(including Acquired Debt) and the Company may 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. Accrual of interest, accretion or amortization
of original issue discount and the payment of interest in the form of additional
Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes
of this covenant.
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 of
Indebtedness pursuant to Credit Agreements, the Notes or the Subsidiary
Guarantees, so long as the aggregate principal amount of all Indebtedness
outstanding under all Credit Agreements does not, at any one time, exceed $150.0
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
B-33
<PAGE>
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; (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 and (m) Guarantor Senior Debt
constituting Guarantees by the Subsidiary Guarantors of Exchange Debenture
Senior Debt incurred under the Credit Facility that is permitted by the terms of
the Exchange Debenture Indenture to be incurred.
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 $1.0 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
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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 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) 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
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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 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.
ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED RESTRICTED SUBSIDIARIES
The Exchange Debenture 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 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.
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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 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
captions "Repurchase at the Option of Holders", "Certain Covenants--Merger,
Consolidation, or Sale of Assets; Issuances and Sales of Capital Stock of Wholly
Owned Subsidiaries" and the provisions regarding Asset Sale Offers under the
caption "Asset Sales"; (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
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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 (net of any amounts with respect to which
a credit-worthy insurance company has acknowledged full liability in writing),
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 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,
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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 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,
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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.
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
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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 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
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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 (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.
"CCC" means Caribbean Communications Company Ltd., a corporation organized
under the laws of Montserrat.
"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
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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 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.
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"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, 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
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.
"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
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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 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.
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"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.
"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
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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).
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"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
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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; (j) any guarantees permitted to be made pursuant to
the covenant entitled "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock" and (k) all Investments of the Company and its
Restricted Subsidiaries in existence as of the date of the Exchange Debenture
Indenture.
"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
B-49
<PAGE>
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 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), (ii) any Subsidiary
of an Unrestricted Subsidiary and (iii) CCC. The Board of Directors of the
Company may designate any Subsidiary of the Company (including any newly
acquired or newly formed
B-50
<PAGE>
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 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 125,000 shares of Series A Preferred Stock, all of which 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 June 24, 1998 (assuming consummation of
the Reorganization as of such date and assuming an offering price of $16.00 per
share) 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 CLASS B COMMON STOCK(1)
--------------------------------------------------------------- -----------------------------------
AFTER
PRIOR TO STOCK PRIOR TO STOCK STOCK
OFFERINGS SHARES AFTER STOCK OFFERINGS OFFERINGS OFFERINGS
------------------------ BEING -------------------------- ------------------------ ---------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE NUMBER PERCENTAGE NUMBER
- -------------------------- --------- ------------- --------- ----------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
State of Wisconsin
Investment Board 1,170,000 85.8% 1,170,000 -- -- 3,751,950 43.1% 3,751,950
NationsBanc Capital Corp. -- -- -- -- -- 3,343,417 38.4% 3,343,417
Heller Equity Capital
Corporation -- -- -- -- -- 922,272 10.6% 922,272
The Northwestern Mutual
Life Insurance Company -- -- -- -- -- 693,728 8.0% 693,728
CML Holdings, LLC -- -- -- -- -- -- -- --
QUAESTUS Management
Corporation -- -- -- -- -- -- -- --
DBBC of Georgia, LLC -- -- -- -- -- -- -- --
Richard W. Weening -- -- -- -- -- -- -- --
Lewis W. Dickey, Jr.
William M. Bungeroth 96,725 7.1% -- 96,725(4) 1.3% -- -- --
Richard J. Bonick, Jr. 96,725 7.1% -- 96,725(4) 1.3% -- -- --
Robert H. Sheridan, III -- -- -- -- (5) -- -- -- --
Ralph B. Everett -- -- -- -- (5) -- -- -- --
All Executive Officers and
Directors, as a group (6
persons)................ 193,450 14.2% -- 193,450 2.6% -- -- --
<CAPTION>
CLASS C COMMON STOCK(2)
--------------------------------------------------
PRIOR TO STOCK
OFFERINGS AFTER STOCK OFFERINGS
------------------------ ------------------------
NAME PERCENTAGE NUMBER PERCENTAGE NUMBER PERCENTAGE
- -------------------------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
State of Wisconsin
Investment Board 43.1% -- -- -- --
NationsBanc Capital Corp. 38.4% -- -- -- --
Heller Equity Capital
Corporation 10.6% -- -- -- --
The Northwestern Mutual
Life Insurance Company 8.0% -- -- -- --
CML Holdings, LLC -- 1,643,214 67.5% 1,643,214 67.5%
QUAESTUS Management
Corporation -- 474,356 19.5% 474,356 19.5%
DBBC of Georgia, LLC -- 316,238 13.0% 316,238 13.0%
Richard W. Weening -- 474,356 19.5% 474,356(3) 19.5%
Lewis W. Dickey, Jr. 316,238 13.0% 316,238(3) 13.0%
William M. Bungeroth -- -- -- -- --
Richard J. Bonick, Jr. -- -- -- -- --
Robert H. Sheridan, III -- -- -- -- --
Ralph B. Everett -- -- -- -- --
All Executive Officers and
Directors, as a group (6
persons)................ -- 790,594 32.5% 790,594 32.5%
</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) Represents beneficial ownership attributable to Messrs. Weening and Dickey
as a result of their controlling interests in QUAESTUS and DBBC,
respectively. Does not include options to purchase 1,000,690 shares of Class
C Common Stock granted to each of Messrs. Weening and Dickey under the
Executive Plan.
(4) Does not include options to purchase 235,000 and 30,355 shares of Class A
Common Stock granted to Messrs. Bungeroth and Bonick, respectively, under
the 1998 Plan.
(5) Does not include options to purchase 30,000 shares of class A Common Stock
granted to each of Messrs. Sheridan and Everett upon their election to the
Board of Directors.
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........................................................................................ 125,000
-------
-------
</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
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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
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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
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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
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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.
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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
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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.
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LEGAL MATTERS
Certain legal matters with respect to the shares of Series A Preferred Stock
offered hereby will be passed upon for the Company by Holleb & Coff, Chicago,
Illinois. Simpson Thacher & Bartlett, New York, New York has acted as counsel to
the Underwriters in connection with the offerings.
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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 SERIES
A PREFERRED STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SERIES A PREFERRED STOCK 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................................
Dividend Policy................................
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.....................................
Certain Relationships and Related
Transactions..................................
Principal Stockholders.........................
Description of Capital Stock...................
Description of Credit Facility and Notes.......
Description of the Series A Preferred Stock and
Exchange Debentures...........................
Shares Eligible for Future Sale................
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.
$125,000,000
[LOGO]
CUMULUS MEDIA INC.
% SERIES A CUMULATIVE
EXCHANGEABLE REDEEMABLE
PREFERRED STOCK
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
, 1998
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<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................................................ $ 148,303
NASD filing fee................................................. 30,500
Nasdaq National Market listing fee.............................. 66,000
Blue Sky fees and expenses...................................... 7,500
Accounting fees and expenses.................................... 1,250,000
Legal fees and expenses......................................... 1,050,000
Transfer agent and registrar fees............................... 15,000
Printing and engraving expenses................................. 350,000
Miscellaneous expenses 500,000
---------
Total......................................................... $3,417,303
---------
---------
</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 anticipates that it will enter into
indemnification agreements with each of its directors. Pursuant to such
agreements, the Company would indemnify each director (the "Indemnitee") to the
fullest extent permitted by Illinois law if the Indemnitee was, is or becomes a
party to or witness or other participant in any threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism resulting
from any event or occurrence relating to the fact that the Indemnitee is a
director, officer, employee, agent or fiduciary of the Company.
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.
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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.
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)
2.1* Local Programming and Marketing Agreement dated December 17, 1997 between the
Cumulus Broadcasting, Inc. and New Frontier Communications, Inc.
2.2* Local Programming and Marketing Agreement dated January 1, 1998 between Cumulus
Broadcasting, Inc. and Westwind Broadcasting, Inc.
2.3* Local Marketing Agreement dated February 10, 1998 between Cumulus Broadcasting,
Inc. and Wiskes/Abaris Communications KQIZ Partnership
2.4* Time Brokerage Agreement dated December 15, 1997 between Cumulus Broadcasting,
Inc. and Clearly Superior Radio, L.L.C.
2.5* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting,
Inc. and Lyle Evans d/b/a Brillion Radio Company
2.6* Program Service and Time Brokerage Agreement dated October 31, 1997 between
Cumulus Broadcasting, Inc. and Tallahassee Broadcasting Company
2.7* Local Marketing Agreement dated January 14, 1998 between Cumulus Broadcasting,
Inc. and Savannah Communications, L.P.
2.8* Local Programming and Marketing Agreement dated December 23, 1997, between Cumulus
Broadcasting, Inc. and Lewis Broadcasting Corporation
2.9* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting,
Inc. and Jon A. LeDuc
2.10* Program Services and Time Brokerage Agreement dated February 12, 1998 between
Cumulus Broadcasting, Inc. and Pamplico Broadcasting, L.P.
2.11* Asset Purchase Agreement dated December 1, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and West Jewell Management, Inc.
2.12* Asset Purchase Agreement dated October 30, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, and KIKR Inc.
2.13* Asset Purchase Agreement dated December 5, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, and Wiskes/Abaris Communications KQIZ Partnership
2.14* 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
2.15* Asset Purchase Agreement dated December 30, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, and Sovereign Communications Corporation
2.16* 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.
2.17* Asset Purchase Agreement dated February 18, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, and George H. Buck, Jr., d/b/a WHSC Radio
2.18* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, and Pamplico Broadcasting L.P.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
2.19* 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
2.20* 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
2.21* 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.
2.22* 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
2.23* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Lyle R. Evans d/b/a Brillion Radio Company
2.24* Asset Purchase Agreement dated January 14, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Savannah Communications, L.P.
2.25* Asset Purchase Agreement dated December 23, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Lewis Broadcasting Corporation
2.26* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Jon A. LeDuc and American Communications Company,
Inc.
2.27* Asset Purchase Agreement dated January, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Lesnick Communications, Inc. and Mrs. Betty Carey
2.28* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Big Country Broadcasting, Inc., and Tye
Broadcasting, Inc.
2.29* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Arbor Radio, L.P.
2.30* Asset Purchase Agreement dated March 5, 1997 between Wilks Broadcast Acquisitions,
Inc. and Cumulus Media, LLC
2.31* Asset Purchase Agreement dated August 15, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and M & M Partners
2.32* Stock Purchase Agreement dated October 16, 1997 between Cumulus Holdings, Inc. and
Philip T. Kelly
2.33* Stock Purchase Agreement dated November 7, 1997 between Cumulus Holdings, Inc. and
James Maurer
2.34* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Carolina Broadcasting, Inc., and Georgetown
Radio, Inc.
2.35* Asset Purchase Agreement dated October 9, 1997 among Seacoast Radio Company, LLC,
Cumulus Broadcasting, Inc. and Cumulus Licensing Corporation
2.36* Asset Purchase Agreement dated October 9, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Sunny Broadcasters, Inc.
2.37* Asset Purchase Agreement dated June 26, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Venice Michel and Venice Broadcasting Corporation
2.38* Agreement of Sale dated September 4, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Medical College of Georgia Foundation
2.39* Program Service and Time Brokerage Agreement dated August 18, 1997 between Cumulus
Broadcasting, Inc. and Tally Radio, LLC
2.40* Asset Purchase Agreement dated August 18, 1997 among Tally Radio, LLC and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
2.41* Asset Purchase Agreement dated August 18, 1997 among HVS Partners and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
2.42* Asset Purchase Agreement dated August 25, 1997 among HVS Partners and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
2.43* Letter Agreement dated January 16, 1998 between Benchmark Radio Acquisition Fund
IV Limited Partnership, Cumulus Broadcasting, Inc. and Cumulus Licensing Corp.
2.44* WZNY Agreement of Sale dated September 4, 1997 among George G. Weiss and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
2.45* Asset Purchase Agreement dated May 1, 1997 between HVS Partners and Cumulus Media,
LLC
2.46* Asset Purchase Agreement dated April 30, 1997 among Hara Broadcasting, Inc. and
DLM Communications, Inc. and Cumulus Media, LLC
2.47* 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
2.48* Local Marketing Agreement dated February 15, 1998 among Cumulus Broadcasting,
Inc., Pacific Broadcasting of Beaumont, Inc., and Beaumont Skyware Inc.
2.49* Local Marketing Agreement dated December 31, 1997 between Cumulus Broadcasting,
Inc. and Sovereign Communications Corporation and Madison Radio Group Inc.
2.50* Asset Purchase Agreement dated March 23, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Esprit Communications Corporation.
2.51* Purchase Agreement dated November 20, 1996 between IQ Radio, Inc. and Taylor
Country Broadcasting, Inc.
2.52* Assignment and Assumption Agreement dated January 20, 1998 among Taylor Country
Broadcasting, Inc., Cumulus Licensing Corp. and Cumulus Broadcasting, Inc.
2.53* Asset Purchase Agreement dated January 2, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Westwind Broadcasting Inc.
2.54* Asset Purchase Agreement dated March 16, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and P and T Broadcasting, Inc.
2.55* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Crystal Radio Group, Inc.
2.56* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Ocmulgee Broadcasting Co., Inc.
2.57* Local Marketing Agreement dated March 16, 1998 between Cumulus Broadcasting, Inc.
and Phoenix Broadcast Partners, Inc.
2.58* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value
Radio Corporation (WVBO-FM/WOSH-FM/WOGB-FM)
2.59* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value
Radio Corporation (WUSW-FM/WNAM-AM)
2.60* Asset Purchase Agreement dated February 26, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Mustang Broadcasting Company
2.61* 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.
2.62* Asset Purchase Agreement dated March 24, 1998 among WSEA, Inc., Cumulus
Broadcasting, Inc., and Cumulus Licensing Corporation
2.63* Asset Purchase Agreement dated March 30, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Mountain Wireless, Inc.
2.64* Asset Purchase Agreement dated February 5, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Castle Broadcasting Limited Partnership
2.65* Asset Purchase Agreement dated March 5, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, Missouri River Broadcasting, Inc. and JKJ
Broadcasting, Inc.
2.66* Asset Purchase Agreement dated March 11, 1998 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation and Clarendon Country Broadcasting, Co. Inc.
2.67* Asset Purchase Agreement dated April 1998, among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, and Phoenix Broadcast Partners, Inc.
2.68* Stock Purchase Agreement dated January 9, 1998 between Cumulus Holdings, Inc. and
Robert Lowder
2.69* Asset Purchase Agreement dated February 19, 1997 among Cumulus Broadcasting, Inc.,
Cumulus Licensing Corporation, James Ingstad Broadcasting, Inc., Hometown
Wireless, Inc., Radio Iowa Broadcasting, Inc. and Ingstad Mankato, Inc.
3.1* Articles of Incorporation of Cumulus Media Inc.
3.2* Form of Amended and Restated Articles of Incorporation of Cumulus Media Inc.
3.3* Bylaws of Cumulus Media Inc.
3.4* Form of Amended and Restated Bylaws of Cumulus Media Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
3.5* Form of Certificate of Designation with respect to Series A Cumulative
Exchangeable Redeemable Preferred Stock Due 2009.
3.6* Articles of Incorporation of Forjay Broadcasting Corporation
3.7* Bylaws of Forjay Broadcasting Corporation
3.8* Articles of Incorporation of Minority Radio Associates, Inc.
3.9* Bylaws of Minority Radio Associates, Inc.
3.10* Memorandum of Association of GEM Radio Five Ltd.
3.11* Articles of Association of GEM Radio Five Ltd.
3.12* Memorandum of Association of Carribean Communications Company Limited
3.13* Articles of Association of Carribean Communications Company Limited
3.14* Articles of Incorporation of Forjay Licensing Corp.
3.15* Bylaws of Forjay Licensing Corp.
3.16* Articles of Incorporation of MRA Licensing Corp.
3.17* Bylaws of MRA Licensing Corp.
3.18* Articles of Incorporation of Cumulus Broadcasting, Inc.
3.19* Bylaws of Cumulus Broadcasting, Inc.
3.20* Articles of Incorporation of Cumulus Licensing Corp.
3.21* Bylaws of Cumulus Licensing Corp.
4.1* Form of Class A Common Stock Certificate
4.2* Form of Series A Preferred Stock Certificate
5.1* Opinion of Holleb & Coff as to the validity of the Common Stock and the Preferred
Stock
5.2** Opinion of Paul, Hastings, Janofsky & Walker LLP as to the validity of the Notes
10.1* Credit Facility dated March 2, 1998 among Cumulus Media Inc., Lehman Brothers Inc.
and Lehman Commercial Paper Inc.
10.2* First Amendment, dated May 1, 1998, to the Credit Facility among Cumulus Media
Inc., Lehman Brothers Inc. and Lehman Commercial Paper
10.3* Second Amendment, dated June 24, 1998, to the Credit Facility among Cumulus Media
Inc., Lehman Brothers Inc. and Lehman Commercial Paper
10.4* Form of Indenture dated , 1998, between Cumulus Media Inc. and Firstar
Bank of Minnesota, N.A., as Trustee
10.5* Form of Exchange Debenture Indenture, dated , 1998, between Cumulus
Media Inc. and U.S. Bank Trust National Association, as Trustee
10.6** Form of Employment Agreement between Cumulus Media Inc. and Richard W. Weening
10.7** Form of Employment Agreement between Cumulus Media Inc. and Lewis W. Dickey, Jr.
10.8* Employment Agreement between Cumulus Media Inc. and William M. Bungeroth
10.9* Employment Agreement between Cumulus Media Inc. and Richard J. Bonick, Jr.
10.10* Form of Cumulus Media Inc. 1998 Employee Stock Incentive Plan
10.11* Form of Cumulus Media Inc. 1998 Executive Stock Incentive Plan
10.12* Services Agreement dated May 1, 1998 by and between QUAESTUS Management
Corporation and Cumulus Media Inc.
10.13* Services Agreement dated March 23, 1998 between Stratford Research, Inc. 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 KPMG Peat Marwick LLP
23.8* Consent of Johnson, Miller & Co.
23.9* Consent of Holleb & Coff (included in Exhibit 5.1)
23.10* Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.2)
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
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.
*** 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to 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 June 25, 1998.
CUMULUS MEDIA INC.
CUMULUS BROADCASTING, INC.
CUMULUS LICENSING CORP.
FORJAY BROADCASTING CORPORATION
FORJAY LICENSING CORP.
MINORITY RADIO ASSOCIATES, INC.
MRA LICENSING CORP.
BY: /S/ RICHARD W. WEENING
-----------------------------------------
Richard W. Weening
EXECUTIVE CHAIRMAN
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to 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 June 25, 1998
Richard W. Weening Officer)
/s/ RICHARD W. WEENING Executive Vice Chairman and
- ------------------------------ Director
Richard W. Weening, June 25, 1998
As Attorney-in-Fact for
Lewis W. Dickey, Jr.
/s/ RICHARD W. WEENING President and Director
- ------------------------------
Richard W. Weening, June 25, 1998
As Attorney-in-Fact for
William M. Bungeroth
/s/ RICHARD W. WEENING Vice President and Chief
- ------------------------------ Financial Officer
Richard W. Weening, (Principal Accounting June 25, 1998
As Attorney-in-Fact for Officer and Principal
Richard J. Bonick, Jr. Financial Officer)
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to 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 June 25, 1998.
CARRIBEAN COMMUNICATIONS COMPANY LTD.
BY: /S/ WILLIAM M. BUNGEROTH
-----------------------------------------
William M. Bungeroth
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ RICHARD W. WEENING Chairman and Director
- ------------------------------ June 25, 1998
Richard W. Weening
/s/ RICHARD W. WEENING Director
- ------------------------------
Richard W. Weening, June 25, 1998
As Attorney-in-Fact for
Lewis W. Dickey, Jr.
/s/ WILLIAM M. BUNGEROTH President, Treasurer and
- ------------------------------ Director (Principal June 25, 1998
William M. Bungeroth Executive Officer)
/s/ RICHARD W. WEENING Vice President and Director
- ------------------------------
Richard W. Weening, as June 25, 1998
Attorney-in-Fact for
Robin Woodard Weening
Director
- ------------------------------
John Dickey
/s/ RICHARD W. WEENING General Manager (Principal
- ------------------------------ Accounting Officer and
Richard W. Weening, as Principal Financial June 25, 1998
Attorney-in-Fact for Officer)
Cheryl Chambers
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to 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 June 25, 1998.
GEM RADIO FIVE LTD.
BY: /S/ WILLIAM M. BUNGEROTH
-----------------------------------------
William M. Bungeroth
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ WILLIAM M. BUNGEROTH President and Director
- ------------------------------ (Principal Executive June 25, 1998
William M. Bungeroth Officer)
/s/ RICHARD W. WEENING General Manager and
- ------------------------------ Director (Principal
Richard W. Weening, as Accounting Officer and June 25, 1998
Attorney-in-Fact for Principal Financial
Cheryl Chambers Officer)
/s/ RICHARD W. WEENING Director
- ------------------------------
Richard W. Weening, as June 25, 1998
Attorney-in-Fact for
Robin Woodard Weening
Director
- ------------------------------
David Chang
Director
- ------------------------------
Ingrid Crooks-Hussein
II-9
<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)
2.1* Local Programming and Marketing Agreement dated December 17, 1997 between the Cumulus
Broadcasting, Inc. and New Frontier Communications, Inc.
2.2* Local Programming and Marketing Agreement dated January 1, 1998 between Cumulus
Broadcasting, Inc. and Westwind Broadcasting, Inc.
2.3* Local Marketing Agreement dated February 10, 1998 between Cumulus Broadcasting, Inc. and
Wiskes/Abaris Communications KQIZ Partnership
2.4* Time Brokerage Agreement dated December 15, 1997 between Cumulus Broadcasting, Inc. and
Clearly Superior Radio, L.L.C.
2.5* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting, Inc. and
Lyle Evans d/b/a Brillion Radio Company
2.6* Program Service and Time Brokerage Agreement dated October 31, 1997 between Cumulus
Broadcasting, Inc. and Tallahassee Broadcasting Company
2.7* Local Marketing Agreement dated January 14, 1998 between Cumulus Broadcasting, Inc. and
Savannah Communications, L.P.
2.8* Local Programming and Marketing Agreement dated December 23, 1997, between Cumulus
Broadcasting, Inc. and Lewis Broadcasting Corporation
2.9* Local Marketing Agreement dated February 16, 1998 between Cumulus Broadcasting, Inc. and Jon
A. LeDuc
2.10* Program Services and Time Brokerage Agreement dated February 12, 1998 between Cumulus
Broadcasting, Inc. and Pamplico Broadcasting, L.P.
2.11* Asset Purchase Agreement dated December 1, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and West Jewell Management, Inc.
2.12* Asset Purchase Agreement dated October 30, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, and KIKR Inc.
2.13* Asset Purchase Agreement dated December 5, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, and Wiskes/Abaris Communications KQIZ Partnership
2.14* 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
2.15* Asset Purchase Agreement dated December 30, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, and Sovereign Communications Corporation
2.16* 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.
2.17* Asset Purchase Agreement dated February 18, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, and George H. Buck, Jr., d/b/a WHSC Radio
2.18* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, and Pamplico Broadcasting L.P.
2.19* 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
2.20* 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
2.21* 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.
2.22* 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
NO. DESCRIPTION NUMBER
- ---------- -------------------------------------------------------------------------------------------- -------------
2.23* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Lyle R. Evans d/b/a Brillion Radio Company
<S> <C> <C>
2.24* Asset Purchase Agreement dated January 14, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Savannah Communications, L.P.
2.25* Asset Purchase Agreement dated December 23, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Lewis Broadcasting Corporation
2.26* Asset Purchase Agreement dated February 12, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Jon A. LeDuc and American Communications Company, Inc.
2.27* Asset Purchase Agreement dated January, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Lesnick Communications, Inc. and Mrs. Betty Carey
2.28* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Big Country Broadcasting, Inc., and Tye Broadcasting, Inc.
2.29* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Arbor Radio, L.P.
2.30* Asset Purchase Agreement dated March 5, 1997 between Wilks Broadcast Acquisitions, Inc. and
Cumulus Media, LLC
2.31* Asset Purchase Agreement dated August 15, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and M & M Partners
2.32* Stock Purchase Agreement dated October 16, 1997 between Cumulus Holdings, Inc. and Philip T.
Kelly
2.33* Stock Purchase Agreement dated November 7, 1997 between Cumulus Holdings, Inc. and James
Maurer
2.34* Asset Purchase Agreement dated October 29, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Carolina Broadcasting, Inc., and Georgetown Radio, Inc.
2.35* Asset Purchase Agreement dated October 9, 1997 among Seacoast Radio Company, LLC, Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
2.36* Asset Purchase Agreement dated October 9, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Sunny Broadcasters, Inc.
2.37* Asset Purchase Agreement dated June 26, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Venice Michel and Venice Broadcasting Corporation
2.38* Agreement of Sale dated September 4, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Medical College of Georgia Foundation
2.39* Program Service and Time Brokerage Agreement dated August 18, 1997 between Cumulus
Broadcasting, Inc. and Tally Radio, LLC
2.40* Asset Purchase Agreement dated August 18, 1997 among Tally Radio, LLC and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
2.41* Asset Purchase Agreement dated August 18, 1997 among HVS Partners and Cumulus Broadcasting,
Inc. and Cumulus Licensing Corporation
2.42* Asset Purchase Agreement dated August 25, 1997 among HVS Partners and Cumulus Broadcasting,
Inc. and Cumulus Licensing Corporation
2.43* Letter Agreement dated January 16, 1998 between Benchmark Radio Acquisition Fund IV Limited
Partnership, Cumulus Broadcasting, Inc. and Cumulus Licensing Corp.
2.44* WZNY Agreement of Sale dated September 4, 1997 among George G. Weiss and Cumulus
Broadcasting, Inc. and Cumulus Licensing Corporation
2.45* Asset Purchase Agreement dated May 1, 1997 between HVS Partners and Cumulus Media, LLC
2.46* Asset Purchase Agreement dated April 30, 1997 among Hara Broadcasting, Inc. and DLM
Communications, Inc. and Cumulus Media, LLC
2.47* 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
2.48* Local Marketing Agreement dated February 15, 1998 among Cumulus Broadcasting, Inc., Pacific
Broadcasting of Beaumont, Inc., and Beaumont Skyware Inc.
2.49* Local Marketing Agreement dated December 31, 1997 between Cumulus Broadcasting, Inc. and
Sovereign Communications Corporation and Madison Radio Group Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
NO. DESCRIPTION NUMBER
- ---------- -------------------------------------------------------------------------------------------- -------------
2.50* Asset Purchase Agreement dated March 23, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Esprit Communications Corporation.
<S> <C> <C>
2.51* Purchase Agreement dated November 20, 1996 between IQ Radio, Inc. and Taylor Country
Broadcasting, Inc.
2.52* Assignment and Assumption Agreement dated January 20, 1998 among Taylor Country
Broadcasting, Inc., Cumulus Licensing Corp. and Cumulus Broadcasting, Inc.
2.53* Asset Purchase Agreement dated January 2, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Westwind Broadcasting Inc.
2.54* Asset Purchase Agreement dated March 16, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and P and T Broadcasting, Inc.
2.55* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Crystal Radio Group, Inc.
2.56* Asset Purchase Agreement dated March 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Ocmulgee Broadcasting Co., Inc.
2.57* Local Marketing Agreement dated March 16, 1998 between Cumulus Broadcasting, Inc. and
Phoenix Broadcast Partners, Inc.
2.58* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value Radio
Corporation (WVBO-FM/WOSH-FM/WOGB-FM)
2.59* Asset Purchase Agreement dated February 1997 between Cumulus Media, LLC and Value Radio
Corporation (WUSW-FM/WNAM-AM)
2.60* Asset Purchase Agreement dated February 26, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Mustang Broadcasting Company
2.61* 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.
2.62* Asset Purchase Agreement dated March 24, 1998 among WSEA, Inc., Cumulus Broadcasting, Inc.,
and Cumulus Licensing Corporation
2.63* Asset Purchase Agreement dated March 30, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Mountain Wireless, Inc.
2.64* Asset Purchase Agreement dated February 5, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Castle Broadcasting Limited Partnership
2.65* Asset Purchase Agreement dated March 5, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, Missouri River Broadcasting, Inc. and JKJ Broadcasting, Inc.
2.66* Asset Purchase Agreement dated March 11, 1998 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation and Clarendon Country Broadcasting, Co. Inc.
2.67* Asset Purchase Agreement dated April 1998, among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, and Phoenix Broadcast Partners, Inc.
2.68* Stock Purchase Agreement dated January 9, 1998 between Cumulus Holdings, Inc. and Robert
Lowder
2.69* Asset Purchase Agreement dated February 19, 1997 among Cumulus Broadcasting, Inc., Cumulus
Licensing Corporation, James Ingstad Broadcasting, Inc., Hometown Wireless, Inc., Radio
Iowa Broadcasting, Inc. and Ingstad Mankato, Inc.
3.1* Articles of Incorporation of Cumulus Media Inc.
3.2* Form of Amended and Restated Articles of Incorporation of Cumulus Media Inc.
3.3* Bylaws of Cumulus Media Inc.
3.4* Form of Amended and Restated Bylaws of Cumulus Media Inc.
3.5* Form of Certificate of Designation with respect to Series A Cumulative Exchangeable
Redeemable Preferred Stock Due 2009.
3.6* Articles of Incorporation of Forjay Broadcasting Corporation
3.7* Bylaws of Forjay Broadcasting Corporation
3.8* Articles of Incorporation of Minority Radio Associates, Inc.
3.9* Bylaws of Minority Radio Associates, Inc.
3.10* Memorandum of Association of GEM Radio Five Ltd.
3.11* Articles of Association of GEM Radio Five Ltd.
3.12* Memorandum of Association of Carribean Communications Company Limited
3.13* Articles of Association of Carribean Communications Company Limited
3.14* Articles of Incorporation of Forjay Licensing Corp.
3.15* Bylaws of Forjay Licensing Corp.
3.16* Articles of Incorporation of MRA Licensing Corp.
3.17* Bylaws of MRA Licensing Corp.
3.18* Articles of Incorporation of Cumulus Broadcasting, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
NO. DESCRIPTION NUMBER
- ---------- -------------------------------------------------------------------------------------------- -------------
3.19* Bylaws of Cumulus Broadcasting, Inc.
<S> <C> <C>
3.20* Articles of Incorporation of Cumulus Licensing Corp.
3.21* Bylaws of Cumulus Licensing Corp.
4.1* Form of Class A Common Stock Certificate
4.2* Form of Series A Preferred Stock Certificate
5.1* Opinion of Holleb & Coff as to the validity of the Common Stock and the Preferred Stock
5.2** Opinion of Paul, Hastings, Janofsky & Walker LLP as to the validity of the Notes
10.1* Credit Facility dated March 2, 1998 among Cumulus Media Inc., Lehman Brothers Inc. and
Lehman Commercial Paper Inc.
10.2* First Amendment, dated May 1, 1998, to the Credit Facility among Cumulus Media Inc., Lehman
Brothers Inc. and Lehman Commercial Paper.
10.3* Second Amendment, dated June 24, 1998 to the Credit Facility among Cumulus Media Inc.,
Lehman Brothers Inc. and Lehman Commercial Paper
10.4* Form of Indenture dated , 1998, between Cumulus Media Inc. and Firstar Bank of
Minnesota, N.A., as Trustee.
10.5* Form of Exchange Debenture Indenture, dated , 1998, between Cumulus Media Inc.
and U.S. Bank Trust National Association, as Trustee.
10.6** Form of Employment Agreement between Cumulus Media Inc. and Richard W. Weening
10.7** Form of Employment Agreement between Cumulus Media Inc. and Lewis W. Dickey, Jr.
10.8* Employment Agreement between Cumulus Media Inc. and William M. Bungeroth
10.9* Employment Agreement between Cumulus Media Inc. and Richard J. Bonick, Jr.
10.10* Form of Cumulus Media Inc. 1998 Employee Stock Incentive Plan
10.11* Form of Cumulus Media Inc. 1998 Executive Stock Incentive Plan
10.12* Services Agreement dated May 1, 1998 by and between QUAESTUS Management Corporation and
Cumulus Media Inc.
10.13* Services Agreement dated March 23, 1998 between Stratford Research, Inc. 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 KPMG Peat Marwick LLP
23.8* Consent of Johnson, Miller & Co.
23.9* Consent of Holleb & Coff (included in Exhibit 5.1)
23.10* Consent of Paul, Hastings, Janofsky & Walker LLP (included in Exhibit 5.2)
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.
*** All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
Exhibit 5.2
June 25, 1998
Cumulus Media Inc.
111 East Kilbourn Avenue
Suite 2700
Milwaukee, WI 53202
Ladies and Gentlemen:
We have acted as special counsel to Cumulus Media Inc, an Illinois
corporation (the "Company") and each of the Company's subsidiaries listed in
Exhibit A attached hereto (the "Guarantor Subsidiaries") in connection with the
issuance of $150,000,000 Senior Subordinated Notes due 2008 (the "Notes") of the
Company, in a public offering pursuant to a Registration Statement on Form S-1
(Registration No. 333-48849), as amended (the "Registration Statement"), filed
by the Company with the Securities and Exchange Commission under the Securities
Act of 1933, as amended. The Notes will be issued pursuant to an Indenture (the
"Indenture") to be entered into by the Company, the Guarantor Subsidiaries and
Firstar Bank of Minnesota, N.A., as Trustee. We understand that the Notes will
be guaranteed on a senior subordinated basis by each of the Guarantor
Subsidiaries (the "Guarantees").
In our capacity as counsel for the Company in connection with the
matters referred to above, we have examined the Registration Statement, the
Indenture, the Guarantees and the form of the Notes, and the originals or copies
certified or otherwise identified, of records of corporate action of the Company
as furnished to us by the Company, certificates of public officials and of
representatives of the Company, statutes and other instruments and documents, as
a basis for the opinions hereinafter expressed.
We are members of the bar of the State of New York and we express no
opinion as to the laws of any jurisdiction other than the federal laws of the
United States and the laws of the State of New York.
<PAGE>
Cumulus Media Inc.
June 25, 1998
Page 2
Based upon and subject to the foregoing, we are of the opinion that:
(a) the Notes, when duly executed and delivered by the Company,
authenticated by the Trustee and paid for upon the terms set forth in the
Registration Statement, and after the due execution and delivery of the
Indenture, will constitute the valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms and
entitled to the benefits under the Indenture.
(b) the respective Guarantees, when duly executed and delivered by
each Subsidiary Guarantor upon the terms set forth in the Registration
Statement, and after the due execution and delivery of each of the Indenture and
the Notes, will constitute the valid and legally binding obligation of such
Subsidiary Guarantor, enforceable against such Subsidiary Guarantor in
accordance with its terms and entitled to the benefits under the Indenture.
The foregoing opinions are subject to (1) applicable bankruptcy,
insolvency, fraudulent conveyance, fraudulent transfer, moratorium or other laws
affecting creditors' rights generally from time to time in effect, (2)
principles governing the availability of equitable relief (regardless of whether
enforcement is sought in a proceeding in equity or at law).
We hereby consent to the filing of this opinion of counsel as Exhibit
5.2 to the Registration Statement and to the reference to our Firm under the
caption "Legal Matters" in the prospectus relating to the Notes included in the
Registration Statement.
Very truly yours,
/s/ PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
Cumulus Media Inc.
June 25, 1998
Page 3
Subsidiary Guarantor Jurisdiction of Incorporation
- -------------------- -----------------------------
Cumulus Broadcasting, Inc. Nevada
Cumulus Licensing Corp. Nevada
Caribbean Communications Company Ltd. Montserrat
GEM Radio Five Ltd. Trinidad and Tobago
Forjay Broadcasting Corporation South Carolina
Forjay Licensing Corp. Nevada
Minority Radio Associates, Inc. Georgia
MRA Licensing Corp. Nevada
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May __, 1998 (this "Agreement"), between
CUMULUS MEDIA INC., an Illinois corporation (the "Company"), and RICHARD W.
WEENING (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is a radio broadcasting company focused on the
acquisition, operation and development of radio stations in mid-size and smaller
radio markets;
WHEREAS, the Company is preparing an initial public offering of its common
stock;
WHEREAS, it is intended that the Executive will continue to serve the
Company as its Executive Chairman and Treasurer and as a Director of the Company
following the public offering; and
WHEREAS, the Company wishes to assure itself of the continued services of
the Executive so that it will have the benefit of his ability, experience and
services, and the Executive is willing to enter into an agreement to that end,
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:
1. EMPLOYMENT
The Company hereby agrees to employ the Executive, and the Executive hereby
agrees to remain in the employ of the Company, on and subject to the terms and
conditions of this Agreement.
2. TERM
The period of this Agreement (the "Agreement Term") shall commence on the
date of consummation of an initial public offering of Company's common stock
during 1998 (the "IPO Date") and shall expire on the third anniversary of the
IPO Date (the "Initial Term"). The Agreement Term shall be automatically
extended for an additional year at the expiration of the Initial Term, or any
succeeding term, unless written notice of non-extension is provided by either
party to the other party at least 180 days prior to the expiration of the
Initial Term or any succeeding term, as the case may be. The period of the
Executive's employment under this Agreement (the "Employment Period") shall
<PAGE>
commence as of the IPO Date and shall expire at the end of the Agreement Term,
unless terminated or extended in accordance with the terms and conditions of
this Agreement.
3. POSITION, DUTIES AND RESPONSIBILITIES
(a) The Executive shall serve as, and with the title, office and authority
of, the Executive Chairman and Treasurer of the Company. The Executive shall
also hold similar titles, offices and authority with the Company's subsidiaries
and its successors. The Company shall use its best efforts to cause the
Executive to be nominated and elected to the Board of Directors of the Company
(the "Board") and of its subsidiaries and its successors for the duration of the
Employment Period.
(b) The Executive shall have effective supervision and control over, and
responsibility for, the strategic direction and general and active day-to-day
leadership and management of the business and affairs of the Company and the
subsidiaries of the Company, subject only to the authority of the Board, and
shall have all of the powers, authority, duties and responsibilities usually
incident to the positions and offices of Executive Chairman and Treasurer of the
Company. The Executive shall report directly to the Board.
(c) The Executive agrees to devote substantially all of his business time,
efforts and skills to the performance of his duties and responsibilities under
this Agreement; PROVIDED, HOWEVER, that nothing in this Agreement shall preclude
the Executive from devoting reasonable periods required for (i) participating in
professional, educational, philanthropic, public interest, charitable, social or
community activities, (ii) serving as a director or member of an advisory
committee of any corporation or other entity that the Executive is serving on as
of the IPO Date or any other corporation or entity that is not in competition
with the Company, (iii) managing his personal investments or (iv) performing
such services as are consistent with his position with QUAESTUS Management
Corporation; PROVIDED, FURTHER, that any such activities set forth in clauses
(i) through (iv) above do not materially interfere with the Executive's regular
performance of his duties and responsibilities hereunder.
(d) The Executive shall perform his duties at the principal offices of the
Company located in Milwaukee, Wisconsin, but from time to time the Executive may
be required to travel to other locations in the proper conduct of his
responsibilities under this Agreement.
4. COMPENSATION AND BENEFITS
In consideration of the services rendered by the Executive during the
Employment Period, the Company shall pay or provide the Executive the
compensation and benefits set forth below.
(a) SALARY. The Company shall pay the Executive a base salary (the "Base
Salary") equal to $300,000 per annum during the first 12 months of the Agreement
Term, increased by five percent per annum on each anniversary of the IPO Date
2
<PAGE>
thereafter during the Agreement Term. In its sole discretion, the Compensation
Committee of the Board (the "Compensation Committee") may review the Base Salary
with a view toward consideration of merit increases as the Compensation
Committee deems appropriate. The Base Salary shall be paid in arrears in
substantially equal installments at monthly or more frequent intervals, in
accordance with the normal payroll practices of the Company.
(b) INCENTIVE BONUSES. The Company shall provide the Executive with the
opportunity to earn an annual target bonus of up to 50% of his Base Salary (the
"Target Bonus Amount") for each fiscal year of the Company ending during the
Employment Period. An amount up to the Target Bonus Amount will be payable to
the Executive in the event that the annual bonus targets established by the
Compensation Committee (in consultation with the Executive) are met during the
relevant year; PROVIDED, HOWEVER, that the bonus targets shall relate to growth
in budgeted broadcast cash flow(on a same-store basis), and the bonus targets
applicable for 1998 and 1999 are as set forth on Appendix A hereto. Any Target
Bonus Amount shall be paid as promptly as practicable following the calculation
of the broadcast cash flow for the preceding calendar year. The Executive shall
participate in all other short-term and long-term bonus or incentive plans or
arrangements in which other senior executives of the Company are eligible to
participate from time to time (except as provided in Section 5(d) hereof), with
the Executive's short-term and long-term bonus or incentive compensation
opportunities under such plans and arrangements to be determined by the
Compensation Committee.
(c) EMPLOYEE BENEFITS. The Executive shall be entitled to participate in
all employee benefit plans, programs, practices or arrangements of the Company
in which other senior executives of the Company are eligible to participate from
time to time, including, without limitation, any qualified or non-qualified
pension, profit sharing and savings plans, any death benefit and disability
benefit plans, any medical, dental, health and welfare plans and any stock
purchase programs that are approved by the Compensation Committee on terms and
conditions at least as favorable as provided to other senior executives of the
Company.
(d) FRINGE BENEFITS AND PERQUISITES. The Executive shall be entitled to
all fringe benefits and perquisites that are generally made available to senior
executives of the Company from time to time that are approved by the
Compensation Committee.
5. EQUITY INCENTIVES
As further consideration for the services rendered by the Executive during
the Employment Period, the Executive shall be granted stock options to purchase
shares of the Company's Class C common stock (the "Common Stock") on the terms
and conditions set forth below. Each such stock option shall be effective upon,
and be subject to, the consummation of an initial public offering of the Common
Stock on the IPO Date. The Company shall register the securities offered under
the stock options provided for in this Section 5 on a Form S-8 or similar
registration statement to be effective as soon as practicable following the IPO
Date, and the Company shall use its best efforts to maintain such registration
statement in effect for the term of the stock options.
3
<PAGE>
(a) TIME-VESTED OPTION. On the IPO Date, the Executive shall be granted
an option (the "Time-Vested Option") under the Company's Executive Stock
Incentive Plan to purchase a number of shares of Common Stock (rounded to the
nearest whole share) equal to 2.5 percent of total number of outstanding shares
of all classes of the common stock immediately prior to the IPO Date. The
Time-Vested Option shall vest based on the continued employment of the Executive
in equal quarterly installments of 1/16 of the number of subject shares on the
last day of each of the 16 consecutive calendar quarters ending following the
IPO Date. The exercise price of the Time-Vested Option shall be the price per
share to the public of the Common Stock in the initial public offering (the "IPO
Price"). The Time-Vested Option shall have a 10-year term of exercise and,
except as otherwise provided in this Agreement, shall remain exercisable
following vesting for the full term without regard to the employment status of
the Executive. The Time Vested Option shall be intended to qualify as an
"incentive stock option" to the maximum extent permissible under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
(b) FIRST PREMIUM OPTION. On the IPO Date, the Executive shall be granted
an option (the "First Premium Option") under the Company's Executive Stock
Incentive Plan to purchase a number of shares of Common Stock (rounded to the
nearest whole share) equal to 2.5 percent of total number of outstanding shares
of all classes of the common stock immediately prior to the IPO Date. The First
Premium Option shall vest based on the continued employment of the Executive in
equal annual installments of 25 percent of the number of subject shares on each
of the first, second, third and fourth anniversaries of the IPO Date. The
exercise price of the First Premium Option shall be as follows: (A) for the
shares that vest on the first anniversary of the IPO Date, the exercise price
shall be the IPO Price, (B) for the shares that vest on the second anniversary
of the IPO Date, the exercise price shall be 115% of the IPO Price, (C) for the
shares that vest on the third anniversary of the IPO Date, the exercise price
shall be 132.25% of the IPO Price, and (D) for the shares that vest on the
fourth anniversary of the IPO Date, the exercise price shall be 152.0875% of the
IPO Price. The First Premium Option shall have a 10-year term of exercise and,
except as otherwise provided in this Agreement, shall remain exercisable
following vesting for the full term without regard to the employment status of
the Executive.
(c) SECOND PREMIUM OPTION. On the IPO Date, the Executive shall be
granted an option (the "Second Premium Option") under the Company's Executive
Stock Incentive Plan to purchase a number of shares of Common Stock (rounded to
the nearest whole share) equal to 3.0 percent of total number of outstanding
shares of all classes of the common stock immediately prior to the IPO Date.
The Second Premium Option shall vest based on the continued employment of the
Executive in equal annual installments of 25 percent of the number of subject
shares on each of the first, second, third and fourth anniversaries of the IPO
Date. The exercise price of the Second Premium Option shall be as follows: (A)
for the shares that vest on the first anniversary of the IPO Date, the exercise
price shall be the IPO Price, (B) for the shares that vest on the second
anniversary of the IPO Date, the exercise price shall be 120% of the IPO Price,
(C) for the shares that vest on the third anniversary of the IPO Date, the
exercise price shall be 144% of the IPO Price, and (D) for the shares that vest
on the fourth
4
<PAGE>
anniversary of the IPO Date, the exercise price shall be 172.80% of the IPO
Price. The Second Premium Option shall have a 10-year term of exercise and,
except as otherwise provided in this Agreement, shall remain exercisable
following vesting for the full term without regard to the employment status of
the Executive.
(d) OTHER EQUITY INCENTIVES. In addition to the foregoing stock option
grants, the Executive shall be given consideration from time to time by the
Compensation Committee for the grant of stock options or other equity incentives
with respect to the Common Stock under any stock option or equity-based
incentive plan or arrangement of the Company approved by the Compensation
Committee for which senior executives of the Company are eligible to
participate, provided that the Executive shall not be considered eligible for an
award pursuant to the initial allocation of shares reserved for issuance under
the Company's 1998 Stock Incentive Plan as of the IPO Date.
6. TERMINATION OF EMPLOYMENT
The Employment Period will be terminated upon the happening of any of the
following events:
(a) RESIGNATION FOR GOOD REASON. The Executive may voluntarily terminate
his employment hereunder for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent
with the Executive's position (including status, offices, titles or
reporting relationships), authority, duties or responsibilities as
contemplated by Section 3 hereof, any adverse change in the Executive's
reporting responsibilities, or any action by the Company that results in a
diminution in such position, authority, duties or responsibilities, but
excluding for these purposes an isolated and insubstantial action not taken
in bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) the failure of the Company to nominate the Executive to the
Board or the failure of the Board to recommend that the Company's
stockholders elect the Executive to the Board;
(iii) any failure by the Company to comply with the compensation and
benefits provisions of Sections 4 or 5 hereof or to comply with any other
material obligation of the Company under this Agreement, including, without
limitation, any failure by the Company to obtain an assumption of this
Agreement by a successor corporation as required under Section 13(a)
hereof;
(iv) a notice of non-extension of the Agreement Term given by the
Company to the Executive as set forth in Section 2 hereof prior to the
expiration of the Initial Term; or
5
<PAGE>
(v) the relocation, without the consent of the Executive, of the
Company's principal executive offices or the offices of the Executive to a
location more than 40 miles from its current location in Milwaukee,
Wisconsin.
However, in no event shall the Executive be considered to have terminated his
employment for "Good Reason" unless and until the Company receives written
notice from the Executive identifying in reasonable detail the acts or omissions
constituting "Good Reason" and the provision of this Agreement relied upon, and
such acts or omissions are not cured by the Company to the reasonable
satisfaction of the Executive within 15 days of the Company's receipt of such
notice.
(b) RESIGNATION WITHOUT GOOD REASON. The Executive may voluntarily
terminate his employment hereunder for any reason at any time, including for any
reason that does not constitute Good Reason.
(c) TERMINATION FOR CAUSE. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement, the Executive
shall be considered to be terminated for "Cause" only upon (i) the conviction of
the Executive of a felony under the laws of the United States or any state
thereof, whether or not appeal is taken, (ii) the conviction of the Executive
for a violation of criminal law involving the Company and its business,
(iii) the willful misconduct of the Executive, or the willful or continued
failure by the Executive (except as provided in Section 6(e) hereof) to
substantially perform his duties hereunder, in either case which has a material
adverse effect on the Company; or (iv) the willful fraud or material dishonesty
of the Executive in connection with his performance of duties to the Company.
However, in no event shall the Executive's employment be considered to have been
terminated for "Cause" unless and until the Executive receives a copy of a
resolution adopted by the Board finding that, in the good faith opinion of the
Board, the Executive is guilty of acts or omissions constituting Cause, which
resolution has been duly adopted by an affirmative vote of a majority of the
Board, excluding the Executive and any individual alleged to have participated
in the acts constituting "Cause." Any such vote shall be taken at a meeting of
the Board called and held for such purpose, after reasonable written notice is
provided to the Executive setting forth in reasonable detail the facts and
circumstances claimed to provide a basis of termination for Cause and the
Executive is given an opportunity, together with counsel, to be heard before the
Board. The Executive shall have the opportunity to cure any such acts or
omissions (other than items (i) or (ii) above) within 15 days of the Executive's
receipt of such resolution. The foregoing shall not limit the right of the
Company to suspend the Executive from his day-to-day responsibilities with the
Company pending the completion of such notice and cure procedures.
(d) TERMINATION WITHOUT CAUSE. The Board shall have the right to
terminate the Executive's employment hereunder other than for Cause at any time,
subject to the consequences of such termination as set forth in this Agreement.
(e) DISABILITY. The Executive's employment hereunder shall terminate upon
his Disability. For purposes of this Agreement, "Disability" shall mean the
inability of
6
<PAGE>
the Executive to perform his duties to the Company on account of physical or
mental illness or incapacity for a period of four and one-half consecutive
months, or for a period of 135 calendar days, whether or not consecutive, during
any 365 day period, as a result of a condition that is treated as a total or
permanent disability under the long-term disability insurance policy of the
Company that covers the Executive. The Executive's employment hereunder shall
be deemed terminated by reason of Disability on the last day of the applicable
period; PROVIDED, HOWEVER, in no event shall the Executive be terminated by
reason of Disability unless the Executive receives written notice from the
Company, at least 15 days in advance of such termination, stating its intention
to terminate the Executive for reason of Disability.
(f) DEATH. The Executive's employment hereunder shall terminate upon his
death.
7. COMPENSATION UPON TERMINATION OF EMPLOYMENT
In the event the Executive's employment by the Company is terminated during
the Agreement Term, the Executive shall be entitled to the severance payments
and benefits specified below:
(a) RESIGNATION FOR GOOD REASON; TERMINATION WITHOUT CAUSE. In the event
the Executive voluntarily terminates his employment hereunder for Good Reason or
is terminated by the Company other than for Cause, death or Disability, the
Company shall pay the Executive and provide him with the following:
(i) ACCRUED RIGHTS. Upon the Executive's termination of
employment, the Company shall pay the Executive a lump-sum amount equal to
the sum of (A) his earned but unpaid Base Salary through the date of
termination, (B) any earned but unpaid Target Bonus Amount for any
completed fiscal year, and (C) any unreimbursed business expenses or other
amounts due to the Executive from the Company as of the date of
termination. The Company shall also pay to the Executive, upon the final
preparation of the Company's audited financial statements for the year in
which termination of employment occurs, an additional lump-sum amount
calculated based on the degrees of achievement of the bonus target
applicable to the Target Bonus Amount for such year, determined in
accordance with the terms of the bonus plan for such year but prorated on a
daily basis to reflect the partial year of service. In addition, the
Company shall provide to the Executive all payments, rights and benefits
due as of the date of termination under the terms of the Company's employee
and fringe benefit plans and programs in which the Executive participated
during the Employment Period (together with the lump-sum payments described
above, the "Accrued Rights").
(ii) SEVERANCE PAYMENT. The Company shall pay the Executive the
greater of (A) the amount equal to the aggregate Base Salary payments (at
the rate in effect at the time of termination) that remain payable to the
Executive from the date of termination until the expiration of the
Agreement Term, or (B) the amount equal to the sum of (1) the annual Base
Salary in effect at the time of termination
7
<PAGE>
and (2) the amount of the annual bonus paid to the Executive pursuant to
Section 4(b) hereof for the fiscal year ended immediately prior to the year
of termination. Any amount payable pursuant to clause (A) or clause (B)
above shall be payable in four equal consecutive quarterly installments,
with the first such payment to be made within 15 days following the date of
termination.
(iii) EQUITY RIGHTS. As of the date of the Executive's termination
under this paragraph (a):
(A) Any unvested portion of the Time-Vested Option shall
become immediately and fully vested and exercisable, and shall remain
exercisable for the full term thereof.
(B) Any unvested portion of the First Premium Option and
the Second Premium Option (together, the "Premium Options") for which
the exercise price per share (as provided in Sections 5(b) and 5(c)
hereof) is less than or equal to the Fair Market Value (as defined
below) per share of the Common Stock as of the date of the Executive's
termination of employment under this paragraph (a) shall become
immediately and fully vested and exercisable. Any shares subject to
the Premium Options that become vested and exercisable in accordance
with the foregoing shall remain exercisable from the date of such
termination of employment until the date that is 90 days following the
date that such shares would otherwise have become vested and
exercisable in accordance with the vesting schedule set forth in
Section 5 hereof in the absence of the foregoing acceleration of
vesting.
For the purposes of this Agreement, the "Fair Market Value" of the Common
Stock as of a given date shall be the average closing sales price for the
Common Stock (or the closing bid, if no sales were reported) as quoted on
the NASDAQ National System for the 15 trading days ending with the
applicable date.
(C) Any unvested portion of the Premium Options for which
the exercise price per share (as provided in Section 5 hereof) is
greater than the Fair Market Value per share of the Common Stock on
the date of the Executive's termination of employment under this
paragraph (a) shall be forfeited; PROVIDED, HOWEVER, that in the event
that the cumulative total return on the Common Stock for the period
beginning on the IPO Date and ending on the date of the Executive's
termination of employment under this paragraph (a) equals or exceeds
the Target Peer Group Return (as defined below), then all of such
unvested portion of the Premium Options that would otherwise have been
forfeited shall instead become immediately and fully vested and
exercisable. Any shares subject to the Premium Options that become
vested and exercisable in accordance with the foregoing shall remain
exercisable from the date of such termination of employment until the
date that is 90 days following the date that such shares would
otherwise have become fully vested in accordance with the
8
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vesting schedule set forth in Section 5 hereof in the absence of the
foregoing acceleration of vesting.
For the purposes of this Agreement, the "Target Peer Group Return" shall
mean the cumulative total return on common equity (calculated in accordance
with applicable annual proxy disclosure rules) for the bottom quartile of
an index of the eight publicly traded companies most comparable to the
Company, as agreed to by the Executive and the Compensation Committee (and,
if the participants in such index cannot be agreed to, such participants
shall be selected by an independent investment banking firm of national
prominence), assuming the investment of $100 in each vehicle on the IPO
Date and the reinvestment of all dividends.
(iv) CONTINUED BENEFITS. For the 12-month period following the
date of the Executive's termination of employment, the Company shall
continue to provide the Executive and his eligible dependents, at its sole
cost, with the medical, dental, disability and life insurance coverages
that were provided to the Executive immediately prior to termination of
employment, subject to cancellation by the Company in the event that the
Executive obtains coverage under comparable substitute plans of another
employer. Following the expiration of such 12-month period and for the
lifetime of the Executive, the Executive and his eligible dependents shall
be entitled to continue participating (at the Executive's sole expense) in
the Company's group medical, dental, disability and life insurance
coverages, with the Executive's cost to be determined on a basis consistent
with the method for determining employee payments under the health care
continuation requirements of the Consolidated Omnibus Reconciliation Act of
1985 ("COBRA").
(b) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR CAUSE. In
the event the Executive voluntarily terminates his employment hereunder other
than for Good Reason or is terminated by the Company for Cause, the Company
shall pay the Executive and provide him with any Accrued Rights under Section
7(a)(i). Upon such termination, (i) the Executive shall not be entitled to
receive, and the Company shall have no obligation to provide, any severance
payments under this Agreement, (ii) the Executive and his dependents shall not
be entitled to receive, the Company shall have no obligation to provide to the
Executive or his dependents, any medical, dental, disability or life insurance
coverage except as required by COBRA or other applicable law or under the terms
of the applicable plans and (iii) all unvested stock options under Section 5
(including, without limitation, Time-Vested Options and Premium Options) shall
terminate immediately and shall be of no further force or effect.
(c) DISABILITY; DEATH. In the event the Executive's employment
hereunder is terminated by reason of the Executive's Disability or death, the
Company shall pay and provide the Executive (or his legal representative) with
the following:
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(i) ACCRUED RIGHTS. The Company shall pay and provide to the
Executive (or his legal representative) any Accrued Rights, including all
disability or life insurance benefits (as applicable).
(ii) SALARY CONTINUATION. The Company shall provide the Executive
(or his legal representative) with continued payment of the Executive's
then-current Base Salary for a period of 12 months.
(iii) EQUITY RIGHTS. As of the date of the Executive's termination
under this paragraph (c):
(A) Any unvested portion of the Time-Vested Option shall become
immediately and fully vested and exercisable, and shall remain
exercisable for the full term thereof.
(B) Any unvested portion of the Premium Options shall be
forfeited, PROVIDED, HOWEVER, that in the event the Executive's
Disability or death occurs within six months prior to the date that
any portion of the Premium Options are scheduled to vest in accordance
with Section 5 hereof (the "Scheduled Portion") and the Fair Market
Value of the Common Stock as of the date of Disability or death equals
or exceeds the exercise price per share of the shares subject to the
Scheduled Portion, then the Scheduled Portion shall become immediately
and fully vested and exercisable and shall remain exercisable for the
full term thereof.
(iv) CONTINUED BENEFITS. For the 12-month period following the date
of the Executive's Disability or death, the Company shall continue to
provide the Executive and/or his eligible dependents (as applicable), at
its sole cost, with the medical, dental, disability and life insurance
coverages that were provided to the Executive immediately prior to
termination of employment. Following the expiration of such 12-month
period, the Executive shall be entitled to continue group benefit coverages
on the same basis as described in Section 7(a)(iv) hereof.
8. CHANGE OF CONTROL
(a) TERMINATION FOLLOWING CHANGE OF CONTROL. In the event that the
employment of the Executive is terminated during the one-year period immediately
following a Change of Control either (i) by the Executive for Good Reason or
(ii) by the Company other than for Cause, Disability or death, then, in addition
to the payments and benefits provided in Section 7(a)(i), (ii) and (iv) hereof,
any unvested portion of the Time-Vested Options and the Premium Options shall
become immediately and fully vested and exercisable and shall remain exercisable
for the full term thereof. The foregoing rights of the Executive shall apply
whether or not a successor corporation has assumed this Agreement as required
under Section 13(a) hereof.
(b) DEFINITIONS. For purposes of this Section 8, the following terms
shall have the meanings given below:
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"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" (a "Person") or group of related Persons (a "Group") (as
such terms are used in Section 13(d)(3) of the Securities Exchange Act of 1934)
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 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 Securities Exchange Act of 1934) 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 are not Continuing Directors.
For purposes of the foregoing, NationsBanc Capital Corp., State of Wisconsin
Pension Board and their respective affiliates shall be treated as a Group of
Related Persons.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the Board who (i) was a member of the Board on the IPO Date or (ii) was
nominated for election or elected to the Board with the approval of (x)
two-thirds of the Continuing Directors who were members of the Board at the time
of such nomination or election or (y) two-thirds of those Directors who were
previously approved by Continuing Directors.
"PRINCIPAL" means Richard W. Weening and Lewis W. Dickey, Jr.
"RELATED PARTY" with respsect 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 benefically 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).
"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).
9. PARACHUTE TAX INDEMNITY
(a) If it shall be determined that any amount paid, distributed or treated
as paid or distributed by the Company to or for the Executive's benefit (whether
paid or
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payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, being hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all federal, state and local taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) All determinations required to be made under this Section 9, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by a nationally recognized accounting firm (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. The Accounting Firm shall be appointed jointly by two other nationally
recognized accounting firms, one of which is appointed by the Executive and one
of which is appointed by the Company for such purpose. The Accounting Firm
shall not be an accounting firm serving as accountant or auditor for the
individual, entity or group effecting the Change of Control. All fees and
expenses of the Accounting Firm shall be borne by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 9, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to this Section 9 and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
Executive's benefit.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later then ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of
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such period that it desires to contest such claim, the Executive shall: (i) give
the Company any information reasonably requested by the Company relating to such
claim; (ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company; (iii) cooperate with the Company
in good faith in order to effectively contest such claim; and (iv) permit the
Company to participate in any proceeding relating to such claim; PROVIDED,
HOWEVER, that the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment of costs
and expense. Without limitation on the foregoing provisions of this Section 9,
the Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; PROVIDED, HOWEVER, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis, and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the Executive's taxable year with
respect to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority, so long as such action does not have a material adverse effect
on the contest being pursued by the Company.
(d) If, after the Executive's receipt of an amount advanced by the Company
pursuant to this Section 9, the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of this Section 9) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the Executive's receipt of an amount
advanced by the Company pursuant to this Section 9, a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
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<PAGE>
10. NO MITIGATION OR OFFSET
The Executive shall not be required to seek other employment or to reduce
any severance benefit payable to him under Section 7 hereof, and, except as
provided in Section 7(a)(iv) hereof, no such severance benefit shall be reduced
on account of any compensation received by the Executive from other employment.
The Company's obligation to pay severance benefits under this Agreement shall
not be reduced by any amount owed by the Executive to the Company.
11. TAX WITHHOLDING; METHOD OF PAYMENT
All compensation payable pursuant to this Agreement shall be subject to
reduction by all applicable withholding, social security and other federal,
state and local taxes and deductions. Any lump-sum payments provided for in
this Agreement shall be made in a cash payment, net of any required tax
withholding, no later than the fifth business day following the Executive's date
of termination or other payment date. Any payment required to be made to the
Executive under this Agreement that is not made in a timely manner shall bear
interest until the date of payment at an interest rate equal to 120% of the
monthly compounded applicable federal rate as in effect under Section 1274(d) of
the Code for the month in which payment is required to be made.
12. RESTRICTIVE COVENANTS
(a) COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION. The Executive
acknowledges that during the course of his affiliation with the Company he has
or will have access to and knowledge of certain information and data which the
Company considers confidential and the release of such information or data to
unauthorized persons would be extremely detrimental to the Company. As a
consequence, the Executive hereby agrees and acknowledges that he owes a duty to
the Company not to disclose, and agrees that without the prior written consent
of the Company, at any time, either during or after his employment with the
Company, he will not communicate, publish or disclose, to any person anywhere or
use, any Confidential Information (as hereinafter defined), except as may be
necessary or appropriate to conduct his duties hereunder, provided the Executive
is acting in good faith and in the best interest of the Company, or as may be
required by law or judicial process. The Executive will use his best efforts at
all times to hold in confidence and to safeguard any Confidential Information
from falling into the hands of any unauthorized person and, in particular, will
not permit any Confidential Information to be read, duplicated or copied. The
Executive will return to the Company all Confidential Information in the
Executive's possession or under the Executive's control whenever the Company
shall so request, and in any event will promptly return all such Confidential
Information if the Executive's relationship with the Company is terminated for
any or no reason and will not retain any copies thereof. For purposes hereof
the term "Confidential Information" shall mean any information or data used by
or belonging or relating to the Company or any of its subsidiaries or Affiliates
that is not known generally to the industry in which the Company is or may be
engaged and which the Company maintains on a confidential basis, including,
without limitation, any and all trade secrets, proprietary data and information
relating to the Company's business and
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products, price list, customer lists, processes, procedures or standards,
know-how, manuals, business strategies, records, drawings, specifications,
designed, financial information, whether or not reduced to writing, or
information or data which the Company advises the Executive should be treated as
confidential information.
(b) COVENANT NOT TO COMPETE. The Executive acknowledges that he has
established and will continue to establish favorable relations with the
customers, clients and accounts of the Company and will have access to trade
secrets of the Company. Therefore, in consideration of such relations and to
further protect trade secrets, directly or indirectly, of the Company, the
Executive agrees that during the term of his employment by the Company and for a
period of eighteen months from the date of termination of the Executive, except
that such eighteen month period shall not apply in the event of termination of
employment (i) by the Company other than for Cause, (ii) by the Executive for
Good Reason or (iii) by the Company or the Executive for any reason within one
year following a Change of Control, the Executive will not, directly or
indirectly, without the express written consent of the Company:
(i) own or have any interest in or act as an officer, director,
partner, principal, employee, agent, representative, consultant or
independent contractor of, or in any way assist in, any business located in
or doing business in the United States of America which is engaged,
directly or indirectly, in the radio broadcast properties business in a
market ranked in a Metro Survey Area ("MSA"), below MSA 100 (as listed in
the then-current Arbitron Radio Metro and Television Market Population
Estimates published as of the date of the Executive's termination of
employment) (the "Competitive Businesses");
(ii) solicit clients, customers or accounts of the Company for, on
behalf of or otherwise related to any such Competitive Businesses or any
products related thereto; or
(iii) solicit or in any manner influence or encourage any person who
is or shall be in the employ or service of the Company to leave such employ
or service for any other employment opportunity.
Notwithstanding the foregoing, if any court determines that the covenant not to
compete, or any part thereof, is unenforceable because of the duration of such
provision or the geographic area or scope covered thereby, such court shall have
the power to reduce the duration, area or scope of such provisions and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
(c) SPECIFIC PERFORMANCE. Recognizing the irreparable damage will result
to the Company in the event of the breach or threatened breach of any of the
foregoing covenants and assurances by the Executive contained in paragraphs (a)
or (b) hereof, and that the Company's remedies at law for any such breach or
threatened breach will be inadequate, the Company and its successors and
assigns, in addition to such other remedies which may be available to them,
shall be entitled to an injunction, including a mandatory injunction, to be
issued by any court of competent jurisdiction ordering
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compliance with this Agreement or enjoining and restraining the Executive, and
each and every person, firm or Company acting in concert or participation with
him, from the continuation of such breach and, in addition thereto, he shall pay
to the Company all ascertainable damages, including costs and reasonable
attorneys' fees sustained by the Company by reason of the breach or threatened
breach of said covenants and assurances. The obligations of the Executive and
the rights of the Company, its successors and assigns under Section 12 of this
Agreement shall survive the termination of this Agreement. The covenants and
obligations of the Executive set forth in Section 12 hereof is in addition to
and not in lieu of or exclusive of any other obligations and duties of the
Executive to the Company, whether express or implied in fact or in law.
(d) POTENTIAL UNENFORCEABILITY OF ANY PROVISION. If a final judicial
determination is made that any provision of this Agreement is an unenforceable
restriction against the Executive, the provisions hereof shall be rendered void
only to the extent that such judicial determination finds such provisions
unenforceable, and such unenforceable provisions shall automatically be
reconstituted and become a part of this Agreement, effective as of the date
first written above, to the maximum extent in favor of the Company that is
lawfully enforceable. A judicial determination that any provision of this
Agreement is unenforceable shall in no instance render the entire Agreement
unenforceable, but rather the Agreement will continue in full force and effect
absent any unenforceable provision to the maximum extent permitted by law.
13. SUCCESSORS
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and any person, firm, corporation or other entity
which succeeds to all or substantially all of the business, assets or property
of the Company. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, assets or property of the Company, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business, assets or
property as aforesaid which executes and delivers an agreement provided for in
this Section 13 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law. Notwithstanding the foregoing provisions
of this Section 13(a), this Agreement shall not be assignable by the Company
without the prior written consent of the Executive.
(b) This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are due
and payable to him hereunder, all such amounts, unless otherwise provided
herein, shall be paid to the Executive's designated beneficiary or, if there be
no such designated beneficiary, to the legal representatives of the Executive's
estate.
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14. NO ASSIGNMENT
Except as to withholding of any tax under the laws of the United States or
any other country, state or locality, neither this Agreement nor any right or
interest hereunder nor any amount payable at any time hereunder shall be subject
in any manner to alienation, sale, transfer, assignment, pledge, attachment, or
other legal process, or encumbrance of any kind by the Executive or the
beneficiaries of the Executive or by his legal representatives without the
Company's prior written consent, nor shall there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives, except in the case of termination of
employment for Cause; PROVIDED, HOWEVER, that nothing in this Section 14 shall
preclude the Executive from designating a beneficiary to receive any benefit
payable on his death, or the legal representatives of the Executive from
assigning any rights hereunder to the person or persons entitled thereto under
his will or, in case of intestacy, to the person or persons entitled thereto
under the laws of intestacy applicable to his estate.
15. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and, except as specifically provided
herein, cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of
this Agreement shall not be binding unless in writing and signed by the Company
and the Executive. Notwithstanding the foregoing, the parties hereto shall
enter into stock option agreements in respect of the Time-Vested Option and the
Premium Options, setting forth terms and conditions consistent with the
provisions of this Agreement and such other terms and conditions approved by the
Compensation Committee and consistent with the Company's Executive Stock
Incentive Plan.
16. SEVERABILITY
In the event that any provision of this Agreement is determined to be invalid or
unenforceable, the remaining terms and conditions of this Agreement shall be
unaffected and shall remain in full force and effect, and any such determination
of invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement.
17. NOTICES
All notices which may be necessary or proper for either the Company or the
Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or certified mail, return receipt requested, or by
air courier, to the Executive at:
Mr. Richard W. Weening
7141 North Hwy. 83
Hartland, Wisconsin 53029
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with a copy to: Paul J. Wessel, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
and shall be sent in the manner described above to the Secretary of the Company
at the Company's principal executives offices at 330 East Kilbourn Avenue,
Milwaukee, Wisconsin 53202 or delivered by hand to the Secretary of the Company,
and shall be deemed given when sent, provided that any notice required under
Section 6 hereof or notice given pursuant to Section 2 hereof shall be deemed
given only when received. Any party may by like notice to the other party
change the address at which he or they are to receive notices hereunder.
18. GOVERNING LAW
This Agreement shall be governed by and enforceable in accordance with the
laws of the State of Wisconsin, without giving effect to the principles of
conflict of laws thereof.
19. ARBITRATION
Any controversy or claim arising out of, or related to, this Agreement, or
the breach thereof, shall be settled by binding arbitration in the City of
Milwaukee, Wisconsin, in accordance with the rules then obtaining of the
American Arbitration Association, and the arbitrator's decision shall be binding
and final, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
20. LEGAL FEES AND EXPENSES
To induce the Executive to execute this Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement should the Company fail to perform
its obligations hereunder, the Company shall pay and be solely responsible for
any attorneys' fees and expenses and court costs incurred by the Executive as a
result of a claim that the Company has breached or otherwise failed to perform
this Agreement or any provision hereof to be performed by the Company,
regardless of which party, if any, prevails in the contest.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
---------------------------------
RICHARD W. WEENING
CUMULUS MEDIA INC.
---------------------------------
By:
Title:
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APPENDIX A
ANNUAL BONUS
1. BCF TARGETS. The Executive's annual bonus under Section 4(b) shall be
based on the Company's "as reported budgeted cash flow" ("BCF") targets for 1998
and 1999. The initial BCF targets shall be as follows:
YEAR BCF TARGET
---- ----------
1998 $23.2 million
1999 $52 million
These targets are based on projections for the broadcast properties operated by
the Company as of the Effective Date and the pending acquisitions of broadcast
properties identified on Schedule A-1 hereto.
2. ADJUSTMENTS. The Compensation Committee, in consultation with the
Executive, shall adjust the BCF targets as appropriate to reflect extraordinary
or non-recurring events beyond the control of the Executive that would
materially impact the calculation of BCF for a year. Such events shall include,
but shall not be limited to, acquisitions or dispositions with respect to a year
that were not anticipated at the time the BCF targets were set, and the
completion of any pending acquisition identified on Schedule A-1 hereto on a
date later than the date set forth in such Schedule.
3. PAYMENT LEVELS. The amount of the Executive's annual bonus payment
shall be determined in accordance with the following schedule, with
interpolation of results for intermediate amounts. The Target Bonus Amount, as
set forth in Section 4(b), is 50% of Base Salary.
ACTUAL BCF BONUS PAYMENT
---------- -------------
85% of BCF target 50% of Target Bonus Amount
100% of BCF target 100% of Target Bonus Amount
115% of BCF target 150% of Target Bonus Amount
4. MEASUREMENT OF RESULTS. All calculations with respect to the actual
BCF achieved for a year shall be made in accordance with generally accepted
accounting principals. Such calculations shall be reviewed and approved by the
Compensation Committee, in consultation with the Executive, and compared to the
applicable BCF target, prior to payment of the bonus amount.
<PAGE>
SCHEDULE A-1
------------
PENDING ACQUISITIONS NOT ALREADY OPERATED UNDER LMA AGREEMENT
-------------------------------------------------------------
AS OF JUNE 25, 1998
-------------------
MARKET PENDING ACQUISITION
- ------ -------------------
Augusta, GA Savannah Valley (WZNY-FM)
Augusta-Waterville, ME Tryon-Seacoast
Augusta-Waterville, ME Mountain Wireless
Bangor, ME Castle Broadcasting
Bismarck, ND James Ingstad
Chattanooga, TN Wicks Broadcasting
Dubuque, IA Communications Properties
Grand Junction, CO Jan-Di Broadcasting
Grand Junction, CO Mustang Broadcasting
Kalamazoo, MI Crystal Radio
Lake Charles, LA Louisiana Media Interests
Savannah, GA Ocmulgee Broadcasting
So. MN/No. IA James Ingstad
Topeka, KS Midland Broadcasters
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May __, 1998 (this "Agreement"), between
CUMULUS MEDIA INC., an Illinois corporation (the "Company"), and LEWIS W.
DICKEY, JR. (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is a radio broadcasting company focused on the
acquisition, operation and development of radio stations in mid-size and smaller
radio markets;
WHEREAS, the Company is preparing an initial public offering of its common
stock;
WHEREAS, it is intended that the Executive will continue to serve the
Company as its Executive Vice Chairman and as a Director of the Company
following the public offering; and
WHEREAS, the Company wishes to assure itself of the continued services of
the Executive so that it will have the benefit of his ability, experience and
services, and the Executive is willing to enter into an agreement to that end,
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:
1. EMPLOYMENT
The Company hereby agrees to employ the Executive, and the Executive hereby
agrees to remain in the employ of the Company, on and subject to the terms and
conditions of this Agreement.
2. TERM
The period of this Agreement (the "Agreement Term") shall commence on the
date of consummation of an initial public offering of Company's common stock
during 1998 (the "IPO Date") and shall expire on the third anniversary of the
IPO Date (the "Initial Term"). The Agreement Term shall be automatically
extended for an additional year at the expiration of the Initial Term, or any
succeeding term, unless written notice of non-extension is provided by either
party to the other party at least 180 days prior to the expiration of the
Initial Term or any succeeding term, as the case may be. The period of the
Executive's employment under this Agreement (the "Employment Period") shall
commence as of the IPO Date and shall expire at the end of the Agreement Term,
unless terminated or extended in accordance with the terms and conditions of
this Agreement.
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3. POSITION, DUTIES AND RESPONSIBILITIES
(a) The Executive shall serve as, and with the title, office and
authority of, the Executive Vice Chairman of the Company. The Executive shall
also hold similar titles, offices and authority with the Company's subsidiaries
and its successors. The Company shall use its best efforts to cause the
Executive to be nominated and elected to the Board of Directors of the Company
(the "Board") and of its subsidiaries and its successors for the duration of the
Employment Period.
(b) The Executive shall have effective supervision and control over,
and responsibility for, the strategic direction and general and active
day-to-day leadership and management of the business and affairs of the Company
and the subsidiaries of the Company, subject only to the authority of the Board,
and shall have all of the powers, authority, duties and responsibilities usually
incident to the position and office of Executive Vice Chairman of the Company.
The Executive shall report directly to the Board.
(c) The Executive agrees to devote substantially all of his business
time, efforts and skills to the performance of his duties and responsibilities
under this Agreement; PROVIDED, HOWEVER, that nothing in this Agreement shall
preclude the Executive from devoting reasonable periods required for (i)
participating in professional, educational, philanthropic, public interest,
charitable, social or community activities, (ii) serving as a director or member
of an advisory committee of any corporation or other entity that the Executive
is serving on as of the IPO Date or any other corporation or entity that is not
in competition with the Company, (iii) managing his personal investments or (iv)
performing such services as are consistent with his position with Stratford
Research, Inc.; PROVIDED, FURTHER, that any such activities set forth in clauses
(i) through (iv) above do not materially interfere with the Executive's regular
performance of his duties and responsibilities hereunder.
(d) The Executive shall perform his duties at the offices of the
Company located in Atlanta, Georgia, but from time to time the Executive may be
required to travel to other locations in the proper conduct of his
responsibilities under this Agreement.
4. COMPENSATION AND BENEFITS
In consideration of the services rendered by the Executive during the
Employment Period, the Company shall pay or provide the Executive the
compensation and benefits set forth below.
(a) SALARY. The Company shall pay the Executive a base salary (the
"Base Salary") equal to $300,000 per annum during the first 12 months of the
Agreement Term, increased by five percent per annum on each anniversary of the
IPO Date thereafter during the Agreement Term. In its sole discretion, the
Compensation Committee of the Board (the "Compensation Committee") may review
the Base Salary with a view toward consideration of merit increases as the
Compensation Committee
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deems appropriate. The Base Salary shall be paid in arrears in substantially
equal installments at monthly or more frequent intervals, in accordance with the
normal payroll practices of the Company.
(b) INCENTIVE BONUSES. The Company shall provide the Executive with
the opportunity to earn an annual target bonus of up to 50% of his Base Salary
(the "Target Bonus Amount") for each fiscal year of the Company ending during
the Employment Period. An amount up to the Target Bonus Amount will be payable
to the Executive in the event that the annual bonus targets established by the
Compensation Committee (in consultation with the Executive) are met during the
relevant year; PROVIDED, HOWEVER, that the bonus targets shall relate to growth
in budgeted broadcast cash flow(on a same-store basis), and the bonus targets
applicable for 1998 and 1999 are as set forth on Appendix A hereto. Any Target
Bonus Amount shall be paid as promptly as practicable following the calculation
of the broadcast cash flow for the preceding calendar year. The Executive shall
participate in all other short-term and long-term bonus or incentive plans or
arrangements in which other senior executives of the Company are eligible to
participate from time to time (except as provided in Section 5(d) hereof), with
the Executive's short-term and long-term bonus or incentive compensation
opportunities under such plans and arrangements to be determined by the
Compensation Committee.
(c) EMPLOYEE BENEFITS. The Executive shall be entitled to
participate in all employee benefit plans, programs, practices or arrangements
of the Company in which other senior executives of the Company are eligible to
participate from time to time, including, without limitation, any qualified or
non-qualified pension, profit sharing and savings plans, any death benefit and
disability benefit plans, any medical, dental, health and welfare plans and any
stock purchase programs that are approved by the Compensation Committee on terms
and conditions at least as favorable as provided to other senior executives of
the Company.
(d) FRINGE BENEFITS AND PERQUISITES. The Executive shall be entitled
to all fringe benefits and perquisites that are generally made available to
senior executives of the Company from time to time that are approved by the
Compensation Committee.
5. EQUITY INCENTIVES
As further consideration for the services rendered by the Executive during
the Employment Period, the Executive shall be granted stock options to purchase
shares of the Company's Class C common stock (the "Common Stock") on the terms
and conditions set forth below. Each such stock option shall be effective upon,
and be subject to, the consummation of an initial public offering of the Common
Stock on the IPO Date. The Company shall register the securities offered under
the stock options provided for in this Section 5 on a Form S-8 or similar
registration statement to be effective as soon as practicable following the IPO
Date, and the Company shall use its best efforts to maintain such registration
statement in effect for the term of the stock options.
(a) TIME-VESTED OPTION. On the IPO Date, the Executive shall be
granted an option (the "Time-Vested Option") under the Company's Executive Stock
Incentive Plan
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to purchase a number of shares of Common Stock (rounded to the nearest whole
share) equal to 2.5 percent of total number of outstanding shares of all classes
of the common stock immediately prior to the IPO Date. The Time-Vested Option
shall vest based on the continued employment of the Executive in equal quarterly
installments of 1/16 of the number of subject shares on the last day of each of
the 16 consecutive calendar quarters ending following the IPO Date. The
exercise price of the Time-Vested Option shall be the price per share to the
public of the Common Stock in the initial public offering (the "IPO Price"). The
Time-Vested Option shall have a 10-year term of exercise and, except as
otherwise provided in this Agreement, shall remain exercisable following vesting
for the full term without regard to the employment status of the Executive. The
Time Vested Option shall be intended to qualify as an "incentive stock option"
to the maximum extent permissible under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
(b) FIRST PREMIUM OPTION. On the IPO Date, the Executive shall be
granted an option (the "First Premium Option") under the Company's Executive
Stock Incentive Plan to purchase a number of shares of Common Stock (rounded to
the nearest whole share) equal to 2.5 percent of total number of outstanding
shares of all classes of the common stock immediately prior to the IPO Date.
The First Premium Option shall vest based on the continued employment of the
Executive in equal annual installments of 25 percent of the number of subject
shares on each of the first, second, third and fourth anniversaries of the IPO
Date. The exercise price of the First Premium Option shall be as follows: (A)
for the shares that vest on the first anniversary of the IPO Date, the exercise
price shall be the IPO Price, (B) for the shares that vest on the second
anniversary of the IPO Date, the exercise price shall be 115% of the IPO Price,
(C) for the shares that vest on the third anniversary of the IPO Date, the
exercise price shall be 132.25% of the IPO Price, and (D) for the shares that
vest on the fourth anniversary of the IPO Date, the exercise price shall be
152.0875% of the IPO Price. The First Premium Option shall have a 10-year term
of exercise and, except as otherwise provided in this Agreement, shall remain
exercisable following vesting for the full term without regard to the employment
status of the Executive.
(c) SECOND PREMIUM OPTION. On the IPO Date, the Executive shall be
granted an option (the "Second Premium Option") under the Company's Executive
Stock Incentive Plan to purchase a number of shares of Common Stock (rounded to
the nearest whole share) equal to 3.0 percent of total number of outstanding
shares of all classes of the common stock immediately prior to the IPO Date.
The Second Premium Option shall vest based on the continued employment of the
Executive in equal annual installments of 25 percent of the number of subject
shares on each of the first, second, third and fourth anniversaries of the IPO
Date. The exercise price of the Second Premium Option shall be as follows: (A)
for the shares that vest on the first anniversary of the IPO Date, the exercise
price shall be the IPO Price, (B) for the shares that vest on the second
anniversary of the IPO Date, the exercise price shall be 120% of the IPO Price,
(C) for the shares that vest on the third anniversary of the IPO Date, the
exercise price shall be 144% of the IPO Price, and (D) for the shares that vest
on the fourth anniversary of the IPO Date, the exercise price shall be 172.80%
of the IPO Price. The Second Premium Option shall have a 10-year term of
exercise and, except as otherwise
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provided in this Agreement, shall remain exercisable following vesting for the
full term without regard to the employment status of the Executive.
(d) OTHER EQUITY INCENTIVES. In addition to the foregoing stock
option grants, the Executive shall be given consideration from time to time by
the Compensation Committee for the grant of stock options or other equity
incentives with respect to the Common Stock under any stock option or
equity-based incentive plan or arrangement of the Company approved by the
Compensation Committee for which senior executives of the Company are eligible
to participate, provided that the Executive shall not be considered eligible for
an award pursuant to the initial allocation of shares reserved for issuance
under the Company's 1998 Stock Incentive Plan as of the IPO Date.
6. TERMINATION OF EMPLOYMENT
The Employment Period will be terminated upon the happening of any of the
following events:
(a) RESIGNATION FOR GOOD REASON. The Executive may voluntarily
terminate his employment hereunder for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent
with the Executive's position (including status, offices, titles or
reporting relationships), authority, duties or responsibilities as
contemplated by Section 3 hereof, any adverse change in the Executive's
reporting responsibilities, or any action by the Company that results in a
diminution in such position, authority, duties or responsibilities, but
excluding for these purposes an isolated and insubstantial action not taken
in bad faith and which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) the failure of the Company to nominate the Executive to the
Board or the failure of the Board to recommend that the Company's
stockholders elect the Executive to the Board;
(iii) any failure by the Company to comply with the compensation and
benefits provisions of Sections 4 or 5 hereof or to comply with any other
material obligation of the Company under this Agreement, including, without
limitation, any failure by the Company to obtain an assumption of this
Agreement by a successor corporation as required under Section 13(a)
hereof;
(iv) a notice of non-extension of the Agreement Term given by the
Company to the Executive as set forth in Section 2 hereof prior to the
expiration of the Initial Term; or
(v) the relocation, without the consent of the Executive, of the
Executive's office to a location more than 40 miles from its current
location in Atlanta, Georgia.
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However, in no event shall the Executive be considered to have terminated his
employment for "Good Reason" unless and until the Company receives written
notice from the Executive identifying in reasonable detail the acts or omissions
constituting "Good Reason" and the provision of this Agreement relied upon, and
such acts or omissions are not cured by the Company to the reasonable
satisfaction of the Executive within 15 days of the Company's receipt of such
notice.
(b) RESIGNATION WITHOUT GOOD REASON. The Executive may voluntarily
terminate his employment hereunder for any reason at any time, including for any
reason that does not constitute Good Reason.
(c) TERMINATION FOR CAUSE. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement, the Executive
shall be considered to be terminated for "Cause" only upon (i) the conviction of
the Executive of a felony under the laws of the United States or any state
thereof, whether or not appeal is taken, (ii) the conviction of the Executive
for a violation of criminal law involving the Company and its business,
(iii) the willful misconduct of the Executive, or the willful or continued
failure by the Executive (except as provided in Section 6(e) hereof) to
substantially perform his duties hereunder, in either case which has a material
adverse effect on the Company; or (iv) the willful fraud or material dishonesty
of the Executive in connection with his performance of duties to the Company.
However, in no event shall the Executive's employment be considered to have been
terminated for "Cause" unless and until the Executive receives a copy of a
resolution adopted by the Board finding that, in the good faith opinion of the
Board, the Executive is guilty of acts or omissions constituting Cause, which
resolution has been duly adopted by an affirmative vote of a majority of the
Board, excluding the Executive and any individual alleged to have participated
in the acts constituting "Cause." Any such vote shall be taken at a meeting of
the Board called and held for such purpose, after reasonable written notice is
provided to the Executive setting forth in reasonable detail the facts and
circumstances claimed to provide a basis of termination for Cause and the
Executive is given an opportunity, together with counsel, to be heard before the
Board. The Executive shall have the opportunity to cure any such acts or
omissions (other than items (i) or (ii) above) within 15 days of the Executive's
receipt of such resolution. The foregoing shall not limit the right of the
Company to suspend the Executive from his day-to-day responsibilities with the
Company pending the completion of such notice and cure procedures.
(d) TERMINATION WITHOUT CAUSE. The Board shall have the right to
terminate the Executive's employment hereunder other than for Cause at any time,
subject to the consequences of such termination as set forth in this Agreement.
(e) DISABILITY. The Executive's employment hereunder shall terminate upon
his Disability. For purposes of this Agreement, "Disability" shall mean the
inability of the Executive to perform his duties to the Company on account of
physical or mental illness or incapacity for a period of four and one-half
consecutive months, or for a period of 135 calendar days, whether or not
consecutive, during any 365 day period, as a result of a condition that is
treated as a total or permanent disability under the long-term
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disability insurance policy of the Company that covers the Executive. The
Executive's employment hereunder shall be deemed terminated by reason of
Disability on the last day of the applicable period; PROVIDED, HOWEVER, in no
event shall the Executive be terminated by reason of Disability unless the
Executive receives written notice from the Company, at least 15 days in advance
of such termination, stating its intention to terminate the Executive for reason
of Disability.
(f) DEATH. The Executive's employment hereunder shall terminate upon his
death.
7. COMPENSATION UPON TERMINATION OF EMPLOYMENT
In the event the Executive's employment by the Company is terminated during
the Agreement Term, the Executive shall be entitled to the severance payments
and benefits specified below:
(a) RESIGNATION FOR GOOD REASON; TERMINATION WITHOUT CAUSE. In the event
the Executive voluntarily terminates his employment hereunder for Good Reason or
is terminated by the Company other than for Cause, death or Disability, the
Company shall pay the Executive and provide him with the following:
(i) ACCRUED RIGHTS. Upon the Executive's termination of
employment, the Company shall pay the Executive a lump-sum amount equal to
the sum of (A) his earned but unpaid Base Salary through the date of
termination, (B) any earned but unpaid Target Bonus Amount for any
completed fiscal year, and (C) any unreimbursed business expenses or other
amounts due to the Executive from the Company as of the date of
termination. The Company shall also pay to the Executive, upon the final
preparation of the Company's audited financial statements for the year in
which termination of employment occurs, an additional lump-sum amount
calculated based on the degrees of achievement of the bonus target
applicable to the Target Bonus Amount for such year, determined in
accordance with the terms of the bonus plan for such year but prorated on a
daily basis to reflect the partial year of service. In addition, the
Company shall provide to the Executive all payments, rights and benefits
due as of the date of termination under the terms of the Company's employee
and fringe benefit plans and programs in which the Executive participated
during the Employment Period (together with the lump-sum payments described
above, the "Accrued Rights").
(ii) SEVERANCE PAYMENT. The Company shall pay the Executive the
greater of (A) the amount equal to the aggregate Base Salary payments (at
the rate in effect at the time of termination) that remain payable to the
Executive from the date of termination until the expiration of the
Agreement Term, or (B) the amount equal to the sum of (1) the annual Base
Salary in effect at the time of termination and (2) the amount of the
annual bonus paid to the Executive pursuant to Section 4(b) hereof for the
fiscal year ended immediately prior to the year of termination. Any amount
payable pursuant to clause (A) or clause (B) above shall be payable
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in four equal consecutive quarterly installments, with the first such
payment to be made within 15 days following the date of termination.
(iii) EQUITY RIGHTS. As of the date of the Executive's termination
under this paragraph (a):
(A) Any unvested portion of the Time-Vested Option shall
become immediately and fully vested and exercisable, and shall remain
exercisable for the full term thereof.
(B) Any unvested portion of the First Premium Option and
the Second Premium Option (together, the "Premium Options") for which
the exercise price per share (as provided in Sections 5(b) and 5(c)
hereof) is less than or equal to the Fair Market Value (as defined
below) per share of the Common Stock as of the date of the Executive's
termination of employment under this paragraph (a) shall become
immediately and fully vested and exercisable. Any shares subject to
the Premium Options that become vested and exercisable in accordance
with the foregoing shall remain exercisable from the date of such
termination of employment until the date that is 90 days following the
date that such shares would otherwise have become vested and
exercisable in accordance with the vesting schedule set forth in
Section 5 hereof in the absence of the foregoing acceleration of
vesting.
For the purposes of this Agreement, the "Fair Market Value" of the Common
Stock as of a given date shall be the average closing sales price for the
Common Stock (or the closing bid, if no sales were reported) as quoted on
the NASDAQ National System for the 15 trading days ending with the
applicable date.
(C) Any unvested portion of the Premium Options for which
the exercise price per share (as provided in Section 5 hereof) is
greater than the Fair Market Value per share of the Common Stock on
the date of the Executive's termination of employment under this
paragraph (a) shall be forfeited; PROVIDED, HOWEVER, that in the event
that the cumulative total return on the Common Stock for the period
beginning on the IPO Date and ending on the date of the Executive's
termination of employment under this paragraph (a) equals or exceeds
the Target Peer Group Return (as defined below), then all of such
unvested portion of the Premium Options that would otherwise have been
forfeited shall instead become immediately and fully vested and
exercisable. Any shares subject to the Premium Options that become
vested and exercisable in accordance with the foregoing shall remain
exercisable from the date of such termination of employment until the
date that is 90 days following the date that such shares would
otherwise have become fully vested in accordance with the vesting
schedule set forth in Section 5 hereof in the absence of the foregoing
acceleration of vesting.
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For the purposes of this Agreement, the "Target Peer Group Return" shall
mean the cumulative total return on common equity (calculated in accordance
with applicable annual proxy disclosure rules) for the bottom quartile of
an index of the eight publicly traded companies most comparable to the
Company, as agreed to by the Executive and the Compensation Committee (and,
if the participants in such index cannot be agreed to, such participants
shall be selected by an independent investment banking firm of national
prominence), assuming the investment of $100 in each vehicle on the IPO
Date and the reinvestment of all dividends.
(iv) CONTINUED BENEFITS. For the 12-month period following the
date of the Executive's termination of employment, the Company shall
continue to provide the Executive and his eligible dependents, at its sole
cost, with the medical, dental, disability and life insurance coverages
that were provided to the Executive immediately prior to termination of
employment, subject to cancellation by the Company in the event that the
Executive obtains coverage under comparable substitute plans of another
employer. Following the expiration of such 12-month period and for the
lifetime of the Executive, the Executive and his eligible dependents shall
be entitled to continue participating (at the Executive's sole expense) in
the Company's group medical, dental, disability and life insurance
coverages, with the Executive's cost to be determined on a basis consistent
with the method for determining employee payments under the health care
continuation requirements of the Consolidated Omnibus Reconciliation Act of
1985 ("COBRA").
(b) RESIGNATION WITHOUT GOOD REASON; TERMINATION FOR CAUSE. In the event
the Executive voluntarily terminates his employment hereunder other than for
Good Reason or is terminated by the Company for Cause, the Company shall pay the
Executive and provide him with any Accrued Rights under Section 7(a)(i). Upon
such termination, (i) the Executive shall not be entitled to receive, and the
Company shall have no obligation to provide, any severance payments under this
Agreement, (ii) the Executive and his dependents shall not be entitled to
receive, the Company shall have no obligation to provide to the Executive or his
dependents, any medical, dental, disability or life insurance coverage except as
required by COBRA or other applicable law or under the terms of the applicable
plans and (iii) all unvested stock options under Section 5 (including, without
limitation, Time-Vested Options and Premium Options) shall terminate immediately
and shall be of no further force or effect.
(c) DISABILITY; DEATH. In the event the Executive's employment hereunder
is terminated by reason of the Executive's Disability or death, the Company
shall pay and provide the Executive (or his legal representative) with the
following:
(i) ACCRUED RIGHTS. The Company shall pay and provide to the
Executive (or his legal representative) any Accrued Rights, including all
disability or life insurance benefits (as applicable).
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(ii) SALARY CONTINUATION. The Company shall provide the Executive
(or his legal representative) with continued payment of the Executive's
then-current Base Salary for a period of 12 months.
(iii) EQUITY RIGHTS. As of the date of the Executive's termination
under this paragraph (c):
(A) Any unvested portion of the Time-Vested Option shall
become immediately and fully vested and exercisable, and shall remain
exercisable for the full term thereof.
(B) Any unvested portion of the Premium Options shall be
forfeited, PROVIDED, HOWEVER, that in the event the Executive's
Disability or death occurs within six months prior to the date that
any portion of the Premium Options are scheduled to vest in accordance
with Section 5 hereof (the "Scheduled Portion") and the Fair Market
Value of the Common Stock as of the date of Disability or death equals
or exceeds the exercise price per share of the shares subject to the
Scheduled Portion, then the Scheduled Portion shall become immediately
and fully vested and exercisable and shall remain exercisable for the
full term thereof.
(iv) CONTINUED BENEFITS. For the 12-month period following the
date of the Executive's Disability or death, the Company shall continue to
provide the Executive and/or his eligible dependents (as applicable), at
its sole cost, with the medical, dental, disability and life insurance
coverages that were provided to the Executive immediately prior to
termination of employment. Following the expiration of such 12-month
period, the Executive shall be entitled to continue group benefit coverages
on the same basis as described in Section 7(a)(iv) hereof.
8. CHANGE OF CONTROL
(a) TERMINATION FOLLOWING CHANGE OF CONTROL. In the event that the
employment of the Executive is terminated during the one-year period immediately
following a Change of Control either (i) by the Executive for Good Reason or
(ii) by the Company other than for Cause, Disability or death, then, in addition
to the payments and benefits provided in Section 7(a)(i), (ii) and (iv) hereof,
any unvested portion of the Time-Vested Options and the Premium Options shall
become immediately and fully vested and exercisable and shall remain exercisable
for the full term thereof. The foregoing rights of the Executive shall apply
whether or not a successor corporation has assumed this Agreement as required
under Section 13(a) hereof.
(b) DEFINITIONS. For purposes of this Section 8, the following terms
shall have the meanings given below:
"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" (a "Person")
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or group of related Persons (a "Group") (as such terms are used in Section
13(d)(3) of the Securities Exchange Act of 1934) 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 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 Securities Exchange Act of 1934) 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 are not Continuing Directors. For purposes
of the foregoing, NationsBanc Capital Corp., State of Wisconsin Pension Board
and their respective affiliates shall be treated as a Group of Related Persons.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the Board who (i) was a member of the Board on the IPO Date or (ii) was
nominated for election or elected to the Board with the approval of (x)
two-thirds of the Continuing Directors who were members of the Board at the time
of such nomination or election or (y) two-thirds of those Directors who were
previously approved by Continuing Directors.
"PRINCIPAL" means Richard W. Weening and Lewis W. Dickey, Jr.
"RELATED PARTY" with respsect 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 benefically 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).
"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).
9. PARACHUTE TAX INDEMNITY
A. (a) If it shall be determined that any amount paid, distributed or
treated as paid or distributed by the Company to or for the Executive's benefit
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such
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excise tax (such excise tax, together with any such interest and penalties,
being hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all federal,
state and local taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(b) All determinations required to be made under this Section 9, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by a nationally recognized accounting firm (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. The Accounting Firm shall be appointed jointly by two other nationally
recognized accounting firms, one of which is appointed by the Executive and one
of which is appointed by the Company for such purpose. The Accounting Firm
shall not be an accounting firm serving as accountant or auditor for the
individual, entity or group effecting the Change of Control. All fees and
expenses of the Accounting Firm shall be borne by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 9, shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to this Section 9 and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
Executive's benefit.
B. (c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later then ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall: (i) give the Company any information reasonably requested by the Company
relating to such claim; (ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation,
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<PAGE>
accepting legal representation with respect to such claim by an attorney
reasonably selected by the Company; (iii) cooperate with the Company in good
faith in order to effectively contest such claim; and (iv) permit the Company
to participate in any proceeding relating to such claim; PROVIDED, HOWEVER, that
the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and expense.
Without limitation on the foregoing provisions of this Section 9, the Company
shall control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis, and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the Executive's taxable year with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority, so long as such action
does not have a material adverse effect on the contest being pursued by the
Company.
C. (d) If, after the Executive's receipt of an amount advanced by the
Company pursuant to this Section 9, the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of this Section 9) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the Executive's receipt of
an amount advanced by the Company pursuant to this Section 9, a determination is
made that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. NO MITIGATION OR OFFSET
The Executive shall not be required to seek other employment or to reduce
any severance benefit payable to him under Section 7 hereof, and, except as
provided in
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Section 7(a)(iv) hereof, no such severance benefit shall be reduced on account
of any compensation received by the Executive from other employment. The
Company's obligation to pay severance benefits under this Agreement shall not be
reduced by any amount owed by the Executive to the Company.
11. TAX WITHHOLDING; METHOD OF PAYMENT
All compensation payable pursuant to this Agreement shall be subject to
reduction by all applicable withholding, social security and other federal,
state and local taxes and deductions. Any lump-sum payments provided for in
this Agreement shall be made in a cash payment, net of any required tax
withholding, no later than the fifth business day following the Executive's date
of termination or other payment date. Any payment required to be made to the
Executive under this Agreement that is not made in a timely manner shall bear
interest until the date of payment at an interest rate equal to 120% of the
monthly compounded applicable federal rate as in effect under Section 1274(d) of
the Code for the month in which payment is required to be made.
12. RESTRICTIVE COVENANTS
A. (a) COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION. The
Executive acknowledges that during the course of his affiliation with the
Company he has or will have access to and knowledge of certain information and
data which the Company considers confidential and the release of such
information or data to unauthorized persons would be extremely detrimental to
the Company. As a consequence, the Executive hereby agrees and acknowledges
that he owes a duty to the Company not to disclose, and agrees that without the
prior written consent of the Company, at any time, either during or after his
employment with the Company, he will not communicate, publish or disclose, to
any person anywhere or use, any Confidential Information (as hereinafter
defined), except as may be necessary or appropriate to conduct his duties
hereunder, provided the Executive is acting in good faith and in the best
interest of the Company, or as may be required by law or judicial process. The
Executive will use his best efforts at all times to hold in confidence and to
safeguard any Confidential Information from falling into the hands of any
unauthorized person and, in particular, will not permit any Confidential
Information to be read, duplicated or copied. The Executive will return to the
Company all Confidential Information in the Executive's possession or under the
Executive's control whenever the Company shall so request, and in any event will
promptly return all such Confidential Information if the Executive's
relationship with the Company is terminated for any or no reason and will not
retain any copies thereof. For purposes hereof the term "Confidential
Information" shall mean any information or data used by or belonging or relating
to the Company or any of its subsidiaries or Affiliates that is not known
generally to the industry in which the Company is or may be engaged and which
the Company maintains on a confidential basis, including, without limitation,
any and all trade secrets, proprietary data and information relating to the
Company's business and products, price list, customer lists, processes,
procedures or standards, know-how, manuals, business strategies, records,
drawings, specifications, designed, financial information, whether or not
reduced to writing, or information or data which the Company advises the
Executive should be treated as confidential information.
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<PAGE>
B. (b) COVENANT NOT TO COMPETE. The Executive acknowledges that he
has established and will continue to establish favorable relations with the
customers, clients and accounts of the Company and will have access to trade
secrets of the Company. Therefore, in consideration of such relations and to
further protect trade secrets, directly or indirectly, of the Company, the
Executive agrees that during the term of his employment by the Company and for a
period of eighteen months from the date of termination of the Executive, except
that such eighteen month period shall not apply in the event of termination of
employment (i) by the Company other than for Cause, (ii) by the Executive for
Good Reason or (iii) by the Company or the Executive for any reason within one
year following a Change of Control, the Executive will not, directly or
indirectly, without the express written consent of the Company:
(i) own or have any interest in or act as an officer, director,
partner, principal, employee, agent, representative, consultant or
independent contractor of, or in any way assist in, any business located in
or doing business in the United States of America which is engaged,
directly or indirectly, in the radio broadcast properties business in a
market ranked in a Metro Survey Area ("MSA"), below MSA 100 (as listed in
the then-current Arbitron Radio Metro and Television Market Population
Estimates published as of the date of the Executive's termination of
employment) (the "Competitive Businesses");
(ii) solicit clients, customers or accounts of the Company for, on
behalf of or otherwise related to any such Competitive Businesses or any
products related thereto; or
(iii) solicit or in any manner influence or encourage any person who
is or shall be in the employ or service of the Company to leave such employ
or service for any other employment opportunity.
Notwithstanding the foregoing, if any court determines that the covenant not to
compete, or any part thereof, is unenforceable because of the duration of such
provision or the geographic area or scope covered thereby, such court shall have
the power to reduce the duration, area or scope of such provisions and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
C. (c) SPECIFIC PERFORMANCE. Recognizing the irreparable damage will
result to the Company in the event of the breach or threatened breach of any of
the foregoing covenants and assurances by the Executive contained in paragraphs
(a) or (b) hereof, and that the Company's remedies at law for any such breach or
threatened breach will be inadequate, the Company and its successors and
assigns, in addition to such other remedies which may be available to them,
shall be entitled to an injunction, including a mandatory injunction, to be
issued by any court of competent jurisdiction ordering compliance with this
Agreement or enjoining and restraining the Executive, and each and every person,
firm or Company acting in concert or participation with him, from the
continuation of such breach and, in addition thereto, he shall pay to the
Company all ascertainable damages, including costs and reasonable attorneys'
fees sustained by the Company by reason of the breach or threatened breach of
said covenants and assurances.
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The obligations of the Executive and the rights of the Company, its successors
and assigns under Section 12 of this Agreement shall survive the termination of
this Agreement. The covenants and obligations of the Executive set forth in
Section 12 hereof is in addition to and not in lieu of or exclusive of any other
obligations and duties of the Executive to the Company, whether express or
implied in fact or in law.
D. (d) POTENTIAL UNENFORCEABILITY OF ANY PROVISION. If a final
judicial determination is made that any provision of this Agreement is an
unenforceable restriction against the Executive, the provisions hereof shall be
rendered void only to the extent that such judicial determination finds such
provisions unenforceable, and such unenforceable provisions shall automatically
be reconstituted and become a part of this Agreement, effective as of the date
first written above, to the maximum extent in favor of the Company that is
lawfully enforceable. A judicial determination that any provision of this
Agreement is unenforceable shall in no instance render the entire Agreement
unenforceable, but rather the Agreement will continue in full force and effect
absent any unenforceable provision to the maximum extent permitted by law.
13. SUCCESSORS
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and any person, firm, corporation or other entity
which succeeds to all or substantially all of the business, assets or property
of the Company. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, assets or property of the Company, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business, assets or
property as aforesaid which executes and delivers an agreement provided for in
this Section 13 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law. Notwithstanding the foregoing provisions
of this Section 13(a), this Agreement shall not be assignable by the Company
without the prior written consent of the Executive.
(b) This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are due
and payable to him hereunder, all such amounts, unless otherwise provided
herein, shall be paid to the Executive's designated beneficiary or, if there be
no such designated beneficiary, to the legal representatives of the Executive's
estate.
14. NO ASSIGNMENT
Except as to withholding of any tax under the laws of the United States or
any other country, state or locality, neither this Agreement nor any right or
interest hereunder nor any amount payable at any time hereunder shall be subject
in any manner to
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alienation, sale, transfer, assignment, pledge, attachment, or other legal
process, or encumbrance of any kind by the Executive or the beneficiaries of the
Executive or by his legal representatives without the Company's prior written
consent, nor shall there be any right of set-off or counterclaim in respect of
any debts or liabilities of the Executive, his beneficiaries or legal
representatives, except in the case of termination of employment for Cause;
PROVIDED, HOWEVER, that nothing in this Section 14 shall preclude the Executive
from designating a beneficiary to receive any benefit payable on his death, or
the legal representatives of the Executive from assigning any rights hereunder
to the person or persons entitled thereto under his will or, in case of
intestacy, to the person or persons entitled thereto under the laws of intestacy
applicable to his estate.
15. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and, except as specifically provided
herein, cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of
this Agreement shall not be binding unless in writing and signed by the Company
and the Executive. Notwithstanding the foregoing, the parties hereto shall
enter into stock option agreements in respect of the Time-Vested Option and the
Premium Options, setting forth terms and conditions consistent with the
provisions of this Agreement and such other terms and conditions approved by the
Compensation Committee and consistent with the Company's Executive Stock
Incentive Plan.
16. SEVERABILITY
In the event that any provision of this Agreement is determined to be invalid or
unenforceable, the remaining terms and conditions of this Agreement shall be
unaffected and shall remain in full force and effect, and any such determination
of invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement.
17. NOTICES
All notices which may be necessary or proper for either the Company or the
Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or certified mail, return receipt requested, or by
air courier, to the Executive at:
Mr. Lewis W. Dickey, Jr.
359 Blackland Road, N.W.
Atlanta, Georgia 30342
with a copy to:
Paul J. Wessel, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
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and shall be sent in the manner described above to the Secretary of the Company
at the Company's principal executives offices at 330 East Kilbourn Avenue,
Milwaukee, Wisconsin 53202 or delivered by hand to the Secretary of the Company,
and shall be deemed given when sent, provided that any notice required under
Section 6 hereof or notice given pursuant to Section 2 hereof shall be deemed
given only when received. Any party may by like notice to the other party
change the address at which he or they are to receive notices hereunder.
18. GOVERNING LAW
This Agreement shall be governed by and enforceable in accordance with the
laws of the State of Wisconsin, without giving effect to the principles of
conflict of laws thereof.
19. ARBITRATION
Any controversy or claim arising out of, or related to, this Agreement, or
the breach thereof, shall be settled by binding arbitration in the City of
Milwaukee, Wisconsin, in accordance with the rules then obtaining of the
American Arbitration Association, and the arbitrator's decision shall be binding
and final, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
20. LEGAL FEES AND EXPENSES
To induce the Executive to execute this Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement should the Company fail to perform
its obligations hereunder, the Company shall pay and be solely responsible for
any attorneys' fees and expenses and court costs incurred by the Executive as a
result of a claim that the Company has breached or otherwise failed to perform
this Agreement or any provision hereof to be performed by the Company,
regardless of which party, if any, prevails in the contest.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
-----------------------------
LEWIS W. DICKEY, JR.
CUMULUS MEDIA INC.
------------------------------
By:
Title:
<PAGE>
APPENDIX A
ANNUAL BONUS
1. BCF TARGETS. The Executive's annual bonus under Section 4(b) shall be
based on the Company's "as reported budgeted cash flow" ("BCF") targets for 1998
and 1999. The initial BCF targets shall be as follows:
YEAR BCF TARGET
---- ----------
1998 $23.2 million
1999 $52 million
These targets are based on projections for the broadcast properties operated by
the Company as of the Effective Date and the pending acquisitions of broadcast
properties identified on Schedule A-1 hereto.
2. ADJUSTMENTS. The Compensation Committee, in consultation with the
Executive, shall adjust the BCF targets as appropriate to reflect extraordinary
or non-recurring events beyond the control of the Executive that would
materially impact the calculation of BCF for a year. Such events shall include,
but shall not be limited to, acquisitions or dispositions with respect to a year
that were not anticipated at the time the BCF targets were set, and the
completion of any pending acquisition identified on Schedule A-1 hereto on a
date later than the date set forth in such Schedule.
3. PAYMENT LEVELS. The amount of the Executive's annual bonus payment
shall be determined in accordance with the following schedule, with
interpolation of results for intermediate amounts. The Target Bonus Amount, as
set forth in Section 4(b), is 50% of Base Salary.
ACTUAL BCF BONUS PAYMENT
---------- -------------
85% of BCF target 50% of Target Bonus Amount
100% of BCF target 100% of Target Bonus Amount
115% of BCF target 150% of Target Bonus Amount
4. MEASUREMENT OF RESULTS. All calculations with respect to the actual
BCF achieved for a year shall be made in accordance with generally accepted
accounting principals. Such calculations shall be reviewed and approved by the
Compensation Committee, in consultation with the Executive, and compared to the
applicable BCF target, prior to payment of the bonus amount.
<PAGE>
SCHEDULE A-1
------------
PENDING ACQUISITIONS NOT ALREADY OPERATED UNDER LMA AGREEMENT
-------------------------------------------------------------
AS OF JUNE 25, 1998
-------------------
MARKET PENDING ACQUISITION
- ------ -------------------
Augusta, GA Savannah Valley (WZNY-FM)
Augusta-Waterville, ME Tryon-Seacoast
Augusta-Waterville, ME Mountain Wireless
Bangor, ME Castle Broadcasting
Bismarck, ND James Ingstad
Chattanooga, TN Wicks Broadcasting
Dubuque, IA Communications Properties
Grand Junction, CO Jan-Di Broadcasting
Grand Junction, CO Mustang Broadcasting
Kalamazoo, MI Crystal Radio
Lake Charles, LA Louisiana Media Interests
Savannah, GA Ocmulgee Broadcasting
So. MN/No. IA James Ingstad
Topeka, KS Midland Broadcasters
